UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018
OR
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-35707
LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
|
State of Delaware |
|
37-1699499 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
|
12300 Liberty Boulevard |
|
80112 |
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant's telephone number, including area code: (720) 875-5400
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☒ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
The number of outstanding shares of Liberty Media Corporation's common stock as of October 31, 2018 was:
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
Series B |
|
Series C |
|
|
Liberty SiriusXM common stock |
|
102,803,892 |
|
9,821,531 |
|
214,981,984 |
|
|
Liberty Braves common stock |
|
10,244,042 |
|
981,860 |
|
39,738,602 |
|
|
Liberty Formula One common stock |
|
25,673,855 |
|
2,453,485 |
|
202,878,210 |
|
I-2
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
|
|
September 30, 2018 |
|
December 31, 2017 |
|
|
|
|
amounts in millions |
|
|||
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
355 |
|
1,029 |
|
|
Trade and other receivables, net |
|
440 |
|
358 |
|
|
Other current assets |
|
446 |
|
356 |
|
|
Total current assets |
|
1,241 |
|
1,743 |
|
|
Investments in debt and equity securities (note 8) |
|
1,406 |
|
1,114 |
|
|
Investments in affiliates, accounted for using the equity method (note 9) |
|
1,730 |
|
1,750 |
|
|
|
|
|
|
|
|
|
Property and equipment, at cost |
|
3,821 |
|
3,596 |
|
|
Accumulated depreciation |
|
(1,245) |
|
(1,055) |
|
|
|
|
2,576 |
|
2,541 |
|
|
Intangible assets not subject to amortization (note 10): |
|
|
|
|
|
|
Goodwill |
|
18,386 |
|
18,383 |
|
|
FCC licenses |
|
8,600 |
|
8,600 |
|
|
Other |
|
1,074 |
|
1,074 |
|
|
|
|
28,060 |
|
28,057 |
|
|
Intangible assets subject to amortization, net (note 10) |
|
5,830 |
|
6,192 |
|
|
Other assets |
|
781 |
|
599 |
|
|
Total assets |
$ |
41,624 |
|
41,996 |
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
1,097 |
|
1,250 |
|
|
Current portion of debt |
|
18 |
|
768 |
|
|
Deferred revenue |
|
2,235 |
|
1,941 |
|
|
Other current liabilities |
|
29 |
|
20 |
|
|
Total current liabilities |
|
3,379 |
|
3,979 |
|
|
Long-term debt, including $2,388 million and $2,115 million measured at fair value at September 30, 2018 and December 31, 2017, respectively (note 11) |
|
13,380 |
|
13,186 |
|
|
Deferred income tax liabilities |
|
1,610 |
|
1,478 |
|
|
Other liabilities |
|
886 |
|
779 |
|
|
Total liabilities |
|
19,255 |
|
19,422 |
|
(Continued)
See accompanying notes to condensed consolidated financial statements.
