10-Q 1 siri-10q_20150630.htm 10-Q siri-10q_20150630.htm

 

 

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 JUNE 30, 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 July 24, 2015)

COMMON STOCK, $0.001 PAR VALUE

 

5,323,245,038

 

SHARES

 

 

 

 

 

 

 


 

Table of Contents

 

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

Item No.

 

Description

 

 

 

 

 

 

 

 

 

PART I — Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

 

3

 

 

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity as of June 30, 2015

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

40

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

40

 

 

 

 

 

 

 

PART II — Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

 

 

 

Item 1A.

 

Risk Factors

 

42

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

42

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

43

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

43

 

 

 

 

 

Item 5.

 

Other Information

 

43

 

 

 

 

 

Item 6.

 

Exhibits

 

43

 

 

 

 

 

 

 

Signatures

 

44

 

 

 

 


Table of Contents

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

(in thousands, except per share data)

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscriber revenue

$

940,077

 

 

$

878,160

 

 

$

1,851,547

 

 

$

1,729,596

 

Advertising revenue

 

28,839

 

 

 

25,498

 

 

 

55,712

 

 

 

47,712

 

Equipment revenue

 

29,263

 

 

 

27,616

 

 

 

54,104

 

 

 

51,594

 

Other revenue

 

125,031

 

 

 

104,071

 

 

 

242,837

 

 

 

204,154

 

Total revenue

 

1,123,210

 

 

 

1,035,345

 

 

 

2,204,200

 

 

 

2,033,056

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue share and royalties

 

331,517

 

 

 

200,221

 

 

 

544,495

 

 

 

395,632

 

Programming and content

 

69,370

 

 

 

69,570

 

 

 

140,516

 

 

 

144,440

 

Customer service and billing

 

91,932

 

 

 

90,092

 

 

 

184,029

 

 

 

181,161

 

Satellite and transmission

 

21,714

 

 

 

21,272

 

 

 

43,018

 

 

 

42,651

 

Cost of equipment

 

10,930

 

 

 

12,030

 

 

 

19,775

 

 

 

19,834

 

Subscriber acquisition costs

 

136,504

 

 

 

124,407

 

 

 

258,764

 

 

 

247,429

 

Sales and marketing

 

86,493

 

 

 

77,759

 

 

 

165,237

 

 

 

154,086

 

Engineering, design and development

 

16,088

 

 

 

15,630

 

 

 

31,048

 

 

 

31,541

 

General and administrative

 

72,137

 

 

 

72,582

 

 

 

151,960

 

 

 

148,825

 

Depreciation and amortization

 

67,096

 

 

 

67,204

 

 

 

132,123

 

 

 

135,471

 

Total operating expenses

 

903,781

 

 

 

750,767

 

 

 

1,670,965

 

 

 

1,501,070

 

Income from operations

 

219,429

 

 

 

284,578

 

 

 

533,235

 

 

 

531,986

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

(75,380

)

 

 

(67,521

)

 

 

(145,288

)

 

 

(121,613

)

Interest and investment income (loss)

 

4,032

 

 

 

(1,066

)

 

 

5,013

 

 

 

3,283

 

Loss on change in value of derivatives

 

 

 

 

(7,463

)

 

 

 

 

 

(34,485

)

Other income (loss)

 

189

 

 

 

(1,745

)

 

 

(69

)

 

 

(1,652

)

Total other expense

 

(71,159

)

 

 

(77,795

)

 

 

(140,344

)

 

 

(154,467

)

Income before income taxes

 

148,270

 

 

 

206,783

 

 

 

392,891

 

 

 

377,519

 

Income tax expense

 

(45,421

)

 

 

(86,822

)

 

 

(184,350

)

 

 

(163,570

)

Net income

$

102,849

 

 

$

119,961

 

 

$

208,541

 

 

$

213,949

 

Foreign currency translation adjustment, net of tax

 

(9

)

 

 

