Liberty(LSXMK) - 2020 Q2 - Quarterly Report

Part I – Financial Information Financial Statements This section presents unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, and Cash Flows, reflecting significant COVID-19 impacts and a major reattribution of assets and liabilities Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $46,208 | $44,189 | | Cash and cash equivalents | $3,999 | $1,222 | | Goodwill | $19,956 | $19,939 | | Total Liabilities | $24,120 | $22,264 | | Long-term debt | $14,980 | $15,416 | | Total Equity | $22,088 | $21,925 | Condensed Consolidated Statement of Operations Highlights (in millions) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,909 | $2,805 | $3,922 | $4,817 | | Formula 1 Revenue | $24 | $620 | $63 | $866 | | Operating Income (Loss) | $214 | $461 | $460 | $661 | | Net Earnings (Loss) | ($262) | $192 | ($260) | $65 | Condensed Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $869 | $1,172 | | Net cash (used) by investing activities | ($203) | $512 | | Net cash provided (used) by financing activities | $2,069 | ($1,385) | Note 2: Tracking Stocks This note details Liberty's tracking stock structure, highlighting the April 2020 reattribution of assets and liabilities between Formula One and Liberty SiriusXM groups, and a $754 million rights offering - On April 22, 2020, a major reattribution occurred. Assets valued at $2.8 billion (including the entire Live Nation stake) were moved from the Formula One Group to the Liberty SiriusXM Group. Liabilities valued at $1.3 billion (including Convertible Notes and exchangeable debentures) were also moved to the Liberty SiriusXM Group[60][61][62] - In May 2020, Liberty commenced a rights offering for Series C Liberty SiriusXM common stock (LSXMK), which was fully subscribed and raised approximately $754 million. The proceeds were used to repay an intergroup loan created during the reattribution[68][70] - As of June 30, 2020, intergroup interests exist: Liberty SiriusXM Group holds a 2.2% interest in Formula One Group and a 3.8% interest in Braves Group. Formula One Group holds an 11.3% interest in Braves Group[67] Note 3: Acquisitions and Restructurings This note details significant acquisitions and restructurings, including Sirius XM's Simplecast acquisition, Automatic Labs termination, and the planned Stitcher acquisition - On June 16, 2020, Sirius XM Holdings acquired Simplecast, a podcast management platform, for $28 million in cash, recognizing $17 million in goodwill[78] - In May 2020, Sirius XM Holdings terminated its Automatic Labs service, incurring $24 million in restructuring expenses[79] - On July 13, 2020, Sirius XM Holdings agreed to acquire Stitcher from E.W. Scripps for $265 million in cash, plus up to $60 million in contingent payments[80] Note 9: Long-Term Debt This note details the company's $16.9 billion total debt, outlining various instruments and highlighting Braves Holdings' covenant non-compliance and Formula 1's secured waiver Total Debt by Group (Principal, June 30, 2020, in millions) | Group | Principal Amount | | :--- | :--- | | Liberty SiriusXM Group | $12,583 | | Braves Group | $718 | | Formula One Group | $3,635 | | Total Debt | $16,936 | - Braves Holdings is expected to be out of compliance with certain debt covenants as of June 30, 2020, and is in discussions with counterparties for waivers and modifications[171][174] - Formula 1 obtained an amendment to its Senior Loan Facility, waiving the net leverage financial covenant until Q1 2022, provided it maintains minimum liquidity of $200 million and adheres to other restrictions[174] Note 10: Commitments and Contingencies This note details commitments and contingencies, including $329 million in Braves contracts, significant COVID-19 impacts on revenue, and non-material litigation matters - The business operations of Formula 1, the Atlanta Braves, and Live Nation have been significantly impacted by COVID-19, with event cancellations and postponements expected to substantially decrease revenue and adversely affect results[182] - As of June 30, 2020, the Atlanta Braves had $329 million in aggregate commitments under guaranteed contracts for players, coaches, and executives[179] - Pandora is involved in litigation regarding pre-1972 sound recordings and a Copyright Royalty Board proceeding to set webcasting rates for 2021-2025, but these are not expected to have a material adverse effect[184][189] Note 11: Information About Liberty's Operating Segments This note details segment financial performance, highlighting disparate COVID-19 impacts with Sirius XM stable while Formula 1 and Braves Group experienced dramatic declines Revenue by Segment (in millions) | Segment | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Liberty SiriusXM Group | $1,874 | $1,977 | $3,826 | $3,721 | | Braves Group | $11 | $208 | $33 | $230 | | Formula One Group | $24 | $620 | $63 | $866 | Adjusted OIBDA by Segment (in millions) | Segment | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Liberty SiriusXM Group | $603 | $618 | $1,235 | $1,206 | | Braves Group | ($28) | $61 | ($54) | $28 | | Formula One Group | ($26) | $136 | ($68) | $195 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, emphasizing severe COVID-19 impacts on