UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K/A

(Amendment No. 2)

 

            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2013

 

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

 

20-8988475

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

12300 Liberty Boulevard

Englewood, Colorado

(Address of principal executive offices)

 

80112

(Zip Code)

 

 Registrant’s telephone number, including area code : (720) 875-5400

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

 

Name of exchange on which registered

Series A Common Stock, par value $0.01 per share

 

The Nasdaq Stock Market LLC

Series B Common Stock, par value $0.01 per share

 

The Nasdaq Stock Market LLC

 

 

Securities registered pursuant to Section 12(g) of the Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d). Yes    No 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least 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 (§ 229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer 

 

Accelerated filer

Non-accelerated filer 

 

Smaller reporting company 

(Do not check if smaller reporting company)

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

 

The aggregate market value of the voting stock held by non affiliates of Liberty Media Corporation computed by reference to the last sales price of such stock, as of the closing of trading on the last trading day prior to June 30, 2013, was approximately $13.5 billion.

 

The number of outstanding shares of Liberty Media Corporation’s common stock as of January 31, 2014 was:

 

 

 

 

Series A

 

Series B

 

Liberty Media common stock

 

104,421,463

 

9,876,078

 

 

 

 


 

 

 

 

EXPLANATORY NOTE

 

The Registrant is filing this Amendment No. 2 on Form 10-K/A (this Form 10-K/A ) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the Form 10-K ) to include additional information in Part IV that was inadvertently omitted and is required by applicable SEC rules and regulations. For the fiscal year ended December 31, 2012 Sirius XM Radio Inc. triggered certain quantitative thresholds as an equity method affiliate for inclusion of its financial information for the year ended December 31, 2012.  The information was included in the Form 10-K for the fiscal year ended December 31, 2012 and under the applicable rules and regulations should continue to be provided until the 2012 fiscal year is no longer presented.  This Form 10-K/A should be read in conjunction with the Form 10-K, Amendment No. 1 on Form 10-K/A and the Registrant’s other filings made with the SEC subsequent to the filing of the Form 10-K on February 28, 2014.

  

Except as described above, this Form 10-K/A does not amend, update or change any other items or disclosures in the Form 10-K or Amendment No. 1 on Form 10-K/A, including any of the financial information disclosed in Parts II of the Form 10-K, and does not purport to reflect any information or events subsequent to the filing thereof.

 

We refer to Liberty Media Corporation as “Liberty Media,” “us,” “we” and “our” in this report.

 

1  

 


 

 

 

 

 

LIBERTY MEDIA CORPORATION

2013 ANNUAL REPORT ON FORM 10-K/A

(Amendment No. 2)

 

Table of Contents

 

 

 

 

 

 

Item 15. 

Exhibits and Financial Statement Schedules

IV-1

 

 

 

 

Signatures

IV-38

 

 

 

 

Exhibit Index

IV-39

 

2  

 


 

 

 

PART IV 

 

Item 15.   Exhibits and Financial Statement Schedules 

 

(a) (2)     Financial Statement Schedules

 

 

 

(i)

All schedules have been omitted because they are not applicable, not material or the required information is set forth in the financial statements or notes thereto.

 

 

(ii)

Separate financial statements for SIRIUS XM Radio Inc. and subsidiaries:

 

 

 

 

 

Page No.

Report of Independent Registered Public Accounting Firm

IV-2

Consolidated Statements of Comprehensive Income, Years ended December 31, 2012, 2011 and 2010

IV-3

Consolidated Balance Sheets, December 31, 2012 and 2011

IV-4

Consolidated Statements of Stockholders' Equity, Years ended December 31, 2012, 2011 and 2010

IV-5

Consolidated Statements of Cash Flows, Years ended December 31, 2012, 2011 and 2010

IV-6

Notes to Consolidated Financial Statements, December 31, 2012, 2011 and 2010

IV-8

 

(b)Exhibits—The exhibits listed in the Exhibit Index at the end of this report are filed as Exhibits to this Amendment No. 2 on Form 10-K/A and are meant to supplement the Exhibits listed and/or filed in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, as amended.

