CANADA
Annual Report
Sirius XM Canada Holdings Inc.
Dear Shareholders,
Fiscal 2014 was another year of strong results for SiriusXM Canada. Financially, we achieved record revenue,
grew adjusted EBITDA1 15 percent and refinanced our long-term debt at more favourable rates and terms.
Operationally, we reached a milestone of 2.6 million subscribers, renewed three key OEM agreements,
expanded our pre-owned vehicle program and launched new exclusive channels and content.
Driven by our growth and operational progress throughout the year, we returned significant value to our
shareholders via dividends. We paid an aggregate of $128 million, or $1.00 per share in fiscal 2014. Since
introducing our quarterly dividend in November 2012, we have returned approximately $182 million in
regular and special dividends to shareholders.
Leading Content Anytime, Anywhere
Our ability to provide subscribers with premium Canadian audio entertainment is critical to our success.
That remained the case in 2014. I firmly believe our content is the primary reason why our subscribers
“gotta have SiriusXM.” We offer: curated, commercial-free music by some of the most respected DJs
and DJ artists in the business; talk and lifestyle radio from some of the biggest brands in the entertainment
industry; and sports talk and coverage of every major event.
We are always innovating with our content to bring listeners what they want to hear. 2014 was no exception.
For example, we launched limited-run channels celebrating music legends Billy Joel and Michael Jackson.
We also entered into an agreement with Business News Network to give our subscribers access to the
most comprehensive global market activity and analysis. For all the sports fans out there, we aired live
coverage of the FIFA World Cup, the Masters Golf Tournament, Wimbledon and every game of the NHL
and NBA playoffs.
Our advantages don’t stop at our world-class, compelling content. We offer the reliability of our satellite
signal across North America and ease-of-use anytime, anywhere. While we believe the car will always be a
pillar of strength for us, our streaming offering gives subscribers more ways to connect with our content.
We are focused on providing the most intuitive, user-friendly access to our content on all types of devices,
including smartphones and tablets, through our media player and mobile apps. Subscribers can even
customize their online listening experience with MySXM.
Expanding our Subscriber Base
What we bring to our subscribers is unmatched, from a content and experience standpoint, and it shows
in the continued growth of our subscriber base. During the year, we added 124,300 self-paying subscribers,
primarily through our OEM channel. This is a strong testament to the value we bring and our excellent
competitive position: owning the dashboard. We also increased our paid and non-paid promotional
subscribers by 60,200. This growth reflects two factors: higher overall new vehicle sales, which were up
4.8 percent year-over-year; and an increase in our penetration rate with OEMs. Our receivers are now factoryinstalled in approximately 64 percent of new vehicles sold, up from 58 percent in 2013.
Our foothold in the new vehicle market is strong; so are our relationships with our OEM partners.
This is evidenced by the fact that our OEM partners continue to integrate our service into more models
and trim levels. Now, more than one million new vehicles rolling off the line each year are SiriusXM enabled.
In fiscal 2014, we signed three long-term renewal agreements: Ford, Honda, and Volkswagen-Audi.
These renewals highlight the important role SiriusXM plays in the overall vehicle sales proposition. We
estimate that there are more than 6 million SiriusXM-enabled cars on the road today in Canada. Based on
our current OEM penetration rate and industry forecasts on vehicle sales, we expect that number to rise
to more than 10.5 million by 2018. A substantial number of these vehicles will be pre-owned. That is why
we have been working so diligently to effectively capitalize on the pre-owned vehicle market opportunity.
1. A
djusted EBITDA is defined as earnings before integration, severance and merger costs, stock-based compensation, interest income and
expense, taxes, amortization, fair value adjustments arising due to purchase price accounting, gain on revaluation of derivative and foreign
exchange gains and losses.
Sirius XM Canada Holdings Inc. Annual Report 2014
1
Maximizing the Pre-Owned Vehicle Opportunity
We continued to make very good progress in our pre-owned vehicle program throughout 2014.
We are now able to count 1,600 franchise dealers as enrolled and actively participating in our program.
On the certified pre-owned side, our total number of partners is seven, and we expect to add more.
During the year, we also signed a partnership agreement with AMVOQ, the Quebec industry association
of independent pre-owned automobile dealers. We secured a partnership with CarProof, an organization
that provides car history reports, as well.
Trial starts within our pre-owned program were up year-over-year. Eight percent of our subscriber
gross additions were from the pre-owned vehicle market, compared to three percent last year.
More importantly, our pipeline is expanding; and it will keep getting bigger each year. We are confident we
have the right strategy and programs in place to maximize this significant long-term opportunity.
Supporting Canadian Talent
The unique talent we have in Canada plays an important role in the amazing content we bring to our
subscribers. As such, it is important for us to do our part in helping foster and support local talent beyond
the millions of dollars we directly contribute to emerging French and English artists, events and festivals.
Of particular note in fiscal 2014, we launched our fifth annual national comedy contest, SiriusXM’s Top
Comic; acted as an event and award sponsor for the JUNO Awards for the eighth consecutive year;
and hosted the Emerging Artist Showcase at the Boots and Hearts Music Festival. In addition, to help
build awareness for the Sarah McLachlan School of Music, we hosted 100 subscribers for an intimate
performance and artist meet and greet.
Delivering Strong Financial Results
Time and time again, subscribers tell us that they love our service, and we saw that continue to translate
into strong financial results for the year. Fiscal 2014 revenue grew 5.1 percent to a record $303.5 million.
Highlighting our operating leverage, adjusted EBITDA increased 15 percent year-over-year to $79 million,
representing a margin of 26 percent, compared to 24 percent in fiscal 2013.
Throughout the year, we continued to demonstrate the strong cash generating capabilities of our business
model. We generated $45.9 million2 in free cash flow. We also further bolstered our cash position going
forward by refinancing our long-term debt at a substantially lower cost and increased flexibility. We will
save millions in annual interest expense and see a positive impact to our cash flow. Our ability to refinance
this debt on better terms was predicated on the financial strength of our business. We are in a significantly
stronger financial position now than we were just three years ago when the original debt was issued. With
$23.9 million in cash equivalents and short-term investments on the books at year end, and our continued
ability to generate positive free cash flow, we have a strong balance sheet to help support our further
growth efforts.
Driving Continued Growth into Fiscal 2015 and Beyond
Our fiscal 2014 results underscore our ability to drive profitable revenue growth, which is our focus for
fiscal 2015. We will continue to walk the balance between top-line improvements, managing costs and
strong EBITDA and cash flow.
I am confident in our ability to continue to build our subscriber base in fiscal 2015 and beyond. Our two
main sales pipelines are expanding. Our new vehicle pipeline is growing, and we are making notable strides
in the pre-owned vehicle market. We have a subscriber offering that is heads and shoulders above the rest.
2. Includes an adjustment for a $10.4 million call premium payment related to the refinancing of the Company’s debt.
2
Sirius XM Canada Holdings Inc. Annual Report 2014
Our exclusive and compelling content has been a major force in bringing us our 2.6 million subscribers.
There is more competition in the market, but we are competing with two offerings: satellite and streaming.
We give our subscribers what they want, where they want it and how they want it. We continue to work
to position our satellite radio and streaming services as the clear choice for Canadians both inside and
outside of the car.
I am excited about the future of SiriusXM Canada. We have built a solid business, and have so much
room for growth ahead. We will continue to provide current and future subscribers with our leading
audio entertainment experience. In addition, through the combination of our growth prospects and highly
scalable business model, we are positioned to deliver continued long-term value for our shareholders –
top-line growth, strong cash flow and dividends.
In closing, I would like to thank our business partners for their support, our Board of Directors for their
guidance and employees for their hard work. To all of our current and prospective shareholders, I look
forward to updating you as we progress through fiscal 2015.
Sincerely,
Mark Redmond
President and Chief Executive Officer
Forward-Looking Statements
Certain statements included in this letter may be forward-looking in nature. Such statements can be identified by the use of forward-looking
terminology such as “expects,” “may,” “will,” “should,” “intend,” “plan,” or “anticipates” or the negative thereof or comparable terminology, or by
discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance,
or other statements that are not statements of fact, including with respect to the payment of dividends in the future and future performance.
Although SiriusXM Canada believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct, including with respect to the ability of the Company to pay dividends in the future.
SiriusXM Canada’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. SiriusXM Canada makes no
commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is
made, except as required by applicable law. Additional information identifying risks and uncertainties is contained in Sirius XM Canada Holdings
Inc.’s filings with the Canadian securities regulators, available at www.sedar.com.
Sirius XM Canada Holdings Inc. Annual Report 2014
3
Management's Discussion
and Analysis
Annual Report 2014
Sirius XM Canada Holdings Inc.
CANADA
Sirius XM Canada Holdings Inc. Annual Report 2014
5
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Management’s discussion and analysis (“MD&A”) discusses the significant factors affecting the results of operations
and financial position of Sirius XM Canada Holdings Inc. (“SXM”, “we”, “us”, “our” or the “Company”).
This MD&A which is current as of October 30, 2014, should be read in conjunction with the Company’s Annual
Consolidated Financial Statements dated August 31, 2014 and notes attached thereto and other recent securities
filings available on SEDAR at sedar.com.
The financial information presented herein has been prepared on the basis of IFRS and is expressed in Canadian
dollars unless otherwise noted.
The Class A Subordinate Voting Shares of SXM trade on the Toronto Stock Exchange (TSX) under the stock symbol
XSR.
Forward-Looking Disclaimer
This discussion contains certain information that may constitute forward-looking statements within the meaning of securities laws. These
statements relate to future events or future performance and reflect management’s expectations and assumptions regarding the growth,
results of operations, performance and business prospects and opportunities of the Company on a consolidated basis. In some cases,
forward-looking statements can be identified by terminology such as “may”, “would”, “could”, “will”, “should”, “expect”, “plan”, “intend”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “seek” or the negative of these terms or other similar expressions
concerning matters that are not historical facts. In particular, statements regarding the Company’s objectives, plans and goals, including
future operating results, economic performance and subscriber recruitment efforts involve forward-looking statements. A number of factors
could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements.
Although the forward-looking statements contained in this discussion are based on what management of the Company considers are
reasonable assumptions based on information currently available to it, there can be no assurance that actual events, performance or results
will be consistent with these forward-looking statements, and management’s assumptions may prove to be incorrect.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any future results, performance or achievements expressed
or implied by the forward-looking statements. Our financial projections are based on estimates regarding expected future costs and expected
revenue, which are fully described in this MD&A.
Among the significant factors that could cause our results to differ from those expressed in the forward-looking statements are:







