Liberty Media Corporation 2020 Form 10-K Summary
Business context and reporting period
Liberty Media reported for the fiscal year ended December 31, 2020. The company operates through three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Principal assets include approximately 76% of Sirius XM Holdings, Formula 1, Braves Holdings and a 33% equity interest in Live Nation. Tracking stocks do not represent separate legal entities, and holders have no direct ownership interest in the underlying businesses.
The COVID-19 pandemic materially affected Formula 1, the Atlanta Braves and Live Nation. Formula 1 held 17 events versus 21 in 2019, MLB played a 60-game season without fans, and Live Nation suspended large-scale events beginning in March 2020.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $9.363 billion | $10.292 billion | Down $929 million |
| Operating income | $177 million | $1.470 billion | Down $1.293 billion |
| Net earnings (loss) | $(1.391) billion | $347 million | Declined $1.738 billion |
| Net loss attributable to Liberty stockholders | $(1.421) billion | $106 million earnings | Declined $1.527 billion |
| Adjusted OIBDA | $2.509 billion | $2.931 billion | Down $422 million |
| Cash flow from operating activities | $1.730 billion | $2.313 billion | Down $583 million |
| Capital expenditures | $452 million | $510 million | Down $58 million |
Consolidated operating margin was approximately 1.9%, compared with 14.3% in 2019. Adjusted OIBDA margin was approximately 26.8%, compared with 28.5% in 2019. The filing defines Adjusted OIBDA as a non-GAAP measure and excludes depreciation and amortization, stock-based compensation, litigation settlements, restructuring, acquisition and impairment charges.
- Sirius XM Holdings: Revenue was $8.040 billion, up $246 million. Adjusted OIBDA increased to $2.575 billion from $2.453 billion. Operating income fell to $790 million from $1.610 billion, principally because of a $976 million impairment charge related to Pandora goodwill and trademark. Sirius XM had approximately 34.7 million subscribers; Pandora had approximately 6.3 million subscribers and 58.9 million monthly active users.
- Formula 1: Revenue declined to $1.145 billion from $2.022 billion. Adjusted OIBDA fell to $56 million from $482 million, and operating loss was $386 million versus $17 million of operating income. Reduced events, limited attendance, fee relief and renegotiated commercial arrangements drove the decline.
- Braves Holdings: Revenue declined to $178 million from $476 million. Adjusted OIBDA was negative $53 million versus positive $49 million, and operating loss was $121 million versus $32 million. Baseball revenue declined to $142 million from $438 million.
- Live Nation: Liberty recorded a $586 million consolidated share of losses from affiliates, including a $465 million loss attributed to Live Nation after the April 2020 reattribution. Live Nation’s live-event operations were severely disrupted by COVID-19.
Balance sheet, debt and liquidity
- Total assets were $44.004 billion and total liabilities were $24.403 billion at December 31, 2020.
- Cash and cash equivalents were $2.831 billion, compared with $1.222 billion at year-end 2019. Attributed cash was approximately $996 million for Liberty SiriusXM, $151 million for the Braves Group and $1.684 billion for the Formula One Group.
- Total debt at face amount was $16.954 billion, including $743 million classified as current; carrying value of long-term debt was $16.686 billion.
- Liberty-level corporate indebtedness was approximately $4.8 billion principal amount, including convertible and exchangeable securities and a $750 million Sirius XM Holdings margin loan. The filing states that the company and its principal subsidiaries were in compliance with debt covenants at year-end.
- Available borrowing capacity included $600 million under the Sirius XM Holdings margin loan, $200 million under the Live Nation margin loan and $1.1 billion under Sirius XM Holdings’ revolving credit facility.
- Formula 1’s net leverage covenant was waived, subject to conditions, through the quarter ending March 31, 2022. Certain Braves debt covenants were also waived through specified 2021 or 2022 periods, subject to liquidity and other conditions.
- Liberty’s contractual obligations totaled $24.575 billion, including $16.954 billion of debt, $4.264 billion of interest payments, $1.918 billion of programming and royalty commitments, $839 million of lease obligations and $287 million of employment obligations.
