THE LIBERTY SIRIUSXM GROUP The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying consolidated financial statements and the notes thereto. See note 3 in the accompanying consolidated financial statements for an overview of accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial statements.
Overview
We own controlling and non-controlling interests in a broad range of media and
entertainment companies. Our most significant operating subsidiary, which is a
reportable segment, is Sirius XM Holdings Inc. ("Sirius XM Holdings "). Sirius XM
Holdings operates two complementary audio entertainment businesses, Sirius XM
and Pandora. Sirius XM features 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 its two proprietary satellite
radio systems and through the internet via applications for mobile devices, home
devices and other consumer electronic equipment. Sirius XM also provides
connected vehicle services and a suite of in-vehicle data services. The Pandora
business operates a music, comedy and podcast streaming discovery platform.
Pandora is available as an ad-supported radio service, a radio subscription
service, called Pandora Plus, and an on-demand subscription service, called
Pandora Premium.
On September 7, 2016 , Liberty, through its indirect wholly owned subsidiary
Liberty GR Cayman Acquisition Company , entered into two definitive stock
purchase agreements relating to the acquisition of Delta Topco , the parent
company of Formula 1. The transactions contemplated by the first purchase
agreement were completed on September 7, 2016 , resulting in the acquisition of
slightly less than a 20% minority stake in Formula 1 on an undiluted basis. On
October 27, 2016 under the terms of the first purchase agreement, Liberty
acquired an additional incremental equity interest in Delta Topco , maintaining
Liberty's investment in Delta Topco on an undiluted basis and increasing
slightly to 19.1% on a fully diluted basis. Liberty acquired 100% of the fully
diluted equity interests of Delta Topco , other than a nominal number of shares
held by certain Formula 1 teams, in a closing under the second purchase
agreement (and following the unwind of the first purchase agreement) on
January 23, 2017 (the "Second Closing"). See note 5 to the accompanying
consolidated financial statements for additional information related to the
acquisition. Liberty's interest in Delta Topco and by extension Formula 1, along
with existing Formula 1 cash and debt (which is non-recourse to Liberty), was
attributed to the Formula One Group upon completion of the Second Closing.
Formula 1 is a reportable segment.
Our "Corporate and Other" category includes a consolidated subsidiary, Braves
Holdings, LLC ("Braves Holdings ") and corporate expenses. In addition, we hold
an ownership interest in Live Nation Entertainment, Inc. ("Live Nation"), which
is accounted for as an equity method investment at December 31, 2019 and is
included in corporate and other. We also maintain minority positions in other
public companies.
As discussed in note 2 of the accompanying consolidated financial statements, on
April 15, 2016 , Liberty completed the Recapitalization. Upon completion of the
Second Closing, as discussed below, the Liberty Media Group was renamed the
Formula One Group .
A tracking stock is a type of common stock that the issuing company intends to
reflect or "track" the economic performance of a particular business or "group,"
rather than the economic performance of the company as a whole. While the
Liberty SiriusXM Group , Liberty Braves Group (the "Braves Group ") and Formula
One Group have separate collections of businesses, assets and liabilities
attributed to them, no group is a separate legal entity and therefore cannot own
assets, issue securities or enter into legally binding agreements. Therefore,
the Liberty SiriusXM Group , Braves Group and Formula One Group do not represent
separate legal entities, but rather represent those businesses, assets and
liabilities that have been attributed to each respective group. Holders of
tracking stock have no direct claim to the group's stock or assets and
therefore, do not own, by virtue of their ownership of a Liberty tracking stock,
any equity or voting interest in a company, such as Sirius XM Holdings,
Formula 1 or Live Nation, in which Liberty holds an interest and that is
attributed to a Liberty tracking stock group, such as the Liberty SiriusXM Group
or the Formula One Group . Holders of tracking stock are also not represented by
separate boards of directors. Instead, holders of tracking stock are
stockholders of the parent corporation, with a single board of directors and
subject to all of the risks and liabilities of the parent corporation.
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The term "Liberty SiriusXM Group " does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group.The Liberty SiriusXM Group is primarily comprised of Liberty's subsidiary, Sirius XM Holdings, corporate cash, Liberty's 2.125% Exchangeable Senior Debentures due 2048, Liberty's 2.75% Exchangeable Senior Debentures due 2049 and a margin loan obligation incurred by a wholly-owned special purpose subsidiary of Liberty. As ofDecember 31, 2019 , theLiberty SiriusXM Group has cash and cash equivalents of approximately$493 million , which includes$106 million of subsidiary cash. Sirius XM Holdings is the only operating subsidiary attributed to theLiberty SiriusXM Group . In the event Sirius XM Holdings were to become insolvent or file for bankruptcy, Liberty's management would evaluate the circumstances at such time and take appropriate steps in the best interest of all of its stockholders, which may not be in the best interest of a particular group or groups when considered independently. In such a situation, Liberty's management and its board of directors would have several approaches at their disposal, including, but not limited to, the conversion of the Liberty SiriusXM common stock into another tracking stock of Liberty, the reattribution of assets and liabilities among Liberty's tracking stock groups or the restructuring of Liberty's tracking stocks to either create a new tracking stock structure or eliminate it altogether. OnFebruary 1, 2019 , Sirius XM Holdings acquiredPandora Media, Inc. , which continues to operate asPandora Media, LLC ("Pandora"). See note 5 to the accompanying consolidated financial statements for more information regarding the acquisition of Pandora. Additionally, as discussed below, theFormula One Group retains an intergroup interest in theLiberty SiriusXM Group . The term "Braves Group " does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group.The Braves Group is primarily comprised ofBraves Holdings , which indirectly owns theAtlanta Braves Major League Baseball Club ("ANLBC," the "Braves ," or the "Atlanta Braves") and certain assets and liabilities associated with ANLBC's stadium and mixed use development project (the "Development Project ") and corporate cash. As ofDecember 31, 2019 , theBraves Group has cash and cash equivalents of approximately$142 million , which includes$59 million of subsidiary cash. Additionally, as discussed below, theFormula One Group retains an intergroup interest in theBraves Group . The term "Formula One Group " does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. As ofDecember 31, 2019 , theFormula One Group (formerly theLiberty Media Group ) is primarily comprised of all of the businesses, assets and liabilities of Liberty other than those specifically attributed to theLiberty SiriusXM Group or theBraves Group , including Liberty's interests in Formula 1 and Live Nation, cash, Liberty's 1.375% Cash Convertible Notes due 2023 and related financial instruments, Liberty's 1% Cash Convertible Notes due 2023, Liberty's 2.25% Exchangeable Senior Debentures due 2046 and Liberty's 2.25% Exchangeable Senior Debentures due 2048. Following the creation of the tracking stocks and the closing of the Series C Liberty Braves common stock rights offering, theFormula One Group retains an intergroup interest in theBraves Group of approximately 15.1%, valued at$268 million as ofDecember 31, 2019 . TheFormula One Group also has an intergroup interest in theLiberty SiriusXM Group of approximately 0.2%, valued at$24 million as ofDecember 31, 2019 .
As
of
Strategies and Challenges of Business Units
Sirius XM Holdings. Sirius XM Holdings is focused on several initiatives to increase its revenue. Sirius XM Holdings regularly evaluates its business plans and strategy. Currently, its strategies include:
? the acquisition of unique or compelling programming;
? the development and introduction of new features or services;
? significant new or enhanced distribution arrangements;
? investments in infrastructure, such as satellites, equipment or radio spectrum;
and
? acquisitions and investments, including acquisitions and investments that are
not directly related to its satellite radio business.
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Sirius XM Holdings faces certain key challenges in its attempt to meet these goals, including:
? its ability to convince owners and lessees of new and previously owned vehicles
that include satellite radios to purchase subscriptions to its service;
? potential loss of subscribers due to economic conditions and competition from
other entertainment providers;
? competition for both listeners and advertisers, including providers of radio
and other audio services;
? the operational performance of its satellites;
? the effectiveness of integration of acquired businesses and assets into its
operations;
? the performance of its manufacturers, programming providers, vendors, and
retailers; and
? unfavorable changes in legislation.
