UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015 |
OR
o |
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 001-34295
SIRIUS XM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
38-3916511 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
1221 Avenue of the Americas, 36th Floor |
|
|
New York, New York |
|
10020 |
(Address of principal executive offices) |
|
(Zip code) |
Registrant’s telephone number, including area code: (212) 584-5100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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 |
þ |
Accelerated filer |
o |
|
Non-accelerated filer |
o |
Smaller reporting company |
o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
(Class) |
|
(Outstanding as of April 24, 2015) |
||
COMMON STOCK, $0.001 PAR VALUE |
|
5,472,783,776 |
|
SHARES |
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
For the Three Months Ended March 31, |
|
|||||
(in thousands, except per share data) |
2015 |
|
|
2014 |
|
||
Revenue: |
|
|
|
|
|
|
|
Subscriber revenue |
$ |
911,470 |
|
|
$ |
851,436 |
|
Advertising revenue |
|
26,873 |
|
|
|
22,214 |
|
Equipment revenue |
|
24,841 |
|
|
|
23,978 |
|
Other revenue |
|
117,806 |
|
|
|
100,083 |
|
Total revenue |
|
1,080,990 |
|
|
|
997,711 |
|
Operating expenses: |
|
|
|
|
|
|
|
Cost of services: |
|
|
|
|
|
|
|
Revenue share and royalties |
|
212,978 |
|
|
|
195,411 |
|
Programming and content |
|
71,146 |
|
|
|
74,870 |
|
Customer service and billing |
|
92,097 |
|
|
|
91,069 |
|
Satellite and transmission |
|
21,304 |
|
|
|
21,380 |
|
Cost of equipment |
|
8,845 |
|
|
|
7,804 |
|
Subscriber acquisition costs |
|
122,260 |
|
|
|
123,022 |
|
Sales and marketing |
|
78,744 |
|
|
|
76,327 |
|
Engineering, design and development |
|
14,960 |
|
|
|
15,911 |
|
General and administrative |
|
79,823 |
|
|
|
76,243 |
|
Depreciation and amortization |
|
65,027 |
|
|
|
68,267 |
|
Total operating expenses |
|
767,184 |
|
|
|
750,304 |
|
Income from operations |
|
313,806 |
|
|
|
247,407 |
|
Other income (expense): |
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
(69,908 |
) |
|
|
(54,092 |
) |
Interest and investment income |
|
981 |
|
|
|
4,349 |
|
Loss on change in value of derivatives |
|
— |
|
|
|
(27,023 |
) |
Other (loss) income |
|
(258 |
) |
|
|
95 |
|
Total other expense |
|
(69,185 |
) |
|
|
(76,671 |
) |
Income before income taxes |
|
244,621 |
|
|
|
170,736 |
|
Income tax expense |
|
(138,929 |
) |
|
|
(76,748 |
) |
Net income |
$ |
105,692 |
|
|
$ |
93,988 |
|
Foreign currency translation adjustment, net of tax |
|
— |
|
|
|
118 |
|
Total comprehensive income |
$ |
105,692 |
|
|
$ |
94,106 |
|
Net income per common share: |
|
|
|
|
|
|
|
Basic |
$ |
0.02 |
|
|
$ |
0.02 |
|
Diluted |
$ |
0.02 |
|
|
$ |
0.02 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
5,570,748 |
|
|
|
6,094,784 |
|
Diluted |
|
5,639,838 |
|
|
|
6,173,848 |
|
See accompanying notes to the unaudited consolidated financial statements.