 

 

IV- 1

 


 

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Stockholders

Sirius XM Radio Inc. and subsidiaries:

 

We have audited the accompanying consolidated balance sheets of Sirius XM Radio Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sirius XM Radio Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

 

                            

 

 

 

 

 

/s/ KPMG LLP

New York, New York

February 6, 2013

 

 

IV- 2

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

(in thousands, except per share data)

2012

 

2011

 

2010

Revenue:

 

 

 

 

 

Subscriber revenue

$

2,962,665

 

 

$

2,595,414

 

 

$

2,414,174

 

Advertising revenue, net of agency fees

82,320

 

 

73,672

 

 

64,517

 

Equipment revenue

73,456

 

 

71,051

 

 

71,355

 

Other revenue

283,599

 

 

274,387

 

 

266,946

 

Total revenue

3,402,040

 

 

3,014,524

 

 

2,816,992

 

Operating expenses:

 

 

 

 

 

Cost of services:

 

 

 

 

 

Revenue share and royalties

551,012

 

 

471,149

 

 

435,410

 

Programming and content

278,997

 

 

281,234

 

 

305,914

 

Customer service and billing

294,980

 

 

259,719

 

 

241,680

 

Satellite and transmission

72,615

 

 

75,902

 

 

80,947

 

Cost of equipment

31,766

 

 

33,095

 

 

35,281

 

Subscriber acquisition costs

474,697

 

 

434,482

 

 

413,041

 

Sales and marketing

248,905

 

 

222,773

 

 

215,454

 

Engineering, design and development

48,843

 

 

53,435

 

 

45,390

 

General and administrative

261,905

 

 

238,738

 

 

240,970

 

Depreciation and amortization

266,295

 

 

267,880

 

 

273,691

 

Restructuring, impairments and related costs

 

 

 

 

63,800

 

Total operating expenses

2,530,015

 

 

2,338,407

 

 

2,351,578

 

Income from operations

872,025

 

 

676,117

 

 

465,414

 

Other income (expense):

 

 

 

 

 

Interest expense, net of amounts capitalized

(265,321

)

 

(304,938

)

 

(295,643

)

Loss on extinguishment of debt and credit facilities, net

(132,726

)

 

(7,206

)

 

(120,120

)

Interest and investment income (loss)

716

 

 

73,970

 

 

(5,375

)

Other (loss) income

(226

)

 

3,252

 

 

3,399

 

Total other expense

(397,557

)

 

(234,922

)

 

(417,739

)

Income before income taxes

474,468

 

 

441,195

 

 

47,675

 

Income tax benefit (expense)

2,998,234

 

 

(14,234

)

 

(4,620

)

Net income

$

3,472,702

 

 

$

426,961

 

 

$

43,055

 

Unrealized gain on available-for-sale securities

 

 

 

 

469

 

Realized loss on XM Canada investment foreign currency adjustment

 

 

6,072

 

 

 

Foreign currency translation adjustment, net of tax

49

 

 

(140

)

 

251

 

Total comprehensive income

$

3,472,751

 

 

$

432,893

 

 

$

43,775

 

Net income per common share:

 

 

 

 

 

Basic

$

0.55

 

 

$

0.07

 

 

$

0.01

 

Diluted

$

0.51

 

 

$

0.07

 

 

$

0.01

 

Weighted average common shares outstanding:

 

 

 

 

 

Basic

4,209,073

 

 

3,744,606

 

 

3,693,259

 

Diluted

6,873,786

 

 

6,500,822

 

 

6,391,071

 

 

See accompanying notes to the consolidated financial statements.

 

IV- 3

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

2012

 

2011

(in thousands, except share and per share data)

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

520,945

 

 

$

773,990

 

Accounts receivable, net

106,142

 

 

101,705

 

Receivables from distributors

104,425

 

 

84,817

 

Inventory, net

25,337

 

 

36,711

 

Prepaid expenses

122,157

 

 

125,967

 

Related party current assets

13,167

 

 

14,702

 

Deferred tax asset

923,972

 

 

132,727

 

Other current assets

12,037

 

 

6,335

 

Total current assets

1,828,182

 

 

1,276,954

 

Property and equipment, net

1,571,922

 

 

1,673,919

 

Long-term restricted investments

3,999

 

 

3,973

 

Deferred financing fees, net

38,677

 

 

42,046

 

Intangible assets, net

2,519,610

 

 

2,573,638

 

Goodwill

1,815,365

 

 

1,834,856

 

Related party long-term assets

44,954

 

 

54,953

 

Long-term deferred tax asset

1,219,256

 

 

 

Other long-term assets

12,878

 

 

35,657

 

Total assets

$

9,054,843

 

 

$

7,495,996

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

587,652

 

 

$

543,193

 

Accrued interest

33,954

 

 

70,405

 

Current portion of deferred revenue

1,474,138

 

 

1,333,965

 