The Company’s reliance on its exclusive relationship with Sirius XM Radio Inc. (“Sirius XM”);
The Company’s competitive position versus other forms of audio and video entertainment;
The Company’s ability to manage customer attrition and average monthly subscription revenue per subscriber;
The Company’s reliance on automakers and automobile industry sales in Canada;
General economic conditions in Canada;
The impact of any application of or changes to governmental regulations, including any copyright legislation; and
The factors discussed in the section entitled “Risks and Uncertainties” of this MD&A and in the section entitled “Risk Factors” in
the Company’s Annual Information Form for the financial year ended August 31, 2013.
Other than as required by applicable Canadian securities law, the Company does not update or revise any forward-looking statements to
reflect new information, future events or otherwise. These forward-looking statements are subject to risks and uncertainties that could cause
actual results or events to differ materially from expectations. These include but are not limited to the risk factors included in this MD&A
(including those listed under the heading “Risks and Uncertainties”) in addition to the risks itemized in our Annual Information Form (“AIF”)
for the year ended August 31, 2013. Readers are advised to review these risk factors for a detailed discussion of the risks and uncertainties
affecting the Company’s business. Readers should not place undue reliance on forward-looking statements.
6
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
This MD&A contains the following sections:
Forward-Looking Disclaimer ............................................................................................................................................... 1
Overview .................................................................................................................................................................................. 2
Developments during the Quarter .................................................................................................................................... 4
Financial and Operational Highlights.................................................................................................................................. 6
Summary of Financial and Operating Results .................................................................................................................. 8
Discussion of Financial and Operating Results ............................................................................................................. 10
Liquidity and Capital Resources ....................................................................................................................................... 25
Off-Balance Sheet Arrangements .................................................................................................................................... 30
Arrangements, Relationships and Transactions with Related Parties .................................................................... 30
Critical Accounting Estimates and Judgments .............................................................................................................. 31
International Financial Reporting Standards (“IFRS”) ................................................................................................. 34
Risks and Uncertainties ...................................................................................................................................................... 35
Outstanding Share Data and Other Information ......................................................................................................... 39
Definitions of Industry Terminology ............................................................................................................................... 39
Non-GAAP Financial Measures ........................................................................................................................................ 41
Overview
Our Business and Strategy
SXM is one of the largest Canadian subscription based media companies as measured by number of subscribers, with
approximately 2.6 million total subscribers1. We have the second highest radio revenues of any company in Canada
with an estimated 15% market share2. Our vision is to be the leading premium digital audio entertainment and
information service provider in Canada. Our strategy is founded on the principles of acquiring subscribers in a cost
effective manner, retaining subscribers through enhancing the value proposition and improving business efficiencies.
Satellite radio in Canada offers 120 - 130 channels, including commercial-free music as well as news, talk, sports and
children’s programming. This includes over 12 Canadian channels designed and developed from studios in Toronto,
Montreal and Vancouver. We continue to leverage our unique programming assets, such as our broadcasting
agreement with the Canadian Broadcasting Corporation (“CBC”). The Company also has access to content through
agreements between Sirius XM and the National Hockey League (“NHL”), the National Football League (“NFL”),
National Basketball Association (“NBA”), Major League Baseball (“MLB”), Oprah Winfrey, Howard Stern, NASCAR,
the Professional Golfers’ Association of America (“PGA”) and others.
In-Vehicle: New and pre-owned vehicle strategy
From an in-vehicle perspective the Company has a two-pronged strategy based on both new and pre-owned vehicles
to increase subscribers. Our target market in Canada includes more than 23 million registered vehicles on the road,
and approximately 1.82 million new vehicles expected to be sold in calendar year 2014 3 . Currently all major
automobile manufacturers in Canada have agreements with SXM for the installation of satellite radios in new vehicles.
We are the leader in digital audio entertainment distribution and information delivered via satellite to new vehicles
1
As per available information, October 2014. Data excludes the non-comparable business segments of the above companies (i.e. Wireless and
Wireline) and compares the relevant segments only. Source – Various company filings.
2
3
Based on the CRTC’s Communication Monitoring Report, published September 2014.
Based on the DesRosiers automotive report published in October 2014.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 2
7
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
sold in Canada. Currently it is estimated that there are over 6 million satellite radio enabled vehicles in Canada as at
August 31, 2014.
Base subscription offering and other services
Our primary source of revenue is subscription fees, with most of our customers subscribing on a multi-year, annual,
quarterly, or monthly basis. Discounts are offered for long-term, Paid Promotional Subscription plans, as well as
discounts for multiple subscriptions. Other sources of revenue include add-ons to the base subscription including
Premier content and internet services, activation and other subscription-related fees, the Music Royalty and
Regulatory Fee (MRF), advertising revenues, the direct sale of satellite radios and accessories through our call centers
and website, and other ancillary services such as data and weather services. As indicated below, the Company now
offers a range of additional services in addition to its base subscription offering.
In certain instances, automakers include a subscription to our radio services in the sale or lease of their vehicles.
The length of these paid promotional subscriptions varies from three to twelve months. Revenue from paid
promotional subscriptions is expected to decline due to recent OEM contractual changes. In certain instances we
also receive subscription payments from automakers in advance of our service being activated. We also reimburse
various automakers for certain costs associated with the installation of satellite radios in their vehicles. These costs
which we include as subsidy costs tend to follow seasonal patterns based on manufacturing schedules by the
automakers and tend to be higher in the second half of the fiscal year. Consequently operating income, EBITDA,
Free Cash Flow and other financial metrics may vary on a quarterly basis.
Aftermarket and other platforms
Along with the in-vehicle experience, consumers can also enjoy satellite radio out of their vehicles, using portable
radio receivers, and by streaming content at home on their desktops and using apps built for mobile devices. SXM
satellite radio receivers are available at leading retailers across Canada such as Best Buy, Canadian Tire, Costco,
Future Shop, The Source, Wal-Mart, Amazon.ca and other national, regional and independent retailers.
Streaming and IP Services
SiriusXM Canada continues to invest in new and innovative ways for customers to access our exclusive content in
unique ways by leveraging our Internet Protocol (“IP”) platforms. In addition to our curated music offering, it is now
possible to “personalize” music and comedy channels to create a custom channel to suit the individual listener’s
mood or preferences. This past year also saw the addition of Canadian content to the On-Demand catalogue, which
gives fans the ability to listen to their favorite shows when and where they choose. Much of this content is even
downloadable for offline listening.
Strategic Goals
We intend to maximize profitability and free cash flow while we continue our efforts to optimize costs in all areas
of the business. Our strategic priorities are to grow the subscriber base through initiatives in three areas: New
vehicles, pre-owned vehicles and advanced technologies related to the SXM 2.0 architecture, a suite of mobile apps
and media player to offer advanced IP features, giving subscribers new and innovative ways to access and personalize
available content. Acquiring subscribers through the new and pre-owned vehicle segments of the market remains
our most attractive and significant opportunity to grow our subscriber base.
The company is expected to benefit from strong fundamentals that underpin new vehicle sales which are expected
to generate steady growth of approximately 2% to 3% over the next few years, according to industry consultant
DesRosiers Automotive. Our goal is to increase penetration from the current level of over 60% to above 65% range
in the next three years.
Pre-owned vehicles have now emerged as a new and important opportunity for us. As initial purchasers begin to
trade in their satellite radio equipped models for newer vehicles this leaves a growing number of satellite-equipped