Formula 1. Formula 1's goal is to further broaden and increase the global scale and appeal of the FIA Formula One World Championship (the "World Championship") in order to improve the overall value of Formula 1 as a sport and its financial performance. Key factors of this strategy include:
continuing to seek and identify opportunities to expand and develop the Event
? calendar and bring Events to attractive and/or strategically important new
markets outside of
while continuing to build on the foundation of the sport in
developing advertising and sponsorship revenue, including increasing sales of
? Event-based packages and under the Global Partner program, and exploring
opportunities in underexploited product categories;
? capturing opportunities created by media's evolution, including the growth of
social media and the development of Formula 1's digital media assets;
? building up the entertainment experience for fans and engaging with new fans on
a global basis to further drive race attendance and television viewership; and
? improving the on-track competitive balance of the World Championship and the
long term financial stability of the participating Teams; and
improving the environmental sustainability of
? activities, targeting a net zero carbon footprint by 2030 and sustainable race
events by 2025.
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Results of Operations-Consolidated
General. We provide in the tables below information regarding our Consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our reportable segments. The "corporate and other" category consists of those assets or businesses which do not qualify as a separate reportable segment. For a more detailed discussion and analysis of the financial results of our principal reportable segment, see "Results of Operations-Businesses" below.
Consolidated Operating Results
Years ended December 31,
2019 2018 2017
amounts in millions
Revenue
Liberty SiriusXM Group
Sirius XM Holdings $ 7,794 5,771 5,425
Total Liberty SiriusXM Group 7,794 5,771 5,425
Braves Group
Corporate and other 476 442 386
Total Braves Group 476 442 386
Formula One Group
Formula 1 2,022 1,827 1,783
Total Formula One Group 2,022 1,827 1,783
Consolidated Liberty $ 10,292 8,040 7,594
Operating Income (Loss)
Liberty SiriusXM Group
Sirius XM Holdings $ 1,578 1,659 1,588
Corporate and other (34) (39) (41)
Total Liberty SiriusXM Group 1,544 1,620 1,547
Braves Group
Corporate and other (39) 1 (113)
Total Braves Group (39) 1 (113)
Formula One Group
Formula 1 17 (68) 17
Corporate and other (52) (42) (57)
Total Formula One Group (35) (110) (40)
Consolidated Liberty $ 1,470 1,511 1,394
Adjusted OIBDA
Liberty SiriusXM Group
Sirius XM Holdings $ 2,453 2,233 2,109
Corporate and other (17) (16) (15)
Total Liberty SiriusXM Group 2,436 2,217 2,094
Braves Group
Corporate and other 49 88 2
Total Braves Group 49 88 2
Formula One Group
Formula 1 482 400 438
Corporate and other (36) (25) (41)
Total Formula One Group 446 375 397
Consolidated Liberty $ 2,931 2,680 2,493
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Revenue. Our consolidated revenue increased$2,252 million and$446 million for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The 2019 increase was driven by revenue growth at Sirius XM Holdings (primarily as a result of the Pandora acquisition), Formula 1 andBraves Holdings of$2,023 million ,$195 million and$34 million , respectively. The 2018 increase was driven by revenue growth at Sirius XM Holdings,Braves Holdings and Formula 1 of$346 million ,$56 million and$44 million , respectively. See "Results of Operations-Businesses" below for a more complete discussion of the results of operations of Sirius XM Holdings, Formula 1 andBraves Holdings . Operating income. Our consolidated operating income decreased$41 million and increased$117 million for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The 2019 decrease was driven by$81 million and$40 million decreases in Sirius XM Holdings andBraves Holdings operating results, respectively, partially offset by a$85 million improvement in Formula 1's operating results. The 2019 increase in corporate and other operating losses forFormula One Group was driven by increases in personnel related costs. Operating losses decreased$114 million and operating income increased$71 million forBraves Holdings and Sirius XM Holdings, respectively, and operating losses increased$85 million for Formula 1 during 2018 as compared to the prior year. The 2018 decrease in corporate and other operating losses forFormula One Group was driven by costs related to the acquisition of Formula 1 recognized during the year endedDecember 31, 2017 . See "Results of Operations-Businesses" below for a more complete discussion of the results of operations of Sirius XM Holdings, Formula 1 andBraves Holdings . Stock-based compensation. Stock-based compensation includes compensation related to (1) options and stock appreciation rights for shares of our common stock that are granted to certain of our officers and employees, (2) phantom stock appreciation rights granted to officers and employees of certain of our subsidiaries pursuant to private equity plans and (3) amortization of restricted stock grants. We recorded$291 million ,$192 million and$230 million of stock compensation expense for the years endedDecember 31, 2019 , 2018 and 2017, respectively. The increase in stock compensation expense in 2019 as compared to the prior year is primarily due to increases of$96 million ,$5 million and$3 million at Sirius XM Holdings,Braves Holdings and Formula 1, respectively. The decrease in stock compensation expense in 2018 as compared to the prior year is primarily due to decreases of$36 million and$8 million atBraves Holdings and Formula 1, respectively, partially offset by increases of$9 million at Sirius XM Holdings.
As of
As ofDecember 31, 2019 , the total unrecognized compensation cost related to unvested Liberty equity awards was approximately$34 million . Such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.1 years.
See "Results of Operations-Businesses" below for a more complete discussion of
the results of operations of Sirius XM Holdings, Formula 1 and
Adjusted OIBDA. To provide investors with additional information regarding our
financial results, we also disclose Adjusted OIBDA, which is a non-GAAP
financial measure. We define Adjusted OIBDA as operating income (loss) plus
depreciation and amortization, stock-based compensation, separately reported
litigation settlements, restructuring, acquisition and other related costs and
impairment charges. Our chief operating decision maker and management team use
this measure of performance in conjunction with other measures to evaluate our
businesses and make decisions about allocating resources among our businesses.
We believe this is an important indicator of the operational strength and
performance of our businesses by identifying those items that are not directly a
reflection of each business' performance or indicative of ongoing business
trends. In addition, this measure allows us to view operating results, perform
analytical comparisons and benchmarking between businesses and identify
strategies to improve performance. Adjusted OIBDA should be considered in
addition to, but not as a substitute for, operating income, net income, cash
flow provided by operating activities and other measures of financial
performance prepared in accordance
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with generally accepted accounting principles ("GAAP'). The following table provides a reconciliation of Operating income (loss) to Adjusted OIBDA:
Years ended December 31,
2019 2018 2017
amounts in millions
Operating income (loss) $ 1,470 1,511 1,394
Depreciation and amortization 1,061 905 824
Stock-based compensation 291 192 230
Litigation settlement 25 69 45
Acquisition and other related costs 84 3 -
Adjusted OIBDA $ 2,931 2,680 2,493
During the year endedDecember 31, 2019 , Sirius XM Holdings recorded a$25 million litigation settlement for Do-Not-Call litigation. This charge is included in the selling, general and administrative expense line item in the accompanying consolidated financial statements for the year endedDecember 31, 2019 . During the second quarter of 2018 and during the fourth quarter of 2017, Sirius XM Holdings recorded$69 million and$45 million , respectively, related to music royalty litigation settlements. As separately reported in note 17 of the accompanying consolidated financial statements, the$69 million and$45 million of expenses are included in the Revenue share and royalties expense line item in the accompanying consolidated financial statements for the years endedDecember 31, 2018 and 2017, respectively. The aforementioned litigation settlements have been excluded from Adjusted OIBDA for the corresponding periods as these expenses were not incurred as a part of Sirius XM Holdings' normal operations for the periods, and these lump sum amounts do not relate to the on-going performance of the business. Consolidated Adjusted OIBDA increased$251 million and$187 million for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increase in Adjusted OIBDA in 2019 as compared to the prior year was primarily due to increases of$220 million and$82 million in Sirius XM Holdings and Formula 1 Adjusted OIBDA, respectively, partially offset by a$40 million decrease in Braves Holdings Adjusted OIBDA. The increase in Adjusted OIBDA in 2018 as compared to the prior year was primarily due to increases of$124 million and$87 million in Sirius XM Holdings and Braves Holdings Adjusted OIBDA, respectively, partially offset by a$38 million decrease in Formula 1 Adjusted OIBDA. See "Results of Operations-Businesses" below for a more complete discussion of the results of operations of Sirius XM Holdings, Formula 1 andBraves Holdings . II-11 Table of Contents Other Income and Expense
Components of Other Income (Expense) are presented in the table below.
