Liberty Media Corporation — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2015, compared with the corresponding 2014 periods. Liberty operates primarily through its controlling interest in SIRIUS XM, with additional corporate, investment and Atlanta Braves activities. SIRIUS XM was the principal reportable segment. Liberty completed the Liberty Broadband spin-off in November 2014; Charter, Time Warner Cable and TruePosition results are therefore not included after the spin-off.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Total revenue | $1,284 million | $1,184 million | $3,587 million | $3,355 million |
| Operating income | $321 million | $249 million | $737 million | $635 million |
| Net earnings | $41 million | $87 million | $159 million | $265 million |
| Net earnings attributable to Liberty | $(22) million | $33 million | $20 million | $105 million |
| Adjusted OIBDA | $473 million | $392 million | $1,264 million | $1,058 million |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $875 million | $801 million |
- Revenue increased 8.4% in the quarter and 6.9% year to date. SIRIUS XM revenue increased 11.2% in the quarter and 9.8% year to date.
- Operating margin was approximately 25.0% in Q3 2015 versus 21.0% in Q3 2014. Adjusted OIBDA margin was approximately 36.8% versus 33.1%.
- Net earnings attributable to Liberty stockholders declined to a loss in Q3, primarily because of $200 million of realized and unrealized losses on financial instruments, compared with a $15 million loss in the prior-year quarter.
- Year-to-date net earnings attributable to Liberty declined despite higher operating income, reflecting higher interest expense, financial-instrument losses and tax expense.
- Cash and cash equivalents were $588 million at September 30, 2015, down from $681 million at December 31, 2014. Unencumbered liquidity included $435 million of corporate and other cash, $153 million of SIRIUS XM cash and $212 million of corporate and other unencumbered available-for-sale securities.
- Total debt was $6.802 billion, including $256 million classified as current, compared with $5.852 billion at December 31, 2014. Long-term debt was $6.546 billion.
- Operating cash flow increased to $875 million from $801 million. Investing activities generated $51 million, while financing activities used $1.019 billion, including $303 million for Liberty share repurchases and $1.648 billion for subsidiary share repurchases.
- Capital expenditures were $176 million year to date, including $91 million for SIRIUS XM and $85 million for corporate and other activities.
Material changes versus the prior comparable period
- SIRIUS XM subscribers reached nearly 29.0 million at September 30, 2015, up approximately 8% from 26.7 million at December 31, 2014; approximately 23.8 million were self-pay and 5.2 million were paid promotional subscribers.
- SIRIUS XM year-to-date Adjusted OIBDA increased to $1.275 billion from $1.085 billion. Growth reflected higher subscribers, subscription rates and other revenue, partly offset by higher royalties and subscriber acquisition costs.
- SIRIUS XM incurred a $210 million settlement related to pre-1972 sound recordings. The company recognized $108 million for historical usage in 2015, excluded from Adjusted OIBDA, and will recognize the remaining $102 million through December 2017.
- Interest expense increased to $244 million year to date from $185 million, primarily because of higher average debt. SIRIUS XM issued $1.0 billion of 5.375% senior notes due 2025 and expanded and extended its revolving credit facility.
- Liberty repurchased approximately $303 million of its common stock year to date. In August 2015, the board authorized an additional $1 billion repurchase program; $324 million remained available at September 30, 2015.
- ANLBC entered into a $345 million term loan for ballpark and mixed-use development. The new facility is expected to cost approximately $672 million, plus approximately $50 million of related costs; estimated remaining 2015 capital expenditures were approximately $100 million, excluding Authority-funded amounts.
- Net losses on financial instruments increased to $188 million year to date from $55 million, driven mainly by declines in public portfolio values and losses on derivatives.
Guidance, outlook, commentary and risks
Management did not provide formal consolidated revenue or earnings guidance in the filing. Liberty expects to fund projected uses, including debt service, capital expenditures, derivative settlements and potential share repurchases, with cash on hand, operating cash flow and available borrowing capacity. SIRIUS XM is expected to fund its uses through operating cash flow, cash on hand and its credit facility.
- Key risks include subscriber demand and churn, dependence on automakers, competition, increasing music royalties, technology or satellite failures, cybersecurity, regulatory and consumer-protection requirements, and the ability to integrate or benefit from strategic transactions.
- Liberty is exposed to equity-market and interest-rate volatility. A 10% decline in the fair value of available-for-sale equity securities would reduce their value by approximately $49 million; a 10% decline in publicly traded equity-method investments in Live Nation and SIRIUS XM Canada would reduce their aggregate value by approximately $147 million.
- SIRIUS XM faces TCPA class actions, pre-1972 sound-recording litigation and a SoundExchange royalty proceeding. The filing states that reasonably possible losses generally cannot be estimated and that adverse outcomes could materially affect results or cash flows.
- The Atlanta Braves had $332 million of guaranteed player and coach contracts outstanding at September 30, 2015, payable through 2020 and thereafter.
- Liberty and its subsidiaries were in compliance with applicable debt covenants at September 30, 2015. Disclosure controls and procedures were assessed as effective.
Important facts for investors to verify
- Reconcile Liberty-level earnings with SIRIUS XM operating performance and the approximately 40% noncontrolling interest in SIRIUS XM.
- Assess the effect of fair-value losses, derivative exposures and the $1.0 billion cash convertible notes on future earnings volatility and liquidity.
- Monitor debt maturities, variable-rate exposure, collateral requirements and availability under the Liberty and SIRIUS XM facilities.
- Track subscriber growth, self-pay trends, churn, promotional subscribers, royalty rates and subscriber acquisition costs at SIRIUS XM.
- Evaluate remaining recognition of the pre-1972 recording settlement and the status of related litigation and SoundExchange claims.
- Review funding requirements, cost overruns and accounting treatment for the Atlanta Braves ballpark and mixed-use development.