lmca_Current folio_10Q

Table of Contents

  

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 March 31, 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
Englewood, Colorado

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☐
(do not check if smaller
reporting company)

 

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 April 30, 2018 was:

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

Series C

 

Liberty SiriusXM common stock

 

102,726,696

 

9,821,531

 

221,304,724

 

Liberty Braves common stock

 

10,243,448

 

981,860

 

39,734,701

 

Liberty Formula One common stock

 

25,652,457

 

2,454,448

 

202,790,466

 

 

 

 

 

 


 

Table of Contents

 

Table of Contents

 

 

 

 

Part I – Financial Information

 

Item 1. Financial Statements 

 

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited) 

I-3

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Operations (unaudited) 

I-5

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Comprehensive Earnings (Loss) (unaudited) 

I-7

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Cash Flows (unaudited) 

I-8

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement Of Equity (unaudited) 

I-9

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) 

I-10

 

 

 

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

I-43

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

I-58

 

Item 4. Controls and Procedures

I-59

 

 

 

Part II — Other Information 

 

 

Item 1. Legal Proceedings

II-1

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

II-1

 

Item 6. Exhibits

II-1

 

 

 

SIGNATURES 

II-3

 

 

 

 

I-2


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

March 31, 2018

    

December 31, 2017

 

 

amounts in millions

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

1,042

 

1,029

 

Trade and other receivables, net

 

394

 

358

 

Other current assets

 

483

 

376

 

Total current assets

 

1,919

 

1,763

 

Investments in debt and equity securities (note 8)

 

1,573

 

1,114

 

Investments in affiliates, accounted for using the equity method (note 9)

 

1,658

 

1,750

 

 

 

 

 

 

 

Property and equipment, at cost

 

3,727

 

3,596

 

Accumulated depreciation

 

(1,124)

 

(1,055)

 

 

 

2,603

 

2,541

 

Intangible assets not subject to amortization (note 10):

 

 

 

 

 

Goodwill

 

18,383

 

18,383

 

FCC licenses

 

8,600

 

8,600

 

Other

 

1,074

 

1,074

 

 

 

28,057

 

28,057

 

Intangible assets subject to amortization, net (note 10)

 

6,015

 

6,131

 

Other assets

 

715

 

640

 

Total assets

$

42,540

 

41,996

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

$

1,064

 

1,250

 

Current portion of debt

 

36

 

768

 

Deferred revenue

 

2,463

 

1,941

 

Other current liabilities

 

24

 

20

 

Total current liabilities

 

3,587

 

3,979

 

Long-term debt, including $2,482 million and $2,115 million measured at fair value at March 31, 2018 and December 31, 2017, respectively (note 11)

 

14,077

 

13,186

 

Deferred income tax liabilities

 

1,510

 

1,478

 

Other liabilities

 

891

 

779

 

Total liabilities

 

20,065

 

19,422

 

 

(Continued)

 

See accompanying notes to condensed consolidated financial statements.

I-3


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

 

 

 

 

 

 

 

    

March 31, 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 102,726,319 shares at March 31, 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 10,243,448 shares at March 31, 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 25,652,457 shares at March 31, 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 March 31, 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 March 31, 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 2,454,448 shares at March 31, 2018 and December 31, 2017 (note 3)

 

 

 —

 

 —

 

Series C Liberty SiriusXM common stock, $.01 par value. Authorized 2,000,000,000 shares; issued and outstanding 222,965,783 shares at March 31, 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 39,734,701 shares at March 31, 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 202,790,466 shares at March 31, 2018 and 202,720,588 shares at December 31, 2017 (note 3)

 

 

 2

 

 2

 

Additional paid-in capital

 

 

3,764

 

3,892

 

Accumulated other comprehensive earnings (loss), net of taxes

 

 

(39)

 

(35)

 

Retained earnings

 

 

13,247

 

13,081

 

Total stockholders' equity

 

 

16,977

 

16,943

 

Noncontrolling interests in equity of subsidiaries

 

 

5,498

 

5,631

 

Total equity

 

 

22,475

 

22,574

 

Commitments and contingencies (note 12)

 

 

 

 

 

 

Total liabilities and equity

 

$

42,540

 

41,996

 

 

 

See accompanying notes to condensed consolidated financial statements.