Years ended December 31,
2019 2018 2017
amounts in millions
Interest expense
Liberty SiriusXM Group $ (435) (388) (356)
Braves Group (27) (26) (15)
Formula One Group (195) (192) (220)
Consolidated Liberty $ (657) (606) (591)
Share of earnings (losses) of affiliates
Liberty SiriusXM Group $ (24) (11) 29
Braves Group 18 12 78
Formula One Group 12 17 (3)
Consolidated Liberty $ 6 18 104
Realized and unrealized gains (losses) on financial
instruments, net
Liberty SiriusXM Group $ (41) (1) (16)
Braves Group (4) (2) -
Formula One Group (270) 43 (72)
Consolidated Liberty $ (315) 40 (88)
Other, net
Liberty SiriusXM Group $ (38) 25 (11)
Braves Group 2 35 3
Formula One Group 45 18 16
Consolidated Liberty $ 9 78 8
$ (957) (470) (567)
Interest expense. Consolidated interest expense increased $51 million and
$15 million for the years ended December 31, 2019 and 2018, respectively, as
compared to the corresponding prior year periods. The increase for 2019 as
compared to the prior year was primarily due to an increase in interest expense
for the Liberty SiriusXM Group due to an increase in the average amount of
corporate and subsidiary debt outstanding. The increase for 2018 as compared to
the prior year was primarily due to an increase in the average amount of
corporate and subsidiary debt outstanding for Liberty SiriusXM Group and a
decrease in the capitalization of interest related to construction of the
stadium and mixed-use facilities as compared to the prior period for Braves
Group , partially offset by decreases in interest expense for the Formula One
Group due to decreases in the average amount of corporate and subsidiary debt
outstanding.
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Share of earnings (losses) of affiliates. The following table presents our share of earnings (losses) of affiliates:
Years ended December 31,
2019 2018 2017
amounts in millions
Liberty SiriusXM Group
Sirius XM Canada $ (3) (1) 29
Other (21) (10) -
Total Liberty SiriusXM Group (24) (11) 29
Braves Group
Other 18 12 78
Total Braves Group 18 12 78
Formula One Group
Live Nation 4 3 (18)
Other 8 14 15
Total Formula One Group 12 17 (3)
$ 6 18 104
During the year ended
Realized and unrealized gains (losses) on financial instruments. Realized and
unrealized gains (losses) on financial instruments are comprised of changes in
the fair value of the following:
Years ended December 31,
2019 2018 2017
amounts in millions
Debt and equity securities $ 110 2 (36)
Debt measured at fair value (584) 130 (126)
Change in fair value of bond hedges 215 (94) 72
Other derivatives (56) 2 2
$ (315) 40 (88)
The changes in unrealized gains (losses) on debt and equity securities (as
defined in note 3 of our accompanying consolidated financial statements) are due
to market factors primarily driven by changes in the fair value of the stock
underlying these financial instruments.
Changes in unrealized gains (losses) on debt measured at fair value are due to
market factors primarily driven by changes in the fair value of the underlying
shares into which the debt is exchangeable.
Liberty issued $1 billion of cash convertible notes in October 2013 which are
accounted for at fair value, as elected by Liberty at the time of issuance of
the notes. At the same time, Liberty entered into a bond hedge transaction on
the same amount of underlying shares. These derivatives are marked to fair value
on a recurring basis. The primary driver of the change in the fair value of bond
hedges is the change in the fair value of the underlying stock.
The unrealized losses on other derivatives for the year ended
Other, net. The decrease in 2019 was primarily due to a$56 million increase in losses on extinguishment of debt and a$28 million decrease in gains on transactions, partially offset by a$8 million increase in gains on dilution of our investment in Live Nation and a$5 million increase in foreign exchange gains. The increase in 2018 was primarily II-13
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due to a$48 million decrease in losses on early extinguishment of debt and a$17 million increase in gains on transactions, primarily driven by the sale of the residential portion ofBraves Holdings' mixed-use complex. Income taxes. Our effective tax rate for the years endedDecember 31, 2019 , 2018 and 2017 was an expense of 32%, expense of 17% and benefit of 129%, respectively. Our effective tax rate for all three years was impacted for the following reasons:
During 2019, our effective tax rate was higher than the 21%
rate due to additional tax expense related to increases in the Company's
? valuation allowance, changes in the Company's effective state tax rate and the
effect of state income taxes, partially offset by tax benefits related to
deductible stock based compensation, earnings in foreign jurisdictions taxed at
rates lower than the 21%
During 2018, our effective tax rate was lower than the 21%
rate due to deductible stock-based compensation, benefits related to federal
? tax credits and the resolution of historical matters with various tax
authorities, partially offset by changes in the valuation allowance and taxable
dividends not recognized for book purposes.
During 2017, in connection with the initial analysis of the impact of the Tax
? Cuts and Jobs Act (the "Tax Act"), as discussed in note 11 of the accompanying
consolidated financial statements, the Company recorded a discrete net tax
benefit, primarily driven by the corporate tax rate reduction.
Net earnings. We had net earnings of
Liquidity and Capital Resources
As ofDecember 31, 2019 , substantially all of our cash and cash equivalents are invested inU.S. Treasury securities, other government securities or government guaranteed funds, AAA rated money market funds and other highly rated financial and corporate debt instruments. The following are potential sources of liquidity: available cash balances, cash generated by the operating activities of our privately-owned subsidiaries (to the extent such cash exceeds the working capital needs of the subsidiaries and is not otherwise restricted), proceeds from net asset sales, monetization of our public investment portfolio, debt and equity issuances, available borrowing capacity under margin loans, and dividend and interest receipts.
Liberty currently does not have a corporate debt rating.
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As ofDecember 31, 2019 , Liberty's cash and cash equivalents were as follows: Cash and Cash Equivalents amounts in millionsLiberty SiriusXM Group Sirius XM Holdings $ 106 Corporate and other 387Total Liberty SiriusXM Group $ 493 Braves Group Corporate and other $ 142Total Braves Group $ 142 Formula One Group Formula 1 $ 402 Corporate and other 185Total Formula One Group $ 587 To the extent the Company recognizes any taxable gains from the sale of assets we may incur tax expense and be required to make tax payments, thereby reducing any cash proceeds. Additionally, the Company has a controlling interest in Sirius XM Holdings which has significant cash flows provided by operating activities, although due to Sirius XM Holdings being a separate public company and the significant noncontrolling interest, we do not have ready access to its cash. Cash held by Formula 1 is accessible by Liberty, except when a restricted payment ("RP") test imposed by the first lien term loan and the revolving credit facility at Formula 1 is not met. Pursuant to the RP test, Liberty does not have access to Formula 1's cash when Formula 1's leverage ratio (defined as net debt divided by covenant earnings before interest, tax, depreciation and amortization for the trailing twelve months) exceeds a certain threshold. The RP test has been met as ofDecember 31, 2019 . However, Formula 1 has not made any distributions to Liberty. If distributions are made in the future, the RP test, pro forma for such distributions, would have to be met. As ofDecember 31, 2019 , Liberty had$1,000 million available under Liberty's margin loan secured by shares of Sirius XM Holdings and$470 million available under Liberty's margin loan secured by shares of Live Nation. Certain tax consequences may reduce the net amount of cash that Liberty is able to utilize for corporate purposes. Liberty believes that it currently has appropriate legal structures in place to repatriate foreign cash as tax efficiently as possible and meet the business needs of the Company. The cash provided (used) by our continuing operations for the prior three years is as follows: Years ended December 31, 2019 2018 2017 Cash Flow Information amounts in millionsLiberty SiriusXM Group cash provided (used) by operating activities$ 1,944 1,785 1,849Braves Group cash provided (used) by operating activities 75
103 (42)
294 268 (75)
Net cash provided (used) by operating activities $ 2,313 2,156 1,732
Liberty SiriusXM Group cash provided (used) by
investing activities $ 384 (756) (1,254)
Braves Group cash provided (used) by investing
activities (107)
159 (221)
37 227 (1,662)
Net cash provided (used) by investing activities $ 314 (370) (3,137)
Liberty SiriusXM Group cash provided (used) by
financing activities $ (1,923) (1,552) (267)
Braves Group cash provided (used) by financing
activities 54
(212) 296
96 (616) 1,847
Net cash provided (used) by financing activities $ (1,773) (2,380) 1,876
Liberty's primary uses of cash during the year ended
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These repurchases were primarily funded by borrowings of debt, cash proceeds from the sale of investments and dividends from Sirius XM Holdings.
