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Related Party Transactions
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Mar. 31, 2014
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| Related Party Transactions |
Related Party Transactions
We had the following related party balances at March 31, 2014 and December 31, 2013:
Liberty Media
Since January 2013, Liberty Media has beneficially owned, directly and indirectly, over 50% of our outstanding common stock. We are a "controlled company" for the purposes of the NASDAQ corporate governance requirements. Two current Liberty Media executives and one Liberty Media director are 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.
On October 9, 2013, we entered into an agreement with Liberty Media to repurchase $500,000 of our common stock from Liberty Media. Pursuant to that agreement with Liberty Media, we repurchased $160,000 of our common stock from Liberty Media in 2013. On January 23, 2014, we entered into an amendment to the agreement with Liberty Media to defer the previously scheduled $240,000 repurchase of shares of our common stock from Liberty Media from January 27, 2014 to April 25, 2014, the date of the final purchase installment under the agreement. On April 25, 2014, we completed the final purchase installment and repurchased $340,000 of our shares of common stock from Liberty Media at a price of $3.66 per share.
Liberty Media has advised us that as of March 31, 2014 and December 31, 2013 it also owned the following:
As of March 31, 2014 and December 31, 2013, we recorded $257 and $64, respectively, related to accrued interest with Liberty Media to Related party current liabilities. The fair value of the derivative associated with the share repurchase agreement with Liberty Media was $42,725 and $15,702 as of March 31, 2014 and December 31, 2013, respectively, and is recorded in Holdings' unaudited consolidated balance sheets in Related party current liabilities. There were certain terms in the forward purchase contract that could cause the obligation not to be fulfilled. As a result, the instrument is a liability and is marked to fair value with any gain or loss recorded to Holdings' unaudited consolidated statements of comprehensive income. We recognized Interest expense associated with debt held by Liberty Media of $277 and $4,677 for the three months ended March 31, 2014 and 2013, respectively.
Sirius XM Canada
We own approximately 47,300,000 Class A shares on a converted basis of Sirius XM Canada representing a 37.0% 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, 2014 and December 31, 2013:
We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs.
We held an investment in CAD $4,000 face value of 8% convertible unsecured subordinated debentures issued by Sirius XM Canada for which the embedded conversion feature was bifurcated from the host contract. The host contract was 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 was accounted for at fair value as a derivative with changes in fair value recorded in earnings as Interest and investment income. Sirius XM Canada redeemed the debentures during the three months ended March 31, 2014, which resulted in the issuance to us of 675,675 shares of Sirius XM Canada common stock and an increase in our investment balance of $5,125. This conversion also resulted in a gain of $1,251 recorded to Interest and investment income during the three months ended March 31, 2014, related to the fair value received in excess of the carrying value as of the date of conversion.
Related party long-term asset balances attributable to Sirius XM Canada consisted of the following:
* The investment balance included equity method goodwill and intangible assets of $25,798 and $26,161 as of March 31, 2014 and December 31, 2013, respectively.
We hold a non-interest bearing note issued by Sirius XM Canada. 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.
Sirius XM Canada declared quarterly dividends to us of $4,445 and $3,752 during the three months ended March 31, 2014 and 2013, respectively, which were recorded as a reduction to our investment balance in Sirius XM Canada.
Related party liabilities attributable to Sirius XM Canada consisted of the following:
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:
Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net income was $4,689 and $1,708 for the three months ended March 31, 2014 and 2013, respectively. We recorded amortization expense related to the equity method intangible assets of $363 for the three months ended March 31, 2014 and 2013.
M-Way
As part of the acquisition of the connected vehicle business of Agero in November 2013, we acquired a 30% ownership in M-Way Solutions GmbH ("M-Way"), a German mobile software solutions provider, which is accounted for utilizing the equity method of accounting. We also acquired an option to purchase the remaining 70% ownership of M-Way which expires in 2017.
We have recorded $2,418 for our investment in M-Way in Related party long-term assets on our unaudited consolidated balance sheets. Our share of net earnings or losses of M-Way are recorded to Interest and investment income in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of M-Way's net loss was $127 for the three months ended March 31, 2014.
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