2
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
|
March 31, |
|
|
December 31, |
|
||
(in thousands, except per share data) |
2015 |
|
|
2014 |
|
||
ASSETS |
(unaudited) |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
482,043 |
|
|
$ |
147,724 |
|
Receivables, net |
|
219,421 |
|
|
|
220,579 |
|
Inventory, net |
|
22,937 |
|
|
|
19,397 |
|
Prepaid expenses |
|
135,960 |
|
|
|
116,336 |
|
Related party current assets |
|
3,374 |
|
|
|
4,344 |
|
Deferred tax asset |
|
937,767 |
|
|
|
1,038,603 |
|
Other current assets |
|
2,242 |
|
|
|
2,763 |
|
Total current assets |
|
1,803,744 |
|
|
|
1,549,746 |
|
Property and equipment, net |
|
1,477,657 |
|
|
|
1,510,112 |
|
Long-term restricted investments |
|
9,888 |
|
|
|
5,922 |
|
Deferred financing fees, net |
|
12,909 |
|
|
|
12,021 |
|
Intangible assets, net |
|
2,631,823 |
|
|
|
2,645,046 |
|
Goodwill |
|
2,205,107 |
|
|
|
2,205,107 |
|
Related party long-term assets |
|
— |
|
|
|
3,000 |
|
Long-term deferred tax asset |
|
402,279 |
|
|
|
437,736 |
|
Other long-term assets |
|
6,602 |
|
|
|
6,819 |
|
Total assets |
$ |
8,550,009 |
|
|
$ |
8,375,509 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
$ |
548,863 |
|
|
$ |
587,755 |
|
Accrued interest |
|
67,750 |
|
|
|
80,440 |
|
Current portion of deferred revenue |
|
1,668,484 |
|
|
|
1,632,381 |
|
Current portion of deferred credit on executory contracts |
|
558 |
|
|
|
1,394 |
|
Current maturities of long-term debt |
|
7,546 |
|
|
|
7,482 |
|
Related party current liabilities |
|
4,860 |
|
|
|
4,340 |
|
Total current liabilities |
|
2,298,061 |
|
|
|
2,313,792 |
|
Deferred revenue |
|
156,102 |
|
|
|
151,901 |
|
Long-term debt |
|
5,101,886 |
|
|
|
4,493,863 |
|
Related party long-term liabilities |
|
12,925 |
|
|
|
13,635 |
|
Other long-term liabilities |
|
92,857 |
|
|
|
92,481 |
|
Total liabilities |
|
7,661,831 |
|
|
|
7,065,672 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Common stock, par value $0.001; 9,000,000 shares authorized; 5,513,664 and 5,653,529 shares issued; 5,507,239 and 5,646,119 outstanding at March 31, 2015 and December 31, 2014, respectively |
|
5,514 |
|
|
|
5,653 |
|
Accumulated other comprehensive loss, net of tax |
|
(402 |
) |
|
|
(402 |
) |
Additional paid-in capital |
|
6,243,166 |
|
|
|
6,771,554 |
|
Treasury stock, at cost; 6,425 and 7,410 shares of common stock at March 31, 2015 and December 31, 2014, respectively |
|
(24,858 |
) |
|
|
(26,034 |
) |
Accumulated deficit |
|
(5,335,242 |
) |
|
|
(5,440,934 |
) |
Total stockholders’ equity |
|
888,178 |
|
|
|
1,309,837 |
|
Total liabilities and stockholders’ equity |
$ |
8,550,009 |
|
|
$ |
8,375,509 |
|
See accompanying notes to the unaudited consolidated financial statements.
