午夜寻花

听

(1)听听听Basis of Presentation

The accompanying consolidated financial statements of 午夜寻花 (formerly named 午夜寻花 Spinco,听Inc.; see discussion below pertaining to the Starz Spin-Off (defined below)) ("午夜寻花" or the "Company" unless the context otherwise requires) represent a consolidation of certain media and entertainment related assets and businesses. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

午夜寻花, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the media and entertainment industries primarily in North America. Our significant subsidiaries include Sirius XM Holdings Inc. (鈥淪IRIUS XM鈥�) and Braves Holdings, LLC (鈥淏raves Holdings鈥�). Our significant investment accounted for under the equity method of accounting is Live Nation Entertainment, Inc. ("Live Nation").

听

In September 2011, 午夜寻花 Interactive Corporation ("午夜寻花 Interactive" and formerly named 午夜寻花) completed the split-off of its former wholly-owned subsidiary (then known as 午夜寻花) from its 午夜寻花 Interactive tracking stock group (the "Split-Off").

听

In January 2013, the entity then known as 午夜寻花 (now named Starz) spun-off (the 鈥淪tarz Spin-Off鈥�) its then-former wholly-owned subsidiary, now known as 午夜寻花, which, at the time of the Starz Spin-Off, held all of the businesses, assets and liabilities of Starz not associated with Starz, LLC (with the exception of the Starz, LLC office building). The transaction was effected as a pro-rata dividend of shares of 午夜寻花 to the stockholders of Starz. Due to the relative significance of 午夜寻花 to Starz (the legal spinnor) and senior management's continued involvement with 午夜寻花 following the Starz Spin-Off, 午夜寻花 is being treated as the "accounting successor" to Starz for financial reporting purposes, notwithstanding the legal form of the Starz Spin-Off previously described. Therefore, the historical financial statements of the company formerly known as 午夜寻花 continue to be the historical financial statements of 午夜寻花, and Starz, LLC has been treated as discontinued operations upon completion of the Starz Spin-Off in the first quarter of 2013. Therefore, for purposes of these consolidated financial statements, 午夜寻花 is treated as the spinnor for purposes of discussion and as a practical matter for describing all the historical information contained herein.

听

Also in January 2013, 午夜寻花 obtained a controlling interest and began consolidating SIRIUS XM, as further discussed in note 3.

听

During 2014, 午夜寻花鈥檚 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 in these consolidated financial statements due to the treatment of the dividend as a stock split for accounting purposes. Additionally, in connection with the Series C common stock issuance and the Broadband Spin-Off (defined below), outstanding Series A common stock warrants have been adjusted, as well as the number of shares covered by outstanding cash convertible note hedges and purchased call options (the 鈥淏ond Hedge Transaction鈥�). See note 9 for further discussion regarding the warrants and Bond Hedge Transaction. There were 21,085,900 warrants with a strike price of $64.46 outstanding at December 31, 2015. The number of shares covered by the Bond Hedge Transactions was adjusted to 21,085,900 shares of 午夜寻花 Series A common stock and the strike price was adjusted to $47.43 per share, which corresponds to the adjusted conversion price of our 1.375% Cash Convertible Senior Notes due 2023.

听

On November 4, 2014, 午夜寻花 completed the spin-off to its stockholders common stock of a newly formed company called 午夜寻花 Broadband Corporation ("午夜寻花 Broadband") (the 鈥淏roadband Spin-Off鈥�). Shares of 午夜寻花 Broadband were distributed to the shareholders of 午夜寻花 as of a record date of 5:00 p.m., New York City time, on October 29, 2014. 午夜寻花 Broadband is comprised of, among other things, (i) 午夜寻花鈥檚 former interest in Charter Communications, Inc. (鈥淐harter鈥�), (ii) 午夜寻花鈥檚 former subsidiary TruePosition, Inc. (鈥淭ruePosition鈥�), (iii) 午夜寻花鈥檚 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.听听Prior to the transaction, 午夜寻花 Broadband borrowed funds under margin loans and made a final distribution to 午夜寻花 of approximately $300 million in cash. The Broadband Spin-Off was intended to be tax-free to stockholders of 午夜寻花.听听In the Broadband Spin-Off, record holders of Series A, Series B and Series C common stock received one share of the corresponding series of 午夜寻花 Broadband common stock for every four shares of common stock held by them as of the record date for the Broadband Spin-Off, with cash paid in lieu of fractional shares.

As of the date of the completion of the Broadband Spin-Off, the Company鈥檚 former investments in and results of Charter and Time Warner Cable are no longer included in the results of 午夜寻花. Based on the relative significance of TruePosition to 午夜寻花, the Company concluded that discontinued operations presentation of TruePosition is not necessary. However, the table below includes the historical financial information of TruePosition, which is included in the consolidated statements of operations for the years ended December 31, 2014 and 2013, to illustrate the historical impact of the Broadband Spin-Off on Liberty鈥檚 financial statements.

