I- 24

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

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; new service offerings; revenue growth and subscriber trends at SIRIUS XM Holdings, Inc. ("SIRIUS XM"); the recoverability of our goodwill and other long-lived assets; the performance of our equity affiliates; our projected sources and uses of cash; the proposed spin-off of 麻豆app Broadband Corporation; SIRIUS XM's stock repurchase program; and the anticipated non-material impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors (as they relate to our consolidated subsidiaries and equity affiliates) that could cause actual results or events to differ materially from those anticipated:
•
consumer demand for our products and services and our ability to adapt to changes in demand;
•
competitor responses to our products and services;
•
uncertainties inherent in the development and integration of new business lines and business strategies;
•
uncertainties associated with product and service development and market acceptance, including the development and provision of programming for satellite radio and telecommunications technologies;
•
significant dependence of one of our consolidated businesses upon automakers;
•
our ability to attract and retain subscribers at a profitable level in the future is uncertain;
•
our future financial performance, including availability, terms and deployment of capital;
•
our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;
•
the ability of suppliers and vendors to deliver products, equipment, software and services;
•
interruption or failure of our information technology and communication systems, including the failure of our satellites, could negatively impact our results and brand;
•
royalties for music rights have increased and there can be no assurance they will not continue to increase in the future;
•
the outcome of any pending or threatened litigation;
•
availability of qualified personnel;
•
changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;
•
changes in the nature of key strategic relationships with partners, vendors and joint venturers;
•
general economic and business conditions and industry trends including the current economic downturn;
•
consumer spending levels, including the availability and amount of individual consumer debt;
•
rapid technological changes;
•
our indebtedness could adversely affect the operations and could limit the ability of our subsidiaries to react to changes in the economy or our industry;
•
failure to protect the security of personal information about our customers, subjecting us to potentially costly government enforcement actions or private litigation and reputational damage;
•
capital spending for the acquisition and/or development of telecommunications networks and services;
•
the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate; and
•
threatened terrorist attacks and ongoing military action in the Middle East and other parts of the world and political unrest in international markets.
For additional risk factors, please see Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2013. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.


I- 25

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2013.
Explanatory Note
On January 18, 2013, 麻豆app settled a block transaction with a financial institution taking possession of an additional 50,000,000 common shares of SIRIUS XM as well as converting its remaining SIRIUS XM Convertible Perpetual Preferred Stock, Series B-1, par value $0.001 per share, into 1,293,509,076 shares of SIRIUS XM Common Stock. As a result of these two transactions 麻豆app holds more than 50% of the capital stock of SIRIUS XM entitled to vote on any matter, including the election of directors. This resulted in the application of purchase accounting and the consolidation of SIRIUS XM in the first quarter of 2013 and the recognition of a $7.5 billion gain on the transaction. We note that our investment in SIRIUS XM, in periods prior to our acquisition of a controlling interest, was treated as an equity method affiliate.
Overview
We own controlling and non-controlling interests in a broad range of media, communications and entertainment companies. Our most significant operating subsidiary, which is also our principal reportable segment, is SIRIUS XM. SIRIUS XM 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 their proprietary satellite radio systems. Subscribers can also receive their music and other channels, plus features such as SiriusXM On Demand and MySXM, over the internet, including through applications for mobile devices. SIRIUS XM is also a leader in providing connected vehicle applications and services. Its connected vehicle services are designed to enhance the safety, security and driving experience for vehicle owners while providing marketing and operational benefits to automakers and their dealers.
Our "Corporate and Other" category includes our other consolidated subsidiaries, including the Atlanta National League Baseball Club, Inc. ("ANLBC"), TruePosition, Inc. ("TruePosition") and corporate expenses. ANLBC owns the Atlanta Braves, a major league baseball club, as well as certain of the Atlanta Braves' minor league clubs.
In addition to the foregoing businesses, we hold an ownership interest in Charter Communications, Inc. ("Charter"), Live Nation Entertainment, Inc. ("Live Nation") and through SIRIUS XM, SIRIUS XM Canada, which we account for as equity method investments; and we continue to maintain investments and related financial instruments in public companies such as Time Warner, Inc., Time Warner Cable, Inc. and Viacom, Inc. which are accounted for at their respective fair market values and are included in corporate and other.