Material changes versus the prior comparable period
- COVID-19 caused the largest operating deterioration, particularly in Formula 1, Braves Holdings and Live Nation.
- Pandora goodwill and trademark impairments totaled $976 million, reflecting higher projected streaming royalty costs, weaker advertising demand and reduced listening hours.
- Liberty reattributed approximately $2.8 billion of assets and $1.3 billion of liabilities from the Formula One Group to the Liberty SiriusXM Group in April 2020, including the Live Nation stake, certain debt and related financial instruments.
- The Liberty SiriusXM rights offering issued 29.6 million Series C shares and generated approximately $754 million, which was used to repay the intergroup loan and accrued interest.
- Sirius XM Holdings acquired Simplecast for $28 million and Stitcher for approximately $296 million, including contingent consideration, and invested $75 million in SoundCloud.
- Sirius XM Holdings issued $1.5 billion of 4.125% senior notes due 2030 and redeemed approximately $1.5 billion of senior notes due 2023 and 2025.
- Liberty repurchased approximately $318 million of Liberty SiriusXM common stock during 2020 and did not pay dividends on its tracking stocks.
Guidance, outlook, risks and unusual items
The filing does not provide formal consolidated revenue or earnings guidance. Management expects COVID-19 effects to continue affecting Formula 1, Braves Holdings and Live Nation, including event cancellations, reduced attendance, weaker sponsorship and advertising demand, and operating cash-flow pressure. The company states that available liquidity is expected to cover projected uses of cash, but access to subsidiary cash may be restricted by debt covenants, noncontrolling interests and regulatory or contractual limitations.
- SXM-7 experienced payload-unit failures during in-orbit testing after its January 2021 launch. The extent of damage was not known at filing, although Sirius XM did not expect an immediate service impact. Insurance coverage for SXM-7 was $225 million, and a potential claim was submitted.
- Live Nation’s losses and the market value of its publicly traded shares can materially affect Liberty’s earnings and liquidity, although Liberty cannot control Live Nation’s operations or dividend policy.
- Music royalty rates remain uncertain. The Court of Appeals vacated the Copyright Royalty Board’s prior mechanical royalty rate structure, and a separate proceeding was pending for 2021–2025 webcasting rates.
- LIBOR-based debt is exposed to the planned phaseout of LIBOR, which could affect borrowing costs and require alternative reference-rate provisions.
- Material risks include high leverage, refinancing and margin-call exposure, competition, subscriber churn, auto-industry dependence, satellite reliability, privacy and cybersecurity, litigation, tax audits, regulatory requirements, foreign-exchange movements, MLB labor negotiations and Formula 1 team or FIA relationships.
- Legal contingencies include TCPA and pre-1972 sound-recording litigation. Management stated that expected losses from legal and tax proceedings were not material, but the ultimate outcomes could differ.
- The company’s internal control over financial reporting was assessed as effective, and KPMG issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Reconcile consolidated results with the attributed financial information for each tracking-stock group, particularly after the April 2020 reattribution.
- Assess Sirius XM’s subscriber trends, churn, advertising recovery, Pandora user trends and the financial performance of the Stitcher and Simplecast acquisitions.
- Review the impairment assumptions for Pandora goodwill and trademark, including royalty costs, advertising growth, listening hours and discount rates.
- Evaluate debt maturities, refinancing needs, margin-loan collateral values, covenant waivers and access to cash held by subsidiaries.
- Monitor SXM-7 insurance recovery, satellite replacement plans and potential service risks.
- Track the pace of recovery in Formula 1, MLB, The Battery Atlanta and Live Nation, including attendance restrictions and contract renegotiations.
- Review pending music-rights proceedings, tax positions, litigation exposure and the effect of LIBOR replacement on variable-rate borrowings.
- Consider the structural risks of tracking stocks: no direct claim to group assets, shared corporate liabilities, board discretion to reattribute assets and potential conflicts among groups.