3
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
||||||||||
(in thousands) |
|
Shares |
|
|
Amount |
|
|
Accumulated Other Comprehensive Loss |
|
|
Additional Paid-in Capital |
|
|
Shares |
|
|
Amount |
|
|
Accumulated Deficit |
|
|
Total Stockholders’ Equity |
|
||||||||
Balance at December 31, 2014 |
|
|
5,653,529 |
|
|
$ |
5,653 |
|
|
$ |
(402 |
) |
|
$ |
6,771,554 |
|
|
|
7,410 |
|
|
$ |
(26,034 |
) |
|
$ |
(5,440,934 |
) |
|
$ |
1,309,837 |
|
Comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
105,692 |
|
|
|
105,692 |
|
Share-based payment expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,417 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,417 |
|
Exercise of options and vesting of restricted stock units |
|
|
4,837 |
|
|
|
5 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Minimum withholding taxes on net share settlement of stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,728 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,728 |
) |
Common stock repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
143,717 |
|
|
|
(534,040 |
) |
|
|
— |
|
|
|
(534,040 |
) |
Common stock retired |
|
|
(144,702 |
) |
|
|
(144 |
) |
|
|
— |
|
|
|
(535,072 |
) |
|
|
(144,702 |
) |
|
|
535,216 |
|
|
|
— |
|
|
|
— |
|
Balance at March 31, 2015 |
|
|
5,513,664 |
|
|
$ |
5,514 |
|
|
$ |
(402 |
) |
|
$ |
6,243,166 |
|
|
|
6,425 |
|
|
$ |
(24,858 |
) |
|
$ |
(5,335,242 |
) |
|
$ |
888,178 |
|
See accompanying notes to the unaudited consolidated financial statements.
4
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For the Three Months Ended March 31, |
|
|||||
(in thousands) |
2015 |
|
|
2014 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
Net income |
$ |
105,692 |
|
|
$ |
93,988 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
65,027 |
|
|
|
68,267 |
|
Non-cash interest expense, net of amortization of premium |
|
1,852 |
|
|
|
5,231 |
|
Provision for doubtful accounts |
|
10,885 |
|
|
|
10,634 |
|
Amortization of deferred income related to equity method investment |
|
(694 |
) |
|
|
(694 |
) |
Gain on unconsolidated entity investments, net |
|
— |
|
|
|
(4,326 |
) |
Dividend received from unconsolidated entity investment |
|
3,778 |
|
|
|
4,222 |
|
Loss on change in value of derivatives |
|
— |
|
|
|
27,023 |
|
Share-based payment expense |
|
19,417 |
|
|
|
18,240 |
|
Deferred income taxes |
|
136,294 |
|
|
|
74,565 |
|
Other non-cash purchase price adjustments |
|
(836 |
) |
|
|
(945 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Receivables |
|
(9,727 |
) |
|
|
(11,080 |
) |
Inventory |
|
(3,540 |
) |
|
|
(5,124 |
) |
Related party assets |
|
192 |
|
|
|
654 |
|
Prepaid expenses and other current assets |
|
(19,102 |
) |
|
|
(15,682 |
) |
Other long-term assets |
|
215 |
|
|
|
718 |
|
Accounts payable and accrued expenses |
|
(27,918 |
) |
|
|
(68,168 |
) |
Accrued interest |
|
(12,690 |
) |
|
|
15,291 |
|
Deferred revenue |
|
40,304 |
|
|
|
34,861 |
|
Related party liabilities |
|
503 |
|
|
|
177 |
|
Other long-term liabilities |
|
377 |
|
|
|
3,538 |
|
Net cash provided by operating activities |
|
310,029 |
|
|
|
251,390 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Additions to property and equipment |
|
(29,831 |
) |
|
|
(28,601 |
) |
Purchases of restricted and other investments |
|
(3,966 |
) |
|
|
— |
|
Acquisition of business, net of cash acquired |
|
— |
|
|
|
1,144 |
|
Net cash used in investing activities |
|
(33,797 |
) |
|
|
(27,457 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
— |
|
|
|
259 |
|
Taxes paid in lieu of shares issued for stock-based compensation |
|
(12,711 |
) |
|
|
(4,229 |
) |
Proceeds from long-term borrowings and revolving credit facility, net of costs |
|
1,263,745 |
|
|
|
— |
|
Repayment of long-term borrowings and revolving credit facility |
|
(657,731 |
) |
|
|
(152,528 |
) |
Common stock repurchased and retired |
|
(535,216 |
) |
|
|
(81,069 |
) |
Net cash provided by (used in) financing activities |
|
58,087 |
|
|
|
(237,567 |
) |
Net increase (decrease) in cash and cash equivalents |
|
334,319 |
|
|
|
(13,634 |
) |
Cash and cash equivalents at beginning of period |
|
147,724 |
|
|
|
134,805 |
|
Cash and cash equivalents at end of period |
$ |
482,043 |
|
|
$ |
121,171 |
|
See accompanying notes to the unaudited consolidated financial statements.