I- 26


Results of Operations—Consolidated
General.    We provide in the tables below information regarding our Consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our reportable segments. The "corporate and other" category consists of those assets or businesses which do not qualify as a separate reportable segment. For a more detailed discussion and analysis of the financial results of our principal reportable segment see "Results of Operations—Business" below.
Consolidated Operating Results
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
amounts in millions
Revenue
 
 
 
 
 
 
 
SIRIUS XM
$
1,025

 
938

 
2,013

 
1,667

Corporate and other
135

 
140

 
158

 
200

 
$
1,160

 
1,078

 
2,171

 
1,867

Adjusted OIBDA
 
 
 
 
 
 
 
SIRIUS XM
$
369

 
344

 
704

 
603

Corporate and other
3

 
18

 
(38
)
 
21

 
$
372

 
362

 
666

 
624

Operating Income (Loss)
 
 
 
 
 
 
 
SIRIUS XM
$
255

 
233

 
474

 
404

Corporate and other
(24
)
 
(7
)
 
(88
)
 
(27
)
 
$
231

 
226

 
386

 
377


Revenue.    Our consolidated revenue increased $82 million and $304 million for the three and six months ended June 30, 2014, respectively, as compared to the corresponding period in the prior year. The increase was primarily due to revenue growth at SIRIUS XM (approximately $195 million) and a full six months of consolidated SIRIUS XM revenue ($166 million) which was partially offset by reduced revenue at TruePosition and no revenue earned during the three and six months ended June 30, 2014 related to a contractual arrangement with CNBC that was held by a subsidiary exchanged in the fourth quarter of 2013 with Comcast. TruePosition revenue decreased $2 million and $9 million for the three and six months ended June 30, 2014, respectively, as compared to the corresponding prior year periods due primarily to a decrease in international and domestic hardware and software sales offset slightly by revenue from the acquisition of Skyhook. ANLBC revenue increased $6 million and decreased $10 million for the three and six months ended June 30, 2014, respectively, as compared to the same periods in the prior year. The three month period increase was due to slightly higher broadcast revenue period over period and an increase in national revenue from Major League Baseball. The difference for the six month period was primarily due to a one time recognition of revenue from a settlement of historical broadcast rights issues in the three months ended March 31, 2013. See "Results of Operations—Business" below for a more complete discussion of the results of operations of SIRIUS XM, including a discussion of the SIRIUS XM results on a comparative basis.

Adjusted OIBDA.    We define Adjusted OIBDA as revenue less operating expenses and selling, general and administrative ("SG&A") expenses excluding all stock-based compensation. Our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses. We believe this is an important indicator of the operational strength and performance of our businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation and amortization, stock-based compensation, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant


I- 27

to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. See note 10 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to Earnings (loss) from continuing operations before income taxes.
Consolidated Adjusted OIBDA increased $10 million and $42 million for the three and six months ended June 30, 2014, respectively, as compared to the corresponding periods in the prior year. The increase was the result of a full six months of consolidated results for SIRIUS XM and increased operating efficiencies at SIRIUS XM offset by reduced Adjusted OIBDA results at ANLBC, TruePosition and the impacts of a transaction in the fourth quarter of 2013 related to a revenue sharing agreement discussed above. The Adjusted OIBDA decrease for ANLBC was primarily the result of increased player payroll due to season ending injuries at key positions which required additional players to be added to the roster and required the recognition of the full season salary of those individuals injured. See "Results of Operations—Business" below for a more complete discussion of the results of operations of SIRIUS XM.

Stock-based compensation.    Stock-based compensation includes compensation related to (1) options and stock appreciation rights ("SARs") for shares of our common stock that are granted to certain of our officers and employees, (2) phantom stock appreciation rights ("PSARs") granted to officers and employees of certain of our subsidiaries pursuant to private equity plans and (3) amortization of restricted stock grants.
We recorded $98 million and $89 million of stock compensation expense for the six months ended June 30, 2014 and 2013, respectively. The increase in stock compensation expense in 2014 relates to the additional stock-based compensation from SIRIUS XM. As of June 30, 2014, the total unrecognized compensation cost related to unvested 麻豆app equity awards was approximately $43 million. Such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 1.6 years. Additionally, as of June 30, 2014, the total unrecognized compensation cost related to unvested SIRIUS XM stock options was $239 million. The SIRIUS XM unrecognized compensation cost will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.2 years.
Operating income.    Our consolidated operating income increased $5 million and $9 million for the three and six months ended June 30, 2014, respectively, as compared to the corresponding period in the prior year. The increase is primarily the result of increased operating results at SIRIUS XM offset by increased stock compensation expense, amortization from purchase accounting and the other subsidiary activity discussed above in the Adjusted OIBDA section. See "Results of Operations—Business" below for a more complete discussion of the results of operations of SIRIUS XM.
Other Income and Expense
Components of Other Income (Expense) are presented in the table below.
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
amounts in millions
Other income (expense):
 