I-3
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
(unaudited)
|
|
|
September 30, 2018 |
|
December 31, 2017 |
|
|
|
|
|
amounts in millions, |
|
|||
|
|
|
except share amounts |
|
|||
|
Stockholders' equity: |
|
|
|
|
|
|
|
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued |
|
|
— |
|
— |
|
|
Series A Liberty SiriusXM common stock, $.01 par value. Authorized 2,000,000,000 shares; issued and outstanding 102,802,886 shares at September 30, 2018 and 102,701,972 shares at December 31, 2017 (note 3) |
|
|
1 |
|
1 |
|
|
Series A Liberty Braves common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 10,244,042 shares at September 30, 2018 and 10,243,259 shares at December 31, 2017 (note 3) |
|
|
— |
|
— |
|
|
Series A Liberty Formula One common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 25,673,419 shares at September 30, 2018 and 25,649,611 shares at December 31, 2017 (note 3) |
|
|
— |
|
— |
|
|
Series B Liberty SiriusXM common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 9,821,531 shares at September 30, 2018 and December 31, 2017 (note 3) |
|
|
— |
|
— |
|
|
Series B Liberty Braves common stock, $.01 par value. Authorized 7,500,000 shares; issued and outstanding 981,860 shares at September 30, 2018 and December 31, 2017 (note 3) |
|
|
— |
|
— |
|
|
Series B Liberty Formula One common stock, $.01 par value. Authorized 18,750,000 shares; issued and outstanding 2,453,921 shares at September 30, 2018 and 2,454,448 shares at December 31, 2017 (note 3) |
|
|
— |
|
— |
|
|
Series C Liberty SiriusXM common stock, $.01 par value. Authorized 2,000,000,000 shares; issued and outstanding 215,604,989 shares at September 30, 2018 and 222,588,953 shares at December 31, 2017 (note 3) |
|
|
2 |
|
2 |
|
|
Series C Liberty Braves common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 39,738,602 shares at September 30, 2018 and 39,723,440 shares at December 31, 2017 (note 3) |
|
|
— |
|
— |
|
|
Series C Liberty Formula One common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 202,878,210 shares at September 30, 2018 and 202,720,588 shares at December 31, 2017 (note 3) |
|
|
2 |
|
2 |
|
|
Additional paid-in capital |
|
|
3,246 |
|
3,892 |
|
|
Accumulated other comprehensive earnings (loss), net of taxes |
|
|
(75) |
|
(35) |
|
|
Retained earnings |
|
|
13,684 |
|
13,081 |
|
|
Total stockholders' equity |
|
|
16,860 |
|
16,943 |
|
|
Noncontrolling interests in equity of subsidiaries |
|
|
5,509 |
|
5,631 |
|
|
Total equity |
|
|
22,369 |
|
22,574 |
|
|
Commitments and contingencies (note 12) |
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
41,624 |
|
41,996 |
|
See accompanying notes to condensed consolidated financial statements.
I-4
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
|
|
|
Three months ended |
|
Nine months ended |
|
|||||
|
|
|
September 30, |
|
September 30, |
|
|||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
amounts in millions, |
|
|||||||
|
|
|
except per share amounts |
|
|||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Subscriber revenue |
|
$ |
1,163 |
|
1,136 |
|
3,419 |
|
3,325 |
|
|
Formula 1 revenue |
|
|
647 |
|
501 |
|
1,346 |
|
1,213 |
|
|
Other revenue |
|
|
505 |
|
428 |
|
1,266 |
|
1,062 |
|
|
Total revenue |
|
|
2,315 |
|
2,065 |
|
6,031 |
|
5,600 |
|
|
Operating costs and expenses, including stock-based compensation (note 5): |
|
|
|
|
|
|
|
|
|
|
|
Cost of subscriber services (exclusive of depreciation shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
Revenue share and royalties |
|
|
343 |
|
297 |
|
1,057 |
|
867 |
|
|
Programming and content |
|
|
97 |
|
98 |
|
303 |
|
290 |
|
|
Customer service and billing |
|
|
95 |
|
95 |
|
284 |
|
287 |
|
|
Other |
|
|
30 |
|
29 |
|
92 |
|
86 |
|
|
Cost of Formula 1 revenue |
|
|
450 |
|
354 |
|
945 |
|
836 |
|
|
Subscriber acquisition costs |
|
|
110 |
|
119 |
|
352 |
|
372 |
|
|
Other operating expense |
|
|
130 |
|
139 |
|
322 |
|
333 |
|
|
Selling, general and administrative |
