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 June 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
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 July 31, 2018 was:

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

Series C

 

Liberty SiriusXM common stock

 

102,797,157

 

9,821,531

 

217,895,129

 

Liberty Braves common stock

 

10,244,042

 

981,860

 

39,738,398

 

Liberty Formula One common stock

 

25,659,680

 

2,454,126

 

202,809,478

 

 

 

 

 

 


 

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-42

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

I-58

 

Item 4. Controls and Procedures

I-58

 

 

 

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-2

 

 

 

SIGNATURES 

II-3

 

 

 

 

I-2


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

June 30, 2018

    

December 31, 2017

 

 

amounts in millions

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

485

 

1,029

 

Trade and other receivables, net

 

428

 

358

 

Other current assets

 

414

 

356

 

Total current assets

 

1,327

 

1,743

 

Investments in debt and equity securities (note 8)

 

1,429

 

1,114

 

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

 

1,659

 

1,750

 

 

 

 

 

 

 

Property and equipment, at cost

 

3,755

 

3,596

 

Accumulated depreciation

 

(1,183)

 

(1,055)

 

 

 

2,572

 

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)

 

5,952

 

6,192

 

Other assets

 

811

 

599

 

Total assets

$

41,807

 

41,996

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

$

1,229

 

1,250

 

Current portion of debt

 

18

 

768

 

Deferred revenue

 

2,387

 

1,941

 

Other current liabilities

 

21

 

20

 

Total current liabilities

 

3,655

 

3,979

 

Long-term debt, including $2,401 million and $2,115 million measured at fair value at June 30, 2018 and December 31, 2017, respectively (note 11)

 

13,252

 

13,186

 

Deferred income tax liabilities

 

1,551

 

1,478

 

Other liabilities

 

884

 

779

 

Total liabilities

 

19,342

 

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)

 

 

 

 

 

 

 

 

    

June 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 102,784,629 shares at June 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 10,243,448 shares at June 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 25,656,286 shares at June 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 June 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 June 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 2,454,126 shares at June 30, 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 218,816,674 shares at June 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 39,734,704 shares at June 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 202,794,169 shares at June 30, 2018 and 202,720,588 shares at December 31, 2017 (note 3)

 

 

 2

 

 2

 

Additional paid-in capital

 

 

3,533

 

3,892

 

Accumulated other comprehensive earnings (loss), net of taxes

 

 

(69)

 

(35)

 

Retained earnings

 

 

13,419

 

13,081

 

Total stockholders' equity

 

 

16,888

 

16,943

 

Noncontrolling interests in equity of subsidiaries

 

 

5,577

 

5,631

 

Total equity

 

 

22,465

 

22,574

 

Commitments and contingencies (note 12)

 

 

 

 

 

 

Total liabilities and equity

 

$

41,807

 

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 

    

Six months ended

 

 

 

June 30,

 

June 30,

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

amounts in millions,

 

 

 

except per share amounts

 

Revenue:

 

 

 

 

 

 

 

 

 

 

Subscriber revenue

 

$

1,139

 

1,111

 

2,256

 

2,189

 

Formula 1 revenue

 

 

585

 

616

 

699

 

712

 

Other revenue

 

 

475

 

413

 

761

 

634

 

Total revenue

 

 

2,199

 

2,140

 

3,716

 

3,535

 

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

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Revenue share and royalties

 

 

404

 

293

 

714

 

570

 

Programming and content

 

 

105

 

96

 

206

 

192

 

Customer service and billing

 

 

95

 

95

 

189

 

192

 

Other

 

 

33

 

30

 

62

 

57

 

Cost of Formula 1 revenue

 

 

414

 

414

 

495

 

482

 

Subscriber acquisition costs

 

 

119

 

126

 

242

 

253

 

Other operating expense

 

 

121

 

153

 

192

 

194

 

Selling, general and administrative

 

 

303

 

288

 

568

 

527

 

Depreciation and amortization

 

 

231

 

223

 

447

 

387

 

 

 

 

1,825

 

1,718

 

3,115

 

2,854

 

Operating income (loss)

 

 

374

 

422

 

601

 

681

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(153)

 

(149)

 

(303)

 

(289)

 

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

 

 

22

 

16

 

14

 

12

 

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

 

 

58

 

(49)

 

211

 

(61)

 

Other, net

 

 

21

 

(4)

 

27

 

13

 

 

 

 

(52)

 

(186)

 

(51)

 