Sirius XM Holdings' primary uses of cash were the repurchase and retirement of outstanding Sirius XM Holdings common stock, repayment of long-term debt, additions to property and equipment and dividends paid to stockholders. The Sirius XM Holdings uses of cash were funded by cash provided by operating activities, borrowing of debt and cash received from the acquisition of Pandora. During the year endedDecember 31, 2019 , Sirius XM Holdings declared a cash dividend each quarter, and paid in cash an aggregate amount of$226 million , of which Liberty received$157 million .
Formula 1's uses of cash were not material during the year ended
The projected uses of Liberty cash (excluding Sirius XM Holdings', Formula 1's andBraves Holdings' uses of cash) are primarily the investment in new or existing businesses, debt service, including further repayment of the margin loans and the potential buyback of common stock under the approved share buyback program. Liberty expects to fund its projected uses of cash with cash on hand, borrowing capacity under margin loans and outstanding or new debt instruments. We may be required to make net payments of income tax liabilities to settle items under discussion with tax authorities. Sirius XM Holdings' uses of cash are expected to be capital expenditures, including the construction of replacement satellites, working capital requirements, repurchases of outstanding Sirius XM Holdings common stock, interest payments, taxes and scheduled maturities of outstanding debt. In addition, Sirius XM Holdings' board of directors expects to declare regular quarterly dividends. OnJanuary 30, 2020 , Sirius XM Holdings' board of directors declared a quarterly dividend on its common stock in the amount of$0.01331 per share of common stock, payable onFebruary 28, 2020 to stockholders of record at the close of business onFebruary 12, 2020 . Liberty expects Sirius XM Holdings to fund its projected uses of cash with cash on hand, cash provided by operations and borrowings under its existing credit facility. Formula 1's uses of cash are expected to be debt service payments and operating expenses. Liberty expects Formula 1 to fund its projected uses of cash with cash on hand and cash provided by operations.Braves Holdings' uses of cash are expected to be expenditures related to the mixed-use development and new spring training facility. Liberty expectsBraves Holdings to fund its projected uses of cash with borrowings under its existing debt instruments, cash provided by operations and through the issuance of new construction loans. See Item 1. Business - (c) Narrative Description of Business -Braves Holdings, LLC - Mixed-use development.
We believe that the available sources of liquidity are sufficient to cover our projected future uses of cash.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Sirius XM Holdings has entered into various programming agreements. Under the terms of these agreements, Sirius XM Holdings' obligations include fixed payments, advertising commitments and revenue sharing arrangements. Sirius XM Holdings' future revenue sharing costs are dependent upon many factors and are difficult to estimate; therefore, they are not included in the schedule of contractual obligations below. TheAtlanta Braves have entered into long-term employment contracts with certain of their players (current and former), coaches and executives whereby such individuals' compensation is guaranteed. Amounts due under guaranteed contracts as ofDecember 31, 2019 aggregated$352 million . See the table below for more detail. In addition to the foregoing amounts, certain players, coaches and executives may earn incentive compensation under the terms of their employment contracts. II-16 Table of Contents Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our contractual obligations, excluding uncertain tax positions as it is indeterminable when payments will be made, is summarized below. Payments due by period Total Less than 1 year 2 - 3 years 4 - 5 years After 5 years amounts in millions Consolidated contractual obligations Long-term debt (1)$ 14,964 67 1,595 6,689 6,613 Interest payments (2) 4,417 640 1,213 924 1,640 Programming and royalty fees (3) 1,859 845
767 150 97
Lease obligations 914 90 179 153 492
Employment agreements 352 112 132 53 55
Other obligations (4) 392 180 93 36 83
Total consolidated $ 22,898 1,934 3,979 8,005 8,980
Amounts are stated at the face amount at maturity of our debt instruments and
may differ from the amounts stated in our consolidated balance sheet to the (1) extent debt instruments (i) were issued at a discount or premium or (ii) have
elements which are reported at fair value in our consolidated balance sheet.
Amounts do not assume additional borrowings or refinancings of existing debt.
Amounts (i) are based on our outstanding debt at
the
at maturity.
Sirius XM Holdings has entered into various programming agreements under
which Sirius XM Holdings' obligations include fixed payments, advertising (3) commitments and revenue sharing arrangements. Future revenue sharing costs
are dependent upon many factors and are difficult to estimate; therefore,
they are not included in the table above. In addition, Sirius XM Holdings has
entered into certain music royalty arrangements that include fixed payments.
Includes amounts related to Sirius XM Holdings' satellite and transmission,
sales and marketing, satellite incentive payments, and other contractual
commitments. Sirius XM Holdings satellite and transmission commitments are
attributable to agreements with third parties to design, build, launch and
insure two satellites, SXM-7 and SXM-8. Sirius XM Holdings has also entered
into agreements to operate and maintain satellite telemetry, tracking and
control facilities and certain components of its terrestrial repeater
networks. Sirius XM Holdings sales and marketing commitments primarily relate
to payments to sponsors, retailers, automakers and radio manufacturers (4) pursuant to marketing, sponsorship and distribution agreements to promote the
Sirius XM Holdings brand.
manufacturers of certain of Sirius XM Holdings' in-orbit satellites, may be
entitled to future in-orbit performance payments upon XM-3 and XM-4 meeting
their fifteen-year design life, which it expects to occur. Boeing may also be
entitled to up to an additional
to operate above baseline specifications during the five years beyond the
satellite's fifteen-year design life. Additionally, Sirius XM Holdings has
entered into various agreements with third parties for general operating
purposes.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Listed below are the
accounting estimates that we believe are critical to our financial statements
due to the degree of uncertainty regarding the estimates or assumptions involved
and the magnitude of the asset, liability, revenue or expense being reported.
All of these accounting estimates and assumptions, as well as the resulting
impact to our financial statements, have been discussed with our audit
committee.
Non-Financial Instruments. Our non-financial instrument valuations are primarily
comprised of our determination of the estimated fair value allocation of net
tangible and identifiable intangible assets acquired in business combinations,
our annual assessment of the recoverability of our goodwill and other
nonamortizable intangibles, such as trademarks, and our evaluation of the
recoverability of our other long-lived assets upon certain triggering events. If
the
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carrying value of our long-lived assets exceeds their estimated fair value, we are required to write the carrying value down to fair value. Any such writedown is included in impairment of long-lived assets in our consolidated statement of operations. A high degree of judgment is required to estimate the fair value of our long-lived assets. We may use quoted market prices, prices for similar assets, present value techniques and other valuation techniques to prepare these estimates. We may need to make estimates of future cash flows and discount rates as well as other assumptions in order to implement these valuation techniques. Due to the high degree of judgment involved in our estimation techniques, any value ultimately derived from our long-lived assets may differ from our estimate of fair value. As each of our operating segments has long-lived assets, this critical accounting policy affects the financial position and results of operations of each segment. As ofDecember 31, 2019 , the intangible assets not subject to amortization for each of our significant reporting units were as follows (amounts in millions): Goodwill FCC Licenses Other Total Sirius XM Holdings$ 15,803 8,600 1,262 25,665 Formula 1 3,956 - - 3,956 Other 180 - 143 323 Consolidated$ 19,939 8,600 1,405 29,944
We perform our annual assessment of the recoverability of our goodwill and other nonamortizable intangible assets in the fourth quarter each year, or more frequently if events and circumstances indicate impairment may have occurred. The accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. The accounting guidance also allows entities the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. The entity may resume performing the qualitative assessment in any subsequent period. In evaluating goodwill on a qualitative basis, the Company reviews the business performance of each reporting unit and evaluates other relevant factors as identified in the relevant accounting guidance to determine whether it is more likely than not that an indicated impairment exists for any of our reporting units. The Company considers whether there are any negative macroeconomic conditions, industry specific conditions, market changes, increased competition, increased costs in doing business, management challenges, the legal environments and how these factors might impact company specific performance in future periods. As part of the analysis, the Company also considers fair value determinations for certain reporting units that have been made at various points throughout the current and prior year for other purposes. If based on the qualitative analysis it is more likely than not that an impairment exists, the Company performs the quantitative impairment test. Useful Life of Broadcast/Transmission System. Sirius XM Holdings' satellite system includes the costs of satellite construction, launch vehicles, launch insurance, capitalized interest, spare satellites, terrestrial repeater network and satellite uplink facilities. Sirius XM Holdings monitors its satellites for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset is not recoverable.
