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| Related Party Transactions |
Related Party Transactions
We had the following related party balances at September 30, 2012 and December 31, 2011:
Liberty Media
In February 2009, we entered into an Investment Agreement (the “Investment Agreement”) with an affiliate of Liberty Media Corporation, Liberty Radio, LLC (collectively, “Liberty Media”). Pursuant to the Investment Agreement, in March 2009 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 certain loan investments. Liberty Media has representatives on our board of directors. In September 2012, Liberty Media converted 6,249,900 shares of the Series B Preferred Stock into 1,293,467,684 shares of common stock. As of October 25, 2012, Liberty Media owned approximately 1,904,291,000 shares of our common stock.
Liberty Media has advised us that as of September 30, 2012 and December 31, 2011, respectively, it also owned the following:
During the three months ended September 30, 2012, we redeemed Liberty Media's $50,000 of 9.75% Senior Secured Notes due 2015 and $76,000 of 13% Senior Notes due 2013 as part of the redemption of these Notes in their entirety.
As of September 30, 2012 and December 31, 2011, we recorded $8,408 and $9,722, 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 $8,242 and $8,934 for the three months ended September 30, 2012 and 2011, respectively, and $26,260 and $26,718 for the nine months ended September 30, 2012 and 2011, respectively.
Sirius XM Canada
In June 2011, Canadian Satellite Radio Holdings Inc. (“CSR”), the parent company of XM Canada, and Sirius Canada completed a transaction to combine their operations (“the Canada Merger”). The combined company operates as Sirius XM Canada. We own approximately 46,700,000 Class A shares on a converted basis of CSR, representing a 38.0% equity interest and a 25.0% voting interest, and hold a non-interest bearing note, in a principal amount of $410, issued by CSR.
We also hold an investment in Cdn $4,000 face value of 8% convertible unsecured subordinated debentures issued by CSR, 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 loss. As of September 30, 2012, the carrying values of the host contract and embedded derivative related to our investment in the debentures was $3,747 and $16, respectively. As of December 31, 2011, the carrying values of the host contract and embedded derivative related to our investment in the debentures was $3,490 and $0, respectively. The carrying values of the host contract and embedded derivative are recorded in Related party long-term assets.
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 loss. As of September 30, 2012, our investment balance in Sirius XM Canada was approximately $42,107, $27,978 of which represents equity method goodwill and intangible assets, and was recorded in Related party long-term assets. As of December 31, 2011, our investment balance in Sirius XM Canada was approximately $45,061, $28,589 of which represented equity method goodwill and intangible assets, and was recorded in Related party long-term assets.
We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs. As of September 30, 2012 and December 31, 2011, amounts due for these costs totaled $5,046 and $7,404, respectively, and is reported as Related party current assets.
As of September 30, 2012, amounts due from Sirius XM Canada also included $6,162 attributable to deferred programming costs and accrued interest, $2,987 of which is reported as Related party long-term assets. As of December 31, 2011, amounts due from Sirius XM Canada included $7,280 attributable to deferred programming costs and accrued interest, $4,780 of which was reported as Related party long-term assets.
As of September 30, 2012 and December 31, 2011, the amounts due to Sirius XM Canada totaled $1,804 and $1,804, respectively, and is reported as Related party current liabilities.
We recorded the following revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income:
Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment loss in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net loss was $182 for the three months ended September 30, 2012 and $3,403 for the nine months ended September 30, 2012. We recorded amortization expense related to equity method intangible assets of $363 for the three months ended September 30, 2012 and $611 for the nine months ended September 30, 2012. Our share of Sirius XM Canada's net loss was $4,214 for the three and nine months ended September 30, 2011.
Sirius Canada
We had an equity interest of 49% in Sirius Canada until June 21, 2011 when the Canada Merger closed.
In 2005, we entered into a license and services agreement with Sirius Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred to provide Sirius Canada service, including certain costs incurred for the production and distribution of radios, as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, we have the right to receive a royalty equal to a percentage of Sirius Canada’s gross revenues based on subscriber levels (ranging between 5% to 15%) and the number of Canadian-specific channels made available to Sirius Canada.
We recorded the following revenue from Sirius Canada. Royalty income is included in other revenue and dividend income is included in Interest and investment loss in our unaudited consolidated statements of comprehensive income:
Receivables from royalty and dividend income were utilized to absorb a portion of our share of net losses generated by Sirius Canada. Total costs reimbursed by Sirius Canada were $5,253 for the nine months ended September 30, 2011.
Our share of net earnings or losses of Sirius Canada was recorded to Interest and investment loss in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius Canada’s net loss was $9,717 for the nine months ended September 30, 2011. The payments received from Sirius Canada in excess of carrying value were $6,748 for the nine months ended September 30, 2011.
XM Canada
We had an equity interest of 21.5% in XM Canada until June 21, 2011 when the Canada Merger closed.
In 2005, XM entered into agreements to provide XM Canada with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year term and 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. As of September 30, 2012 and December 31, 2011, the carrying value of deferred revenue related to this agreement was $22,436 and $24,517, respectively.
The Cdn $45,000 standby credit facility we extended to XM Canada was paid and terminated as a result of the Canada Merger. We received $38,815 in cash upon payment of this facility. As a result of the repayment of the credit facility and completion of the Canada Merger, we released a $15,649 valuation allowance related to the absorption of our share of the net loss from our investment in XM Canada as of June 21, 2011.
We recorded the following revenue from XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income:
Our share of net earnings or losses of XM Canada is recorded to Interest and investment loss in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of XM Canada’s net loss was $6,045 for the nine months ended September 30, 2011.
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