Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

v2.3.0.15
Discontinued Operations
 9 Months Ended
Sep. 30, 2011
Discontinued Operations [Abstract]  
Discontinued Operations
Discontinued Operations
Prior to the Split-Off (as defined below), Liberty's equity was structured into three separate tracking stocks. A tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty had three tracking stocks, Liberty Interactive common stock, Liberty Starz common stock and Liberty Capital common stock, which were intended to track and reflect the economic performance of the separate businesses, assets and liabilities attributed to each group. These attributed businesses, assets and liabilities were not separate legal entities and therefore could not own assets, issue securities or enter into legally binding agreements. Holders of the tracking stocks did not have direct claim to the group's stock or assets and were not represented by separate boards of directors.
On September 23, 2011, Liberty completed the split-off of a wholly owned subsidiary, Liberty Media Corporation ("LMC") (formerly known as Liberty CapStarz, Inc. and prior thereto known as Liberty Splitco, Inc.) (the "Split-Off"). At the time of the Split-Off, LMC owned all the assets, businesses and liabilities previously attributed to the Capital and Starz tracking stock groups. The Split-Off was effected by means of a redemption of all of the Liberty Capital common stock and Liberty Starz common stock of Liberty in exchange for the common stock of LMC. This transaction has been accounted for at historical cost due to the pro rata nature of the distribution.
Following the Split-Off, Liberty and LMC 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 LMC entered into certain agreements in order to govern certain of the 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 Tax Sharing Agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and LMC and other agreements related to tax matters. Liberty is party to on-going discussions with the IRS under the Compliance Assurance Process audit program. The IRS has proposed adjustments that relate to tax attributes allocated to and income allocable to LMC in the Split-Off. Any potential outcome associated with these proposed adjustments is covered by the Tax Sharing Agreement and is not expected to have any impact on Liberty's financial position.
The condensed consolidated financial statements and accompanying notes of Liberty have been prepared to reflect LMC as discontinued operations. Accordingly, the assets and liabilities, revenue, costs and expenses, and cash flows of the businesses, assets and liabilities owned by LMC at the time of Split-Off (for periods prior to the Split-Off) have been excluded from the respective captions in the accompanying condensed consolidated balance sheets, statements of operations, comprehensive earnings and cash flows in such condensed consolidated financial statements.
Certain combined financial information for LMC, which is included in earnings (loss) from discontinued operations, is as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2011
 
2010
 
2011
 
2010
 
amounts in millions
Revenue
$
497

 
570

 
2,008

 
1,554

Earnings (loss) before income taxes
$
(74
)
 
130

 
628

 
407

 
 
 
 
 
 
 
 

A summary of certain asset and liability amounts for LMC as of the respective dates are as follows:
 
September 23, 2011
 
December 31, 2010
Assets
amounts in millions
Cash and cash equivalents
$
2,075

 
1,826

Investments in available-for-sale securities and other cost investments including $1,115 and $1,219 million pledged as collateral for share borrowing arrangements
$
2,847

 
3,441

 
 
 
 
Liabilities
 
 
 
Financial instruments
$
1,125

 
1,230

Deferred income tax liabilities
$
428

 
214

Debt
$
791

 
855


The per share impact from discontinued operations is as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Basic earnings (losses) from discontinued operations attributable to Liberty shareholders per common share (note 4):
 
Series A and Series B Liberty Capital common stock
$
(1.11
)
 
0.51

 
2.48

 
(0.28
)
Series A and Series B Liberty Starz common stock
$
1.14

 
0.96

 
3.47

 
3.32

Series A and Series B Liberty Interactive common stock
$
—

 
—

 
—

 
0.19

Diluted earnings (losses) from discontinued operations attributable to Liberty shareholders per common share (note 4):
 
 
 
 
 
 
 
Series A and Series B Liberty Capital common stock
$
(1.11
)
 
0.49

 
2.42

 
(0.28
)
Series A and Series B Liberty Starz common stock
$
1.09

 
0.92

 
3.34

 
3.19

Series A and Series B Liberty Interactive common stock
$
—

 
—

 
—

 
0.18


The businesses, assets and liabilities that were previously attributed to the Liberty Starz and Liberty Capital tracking stock groups were owned by LMC at the time of Split-Off and have been included in discontinued operations. Certain assets and liabilities not owned by Liberty Interactive at the time of Split-Off were attributed to the Liberty Interactive tracking stock in prior periods and certain assets and liabilities not owned by LMC at the time of Split-Off were attributed to the Liberty Capital tracking stock in prior periods. This results in Liberty Interactive common stock participating in the discontinued operations for the amount attributable to Liberty Interactive common stock for those items in periods prior to the Split-Off. Additionally, certain prior period EPS calculations for Liberty Capital common stock include continuing operations due to the attribution of certain debt and equity instruments in those periods to the Liberty Capital group that remained with Liberty after the Split-Off as a result of the change in attribution of those assets and liabilities prior to the Split-Off.