Current portion of deferred credit on executory contracts

207,854

 

 

284,108

 

Current maturities of long-term debt

4,234

 

 

1,623

 

Related party current liabilities

6,756

 

 

14,302

 

Total current liabilities

2,314,588

 

 

2,247,596

 

Deferred revenue

159,501

 

 

198,135

 

Deferred credit on executory contracts

5,175

 

 

218,199

 

Long-term debt

2,222,080

 

 

2,683,563

 

Long-term related party debt

208,906

 

 

328,788

 

Deferred tax liability

69

 

 

1,011,084

 

Related party long-term liabilities

18,966

 

 

21,741

 

Other long-term liabilities

85,993

 

 

82,745

 

Total liabilities

5,015,278

 

 

6,791,851

 

Commitments and contingencies (Note 15)

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock, par value $0.001; 50,000,000 authorized at December 31, 2012 and 2011:

 

 

 

Series A convertible preferred stock; no shares issued and outstanding at December 31, 2012 and 2011

 

 

 

Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at December 31, 2012 and 2011); 6,250,100 and 12,500,000 shares issued and outstanding at December 31, 2012 and 2011, respectively

6

 

 

13

 

Common stock, par value $0.001; 9,000,000,000 shares authorized at December 31, 2012 and 2011; 5,262,440,085 and 3,753,201,929 shares issued and outstanding at December 31, 2012 and 2011, respectively

5,263

 

 

3,753

 

Accumulated other comprehensive income, net of tax

120

 

 

71

 

Additional paid-in capital

10,345,566

 

 

10,484,400

 

Accumulated deficit

(6,311,390

)

 

(9,784,092

)

Total stockholders’ equity

4,039,565

 

 

704,145

 

Total liabilities and stockholders’ equity

$

9,054,843

 

 

$

7,495,996

 

 

See accompanying notes to the consolidated financial statements.

 

IV- 4

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A
Convertible

Preferred Stock

 

Convertible Perpetual
Preferred Stock,

Series B-1

 

Common Stock

 

Accumulated Other Comprehensive Income

 

Additional Paid-in Capital

 

Accumulated Deficit

 

Total Stockholders' Equity

(in thousands, except share data)

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

Balance at January 1, 2010

 

24,808,959

 

 

$

25

 

 

12,500,000

 

 

$

13

 

 

3,882,659,087

 

 

$

3,882

 

 

$

(6,581

)

 

$

10,352,291

 

 

$

(10,254,108

)

 

$

95,522

 

Comprehensive income, net of tax

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

720

 

 

$

 

 

$

43,055

 

 

$

43,775

 

Issuance of common stock to employees and employee benefit plans, net of forfeitures

 

 

 

$

 

 

 

 

$

 

 

6,175,089

 

 

$

6

 

 

$

 

 

$

5,265

 

 

$

 

 

$

5,271

 

Share-based payment expense

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

 

 

$

52,229

 

 

$

 

 

$

52,229

 

Exercise of options and vesting of restricted stock units

 

 

 

$

 

 

 

 

$

 

 

19,551,977

 

 

$

20

 

 

$

 

 

$

10,819

 

 

$

 

 

$

10,839

 

Conversion of preferred stock to common stock

 

(24,808,959

)

 

$

(25

)

 

 

 

$

 

 

24,808,959

 

 

$

25

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at December 31, 2010

 

 

 

$

 

 

12,500,000

 

 

$

13

 

 

3,933,195,112

 

 

$

3,933

 

 

$

(5,861

)

 

$

10,420,604

 

 

$

(10,211,053

)

 

$

207,636

 

Comprehensive income, net of tax

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

5,932

 

 

$

 

 

$

426,961

 

 

$

432,893

 

Issuance of common stock to employees and employee benefit plans, net of forfeitures

 

 

 

$

 

 

 

 

$

 

 

1,882,801

 

 

$

2

 

 

$

 

 

$

3,480

 

 

$

 

 

$

3,482

 

Share-based payment expense

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

 

 

$

48,581

 

 

$

 

 

$

48,581

 

Exercise of options and vesting of restricted stock units

 

 

 

$

 

 

 

 

$

 

 

13,401,048

 

 

$

13

 

 

$

 

 

$

11,540

 

 

$

 

 

$

11,553

 

Issuance of common stock upon exercise of warrants

 

 

 

$

 

 

 

 

$

 

 

7,122,951

 

 

$

7

 

 

$

 

 

$

(7

)

 

$

 

 

$

 

Return of shares under share borrow agreements

 