 
 
 
 
 
 
Interest expense
$
(62
)
 
(28
)
 
(115
)
 
(39
)
Share of earnings (losses) of affiliates
(12
)
 
(21
)
 
(47
)
 
(4
)
Realized and unrealized gains (losses) on financial instruments, net
25

 
61

 
(40
)
 
158

Gains (losses) on transactions, net
1

 
2

 
2

 
7,481

Other, net
(2
)
 
12

 
(40
)
 
19

 
$
(50
)
 
26

 
(240
)
 
7,615

Interest expense.    Consolidated interest expense increased $34 million and $76 million for the three and six months ended June 30, 2014, respectively, as compared to the corresponding periods in the prior year. The increase was primarily due to the inclusion of SIRIUS XM's debt on a full year to date basis, an overall increase in the average


I- 28

debt balance outstanding during the period and a reduction in premium amortization as a result of debt refinancing by SIRIUS XM in the prior period.
Share of earnings (losses) of affiliates.    The following table presents our share of earnings (losses) of affiliates:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
amounts in millions
Charter
$
(25
)
 
(37
)
 
(53
)
 
(37
)
SIRIUS XM
—

 
—

 
—

 
8

Live Nation
11

 
11

 
(3
)
 
(8
)
SIRIUS XM Canada
—

 
—

 
1

 
1

Other
2

 
5

 
8

 
32

 
$
(12
)
 
(21
)
 
(47
)
 
(4
)

We acquired a 27% interest in Charter during the three months ended June 30, 2013 for approximately $2.6 billion. Therefore, 麻豆app's share of Charter's losses in 2014 are for the full year as opposed to just one quarter in the prior year. Charter's results have improved period over period, primarily due to an increase in revenue as a result of an increase in customers from the prior year, partially offset by increases in programming costs and customer service costs. We acquired a controlling interest in SIRIUS XM on January 18, 2013 resulting in share of earnings for only the first seventeen days of January 2013.
Realized and unrealized gains (losses) on financial instruments.    Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
amounts in millions
Fair Value Option Securities
$
78

 
54

 
63

 
136

Cash convertible notes
(82
)
 
—

 
(23
)
 
—

Other derivatives
29

 
7

 
(80
)
 
22

 
$
25

 
61

 
(40
)
 
158


麻豆app issued $1 billion of cash convertible notes in October 2013 which are accounted for at fair value, as elected by 麻豆app at the issuance of the notes.
麻豆app obtained Charter warrants in the second quarter of 2013. These warrants are marked to fair value based on the trading price of Charter and other observable market data as the significant inputs. The change in fair value are recorded as part of other derivatives in the realized and unrealized gains (losses) on financial instruments line item.
Gains (losses) on transactions, net. During January 2013, we acquired a controlling interest in SIRIUS XM which resulted in the application of purchase accounting and the consolidation of SIRIUS XM in the first quarter of 2013. 麻豆app recorded a gain in the three months ended June 30, 2013 of approximately $7.5 billion associated with application of purchase accounting based on the difference between fair value and the carrying value of the ownership interest 麻豆app had in SIRIUS XM prior to the acquisition of the controlling interest.
Other, net. Other, net loss for the three months ended June 30, 2014 is primarily the impact of stock issuances at Charter below 麻豆app's cost basis (primarily from stock option exercises).
Income taxes.    Our income taxes for the three and six months ended June 30, 2014 was an expense of $75 million and a benefit of $32 million, respectively. The primary reason for the tax benefit for the six months ended