Sirius XM Holdings operates two in-orbit Sirius satellites, FM-5 and FM-6.
Sirius XM Holdings operates three in-orbit XM satellites, XM-3, XM-4 and XM-5.
Sirius XM Holdings estimates that its XM-3 and XM-4 satellites launched in 2005
and 2006, respectively, will reach the end of their depreciable lives in 2020
and 2021, respectively. Sirius XM Holdings has entered into agreements for the
design, construction and launch of two new satellites, SXM-7 and SXM-8, which it
plans to launch into geostationary orbits in 2020 as replacements for XM-3 and
XM-4. The XM-5 satellite that was launched in 2010, is used as an in-orbit spare
for the Sirius and XM systems and is expected to reach the end of its
depreciable life in 2025.
Sirius XM Holdings' satellites have been designed to last fifteen-years. Sirius
XM Holdings' in-orbit satellites may experience component failures which could
adversely affect their useful lives. Sirius XM Holdings monitors the operating
condition of its in-orbit satellites. If events or circumstances indicate that
the depreciable lives of its in-orbit
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satellites have changed, the depreciable life will be modified accordingly. If Sirius XM Holdings were to revise its estimates, depreciation expense would change.
Income Taxes. We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns for each taxing jurisdiction in which we operate. This process requires our management to make judgments regarding the timing and probability of the ultimate tax impact of the various agreements and transactions that we enter into. Based on these judgments we may record tax reserves or adjustments to valuation allowances on deferred tax assets to reflect the expected realizability of future tax benefits. Actual income taxes could vary from these estimates due to future changes in income tax law, significant changes in the jurisdictions in which we operate, our inability to generate sufficient future taxable income or unpredicted results from the final determination of each year's liability by taxing authorities. These changes could have a significant impact on our financial position.
Results of Operations-Businesses
Sirius XM features music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, inthe United States on a subscription fee basis. TheSirius XM service is distributed through its two proprietary satellite radio systems and through the internet via applications for mobile devices, home devices and other consumer electronic equipment. Satellite radios are primarily distributed through automakers, retailers and its website. TheSirius XM service is also available through a user interface called "360L," that combinesSirius XM's satellite and streaming services into a single, cohesive in-vehicle entertainment experience.Sirius XM's primary source of revenue is subscription fees, with most of its customers subscribing to monthly, quarterly, semi-annual or annual plans.Sirius XM also derives revenue from advertising on select non-music channels, direct sales ofSirius XM's satellite radios and accessories, and other ancillary services. As ofDecember 31, 2019 ,Sirius XM had approximately 35 million subscribers. In addition toSirius XM's audio entertainment businesses, it provides connected vehicle services to several automakers and directly to consumers through aftermarket devices. These services are designed to enhance the safety, security and driving experience of consumers.Sirius XM also offers a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings, a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-time weather services in vehicles, boats and planes.Sirius XM also holds a 70% equity interest and 33% voting interest inSirius XM Canada Holdings Inc. ("Sirius XM Canada").Sirius XM Canada's subscribers are not included inSirius XM's subscriber count or subscriber-based operating metrics. Pandora operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen, whether through mobile devices, car speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new content, hear artist- and expert-curated playlists, podcasts and selectSirius XM content as well as search and play songs and albums on-demand. Pandora is available as an ad-supported radio service, a radio subscription service, called Pandora Plus, and an on-demand subscription service, called Pandora Premium. As ofDecember 31, 2019 , Pandora had approximately 6.2 million subscribers.
The majority of Pandora's revenue is generated from advertising on its
ad-supported radio service. In addition, through
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which connects audio publishers and advertisers. As of
Results of Operations - Actual
We acquired a controlling interest in Sirius XM Holdings onJanuary 18, 2013 and applied purchase accounting and consolidated the results of Sirius XM Holdings from that date. The results presented below include the impacts of acquisition accounting adjustments in all periods presented. In addition, the results below include the financial results of Pandora from the date of acquisition by Sirius XM Holdings,February 1, 2019 . As ofDecember 31, 2019 , there is an approximate 28% noncontrolling interest in Sirius XM Holdings, and the net earnings of Sirius XM Holdings attributable to such noncontrolling interest is eliminated through the noncontrolling interest line item in the consolidated statement of operations.Sirius XM is a separate publicly traded company and additional information aboutSirius XM can be obtained through its website and its public filings, which are not incorporated by reference herein.
Sirius XM Holdings' actual operating results were as follows:
Years ended December 31,
2019 2018 2017
amounts in millions
Sirius XM :
Subscriber revenue $ 5,644 5,264 4,990
Advertising revenue 205 188 160
Equipment revenue 173 155 132
Other revenue 165 164 143
Total Sirius XM revenue 6,187 5,771 5,425
Pandora:
Subscriber revenue 476 - -
Advertising revenue 1,131 - -
Total Pandora revenue 1,607 - -
Total revenue 7,794 5,771 5,425
Operating expenses (excluding stock-based compensation
included below):
Sirius XM cost of services (excluding litigation
settlement) (2,378) (2,203) (2,021)
Pandora cost of services (1,006) - -
Subscriber acquisition costs (427) (470) (499)
Selling, general and administrative expenses (excluding
litigation settlement) (1,299) (759) (699)
Other operating expenses (231) (106) (97)
Adjusted OIBDA 2,453 2,233 2,109
Litigation settlement (25) (69) (45)
Stock-based compensation (229) (133) (124)Acquisition and other related costs (84) (3) - Depreciation and amortization (537)
(369) (352) Operating income$ 1,578 1,659 1,588 Sirius XM Subscriber revenue includes self-pay and paid promotional subscriptions,U.S. Music Royalty Fees and other ancillary fees. Subscriber revenue increased 7% and 5% for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increases were primarily attributable to higherU.S. Music Royalty Fees due to a higher music royalty rate and higher self-pay subscription revenue as a result of 3% and 5% increases in the daily weighted average number of subscribers during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increase for the year endedDecember 31, 2018 was partially offset by the impact of the adoption of Accounting Standards Codification Topic 606 ("ASC 606"), effective as ofJanuary 1, 2018 . II-20
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Sirius XM Advertising revenue includes the sale of advertising onSirius XM's non-music channels. Advertising revenue increased 9% and 18% for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increases were primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot. Sirius XM Equipment revenue includes revenue and royalties for the sale of satellite radios, components and accessories. Equipment revenue increased 12% and 17% for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increases were driven by an increase in royalty revenue due toSirius XM's transition to a new generation of chipsets. Sirius XM Other revenue includes service and advisory revenue fromSirius XM Canada , connected vehicle services, and ancillary revenue. Other revenue increased 1% and 15% for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increase for the year endedDecember 31, 2019 , was driven by higher royalty revenue generated fromSirius XM Canada , partially offset by a decrease in data usage revenue generated fromSirius XM's connected vehicle services. The increase for the year endedDecember 31, 2018 was driven by higher revenue generated from connected vehicle services andSirius XM Canada .
Pandora revenue includes actual results for the period from the acquisition date
to
Sirius XM Cost of services includes revenue share and royalties, programming and content costs, customer service and billing expenses and other ancillary costs associated with providing the satellite radio service.
Revenue Share and Royalties (excluding litigation settlements) includes
royalties for transmitting content, including streaming royalties, as well as
automaker, content provider and advertising revenue share. Revenue share and
royalties increased 8% and 14% during 2019 and 2018, respectively, as compared
to the prior year periods. The increase for the year ended
? was driven by overall greater revenue subject to royalties and revenue share.
The increase for the year ended
the statutory royalty rate applicable toSirius XM's use of post-1972 recordings and overall greater revenue subject to revenue share with the automakers, partially offset by the impact of the adoption of ASC 606, effective as ofJanuary 1, 2018 .
Programming and Content includes costs to acquire, create, promote and produce
content. Programming and content costs increased 10% and 5% during 2019 and
? 2018, respectively, as compared to the corresponding prior years. The increases
for were driven primarily by increased personnel-related costs and higher music
licensing costs.