(325)

 

Earnings (loss) before income taxes

 

 

322

 

236

 

550

 

356

 

Income tax (expense) benefit

 

 

(67)

 

(80)

 

(82)

 

(156)

 

Net earnings (loss)

 

 

255

 

156

 

468

 

200

 

Less net earnings (loss) attributable to the noncontrolling interests

 

 

83

 

62

 

165

 

127

 

Net earnings (loss) attributable to Liberty stockholders

 

$

172

 

94

 

303

 

73

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) attributable to Liberty stockholders:

 

 

 

 

 

 

 

 

 

 

Liberty SiriusXM common stock

 

$

165

 

123

 

365

 

247

 

Liberty Braves common stock

 

 

(2)

 

(2)

 

(54)

 

(51)

 

Liberty Formula One common stock

 

 

 9

 

(27)

 

(8)

 

(123)

 

 

 

$

172

 

94

 

303

 

73

 

 (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 

    

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2018

    

2017

    

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

 

 

0.50

 

0.37

 

1.09

 

0.74

 

Series A, B and C Liberty Braves common stock

 

 

(0.04)

 

(0.04)

 

(1.06)

 

(1.04)

 

Series A, B and C Liberty Formula One common stock

 

 

0.04

 

(0.13)

 

(0.03)

 

(0.65)

 

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

 

 

 

 

 

 

 

 

 

 

Series A, B and C Liberty SiriusXM common stock

 

 

0.49

 

0.36

 

1.08

 

0.73

 

Series A, B and C Liberty Braves common stock

 

 

(0.04)

 

(0.04)

 

(1.06)

 

(1.04)

 

Series A, B and C Liberty Formula One common stock

 

 

0.04

 

(0.13)

 

(0.03)

 

(0.65)

 

 

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 

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

    

2018

    

2017

    

2018

    

2017

 

 

 

amounts in millions

 

Net earnings (loss)

 

$

255

 

156

 

468

 

200

 

Other comprehensive earnings (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2)

 

 6

 

 2

 

 6

 

Credit risk on fair value debt instruments gains (losses)

 

 

(12)

 

 —

 

(14)

 

 —

 

Unrealized holding gains (losses) arising during the period

 

 

(1)

 

(1)

 

(3)

 

(3)

 

Share of other comprehensive earnings (loss) of equity affiliates

 

 

(18)

 

 7

 

(27)

 

 9

 

Comprehensive earnings (loss)

 

 

222

 

168

 

426

 

212

 

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

 

80

 

62

 

159

 

129

 

Comprehensive earnings (loss) attributable to Liberty stockholders

 

$

142

 

106

 

267

 

83

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive earnings (loss) attributable to Liberty stockholders:

 

 

 

 

 

 

 

 

 

 

Liberty SiriusXM common stock

 

$

157

 

129

 

355

 

251

 

Liberty Braves common stock

 

 

(1)

 

(3)

 

(56)

 

(54)

 

Liberty Formula One common stock

 

 

(14)

 

(20)

 

(32)

 

(114)

 

 

 

$

142

 

106

 

267

 

83

 

 

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)

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

June 30,

 

 

    

2018

    

2017

 

 

 

amounts in millions

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

468

 

200

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

447

 

387

 

Stock-based compensation

 

 

99

 

97

 

Share of (earnings) loss of affiliates, net

 

 

(14)

 

(12)

 

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

 

 

(211)

 

61

 

Noncash interest expense (benefit)

 

 

(6)

 

 6

 

Deferred income tax expense (benefit)

 

 

72

 

176

 

Other, net

 

 

16

 

(4)

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Current and other assets

 

 

(99)

 

(37)

 

Payables and other liabilities

 

 

496

 

(135)

 

Net cash provided (used) by operating activities

 

 

1,268

 

739

 

Cash flows from investing activities:

 

 

 

 

 

 

Investments in equity method affiliates and debt and equity securities

 

 

(399)

 

(442)

 

Cash proceeds from sale of investments

 

 

243

 

 6

 

Net cash paid for the acquisition of Formula 1

 

 

 —

 

(1,647)

 

Capital expended for property and equipment

 

 

(191)

 

(266)

 

Other investing activities, net

 

 

47

 

(119)

 

Net cash provided (used) by investing activities

 

 

(300)

 

(2,468)

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings of debt

 

 

1,583

 

2,597

 

Repayments of debt

 

 

(2,418)

 

(1,791)

 