I- 29

June 30, 2014 was the liquidation of a consolidated partnership investment and the related reduction in the tax basis of the partnership’s assets, which was not recognized for financial statement purposes.
Net earnings.    We had net earnings of $106 million and $178 million for the three and six months ended June 30, 2014 and net earnings of $152 million and $8,256 million for the three and six months ended June 30, 2013. The change in net earnings was the result of the above-described fluctuations in our revenue, expenses and other gains and losses.
Material Changes in Financial Condition
As of June 30, 2014, substantially all of our cash and cash equivalents were invested in U.S. Treasury securities, other government agencies, AAA rated money market funds and other highly rated financial and corporate debt instruments.
The following are potential sources of liquidity: available cash balances, cash generated by the operating activities of our subsidiaries (to the extent such cash exceeds the working capital needs of the subsidiaries and is not otherwise restricted), proceeds from asset sales, monetization of our public investment portfolio (including derivatives), debt borrowings and equity issuances, and dividend and interest receipts.
麻豆app does not have a debt rating subsequent to the Spin-Off.
As of June 30, 2014 麻豆app's liquidity position consisted of the following:
 
Cash and Cash Equivalents
 
Unencumbered Fair Value Option AFS Securities
 
amounts in millions
Corporate and other
$
396

 
332

SIRIUS XM
$
170

 
—

To the extent 麻豆app recognizes any taxable gains from the sale of assets, we may incur tax expense and be required to make tax payments, thereby reducing any cash proceeds. 麻豆app has a controlling interest in SIRIUS XM which has significant cash and cash provided by operating activities, although due to SIRIUS XM being a separate public company and the significant noncontrolling interest, we do not have ready access to their cash.
 
 
Six months ended
June 30,
 
 
2014
 
2013
Cash Flow Information
amounts in millions
 
Net cash provided (used) by operating activities
$
564

 
607

 
Net cash provided (used) by investing activities
$
(269
)
 
(2,205
)
 
Net cash provided (used) by financing activities
$
(817
)
 
732

麻豆app's primary use of cash during the six months ended June 30, 2014 (excluding SIRIUS XM's uses of cash) was the repayment of $670 million which was a portion of the outstanding margin loans through the use of cash on hand and the sale of the Barnes & Noble investment during the period. SIRIUS XM's primary uses of cash were the repayment of a portion of their outstanding credit facility and the repurchase of outstanding SIRIUS XM common stock. The SIRIUS XM uses of cash were funded by cash provided by operating activities, the issuance of additional senior notes in the second quarter of 2014 and cash on hand.
The projected uses of 麻豆app's cash are the investment in existing or new businesses, debt service, capital expenditures and the potential buyback of common stock under the approved share buyback program as well as further repayment of the margin loans. 麻豆app expects to fund its projected uses of cash with cash on hand, cash from operations, and borrowing capacity under margin loans. SIRIUS XM's uses of cash are expected to be the repayment of certain outstanding debt and the repurchases of its common stock in accordance with its approved share buyback program.


I- 30

麻豆app expects SIRIUS XM to fund its projected uses of cash with cash on hand, cash from operations and the existing credit facility. 麻豆app may be required to make net payments of income tax liabilities to settle items under discussion with tax authorities.
Results of Operations—Business
SIRIUS XM Holdings, Inc. 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 their proprietary satellite radio systems. Subscribers can also receive their music and other channels, plus features such as SiriusXM On Demand and MySXM, over the internet, including through applications for mobile devices. SIRIUS XM is also a leader in providing connected vehicle applications and services. Its connected vehicle services are designed to enhance the safety, security and driving experience for vehicle owners while providing marketing and operational benefits to automakers and their dealers. Subscribers to its connected vehicle services are not included in the subscriber count below. SIRIUS XM has agreements with every major automaker ("OEMs") to offer satellite radios in their vehicles from which SIRIUS XM acquires the majority of its subscribers. SIRIUS XM also acquires subscribers through the marketing to owners of factory-installed satellite radios that are not currently subscribing to SIRIUS XM services. Additionally, SIRIUS XM distributes its radios through retail locations nationwide and through its website. Satellite radio services are also offered to customers of certain daily rental car companies. SIRIUS XM's primary source of revenue is subscription fees, with most of its customers subscribing on an annual, semi-annual, quarterly or monthly basis. SIRIUS XM offers discounts for prepaid and longer term subscription plans as well as discounts for multiple subscriptions. SIRIUS XM also derives revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios, components and accessories, and other ancillary services, such as weather, data, traffic, and Backseat TV services. SIRIUS XM is a separate publicly traded company and additional information about SIRIUS XM can be obtained through its website and public filings.