5
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(UNAUDITED)
|
For the Three Months Ended March 31, |
|
|||||
(in thousands) |
2015 |
|
|
2014 |
|
||
Supplemental Disclosure of Cash and Non-Cash Flow Information |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
$ |
76,302 |
|
|
$ |
30,687 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
Capital lease obligations incurred to acquire assets |
$ |
— |
|
|
$ |
719 |
|
Treasury stock not yet settled |
$ |
24,858 |
|
|
$ |
47,613 |
|
See accompanying notes to the unaudited consolidated financial statements.
6
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
(1) |
Business & Basis of Presentation |
Business
We broadcast 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 features such as SiriusXM On Demand and MySXM, over our Internet radio service, including through applications for mobile devices. We are also a leader in providing connected vehicle services. Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle operators while providing marketing and operational benefits to automakers and their dealers.
We have agreements with every major automaker (“OEMs”) to offer satellite radios in their vehicles from which we acquire a majority of our subscribers. We also acquire subscribers through marketing to owners and lessees of vehicles that include factory-installed satellite radios that are not currently subscribing to our services. 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 plan. We offer discounts for prepaid, longer term subscription plans, as well as a multiple subscription discount. We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic and data services.
In certain cases, automakers and dealers include a subscription to our radio services in the sale or lease price of new or previously owned vehicles. The length of these trial subscriptions varies but is typically three to twelve months. We receive subscription payments for these trials from certain automakers. We also reimburse various automakers for certain costs associated with satellite radios installed in new vehicles.
Liberty Media Corporation ("Liberty Media") beneficially owns, directly and indirectly, over 50% of the outstanding shares of our common stock. As a result, we are a "controlled company" for the purposes of the NASDAQ corporate governance requirements. Liberty Media owns interests in a range of media, communications and entertainment businesses.
Basis of Presentation
This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“Holdings”). Holdings has no operations independent of its wholly-owned subsidiary Sirius XM Radio Inc. ("Sirius XM").
The accompanying unaudited consolidated financial statements of Holdings and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. Certain information and footnote disclosures normally included in the financial statements presented in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
Certain numbers in our prior period consolidated financial statements have been reclassified to conform to our current period presentation. All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 have been made.
Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on February 5, 2015.
Public companies are required to disclose certain information about their reportable operating segments. Operating segments are defined as significant components of an enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision makers in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We have determined that we have one reportable segment as our chief operating decision maker, our Chief Executive Officer, assesses performance and allocates resources based on the consolidated results of operations of our business.
7
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three months ended March 31, 2015 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events that do not require adjustment to our unaudited consolidated financial statements refer to Note 16.
Use of Estimates
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 unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense, and income taxes.
(2) |
Summary of Significant Accounting Policies |
Fair Value Measurements
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are based on unadjusted quoted prices in active markets for identical instruments. Level 2 inputs are inputs, other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. As of March 31, 2015 and December 31, 2014 the carrying amounts of cash and cash equivalents, receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.