Customer Service and Billing includes costs associated with the operation and
management of
costs, bad debt expense and transaction fees. Customer service and billing
expense increased 4% and decreased 1% during 2019 and 2018, respectively, as
? compared to the corresponding prior years. The 2019 increase was driven by
increased transaction fees from a larger subscriber base and higher bad debt
expense. The 2018 decrease was primarily driven by lower call center costs due
to lower agent rates, increased customer self-service and improved non-pay
process driving lower bad debt expense, partially offset by increased
transaction fees from a larger subscriber base and personnel-related costs.
Other includes costs associated with the operation and maintenance of Sirius
XM's terrestrial repeater networks; satellites; satellite telemetry, tracking
and control systems; satellite uplink facilities; studios; and delivery of
from the sale of satellite radios, components and accessories and provisions
for inventory allowance attributable to products purchased for resale in Sirius
? XM's direct to consumer distribution channels. Other costs of subscriber
services increased 13% and 8% during the years ended
2018, respectively, as compared to the corresponding prior years. The 2019
increase was primarily driven by higher cloud hosting and wireless costs
associated with
and an increase in
direct sales to satellite radio and
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connected vehicle consumers. The 2018 increase was primarily driven by higher
wireless costs associated with
streaming costs, partially offset by lower direct satellite radio sales to
consumers.
Pandora Cost of services includes revenue share and royalties, programming and content costs, customer service and billing expenses and other ancillary costs. Pandora cost of services was$1,006 million for the period from the acquisition date toDecember 31, 2019 . See "Results of Operations - Pro forma" below for additional information regarding Pandora's cost of services.
Revenue Share and Royalties include licensing fees paid for streaming music or
other content to Pandora subscribers and listeners as well as revenue share
? paid to third party ad servers. Pandora makes payments to third party ad
servers for the period the advertising impressions are delivered or
click-through actions occur, and accordingly, Pandora records this as a cost of
service in the related period.
? Programming and Content includes costs to produce live listener events and
promote content.
? Customer Service and Billing includes transaction fees on subscription
purchases through mobile app stores and bad debt expense.
Other includes costs associated with content streaming, maintaining Pandora's
? streaming radio and on-demand subscription services and creating and serving
advertisements through third party ad servers.
Subscriber acquisition costs are costs associated withSirius XM's satellite radio and include hardware subsidies paid to radio manufacturers, distributors and automakers, subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; product warranty obligations; and freight. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber. For the years endedDecember 31, 2019 and 2018, subscriber acquisition costs decreased 9% and 6%, respectively, as compared to the corresponding periods in the prior year. The decreases for both years were driven by reductions to OEM hardware subsidy rates, lower subsidized costs related to the transition of chipsets and decreases in the volume of satellite radio installations. Selling, general and administrative (excluding litigation settlement) expense includes costs of marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing; personnel related costs; facilities costs, finance, legal, human resources and information technology costs. Selling, general and administrative expense increased 71% and 9% for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior year periods. The increase for the year endedDecember 31, 2019 was driven by additional expenses associated with the inclusion of Pandora. The increases for both years were due to additional subscriber communications and acquisition campaigns. Additional increases during the year endedDecember 31, 2018 were driven by retention programs, higher personnel related costs, higher information technology costs and a one-time charge for sales and use taxes. Other operating expense includes engineering, design and development costs consisting primarily of compensation and related costs to develop chipsets and new products and services. For the years endedDecember 31, 2019 and 2018, other operating expense increased 118% and 9%, respectively, as compared to the corresponding periods in the prior year. The 2019 increase was driven by additional expenses associated with the inclusion of Pandora. The 2018 increase was driven by the continued development ofSirius XM's streaming product and connected vehicle services. Litigation settlement for the year endedDecember 31, 2019 relates to a one-time$25 million litigation settlement for Do-Not-Call litigation. This charge is included in the selling, general and administrative expense line item in the accompanying consolidated financial statements for the year endedDecember 31, 2019 . During the year endedDecember 31, 2018 , Sirius XM Holdings recorded a$69 million charge related to the litigation settlement that resolved all outstanding claims, including ongoing audits, underSirius XM's statutory license for sound recordings for the periodJanuary 1, 2007 throughDecember 31, 2017 . During the fourth quarter of 2017, Sirius XM Holdings recorded$45 million related to music royalty litigation settlements. These expenses are included in the Revenue share and royalties line item in the accompanying consolidated financial statements for the years endedDecember 31, 2018 and 2017. The aforementioned II-22 Table of Contents litigation settlements have been excluded from Adjusted OIBDA for the corresponding periods as these expenses were not incurred as a part of Sirius XM Holdings' normal operations and do not relate to the on-going performance of the business. Stock-based compensation increased 72% and 7% during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 increase was driven by an increase in the number of awards granted and the continued vesting of outstanding awards. During the year endedDecember 31, 2018 ,Sirius XM recorded a one-time benefit to stock-based compensation expense as a result of the adoption of ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This benefit was more than offset by an increase in stock-based compensation expense due to an increase in the number of awards granted.
Acquisition related costs represent costs associated with the acquisition of Pandora and related reorganization costs.
Depreciation and amortization increased 46% and 5% during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 increase was due to increases in amortization expense attributable to intangibles recognized in connection with the Pandora acquisition and higher depreciation expense related to additional assets placed in service. The 2018 increase was driven by an increase in amortization expenses related to capitalized software additions and an increase in depreciation expense due to additional assets placed in-service.
Results of Operations - Pro forma
Although Pandora's results are only included in Sirius XM Holdings' results beginning onFebruary 1, 2019 , we believe a discussion ofSirius XM and Pandora's combined results for all periods presented promotes a better understanding of the overall results of the combined businesses. For comparative purposes, we are presenting the pro forma results of Sirius XM Holdings for the years endedDecember 31, 2019 , 2018 and 2017. The pro forma financial information was prepared based on the historical financial information of Sirius XM Holdings (as disclosed above) and Pandora and assuming the acquisition of Pandora took place onJanuary 1, 2017 . The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs and associated tax impacts. The financial information below is presented for illustrative purposes only and does not purport to represent the actual results of operations of Sirius XM Holdings had the business combination occurred onJanuary 1, 2017 , or to project the results of operations of Sirius XM Holdings or Liberty for any future periods. II-23 Table of Contents
Sirius XM Holdings' pro forma operating results were as follows:
Years ended December 31,
2019 2018 2017
amounts in millions
Sirius XM :
Subscriber revenue $ 5,644 5,264 4,990
Advertising revenue 205 188 160
Equipment revenue 173 155 132
Other revenue 172 171 150
Total Sirius XM revenue 6,194 5,778 5,432
Pandora:
Subscriber revenue 527 478 315
Advertising revenue 1,200 1,092 1,071
Total Pandora revenue 1,727 1,570 1,386
Total revenue 7,921 7,348 6,818
Operating expenses (excluding stock-based compensation
included below):
Sirius XM cost of services (excluding litigation
settlement) (2,378) (2,203) (2,021)
Pandora cost of services (1,104) (1,082) (951)
Subscriber acquisition costs (427) (470) (499)
Selling, general and administrative expenses (excluding
litigation settlement) (1,344) (1,245) (1,159)
Other operating expenses (241) (217) (182)
Adjusted OIBDA 2,427 2,131 2,006
Litigation settlement (25) (69) (45)
Stock-based compensation (240) (244) (252)Depreciation and amortization (552)
(533) (505) Operating income$ 1,610 1,285 1,204
Please refer to the disclosure above regarding changes in
Pro forma Pandora subscriber revenue includes fees charged for Pandora Plus and Pandora Premium subscriptions. Pro forma Pandora subscriber revenue increased 10% and 52% during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The increases were primarily due to increases in the weighted average number of subscribers and an increase in the average price paid per subscriber due to the growth of Pandora Premium. Pro forma Pandora advertising revenue is generated primarily from audio, display and video advertising. Pro forma Pandora advertising revenue increased 10% and 2% during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 increase was due to growth in Pandora's off-platform advertising revenue, increased sell-through percentage, increases in the average price per ad and revenue growth in theAdsWizz business. The 2018 increase was due to increases in the average price per ad and increases in Pandora's off-platform revenue.