|
|
295 |
|
324 |
|
863 |
|
851 |
|
|
Depreciation and amortization |
|
|
234 |
|
228 |
|
681 |
|
615 |
|
|
|
|
|
1,784 |
|
1,683 |
|
4,899 |
|
4,537 |
|
|
Operating income (loss) |
|
|
531 |
|
382 |
|
1,132 |
|
1,063 |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(150) |
|
(159) |
|
(453) |
|
(448) |
|
|
Share of earnings (losses) of affiliates, net (note 9) |
|
|
58 |
|
155 |
|
72 |
|
167 |
|
|
Realized and unrealized gains (losses) on financial instruments, net (note 7) |
|
|
(31) |
|
18 |
|
180 |
|
(43) |
|
|
Other, net |
|
|
10 |
|
(11) |
|
37 |
|
2 |
|
|
|
|
|
(113) |
|
3 |
|
(164) |
|
(322) |
|
|
Earnings (loss) before income taxes |
|
|
418 |
|
385 |
|
968 |
|
741 |
|
|
Income tax (expense) benefit |
|
|
(52) |
|
(124) |
|
(134) |
|
(280) |
|
|
Net earnings (loss) |
|
|
366 |
|
261 |
|
834 |
|
461 |
|
|
Less net earnings (loss) attributable to the noncontrolling interests |
|
|
98 |
|
93 |
|
263 |
|
220 |
|
|
Net earnings (loss) attributable to Liberty stockholders |
|
$ |
268 |
|
168 |
|
571 |
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Liberty stockholders: |
|
|
|
|
|
|
|
|
|
|
|
Liberty SiriusXM common stock |
|
$ |
185 |
|
183 |
|
550 |
|
430 |
|
|
Liberty Braves common stock |
|
|
41 |
|
22 |
|
(13) |
|
(29) |
|
|
Liberty Formula One common stock |
|
|
42 |
|
(37) |
|
34 |
|
(160) |
|
|
|
|
$ |
268 |
|
168 |
|
571 |
|
241 |
|
(Continued)
See accompanying notes to condensed consolidated financial statements.
I-5
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Continued)
(unaudited)
|
|
|
Three months ended |
|
Nine months ended |
|
|||||
|
|
|
September 30, |
|
September 30, |
|
|||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
Basic net earnings (loss) attributable to Liberty stockholders per common share |
|
|
|
|
|
|
|
|
|
|
|
Series A, B and C Liberty SiriusXM common stock |
|
|
0.56 |
|
0.54 |
|
1.65 |
|
1.28 |
|
|
Series A, B and C Liberty Braves common stock |
|
|
0.80 |
|
0.45 |
|
(0.25) |
|
(0.59) |
|
|
Series A, B and C Liberty Formula One common stock |
|
|
0.18 |
|
(0.17) |
|
0.15 |
|
(0.80) |
|
|
Diluted net earnings (loss) attributable to Liberty stockholders per common share |
|
|
|
|
|
|
|
|
|
|
|
Series A, B and C Liberty SiriusXM common stock |
|
|
0.55 |
|
0.54 |
|
1.63 |
|
1.26 |
|
|
Series A, B and C Liberty Braves common stock |
|
|
0.80 |
|
0.45 |
|
(0.25) |
|
(0.59) |
|
|
Series A, B and C Liberty Formula One common stock |
|
|
0.18 |
|
(0.17) |
|
0.15 |
|
(0.80) |
|
See accompanying notes to condensed consolidated financial statements.
I-6
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(unaudited)
|
|
|
Three months ended |
|
Nine months ended |
|
|||||
|
|
|
September 30, |
|
September 30, |
|
|||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
amounts in millions |
|
|||||||
|
Net earnings (loss) |
|
$ |
366 |
|
261 |
|
834 |
|
461 |
|
|
Other comprehensive earnings (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
10 |
|
22 |
|
(11) |
|
28 |
|
|
Credit risk on fair value debt instruments gains (losses) |
|
|
(10) |
|
— |
|
(24) |
|
— |
|
|
Unrealized holding gains (losses) arising during the period |
|
|
— |
|
— |
|
(3) |
|
(3) |
|
|
Share of other comprehensive earnings (loss) of equity affiliates |
|
|
(3) |
|
3 |
|
(7) |
|
12 |
|
|
Comprehensive earnings (loss) |
|
|
363 |
|
286 |
|
789 |
|
498 |
|
|
Less comprehensive earnings (loss) attributable to the noncontrolling interests |
|
|
101 |
|
93 |
|
260 |
|
229 |
|
|
Comprehensive earnings (loss) attributable to Liberty stockholders |
|
$ |
262 |
|
193 |
|
529 |
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Liberty stockholders: |
|
|
|
|
|
|
|
|
|
|
|
Liberty SiriusXM common stock |
|
$ |
191 |
|
206 |
|
544 |
|
450 |
|
|
Liberty Braves common stock |
|
|
40 |
|
22 |
|
(16) |
|
(32) |
|
|
Liberty Formula One common stock |
|
|
31 |
|
(35) |
|
1 |
|
(149) |
|
|
|
|
$ |
262 |
|
193 |
|
529 |
|
269 |
|
See accompanying notes to condensed consolidated financial statements.