As of June 30, 2014, SIRIUS XM had 26.3 million subscribers of which 21.6 million were self-pay subscribers and 4.7 million were paid promotional subscribers. These subscriber totals include subscribers under regular pricing plans; discounted pricing plans; subscribers that have prepaid, including payments either made or due from automakers for subscriptions included in the sale or lease price of a vehicle; subscribers to SIRIUS XM Internet services who do not also have satellite radio subscriptions; and certain subscribers to SIRIUS XM's other ancillary services.

We acquired a controlling interest in SIRIUS XM on January 18, 2013 and applied purchase accounting and consolidated the results of SIRIUS XM from that date. Previous to the acquisition of our controlling interest, we maintained an investment in SIRIUS XM accounted for using the equity method. For comparison purposes we are presenting the stand alone results of SIRIUS XM prior to any purchase accounting adjustments in the current year for a discussion of the operations of SIRIUS XM. For the three and six months ended June 30, 2014 and 2013, see the reconciliation of the results reported by SIRIUS XM to the results reported by 麻豆app included below. As of June 30, 2014, there is an approximate 45% noncontrolling interest in SIRIUS XM, and the net earnings (loss) of SIRIUS XM attributable to such noncontrolling interest is eliminated through the noncontrolling interest line item in the condensed consolidated statement of operations.



I- 31

SIRIUS XM's stand alone operating results were as follows:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2014 (1)
 
2013 (1)
 
2014 (1)
 
2013 (1)
 
amounts in millions
Subscriber revenue
$
879

 
815

 
1,730

 
1,598

Other revenue
156

 
126

 
303

 
240

    Total revenue
1,035

 
941

 
2,033

 
1,838

Operating expenses (excluding stock-based compensation included below):
 
 
 
 
    Cost of subscriber services
(389
)
 
(329
)
 
(776
)
 
(656
)
    Subscriber acquisition costs
(124
)
 
(130
)
 
(247
)
 
(246
)
    Other operating expenses
(14
)
 
(14
)
 
(28
)
 
(27
)
    Selling, general and administrative expenses
(139
)
 
(118
)
 
(279
)
 
(230
)
       Adjusted OIBDA
369

 
350

 
703

 
679

Stock-based compensation
(18
)
 
(15
)
 
(36
)
 
(30
)
Depreciation and amortization
(67
)
 
(67
)
 
(135
)
 
(134
)
       Operating income
$
284

 
268

 
532

 
515


(1)
See the reconciliation of the results reported by SIRIUS XM to the results reported by 麻豆app included below.

Subscriber revenue includes subscription, activation and other fees. Subscriber revenue increased approximately 8% for the three and six months ended June 30, 2014 as compared to the corresponding periods in the prior year. The increase was primarily attributable to an increase in daily weighted average number of subscribers, the inclusion of subscription revenue from the recently acquired connected vehicle business and an increase in certain subscription rates that began in January 2014. The increase was partially offset by an increasing number of lifetime plans that have reached full recognition and a change in an agreement with an automaker.

Other revenue includes advertising revenue, royalties, equipment revenue and other ancillary revenue. For the three and six months ended June 30, 2014, other revenue increased approximately 24% and 26%, respectively, as compared to the corresponding prior periods. The most significant change in other revenue was the result of an increase in the number of subscribers who pay royalty fees as a cost pass through. Additionally, equipment revenue increased due to higher sales to distributors and increased OEM production royalties.

Cost of subscriber services includes revenue share and royalties, programming and content costs, customer service and billing expenses and other ancillary costs associated with providing the satellite radio service. The cost of subscriber service increased approximately 18% for the three and six months ended June 30, 2014 as compared to the corresponding periods in the prior year. The increases were primarily the result of increased revenue share and royalties which were higher due to the full amortization of certain deferred credits on executory contracts from the merger of Sirius and XM and, in part, to increased revenue from increased subscribers and a higher royalty rate. Programming and content costs were relatively flat to slightly down, as compared to the prior periods, and decreased as a percentage of revenue for the three and six months ended June 30, 2014. Additionally, customer service and billing expense increased 12% and 13% for the three and six months ended June 30, 2014, as compared to the corresponding periods in the prior year, but remained flat as a percentage of revenue. The increase was the result of added costs associated with the connected vehicle business and higher subscriber volume which resulted in increased subscriber contacts.

Other operating expense includes engineering, design and development costs. For the three months ended June 30, 2014 other operating expense remained relatively flat as a percentage of total revenue. The increase was driven primarily by the increased costs associated with the connected vehicle business and, to a lesser extent, product development costs related to enhanced subscriber features and functionality for the SIRIUS XM service.