Please refer to the disclosure above regarding changes in
Pro forma Pandora cost of services includes revenue share and royalties, programming and content costs, customer service and billing expenses and transmission costs. Pro forma Pandora costs of services increased 2% and 14% for the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year.
Pro forma revenue share and royalties include licensing fees paid for streaming
music or other content to Pandora's subscribers and listeners as a well as
revenue share paid to third party ad servers. Pandora makes payments to third
? party ad servers for the period the advertising impressions are delivered or
click-through actions occur, and accordingly, Pandora records this as a cost of
service in the related period. Pro forma revenue share and royalties increased
2% and 12% during the years endedDecember 31, 2019 and 2018, respectively, as II-24 Table of Contents
compared to the corresponding periods in the prior year. The 2019 increase was
primarily attributable to higher revenue share driven by growth of Pandora's off
platform revenue, partially offset by lower royalty costs resulting from
renegotiated agreements with record labels, music and sound recording copyright
holders and distributors. The 2018 increase was due to minimum guarantee
accruals related to Pandora's direct license agreements with major independent
labels, distributors, performing rights organizations and publishers.
Pro forma programming and content includes costs to produce live listener
events and promote content. Pro forma programming and content increased 55% and
? decreased 21% during the years ended
as compared to the corresponding periods in the prior year. The 2019 increase
was primarily due to increases in personnel related and content costs. The 2018
decrease was primarily attributable to lower content costs. Pro forma customer service and billing includes transaction fees on
subscription purchases through mobile app stores and bad debt expense. Pro
forma customer service and billing decreased 11% and increased 44% during the
? years ended
corresponding periods in the prior year. The 2019 decrease was primarily driven
by lower bad debt expense due to recoveries and lower transaction fees. The
2018 increase was primarily driven by higher transaction fees and bad debt
expense from higher average subscriber balances.
Pro forma other includes costs associated with content streaming, maintaining
Pandora's streaming radio and on-demand subscription services and creating and
serving advertisements through third party ad servers. Pro forma other costs
? increased 21% and 4% during the years ended
respectively, as compared to the corresponding periods in the prior year. The
increases for both periods were driven by increased web hosting costs. The 2019
increase was also driven by increased personnel related costs.
Please refer to the disclosure above regarding changes in subscriber acquisition costs.
Pro forma selling, general and administrative expenses (excluding litigation settlement) includes costs of marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing; personnel costs; facilities costs, finance, legal, human resources and information technology costs. For the years endedDecember 31, 2019 and 2018, pro forma selling, general and administrative expense increased 8% and 7%, respectively, as compared to the corresponding periods in the prior year. The increases for both years were due to additional subscriber communications and acquisition campaigns. The increase for the year endedDecember 31, 2019 was also driven by higher rent. Additional increases during the year endedDecember 31, 2018 were driven by retention programs and higher legal and consulting costs. Pro forma other operating expenses include engineering, design and development costs consisting primarily of compensation and related costs to develop chipsets and new products and services, including streaming and connected vehicle services, research and development for broadcast information systems and costs associated with the incorporation ofSirius XM's radios into new vehicles manufactured by automakers. For the years endedDecember 31, 2019 and 2018, pro forma other operating expenses increased approximately 11% and 19%, respectively, as compared to the corresponding periods in the prior year. The increases were driven by higher personnel-related costs. The increase for the year endedDecember 31, 2018 was also driven by the continued development of Sirius XM Holdings' streaming products and connected vehicle services.
Please refer to the disclosure above regarding litigation settlement expenses.
Pro forma stock-based compensation decreased 2% and 3% during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 decrease was primarily due to decreases in Pandora's stock-based compensation. The 2018 decrease was partially offset by an increase inSirius XM's stock-based compensation. II-25
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Pro forma depreciation and amortization expense increased 4% and 6% for the
years ended
Formula 1. Formula 1 is a global motorsports business that holds exclusive commercial rights with respect to the World Championship, an annual, approximately nine-month long, motor race-based competition in which teams compete for the Constructors' Championship and drivers compete for the Drivers' Championship. The World Championship takes place on various circuits with various Events. Formula 1 is responsible for the commercial exploitation and development of the World Championship. Formula 1 derives its primary revenue from the commercial exploitation and development of the World Championship through a combination of entering into race promotion, broadcasting and advertising and sponsorship arrangements. A significant majority of the race promotion, broadcasting and advertising and sponsorship contracts specify payments in advance and annual increases in the fees payable over the course of the contracts. Liberty acquired a controlling interest in Formula 1 onJanuary 23, 2017 and applied acquisition accounting and consolidated the results of Formula 1 from that date. Prior to the acquisition of our controlling interest, we maintained an investment in Formula 1 sinceSeptember 7, 2016 , which was accounted for as a cost method investment. Although Formula 1's results are only included in Liberty's results sinceJanuary 23, 2017 , we believe a discussion of Formula 1's results for all periods presented promotes a better understanding of the overall results of its business. For comparison and discussion purposes, we are presenting the pro forma results of Formula 1 for the full year endedDecember 31, 2017 , inclusive of acquisition accounting adjustments. The pro forma financial information was prepared based on the historical financial information of Formula 1 and assuming the acquisition of Formula 1 took place onJanuary 1, 2016 . The pro forma adjustments have been made solely for the purpose of providing comparative pro forma financial information. The financial information below is presented for illustrative purposes only and does not purport to represent the actual results of operations of Formula 1 had the business combination occurred onJanuary 1, 2016 , or to project the results of operations of Liberty for any future periods. The pro forma adjustments are based on available information and certain assumptions that Liberty management believes are reasonable. The pro forma adjustments are directly attributable to the business combination and are expected to have a continuing impact on the results of operations of Liberty.
Formula 1's operating results were as follows:
Years ended December 31,
2019 2018 2017
(actual) (actual) (pro forma)
amounts in millions
Primary Formula 1 revenue $ 1,664 1,487 1,483
Other Formula 1 revenue 358 340 301
Total Formula 1 revenue 2,022 1,827 1,784
Operating expenses (excluding stock-based
compensation included below):
Cost of Formula 1 revenue (1,393) (1,273) (1,221)
Selling, general and administrative expenses (147) (154)
(125)
Adjusted OIBDA 482 400 438
Stock-based compensation (19) (16) (24)
Depreciation and amortization (446) (452) (451)
Operating income (loss) $ 17 (68) (37)
Number of Events 21 21 20
Primary Formula 1 revenue is derived from the commercial exploitation and
development of the World Championship through a combination of race promotion
fees (earned from granting the rights to host, stage and promote each Event on
the World Championship calendar), broadcasting fees (earned from licensing
the
right to broadcast Events
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on television and other platforms, including the internet) and advertising and sponsorship fees (earned from the sale of World Championship and Event-related advertising and sponsorship rights). Primary Formula 1 revenue increased$177 million and$4 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The increase for the year endedDecember 31, 2019 was primarily driven by an increase in broadcasting revenue due to contractual increases in fees, partially offset by the net adverse impact of weaker foreign currency exchange rates used to translate broadcasting fees that were not denominated inU.S. Dollars. Additionally, advertising and sponsorship revenue increased due to revenue from contracts with new customers. Race promotion revenue decreased due to the financial terms of two race promotion agreements and the net adverse impact of weaker foreign currency exchange rates, partially offset by contractual increases in a number of contracts. The increase for the year endedDecember 31, 2018 was driven by an increase in race promotion fees due to contractual increases in fees for certain Events and increased economics from contractual arrangements at one Event (which was fully offset by a decrease in advertising and sponsorship revenue, as discussed below). In addition, broadcasting revenue increased during the current period as compared to the corresponding period in the prior year due to the favorable impact of foreign currency exchange rates used to translate GreatBritain Pound and Euro-denominated contracts intoU.S. Dollars and the impact of certain contractual rate increases, partially offset by the early termination of one contract with a failing broadcast rights holder. Advertising and sponsorship revenue decreased during the current period as compared to the corresponding period in the prior year due to revised contractual arrangements at one Event and non-renewal of another small sponsorship arrangement, partially offset by revenue from new contracts and increases in existing contracts. Other Formula 1 revenue is generated from miscellaneous and ancillary sources primarily related to facilitating the shipment of cars and equipment to and from events outside ofEurope , revenue from the sale of tickets to theFormula One