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
pre-owned vehicles. The segment for pre-owned vehicles can be divided in three categories: Certified Pre-owned
(“CPO”), Franchised Dealers and Non-Franchised & Private Sales. Our focus will be on the CPO and Franchised
Dealers categories as these areas provide the most significant opportunities given they have a higher proportion of
vehicles equipped with a satellite receiver. We continue to sign up CPO programs with both OEM partners and
franchised dealers. On the franchised dealer side, our focus is on high-volume and high-vehicle penetration dealers
– these dealers represent an attractive opportunity to grow trial subscribers in SiriusXM satellite equipped vehicles.
In the CPO segment, we currently have 7 partners in place and anticipate signing additional ones in fiscal 2015. On
the Franchised Dealers side we have over 1,600 dealers that are now actively participating in the program. While
we believe the pre-owned segment to be an important element of our growth going forward, gross additions from
this segment have not yet reached a material level and currently stands at less than 10% of gross additions on a fullyear basis.
Our fourth strategic imperative is continued innovation to ensure we remain relevant as the market for audio
entertainment evolves. We will continue to make investments in several areas of the business to ensure our
subscribers can consume our content via both satellite and IP delivered technologies. We believe SiriusXM’s two
platforms (Satellite and IP) and unmatched exclusive content provides a significant advantage over IP-only
competitors.
Developments during the Quarter and the Year
Quarterly and Special Dividends Declared and Payments
On May 28, 2014, the Board of Directors declared a special dividend of $0.585 per Class A Share and Class C Share
and $0.195 per Class B Share, which was paid on June 19, 2014.
On July 14, 2014, the Board of Directors declared a quarterly dividend of $0.1050 per Class A Subordinate Voting
Share (“Class A Share”) and Class C Non-Voting Share (“Class C Share”) and $0.0350 per Class B Voting Share
(“Class B Share”), which was paid on August 14, 2014.
During the year, the Company has returned to its shareholders a total of $127.9 million in the form of four quarterly
dividends, and one special dividend.
Debt Refinancing and Repayment
During the third quarter, the Company closed its private placement offering of 5.625% senior unsecured notes due
2021 with an aggregate principal amount of $200 million (the "2021 Senior Notes") and an improved covenant
package, which increases our flexibility to return capital to shareholders. The Company used the net proceeds of
the offering of the 2021 Senior Notes to fund the redemption of all of the $130.8 million outstanding 9.75% senior
notes due 2018 (the "2018 Senior Notes") at a redemption price equal to approximately 107.9616% of the principal
amount of the 2018 Senior Notes plus accrued and unpaid interest. The 2021 Senior Notes contain a redemption
feature which provides the Company with the option to redeem up to 35% of the aggregate principal at a premium
which varies depending on the date of redemption.
Convertible Notes Redemption
On January 15, 2014, the Company gave notice of redemption to holders of the Convertible notes in accordance
with the terms of the trust indenture. Subsequently during the second quarter all holders of the Convertible notes
exercised their election to convert the notes into Class A shares of the Company at a conversion price of $5.92.
The notes were converted into 3,378,371 Class A Subordinate Voting shares. 675,675 of these shares were received
by Sirius XM, and 287,158 shares by John I. Bitove and affiliates.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 4
9
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Bank Credit Facility
During the year, the Company entered into a one year revolving term credit facility of $35.0 million with a syndicate
of banks. The credit facility, which is currently undrawn, provides additional liquidity for working capital purposes
should the need arise.
Contract Renewals
During the year, the Company completed renewal agreements with three automotive manufacturers. We believe
these renewal agreements demonstrate the OEMs’ ongoing commitment to satellite radio. Included in the renewals
are changes to the terms of the agreements including a reduction in the price paid for a trial subscription and a
reduction in the subsidy costs and revenue share rates paid by the Company that impacted the respective line items
in the Company’s financial statements and reported financial metrics, and will result in future results not being
comparable to prior comparative periods. The changes to these contracts were effective from the beginning of the
fiscal year. Consequently, revenue, revenue share & royalties, and subsidies & distribution costs under the old
contracts are not directly comparable to those under the new contracts. Financial metrics involving the line items
noted above will also not be directly comparable year-over-year.
Copyright Royalty Changes
The Company pays copyright royalties to a number of Canadian copyright collectives based on tariffed rates that
have been set for previous periods by the Copyright Board of Canada, or negotiated under agreements with
collectives. During the financial year ended August 31, 2014, the Company entered into settlement agreements with
SOCAN and Re:Sound for the public performance and communication to the public of musical works, performers’
performances, and sound recordings on our Satellite Radio Services, whose associated tariffs remain subject to
review and certification by the Copyright Board at the time of filing. The Copyright Board has discretion to accept
or reject the agreed-on royalty rates.
Due to changes in Canadian copyright law, and in combination with regulatory fees and mandated Canadian content
contributions incurred in operating the Satellite Radio Services, the Company restructured the Music Royalty and
Regulatory Fee (MRF) charged to subscribers on their satellite radio subscriptions. The fee was updated to $2.27
per month from $0.97 on both primary and secondary subscriptions effective on new subscriptions and renewals
after August 24, 2014. This increase is intended to help cover costs, including those associated with: royalty fees due
to SOCAN, Re:Sound, and CMRRA-SODRAC Inc. (CSI); Canadian Content Development (CCD) contributions
required by our broadcast licence; and CRTC licence fees. The change in the MRF will also partly offset the increase
in royalties for the use of performers’ performance and sound recordings on our Satellite Radio Services brought
on by the coming into force of the WIPO Performances and Phonograms Treaty (WPPT) on August 13, 2014, which
entitles American and other foreign rights holders of WPPT member states to equitable remuneration for the public
performance and the communication to the public of their sound recordings and performers’ performances in
Canada.
During the third quarter the Copyright Board of Canada issued its decision in Re:Sound Tariff 8 and certified royalty
rates for the public performance and communication to the public of sound recordings and performers’
performances for certain types of internet uses of music for the years 2009-2012. There had previously been no
certified tariff for internet uses of sound recordings and performers’ performances in Canada. The new tariff excludes
online simulcasts of the Company’s satellite service but introduces a per play rate for the “semi-interactive”
personalization functions of our streaming service. We do not expect the royalty rates outlined in Tariff 8 to have a
significant impact on our business or financial condition. On June 16, 2014, Re:Sound filed an application with the
Federal Court of Appeal seeking judicial review of the Copyright Board’s Tariff 8 decision and tariff.
While the impact of higher costs related to the above noted changes will be reflected immediately in our results
beginning in fiscal 2015, the potential mitigating effect of the MRF will be gradual, based on subscribers’ renewal profile.
Hence, the full impact of increased royalty costs and fees associated with the MRF will not be apparent until fiscal 2016
when the preponderance of Self-Pay subscribers will have been exposed to the MRF.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Recognition and Awards
On June 12, 2014, the Company was named as one of Canada’s Fastest-Growing Companies in Canadian Business
and PROFIT Magazine’s 26th annual PROFIT 500 ranking, for the second year in a row. Ranking Canada's FastestGrowing Companies by five-year revenue growth, the PROFIT 500 profiles the country's most successful growth
companies. Published in the July issue of Canadian Business and online at PROFITguide.com, the PROFIT 500
is Canada's largest annual celebration of entrepreneurial achievement (based on five-year revenue growth) by Profit
Magazine, which publishes its ranking of the 500 fastest growing companies in Canada.
Financial and Operational Highlights
MATTERS IMPACTING FINANCIAL RESULTS COMPARABILITY YEAR-OVER-YEAR
Debt refinancing charge: During the year the Company redeemed its 2018 Senior Notes and incurred in
aggregate a $16.6 million pre-tax debt refinancing charge, which included a call premium on early redemption of
$10.4 million, change in fair value of an embedded derivative related to the prepayment option of $3.4 million and
accretion of remaining unamortized financing fees of $2.8 million. The after-tax debt refinancing charge is $12.2
million.
The following table provides a summary of the adjustments due to the impact of the debt refinancing charge, to the
line items indicated. The adjustment is intended to provide to the reader the underlying earnings trend before any
charges related to refinancing activities, which do not occur on a regular basis.
Impact of adjustments due to debt refinancing charge
FY 2014
Reported
Refinancing
Charge
FY 2014
Normalized
FY 2013
Reported
Change
($)
Change
(%)
EBITDA
76,407
-
76,407
66,250
10,157
15.3%
Depreciation and amortization
33,727
-
33,727
35,576
1,848
Finance costs, net
in ($000’s)
31,307
(16,636)
14,671
13,109
(1,562)
Income tax expense
3,891
4,409
8,300
5,375
(2,925)
Net Income
7,481
12,227
19,709
12,191
7,518
61.7%
The following are the highlights for the three months (“Q4”, “Quarter” ‘Fourth quarter’) ended August 31, 2014 in
comparison to the three months ended August 31, 2013.
Three Months Ended August 31, 2014