 

 

$

 

 

 

 

$

 

 

(202,399,983

)

 

$

(202

)

 

$

 

 

$

202

 

 

$

 

 

$

 

Balance at December 31, 2011

 

 

 

$

 

 

12,500,000

 

 

$

13

 

 

3,753,201,929

 

 

$

3,753

 

 

$

71

 

 

$

10,484,400

 

 

$

(9,784,092

)

 

$

704,145

 

Comprehensive income, net of tax

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

49

 

 

$

 

 

$

3,472,702

 

 

$

3,472,751

 

Issuance of common stock to employees and employee benefit plans, net of forfeitures

 

 

 

$

 

 

 

 

$

 

 

1,571,175

 

 

$

2

 

 

$

 

 

$

3,521

 

 

$

 

 

$

3,523

 

Share-based payment expense

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

 

 

$

60,299

 

 

$

 

 

$

60,299

 

Exercise of stock options

 

 

 

$

 

 

 

 

$

 

 

214,199,297

 

 

$

214

 

 

$

 

 

$

125,695

 

 

$

 

 

$

125,909

 

Cash dividends paid on common stock ($0.05)

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

 

 

$

(262,387

)

 

$

 

 

$

(262,387

)

Cash dividends paid on preferred stock on as-converted basis

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

$

 

 

$

(64,675

)

 

$

 

 

$

(64,675

)

Conversion of preferred stock to common stock

 

 

 

$

 

 

(6,249,900

)

 

$

(7

)

 

1,293,467,684

 

 

$

1,294

 

 

$

 

 

$

(1,287

)

 

$

 

 

$

 

Balance at December 31, 2012

 

 

 

$

 

 

6,250,100

 

 

$

6

 

 

5,262,440,085

 

 

$

5,263

 

 

$

120

 

 

$

10,345,566

 

 

$

(6,311,390

)

 

$

4,039,565

 

 

See accompanying notes to the consolidated financial statements.

 

IV- 5

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

(in thousands)

2012

 

2011

 

2010

Cash flows from operating activities:

 

 

 

 

 

Net income

$

3,472,702

 

 

$

426,961

 

 

$

43,055

 

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

 

 

 

 

 

Depreciation and amortization

266,295

 

 

267,880

 

 

273,691

 

Non-cash interest expense, net of amortization of premium

35,924

 

 

39,515

 

 

42,841

 

Provision for doubtful accounts

34,548

 

 

33,164

 

 

32,379

 

Restructuring, impairments and related costs

 

 

 

 

66,731

 

Amortization of deferred income related to equity method investment

(2,776

)

 

(2,776

)

 

(2,776

)

Loss on extinguishment of debt and credit facilities, net

132,726

 

 

7,206

 

 

120,120

 

Gain on merger of unconsolidated entities

 

 

(75,768

)

 

 

Loss on unconsolidated entity investments, net

420

 

 

6,520

 

 

11,722

 

Dividend received from unconsolidated entity investment

1,185

 

 

 

 

 

Loss on disposal of assets

657

 

 

269

 

 

1,017

 

Share-based payment expense

63,822

 

 

53,190

 

 

60,437

 

Deferred income taxes

(3,001,818

)

 

8,264

 

 

2,308

 

Other non-cash purchase price adjustments

(289,050

)

 

(275,338

)

 

(250,727

)

Distribution from investment in unconsolidated entity

 

 

4,849

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

(38,985

)

 

(13,211

)

 

(39,236

)

Receivables from distributors

(19,608

)

 

(17,241

)

 

(11,023

)

Inventory

11,374

 

 

(14,793

)

 

(5,725

)

Related party assets

9,523

 

 

30,036

 

 

(9,803

)

Prepaid expenses and other current assets

647

 

 

8,525

 

 

75,374

 

Other long-term assets

22,779

 

 

36,490

 

 

17,671

 

Accounts payable and accrued expenses

46,043

 

 

(32,010

)

 

5,420

 

Accrued interest

(36,451

)

 

(2,048

)

 

(884

)

Deferred revenue

101,311

 

 

55,336

 

 

133,444

 

Related party liabilities

(7,545

)

 

(1,542

)

 

(53,413

)

Other long-term liabilities

3,042

 

 

152

 

 

272

 

Net cash provided by operating activities

806,765

 

 

543,630

 

 

512,895

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property and equipment

(97,293

)

 

(137,429

)

 

(311,868

)

Purchase of restricted investments

(26

)

 

(826

)

 

 