I-4


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2018

    

2017

 

 

 

amounts in millions,

 

 

 

except per share amounts

 

Revenue:

 

 

 

 

 

 

Subscriber revenue

 

$

1,117

 

1,078

 

Formula 1 revenue

 

 

114

 

96

 

Other revenue

 

 

286

 

221

 

Total revenue

 

 

1,517

 

1,395

 

Operating costs and expenses, including stock-based compensation (note 5):

 

 

 

 

 

 

Cost of subscriber services (exclusive of depreciation shown separately below):

 

 

 

 

 

 

Revenue share and royalties

 

 

310

 

277

 

Programming and content

 

 

101

 

96

 

Customer service and billing

 

 

94

 

97

 

Other

 

 

29

 

27

 

Cost of Formula 1 revenue

 

 

81

 

68

 

Subscriber acquisition costs

 

 

123

 

127

 

Other operating expense

 

 

71

 

41

 

Selling, general and administrative

 

 

265

 

239

 

Depreciation and amortization

 

 

216

 

164

 

 

 

 

1,290

 

1,136

 

Operating income (loss)

 

 

227

 

259

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

 

(150)

 

(140)

 

Share of earnings (losses) of affiliates, net (note 9)

 

 

(8)

 

(4)

 

Realized and unrealized gains (losses) on financial instruments, net (note 7)

 

 

153

 

(12)

 

Other, net

 

 

 6

 

17

 

 

 

 

 1

 

(139)

 

Earnings (loss) before income taxes

 

 

228

 

120

 

Income tax (expense) benefit

 

 

(15)

 

(76)

 

Net earnings (loss)

 

 

213

 

44

 

Less net earnings (loss) attributable to the noncontrolling interests

 

 

82

 

65

 

Net earnings (loss) attributable to Liberty stockholders

 

$

131

 

(21)

 

 

 

 

 

 

 

 

Net earnings (loss) attributable to Liberty stockholders:

 

 

 

 

 

 

Liberty SiriusXM common stock

 

$

200

 

124

 

Liberty Braves common stock

 

 

(52)

 

(49)

 

Liberty Formula One common stock

 

 

(17)

 

(96)

 

 

 

$

131

 

(21)

 

 (Continued)

See accompanying notes to condensed consolidated financial statements.

I-5


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2018

    

2017

 

Basic net earnings (loss) attributable to Liberty stockholders per common share
(notes 3 and 6):

 

 

 

 

 

 

Series A, B and C Liberty SiriusXM common stock

 

 

0.60

 

0.37

 

Series A, B and C Liberty Braves common stock

 

 

(1.02)

 

(1.00)

 

Series A, B and C Liberty Formula One common stock

 

 

(0.07)

 

(0.55)

 

Diluted net earnings (loss) attributable to Liberty stockholders per common share
(notes 3 and 6):

 

 

 

 

 

 

Series A, B and C Liberty SiriusXM common stock

 

 

0.59

 

0.37

 

Series A, B and C Liberty Braves common stock

 

 

(1.02)

 

(1.00)

 

Series A, B and C Liberty Formula One common stock

 

 

(0.07)

 

(0.55)

 

 

See accompanying notes to condensed consolidated financial statements.

I-6


 

Table of Contents

 

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Comprehensive Earnings (Loss)

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2018

    

2017

 

 

 

amounts in millions

 

Net earnings (loss)

 

$

213

 

44

 

Other comprehensive earnings (loss), net of taxes:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 4

 

 —

 

Credit risk on fair value debt instruments gains (losses)

 

 

(2)

 

 —

 

Unrealized holding gains (losses) arising during the period

 

 

(2)

 

(2)

 

Share of other comprehensive earnings (loss) of equity affiliates

 

 

(9)

 

 2

 

Comprehensive earnings (loss)

 

 

204

 

44

 

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

 

79

 

65

 

Comprehensive earnings (loss) attributable to Liberty stockholders

 

$

125

 

(21)

 

 

 

 

 

 

 

 

Comprehensive earnings (loss) attributable to Liberty stockholders:

 

 

 

 

 

 

Liberty SiriusXM common stock

 

$

198

 

124

 

Liberty Braves common stock

 

 

(55)

 

(51)

 

Liberty Formula One common stock

 

 

(18)

 

(94)

 

 

 

$

125

 

(21)

 

 

See accompanying notes to condensed consolidated financial statements.