(40

)

 

 

(9

)

 

 

78

 

Total comprehensive income

$

102,840

 

 

$

119,921

 

 

$

208,532

 

 

$

214,027

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.02

 

 

$

0.02

 

 

$

0.04

 

 

$

0.04

 

Diluted

$

0.02

 

 

$

0.02

 

 

$

0.04

 

 

$

0.04

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

5,443,590

 

 

 

5,865,032

 

 

 

5,506,818

 

 

 

5,979,273

 

Diluted

 

5,507,601

 

 

 

6,210,078

 

 

 

5,570,445

 

 

 

6,054,771

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

2


Table of Contents

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

June 30,

 

 

December 31,

 

(in thousands, except per share data)

2015

 

 

2014

 

ASSETS

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

294,053

 

 

$

147,724

 

Receivables, net

 

240,325

 

 

 

220,579

 

Inventory, net

 

24,599

 

 

 

19,397

 

Prepaid expenses

 

122,996

 

 

 

116,336

 

Related party current assets

 

4,097

 

 

 

4,344

 

Deferred tax asset

 

903,376

 

 

 

1,038,603

 

Other current assets

 

40,920

 

 

 

2,763

 

Total current assets

 

1,630,366

 

 

 

1,549,746

 

Property and equipment, net

 

1,463,827

 

 

 

1,510,112

 

Long-term restricted investments

 

9,888

 

 

 

5,922

 

Deferred financing fees, net

 

15,377

 

 

 

12,021

 

Intangible assets, net

 

2,618,802

 

 

 

2,645,046

 

Goodwill

 

2,205,107

 

 

 

2,205,107

 

Related party long-term assets

 

 

 

 

3,000

 

Long-term deferred tax asset

 

395,224

 

 

 

437,736

 

Other long-term assets

 

69,480

 

 

 

6,819

 

Total assets

$

8,408,071

 

 

$

8,375,509

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

787,040

 

 

$

587,755

 

Accrued interest

 

97,243

 

 

 

80,440

 

Current portion of deferred revenue

 

1,694,232

 

 

 

1,632,381

 

Current portion of deferred credit on executory contracts

 

 

 

 

1,394

 

Current maturities of long-term debt

 

8,074

 

 

 

7,482

 

Related party current liabilities

 

4,687

 

 

 

4,340

 

Total current liabilities

 

2,591,276

 

 

 

2,313,792

 

Deferred revenue

 

156,229

 

 

 

151,901

 

Long-term debt

 

5,108,336

 

 

 

4,493,863

 

Related party long-term liabilities

 

12,215

 

 

 

13,635

 

Other long-term liabilities

 

92,751

 

 

 

92,481

 

Total liabilities

 

7,960,807

 

 

 

7,065,672

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, par value $0.001; 9,000,000 shares authorized; 5,379,798 and

   5,653,529 shares issued; 5,370,298 and 5,646,119 outstanding at June 30, 2015

   and December 31, 2014, respectively

 

5,379

 

 

 

5,653

 

Accumulated other comprehensive loss, net of tax

 

(411

)

 

 

(402

)

Additional paid-in capital

 

5,710,484

 

 

 

6,771,554

 

Treasury stock, at cost; 9,500 and 7,410 shares of common stock at June 30, 2015 and

   December 31, 2014, respectively

 

(35,795

)

 

 

(26,034

)

Accumulated deficit

 

(5,232,393

)

 

 

(5,440,934

)

Total stockholders’ equity

 

447,264

 

 

 

1,309,837

 

Total liabilities and stockholders’ equity

$

8,408,071

 

 

$

8,375,509

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

3


Table of Contents

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

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

208,541

 

 

 

208,532

 

Share-based payment expense

 

 

 

 

 

 

 

 

 

 

 

38,941

 

 

 

 

 

 

 

 

 

 

 

 

38,941

 

Exercise of options and vesting

   of restricted stock units

 

 

6,326

 