Sale of restricted and other investments

 

 

 

 

9,454

 

Release of restricted investments

 

 

250

 

 

 

Return of capital from investment in unconsolidated entity

 

 

10,117

 

 

 

Net cash used in investing activities

(97,319

)

 

(127,888

)

 

(302,414

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from exercise of stock options

123,369

 

 

11,553

 

 

10,839

 

Payment of premiums on redemption of debt

(100,615

)

 

(5,020

)

 

(84,326

)

Repayment of long-term borrowings

(915,824

)

 

(234,976

)

 

(1,262,396

)

Repayment of related party long-term borrowings

(126,000

)

 

 

 

(142,221

)

Long-term borrowings, net of costs

383,641

 

 

 

 

1,274,707

 

Related party long-term borrowings

 

 

 

 

196,118

 

Dividends paid

(327,062

)

 

 

 

 

Net cash used in financing activities

(962,491

)

 

(228,443

)

 

(7,279

)

Net (decrease) increase in cash and cash equivalents

(253,045

)

 

187,299

 

 

203,202

 

Cash and cash equivalents at beginning of period

773,990

 

 

586,691

 

 

383,489

 

Cash and cash equivalents at end of period

$

520,945

 

 

$

773,990

 

 

$

586,691

 

See accompanying notes to the consolidated financial statements.

 

IV- 6

 


 

 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

(in thousands)

2012

 

2011

 

2010

Supplemental Disclosure of Cash and Non-Cash Flow Information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest, net of amounts capitalized

$

262,039 

 

 

$

258,676 

 

 

$

241,160 

 

Income taxes paid

$

4,935 

 

 

$

 

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

Conversion of Series B preferred stock to common stock

$

1,294 

 

 

$

 

 

$

 

Capital lease obligations incurred to acquire assets

$

12,781 

 

 

$

 

 

$

 

Common stock issuance upon exercise of warrants

$

 

 

$

 

 

$

 

Goodwill reduced for exercise of certain stock options

$

19,491 

 

 

$

 

 

$

 

In-orbit satellite performance incentive

$

 

 

$

 

 

$

21,450 

 

Sale-leaseback of equipment

$

 

 

$

 

 

$

5,305 

 

Conversion of Series A preferred stock to common stock

$

 

 

$

 

 

$

25 

 

 

See accompanying notes to the consolidated financial statements.

 

 

 

 

IV- 7

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

(1)

Business & Basis of Presentation

 

Business

 

We broadcast our music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services in the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive music and other channels, plus new features such as SiriusXM On Demand, over the Internet, including through applications for mobile devices. We have agreements with every major automaker (“OEMs”) to offer satellite radios as factory- or dealer-installed equipment in their vehicles from which we acquire the majority of our subscribers. We also acquire subscribers through the sale or lease of previously owned vehicles with factory-installed satellite radios. Additionally, we distribute our satellite radios through retail locations nationwide and through our website. Satellite radio services are also offered to customers of certain daily rental car companies.

 

Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or monthly basis. We offer discounts for prepaid and long-term subscription plans, as well as discounts for multiple subscriptions. We also derive revenue from other subscription-related fees, the sale of advertising on select non-music channels, the direct sale of satellite radios, components and accessories, and other ancillary services, such as our Internet radio, Backseat TV, data, traffic, and weather services.

 

In certain cases, automakers include a subscription to our radio services in the sale or lease price of new and previously owned vehicles. The length of these prepaid subscriptions varies, but is typically three to twelve months. In many cases, we receive subscription payments from automakers in advance of the activation of our service. We also reimburse various automakers for certain costs associated with satellite radios installed in their vehicles.

Basis of Presentation

Our financial statements include the consolidated accounts for Sirius XM Radio Inc. and subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense, and valuation allowances against deferred tax assets.

 

 

 

(2)

Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, money market funds, in-transit credit card receipts and highly liquid investments purchased with an original maturity of three months or less.

Equity Method Investments

We hold an equity method investment in Sirius XM Canada. Investments in which we have the ability to exercise significant influence but not control are accounted for pursuant to the equity method of accounting. We recognize our proportionate share of earnings or losses of our affiliates as they occur as a component of Other income (expense) in our consolidated statements of comprehensive income.