I-7


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2018

    

2017

 

 

 

amounts in millions

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

213

 

44

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

216

 

164

 

Stock-based compensation

 

 

46

 

44

 

Share of (earnings) loss of affiliates, net

 

 

 8

 

 4

 

Realized and unrealized (gains) losses on financial instruments, net

 

 

(153)

 

12

 

Noncash interest expense

 

 

 —

 

 2

 

Deferred income tax expense (benefit)

 

 

20

 

126

 

Other, net

 

 

17

 

 2

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Current and other assets

 

 

(97)

 

 8

 

Payables and other liabilities

 

 

354

 

(3)

 

Net cash provided (used) by operating activities

 

 

624

 

403

 

Cash flows from investing activities:

 

 

 

 

 

 

Investments in equity method affiliates and debt and equity securities

 

 

(393)

 

(5)

 

Cash proceeds from sale of investments

 

 

 9

 

 —

 

Net cash paid for the acquisition of Formula 1

 

 

 —

 

(1,647)

 

Capital expended for property and equipment

 

 

(89)

 

(156)

 

Other investing activities, net

 

 

49

 

11

 

Net cash provided (used) by investing activities

 

 

(424)

 

(1,797)

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings of debt

 

 

1,317

 

1,844

 

Repayments of debt

 

 

(1,154)

 

(1,154)

 

Proceeds from issuance of Series C Liberty Formula One common stock

 

 

 —

 

1,550

 

Series C Liberty SiriusXM stock repurchases

 

 

(31)

 

 —

 

Subsidiary shares repurchased by subsidiary

 

 

(309)

 

(306)

 

Cash dividends paid by subsidiary

 

 

(15)

 

(15)

 

Taxes paid in lieu of shares issued for stock-based compensation

 

 

(28)

 

(22)

 

Other financing activities, net

 

 

50

 

 5

 

Net cash provided (used) by financing activities

 

 

(170)

 

1,902

 

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash

 

 

 2

 

 1

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

32

 

509

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,047

 

572

 

Cash, cash equivalents and restricted cash at end of period

 

$

1,079

 

1,081

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

I-8


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement Of Equity

(unaudited)

Three months ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

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

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

131

 

82

 

213

 

Other comprehensive earnings (loss)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(6)

 

 —

 

(3)

 

(9)

 

Cumulative effect of accounting change (note 2)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

 

39

 

 4

 

45

 

Stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

32

 

 —

 

 —

 

 9

 

41

 

Withholding taxes on net share settlements of stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(28)

 

 —

 

 —

 

 —

 

(28)

 

Series C Liberty SiriusXM stock repurchases

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(31)

 

 —

 

 —

 

 —

 

(31)

 

Shares repurchased by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(80)

 

 —

 

 —

 

(215)

 

(295)

 

Shares issued by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(13)

 

 —

 

 —

 

13

 

 —

 

Dividends paid by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(15)

 

(15)

 

Purchase of noncontrolling interest

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(9)

 

 —

 

 —

 

(9)

 

(18)

 

Other, net

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 1

 

 —

 

(4)

 

 1

 

(2)

 

Balance at March 31, 2018

 

$

 —

 

 1

 

 —

 

 2

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

 

3,764

 

(39)

 

13,247

 

5,498

 

22,475

 

 

See accompanying notes to condensed consolidated financial statements.

 

I-9


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1)   Basis of Presentation

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 of which 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), Facilities Sharing Agreements (excluding Starz and CommerceHub) and Tax Sharing Agreements (in the case of Starz and Liberty Broadband only).

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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, 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, 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, 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 $5 million of these allocated expenses were reimbursed to Liberty during the three months ended March 31, 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 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 Accounting Pronouncements

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 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.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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

$

376

 

55

 

431

 

Other assets

$

640

 

37

 

677

 

 

 

 

 

 

 

 

 

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 March 31, 2018. 