Formula 1 and Braves Holdings, SiriusXM's resilience, the April 2020 reattribution, and sufficient liquidity despite access restrictions - Consolidated revenue decreased by $896 million in Q2 2020 compared to Q2 2019, primarily driven by revenue declines at Formula 1 and Braves Holdings due to the COVID-19 pandemic[231] - A major reattribution of assets and liabilities between the Formula One and Liberty SiriusXM groups occurred on April 22, 2020, shifting the Live Nation stake to the SiriusXM Group[220][221] - As of June 30, 2020, Liberty's access to cash held by Formula 1 is restricted as the leverage ratio test for making distributions was not met[253] Results of Operations—Businesses This section reviews segment operations, noting mixed SiriusXM results, Formula 1's near-zero Q2 revenue, Braves Holdings' plummeting revenue due to COVID-19, and management's cost-cutting measures SiriusXM Holdings Pro Forma Revenue (in millions) | Revenue Source | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | SiriusXM Subscriber | $1,453 | $1,402 | | Pandora Advertising | $211 | $306 | Formula 1 Operating Results (in millions) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Total Revenue | $24 | $620 | | Adjusted OIBDA | ($16) | $145 | | Number of Events | 0 | 7 | Braves Holdings Operating Results (in millions) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Total Revenue | $11 | $208 | | Adjusted OIBDA | ($26) | $62 | | Home Games | 0 | 41 | Material Changes in Financial Condition This section details liquidity and cash flow, noting $3.999 billion cash, uses for repurchases and debt, and management's confidence in sufficient liquidity despite COVID-19 impacts Cash and Cash Equivalents by Group (June 30, 2020, in millions) | Group | Cash Balance | | :--- | :--- | | Liberty SiriusXM Group | $1,924 | | Braves Group | $308 | | Formula One Group | $1,767 | - Net cash from operating activities decreased to $869 million for the first six months of 2020, down from $1,172 million in the prior-year period, reflecting the impact of COVID-19 on operations[257] - SiriusXM Holdings declared quarterly dividends, paying $117 million in the first half of 2020, of which Liberty received $84 million. Another dividend was declared for payment in August 2020[258] Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate changes, particularly LIBOR phase-out, and stock price fluctuations, with a 10% decline in marketable securities and Live Nation impacting value by approximately $24 million and $309 million respectively - The company is exposed to risk from the planned phase-out of LIBOR by the end of 2021, as its margin loans and subsidiary credit facilities use LIBOR as a benchmark. The company expects to incorporate alternative reference rates in future amendments[318][319] - As of June 30, 2020, the company held $242 million in marketable debt and equity securities. A 10% drop in price would lower their value by about $24 million[321] - The company's equity method investment in Live Nation is subject to market risk. A 10% drop in Live Nation's stock price at June 30, 2020 would have represented a $309 million decrease in value[321] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal controls despite the shift to remote work - The CEO and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[322] - No material changes to internal control over financial reporting occurred during the second quarter of 2020[323] Part II — Other Information Legal Proceedings This section confirms no material changes to legal proceedings since prior filings - There have been no material changes from the legal proceedings described in previous filings[325] Risk Factors This section updates risk factors, primarily detailing the material and ongoing negative impact of the COVID-19 pandemic on Formula 1, Atlanta Braves, and Live Nation operations - The operations of Formula 1, the Atlanta Braves, and Live Nation have been and will continue to be materially and negatively impacted by COVID-19[327] - Key risks include event cancellations, inability to hold events with fans, reduced demand for sponsorship and advertising, and a potential long-term decline in discretionary consumer spending[329][331] - The company states that the impact of cancelled events, closed venues, and reduced attendance will substantially decrease revenue and adversely affect results of operations and cash flow, as expenses cannot be reduced to the same degree[330] Unregistered Sales of Equity Securities and Use of Proceeds This section details the share repurchase program, noting $1.23 billion remaining authorization and no repurchases during Q2 2020 - As of June 30, 2020, the company had $1.23 billion available for future share repurchases under its authorized program[334] - No shares of any Liberty Media common stock were repurchased during the three months ended June 30, 2020[335] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and unaudited attributed financial information for tracking stock groups - The report includes standard exhibits such as Rule 13a-14(a)/15d-14(a) certifications and Section 1350 certifications[341] - Exhibit 99.1 contains the unaudited attributed financial information for the company's tracking stock groups[341]