Annual report pursuant to Section 13 and 15(d)

Related Party Transactions

v2.4.0.6
Related Party Transactions
 12 Months Ended
Dec. 31, 2012
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions

We had the following related party balances at December 31, 2012 and 2011:
 
Related party current assets
 
Related party long-term assets
 
Related party current liabilities
 
Related party long-term liabilities
 
Related party long-term debt
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Liberty Media
$
—

  
$
—

  
$
757

  
$
1,212

  
$
3,980

 
$
9,722

  
$
—

  
$
—

  
$
208,906

  
$
328,788

Sirius XM Canada
13,167

  
14,702

  
44,197

  
53,741

  
2,776

 
4,580

  
18,966

  
21,741

  
—

  
—

Total
$
13,167

  
$
14,702

  
$
44,954

  
$
54,953

  
$
6,756

 
$
14,302

  
$
18,966

  
$
21,741

  
$
208,906

  
$
328,788


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 loans. 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 our common stock. For a discussion of subsequent events refer to Note 18.

Liberty Media has advised us that as of December 31, 2012 and 2011, respectively, it also owned the following:
 
December 31,
2012
 
December 31,
2011
8.75% Senior Notes due 2015
$
150,000

  
$
150,000

9.75% Senior Secured Notes due 2015
—

  
50,000

13% Senior Notes due 2013
—

  
76,000

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

  
337,000

Less: discounts
2,094

  
8,212

Total carrying value of debt
$
208,906

  
$
328,788



During the year ended December 31, 2012, we redeemed $50,000 of our 9.75% Senior Secured Notes due 2015 and $76,000 of our 13% Senior Notes due 2013 held by Liberty Media as part of the redemption of these Notes in their entirety.

As of December 31, 2012 and 2011, we recorded $3,980 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 $30,931, $35,681 and $40,169 for the years ended December 31, 2012, 2011 and 2010, 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 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 December 31, 2012 and 2011:

For the Years Ended December 31,
 
2012
 
2011
Deferred programming costs and accrued interest
$
4,350


$
2,500

Dividends receivable
6,176


—

Chip set and other services reimbursement
2,641


7,404

Non-interest bearing note, principal
—


4,798

Total
$
13,167

  
$
14,702



In November 2012, Sirius XM Canada declared a special 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 November 28, 2012 in addition to a quarterly cash dividend of the same amount for shareholders of record on the same date. We received $1,185 in December 2012 which was recorded as a reduction of our investment balance in Sirius XM Canada. As of December 31, 2012, we recorded a receivable for the remaining balance of the dividend which was due to us.

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

We had the following related party long-term asset balances attributable to Sirius XM Canada at December 31, 2012 and 2011:

For the Years Ended December 31,
 
2012
 
2011
Non-interest bearing note, principal
$
404


$
410

Carrying value of host contract of debenture
3,877


3,490

Carrying value of embedded derivative of debenture
9


—

Investment balance*
37,983


45,061

Deferred programming costs and accrued interest
1,924


4,780

Total
$
44,197

  
$
53,741

* The investment balance includes equity method goodwill and intangible assets of $27,615 and $28,589 for the years ended December 31, 2012 and 2011, respectively.

As a result of the Canada Merger, we hold a non-interest bearing note 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, 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).

We had the following related party liability balances attributable to Sirius XM Canada at December 31, 2012 and 2011:
 
For the Years Ended December 31,
 
2012
 
2011
Carrying value of deferred revenue for NHL games
$
21,742

 
$
24,517

Amounts due to Sirius XM Canada
—

 
1,804

Total current and long-term liabilities
$
21,742

  
$
26,321



In 2005, XM entered into agreements to provide XM Canada, now Sirius XM Canada after the Canada Merger, 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 consolidated statements of comprehensive income:
 
For the Years Ended December 31,
 
2012
 
2011 *
Royalty income
$
31,368

 
$
13,735

Amortization of Sirius XM Canada deferred income
2,776

 
1,388

Licensing fee revenue
4,500

 
3,000

Advertising reimbursements
833

 
417

Total revenue from Sirius XM Canada
$
39,477

 
$
18,540


* Sirius XM Canada commenced operations in June 2011.

Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income (loss) in our consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net income was $554 and $1,081 for the years ended December 31, 2012 and 2011, respectively. We recorded amortization expense related to the equity method intangible assets of $974 and $1,556 for the years ended December 31, 2012 and 2011, respectively.

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 had the right to receive a royalty equal to a percentage of Sirius Canada’s gross revenues based on subscriber levels (ranging between 5% and 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 income (loss) in our consolidated statements of comprehensive income:
 
For the Years Ended December 31,
 
2011 *
 
2010
Royalty income
$
9,945

 
$
10,684

Dividend income
460

 
926

Total revenue from Sirius Canada
$
10,405

 
$
11,610


* Sirius Canada combined with XM Canada in June 2011.

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 and $12,185 for the years ended December 31, 2011 and 2010, respectively.

Our share of net earnings or losses of Sirius Canada was recorded to Interest and investment income (loss) in our consolidated statements of comprehensive income on a one month lag. Our share of Sirius Canada’s net loss was $9,717 and $10,257 for the years ended December 31, 2011 and 2010, respectively. The payments received from Sirius Canada in excess of carrying value were $6,748 and $10,281 for the years ended December 31, 2011 and 2010, respectively.

XM Canada
We had an equity interest of 21.5% in XM Canada until June 21, 2011 when the Canada Merger closed.

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 consolidated statements of comprehensive income:
 
For the Years Ended December 31,
 
2011 *
 
2010
Amortization of XM Canada deferred income
$
1,388

 
$
2,776

Subscriber and activation fee royalties
5,483

 
10,313

Licensing fee revenue
3,000

 
4,500

Advertising reimbursements
833

 
1,083

Total revenue from XM Canada
$
10,704

 
$
18,672


* XM Canada combined with Sirius Canada in June 2011.

Our share of net earnings or losses of XM Canada was recorded to Interest and investment income (loss) in our consolidated statements of comprehensive income on a one month lag. Our share of XM Canada’s net loss was $6,045 and $12,147 for the years ended December 31, 2011 and 2010, respectively.

General Motors and American Honda
We have a long-term distribution agreement with General Motors Company ("GM"). GM had a representative on our board of directors and was considered a related party through May 27, 2010. During the term of the agreement, GM has agreed to distribute our service. We subsidize a portion of the cost of satellite radios and make incentive payments to GM when the owners of GM vehicles with factory- or dealer- installed satellite radios become self-paying subscribers. We also share with GM a percentage of the subscriber revenue attributable to GM vehicles with factory- or dealer- installed satellite radios. GM provides certain call-center related services directly to subscribers who are also GM customers for which we reimburse GM.

We make bandwidth available to OnStar LLC for audio and data transmissions to owners of enabled GM vehicles, regardless of whether the owner is a subscriber. OnStar's use of our bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with our business, and must meet our quality standards. We also granted to OnStar a certain amount of time to use our studios on an annual basis and agreed to provide certain audio content for distribution on OnStar's services.

We have a long-term distribution agreement with American Honda. American Honda had a representative on our board of directors and was considered a related party through May 27, 2010. We have an agreement to make a certain amount of our bandwidth available to American Honda. American Honda's use of our bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with our business, and must meet our quality standards. This agreement remains in effect so long as American Honda holds a certain amount of investment in us. We make incentive payments to American Honda for each purchaser or a Honda or Acura vehicle that becomes a self-paying subscriber and we share with American Honda a portion of the subscriber revenue attributable to Honda and Acura vehicles with installed satellite radios.

We recorded the following total related party revenue from GM and American Honda, primarily consisting of subscriber revenue, in connection with the agreements above:
 
For the Year Ended December 31,
 
2010 *
GM
$
12,759

American Honda
4,990

Total
$
17,749

*GM and American Honda were considered related parties through May 2010.

We have incurred the following related party expenses with GM and American Honda:
 
For the Year Ended December 31,
 
2010 *
 
GM
 
American Honda
Sales and marketing
$
13,374

 
$
—

Revenue share and royalties
15,823

 
3,167

Subscriber acquisition costs
17,514

 
1,969

Customer service and billing
125

 
—

Interest expense, net of amounts capitalized
1,421

 
—

Total
$
48,257

 
$
5,136

*GM and American Honda were considered related parties through May 2010.