Our assets and liabilities measured at fair value were as follows:
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||||||||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Total Fair Value |
|
|||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sirius XM Canada Holdings Inc. ("Sirius XM Canada") - investment (a) |
|
$ |
205,750 |
|
|
|
— |
|
|
|
— |
|
|
$ |
205,750 |
|
|
$ |
246,500 |
|
|
|
— |
|
|
— |
|
$ |
246,500 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (b) |
|
|
— |
|
|
$ |
5,307,167 |
|
|
|
— |
|
|
$ |
5,307,167 |
|
|
|
— |
|
|
$ |
4,613,044 |
|
|
— |
|
$ |
4,613,044 |
|
(a) |
This amount approximates fair value. The carrying value of our investment in Sirius XM Canada was $0 and $2,654 as of March 31, 2015 and December 31, 2014, respectively. |
(b) |
The fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. Refer to Note 11 for information related to the carrying value of our debt as of March 31, 2015 and December 31, 2014. |
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those years. Early adoption is permitted for financial statements that have not been previously issued and retrospective application is required for each balance sheet presented. Upon our adoption of this ASU, debt issuance costs will be presented as a reduction to our debt liability within our consolidated balance sheets.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not
8
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
permitted. Accordingly, we plan to adopt this ASU on January 1, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU.
(3) |
Earnings per Share |
Basic net income per common share is calculated by dividing the 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 number of common shares outstanding for the potential dilution that could occur if common stock equivalents (convertible debt, warrants, stock options and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method. We had no participating securities during the three months ended March 31, 2015 and 2014.
Common stock equivalents of 105,796 and 386,975 for the three months ended March 31, 2015 and 2014, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
Numerator: |
|
|
|
|
|
|
|
|
Net income available to common stockholders for basic and diluted net income per common share |
|
$ |
105,692 |
|
|
$ |
93,988 |
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic net income per common share (a) |
|
|
5,570,748 |
|
|
|
6,094,784 |
|
Weighted average impact of dilutive equity instruments |
|
|
69,090 |
|
|
|
79,064 |
|
Weighted average shares for diluted net income per common share |
|
|
5,639,838 |
|
|
|
6,173,848 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
Diluted |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
(a) |
During the three months ended March 31, 2014, 272,856 shares of common stock were reserved for conversion in connection with the 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”) and were considered to be anti-dilutive in our calculation of diluted net income per share. The Exchangeable Notes were fully converted into shares of our common stock as of December 1, 2014. |
(4) |
Receivables, net |
Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables.
Customer accounts receivable, net, includes receivables from our subscribers and advertising customers and is stated at amounts due net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors. We consider historical experience, the age of the receivable balances, current economic conditions and other factors that may affect the counterparty’s ability to pay. Bad debt expense is included in Customer service and billing expense in our unaudited consolidated statements of comprehensive income.
Receivables from distributors primarily include billed and unbilled amounts due from OEMs for services included in the sale or lease price of vehicles, as well as billed amounts due from wholesale distributors of our satellite radios. Other receivables primarily include amounts due from manufacturers of our radios, modules and chipsets where we are entitled to a subsidy based on the number of units produced. We have not established an allowance for doubtful accounts for our receivables from distributors or other receivables as we have historically not experienced any significant collection issues with OEMs or other third parties.
9
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
Receivables, net, consists of the following:
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Gross customer accounts receivable |
|
$ |
96,645 |
|
|
$ |
101,634 |
|
Allowance for doubtful accounts |
|
|
(7,350 |
) |
|
|
(7,815 |
) |
Customer accounts receivable, net |
|
$ |
89,295 |
|
|
$ |
93,819 |
|
Receivables from distributors |
|
|
108,137 |
|
|
|
105,731 |
|
Other receivables |
|
|
21,989 |
|
|
|
21,029 |
|
Total receivables, net |
|
$ |
219,421 |
|
|
$ |
220,579 |
|
(5) |
Inventory, net |
Inventory consists of finished goods, refurbished goods, chipsets and other raw material components used in manufacturing radios. Inventory is stated at the lower of cost or market. We record an estimated allowance for inventory that is considered slow moving or obsolete or whose carrying value is in excess of net realizable value. The provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of equipment in our unaudited consolidated statements of comprehensive income. The provision related to inventory consumed in our OEM and retail distribution channel is reported as a component of Subscriber acquisition costs in our unaudited consolidated statements of comprehensive income.