 

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2018

 

 

 

 

 

Impact of

 

Balances without

 

 

 

 

 

adopting

 

adoption of

 

 

As reported

 

ASC 606

 

ASC 606

 

 

 

in millions

 

Revenue:

 

 

 

 

 

 

 

Subscriber revenue

$

1,117

 

24

 

1,141

 

Formula 1 revenue

$

114

 

(6)

 

108

 

 

 

 

 

 

 

 

 

Costs of subscriber services:

 

 

 

 

 

 

 

Revenue share and royalties

$

310

 

22

 

332

 

Subscriber acquisition costs

$

123

 

1

 

124

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

213

 

(5)

 

208

 

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 months ended March 31, 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 $552 million, respectively.  The primary cause for the increase related to the receipt of cash from our customers in advance of satisfying our performance obligations.

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 March, 31, 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 $1,675 million for the remainder of 2018, $1,752 million in 2019, $1,439 million in 2020, $3,912 million in 2021 through 2026, and $401 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.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

SIRIUS XM

The following table disaggregates SIRIUS XM’s revenue by source:

 

 

 

 

 

 

Three months ended March 31, 2018

 

 

in millions

 

Subscriber

$

1,117

 

Advertising and sponsorship

 

42

 

Equipment

 

35

 

Music Royalty and Other

 

181

 

Total SIRIUS XM revenue

$

1,375

 

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 will be recorded as deferred revenue and the portion of revenue share will be 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.

 

The following is a description of principal activities from which SIRIUS XM generates its revenue - including from subscribers, advertising, and sales of equipment.

 

Subscription revenue. Subscription 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 fees received from certain automakers or directly from consumers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon sale and activation.  Activation fees are recognized over one month as the activation fees are non-refundable and do not provide for a material right to the customer.  There is no revenue recognized for unpaid trial subscriptions. In some cases, SIRIUS XM pays a loyalty fee to the OEM when it receives a certain amount of payments from self-pay customers acquired from that OEM. These fees are considered incremental costs to obtain a contract and are therefore recognized as an asset and amortized to Subscriber acquisition costs over an average subscriber life of that OEM.  Revenue share and loyalty fees paid to the OEM offering a paid trial are accounted for as a reduction of revenue as the payment does not provide a distinct good or service.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

Advertising and sponsorship revenue. SIRIUS XM recognizes revenue from the sale of advertising as performance obligations are satisfied upon airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is transmitted.  Agency fees are calculated based on a stated percentage applied to gross billing revenue for SIRIUS XM’s advertising inventory and are reported as a reduction of advertising revenue.  Additionally, SIRIUS XM pays certain third parties a percentage of advertising revenue.  Advertising revenue is recorded gross of such revenue share payments as SIRIUS XM controls the advertising service including the ability to establish pricing and SIRIUS XM is primarily responsible for providing the service.  Advertising revenue share payments are recorded to revenue share and royalties during the period in which the advertising is transmitted.

 

Equipment revenue. Equipment revenue and royalties from the sale of satellite radios, components and accessories are recognized when the performance obligation is satisfied and control is transferred, which is generally upon shipment.  Revenue is recognized net of discounts and rebates.  

 

Music Royalty and Other revenue. Music royalty and other revenue primarily consists of U.S. music royalty fees ("MRF").  The related costs SIRIUS XM incurs for the right to broadcast music and other programming are recorded as revenue share and royalties expense.  Fees received from subscribers for the MRF are recorded as deferred revenue and amortized to revenue ratably over the service period as the royalties relate to the subscription services which are continuously delivered to SIRIUS XM’s customers.

Formula 1

The following table disaggregates Formula 1’s revenue by source:

 

 

 

 

 

Three months ended March 31, 2018

 

 

in millions

 

Primary

$

85

 

Other

 

29

 

Total Formula 1 revenue

$

114

 

The new revenue standard has an immaterial interim period timing impact to revenue recognition for the three months ended March 31, 2018 such that the timing on a full year basis will not be impacted as compared to how revenue was historically recorded.  The immaterial difference in timing of revenue recognition for the three months ended March 31, 2018 under the new revenue standard is the result of recognizing revenue as the performance obligations are satisfied over time with respect to certain advertising and sponsorship arrangements. 