Revenue increased by 1.8% to $77.1 million from $75.7 million; an improvement of $1.4 million;

Adjusted EBITDA4, 5 remained unchanged at $16.6 million;
4 A reconciliation of Operating Income to Adjusted EBITDA (a non-GAAP measure) is provided in the section explaining EBITDA
under the table entitled “Adjusted EBITDA Reconciliation”.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 6
11
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014

EBITDA5 improved slightly by 0.1% to $16.2 million from $16.1 million; an improvement of $0.1 million;

Operating income improved by 31.8% to $9.3 million from $7.1 million; an improvement of $2.2 million;

Net Income improved by 8.6% to $4.4 million from $4.1 million, an increase of $0.3 million;

Earnings per share (EPS) of $0.4 compared to earnings per share of $0.03, an increase of $0.01 per share;

Cash from operations decreased by 4.1% to $14.2 million from $14.8 million; a reduction of $0.6 million;

Free Cash Flow5 increased by 8.2% to $10.5 million from $9.7 million; an increase of $0.8 million;
The following are the highlights for the year (“FY”, “Full-year”) ended August 31, 2014 in comparison to the year
ended August 31, 2013.
Year ended August 31, 2014

Revenue increased by 5.1% to $303.5 million from $288.9 million; an improvement of $14.6 million;

Adjusted EBITDA4, 5 improved by 15.0% to $79.0 million from $68.7 million; an improvement of $10.3 million;

EBITDA5 improved by 15.3% to $76.4 million from $66.2 million; an improvement of $10.2 million;

Operating income improved by 39.1% to $42.7 million from $30.7 million; an improvement of $12.0 million;

Net income decreased by 38.6% to $7.5 million from $12.2 million, a decrease of $4.7 million; excluding the
after-tax debt refinancing charge of $12.2 million, Net Income was $19.7 million, an increase of 61.7% or $7.5
million;

Earnings per share of $0.06 compared to earnings per share of $0.10, a decrease of $0.04 per share; excluding
the after-tax debt refinancing charge of $12.2 million, earnings per share of $0.16, an increase of $0.06 per share;

Cash from operations before the $10.4 million call premium on early repayment of debt, decreased to $60.0
million from $60.3 million, a reduction of $0.3 million. Cash from operations decreased by 17.7% to $49.6 million
from $60.3 million; a reduction of $10.7 million;