Subscriber acquisition costs include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for


I- 32

certain radios and chip sets; commissions paid to automakers and retailers; product warranty obligations; freight; and provisions for inventory allowances attributable to inventory consumed in OEM and retail distribution channels. The majority of subscriber acquisition costs are incurred and expensed in advance of, or concurrent with, acquiring a subscriber. For the three and six months ended June 30, 2014, subscriber acquisition costs decreased approximately 5% and were relatively flat, respectively, and decreased as a percentage of subscriber revenue. The overall decrease in cost was primarily a result of changes related to a contract with an automaker and improved OEM subsidy rates per vehicle. Additionally, prior periods included certain purchase accounting adjustments that benefited those periods which were fully amortized in the prior year. For the six months ended June 30, 2014 increases in amortization and satellite radio installations were slightly greater than the decreases in costs related to a contract with an automaker and improved OEM subsidy rates per vehicle.

Selling, general and administrative expense includes costs of advertising, media and production, including promotional events and sponsorship, executive management, rent and occupancy costs, finance, legal, human resources, information technology and insurance costs. For the three and six months ended June 30, 2014, selling, general and administrative expense increased $21 million and $49 million, respectively, as compared to the corresponding periods in the prior year. The increase in costs was primarily due to additional subscriber communications and retention programs associated with a greater number of subscribers and promotional trials, additional personnel costs associated with the connected vehicle business and increased legal fees, consulting and facilities. Additionally, prior periods included certain purchase accounting adjustments that benefited those periods which were fully amortized in the prior year.

The following is a reconciliation of the results reported by SIRIUS XM, used for comparison purposes above to understand their operations, to the results reported by 麻豆app:
 
Three months ended June 30, 2014
 
Six months ended June 30, 2014
 
As reported by SIRIUS XM
 
Purchase Accounting Adjustments
 
As reported by 麻豆app
 
As reported by SIRIUS XM
 
Purchase Accounting Adjustments
 
As reported by 麻豆app
 
amounts in millions
Subscriber revenue
$
879

 
(10
)
 
869

 
1,730

 
(20
)
 
1,710

Other revenue
156

 
—

 
156

 
303

 
—

 
303

      Total revenue
1,035

 
(10
)
 
1,025

 
2,033

 
(20
)
 
2,013

Operating expenses (excluding stock-based compensation included below):
    Cost of subscriber services
(389
)
 
10

 
(379
)
 
(776
)
 
21

 
(755
)
    Subscriber acquisition costs
(124
)
 
—

 
(124
)
 
(247
)
 
—

 
(247
)
Other operating expenses
(14
)
 
—

 
(14
)
 
(28
)
 
—

 
(28
)
    Selling, general and administrative expenses
(139
)
 
—

 
(139
)
 
(279
)
 
—

 
(279
)
Adjusted OIBDA
369

 
—

 
369

 
703

 
1

 
704

Stock-based compensation
(18
)
 
(17
)
 
(35
)
 
(36
)
 
(35
)
 
(71
)
Depreciation and amortization
(67
)
 
(12
)
 
(79
)
 
(135
)
 
(24
)
 
(159
)
Operating income
$
284

 
(29
)
 
255

 
532


(58
)

474




I- 33

 
Three months ended June 30, 2013
 
Six months ended June 30, 2013
 
As reported by SIRIUS XM
 
Adjustment for Purchase Accounting
 
As reported by 麻豆app
 
As reported by SIRIUS XM
 
Adjustment for Purchase Accounting
 
Elimination for Equity Method Accounting (17 days)
 
As reported by 麻豆app
 
amounts in millions
Subscriber revenue
$
815

 
(2
)
 
813

 
1,598

 
(4
)
 
(146
)
 
1,448

Other revenue
126

 
(1
)
 
125

 
240

 
(1
)
 
(20
)
 
219

      Total revenue
941

 
(3
)
 
938

 
1,838

 
(5
)
 
(166
)
 
1,667

Operating expenses (excluding stock-based compensation included below):
    Cost of subscriber services
(329
)
 
2

 
(327
)
 
(656
)
 
3

 
60

 
(593
)
    Subscriber acquisition costs
(130
)
 
(6
)
 
(136
)
 
(246
)
 
(10
)
 
20

 
(236
)
Other operating expenses
(14
)
 
2

 
(12
)
 
(27
)
 