Upon entering into a new arrangement, Formula 1 occasionally incurs certain incremental costs of obtaining a contract.  These incremental costs relate to commission amounts that will be paid over the life of the contract for which the recipient does not have any substantive future performance requirement to earn such commission.  Accordingly, the commission costs will be capitalized and amortized over the life of the contract.  Upon adoption of the new revenue standard, Formula 1 recorded a contract cost asset and a corresponding commission payable.

The following is a description of principal activities from which Formula 1 generates its revenue. 

Primary revenue. Formula 1 derives the majority of its revenue from race promotion, broadcasting and advertising and sponsorship arrangements. Revenue derived from broadcasting and advertising arrangements is (i) recognized on an event by event basis for those performance obligations associated with a specific event based on the fees within the underlying contractual arrangement and (ii) recognized over time for those performance obligations associated with a period of time that is greater than a single specific event (for example, over the entire race season or calendar year) based

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

on the fees within the underlying contractual arrangement. Revenue from granting rights to host, stage and promote events is recognized upon the occurrence of the event. 

 

Other revenue. Formula 1 also earns revenue from teams and other parties for administering the shipment of cars and equipment to and from the events outside of Europe, revenue from the sale of tickets to the Formula One Paddock Club event-based hospitality, various TV production and post-production activities, and revenue from other licensing of the Formula 1 brand. To the extent such revenue relates to services provided or rights associated with a specific event, the revenue is recognized upon occurrence of the related event and to the extent such revenue relates to services provided or rights associated over a longer period of time, the revenue is recognized over time.

Braves Holdings

The following table disaggregates Braves Holdings’ revenue by source:

 

 

 

 

 

Three months ended March 31, 2018

 

 

in millions

 

Baseball

$

20

 

Development

 

 8

 

Total Braves Holdings revenue

$

28

 

 

The new revenue standard primarily impacted Braves Holdings revenue recognition related to broadcast rights revenue. Under the old revenue standard, Braves Holdings recognized revenue from its broadcast rights arrangements limited to the amounts that were not contingent on the provision of future goods or services, which resulted in revenue recognition approximating the cash received.  Upon adoption of the new revenue standard, Braves Holdings is required to estimate the entire transaction price of the contractual arrangements and recognize revenue allocated to each of the performance obligations within the contractual arrangements as those performance obligations are satisfied.  Such performance obligations are typically satisfied over time and result in differences between revenue recognized and cash received, dependent on how far into a contractual arrangement Braves Holdings is at any given reporting period.  The result of the new revenue standard is an immaterial change in revenue recognized during the three months ended March 31, 2018 and an immaterial effect to the condensed consolidated balance sheet as compared to the old revenue standard. 

The following is a description of principal activities from which Braves Holdings generates its revenue. 

 

Baseball revenue. Revenue for Braves Holdings ticket sales, signage and suites are recognized on a per game basis during the baseball season based on a pro rata share of total revenue earned during the entire baseball season to the total number of home games during the season. Broadcasting rights are recognized on a per game basis during the baseball season based on the pro rata number of games played to date to the total number of games during the season. Prior to 2016, concession revenue was recognized as commissions were earned from the sale of food and beverage at the stadium in accordance with agreements with Braves Holdings’ concessions vendors. Beginning in 2016, Braves Holdings brought its retail operations in-house and engaged a new concessions operator. As a result, concession revenue is recognized on a per game basis during the baseball season. Major League Baseball (“MLB”) revenue is earned throughout the year based on an estimate of revenue generated by MLB on behalf of the 30 MLB clubs. Sources of MLB revenue include distributions from the MLB Central Fund, distributions from MLB Properties and revenue sharing income, if applicable.

 

Development revenue. Revenue from Braves Holdings’ minimum rents are recognized on a straight‑line basis over the terms of their respective lease agreements. Some retail tenants are required to pay overage rents based on sales over a

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

stated base amount during the lease term. Overage rents are only recognized when each tenant’s sales exceed the applicable sales threshold. Tenants reimburse Braves Holdings for a substantial portion of Braves Holdings operating expenses, including common area maintenance, real estate taxes and property insurance. Braves Holdings accrues reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred. Braves Holdings recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented. Sponsorship revenue is recognized on a straight-line basis over each annual period. 