I-7
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
|
Nine months ended |
|
|||
|
|
|
September 30, |
|
|||
|
|
|
2018 |
|
2017 |
|
|
|
|
|
amounts in millions |
|
|||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net earnings |
|
$ |
834 |
|
461 |
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
681 |
|
615 |
|
|
Stock-based compensation |
|
|
145 |
|
182 |
|
|
Share of (earnings) loss of affiliates, net |
|
|
(72) |
|
(167) |
|
|
Realized and unrealized (gains) losses on financial instruments, net |
|
|
(180) |
|
43 |
|
|
Noncash interest expense (benefit) |
|
|
(6) |
|
9 |
|
|
Deferred income tax expense (benefit) |
|
|
132 |
|
286 |
|
|
Other, net |
|
|
13 |
|
42 |
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
Current and other assets |
|
|
(119) |
|
6 |
|
|
Payables and other liabilities |
|
|
207 |
|
(163) |
|
|
Net cash provided (used) by operating activities |
|
|
1,635 |
|
1,314 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Investments in equity method affiliates and debt and equity securities |
|
|
(403) |
|
(760) |
|
|
Cash proceeds from sale of investments |
|
|
244 |
|
20 |
|
|
Net cash paid for the acquisition of Formula 1 |
|
|
— |
|
(1,647) |
|
|
Capital expended for property and equipment |
|
|
(265) |
|
(407) |
|
|
Other investing activities, net |
|
|
42 |
|
(120) |
|
|
Net cash provided (used) by investing activities |
|
|
(382) |
|
(2,914) |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Borrowings of debt |
|
|
2,310 |
|
5,820 |
|
|
Repayments of debt |
|
|
(3,014) |
|
(4,819) |
|
|
Proceeds from issuance of Series C Liberty Formula One common stock |
|
|
— |
|
1,938 |
|
|
Series C Liberty SiriusXM stock repurchases |
|
|
(368) |
|
— |
|
|
Subsidiary shares repurchased by subsidiary |
|
|
(662) |
|
(996) |
|
|
Cash dividends paid by subsidiary |
|
|
(44) |
|
(45) |
|
|
Taxes paid in lieu of shares issued for stock-based compensation |
|
|
(122) |
|
(95) |
|
|
Other financing activities, net |
|
|
51 |
|
12 |
|
|
Net cash provided (used) by financing activities |
|
|
(1,849) |
|
1,815 |
|
|
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash |
|
|
— |
|
7 |
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
(596) |
|
222 |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
1,047 |
|
572 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
451 |
|
794 |
|
See accompanying notes to condensed consolidated financial statements.
