Liberty(FWONK) - 2022 Q4 - Annual Report

Part I Item 1. Business Liberty Media operates a portfolio of media and entertainment businesses across three tracking stock groups, with a planned 2023 split-off and reclassification - The company's assets are organized into three tracking stock groups: Liberty SiriusXM Group, Liberty Braves Group, and Liberty Formula One Group. A tracking stock is intended to reflect the economic performance of a specific business group but does not represent a separate legal entity[30] - In November 2022, the Board authorized a plan to split-off the Braves Group into a new public company, Atlanta Braves Holdings, Inc. (ABH)[37] - Following the planned Split-Off, the company intends to reclassify its remaining stock into three new tracking stocks: Liberty SiriusXM, Liberty Formula One, and Liberty Live. Both transactions are expected to be completed in the first half of 2023, subject to stockholder and regulatory approvals[38][39] Sirius XM Holdings Liberty owns 82% of Sirius XM Holdings, operating subscription-based satellite radio and ad-supported streaming services - Liberty owns approximately 82% of Sirius XM Holdings, which operates two complementary audio businesses: Sirius XM and Pandora and Off-platform[44] - Sirius XM's primary revenue is from subscriptions, while Pandora's is mainly from advertising on its ad-supported service[47][51] - The company is expanding its podcasting content, noting that an estimated 109 million Americans listened to a podcast at least monthly in 2022[45] Sirius XM Holdings Subscriber Metrics (as of Dec 31, 2022) | Business Unit | Subscribers (approx.) | | :--- | :--- | | Sirius XM | 34.3 million | | Pandora | 6.2 million | Formula 1 Formula 1 holds exclusive commercial rights to the FIA Formula One World Championship until 2110, generating revenue from race promotion, media rights, and sponsorship - Formula 1 holds exclusive commercial rights to the World Championship until the end of 2110 under the "100-Year Agreements" with the FIA[123][137][142] - The 2022 World Championship featured 22 events, with record attendance and hospitality numbers significantly above pre-COVID-19 levels[121][122] - The 2021 Concorde Agreement governs the relationship with the 10 competing Teams, securing their participation until December 31, 2025, and defining the terms for Prize Fund payments[138][146] Formula 1 Revenue Breakdown (FY 2022) | Revenue Source | % of Total Revenue | | :--- | :--- | | Media Rights | 36.4% | | Race Promotion | 28.6% | | Sponsorship | 16.9% | Braves Holdings, LLC Braves Holdings operates the Atlanta Braves MLB club, Truist Park, and an adjacent mixed-use real estate development, generating revenue from baseball and rental income - Braves Holdings derives revenue from the Braves baseball franchise (tickets, concessions, broadcasting, sponsorships) and from its Mixed-Use Development (rental income)[158] - The Mixed-Use Development, known as The Battery Atlanta, is an approximately 2.25 million square-foot area. Phase III construction began in the second half of 2022 and is expected to open in 2024[174] - The Braves operate under a 30-year Stadium Operating Agreement with Cobb County for Truist Park[171] - As an MLB club, the Braves must comply with MLB Rules and Regulations, including the Collective Bargaining Agreement (CBA), revenue sharing plans, and a Debt Service Rule that limits indebtedness[175][176][179] Live Nation Liberty holds an approximately 31% equity interest in Live Nation, a leading live entertainment company with Concerts, Ticketing, and Sponsorship & Advertising segments - As of December 31, 2022, Liberty owned approximately 31% of Live Nation's issued and outstanding shares[186] - Live Nation's business segments are Concerts (global promotion of live music), Ticketing (agency business selling tickets for events), and Sponsorship & Advertising[181] - Under a stockholders agreement, Liberty has the right to nominate two directors to the Live Nation board and is limited to acquiring no more than 35% of the voting power of Live Nation's equity securities[187][188] Item 1A. Risk Factors The company faces risks from its tracking stock structure, financing, content popularity, and specific business units, and the Braves Group Split-Off Risks Relating to our Company, as a Whole Key risks include tracking stock financial data not reflecting standalone performance, corporate-level debt, unpredictable consumer popularity, and weak economic conditions impacting discretionary spending - The historical financial information of the tracking stock groups may not reflect what their results would have been as separate, stand-alone entities[218][219] - A substantial portion of consolidated debt is held at the corporate level, and the company's ability to service this debt depends on accessing cash from subsidiaries, which can be restricted[221][223] - The success of the company's entertainment, satellite radio, and live sporting events businesses depends on their popularity with audiences, which is difficult to predict[225] - Weak economic conditions, including inflation and rising interest rates, may reduce discretionary consumer spending on the company's products, services, and events[227] Risks Relating to the Liberty SiriusXM Group The Liberty SiriusXM Group faces risks from auto industry supply chain issues, intense competition, declining Pandora