Inventory, net, consists of the following:
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Raw materials |
|
$ |
12,686 |
|
|
$ |
12,150 |
|
Finished goods |
|
|
21,258 |
|
|
|
17,971 |
|
Allowance for obsolescence |
|
|
(11,007 |
) |
|
|
(10,724 |
) |
Total inventory, net |
|
$ |
22,937 |
|
|
$ |
19,397 |
|
(6) |
Goodwill |
Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our single reporting unit is performed as of 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. If the carrying value of goodwill exceeds its fair value, an impairment loss is recognized.
As of March 31, 2015, there were no indicators of impairment and no impairment loss was recorded for goodwill during the three months ended March 31, 2015 and 2014. As of March 31, 2015, the cumulative balance of goodwill impairments recorded since the July 2008 merger (the "Merger") between our wholly owned subsidiary, Vernon Merger Corporation, and XM Satellite Radio Holdings Inc. ("XM"), was $4,766,190, which was recognized during the year ended December 31, 2008.
10
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
(7) |
Intangible Assets |
Our intangible assets include the following:
|
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||||||||||||||||||
|
|
Weighted Average Useful Lives |
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||||
Indefinite life intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC licenses |
|
Indefinite |
|
$ |
2,083,654 |
|
|
$ |
— |
|
|
$ |
2,083,654 |
|
|
$ |
2,083,654 |
|
|
$ |
— |
|
|
$ |
2,083,654 |
|
Trademark |
|
Indefinite |
|
|
250,000 |
|
|
|
— |
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
— |
|
|
|
250,000 |
|
Definite life intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber relationships |
|
9 years |
|
|
380,000 |
|
|
|
(313,820 |
) |
|
|
66,180 |
|
|
|
380,000 |
|
|
|
(305,755 |
) |
|
|
74,245 |
|
OEM relationships |
|
15 years |
|
|
220,000 |
|
|
|
(20,778 |
) |
|
|
199,222 |
|
|
|
220,000 |
|
|
|
(17,111 |
) |
|
|
202,889 |
|
Licensing agreements |
|
12 years |
|
|
45,289 |
|
|
|
(24,211 |
) |
|
|
21,078 |
|
|
|
45,289 |
|
|
|
(23,290 |
) |
|
|
21,999 |
|
Proprietary software |
|
8 years |
|
|
27,215 |
|
|
|
(16,206 |
) |
|
|
11,009 |
|
|
|
27,215 |
|
|
|
(15,691 |
) |
|
|
11,524 |
|
Developed technology |
|
10 years |
|
|
2,000 |
|
|
|
(1,333 |
) |
|
|
667 |
|
|
|
2,000 |
|
|
|
(1,283 |
) |
|
|
717 |
|
Leasehold interests |
|
7.4 years |
|
|
132 |
|
|
|
(119 |
) |
|
|
13 |
|
|
|
132 |
|
|
|
(114 |
) |
|
|
18 |
|
Total intangible assets |
|
|
|
$ |
3,008,290 |
|
|
$ |
(376,467 |
) |
|
$ |
2,631,823 |
|
|
$ |
3,008,290 |
|
|
$ |
(363,244 |
) |
|
$ |
2,645,046 |
|
Indefinite Life Intangible Assets
We have identified our FCC licenses and the XM trademark as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use.
We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our satellite licenses expires:
FCC satellite licenses |
|
Expiration year |
|
|
SIRIUS FM-1 |
|
|
2017 |
|
SIRIUS FM-2 |
|
|
2017 |
|
SIRIUS FM-3 |
|
|
2017 |
|
SIRIUS FM-5 |
|
|
2017 |
|
SIRIUS FM-6 |
|
|
2022 |
|
XM-1 (1) |
|
|
|
|
XM-3 |
|
|
2021 |
|
XM-4 |
|
|
2022 |
|
XM-5 |
|
|
2018 |
|
(1) |
The FCC license for this satellite has expired. The FCC has granted us special temporary authority to operate this satellite and prepare it for deorbiting maneuvers. |
Prior to expiration, we are required to apply for a renewal of our FCC licenses. The renewal and extension of our licenses, including temporary licenses, is reasonably certain at minimal cost, which is expensed as incurred. Each of the FCC licenses authorizes us to use the broadcast spectrum, which is a renewable, reusable resource that does not deplete or exhaust over time.