In January 2016, the FASB issued new accounting guidance that is intended to improve the recognition and measurement of financial instruments. The new guidance requires equity investments with readily determinable fair values (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, for financial liabilities for which the fair value option has been elected, entities are required to present separately in other comprehensive income the portion of the total changes in the fair value of the liability resulting from a change in the instrument-specific credit risk. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this guidance effective January 1, 2018. As the Company has historically measured its investments in equity securities with readily determinable fair values at fair value and recognized changes in fair value in net income, the new guidance had no impact on the accounting for these instruments. The Company has elected the measurement alternative for its equity securities without readily determinable fair values and will perform a qualitative assessment of these instruments to identify potential impairments. The adoption of this guidance with respect to the Company’s equity securities without readily determinable fair values did not have a material impact on the Company’s financial statements. See notes 7 and 8 for information related to the Company’s equity securities. The Company has elected the fair value option for its exchangeable debt. Prior to the adoption of this new guidance, the Company recognized all changes in the fair value of its exchangeable debt in realized and unrealized gains (losses) on financial instruments in the condensed consolidated statements of operations. Upon adoption, the Company recorded an immaterial adjustment to beginning retained earnings to reflect the amount of comprehensive earnings related to the changes in the instrument-specific credit risk related to the Company’s exchangeable debt.

In November 2016, the FASB issued a new accounting standard which requires that the statement of cash flows include restricted cash and cash equivalents when reconciling beginning and ending cash. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted this new guidance effective January 1, 2018. Upon adoption, the Company added restricted cash to the reconciliation of beginning and ending cash and cash equivalents and included a reconciliation of total cash and cash equivalents and restricted cash to the balance sheet for each period presented in the unaudited consolidated statements of cash flows. The following table reconciles cash and cash equivalents and restricted cash reported in our condensed consolidated balance sheets to the total amount presented in our condensed consolidated statements of cash flows:

 

 

 

 

 

 

 

March 31, 2018

    

December 31, 2017

 

 

amounts in millions

 

Cash and cash equivalents

$

1,042

 

1,029

 

Restricted cash included in other current assets

 

27

 

 8

 

Restricted cash included in other assets

 

10

 

10

 

Total cash and cash equivalents and restricted cash at end of period

$

1,079

 

1,047

 

In August 2016, the FASB issued new accounting guidance which addresses eight specific cash flow issues to reduce the diversity in practice for appropriate classification on the statement of cash flows. The Company has adopted this

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

guidance during the first quarter of 2018, and there was no significant effect of the standard on its condensed consolidated financial statements.

In October 2016, the FASB issued new accounting guidance on income tax accounting associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving intellectual property. This new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Upon adoption, an entity may apply the new guidance only on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued new accounting guidance on lease accounting. This guidance requires a company to recognize lease assets and lease liabilities arising from operating leases in the statement of financial position. Additionally, the criteria for classifying a lease as a finance lease versus an operating lease are substantially the same as the previous guidance. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. We plan to adopt this guidance on January 1, 2019. Companies are required to use a modified retrospective approach to adopt this guidance.  The Company is currently working with its consolidated subsidiaries to evaluate the impact of the adoption of this new guidance on our consolidated financial statements, including identifying the population of leases, evaluating technology solutions and collecting lease data.

 

In February 2018, the FASB issued new accounting guidance on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Act that was passed in December of 2017 from accumulated other comprehensive income directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement.  The guidance is effective for interim and fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect this new guidance will have a material impact to its consolidated financial statements or related disclosures.

(3)  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. While the Liberty SiriusXM Group, Braves Group and Formula One Group have separate collections of businesses, assets and liabilities attributed to them, no group is a separate legal entity and therefore cannot own assets, issue securities or enter into legally binding agreements. Therefore, the Liberty SiriusXM Group, Braves Group and Formula One Group do not represent separate legal entities, but rather represent those businesses, assets and liabilities that have been attributed to each respective group. Holders of tracking stock have no direct claim to the group's stock or assets and therefore, do not own, by virtue of their ownership of a Liberty tracking stock, any equity or voting interest in a public company, such as SIRIUS XM or Live Nation, in which Liberty holds an interest and that is attributed to a Liberty tracking stock group, such as the Liberty SiriusXM Group or the Formula One Group.  Holders of tracking stock are also not represented by separate boards of directors. Instead, holders of tracking stock are stockholders of the parent corporation, with a single board of directors and subject to all of the risks and liabilities of the parent corporation.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