Proceeds from issuance of Series C Liberty Formula One common stock

 

 

 —

 

1,938

 

Series C Liberty SiriusXM stock repurchases

 

 

(218)

 

 —

 

Subsidiary shares repurchased by subsidiary

 

 

(334)

 

(784)

 

Cash dividends paid by subsidiary

 

 

(29)

 

(30)

 

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

 

 

(81)

 

(32)

 

Other financing activities, net

 

 

46

 

 8

 

Net cash provided (used) by financing activities

 

 

(1,451)

 

1,906

 

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

 

 

(1)

 

 5

 

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

 

 

(484)

 

182

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,047

 

572

 

Cash, cash equivalents and restricted cash at end of period

 

$

563

 

754

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

I-8


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement of Equity

(unaudited)

Six Months ended June 30, 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

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

303

 

165

 

468

 

Other comprehensive earnings (loss)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(36)

 

 —

 

(6)

 

(42)

 

Cumulative effect of accounting change (note 2)

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

 

39

 

 4

 

45

 

Stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

66

 

 —

 

 —

 

17

 

83

 

Withholding taxes on net share settlements of stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(81)

 

 —

 

 —

 

 —

 

(81)

 

Issuance of stock upon exercise of stock options

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

 

 —

 

 —

 

 —

 

 2

 

Series C Liberty SiriusXM stock repurchases

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(218)

 

 —

 

 —

 

 —

 

(218)

 

Shares repurchased by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(87)

 

 —

 

 —

 

(230)

 

(317)

 

Shares issued by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(34)

 

 —

 

 —

 

34

 

 —

 

Dividends paid by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(29)

 

(29)

 

Purchase of noncontrolling interest

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(9)

 

 —

 

 —

 

(9)

 

(18)

 

Other, net

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

 

 —

 

(4)

 

 —

 

(2)

 

Balance at June 30, 2018

 

$

 —

 

 1

 

 —

 

 2

 

 —

 

 —

 

 —

 

 —

 

 —

 

 2

 

3,533

 

(69)

 

13,419

 

5,577

 

22,465

 

 

See accompanying notes to condensed consolidated financial statements.

 

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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 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).

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Table of Contents

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 $5 million and $7 million of these allocated expenses were reimbursed to Liberty during the three months ended June 30, 2018 and 2017, respectively, and $13 million and $11 million were reimbursed during the six months ended June 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 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

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Table of Contents

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 June 30, 2018. 

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

 

 

 

 

 

 

Balances without

 

 

 

 

 

Impact of

 

adoption of

 

 

As reported

 

ASC 606

 

ASC 606

 

 

 

in millions

 

Revenue:

 

 

 

 

 

 

 

Subscriber revenue

$

1,139

 

24

 

1,163

 

Formula 1 revenue

$

585

 

(2)

 

583

 

 

 

 

 

 

 

 

 

Costs of subscriber services:

 

 

 

 

 

 

 

Revenue share and royalties

$

404

 

22

 

426

 

Subscriber acquisition costs

$

119

 

1

 

120

 

Selling, general and administrative

$

303

 

(1)

 

302

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

255

 

0

 

255

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018

 

 

 

 

 

 

 

Balances without

 

 

 

 

 

Impact of

 

adoption of

 

 

As reported

 

ASC 606

 

ASC 606

 

 

 

in millions

 

Revenue:

 

 

 

 

 

 

 

Subscriber revenue

$

2,256

 

48

 

2,304

 

Formula 1 revenue

$

699

 

(8)

 

691

 

 

 

 

 

 

 

 

 

Costs of subscriber services:

 

 

 

 

 

 

 

Revenue share and royalties

$

714

 

44

 

758

 

Subscriber acquisition costs

$

242

 

2

 

244

 

Selling, general and administrative

$

568

 

(1)

 

567

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

468

 

(5)

 

463

 

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 six months ended June 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 $458 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 June 30, 2018, less than ten percent of the SIRIUS XM total deferred revenue

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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 $1,090 million for the remainder of 2018, $1,863 million in 2019, $1,537 million in 2020, $4,081 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 June 30, 2018

 

Six months ended June 30, 2018

 

 

in millions

 

Subscriber

$

1,139

 

2,256

 

Advertising and sponsorship

 

47

 

89

 

Equipment

 

37

 

72

 

Music Royalty and Other

 

209

 

390

 

Total SIRIUS XM revenue

$

1,432

 

2,807

 

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.

 

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