Paddock Club at most Events, support races at Events (either from the direct operation of the F2 and F3 series or from the licensing of other third party series or individual race events), various television production and post-production activities, digital and social media services and other ancillary operations. Other Formula 1 revenue increased$18 million and$39 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The increase in 2019 was due to an increase in digital media revenue, higherPaddock Club attendance, increased revenue from other Event-based activities and higher sales of equipment, parts and maintenance and other services to the competing F2 and F3 teams, partially offset by non-recurring television production revenue recorded in the prior year. The increase in 2018 was primarily attributable to increases in revenue from the sale of the new F2 chassis, engine and other components to the series' competing teams due to 2018 being the first year of the F2 vehicle cycle, higher logistical and travel services revenue, higher digital media and television production related revenue and increased revenue from hospitality and various fan engagement and other event based activities. Cost of Formula 1 revenue consists primarily of team payments. Other costs of Formula 1 revenue include hospitality costs, which are principally related to catering and other aspects of the production and delivery of thePaddock Club , and circuit rights' fees payable under various agreements with race promoters to acquire certain commercial rights at Events, including the right to sell advertising, hospitality and support race opportunities. Other costs include annual fees payable to the Federation Internationale de l'Automobile, advertising and sponsorship commissions and those incurred in the provision and sale of freight, travel and logistical services, F2 and F3 cars, parts and maintenance services, television production and post-production services, advertising production services and digital and social media activities. These costs are largely variable in nature and relate directly to revenue opportunities. II-27 Table of Contents Years ended December 31, 2019 2018 2017 (actual) (actual) (pro forma) amounts in millions Team payments$ (1,012) (913) (919)
Other costs of Formula 1 revenue (381) (360) (302)
Cost of Formula 1 revenue
Cost of Formula 1 revenue increased approximately$120 million and$52 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. Team payments increased$99 million and decreased$6 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The increase in team payments during 2019 was attributable to an increase in Primary Formula 1 revenue and the associated impact on the calculation of variablePrize Fund elements, which are calculated with reference to Formula 1's revenue and costs. The 2018 decrease was attributable to a reduction in the variable elements of thePrize Fund . Other costs of Formula 1 revenue increased$21 million and$58 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 increase was primarily due to costs related to various technical initiatives, the continued further development and delivery of digital and social media products and platforms, increased costs related to the sale of equipment, parts, maintenance and other services to the competing F2 and F3 teams and higher FIA and hospitality costs. The 2018 increase is primarily due to increased technical, logistics and travel, hospitality and Formula 2 and GP3 costs associated with the changes in the World Championship calendar, increased costs associated with sale of the new Formula 2 chassis and components to the competing Formula 2 teams during the first season of the latest three year Formula 2 cycle, costs associated with increased fan engagement activities, technical and digital media development and delivery and higher freight and hospitality costs. Selling, general and administrative expenses include personnel costs, legal, professional and other advisory fees, bad debt expense, rental expense, information technology costs, non-Event-related travel costs, insurance premiums, maintenance and utility costs and other general office administration costs. Selling, general and administrative expenses decreased$7 million and increased$29 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 decrease was driven by foreign exchange gains and lower bad debt expense, partially offset by higher personnel and information technology costs. The 2018 increase was primarily driven by higher marketing and research costs and an increase in bad debt expense. Stock-based compensation expense relates to costs arising from grants of Series C Liberty Formula One common stock options and restricted stock units to members of Formula 1 management, subsequent to the acquisition of Formula 1 by Liberty. Stock-based compensation expense increased$3 million and decreased$8 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding periods in the prior year. The 2019 increase in stock-based compensation is primarily due to an increase in the number of awards granted. Depreciation and amortization includes depreciation of fixed assets and amortization of intangible assets. Depreciation and amortization decreased$6 million during the year endedDecember 31, 2019 and was relatively flat during the year endedDecember 31, 2018 , as compared the corresponding periods in the prior year. The 2019 decrease was primarily due to a decrease in amortization expense related to certain intangible assets acquired in the acquisition of Formula 1 by Liberty.
Braves Holdings .Braves Holdings is our wholly owned subsidiary that indirectly owns and operates the Atlanta Braves MajorLeague Baseball club and six minor league baseball clubs (the Gwinnett Stripers, the Mississippi Braves, theRome Braves , the Danville Braves, the GCL Braves and theDominican Summer League ). Effective for the 2017 II-28 Table of Contents
season, theBraves relocated to a new ballpark inCobb County , a suburb ofAtlanta . The facility is leased fromCobb County andCobb-Marietta Coliseum and Exhibit Hall Authority and offers a range of activities and eateries for fans.Braves Holdings and its affiliates participated in the construction of the new stadium and are participating in the construction of an adjacent mixed-use development project, which we refer to as theDevelopment Project .
Operating results attributable to
Year ended December 31,
2019 2018 2017
amounts in millions
Baseball revenue $ 438 404 371
Development revenue 38 38 15
Total revenue 476 442 386
Operating expenses (excluding stock-based
compensation included below):
Other operating expenses (340) (265) (296)
Selling, general and administrative expenses (82) (83)
(83)
Adjusted OIBDA 54 94 7
Stock-based compensation (15) (10) (46)
Depreciation and amortization (71) (76) (67)
Operating income (loss) $ (32) 8 (106)
Regular season home games 81 81 81
Postseason home games 3 2 -
Revenue includes amounts generated from Braves Holdings' baseball and
development operations. Baseball revenue is derived from three primary sources:
ballpark operations (ticket sales, concessions, corporate sales, retail, suites
and premium seat fees), local broadcast rights and national broadcast rights,
licensing and other shared Major League Baseball ("MLB") revenue streams.
Development revenue is derived from the mixed-use facilities and primarily
includes rental income. For the years ended December 31, 2019 and 2018, revenue
increased $34 million and $56 million , respectively, as compared to the
corresponding prior years. Baseball revenue per game increased in 2019 due to
increases in ballpark operations revenue, driven by increases in attendance, and
revenue from local and national broadcasting rights. In addition, one additional
postseason home game contributed to higher baseball revenue in 2019. Baseball
revenue per game increased in 2018 due to increases in ballpark operations
revenue primarily due to increases in attendance driven by team performance,
including revenue from the 2018 MLB postseason. The 2019 decrease in development
revenue following the sale of the residential portion of the mixed-use
facilities in 2018 was offset by increases in retail tenant rental income and
parking revenue during 2019. Development revenue increased during the year ended
December 31, 2018 as compared to the prior year as Braves Holdings had just
begun renting the mixed-use facilities in 2017.
Other operating expenses primarily include costs associated with baseball and
stadium operations. For the years ended December 31, 2019 and 2018, other
operating expenses increased $75 million and decreased $31 million ,
respectively, as compared to the corresponding prior years. The increase in 2019
as compared to 2018 was driven by higher player salaries, increased baseball
operations costs driven by the opening of the new spring training facility and
higher player development costs, increased obligations under MLB's revenue
sharing plan and increased stadium operating costs driven by concessions. The
decrease in 2018 as compared to 2017 was driven by lower player salaries.
Selling, general and administrative expense includes costs of marketing,
advertising, finance and related personnel costs. Selling, general and
administrative expense decreased $1 million for the year ended December 31, 2019
as compared to the corresponding prior year due to reduced expenses associated
with the residential portion of the mixed-use complex, which was sold in October
2018 . Selling, general and administrative expense was flat for the year ended
December 31, 2018 as compared to the prior year.
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Stock-based compensation increased$5 million and decreased$36 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior years. The increase in 2019 as compared to 2018 was driven by an increase in the fair value of the underlying awards. The decrease in 2018 as compared to 2017 was due to vesting of outstanding awards in 2017, the start of a new plan period in 2018 and decreases in the fair value of the underlying awards. Depreciation and amortization decreased$5 million and increased$9 million during the years endedDecember 31, 2019 and 2018, respectively, as compared to the corresponding prior years. The decrease in 2019 as compared to 2018 is primarily due to decreases in depreciation expense related to the new stadium as a result of the adoption of ASC 842 and the sale of the residential portion of the mixed-use complex duringOctober 2018 and decreases in amortization expense related to player contracts. The increase in 2018 as compared to 2017 is due to an increase in depreciation related to the stadium, which was placed into service onMarch 21, 2017 , partially offset by lower amortization expense related to international player contracts.
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