Quarterly report pursuant to Section 13 or 15(d)

Related Party Transactions

v2.4.0.6
Related Party Transactions
 3 Months Ended
Mar. 31, 2013
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions

We had the following related party balances at March 31, 2013 and December 31, 2012:
 
Related party current assets
 
Related party long-term assets
 
Related party current liabilities
 
Related party long-term liabilities
 
Related party long-term debt
 
March 31, 2013
 
December 31, 2012
 
March 31, 2013
 
December 31, 2012
 
March 31, 2013
 
December 31, 2012
 
March 31, 2013
 
December 31, 2012
 
March 31, 2013
 
December 31, 2012
Liberty Media
$
—

  
$
—

  
$
675

  
$
757

  
$
8,408

 
$
3,980

  
$
—

  
$
—

  
$
209,073

  
$
208,906

Sirius XM Canada
8,255

  
13,167

  
40,583

  
44,197

  
4,239

 
2,776

  
18,272

  
18,966

  
—

  
—

Total
$
8,255

  
$
13,167

  
$
41,258

  
$
44,954

  
$
12,647

 
$
6,756

  
$
18,272

  
$
18,966

  
$
209,073

  
$
208,906


Liberty Media

In February and March 2009, we entered into several transactions to borrow up to $530,000 from Liberty Media Corporation and its affiliates. All of these loans were repaid in 2009.

As part of the transactions with Liberty Media, in February 2009, we entered into an investment agreement (the “Investment Agreement”) with Liberty Radio, LLC, an indirect wholly-owned subsidiary of Liberty Media. Pursuant to the Investment Agreement, we issued to Liberty Radio, LLC 12,500,000 shares of our Convertible Perpetual Preferred Stock, Series B-1 (the “Series B Preferred Stock”) with a liquidation preference of $0.001 per share in partial consideration for the loan investments. The Series B Preferred Stock was convertible into approximately 40% of our outstanding shares of common stock (after giving effect to such conversion).

In September 2012, Liberty Radio, LLC converted 6,249,900 shares of the Series B Preferred Stock into 1,293,467,684 shares of our common stock. In January 2013, the Federal Communications Commission granted Liberty Media approval to acquire de jure control of us and Liberty Radio, LLC converted its remaining Series B Preferred Stock into 1,293,509,076 shares of our common stock. In addition, Liberty Media, indirectly through its subsidiaries, purchased an additional 50,000,000 shares of our common stock. As a result of these conversions of Series B Preferred Stock and additional purchases of shares of our common stock, Liberty Media beneficially owned, directly and indirectly, over 50% of our outstanding common stock as of March 31, 2013.

Five current Liberty Media executives are members of our board of directors, and Liberty Media has designated three additional members of our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Liberty Media has advised us that as of March 31, 2013 and December 31, 2012, respectively, it also owned the following:
 
March 31,
2013
 
December 31,
2012
8.75% Senior Notes due 2015
$
150,000

  
$
150,000

7% Exchangeable Senior Subordinated Notes due 2014
11,000

  
11,000

7.625% Senior Notes due 2018
50,000

  
50,000

Total principal debt
211,000

  
211,000

Less: discounts
1,927

  
2,094

Total carrying value of debt
$
209,073

  
$
208,906



As of March 31, 2013 and December 31, 2012, we recorded $8,408 and $3,980, respectively, related to accrued interest with Liberty Media to Related party current liabilities. We recognized Interest expense associated with debt held by Liberty Media of $4,677 and $8,994 for the three months ended March 31, 2013 and 2012, respectively.

Sirius XM Canada
In January 2013, Canadian Satellite Radio Holdings Inc., the parent company of Sirius XM Canada, changed its name to Sirius XM Canada Holdings Inc. We own approximately 46,700,000 Class A shares on a converted basis of Sirius XM Canada representing a 37.9% equity interest and a 25.0% voting interest.