—

 
3

 
(24
)
    Selling, general and administrative expenses
(118
)
 
(1
)
 
(119
)
 
(230
)
 
(3
)
 
22

 
(211
)
Adjusted OIBDA
350

 
(6
)
 
344

 
679

 
(15
)
 
(61
)
 
603

Stock-based compensation
(15
)
 
(18
)
 
(33
)
 
(30
)
 
(32
)
 
3

 
(59
)
Depreciation and amortization
(67
)
 
(11
)
 
(78
)
 
(134
)
 
(18
)
 
12

 
(140
)
Operating income
$
268

 
(35
)
 
233

 
515

 
(65
)
 
(46
)
 
404



Item 3.    Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk in the normal course of business due to our ongoing investing and financial activities. Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which include investments in fixed and floating rate debt instruments and borrowings used to maintain liquidity and to fund business operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. We manage our exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt. We believe this best protects us from interest rate risk. We have achieved this mix by (i) issuing fixed rate debt that we believe has a low stated interest rate and significant term to maturity, (ii) issuing variable rate debt with appropriate maturities and interest rates and (iii) entering into interest rate swap arrangements when we deem appropriate. As of June 30, 2014, our debt is comprised of the following amounts:
 
Variable rate debt
 
Fixed rate debt
 
Principal
amount
 
Weighted avg
interest rate
 
Principal
amount
 
Weighted avg
interest rate
 
dollar amounts in millions
SIRIUS XM
$
—

 
—
%
 
$
4,658

 
5.7
%
Corporate and other
$
275

 
2.2
%
 
$
1,000

 
1.4
%
The Company is exposed to changes in stock prices primarily as a result of our significant holdings in publicly traded securities. We continually monitor changes in stock markets, in general, and changes in the stock prices of our holdings, specifically. We believe that changes in stock prices can be expected to vary as a result of general market conditions, technological changes, specific industry changes and other factors. We periodically use equity collars and other financial instruments to manage market risk associated with certain investment positions. These instruments are recorded at fair value based on option pricing models and other appropriate methods.


I- 34

At June 30, 2014, the fair value of our AFS equity securities was $1,129 million. Had the market price of such securities been 10% lower at June 30, 2014, the aggregate value of such securities would have been $113 million lower. Additionally, our stock in Live Nation, SIRIUS XM Canada, and Charter (three of our equity method affiliates) are publicly traded securities which are not reflected at fair value in our balance sheet. These securities are also subject to market risk that is not directly reflected in our statement of operations and had the market price of such securities been 10% lower at June 30, 2014 the aggregate value of such securities would have been $603 million lower.
Item 4.    Controls and Procedures.
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer, principal accounting officer and principal financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of June 30, 2014 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
There has been no change in the Company's internal control over financial reporting that occurred during the three months ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.