Free Cash Flow before the $10.4 million call premium on early repayment of debt, decreased to $45.9 million
from $49.6 million, a reduction of $3.7 million. Free Cash Flow5 decreased by 28.4% to $35.5 million from $49.6
million.
5
12
Non-GAAP measure – See definition in the section entitled “Non-GAAP Financial Measures”.
TSX: XSR
Page 7
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Summary of Financial and Operating Results
The following tables present summaries and comparative figures of the Company’s consolidated balance sheet as at
August 31, 2014 and August 31, 2013 and compares the statement of operations and comprehensive income for the
year ended August 31, 2014 to the results for the year ended August 31, 2013. For more detail, please refer to the
Company’s consolidated financial statements for August 31, 2014. Also included in the following tables are
comparative results of the Company’s unaudited interim results for the quarters ended August 31, 2014 and 2013,
respectively.
Consolidated Balance Sheet
As at
August 31,
2014
August 31, 2013
ASSETS
Current assets
Cash, cash equivalents, and short-term investments
Accounts receivable
Prepaid expenses and other
Inventory
Total current assets
Long-term prepaid expenses
Property and equipment
Intangible assets
Deferred tax assets
Goodwill
Total assets
23,868
13,454
4,251
559
42,133
456
4,508
134,971
50,592
96,733
329,394
49,236
13,359
6,779
234
69,609
100
5,980
152,217
54,484
96,733
379,122
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Trade and other payables
Due to related parties
Interest payable
Deferred revenue
Provisions
Total current liabilities
Deferred revenue
Other long-term liabilities
Due to related parties
Long-term debt
Provisions
Total liabilities
44,121
9,146
3,966
146,111
506
203,850
15,076
533
1,324
195,464
374
416,621
47,145
9,621
2,704
144,885
1,328
205,684
17,105
1,669
2,391
143,707
323
370,879
176,862
6,067
(270,157)
(87,227)
329,394
151,795
6,161
(149,713)
8,243
379,122
(in $ 000's)
Shareholders' equity (deficiency)
Share capital
Contributed surplus
Accumulated deficit
Total shareholders' equity (deficiency)
Total liabilities and shareholders' equity (deficiency)
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 8
13
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Summarized Financial Results
(in $ 000's, except earnings per share)
Three months ended
August 31,
August 31,
2014
2013
August 31,
2014
Year ended
August 31,
2013
Revenue
77,121
75,739
303,500
288,901
Operating expenses
Operating costs
Depreciation and amortization
Operating income
60,964
6,837
9,320
59,603
9,065
7,071
227,093
33,727
42,680
222,651
35,576
30,675
153
(3,041)
(13)
(2,901)
175
(3,513)
2,240
(145)
(1,244)
842
(15,249)
(13,196)
(3,440)
(265)
(31,307)
686
(15,411)
2,291
(676)
(13,109)
6,420
(1,992)
4,427
0.04
5,828
(1,750)
4,078
0.03
11,373
(3,891)
7,481
0.06
17,565
(5,375)
12,191
0.10
Finance costs, net
Interest income
Interest expense
Loss on debt repayment
Change in fair value of embedded derivative
Foreign exchange loss
Finance costs, net
Net Income before tax
Income tax expense
Net income
Earnings per share – basic and diluted
The following tables present a summary of the Company’s financial and operating metrics for the three months and
year ended August 31, 2014 in comparison to the results for the three months and year ended August 31, 2013.
Summarized Financial Highlights
(in $ 000's, except as indicated)
Revenues
Operating income
Net Income
EPS
EBITDA
EBITDA margin (%)
Adjusted EBITDA
Adjusted EBITDA margin (%)
Free cash flow *
Net debt
Net debt to Adjusted EBITDA (times) **
Three months ended
August 31,
August 31,
2014
2013
77,121
9,320
4,427
0.04
16,157
21.0%
16,592
21.5%
10,502
171,595
2.17
75,739
7,071
4,078
0.03
16,136
21.3%
16,570
21.9%
9,704
94,471
1.37
August 31,
2014
Year ended
August 31,
2013
303,500
42,680
7,481
0.06
76,407
25.2%
79,025
26.0%
35,534
171,595
2.17
288,901
30,675
12,191
0.10
66,250
22.9%
68,722
23.8%
49,633
94,471
1.37
*Free cash flow for FY 2014 includes the call premium of $10.4 million on early repayment of debt.
** Net debt to Adjusted EBITDA ratio for the current quarter is based on last 4 quarters of Adjusted EBITDA.
14
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Page 9
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Discussion of Financial and Operating Results
The following table is a summary of the key subscriber and operating metrics that the Company uses to help measure
the performance of its operations. Please refer to the section “Definitions of Industry Terminology” at the end of
this MD&A for an overview of the subscriber metrics noted below.
Summarized Operating Metrics *
Three months ended
August 31,
August 31,
2014
2013
1,852
2,612
2.02%
$11.05
$38
$66
Ending Self-Pay subscribers
Ending Total subscribers
Average Self Pay churn
ARPU
SAC
CPGA
1,727
2,427
1.78%
$11.72
$40
$76
August 31,
2014
Year ended
August 31,
2013
1,852
2,612
1.99%
$11.26
$38
$64
1,727
2,427
1.95%
$11.64
$44
$73
*ARPU, SAC, CPGA for the three months and full-year ended August 31, 2014 reflect contractual changes with OEM partners.
Summarized Subscriber Metrics
Three months ended
August 31,
August 31,
2014
2013
August 31,
2014
Year ended
August 31,
2013
Beginning subscribers
Net change
Ending subscribers
2,529,800
81,800
2,611,600
2,321,900
105,200
2,427,100
2,427,100
184,500
2,611,600
2,206,200
220,900
2,427,100
Self-Paying
Paid Promotional
Non Paid Promotional
Ending subscribers
1,851,700
605,600
154,300
2,611,600
1,727,400
567,800
131,900
2,427,100
1,851,700
605,600
154,300
2,611,600
1,727,400
567,800
131,900
2,427,100
54,500
27,300
81,800
63,200
42,000
105,200
124,300
60,200
184,500
143,000
77,900
220,900
Self-Pay net change
Paid/Non Paid net change
Total net change
The following section compares the results of operations for the three months (“Fourth quarter”, “Q4”) and year
(“Full-year”, “FY”) ended August 31, 2014 to the results of operations for the three months and year ended August
31, 2013.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 10
15
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Subscribers
2,611,600
759,900
1,851,700
Q4 2014
Self Paying
2,427,100
699,700
1,727,400
Q4 2013
Paying & Non Paying Promotional
As at August 31, 2014, we had total subscribers of 2,611,600, representing 1,851,700 Self-Paying subscribers and
759,900 Paid Promotional subscribers and Non Paid Promotional subscribers. Self-Paying subscribers increased 7.2%
versus the end of 2013, driven largely by growth in the number of OEM additions during the period. Paid Promotional
subscribers and Non-Paid Promotional subscribers increased by 8.6% compared to the corresponding period of 2013
due to an increase in vehicle sales of approximately 4.8% on a full-year basis for fiscal 2014. During the fourth quarter,
Self-Paying subscribers increased by 54,500, compared to an increase of 63,200 in the same period in 2013, while
Paid and Non-Paid Promotional subscribers increased by 27,300, compared to an increase of 42,000 in the same
period in 2013. The decrease in Self-Paying additions compared to the same period in 2013 was driven by higher
churn and a deceleration of growth in gross subscriber additions. The higher churn is a function of a higher
proportion of subscribers being acquired on lower-priced promotional plans. We are also seeing an increase in the
number of current subscribers who purchase new vehicles and transfer their subscription from their old vehicle. We
refer to this phenomenon as vehicle turnover, which we expect to increase in the future as turnover tends to lag
satellite penetration rate by a few years. Ultimately, vehicle turnover may have an adverse impact on net Self-Pay
subscriber additions. The decrease in Paid and Non Paid Promotional subscribers is due to the timing of deactivations
relative to gross additions this quarter.
In the pre-owned segment of our business, gross additions as a percentage of overall gross additions increased from
approximately 3% in 2013 to approximately 8% in 2014. While we believe contribution from this segment will
increase in 2015, the pace of growth may not be sufficient to fully compensate for the anticipated higher number of
deactivations on account of a larger subscriber base as well as potential headwinds to conversion as satellite radio
penetration deepens to include lower-priced vehicles.
16
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Page 11
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Churn
2.02%
1.99%
1.95%
1.78%
Q4 2014
Q4 2013
FY 2014
FY 2013
Self-Pay monthly churn increased to 2.02% in the fourth quarter of 2014 from 1.78% in the corresponding quarter
of 2013 as a higher percentage of the customer base comprises lower-priced promotional plans, which are more
susceptible to churn during their renewal period. This effect combined with a shift to shorter term plans has led to
a higher churn rate. For the year ended August 31, 2014, Self-Pay monthly churn was 1.99% compared to 1.95% for
the year ended August 31, 2013. Churn increased year-over-year on a full-year basis due to the reasons mentioned
above.
Average Monthly Subscription Revenue per subscriber (ARPU)
$11.72
$11.26
$11.05
Q4 2014
Q4 2013
FY 2014
$11.64
FY 2013
ARPU was $11.05 and $11.72 for the fourth quarters of 2014 and 2013, respectively. The decrease in ARPU is due