I-8
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
(unaudited)
Nine Months ended September 30, 2018
|
|
|
Stockholders' equity |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
Noncontrolling |
|
|
|
|
|
|
|
|
|
|
Additional |
|
other |
|
|
|
interest in |
|
|
|
||||||||||||||||||
|
|
|
Preferred |
|
Liberty Sirius XM |
|
Liberty Braves |
|
Liberty Formula One |
|
Paid-in |
|
comprehensive |
|
Retained |
|
equity of |
|
Total |
|
|||||||||||||
|
|
|
Stock |
|
Series A |
|
Series B |
|
Series C |
|
Series A |
|
Series B |
|
Series C |
|
Series A |
|
Series B |
|
Series C |
|
Capital |
|
earnings (loss) |
|
earnings |
|
subsidiaries |
|
equity |
|
|
|
|
|
amounts in millions |
|
|||||||||||||||||||||||||||||
|
Balance at January 1, 2018 |
|
$ |
— |
|
1 |
|
— |
|
2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
3,892 |
|
(35) |
|
13,081 |
|
5,631 |
|
22,574 |
|
|
Net earnings |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
571 |
|
263 |
|
834 |
|
|
Other comprehensive earnings (loss) |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(42) |
|
— |
|
(3) |
|
(45) |
|
|
Cumulative effect of accounting change (note 2) |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
22 |
|
2 |
|
36 |
|
12 |
|
72 |
|
|
Stock-based compensation |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
108 |
|
— |
|
— |
|
29 |
|
137 |
|
|
Withholding taxes on net share settlements of stock-based compensation |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(122) |
|
— |
|
— |
|
— |
|
(122) |
|
|
Issuance of stock upon exercise of stock options |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
4 |
|
— |
|
— |
|
— |
|
4 |
|
|
Series C Liberty SiriusXM stock repurchases |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(368) |
|
— |
|
— |
|
— |
|
(368) |
|
|
Shares repurchased by subsidiary |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(219) |
|
— |
|
— |
|
(432) |
|
(651) |
|
|
Shares issued by subsidiary |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(62) |
|
— |
|
— |
|
62 |
|
— |
|
|
Dividends paid by subsidiary |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(44) |
|
(44) |
|
|
Purchase of noncontrolling interest |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(9) |
|
— |
|
— |
|
(9) |
|
(18) |
|
|
Other, net |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(4) |
|
— |
|
(4) |
|
|
Balance at September 30, 2018 |
|
$ |
— |
|
1 |
|
— |
|
2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
3,246 |
|
(75) |
|
13,684 |
|
5,509 |
|
22,369 |
|
See accompanying notes to condensed consolidated financial statements.
I-9
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The accompanying condensed consolidated financial statements include all the accounts of Liberty Media Corporation and its controlled subsidiaries ("Liberty," the "Company," "we," "us," or "our" unless the context otherwise requires). All significant intercompany accounts and transactions have been eliminated.
Liberty, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the media, communications and entertainment industries globally. Liberty’s significant subsidiaries include SIRIUS XM Holdings Inc. ("SIRIUS XM"), Delta Topco Limited (the parent company of Formula 1) (“Delta Topco”) and Braves Holdings, LLC ("Braves Holdings"). Our most significant investment accounted for under the equity method is Live Nation Entertainment, Inc. ("Live Nation").
The accompanying (a) condensed consolidated balance sheet as of December 31, 2017, 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 Form 10-Q and Article 10 of Regulation S-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 Liberty's Annual Report on Form 10-K for the year ended December 31, 2017.
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) fair value measurement of non-financial instruments, (ii) accounting for income taxes and (iii) the determination of the useful life of SIRIUS XM’s broadcast/transmission system to be its most significant estimates.
Liberty holds investments that are accounted for using the equity method. Liberty does not control the decision making process or business management practices of these affiliates. Accordingly, Liberty 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, Liberty 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 Liberty's condensed consolidated financial statements.
Liberty has entered into certain agreements with Qurate Retail, Inc., formerly known as Liberty Interactive Corporation (“Qurate Retail”), Starz (presently known as Starz Acquisition LLC) (“Starz”), Liberty TripAdvisor Holdings, Inc. (“TripCo”), Liberty Broadband Corporation (“Liberty Broadband”), CommerceHub, Inc. (“CommerceHub”), Liberty Expedia Holdings (“Expedia Holdings”) and GCI Liberty, Inc. (“GCI Liberty”), all but two of which (Starz and CommerceHub) are separate publicly traded companies, in order to govern relationships between the companies. None of these entities has any stock ownership, beneficial or otherwise, in any of the others (except that GCI Liberty owns shares of Liberty Broadband’s Series C non-voting common stock). These agreements include Reorganization Agreements (in the case of Qurate Retail, Starz and Liberty Broadband only), Services Agreements (which, in Starz’s case, terminated in April 2017, and in CommerceHub’s case, terminated in August 2018), Facilities Sharing Agreements (excluding Starz and CommerceHub) and Tax Sharing Agreements (in the case of Starz and Liberty Broadband only).