users, podcast monetization uncertainty, changing music royalty rates, and potential satellite failures - Sirius XM Holdings' business is adversely affected by supply chain issues, particularly the global semiconductor shortage, which impacts new vehicle production and the availability of chipsets for its satellite radios[241][242][243] - The company faces substantial competition from terrestrial radio and streaming services like Spotify, Apple Music, and YouTube, which offer free or low-cost content and are integrated into vehicle dashboards[247][248] - Pandora's ad-supported business has experienced a consistent decline in monthly active users for several years, which could negatively impact advertising revenue[285][286] - The market for music rights is changing, with significant uncertainties and rising costs for both performance and mechanical rights, which could adversely affect profitability[326][335][336] Risks Relating to the Formula One Group Formula One Group risks include declining sport popularity, dependence on FIA agreements and team participation, competition law enforcement, tax challenges, market expansion difficulties, and potential rival motorsports series - A decline in the popularity of Formula 1 could materially affect its ability to renew or enter into beneficial race promotion, media rights, and sponsorship contracts[359][360] - The termination of the "100-Year Agreements" with the FIA, which grant Formula 1 exclusive commercial rights to the World Championship until 2110, could cause the business to discontinue operations[361] - The business may be subject to enforcement actions under European and national competition laws, which could deem certain commercial contracts unenforceable or require modifications[368][370] - The establishment of a rival motor sport series could lead to fewer teams and circuits in Formula 1, diminishing its competitive position and the value of its commercial contracts[397] Risks Relating to the Braves Group The Braves Group's financial success depends heavily on on-field performance, player retention, MLB rules, and real estate development risks, with potential impacts from regional broadcasting issues - The financial success of the Braves Group is largely dependent on the team's on-field success, which drives revenue from tickets, concessions, merchandise, and postseason play[413] - The business is subject to substantial restrictions from MLB rules and regulations, including limitations on debt, revenue sharing arrangements, and broadcasting rights[419] - The development of the Mixed-Use Development involves significant capital expenditures and indebtedness, and there is no assurance that the anticipated benefits, such as increased attendance and rental income, will be fully realized[431][432] - A potential Chapter 11 bankruptcy filing by Diamond Sports Group, which broadcasts Braves games regionally, could interrupt broadcasts and adversely impact revenue and the fan base[446][449] Risks Relating to the Ownership of Our Common Stock Due to Our Tracking Stock Capitalization The tracking stock structure presents risks as holders are subject to the entire company's risks, assets can be reattributed, market prices may not reflect group performance, and acquisitions of individual groups are inhibited - Holders of a specific tracking stock are common stockholders of the entire company and are subject to risks associated with all of its businesses, as the groups are not separate legal entities and assets of one group could be used to pay liabilities of another[450][458] - The Board of Directors has the discretion to reattribute assets and liabilities between tracking stock groups, which may make it difficult for investors to assess future prospects based on past performance[456][457] - The tracking stock capital structure may inhibit acquisition bids for individual business groups and makes it more difficult for a third party to acquire the entire company[484] - The Chairman, John C. Malone, holds approximately 49% of the aggregate voting power, giving him significant influence over corporate actions[488] Item 2. Properties The company owns its corporate headquarters, while subsidiaries own or lease essential properties like offices, studios, and entertainment venues - The company owns its corporate headquarters in Englewood, Colorado[493] - Sirius XM Holdings owns facilities in Washington D.C. and New Jersey and leases numerous other properties for offices, studios, and technical operations across the U.S[494] - Formula 1 leases office space in London and technical facilities in Kent, England. The company also owns land being developed for the Las Vegas Grand Prix[495] Item 3. Legal Proceedings Legal proceedings information is incorporated by reference from Note 18 of the consolidated financial statements - Details on legal proceedings are provided in Note 18 of the consolidated financial statements[496] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's three tracking stock groups trade on Nasdaq or OTC Markets, with no cash dividends and a $1.1 billion share repurchase program - The company has three classes of tracking stock (Series A, B, and C) for each of its three groups (Liberty SiriusXM, Liberty Braves, Liberty Formula One), which trade on the Nasdaq Global Select Market or are quoted on the OTC Markets[499] - The company has not paid any cash dividends on its