I- 35

PART II—OTHER INFORMATION
Item 1.    Legal Proceedings

In early to mid-January 2014, a series of stockholder class actions were filed in Delaware and New York state courts against Sirius XM, 麻豆app, 麻豆app Radio LLC, and certain present and former Sirius XM board members (Joan L. Amble, Anthony J. Bates, George W. Bodenheimer, David J.A. Flowers, Eddy W. Hartenstein, James P. Holden, Gregory B. Maffei, Evan D. Malone, John C. Malone, James E. Meyer, James F. Mooney, Carl E. Vogel, Vanessa A. Wittman. David Zaslav). In Delaware, the cases are captioned: Roy v. Meyer, et al., Case No. 9248-VCN (Del. Ch.); Ebenau v. Meyer, et al., Case No. 9249-VCN (Del. Ch.); Ricciardi v. Sirius XM Holdings Inc., et al., Case No. 9253-VCN (Del. Ch.); Western Washington Laborers-Employers Pension Trust v. Sirius XM Holdings Inc., et al., Case No. 9269-VCN (Del. Ch.); and Varvolis v. Malone, et al., Case No. 9283-VCN (Del. Ch.). In New York, the cases are captioned: Freedman v. Sirius XM Holdings Inc., et al., Index No. 650038/2014 (N.Y. Sup. Ct.); Adoni v. Amble, et al., Index No. 650085/2014 (N.Y. Sup. Ct.); Goodman v. Amble, et al., Index No. 650141/2014 (N.Y. Sup. Ct.); Hartleib v. Sirius XM Holdings Inc., et al., Index No. 650158/2014 (N.Y. Sup. Ct.); Shenk v. Sirius XM Holdings Inc., et al., Index No. 650188/2014 (N.Y. Sup. Ct.); The Booth Family Trust v. Meyer, et al., Index No. 650235/2014 (N.Y. Sup. Ct.); Corso v. Sirius XM Holdings Inc., et al., Index No. 650253/2014 (N.Y. Sup. Ct.); and Sciortino v. Sirius XM Holdings Inc., et al., Index No. 650268/2014 (N.Y. Sup. Ct.).  
The cases involved 麻豆app’s former proposal (the "Proposal") to acquire the remaining shares of Sirius XM that it does not already own (which was subsequently withdrawn).  The plaintiffs alleged that in pursuing this Proposal, 麻豆app and the individual director defendants breached their fiduciary duties to the Sirius XM shareholders.
On January 13, 2014, a notice of voluntary discontinuance was filed in the Adoni case.  On January 27, 2014, a motion for consolidation (of all of the New York cases) and appointment of lead counsel was filed in the Shenk case.  On January 31, 2014, defendants filed a cross-motion to dismiss the New York actions, or in the alternative to stay the New York actions, in favor of the substantially similar actions pending in Delaware.
On March 13, 2014, before the New York Supreme Court heard oral argument on the pending motion and cross-motion, 麻豆app issued a press release stating that it had withdrawn the Proposal.  In light of this withdrawal, plaintiffs’ cases became moot.  On April 1, 2014, notices of voluntary discontinuances were filed in the Freedman, Goodman, Hartleib, The Booth Family Trust, Corso, and Sciortino cases.  In the Shenk case, a stipulation of voluntary discontinuance was faxed to the court on April 2, 2014, and on April 10, 2014, Judge Lawrence Marks “So Ordered” the stipulation. All of the New York cases were voluntarily dismissed on or before April 10, 2014.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchase Programs
On January 11, 2013 麻豆app announced that its board of directors authorized $450 million of repurchases of 麻豆app common stock from that day forward. There were no repurchases of 麻豆app common stock made pursuant to the repurchase program during the second quarter of 2014. As of June 30, 2014, $327 million is available for repurchases under the Company's share repurchase program.
During the three months ended June 30, 2014, 335 shares of Series A 麻豆app common stock were surrendered by certain of our officers and employees to pay withholding taxes and other deductions in connection with the vesting of their restricted stock.


II-1
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Item 6.    Exhibits

(a)
Exhibits
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
4.1
Form of Specimen Certificate for Shares of Series C common stock, par value $0.01 per share, of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A (File No. 001-35707) as filed on June 25, 2014)
31.1
Rule 13a-14(a)/15d-14(a) Certification*
31.2
Rule 13a-14(a)/15d-14(a) Certification*
32
Section 1350 Certification**
101.INS
XBRL Instance Document**
101.SCH
XBRL Taxonomy Extension Schema Document**
101.CAL
XBRL Taxonomy Calculation Linkbase Document**
101.LAB
XBRL Taxonomy Label Linkbase Document**
101.PRE
XBRL Taxonomy Presentation Linkbase Document**
101.DEF
XBRL Taxonomy Definition Document**
______________________________________
*    Filed herewith
**    Furnished herewith

II-2

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
LIBERTY MEDIA CORPORATION
Date:
August 5, 2014
By:
/s/ GREGORY B. MAFFEI
 
 
 
Gregory B. Maffei
President and Chief Executive Officer
Date:
August 5, 2014
By:
/s/ CHRISTOPHER W. SHEAN
 
 
 
Christopher W. Shean
Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


II-3
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EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
4.1
Form of Specimen Certificate for Shares of Series C common stock, par value $0.01 per share, of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A (File No. 001-35707) as filed on June 25, 2014)
31.1
Rule 13a-14(a)/15d-14(a) Certification*
31.2
Rule 13a-14(a)/15d-14(a) Certification*
32
Section 1350 Certification**
101.INS
XBRL Instance Document**
101.SCH
XBRL Taxonomy Extension Schema Document**
101.CAL
XBRL Taxonomy Calculation Linkbase Document**
101.LAB
XBRL Taxonomy Label Linkbase Document**
101.PRE
XBRL Taxonomy Presentation Linkbase Document**
101.DEF
XBRL Taxonomy Definition Document**
______________________________________
*    Filed herewith
**    Furnished herewith




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Part II - Other Information
 
Item 1. Legal Proceedings