I-10
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
The Reorganization Agreements provide for, among other things, provisions governing the relationships between Liberty and each of Qurate Retail, Starz and Liberty Broadband, respectively, including certain cross-indemnities. Pursuant to the Services Agreements, Liberty provides Qurate Retail, TripCo, Liberty Broadband, CommerceHub (prior to termination), Expedia Holdings and GCI Liberty with general and administrative services including legal, tax, accounting, treasury and investor relations support. Qurate Retail, TripCo, Liberty Broadband, CommerceHub (prior to termination), Expedia Holdings and GCI Liberty reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and, in the case of Qurate Retail, Qurate Retail's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to Qurate Retail, while TripCo, Liberty Broadband, CommerceHub (prior to termination), Expedia Holdings and GCI Liberty pay an annual fee for the provision of these services. Under the Facilities Sharing Agreements, Liberty shares office space and related amenities at its corporate headquarters with Qurate Retail, TripCo, Liberty Broadband, Expedia Holdings and GCI Liberty. Under these various agreements approximately $8 million and $6 million of these allocated expenses were reimbursed to Liberty during the three months ended September 30, 2018 and 2017, respectively, and $21 million and $17 million were reimbursed during the nine months ended September 30, 2018 and 2017, respectively.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017. The Tax Act significantly changed U.S. tax law by, among other things, lowering the U.S. corporate income tax rate, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. In the prior year, we recognized the provisional tax impacts related to the one-time transition tax and the revaluation of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. We are still in the process of analyzing the impact of the various provisions of the Tax Act. The ultimate impact may materially differ from these provisional amounts due to, among other things, continued analysis of the estimates and further guidance and interpretations on the application of the law. We expect to complete our analysis by December 2018.
Seasonality
Formula 1 recognizes the majority of its revenue and expenses in connection with World Championship race events (“Events”) that take place in different countries around the world throughout the year. The Events generally take place between March and November each year. As a result, the revenue and expenses recognized by Formula 1 are generally lower during the first quarter as compared to the rest of the quarters throughout the year.
Braves Holdings revenue is seasonal, with the majority of revenue recognized during the second and third quarters which aligns with the baseball season.
(2) Recent Accounting Pronouncements
Recently Adopted Revenue Recognition Guidance
In May 2014, the Financial Accounting Standards Board (the "FASB") issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued additional guidance which clarifies principal versus agent considerations, and in April 2016, the FASB issued further guidance which clarifies the identification of performance obligations and the implementation guidance for licensing. The updated guidance replaced most existing revenue recognition guidance in GAAP. The Company adopted the new guidance, which established Accounting Standards Codification Topic 606 (“ASC 606” or the “new revenue standard”), effective January 1, 2018 under the modified retrospective transition method. Results
I-11
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605.
As part of adopting the new revenue standard under the modified retrospective transition method, the Company elected to utilize certain practical expedients as permitted under ASC 606. The Company elected to apply the guidance from ASC 606 only to contracts that were not completed as of January 1, 2018. Completed contracts are those contracts for which substantially all of the revenue had been recognized under ASC 605. The Company also elected to utilize the practical expedient for contract modifications. For modified contracts, the Company did not separately evaluate the effects of each contract modification that occurred prior to January 1, 2018. Instead, the Company reflected the aggregate effect of all contract modifications (on a contract-by-contract basis) that occurred prior to January 1, 2018 by identifying the satisfied and unsatisfied performance obligations and allocating the transaction price to such performance obligations.