common stock and has no present intention of doing so[504] - As of December 31, 2022, approximately $1.1 billion was available for future share repurchases under the company's authorized program. No repurchases were made during the three months ended December 31, 2022[507] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenue increased to $12.16 billion in FY 2022, driven by Formula 1, Sirius XM, and Braves Holdings, with operating income rising to $2.06 billion - The revenue increase in 2022 was driven by growth of $437 million at Formula 1, $307 million at Sirius XM Holdings, and $20 million at Braves Holdings[536] - The company plans to complete the Split-Off of the Braves Group and the Reclassification of its remaining tracking stocks in the first half of 2023, subject to conditions[529] Consolidated Operating Results (in millions) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $12,164 | $11,400 | | Operating Income | $2,064 | $1,977 | | Adjusted OIBDA | $3,419 | $3,325 | Results of Operations—Businesses Sirius XM Holdings' 2022 revenue grew to $9.0 billion, Formula 1 revenue increased to $2.57 billion, and Braves Group revenue rose to $588 million Revenue by Reportable Segment (in millions) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Sirius XM Holdings | $9,003 | $8,696 | | Formula 1 | $2,573 | $2,136 | | Braves Group | $588 | $568 | Adjusted OIBDA by Reportable Segment (in millions) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Sirius XM Holdings | $2,833 | $2,770 | | Formula 1 | $593 | $495 | | Braves Group | $61 | $104 | Liquidity and Capital Resources As of December 31, 2022, the company held $2.25 billion in cash, with liquidity from subsidiary cash flows, primarily used for debt repayments and share repurchases - Primary uses of corporate cash in 2022 were $2.0 billion for debt repayments, $358 million for Liberty SiriusXM share repurchases, and $241 million to purchase land for the Las Vegas Grand Prix[565] - Sirius XM Holdings paid dividends totaling $1.34 billion in 2022, of which Liberty received $1.09 billion[566] Cash and Cash Equivalents by Group (as of Dec 31, 2022) | Group | Cash (in millions) | | :--- | :--- | | Liberty SiriusXM Group | $362 | | Braves Group | $151 | | Formula One Group | $1,733 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate changes on its variable rate debt and stock price fluctuations from equity holdings, managing the transition from LIBOR to SOFR - The company is managing the transition from LIBOR to alternative rates like SOFR for its variable rate debt instruments[653][655] - The company is exposed to stock price risk through its holdings of marketable equity securities ($80 million fair value at year-end) and its significant equity method investment in Live Nation, which is not carried at fair value on the balance sheet[656][657] Debt Composition (as of Dec 31, 2022) | Debt Type | Principal Amount (millions) | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Variable Rate | $1,924 | ~6.4% | | Fixed Rate | $14,693 | ~3.6% | Financial Statements and Notes Consolidated Financial Statements Consolidated financial statements show FY 2022 total assets of $42.5 billion, liabilities of $23.3 billion, equity of $19.1 billion, and net earnings of $1.815 billion Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $42,464 | $44,351 | | Total Liabilities | $23,338 | $25,514 | | Total Equity | $19,126 | $18,262 | Consolidated Statement of Operations Data (in millions) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $12,164 | $11,400 | $9,363 | | Operating Income | $2,064 | $1,977 | $177 | | Net Earnings (Loss) Attributable to Liberty Stockholders | $1,815 | $398 | $(1,421) | Notes to Consolidated Financial Statements Notes detail accounting policies, tracking stock structure, debt obligations, and legal contingencies, including the Braves Group split-off and Pandora's pre-1972 sound recording litigation - Note 2 details the tracking stock structure, the 2020 reattribution of assets between the Formula One and SiriusXM groups, and the planned 2023 Split-Off of the Braves Group and subsequent Reclassification[718][721][736] - Note 8 discloses that as of December 31, 2022, the company had $19.3 billion in goodwill and $9.9 billion in indefinite-lived FCC licenses and other intangibles[579][868][869] - Note 9 provides a comprehensive breakdown of the company's $16.6 billion in total debt principal, detailing the terms of various corporate notes, exchangeable debentures, margin loans, and subsidiary debt at Sirius XM, Formula 1, and Braves Holdings[875] - Note 18 discusses contingent liabilities, including ongoing litigation against Pandora concerning the public performance of sound recordings made prior to February 15, 1972[1019][1020] Part III Items 10, 11, 12, 13, and 14 Information for Items 10-14, covering Directors, Executive Compensation, Security Ownership, and Accountant Fees, is incorporated by reference from the 2023 proxy statement - The required information for Part III (Items 10-14) is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[1048] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements and various material contracts - This section contains the list of financial statements filed with the report and a detailed list of all exhibits, including articles of incorporation, bylaws, debt instruments, and material contracts[1051][1053]