The Liberty SiriusXM common stock is intended to track and reflect the separate economic performance of the businesses, assets and liabilities attributed to the Liberty SiriusXM Group. As of March 31, 2018, the Liberty SiriusXM Group is comprised of SIRIUS XM, corporate cash, Liberty’s 2.125% Exchangeable Senior Debentures due 2048 and a margin loan obligation incurred by a wholly-owned special purpose subsidiary of Liberty. As of March 31, 2018, the Liberty SiriusXM Group has cash and cash equivalents of approximately $658 million, which includes $79 million of subsidiary cash. On January 23, 2018, SIRIUS XM’s board of directors declared a quarterly dividend on its common stock in the amount of $0.011 per share of common stock to stockholders of record at the close of business on February 7, 2018. The dividend was paid in cash on February 28, 2018 in the amount of $49 million, of which Liberty has received $35 million. On April 26, 2018, SIRIUS XM’s board of directors declared a quarterly dividend on its common stock in the amount of $0.011 per share of common stock payable on May 31, 2018 to stockholders of record as of the close of business on May 10, 2018.

The Liberty Braves common stock is intended to track and reflect the separate economic performance of the businesses, assets and liabilities attributed to the Braves Group. As of March 31, 2018, the Braves Group is comprised primarily of Braves Holdings, LLC (“Braves Holdings”), which indirectly owns the Atlanta Braves Major League Baseball Club (“ANLBC”) and certain assets and liabilities associated with ANLBC’s stadium and mixed use development project (the “Development Project”) and corporate cash. As of March 31, 2018, the Braves Group has cash and cash equivalents of approximately $114 million.

The Liberty Formula One common stock is intended to track and reflect the separate economic performance of the businesses, assets and liabilities attributed to the Formula One Group. As of March 31, 2018, the Formula One Group is comprised of all of the businesses, assets and liabilities of Liberty, other than those specifically attributed to the Braves Group or the Liberty SiriusXM Group, including Liberty’s interests in Formula 1 and Live Nation,  a minority equity investment in Time Warner, Inc. (“Time Warner”), cash, an intergroup interest in the Braves Group, Liberty’s 1.375% Cash Convertible Notes due 2023 and related financial instruments, Liberty’s 2.25% Exchangeable Senior Debentures due 2046 and Liberty’s 1% Cash Convertible Notes due 2023. As of March 31, 2018, the Formula One Group has cash and cash equivalents of approximately $270 million, which includes $140 million of subsidiary cash.

The number of notional shares representing the intergroup interest held by the Formula One Group is 9,084,940, representing a 15.1% intergroup interest in the Braves Group at March 31, 2018. The intergroup interest is a quasi-equity interest which is not represented by outstanding shares of common stock; rather, the Formula One Group has an attributed value in the Braves Group which is generally stated in terms of a number of shares of Series C Liberty Braves common stock issuable to the Formula One Group with respect to its interest in the Braves Group. The intergroup interest may be settled, at the discretion of the Board of Directors, through the transfer of newly issued shares of Liberty Braves common stock, cash and/or other assets to the Formula One Group. Accordingly, the intergroup interest attributable to the Formula One Group is presented as an asset and the intergroup interest attributable to the Braves Group is presented as a liability in the attributed financial statements and the offsetting amounts between tracking stock groups are eliminated in consolidation. The intergroup interest will remain outstanding until the redemption of the outstanding interest, at the discretion of the Company’s Board of Directors, through a transfer of securities, cash and/or other assets from the Braves Group to the Formula One Group.

See Exhibit 99.1 to this Quarterly Report on Form 10-Q for unaudited attributed financial information for Liberty's tracking stock groups.

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(4)  Acquisitions

 

Formula 1

 

On January 23, 2017, Liberty completed the acquisition of 100% of the fully diluted equity interests of Delta Topco, the parent company of Formula 1 (the “Second Closing”), at which time Liberty began consolidating Formula 1. The transaction price for the acquisition represented an enterprise value for Formula 1 of approximately $8.0 billion and an equity value of approximately $4.4 billion. The total consideration at the time of closing was $4.7 billion comprised of $3.05 billion of cash and approximately $1.6 billion represented by approximately 56 million newly issued shares of Series C Liberty Formula One common stock.