 

 

6

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

Minimum withholding taxes on

   net share settlement of

   stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

(16,091

)

 

 

 

 

 

 

 

 

 

 

 

(16,091

)

Issuance of common stock upon

   exercise of warrants

 

 

6,010

 

 

 

6

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

288,156

 

 

 

(1,093,955

)

 

 

 

 

 

(1,093,955

)

Common stock retired

 

 

(286,067

)

 

 

(286

)

 

 

 

 

 

(1,083,908

)

 

 

(286,066

)

 

 

1,084,194

 

 

 

 

 

 

 

Balance at June 30, 2015

 

 

5,379,798

 

 

$

5,379

 

 

$

(411

)

 

$

5,710,484

 

 

 

9,500

 

 

$

(35,795

)

 

$

(5,232,393

)

 

$

447,264

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

4


Table of Contents

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

For the Six Months Ended June 30,

 

(in thousands)

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

208,541

 

 

$

213,949

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

132,123

 

 

 

135,471

 

Non-cash interest expense, net of amortization of premium

 

3,868

 

 

 

10,779

 

Provision for doubtful accounts

 

21,919

 

 

 

21,287

 

Amortization of deferred income related to equity method investment

 

(1,388

)

 

 

(1,388

)

Gain on unconsolidated entity investments, net

 

 

 

 

(966

)

Dividend received from unconsolidated entity investment

 

7,677

 

 

 

8,554

 

Loss on change in value of derivatives

 

 

 

 

34,485

 

Share-based payment expense

 

38,941

 

 

 

36,027

 

Deferred income taxes

 

177,739

 

 

 

157,965

 

Other non-cash purchase price adjustments

 

(1,394

)

 

 

(1,890

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

(41,665

)

 

 

(30,651

)

Inventory

 

(5,202

)

 

 

(7,692

)

Related party, net

 

(4,117

)

 

 

2,837

 

Prepaid expenses and other current assets

 

(44,821

)

 

 

(1,057

)

Other long-term assets

 

(62,663

)

 

 

1,238

 

Accounts payable and accrued expenses

 

199,532

 

 

 

(40,098

)

Accrued interest

 

16,803

 

 

 

12,943

 

Deferred revenue

 

66,179

 

 

 

44,981

 

Other long-term liabilities

 

269

 

 

 

(4,702

)

Net cash provided by operating activities

 

712,341

 

 

 

592,072

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Additions to property and equipment

 

(61,229

)

 

 

(58,417

)

Purchases of restricted and other investments

 

(3,966

)

 

 

 

Acquisition of business, net of cash acquired

 

 

 

 

1,144

 

Return of capital from investment in unconsolidated entity

 

 

 

 

24,178

 

Net cash used in investing activities

 

(65,195

)

 

 

(33,095

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

260

 

Taxes paid in lieu of shares issued for stock-based compensation

 

(15,420

)

 

 

(7,313

)

Proceeds from long-term borrowings and revolving credit facility, net of costs

 

1,259,346

 

 

 

1,921,230

 

Repayment of long-term borrowings and revolving credit facility

 

(660,549

)

 

 

(905,815

)

Common stock repurchased and retired

 

(1,084,194

)

 

 

(1,532,164

)

Net cash used in financing activities

 

(500,817

)

 

 

(523,802

)

Net increase in cash and cash equivalents

 

146,329

 

 

 

35,175

 

Cash and cash equivalents at beginning of period

 

147,724

 

 

 

134,805

 

Cash and cash equivalents at end of period

$

294,053

 

 

$

169,980

 

See accompanying notes to the unaudited consolidated financial statements.

 


5


Table of Contents

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(UNAUDITED)

 

 

 

For the Six Months Ended June 30,

 

(in thousands)

2015

 

 

2014

 

Supplemental Disclosure of Cash and Non-Cash Flow Information

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest, net of amounts capitalized

$

118,265

 

 

$

92,068

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Capital lease obligations incurred to acquire assets

$

7,487

 

 

$

719

 

Treasury stock not yet settled

$

35,795

 

 

$

20,739

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

6


Table of Contents

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. 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 June 30, 2015 and for the three and six months ended June 30, 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.