Sales, value add, and other taxes when collected concurrently with revenue producing activities are excluded from revenue. Incremental costs of obtaining a contract are expensed when the amortization period of the asset is one year or less. To the extent the incremental costs of obtaining a contract relate to a period greater than one year, the Company amortizes such incremental costs in a manner that is consistent with the transfer to the customer of the goods or services to which the asset relates. If, at contract inception, we determine the time period between when we transfer a promised good or service to a customer and when the customer pays us for that good or service is one year or less, we do not adjust the promised amount of consideration for the effects of a significant financing component.
The cumulative effect of the changes made to the consolidated balance sheet as of January 1, 2018 for the adoption of ASC 606 are as follows:
|
|
|
Balance at |
|
|
|
Balance at |
|
|
|
|
December 31, |
|
Adoption of |
|
January 1, |
|
|
|
|
2017 |
|
ASC 606 |
|
2018 |
|
|
|
|
in millions |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
Other current assets |
$ |
356 |
|
55 |
|
411 |
|
|
Other assets |
$ |
599 |
|
37 |
|
636 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
1,250 |
|
33 |
|
1,283 |
|
|
Deferred revenue |
$ |
1,941 |
|
(42) |
|
1,899 |
|
|
Other current liabilities |
$ |
20 |
|
11 |
|
31 |
|
|
Other liabilities |
$ |
779 |
|
30 |
|
809 |
|
|
Deferred income tax liabilities |
$ |
1,478 |
|
15 |
|
1,493 |
|
|
Retained earnings |
$ |
13,081 |
|
41 |
|
13,122 |
|
|
Noncontrolling interests in equity of subsidiaries |
$ |
5,631 |
|
4 |
|
5,635 |
|
In accordance with the new revenue standard requirements, the following table illustrates the impact on our reported results in the condensed consolidated statements of operations assuming we did not adopt the new revenue standard on January 1, 2018. Other than previously discussed, upon the adoption of the revenue standard on January 1, 2018, there were no additional material adjustments to our condensed consolidated balance sheet as of September 30, 2018.
I-12
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
|
|
Three months ended September 30, 2018 |
|
|||||
|
|
|
|
|
|
|
Balances without |
|
|
|
|
|
|
Impact of |
|
adoption of |
|
|
|
As reported |
|
ASC 606 |
|
ASC 606 |
|
|
|
|
|
in millions |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
Subscriber revenue |
$ |
1,163 |
|
24 |
|
1,187 |
|
|
Formula 1 revenue |
$ |
647 |
|
11 |
|
658 |
|
|
Other revenue |
$ |
505 |
|
(2) |
|
503 |
|
|
|
|
|
|
|
|
|
|
|
Costs of subscriber services: |
|
|
|
|
|
|
|
|
Revenue share and royalties |
$ |
343 |
|
23 |
|
366 |
|
|
Subscriber acquisition costs |
$ |
110 |
|
1 |
|
111 |
|
|
Selling, general and administrative |
$ |
295 |
|
— |
|
295 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
366 |
|
9 |
|
375 |
|
|
|
Nine months ended September 30, 2018 |
|
|||||
|
|
|
|
|
|
|
Balances without |
|
|
|
|
|
|
Impact of |
|
adoption of |
|
|
|
As reported |
|
ASC 606 |
|
ASC 606 |
|
|
|
|
|
in millions |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
Subscriber revenue |
$ |
3,419 |
|
72 |
|
3,491 |
|
|
Formula 1 revenue |
$ |
1,346 |
|
3 |
|
1,349 |
|
|
Other revenue |
$ |
1,266 |
|
(2) |
|
1,264 |
|
|
|
|
|
|
|
|
|
|
|
Costs of subscriber services: |
|
|
|
|
|
|
|
|
Revenue share and royalties |
$ |
1,057 |
|
67 |
|
1,124 |
|
|
Subscriber acquisition costs |
$ |
352 |
|
3 |
|
355 |
|
|
Selling, general and administrative |
$ |
863 |
|
(1) |
|
862 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
834 |
|
4 |
|
838 |
|
Our customers generally pay for services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in our unaudited condensed consolidated statement of operations as the services are provided. Changes in the contract liability balance for SIRIUS XM during the three and nine months ended September 30, 2018 were not materially impacted by other factors. The opening and closing balances for our deferred revenue related to Formula 1 and Braves Holdings was approximately $59 million and $286 million, respectively. The primary cause for the increase related to the receipt of cash from our customers in advance of satisfying our performance obligations.