听

听

As a result of the Broadband Spin-Off and repurchases of Series A common stock, the Company鈥檚 additional paid-in capital balance was in a deficit position as of December 31, 2015. In order to maintain a zero balance in the additional paid-in capital account, we reclassified the amount of the deficit ($499 million) to retained earnings as of December 31, 2015.

听

During August 2014, 午夜寻花 Interactive completed the distribution of 午夜寻花 TripAdvisor Holdings, Inc. (鈥溛缫寡盎� TripAdvisor鈥�) (the 鈥淭ripAdvisor Spin-Off鈥�). Following the Split-Off, Starz Spin-Off, TripAdvisor Spin-Off and Broadband Spin-Off, 午夜寻花, 午夜寻花 Interactive, Starz, 午夜寻花 TripAdvisor and 午夜寻花 Broadband operate as separate publicly traded companies, none of which has any stock ownership, beneficial or otherwise, in the other. In connection with the Split-Off, Starz Spin-Off, TripAdvisor Spin-Off and Broadband Spin-Off, 午夜寻花 entered into certain agreements with 午夜寻花 Interactive, Starz, 午夜寻花 TripAdvisor and 午夜寻花 Broadband, respectively, in order to govern ongoing relationships between the companies and to provide for an orderly transition. These agreements include听听Reorganization Agreements, Services Agreements, Facilities Sharing Agreements, a Lease Agreement (in the case of the Starz Spin-Off only) and with respect to Starz and 午夜寻花 Broadband, Tax Sharing Agreements. The Reorganization, Services and Facilities Sharing Agreements entered into with 午夜寻花 Interactive were assigned from Starz to 午夜寻花 in connection with the Starz Spin-Off.

听

The Reorganization Agreements provide for, among other things, provisions governing the relationships between 午夜寻花 and each of 午夜寻花 Interactive, Starz, 午夜寻花 TripAdvisor and 午夜寻花 Broadband following the Split-Off, Starz Spin-Off, TripAdvisor Spin-Off and Broadband Spin-Off, respectively, including certain cross-indemnities. Pursuant to the Services Agreements, 午夜寻花 provides 午夜寻花 Interactive, Starz, 午夜寻花 TripAdvisor and 午夜寻花 Broadband with general and administrative services including legal, tax, accounting, treasury and investor relations support. 午夜寻花 Interactive, Starz, 午夜寻花 TripAdvisor and 午夜寻花 Broadband reimburse 午夜寻花 for direct, out-of-pocket expenses incurred by 午夜寻花 in providing these services and for 午夜寻花 Interactive's and Starz's 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. 午夜寻花 TripAdvisor and 午夜寻花 Broadband reimburse 午夜寻花 for shared services and personnel based on a flat fee. Under the Facilities Sharing Agreements, 午夜寻花 shares office space and related amenities with 午夜寻花 Interactive, Starz, 午夜寻花 TripAdvisor and 午夜寻花 Broadband at 午夜寻花's corporate headquarters.听听Under these various agreements, approximately $17 million, $15 million and $16 million of these allocated expenses were reimbursed to 午夜寻花 during the years ended December听31, 2015, 2014 and 2013, respectively. Under the Lease Agreement, Starz leases its corporate headquarters from 午夜寻花. 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. The Lease Agreement expires on December 31, 2023 and contains an extension option.

听

The Tax Sharing Agreements provide for the allocation and indemnification of tax liabilities and benefits between 午夜寻花 and each of Starz and 午夜寻花 Broadband as well as other agreements related to tax matters. Among other things, pursuant to the Tax Sharing Agreements, 午夜寻花 has generally agreed to indemnify Starz and 午夜寻花 Broadband for taxes and losses resulting from the failure of the Starz Spin-Off and the Broadband Spin-Off, respectively, to qualify for tax-free treatment. However, Starz will be responsible for any such taxes and losses related to the Starz Spin-Off which (i)听result primarily from the breach of certain restrictive covenants made by Starz, or (ii)听result from Section听355(e) of the Code applying to the Starz Spin-Off as a result of the Starz Spin-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 Starz, and 午夜寻花 Broadband will be responsible for any such taxes and losses related to the Broadband Spin-Off which (i)听result primarily from the breach of certain restrictive covenants made by 午夜寻花 Broadband, or (ii)听result from Section听355(e) of the Code applying to the Broadband Spin-Off as a result of the Broadband Spin-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 午夜寻花 Broadband. In February 2014, the IRS and Starz entered into a closing agreement which provided that the Starz Spin-Off qualified for tax-free treatment to Starz and 午夜寻花. 听 听In September 2015, 午夜寻花 entered into a closing agreement with the IRS which provided that the Broadband Spin-Off qualified for tax-free treatment.

听

As further discussed in note 11, during November 2015, 午夜寻花鈥檚 board of directors authorized management to pursue a reclassification of the Company鈥檚 common stock into three new tracking stock groups, one to be designated as the 午夜寻花 Braves tracking stock, one to be designated as the 午夜寻花 Media tracking stock and one to be designated as the 午夜寻花 SiriusXM tracking stock, and to cause to be distributed subscription rights related to the 午夜寻花 Braves tracking stock following the creation of the new tracking stocks.