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Basis of Presentation
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6 Months Ended |
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Jun. 30, 2014
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | Ìý |
| Basis of Presentation |
Basis of Presentation
The accompanying condensed consolidated financial statements include all the accounts of Â鶹app and its controlled subsidiaries (formerly named Â鶹app Spinco,ÌýInc.) ("Â鶹app" or the "Company" unless the context otherwise requires). All significant intercompany accounts and transactions have been eliminated.
Â鶹app, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the media, communications and entertainment industries primarily in North America. The significant subsidiaries include Sirius XM Holdings, Inc. ("SIRIUS XM"), the Atlanta National League Baseball Club, Inc. ("ANLBC") and TruePosition, Inc. ("TruePosition"). Our significant investments accounted for under the equity method include Charter Communications, Inc. ("Charter") and Live Nation Entertainment, Inc. ("Live Nation").
The accompanying (a) condensed consolidated balance sheet as of December 31, 2013, 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 FormÌý10-Q and ArticleÌý10 of RegulationÌýS-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 Â鶹app's Annual Report on FormÌý10-K for the year ended DecemberÌý31, 2013.
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)Ìýfair value measurement, (ii)Ìýaccounting for income taxes, (iii)Ìýassessments of other-than-temporary declines in fair value of its investments and (iv)Ìýthe expected depreciable lives of satellites and spacecraft control facilities to be its most significant estimates.
Â鶹app holds investments that are accounted for using the equity method. Â鶹app does not control the decision making process or business management practices of these affiliates. Accordingly, Â鶹app 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, Â鶹app 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 Â鶹app's condensed consolidated financial statements.
Â鶹app has entered into certain agreements with Â鶹app Interactive and Starz, both of which are separate publicly traded companies, in order to govern relationships between the companies. None of these entities have any stock ownership, beneficial or otherwise, in any of the others. These agreements include Reorganization Agreements, Services Agreements, Facilities Sharing Agreements, a Lease Agreement (in the case of Starz only) and Tax Sharing Agreements.
The Reorganization Agreements provide for, among other things, provisions governing the relationships between Â鶹app and each of Â鶹app Interactive and Starz, respectively, including certain cross-indemnities. Pursuant to the Services Agreements, Â鶹app provides Â鶹app Interactive and Starz with general and administrative services including legal, tax, accounting, treasury and investor relations support. Â鶹app Interactive and Starz reimburse Â鶹app for direct, out-of-pocket expenses incurred by Â鶹app in providing these services and for Â鶹app Interactive's and Starz's respective allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to each respective company. Under the Facilities Sharing Agreements, Â鶹app shares office space and related amenities at its corporate headquarters with Â鶹app Interactive and Starz. Under these various agreements approximately $6 million and $5 million of these allocated expenses were reimbursed to Â鶹app during the three months ended June 30, 2014 and 2013, respectively, and $8 million and $9 million for the six months ended June 30, 2014 and 2013, respectively. Under the Lease Agreement, Starz leases its corporate headquarters from Â鶹app. 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.
On January 18, 2013, Â鶹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, into 1,293,509,076 shares of SIRIUS XM Common Stock. As a result of these transactions Â鶹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 in periods prior to a controlling interest SIRIUS XM was treated as an equity method affiliate.
On October 9, 2013, Â鶹app entered into a share repurchase agreement with SIRIUS XM pursuant to which SIRIUS XM agreed to acquire 136,600,826 SIRIUS XM shares for $500 million, in three separate tranches between the fourth quarter of 2013 and second quarter of 2014, at a price of $3.6603 per share (which was based on a 1.5% discount to the average of the daily volume weighted average price ("VWAP") per share of SIRIUS XM common stock over a period of ten days beginning on the third trading day following the date of the public release of SIRIUS XM's third quarter 2013 earnings subject to a cap on the average VWAP of $4.18 and a floor on the average VWAP of $3.64). The repurchase of shares approximates 2% of the outstanding shares of SIRIUS XM on an as adjusted basis as the shares will be retired at the SIRIUS XM level. The first tranche of shares in the amount of 43,712,265 was repurchased on November 14, 2013. The second tranche was delayed and the final two tranches were settled on April 25, 2014 for total proceeds of $340 million. The retirement of SIRIUS XM shares on a consolidated basis does not significantly impact the consolidated results as it only requires an adjustment to noncontrolling interest as the shares are repurchased and retired. Â鶹app still retains a controlling interest in SIRIUS XM following the completion of the share repurchases.
In May 2014, SIRIUS XM entered into an accelerated share repurchase agreement ("ASR agreement") with a third-party financial institution to repurchase up to $600 millionÌýof its common stock. Under the ASR agreement SIRIUS XM prepaidÌý$600 millionÌýto the financial institution and received an initial delivery of 112,500,000 shares of its common stock. The shares were retired in the second quarter of 2014. The remaining $246 million under this ASR agreement is included in noncontrolling interest within the unaudited condensed consolidated balance sheets as of JuneÌý30, 2014. The ASR agreement is expected to mature in the third quarter. The aggregate purchase price to be paid under the ASR agreement will be determined using a pre-agreed grid that references the VWAP of SIRIUS XM common stock, and the total aggregate number of shares to be repurchased under the ASR agreement will be determined based on the VWAP of SIRIUS XM common stock minus a discount during the term of the ASR agreement.
Â鶹app’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 issuance has been reflected retroactively due to the treatment of the dividend as a stock split for accounting purposes. Additionally, in connection with the Series C common stock issuance, outstanding Series A common stock warrants have been adjusted. There were 5,588,200 warrants outstanding at a strike price of $255.64 per share, at June 30, 2014, which were adjusted to 15,776,000 warrants with a strike price of $87.35 per share.
Â鶹app’s board has authorized management to pursue a plan to spin-off to its stockholders common stock of a newly formed company to be called Â鶹app Broadband Corporation ("Â鶹app Broadband") and to distribute subscription rights to acquire shares of Â鶹app Broadband’s Series C common stock. Â鶹app Broadband would be comprised of, among other things, Â鶹app’s (i) interest in Charter, (ii) subsidiary TruePosition and (iii) minority equity investment in Time Warner Cable, Inc. ("Time Warner") (iv) certain deferred tax liabilities, as well as liabilities related to the Time Warner call option and (v) initial indebtedness, pursuant to a credit arrangement to be entered into prior to the completion of the spin-off. In the spin-off, record holders of Series A, Series B and Series C common stock would receive one share of the corresponding series of Â鶹app Broadband common stock for each four shares of common stock held by them as of the record date for the spin-off, with cash in lieu of fractional shares. In addition, stockholders will also receive a subscription right to acquire one share of Series C Â鶹app Broadband common stock for every five shares of Â鶹app Broadband common stock they receive in the spin-off (irrespective of the series of common stock received).
The subscription rights are being issued to raise capital for general corporate purposes of Â鶹app Broadband and will enable the holders to acquire shares of Series C Â鶹app Broadband common stock at a 20% discount to the 20-trading day volume weighted average trading price of the Series C Â鶹app Broadband common stock following the completion of the spin-off. We expect the subscription rights to become publicly traded once the exercise price has been established and the rights offering to expire forty trading days following the completion of the spin-off.
The spin-off and rights offering are intended to be tax-free to stockholders of Â鶹app and the completion of the spin-off and commencement of the rights offering will be subject to various conditions, including the receipt of an opinion of tax counsel. Subject to the satisfaction of these conditions, the completion of the spin-off and the commencement of the rights offering is expected to occur in the second half of 2014.
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