Liberty Media Corporation — 2014 Second-Quarter Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2014. The filing is unaudited and should be read with Liberty’s 2013 Form 10-K. Liberty operates primarily through its controlling interest in SIRIUS XM, with additional interests in Charter, Live Nation, the Atlanta Braves, TruePosition and publicly traded securities.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $1.160 billion, up 7.6% | $2.171 billion, up 16.3% |
| Operating income | $231 million; 19.9% margin | $386 million; 17.8% margin |
| Adjusted OIBDA | $372 million; 32.1% margin | $666 million; 30.7% margin |
| Net earnings attributable to Liberty stockholders | $50 million | $72 million |
| Diluted earnings per share | $0.14 | $0.21 |
| Net cash provided by operating activities | Not separately provided for the quarter | $564 million |
- SIRIUS XM generated $1.025 billion of second-quarter revenue and $369 million of Adjusted OIBDA. For the six-month period, SIRIUS XM generated $2.013 billion of revenue and $704 million of Adjusted OIBDA.
- SIRIUS XM reported 26.3 million subscribers at June 30, 2014, including 21.6 million self-pay and 4.7 million paid promotional subscribers.
- Six-month revenue growth reflected SIRIUS XM growth and a full six months of consolidated SIRIUS XM results in 2014. SIRIUS XM subscriber revenue increased approximately 8% on a standalone basis, while other revenue increased approximately 24% in the second quarter and 26% for the six-month period.
- Cash and cash equivalents were $566 million at June 30, 2014, compared with $1.088 billion at December 31, 2013. Corporate and other liquidity included $396 million of cash and $332 million of unencumbered fair-value-option securities; SIRIUS XM held $170 million of cash.
- Total debt was $5.939 billion at June 30, 2014, including $762 million classified as current; long-term debt was $5.177 billion. Debt increased from $5.555 billion at December 31, 2013, primarily due to SIRIUS XM’s $1.5 billion senior-notes issuance, partly offset by repayments.
- Net cash used in investing activities was $269 million and net cash used in financing activities was $817 million for the six months. Financing uses included debt repayments and $946 million of SIRIUS XM subsidiary-share repurchases, while financing sources included $1.948 billion of debt borrowings.
- Total assets were $34.075 billion and total equity was $22.937 billion at June 30, 2014. Investments accounted for under the equity method totaled $3.338 billion, including Charter at $2.420 billion and Live Nation at $448 million.
Material changes versus the prior comparable period
- Second-quarter revenue increased $82 million and six-month revenue increased $304 million year over year. Consolidated Adjusted OIBDA increased $10 million and $42 million, respectively.
- Operating income increased $5 million in the second quarter and $9 million for the six-month period.
- Interest expense increased to $62 million from $28 million for the quarter and to $115 million from $39 million for the six-month period, reflecting the inclusion of SIRIUS XM debt for a full comparative period, higher average debt and other debt-related factors.
- Net earnings attributable to Liberty stockholders declined substantially from $93 million to $50 million for the quarter and from $8.152 billion to $72 million for the six-month period. The 2013 six-month results included an approximately $7.5 billion gain from gaining control of SIRIUS XM and applying purchase accounting; this makes the comparison not economically representative.
- Six-month realized and unrealized losses on financial instruments were $40 million, compared with a $158 million gain in 2013. Second-quarter gains were $25 million versus $61 million in the prior year, including an $82 million loss on the fair value of Liberty’s cash convertible notes.
- Liberty sold approximately 90% of its Barnes & Noble preferred stock in April 2014 for $247 million and reduced its ownership below 2%.
- Liberty acquired additional Charter shares for $124 million and approximately 1.7 million Live Nation shares for approximately $39 million during the second quarter.
- SIRIUS XM issued $1.5 billion of 6.00% senior secured notes due 2024 and used cash for debt repayment and share repurchases. Its $1.25 billion revolving credit facility had full availability at June 30, 2014.
Outlook, commentary, risks and unusual items
- Management expected Liberty’s uses of cash to include investments, debt service, capital expenditures, potential Liberty share repurchases and further margin-loan repayment. Expected funding sources included cash on hand, operating cash flow and margin-loan capacity.
- Management expected SIRIUS XM to fund debt repayment and share repurchases through cash on hand, operating cash flow and its existing credit facility.
- Liberty planned to pursue a tax-free spin-off of Liberty Broadband, containing interests including Charter and TruePosition, together with a subscription-rights offering. Completion was expected in the second half of 2014, subject to conditions including a tax opinion and other approvals.
- SIRIUS XM completed or continued share-repurchase activities, including a $600 million accelerated share-repurchase agreement. The remaining $246 million under that agreement was recorded in noncontrolling interest at June 30, 2014, with expected maturity in the third quarter.
- Liberty guaranteed certain Starz studio-output obligations. The guarantee for films released through June 30 aggregated $117 million and was expected to lapse in November 2014; no liability was recorded.
- Atlanta Braves guaranteed player and coach contracts totaled $406 million at June 30, 2014, including $39 million payable in 2014 and $86 million in 2015.
- Key risks include subscriber demand and retention, dependence on automakers, competition, rising music royalties, satellite or information-technology failures, regulatory and litigation exposure, cybersecurity, leverage and access to capital, valuation changes in public investments, and the execution and tax treatment of the proposed Liberty Broadband spin-off.
- Stockholder class actions concerning Liberty’s withdrawn proposal to acquire the remaining SIRIUS XM shares were voluntarily dismissed by April 2014. Management stated that ordinary-course legal and tax contingencies were not expected to be material, although some loss estimates were not determinable.
Important facts for investors to verify
- Reconcile consolidated results with standalone SIRIUS XM results and purchase-accounting adjustments, particularly when comparing with 2013.
- Review the maturity profile, collateral requirements and covenant terms of Liberty’s margin loans and SIRIUS XM’s debt.
- Assess Liberty’s access to SIRIUS XM cash given SIRIUS XM’s approximately 45% noncontrolling interest.
- Monitor completion conditions, tax consequences and capitalization effects of the Liberty Broadband spin-off and rights offering.
- Evaluate exposure to market-value changes in public securities and equity affiliates; the filing estimated that a 10% decline would reduce the value of AFS equity securities by approximately $113 million and the value of certain publicly traded equity affiliates by approximately $603 million.
- Verify the final settlement and expiration of the SIRIUS XM accelerated share-repurchase agreement and related noncontrolling-interest effects.
- Consider the effect of the July 23, 2014 Series C stock dividend, which was treated retroactively as a stock split and adjusted share, warrant and convertible-note terms.