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Table of Contents

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 and six months ended June 30, 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 June 30, 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:

 

 

 

June 30, 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)

 

$

204,000

 

 

 

 

 

 

 

 

$

204,000

 

 

$

246,500

 

 

 

 

 

 

$

246,500

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt (b)

 

 

 

 

$

5,197,867

 

 

 

 

 

$

5,197,867

 

 

 

 

 

$

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 June 30, 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 June 30, 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 debt issuance costs related to a recognized debt liability to 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.  We plan to adopt this ASU in the fourth quarter of 2015, and 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.  In July 2015, the FASB amended the effective date of this ASU to fiscal years beginning after December 15, 2017,

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Table of Contents

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in thousands, except per share amounts)

 

and early adoption is permitted only for fiscal years beginning after December 15, 2016.  Accordingly, we plan to adopt this ASU on January 1, 2018.  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 and six months ended June 30, 2015 and 2014.

Common stock equivalents of 113,067 and 116,655 for the three months ended June 30, 2015 and 2014, respectively, and 114,443 and 386,276 for the six months ended June 30, 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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders for basic net

   income per common share

 

$

102,849

 

 

$

119,961

 

 

$

208,541

 

 

$

213,949

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of interest on assumed conversions of convertible

   debt

 

 

 

 

 

5,363

 

 

 

 

 

 

 

Net income available to common stockholders for diluted net

   income per common share

 

$

102,849

 

 

$

125,324

 

 

$

208,541

 

 

$

213,949

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic net

   income per common share

 

 

5,443,590

 

 

 

5,865,032

 

 

 

5,506,818

 

 

 

5,979,273

 

Weighted average impact of assumed convertible

   debt (a)

 

 

 

 

272,856

 

 

 

 

 

Weighted average impact of dilutive equity instruments

 

 

64,011

 

 

 

72,190

 

 

 

63,627

 

 

 

75,498

 

Weighted average shares for diluted net income per common

   share

 

 

5,507,601

 

 

 

6,210,078

 

 

 

5,570,445

 

 

 

6,054,771

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

0.02

 

 

$

0.04

 

 

$

0.04

 

Diluted

 

$

0.02

 

 

$

0.02

 

 

$

0.04

 

 

$

0.04

 

(a)

During the six months ended June 30, 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 subsidies and royalties based on

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in thousands, except per share amounts)

 

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.

Receivables, net, consists of the following:

 

 

 

June 30, 2015

 

 

December 31, 2014

 

Gross customer accounts receivable

 

$

102,334

 

 

$

101,634

 

Allowance for doubtful accounts

 

 

(7,118

)

 

 

(7,815

)

Customer accounts receivable, net

 

$

95,216

 

 

$

93,819

 

Receivables from distributors

 

 

121,825

 

 

 

105,731

 

Other receivables

 

 

23,284

 

 

 

21,029

 

Total receivables, net

 

$

240,325

 

 

$

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:

 

 

 

June 30, 2015

 

 

December 31, 2014

 

Raw materials

 

$

11,449

 

 

$

12,150

 

Finished goods

 

 

23,811

 

 

 

17,971

 

Allowance for obsolescence

 

 

(10,661

)

 

 

(10,724

)

Total inventory, net

 

$

24,599

 

 

$

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 June 30, 2015, there were no indicators of impairment and no impairment loss was recorded for goodwill during the three and six months ended June 30, 2015 and 2014.  As of June 30, 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.

 

 

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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:

 

 

 

 

 

June 30, 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

 

 

 

(321,683

)

 

 

58,317

 

 

 

380,000

 

 

 

(305,755

)

 

 

74,245

 

OEM relationships