The difference between our investment and our share of the fair value of the underlying net assets of our affiliates is first allocated to either finite-lived intangibles or indefinite-lived intangibles and the balance is attributed to goodwill. We follow ASC

 

IV- 8

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

350, Intangibles - Goodwill and Other , which requires that equity method finite-lived intangibles be amortized over their estimated useful life while indefinite-lived intangibles and goodwill are not amortized. The amortization of equity method finite-lived intangible assets is recorded in Interest and investment income (loss) in our consolidated statements of comprehensive income. We periodically evaluate our equity method investments to determine if there has been an other than temporary decline below carrying value. Equity method finite-lived intangibles, indefinite-lived intangibles and goodwill are included in the carrying amount of the investment.

Property and Equipment

Property and equipment, including satellites, are stated at cost, less accumulated depreciation. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation are calculated using the straight-line method over the following estimated useful life of the asset:  

 

 

 

 

 

Satellite system

2 - 15 years

Terrestrial repeater network

5 - 15 years

Broadcast studio equipment

3 - 15 years

Capitalized software and hardware

3 - 7 years

Satellite telemetry, tracking and control facilities

3 - 15 years

Furniture, fixtures, equipment and other

2 - 7 years

Building

20 or 30 years

Leasehold improvements

Lesser of useful life or remaining lease term

 

We review long-lived assets, such as property and equipment, and purchased intangibles subject to amortization for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. We did not record any impairments in 2012, 2011 or 2010.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our single reporting unit is performed during the fourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. Step one of the impairment assessment compares the fair value to its carrying value and if the fair value exceeds its carrying value, goodwill is not impaired. If the carrying value exceeds the fair value, the implied fair value of goodwill is compared to the carrying value of goodwill. If the implied fair value exceeds the carrying value then goodwill is not impaired; otherwise, an impairment loss will be recorded by the amount the carrying value exceeds the implied fair value. We did not record any impairments in 2012, 2011 or 2010.

 

The impairment test for other intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying value. This test is performed during the fourth quarter of each year, and an assessment is performed at other times if events or circumstances indicate it is more likely than not that the asset is impaired. Our indefinite life intangibles include our FCC licenses and trademark. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

 

ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, established an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a quantitative impairment test is not required. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. We completed a qualitative assessment during the fourth quarter of 2012 and determined that there was no impairment in 2012. We used independent appraisals to determine the fair value of our FCC licenses and trademark using the Income and the Relief from Royalty approaches, respectively, in 2011 and 2010 and no impairments were recorded.

 

IV- 9

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

 

Other intangible assets with finite lives consists primarily of customer relationships acquired in business combinations, licensing agreements, and certain information technology related costs. These assets are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment under the provisions of ASC 360-10-35, Property, Plant and Equipment/Overall/Subsequent Measurement . We review intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. We did not record any impairments relating to our intangible assets with finite lives in 2012, 2011 or 2010.

 

Revenue Recognition

 

We derive revenue primarily from subscribers, advertising and direct sales of merchandise.

 

Revenue from subscribers consists of subscription fees, daily rental fleet revenue and non-refundable activation and other fees. Revenue is recognized as it is realized or realizable and earned. We recognize subscription fees as our services are provided. At the time of sale, vehicle owners purchasing or leasing a vehicle with a subscription to our service typically receive between a three and twelve month prepaid subscription. Prepaid subscription fees received from certain automakers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon retail sale and activation.

 

We recognize revenue from the sale of advertising as the advertising is broadcast. Agency fees are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. We pay certain third parties a percentage of advertising revenue. Advertising revenue is recorded gross of such revenue share payments as we are the primary obligor in the transaction. Advertising revenue share payments are recorded to Revenue share and royalties during the period in which the advertising is broadcast.

 

Equipment revenue and royalties from the sale of satellite radios, components and accessories are recognized upon shipment, net of discounts and rebates. Shipping and handling costs billed to customers are recorded as revenue. Shipping and handling costs associated with shipping goods to customers are reported as a component of Cost of equipment.

 

ASC 605, Revenue Recognition, provides guidance on how and when to recognize revenues for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Revenue arrangements with multiple deliverables are required to be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Consideration must be allocated at the inception of the arrangement to all deliverables based on their relative selling price, which has been determined using vendor specific objective evidence of selling price of self-pay customers.

 

Revenue Share

 

We share a portion of our subscription revenues earned from subscribers with certain automakers. The terms of the revenue share agreements vary with each automaker, but are typically based upon the earned audio revenue as reported or gross billed audio revenue. Revenue share is recorded as an expense in our consolidated statements of comprehensive income and not as a reduction to revenue.