primarily to the effect of a contract renewal with an OEM partner which no longer pays for trial subscriptions.
Although the change in the terms of the contract resulted in a reduction in ARPU on a comparative basis, there
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 12
17
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
were benefits in revenue share & royalties as well as subsidies and distribution costs, resulting in improvements in
other metrics such as SAC, CPGA and EBITDA. In addition to the effect of the OEM contract change mentioned
above, the reduction in ARPU is also due to the following factors:
(i)
an increase in automotive Self-Paying subscribers which have a lower ARPU due to greater price
discounts being offered to these subscribers;
discounted pricing on win-back initiatives;
lower ARPU on pre-owned vehicles, due to an increase in gross additions from the pre-owned vehicle
segment.
(ii)
(iii)
ARPU is below the basic service price due to promotions offered to new OEM Self-Paying subscribers, Paid
Promotional subscriptions by automakers, family plan subscribers, discounts offered to Self-Paying subscribers who
renew their subscriptions, across all channels and discounted multi-year plans that provide the Company with a
working capital benefit as long term subscriptions are paid for in advance. As the Company continues to increase its
subscriber base, it is anticipated that ARPU may fluctuate due to multi-year plans and promotional discounts offered
to attract and retain its Self-Paying subscriber base. On a full-year basis, ARPU was $11.26 for the year ended August
31, 2014 compared to $11.64 for the year ended August 31, 2013. The primary reason for the decline in full-year
ARPU is also due to the effect of a contract renewal with an OEM partner.
Revenue
Revenue includes subscription revenue, activation fees, sale of merchandise through direct fulfillment channels,
advertising revenue from Canadian-produced channels and certain other revenue.
Revenue ($ millions)
$303.5
$77.1
Q4 2014
$288.9
$75.7
Q4 2013
FY 2014
FY 2013
 Fourth quarter: Revenue increased by $1.4 million or 1.8%, to $77.1 million in the fourth quarter of
2014 from $75.7 million in the fourth quarter of 2013. The increase was attributable primarily to the
increase in the Self-paying subscriber base offset by a decrease in ARPU of 5.8% as a result of the
contract change and other factors as mentioned previously.
 Full-year: Revenue increased by $14.6 million or 5.1% to $303.5 million in 2014 from $288.9 million
in 2013. The increase is due to the Company’s higher Self-Paying subscriber base offset by lower ARPU,
18
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Page 13
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
which includes the reduction in prepaid promotional revenue due to an OEM contract change as
mentioned above.
Operating Expenses
Three months ended August 31,
Operating Expenses
2014
Q4
2014
% of
Revenue
2013
Q4
2013
% of
Revenue
23,893
5,256
1,290
479
1,898
32,817
31.0%
6.8%
1.7%
0.6%
2.5%
42.6%
23,083
4,813
1,164
468
1,688
31,216
General and administrative
Information Technology
Stock based compensation
Overhead costs
3,334
2,438
431
6,203
4.3%
3.2%
0.6%
8.0%
Support
Subsidies and distribution
Advertising and marketing
Marketing costs
Total operating expenses
2,047
11,149
8,748
21,945
60,964
2.7%
14.5%
11.3%
28.5%
79.0%
Revenue share and royalties
Customer care & billing operations
Cost of merchandise
Broadcast and operations
Programming and content
Total cost of revenue
Year ended August 31,
2014
2013
FY 2014
% of
Revenue
FY 2013
% of
Revenue
30.5%
6.4%
1.5%
0.6%
2.2%
41.2%
90,039
19,740
4,445
1,812
11,048
127,084
29.7%
6.5%
1.5%
0.6%
3.6%
41.9%
89,870
19,352
3,420
1,651
7,683
121,976
31.1%
6.7%
1.2%
0.6%
2.7%
42.2%
2,009
3,355
399
5,763
2.7%
4.4%
0.5%
7.6%
11,038
9,130
2,550
22,718
3.6%
3.0%
0.8%
7.5%
8,895
11,202
2,257
22,355
3.1%
3.9%
0.8%
7.7%
1,709
11,067
9,848
22,624
59,603
2.3%
14.6%
13.0%
29.9%
78.7%
8,841
40,108
28,343
77,292
227,093
2.9%
13.2%
9.3%
25.5%
74.8%
7,431
42,872
28,017
78,320
222,651
2.6%
14.8%
9.7%
27.1%
77.1%
Cost of Revenue
Cost of revenue increased by $1.6 million or 5.1% to $32.8 million in the fourth quarter of 2014 from $31.2 million
in the fourth quarter of 2013. For the year ended August 31, 2014, Cost of Revenue increased by $5.1 million or
4.2% to $127.1 million from $122.0 million in the year ended August 31, 2013. The reasons for the increase in Cost
of Revenue for the three-month and full-year periods ended August 31, 2014 are discussed below. Cost of revenue
is comprised of the following:
Revenue share & royalties – This category includes license payments to Sirius XM, revenue share payments
to the OEM partners, CRTC fees, CRTC mandated CCD contributions, and copyright royalties payable to
rights holders for the public performance and the reproduction of musical works, performers’ performances
and sound recordings.
 Fourth quarter: Revenue share and royalties increased by $0.8 million or 3.5%, to $23.9 million in the
fourth quarter of 2014 from $23.1 million in the fourth quarter of 2013. The Company agreed with
SXM that it owed an additional $1.0 million resulting from payments under its license agreement on
specified fees. As a result, the Company incurred a $1.0 million increase in expense. Q4 2014 revenue
share & royalties also increased, in part, due to higher royalties, and performance rights on account of
higher revenue. As a percentage of total revenue, revenue share & royalties increased to 31.0% in the
fourth quarter of 2014 compared to 30.5% in the fourth quarter of 2013. Revenue share and royalties
are expected to be adversely impacted in the coming quarters due to the effect of the previously noted
changes in copyright laws.
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 14
19
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
 Full-year: Revenue share & royalties increased by $0.2 million or 0.2% to $90.0 million in the year
ended August 31, 2014 from $89.9 million in 2013. Revenue share & royalties increased due to an
increase in royalties, revenue share and performance rights on account of higher revenue, an additional
$1.0 million expense resulting from payments under its license agreement on specified fees as noted
above, partially offset by a reduction in revenue share as a result of a contract change with an OEM
partner, where the Company negotiated a lower revenue share rate. As a percentage of total revenue,
revenue share & royalties decreased to 29.7% in 2014 from 31.1% in 2013.
Customer care & billing operations – This category consists primarily of personnel and related costs
associated with the ongoing operations of call centers as well as credit card payment processing fees. The
Company operates onshore and offshore customer support centers through third party vendors.
 Fourth quarter: Customer care & billing operations costs increased by $0.5 million or 9.2% to $5.3
million in the fourth quarter of 2014 from $4.8 million in the fourth quarter of 2013. Customer care &
billing operations costs are primarily driven by the volume derived from the Company’s growing
subscriber base. Customer care & billing operations costs increased due to a short-term increase in
customer care staffing to accommodate an anticipated increase in call volume as a result of the increase
in the MRF, higher billing fees offset by lower telecom expenses and efficiencies gained through directing
more customers to a self-serve option, compared to the same period last year.
 Full-year: Customer care & billing operations costs increased by 2.0% or $0.4 million to $19.7 million
in 2014 from $19.3 million in 2013 while Self-Paying subscribers increased 7.2% year-over-year. The
increase in customer care and billing costs was primarily due to the increase in the billing fees resulting
from an increase in cash collected and higher credit card fees, offset by lower telecom costs and lower
customer care costs on account of reduced call volumes. Call volume in the comparative period was
higher than in the current period due to the effects of the price increase implemented in the first
quarter of fiscal 2013. The effect of the price increase on call volume was more significant in fiscal 2013
as a majority of subscribers who were not yet subject to the increased price, renewed their accounts
during that period.
Monthly Customer Care and Billing Costs per Self-Paying subscriber ($/Sub)
 Fourth quarter: As shown below, monthly customer care & billing costs per Self-Paying subscriber
decreased marginally to $0.96 in the fourth quarter of 2014 from $0.97 in the fourth quarter of 2013
as the increase in customer care and billing costs primarily due to higher costs resulting from higher
call volume year-over-year, was outpaced by the growth in Self-Paying subscriber.
 Full-year: Customer care & billing costs per Self-Paying subscriber decreased to $0.93 in 2014 from
$0.98 in 2013 as customer care and billing costs did not increase in proportion to the growth in the
Self-Paying subscriber base primarily due to lower call volume in the current period compared to the
corresponding period last prior year. As mentioned above, last year’s call volume was higher due to
the phased rollout of the price increase, which commenced in the first quarter of fiscal 2013.
20
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152014