Our annual impairment assessment of our indefinite intangible assets is performed as of the fourth quarter of each year. 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. If the carrying value of the intangible assets exceeds its fair value, an impairment loss is recognized. As of March 31, 2015, there were no indicators of impairment, and no impairment loss was recorded for intangible assets with indefinite lives during the three months ended March 31, 2015 and 2014.
11
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
Definite Life Intangible Assets
Amortization expense for all definite life intangible assets was $13,223 and $14,084 for the three months ended March 31, 2015 and 2014, respectively. Expected amortization expense for the remaining period in 2015, each of the fiscal years 2016 through 2019 and for periods thereafter is as follows:
Years ending December 31, |
|
Amount |
|
|
2015 (remaining) |
|
$ |
38,477 |
|
2016 |
|
|
48,545 |
|
2017 |
|
|
34,882 |
|
2018 |
|
|
19,463 |
|
2019 |
|
|
19,026 |
|
Thereafter |
|
|
137,776 |
|
Total definite life intangible assets, net |
|
$ |
298,169 |
|
(8) |
Property and Equipment |
Property and equipment, net, consists of the following:
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Satellite system |
|
$ |
2,397,611 |
|
|
$ |
2,397,611 |
|
Terrestrial repeater network |
|
|
109,293 |
|
|
|
108,341 |
|
Leasehold improvements |
|
|
48,801 |
|
|
|
48,677 |
|
Broadcast studio equipment |
|
|
61,568 |
|
|
|
61,306 |
|
Capitalized software and hardware |
|
|
360,252 |
|
|
|
340,738 |
|
Satellite telemetry, tracking and control facilities |
|
|
73,044 |
|
|
|
71,268 |
|
Furniture, fixtures, equipment and other |
|
|
78,316 |
|
|
|
78,237 |
|
Land |
|
|
38,411 |
|
|
|
38,411 |
|
Building |
|
|
59,393 |
|
|
|
59,373 |
|
Construction in progress |
|
|
147,768 |
|
|
|
155,716 |
|
Total property and equipment |
|
|
3,374,457 |
|
|
|
3,359,678 |
|
Accumulated depreciation and amortization |
|
|
(1,896,800 |
) |
|
|
(1,849,566 |
) |
Property and equipment, net |
|
$ |
1,477,657 |
|
|
$ |
1,510,112 |
|
Construction in progress consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
||
Satellite system |
|
$ |
12,912 |
|
|
$ |
12,912 |
|
Terrestrial repeater network |
|
|
44,733 |
|
|
|
48,406 |
|
Capitalized software |
|
|
73,719 |
|
|
|
77,755 |
|
Other |
|
|
16,404 |
|
|
|
16,643 |
|
Construction in progress |
|
$ |
147,768 |
|
|
$ |
155,716 |
|
Depreciation expense on property and equipment was $51,804 and $54,183 for the three months ended March 31, 2015 and 2014, respectively. We retired property and equipment of $4,571 and $3,500 during the three months ended March 31, 2015 and 2014, respectively.
12
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)
Satellites
We currently own a fleet of nine operating satellites. The chart below provides certain information on these satellites:
Satellite Description |
|
Year Delivered |
|
|
Estimated End of Depreciable Life |
|
||
FM-1* |
|
|
2000 |
|
|
|
2013 |
|
FM-2* |
|
|
2000 |
|
|
|
2013 |
|
FM-3 |
|
|
2000 |
|
|
|
2015 |
|
FM-5 |