 

Programming Costs

 

Programming costs which are for a specified number of events are amortized on an event-by-event basis; programming costs which are for a specified season or period are amortized over the season or period on a straight-line basis. We allocate a portion of certain programming costs which are related to sponsorship and marketing activities to Sales and marketing expense on a straight-line basis over the term of the agreement.

 

 

IV- 10

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

Advertising Costs

 

Media is expensed when aired and advertising production costs are expensed as incurred. Market development funds consist of fixed and variable payments to reimburse retailers for the cost of advertising and other product awareness activities. Fixed market development funds are expensed over the periods specified in the applicable agreement; variable costs are expensed when the media is aired and production costs are expensed as incurred. During the years ended December 31, 2012, 2011 and 2010, we recorded advertising costs of $139,830, $116,694 and $110,050, respectively. These costs are reflected in Sales and marketing expense in our consolidated statements of comprehensive income.

 

Subscriber Acquisition Costs

 

Subscriber acquisition costs consist of costs incurred to acquire new subscribers and include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include a satellite radio and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain radios; commissions paid to automakers as incentives to purchase, install and activate radios; product warranty obligations; freight; and provisions for inventory allowance. Subscriber acquisition costs do not include advertising, loyalty payments to distributors and dealers of radios and revenue share payments to automakers and retailers of radios.

 

Subsidies paid to radio manufacturers and automakers are expensed upon installation, shipment, receipt of product or activation and are included in Subscriber acquisition costs because we are responsible for providing the service to the customers. Commissions paid to retailers and automakers are expensed upon either the sale or activation of radios. Chip sets that are shipped to radio manufacturers and held on consignment are recorded as inventory and expensed as Subscriber acquisition costs when placed into production by radio manufacturers. Costs for chip sets not held on consignment are expensed as Subscriber acquisition costs when the automaker confirms receipt.

 

We record product warranty obligations in accordance with ASC 460, Guarantees , which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. We warrant that certain products sold through our retail and direct to consumer distribution channels will perform in all material respects in accordance with specifications in effect at the time of the purchase of the products by the customer. The product warranty period on our products is 90 days from the purchase date for repair or replacement of components and/or products that contain defects of material or workmanship. We record a liability for costs that we expect to incur under our warranty obligations when the product is shipped from the manufacturer. Factors affecting the warranty liability include the number of units sold, historical experience, and anticipated rates of claims and costs per claim. We periodically assess the adequacy of our warranty liability based on changes in these factors.

 

Research & Development Costs

 

Research and development costs are expensed as incurred and primarily include the cost of new product development, chip set design, software development and engineering. During the years ended December 31, 2012, 2011 and 2010, we recorded research and development costs of $42,605, $48,574 and $40,043, respectively. These costs are reported as a component of Engineering, design and development expense in our consolidated statements of comprehensive income.

 

Share-Based Compensation

 

We account for equity instruments granted to employees in accordance with ASC 718, Compensation - Stock Compensation . ASC 718 requires all share-based compensation payments be recognized in the financial statements based on fair value. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates. We use the Black-Scholes-Merton option-pricing model to value stock option awards and have elected to treat awards with graded vesting as a single award. Share-based compensation expense is recognized ratably over the requisite service period, which is generally the vesting period, net of forfeitures. We measure restricted stock awards using the fair market value of the restricted shares of common stock on the day the award is granted.

 

 

IV- 11

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

Fair value as determined using the Black-Scholes-Merton model varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates. In 2012 and 2011, we estimated the fair value of awards granted using the hybrid approach for volatility, which weights observable historical volatility and implied volatility of qualifying actively traded options on our common stock. In 2010, due to the lack of qualifying actively traded options on our common stock, we utilized a 100% weighting to observable historical volatility. The expected life assumption represents the weighted-average period stock-based awards are expected to remain outstanding. These expected life assumptions are established through a review of historical exercise behavior of stock-based award grants with similar vesting periods. Where historical patterns do not exist, contractual terms are used. The risk-free interest rate represents the daily treasury yield curve rate at the grant date based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term. Our assumptions may change in future periods.

 

Stock-based awards granted to employees, non-employees and members of our board of directors include warrants, stock options, restricted stock and restricted stock units.

 

Income Taxes

 

Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. In determining the period in which related tax benefits are realized for book purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted; excess tax compensation benefits are recorded off balance-sheet as a memo entry until the period the excess tax benefit is realized through a reduction of taxes payable. A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.

 

As of December 31, 2012, we maintained a valuation allowance of $9,835 relating to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations. In 2011, we maintained a full valuation allowance of $3,360,740 against our deferred tax assets due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in the future and our assessment that the realization of the deferred tax assets did meet the more likely than not criterion under ASC 740, Income Taxes.