We had the following Related party current asset balances attributable to Sirius XM Canada at March 31, 2013 and December 31, 2012:
 
March 31,
2013
 
December 31,
2012
Deferred programming costs and accrued interest
$
4,025


$
4,350

Dividends receivable
—


6,176

Chip set and other services reimbursement
4,230


2,641

Total
$
8,255

  
$
13,167



We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs.

Related party long-term asset balances attributable to Sirius XM Canada consisted of the following:    
 
March 31,
2013
 
December 31,
2012
Non-interest bearing note, principal
$
396


$
404

Fair value of host contract of debenture
3,724


3,877

Fair value of embedded derivative of debenture
49


9

Investment balance*
35,561


37,983

Deferred programming costs and accrued interest
853


1,924

Total
$
40,583

  
$
44,197

* The investment balance includes equity method goodwill and intangible assets of $27,252 and $27,615 as of March 31, 2013 and December 31, 2012, respectively.

We hold a non-interest bearing note issued by Sirius XM Canada Holdings Inc. We also hold an investment in Cdn $4,000 face value of 8% convertible unsecured subordinated debentures issued by Sirius XM Canada Holdings, Inc., for which the embedded conversion feature is bifurcated from the host contract. The host contract is accounted for at fair value as an available-for-sale security with changes in fair value recorded to Accumulated other comprehensive income (loss), net of tax. The embedded conversion feature is accounted for at fair value as a derivative with changes in fair value recorded in earnings as Interest and investment income (loss).

Our interest in Sirius XM Canada is accounted for under the equity method. The excess of the cost of our ownership interest in the equity of Sirius XM Canada over our share of the net assets is recognized as goodwill and intangible assets and is included in the carrying amount of our investment. Equity method goodwill is not amortized. We periodically evaluate this investment to determine if there has been an other than temporary decline below carrying value. Equity method intangible assets are amortized over their respective useful lives, which is recorded in Interest and investment income (loss).

As of December 31, 2012, we recorded a receivable of $6,176 for the remaining balance of the dividends due from Sirius XM Canada which was received in January 2013. In January 2013, Sirius XM Canada declared a quarterly cash dividend of Cdn $0.0825 per Class A shares of stock and Cdn $0.0275 per Class B shares of stock for shareholders of record on January 25, 2013. We received $3,752 of the quarterly dividends which was recorded as a reduction of our investment balance in Sirius XM Canada.

Related party liabilities attributable to Sirius XM Canada consisted of the following:
 
March 31,
2013
 
December 31,
2012
Deferred revenue for NHL licensing fees
$
1,463

 
$
—

Carrying value of deferred revenue for NHL games
21,048

 
21,742

Total
$
22,511

  
$
21,742



In 2005, XM entered into agreements to provide XM Canada, now Sirius XM Canada, with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year term and Sirius XM Canada has the unilateral option to extend the agreements for an additional five year term. We receive a 15% royalty for all subscriber fees earned by XM Canada each month for its basic service and an activation fee for each gross activation of an XM Canada subscriber on XM’s system. Sirius XM Canada is obligated to pay us a total of $70,300 for the rights to broadcast and market National Hockey League (“NHL”) games for a ten year term. We recognize these payments on a gross basis as a principal obligor pursuant to the provisions of ASC 605, Revenue Recognition. The estimated fair value of deferred revenue from XM Canada as of the Merger date was approximately $34,000, which is amortized on a straight-line basis through 2020, the end of the expected term of the agreements.

We recorded the following revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income:
 
For the Three Months Ended March 31,
 
2013
 
2012
Royalty income
$
8,469

 
$
7,465

Amortization of Sirius XM Canada deferred income
694

 
694

Licensing fee revenue
1,171

 
1,500

Advertising and other reimbursements
415

 
417

Total revenue from Sirius XM Canada
$
10,749

 
$
10,076



Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income (loss) in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net income (loss) was $1,708 and $(1,645) for the three months ended March 31, 2013 and 2012, respectively. We recorded amortization expense related to the equity method intangible assets of $363 and $(173) for the three months ended March 31, 2013 and 2012, respectively.