Sirius XM Canada Holdings Inc. AnnualPage
Report
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Monthly Customer Care and Billing per Self-Paying Subscriber ($/Sub)
$0.96
Q4 2014
$0.97
$0.93
Q4 2013
FY 2014
$0.98
FY 2013
Cost of merchandise – The Company sells merchandise directly to new subscribers, existing subscribers
who purchase additional radios, and to commercial accounts through our online store and call centers. Cost
of merchandise consists primarily of the cost of radios, accessories and related fulfillment costs associated
with the direct sale of this merchandise.
 Fourth quarter: Cost of merchandise increased marginally by $0.1 million or 10.9% to $1.3 million in
the fourth quarter of 2014 from $1.2 million in the fourth quarter of 2013. Cost of merchandise
increased primarily due to a higher volume of radios sold and to a change in product mix as a larger
percentage of higher priced radios were sold in the current quarter compared to the same quarter last
year.
 Full-year: Cost of merchandise increased by $1.0 million or 29.9% to $4.4 million in 2014 compared
to $3.4 million in 2013. Cost of merchandise increased due to an increase in sales volume year-overyear and to a larger percentage of higher priced radios sold in the current year.
Broadcast & operations – Broadcast expenses include costs associated with the management and
maintenance of systems, software, hardware, production and performance studios used in the creation and
distribution of Canadian-produced channels. Operations expenses include operating costs of facilities, the
terrestrial repeater network and information technology expenses related to the broadcast facilities.
 Fourth quarter: Broadcast & operations expenses remained unchanged at $0.5 million in the fourth
quarters of 2014 and 2013.
 Full-year: Broadcast & operations expenses increased by $0.2 million or 9.8% to $1.8 million in 2014
from $1.6 million in 2013. These expenses increased compared to the same period in the prior year
due primarily to higher utilities expense associated with the repeater network.
Programming & content – Includes the creative, production and licensing costs for live NHL programming
and costs associated with the Company’s Canadian-produced channels, which includes third party content
acquisition. Programming & content also includes licensing costs paid to the CBC. The Company views
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 16
21
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
programming & content as a cost of attracting and retaining subscribers. The NHL license cost is amortized
over the NHL season, which generally runs for a nine-month period beginning in October of each year.
 Fourth quarter: Programming & content expenses increased by $0.2 million or 12.5% to $1.9 million
in the fourth quarter of 2014 from $1.7 million in the corresponding quarter of 2013. The increase is
primarily due to the effects of an unfavorable change in the Canada-US foreign exchange rate and to
additional programming costs associated with enhancements of Canadian produced channels.
 Full-year: Programming & content expenses increased by $3.3 million or 43.8% to $11.0 million in
2014 from $7.7 million in 2013. The increase is due to the absence of a one-time benefit of $2.1 million
associated with the NHL license in the prior year due to NHL work stoppage, an unfavorable foreign
exchange rate, and to additional programing costs associated with the enhancements of several
Canadian produced channels.
Marketing support – Marketing support includes staffing costs directly associated with facilitating the sale
of radio receivers through third party distribution channels, costs for converting OEM trial customers into
Self-Paying subscribers, retention costs, costs incurred by win-back initiatives and costs associated with
marketing the SXM brand.
 Fourth quarter: Marketing support expenses increased by $0.3 million or 19.8% to $2.0 million in the
fourth quarter of 2014 from $1.7 million in the fourth quarter of 2013 primarily due to higher
compensation expense.
 Full-year: Marketing support expenses increased by $1.4 million or 19.0% to $8.8 million in 2014
compared to $7.4 million in 2013 primarily due to higher compensation expense.
Subsidies – These direct costs include the subsidization of radios, commissions paid to retail partners for
the sale and activation of radios, chipset costs, warranty costs and certain promotional costs.
 Fourth quarter: Subsidy costs remained unchanged at $11.1 million in the fourth quarters of 2014
and 2013. OEM subsidy savings from a contract renewal were offset by an increase in subsidy costs
due to a higher number of vehicles installed with a satellite receiver. In the Aftermarket channel,
increase in subsidy costs as a result of a higher volume of radios sold was offset by lower warranty
and chipset costs compared to the same period last year.
 Full-year: Subsidy costs decreased by $2.8 million or 6.4% to $40.1 million in 2014 compared to
$42.9 million in 2013. Subsidy costs decreased in both the aftermarket and OEM channels. Subsidy
costs decreased in the aftermarket channel due to lower promotional costs associated with product
bundling and displays. Subsidy costs decreased in the OEM channels due to lower per unit costs as a
result of the changes in contractual terms with the Company’s OEM partners, partially offset by
higher installation costs resulting from a higher number of vehicles equipped with a satellite receiver.
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Page 17
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Subscriber Acquisition Costs (SAC)
$44
$40
$38
$38
Q4 2014
Q4 2013
FY 2014
FY 2013
Subscriber Acquisition Costs6 – SAC was $38 and $40 for the fourth quarters of 2014 and 2013, respectively.
SAC decreased relative to the comparative quarter due primarily to lower subsidy costs as mentioned above
coupled with higher gross additions from the pre-owned vehicle channel, which has lower SAC. On a fullyear basis, SAC was $38 and $44 for 2014 and 2013, respectively. SAC decreased during the period due to a
decrease in subsidy costs coupled with higher gross additions from the pre-owned vehicle channel.
Marketing – Includes costs related to communications associated with converting trial subscribers to SelfPaying subscribers such as mailing and telephone costs, retail advertising through various media, co-operative
advertising with distribution partners, sponsorships, and ongoing market research. These costs fluctuate based
on the timing of these activities.
 Fourth quarter: Marketing expenses decreased by $1.1 million or 11.2% to $8.7 million in the fourth
quarter of 2014 from $9.8 million in the fourth quarter of 2013 due to lower spend on online media,
lower costs associated with the Company’s quarterly free listening promotional program and lower
product development costs. Costs associated with the free listening promotional program were lower
than they were in the comparative period last year as the Company reduced the number of
communication touch points with trial subscribers.
 Full-year: Marketing expenses increased by $0.3 million or 1.2% to $28.3 million in 2014 from $28.0
million in 2013. The increase in marketing expenses is due to higher communications costs resulting
from a higher number of trial customers, from both new and pre-owned vehicle programs, and to
higher research cost pertaining to customer retention, partially offset by lower costs associated with
the Company’s free listening promotional program and lower media spend on radio.
6 Subscriber acquisition cost includes subsidy costs and net costs related to equipment sold directly to the consumer divided by total gross
additions excluding the Non-Paid Promotional Subscribers for the period.
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 18
23
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Cost Per Gross Addition (CPGA)
$76
$66
Q4 2014
$73
$64
Q4 2013
FY 2014
FY 2013
Cost Per Gross Addition – CPGA decreased to $66 in the fourth quarter of 2014 from $76 in the fourth quarter
of 2013. CPGA decreased period-over-period due primarily to lower SAC and higher gross additions from the preowned vehicle segment as explained above coupled with lower marketing costs in the fourth quarter of 2014
compared to same period in 2013. On a full-year basis, CPGA was $64 and $73 for 2014 and 2013, respectively.
The decline on a full-year basis is also due to lower SAC and higher gross additions from the pre-owned vehicle
segment.
General & Administrative Expenses
General & administrative expenses primarily include compensation, public company costs, office occupancy
expenses and other corporate expenses.
 Fourth quarter: General & administrative expenses increased by $1.3 million or 66.0% to $3.3 million
in the fourth quarter of 2014 from $2.0 million in the fourth quarter of 2013. The increase in general
and administrative expenses is due primarily to higher compensation expense, a significant portion of
which relates to an expense of $0.8 million taken in the quarter to compensate employees and board
members a dividend equivalency for the announced special dividend on the value of outstanding stock
options, Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) and higher legal expenses.