 

ASC 740 requires a company to first determine whether it is more-likely-than-not that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to uncertain tax positions in Income tax (benefit) expense in our consolidated statements of comprehensive income.

 

We report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific revenue-producing transaction between a seller and a customer in our consolidated statements of comprehensive income.

 

Fair Value of Financial Instruments

 

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants. As of December 31, 2012 and 2011, the carrying amounts of cash and cash equivalents, accounts and other receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.

 

ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for input into valuation techniques as follows: i) Level 1 input - unadjusted quoted prices in active markets for identical instrument; ii) Level 2 input - observable market data for the same or similar instrument but not Level 1; and iii) Level 3 input - unobservable inputs developed using management's assumptions about the inputs used for pricing the asset or liability. We use Level 3 inputs to fair value the 8% convertible unsecured subordinated debentures issued by Sirius XM Canada.

 

IV- 12

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

Investments are periodically reviewed for impairment and a write down is recorded whenever declines in fair value below carrying value are determined to be other than temporary. In making this determination, we consider, among other factors, the severity and duration of the decline as well as the likelihood of a recovery within a reasonable timeframe.

 

The fair value for publicly traded instruments is determined using quoted market prices while the fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. As of December 31, 2012 and 2011, the carrying value of our debt was $2,435,220 and $3,013,974, respectively; and the fair value approximated $3,055,076 and $3,506,546, respectively.

 

Accumulated Other Comprehensive Income

 

Accumulated other comprehensive income of $120 at December 31, 2012 was primarily comprised of foreign currency translation adjustments related to our interest in Sirius XM Canada. During the years ended December 31, 2012, 2011 and 2010, we recorded a foreign currency translation adjustment of $49, $(140) and $251, respectively, which is recorded net of taxes of $48, $11 and $63, respectively. In addition, during the year ended December 31, 2011, we recorded a loss on our XM Canada investment foreign currency translation adjustment of $6,072. During the year ended December 31, 2010, we recorded an unrealized gain on available-for-sale securities of $469.

 

Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) - Fair Value Measurement , to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This standard is effective for interim and annual periods beginning after December 15, 2011 and is applied on a prospective basis. We adopted ASU 2011-04 as of January 1, 2012 and the impact was not material to our consolidated financial statements.

 

In June 2011, the FASB issued ASU 2011-05,  Comprehensive Income (Topic 220), Presentation of Comprehensive Income , to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011 and is to be applied retrospectively. The FASB has deferred the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income. Companies are required to either present amounts reclassified out of other comprehensive income on the face of the financial statements or disclose those amounts in the notes to the financial statements. During the deferral period, there is no requirement to separately present or disclose the reclassification adjustments into net income. The effective date of this deferral was consistent with the effective date of ASU 2011-05. We adopted ASU 2011-05 as of January 1, 2012 and disclosed comprehensive income in our consolidated statements of comprehensive income. ASU 2011-05 affects financial statement presentation and has no impact on our results of consolidated financial statements.

 

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment . The guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not the fair value of the asset exceeds its carrying amount, the company would not be required to perform a quantitative impairment test. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. ASU 2012-02 is effective for public entities for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We early adopted ASU 2012-02 and performed a qualitative assessment to determine whether our indefinite-lived intangible assets were impaired as of the fourth quarter of 2012.

 

 

IV- 13

 


 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

 

 

 

 

 

(3)

Earnings per Share

 

We utilize the two-class method of calculating basic net income per common share, as our Series B Preferred Stock are considered participating securities. Basic net income per common share is calculated by dividing income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average common shares outstanding for the potential dilution that could occur if common stock equivalents (convertible debt and preferred stock, warrants, stock options, restricted stock and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method. Common stock equivalents of approximately 147,125,000, 419,752,000 and 689,922,000 for the years ended December 31, 2012, 2011 and 2010, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

(in thousands, except per share data)

2012

 

2011

 

2010

Numerator:

 

 

 

 

 

Net income

$

3,472,702

 

 

$

426,961

 

 

$

43,055

 

Less:

 

 

 

 

 

Allocation of undistributed income to Series B Preferred Stock

(1,084,895

)

 

(174,449

)

 

(17,735

)

Dividends paid to preferred stockholders

(64,675

)

 

 

 

 

Net income available to common stockholders for basic net income per common share

2,323,132

 

 

252,512