 

In connection with the transaction, Liberty entered into a $500 million margin loan on November 8, 2016, secured by shares of Live Nation and other public equity securities held by Liberty (the ‘‘Live Nation Margin Loan’’). Liberty drew approximately $350 million to use for the purchase of Formula 1 on January 20, 2017. See note 11 for additional discussion regarding the Live Nation Margin Loan.

On January 23, 2017, the Company issued 62 million new shares of Series C Liberty Formula One common stock, which were subject to market co-ordination and lock-up agreements, to certain third party investors at a price per share of $25.00 to increase the cash component of the consideration payable to the selling shareholders in the Formula 1 acquisition by $1.55 billion.

Also on January 23, 2017, the Company used a portion of the net proceeds of its $450 million offering of 1% Cash Convertible Notes due 2023, as discussed in note 11, to further increase the cash consideration payable to the selling shareholders by approximately $400 million.

The final acquisition price allocation for Formula 1 is as follows:

 

 

 

 

 

Ownership interest held prior to the Second Closing

 

$

759

 

Controlling interest acquired

 

 

3,939

 

Total acquisition price

 

$

4,698

 

 

 

 

 

 

Cash and cash equivalents

 

$

644

 

Receivables

 

 

136

 

Goodwill

 

 

3,956

 

Intangible assets subject to amortization

 

 

5,484

 

Other assets

 

 

153

 

Deferred revenue

 

 

(141)

 

Debt

 

 

(4,528)

 

Other liabilities assumed

 

 

(516)

 

Deferred tax liabilities

 

 

(490)

 

 

 

$

4,698

 

 

Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, value associated with future customers, continued innovation and noncontractual relationships. Formula 1 amortizable intangible assets were comprised of an agreement with the Fédération

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Internationale de l’Automobile (the “FIA,” and the agreement, the “FIA Agreement”) ($3.6 billion with a remaining useful life of approximately 35 years) and customer relationships of $1.9 billion with a weighted average remaining life of approximately 11.5 years. The FIA owns the World Championship and has granted Formula 1 the exclusive commercial rights to the World Championship until the end of 2110. None of the acquired goodwill is expected to be deductible for tax purposes.

Included in net earnings (loss) for the three months ended March 31, 2017 is a loss of approximately $167 million related to Formula 1’s operations since the date of acquisition, which includes amortization expense of approximately $70 million, primarily related to the amortization of the fair value step-up of amortizable intangible assets acquired.

The unaudited pro forma revenue and net earnings of Liberty, prepared utilizing the historical financial statements of Formula 1, giving effect to acquisition accounting related adjustments made at the time of acquisition, as if the acquisition of Formula 1 discussed above occurred on January 1, 2016, are as follows:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

March 31,

 

 

 

 

 

2017

 

 

 

 

 

amounts in millions

 

 

 

Revenue

 

$

1,396

 

 

 

Net earnings (loss)

 

$

(31)

 

 

 

Net earnings (loss) attributable to Liberty stockholders

 

$

(96)

 

 

 

 

The pro forma results include adjustments primarily related to the amortization of acquired intangible assets. The pro forma information is not representative of the Company’s future results of operations nor does it reflect what the Company’s results of operations would have been if the acquisition of Formula 1 had occurred previously and the Company consolidated Formula 1 during the entirety of the period presented.

 

(5)   Stock-Based Compensation

Liberty grants, to certain of its directors, employees and employees of its subsidiaries, restricted stock, restricted stock units (“RSUs”) and stock options to purchase shares of its common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options and restricted stock) based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Included in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation, as discussed below:

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2018

    

2017

 

 

 

(amounts in millions)

 

Cost of subscriber services:

 

 

 

 

 

 

Programming and content

 

$

 8

 

 7

 

Customer service and billing

 

 

 1

 

 1

 

Other

 

 

 1

 

 1

 

Other operating expense

 

 

 4

 

 4

 

Selling, general and administrative

 

 

32

 

31

 

 

 

$

46

 

44

 

 

Liberty—Grants of stock options

Awards granted during the three months ended March 31, 2018 are summarized as follows:

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2018

 

 

Options

 

Weighted

 

 

granted

 

average