I-13
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
As the majority of SIRIUS XM contracts are one year or less, SIRIUS XM utilized the optional exemption under ASC 606 and has not disclosed information about the remaining performance obligations for contracts which have original expected durations of one year or less. As of September 30, 2018, less than ten percent of the SIRIUS XM total deferred revenue balance related to contracts that extended beyond one year. These contracts primarily include prepaid data trials which are typically provided for three to five years as well as for self-pay customers who prepay for their audio subscriptions for up to three years in advance. These amounts will be recognized on a straight-line basis as SIRIUS XM’s services are provided.
Significant portions of the transaction prices for Formula 1 and Braves Holdings are related to undelivered performance obligations that are under contractual arrangements that extend beyond one year. The Company anticipates recognizing revenue from the delivery of such performance obligations of approximately $381 million for the remainder of 2018, $1,882 million in 2019, $1,659 million in 2020, $4,391 million in 2021 through 2026, and $403 million thereafter, primarily recognized through 2035. We have not included any amounts in the undelivered performance obligations amounts for Formula 1 and Braves Holdings for those performance obligations that relate to a contract with an original expected duration of one year or less.
Below is a summary of the impacts of the new revenue standard on SIRIUS XM, Formula 1 and Braves Holdings.
SIRIUS XM
The following table disaggregates SIRIUS XM’s revenue by source:
|
|
Three months ended September 30, 2018 |
|
Nine months ended September 30, 2018 |
|
|
|
|
in millions |
|
|||
|
Subscriber |
$ |
1,163 |
|
3,419 |
|
|
Advertising |
|
46 |
|
135 |
|
|
Equipment |
|
41 |
|
113 |
|
|
Music Royalty and Other |
|
218 |
|
608 |
|
|
Total SIRIUS XM revenue |
$ |
1,468 |
|
4,275 |
|
The new revenue standard primarily impacts how SIRIUS XM accounts for revenue share payments as well as other immaterial impacts.
SIRIUS XM previously recorded revenue share related to paid-trials as Revenue share and royalties expense. Under the new guidance, SIRUS XM has recorded these revenue share payments as a reduction to revenue as the payments do not transfer a distinct good or service to SIRIUS XM. Prior to the adoption, a portion of deferred revenue was for the revenue share related to paid trials. Under the new revenue standard, SIRIUS XM reclassified the revenue share related to paid-trials existing as of the date of adoption from current portion of deferred revenue to accounts payable and accrued liabilities. For new paid-trials, the net amount of the paid trial is recorded as deferred revenue and the portion of revenue share is recorded to accounts payable and accrued liabilities.
Activation fees were previously recognized over the expected subscriber life using the straight-line method. Under the new guidance, the activation fees have been recognized over a one month period from activation as the activation fees are non-refundable and they do not convey a material right. Loyalty payments to major automakers (“OEMs”) were previously expensed when incurred as subscriber acquisition costs. Under the new guidance, these costs have been capitalized in other current assets as costs to obtain a contract and these costs will be amortized to subscriber acquisition costs over an average self-pay subscriber life of that OEM. These changes do not have a material impact to the condensed consolidated financial statements.
I-14
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
The following is a description of principal activities from which SIRIUS XM generates its revenue - including from subscribers, advertising, and sales of equipment.
Subscriber revenue. Subscriber revenue consists primarily of subscription fees and other ancillary subscription based revenues. Revenue is recognized on a straight line basis when the performance obligations to provide each service for the period are satisfied, which is over time as SIRIUS XM’s subscription services are continuously transmitted and can be consumed by customers at any time. Consumers purchasing or leasing a vehicle with a factory-installed satellite radio typically receive between a three and twelve month subscription to SIRIUS XM’s service. In certain cases, the subscription fee for these consumers are prepaid by the applicable automaker. Prepaid subscription