Liberty Media Corporation 2013 Q1 SEC Filing Summary
Business Context and Reporting Period
Form 10-Q for the quarter ended March 31, 2013. Liberty Media was spun off from Starz on January 11, 2013 and is treated as the accounting successor to Starz for financial reporting purposes. Starz-related operations are presented as discontinued operations for prior periods.
On January 18, 2013, Liberty obtained control of SIRIUS XM, converting its prior equity-method investment into a consolidated subsidiary. Consequently, first-quarter consolidated results include SIRIUS XM only from the acquisition date, while the prior-year consolidated comparison excludes SIRIUS XM.
Financial Performance and Key Metrics
| Metric | Q1 2013 | Q1 2012 | Change / Comment |
|---|---|---|---|
| Revenue | $789 million | $35 million | Increase primarily from SIRIUS XM consolidation |
| Operating income | $160 million | $(32) million | Improved by $192 million |
| Adjusted OIBDA | $271 million | $(17) million | Improved by $288 million |
| Net earnings | $8.110 billion | $151 million | Includes approximately $7.5 billion SIRIUS XM purchase-accounting gain |
| Net earnings attributable to Liberty stockholders | $8.062 billion | $150 million | Includes $48 million attributable to noncontrolling interests |
| Diluted EPS | $66.63 | $1.20 | Heavily distorted by the SIRIUS XM transaction gain |
| Net cash provided by operating activities | $339 million | $108 million | Increased by $231 million |
Consolidated operating margin was approximately 20.3% and Adjusted OIBDA margin was approximately 34.3%. These margins are not directly comparable with Q1 2012 because SIRIUS XM was not consolidated in the prior-year period.
SIRIUS XM reported stand-alone revenue of $897 million, Adjusted OIBDA of $329 million and operating income of $247 million for the quarter. SIRIUS XM had approximately 24 million subscribers at March 31, 2013, including almost 20 million self-pay subscribers.
Balance Sheet, Debt, Liquidity and Cash Flow
- Cash and cash equivalents were $1.900 billion at March 31, 2013, compared with $603 million at December 31, 2012.
- Fair Value Option securities were $1.195 billion, providing an additional liquid investment portfolio.
- Total assets were $32.396 billion, including $14.215 billion of goodwill and $8.600 billion of FCC licenses, substantially reflecting the SIRIUS XM acquisition.
- Total debt had a carrying value of approximately $2.419 billion, consisting primarily of SIRIUS XM debt. Outstanding principal was approximately $2.201 billion.
- SIRIUS XM had $1.250 billion of availability under its senior secured revolving credit facility at March 31, 2013.
- Net cash provided by investing activities was $357 million, including $408 million of cash paid for acquisitions and $26 million of capital expenditures.
- Net cash used in financing activities was $599 million, including $140 million of Liberty share repurchases and $466 million of SIRIUS XM share repurchases.
- Cash provided by discontinued operations was $1.200 billion, reflecting primarily a cash distribution from Starz before the spin-off.
Material Changes Versus the Prior Comparable Period
- SIRIUS XM became a consolidated subsidiary, adding $729 million of reported revenue and $268 million of Adjusted OIBDA to Liberty's first-quarter results after purchase-accounting and timing adjustments.
- Liberty recorded a nonrecurring approximately $7.5 billion gain from remeasuring its previously held SIRIUS XM interest at fair value when control was obtained.
- Noncontrolling interests increased to $10.474 billion, reflecting the just-under-50% outside ownership of consolidated SIRIUS XM.
- Debt increased from no reported long-term debt at December 31, 2012 to approximately $2.419 billion, primarily due to consolidating SIRIUS XM's debt.
- Stock-based compensation increased to $41 million from $6 million, partly because of SIRIUS XM compensation expense and Liberty award adjustments related to the spin-off.
- Atlanta Braves revenue increased by $20 million, primarily from a one-time recognition of revenue related to settlement of outstanding broadcast-rights issues.
- Liberty repurchased 1.117 million Series A shares for approximately $140 million during the quarter.
Guidance, Outlook, Commentary and Risks
The filing does not provide formal consolidated revenue or earnings guidance. Management stated that SIRIUS XM has significant operating cash flows, but Liberty does not have ready access to those cash flows because SIRIUS XM is separately traded and has significant noncontrolling ownership.
In March 2013, Liberty agreed to acquire approximately 27% of Charter Communications for approximately $2.6 billion. The transaction closed on May 1, 2013, after the reporting date, and was funded with approximately $1.2 billion of cash and approximately $1.4 billion of new loan arrangements. Liberty expected to account for Charter as an equity-method affiliate.
- Key operating risks include subscriber demand and retention, dependence on automakers, competitive responses, programming and music royalty costs, satellite or information-technology failures, and execution of acquired businesses.
- Regulatory and legal risks include FCC and other regulatory matters, pending SIRIUS XM shareholder litigation, and state investigations into SIRIUS XM cancellation, renewal, billing and collection practices.
- Liberty continues to guarantee certain Starz studio output obligations. Guarantees for films released through March 31, 2013 aggregated $296 million; obligations for unreleased films were not determinable and could be significant.
- Liberty reported a judgment of approximately €945 million against Vivendi, but recovery and timing remained uncertain because Vivendi appealed. No recovery was recognized in the financial statements.
- Satellite useful-life estimates are material; management stated that a 10% reduction in estimated satellite and spacecraft-control-facility lives would have increased 2012 depreciation expense by approximately $21 million.
Most Important Facts for Investors to Verify
- Separate recurring operating performance from the approximately $7.5 billion noncash SIRIUS XM purchase-accounting gain.
- Assess the comparability of 2013 and 2012 results because SIRIUS XM was consolidated only beginning January 18, 2013 and Starz was spun off during the current quarter.
- Review SIRIUS XM subscriber growth, self-pay subscriber trends, churn, pricing, royalty costs and subscriber-acquisition spending.
- Confirm the post-quarter Charter investment, new financing arrangements and the expected equity-method accounting treatment.
- Evaluate SIRIUS XM debt maturities, refinancing needs and the availability and covenants of its revolving credit facility.
- Monitor the Starz guarantees, Vivendi appeal, SIRIUS XM shareholder litigation and state consumer-practice investigations.
- Reconcile Liberty's reported cash and marketable securities with cash held at SIRIUS XM that may not be readily available to Liberty.