 Full-year: General & administrative expenses increased by $2.1 million or 24.1% to $11.0 million in
2014 from $8.9 million in 2013. The increase in general and administrative expenses is due to higher
compensation expense including the expense of $0.8 million related to the adverse impact of the
special dividend as noted above, facilities expense and professional fees related to the CRA’s tax audit.
Information Technology
Information Technology expenses primarily includes costs related to our subscriber management systems, data
processing, communications cost, network infrastructure cost and people costs.
 Fourth quarter: Information technology expenses decreased by $0.9 million or 27.3% to $2.4 million
in the fourth quarter of 2014 from $3.3 million in the fourth quarter of 2013. The decrease is a result
24
TSX: XSR
Page 19
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
of higher capitalization of costs related to development of software related to the unification of the
Company’s Subscriber Management System (“SMS”), lower streaming and software maintenance costs.
 Full-year: Information technology expenses decreased by $2.1 million or 18.5% to $9.1 million in 2014
from $11.2 million in 2013. The decrease is a result of higher capitalization of development of the
software related to the Company’s unified SMS and to a reduction in certain third party costs.
Stock-based Compensation
Stock-based compensation expenses are related to the issuance of stock options, Restricted Stock Units (RSUs) and
Performance Stock Units (PSUs). The Company recognizes compensation expense in operating costs over the vesting
period for the market value of each RSU and PSU at the date of grant. The Company expects RSUs and PSUs to be
settled through the issuance of shares.
 Fourth quarter: Stock-based compensation expenses remained unchanged at $0.4 million for the
fourth quarters of 2014 and 2013.
 Full-year: Stock-based compensation expenses increased by $0.2 million to $2.5 million in 2014 from
$2.3 million in 2013. The increase in stock-based compensation is a result of additional grants of both
RSUs and PSUs in the first quarter of 2014.
As of August 31, 2014, the Company had the following stock options outstanding:
Stock Options
Outstanding
At September 1, 2013
Weighted Average
Remaining Contractual
Life (years)
Weighted Average
Exercise Price
5.2
Granted
Vested
Vested
Unvested
$3.60
2,438,100
599,375
1,838,725
$8.49
435,800
124,200
311,600
—
495,150
(495,150)
(715,775)
(715,775)
—
—
Exercised
$3.39
Forfeited
At August 31, 2014
Total
4.8
$5.80
(26,325)
(6,500)
(19,825)
$4.64
2,131,800
496,450
1,635,350
Stock Options, Restricted Stock Units and Performance Stock Units
On November 18, 2013, the Company granted stock options to the Board of Directors and members of the
Company’s management team for 435,800 Class A Subordinate Voting Shares with an exercise price of $8.49. The
exercise price was the 5 day volume weighted average price of the shares at the time of grant. The options vest
immediately or over 4 years. The fair value of the options was estimated using the Black-Scholes option pricing
model.
On November 18, 2013, the Company granted 11,780 RSUs and 241,600 PSUs to certain employees as a form of
incentive compensation. RSUs and PSUs cliff vest in three years, and can be settled in cash or shares at the discretion
of the Company’s Board of Directors. The PSUs are subject to minimum performance targets and the amount of
PSUs that may vest is dependent on the Company meeting specified performance targets; as at August 31, 2014,
ranging from nil if minimum performance targets are not met, to a maximum of 235,800 units. The grant date fair
value for both RSUs and PSUs is $8.20 per unit.
The RSUs and PSUs grant certain employees either a cash or share based payment at the option of the Company.
The cash payment per RSU or PSU would be equal to the weighted average price of the Company’s common share
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 20
25
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
on the Toronto Stock Exchange (“TSX”) in the five trading days preceding the end of a three-year performance
period multiplied by the number of units that vest. For the PSUs, the number of units that vest will vary based on
the achievement of non-market performance measures. The Company recognizes compensation expense in
operating costs for each RSU and PSU expected to vest equal to the market value of the Company’s common share
less the net present value of the expected dividend stream at the date on which RSUs and PSUs are awarded to each
participant. For PSUs expected to be settled in shares, the compensation expense is prorated over the performance
period reflecting changes in the number of PSUs expected to vest until the end of the performance period based on
the achievement of non-market performance measures. Forfeitures are estimated at the grant date and are revised
to reflect a change in expected or actual forfeitures.
Since the settlement method of the RSUs and PSUs is at the discretion of the Company’s Board of Directors, and
the Company does not have a prior practice of settling in cash and currently intends to settle the awards by issuing
shares, the Company accounts for RSUs and PSUs compensation related expense using the equity settlement
method.
From cumulative grants made, including the current year, as at August 31, 2014, the number of non-vested RSUs is
196,160 units, the number of PSUs that are expected to vest based on conditions existing at the balance sheet date
is 324,958 units.
Depreciation and amortization
 Fourth quarter: Depreciation and amortization expense decreased by $2.3 million to $6.8 million in
the fourth quarter of 2014 from $9.1 million in the fourth quarter of 2013. Depreciation and
amortization expense decreased as some of the intangible assets associated with OEM contracts were
fully amortized in the third quarter, lower leasehold amortization offset by higher software amortization
costs on account of newly capitalized software additions.
 Full-year: Depreciation and amortization expense decreased by $1.9 million to $33.7 million in 2014
from $35.6 million in 2013. The decrease in depreciation and amortization is a result of reduced
amortization of intangibles as some of the intangible assets associated with OEM contracts were fully
amortized in the third quarter, lower equipment depreciation as some of the equipment were fully
depreciated during the year offset by higher amortization of leaseholds due to accelerated amortization
of leaseholds for the closure of a studio location and higher amortization of software assets on account
of capitalized additions during 2014 and 2013.
26
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Page 21
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
EBITDA
$76.4
$66.2
$16.2
$16.1
Q4 2014
Q4 2013
FY 2014
FY 2013
The Company uses EBITDA and its variants such as Adjusted EBITDA, as described in the Non-GAAP Financial
Measures section, to gauge the performance of the business. The table below is a reconciliation of Income before
taxes to EBITDA and Adjusted EBITDA.
Adjusted EBITDA: Reconciliation
In ($ 000’s)
Income before taxes
Interest expense & income
Loss on debt repayment
Change in fair value of embedded derivative
Foreign exchange loss
Operating income
Amortization
EBITDA
Stock-based compensation
Fair value adjustments
Adjusted EBITDA
Three months ended
August 31,
2014
2013
Year ended
August 31,
2014
2013
6,420
5,828
11,373
17,565
2,887
3,338
14,407
14,725
-
-
13,196
-
-
(2,240)
3,440
(2,291)
13
145
265
676
9,320
7,071
42,680
30,675
6,837
9,065
33,727
35,576
16,157
16,136
76,407
66,250
431
399
2,550
2,257
4
35
67
215
16,592
16,570
79,025
68,722
* Fair value adjustment relates to a reduction in revenue due to the valuation of deferred revenue under purchase price accounting.
 Fourth quarter: EBITDA improved by less than $0.1 million or 0.1% to $16.2 million in the fourth
quarter of 2014 from $16.1 million in the fourth quarter of 2013. EBITDA improved slightly compared
to the same period last year as increase due to a $1.4 million revenue improvement, lower marketing
expenses of $0.7 million were offset by an increase in Cost of Revenue of $1.6 million and an increase
in overhead costs, which comprises general and administrative and information technology costs, of
$0.4 million. As a percentage of revenue, EBITDA decreased to 21.0% in the fourth quarter of 2014
from 21.3% in the fourth quarter of 2013.
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 22
27
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
 Full-year: EBITDA improved by $10.2 million or 15.3% to $76.4 million in 2014 from $66.2 million in
2013. EBITDA improved compared to the same period last year primarily due to a $14.6 million
revenue improvement, and lower marketing costs of $1.0 million, offset by higher Cost of Revenue of
$5.1 million and higher stock based compensation of $0.3 million. As a percentage of revenue, EBITDA
increased to 25.2% in 2014 from 22.9% in 2013. The increase in the EBITDA margin is a result of
operational leverage partially offset by the absence of approximately $2.1 million from lower NHL
license expenses due to the shortened NHL season in 2013. Excluding this one-time benefit of $2.1
million in 2013, the EBITDA margin was 22.2%, resulting in a margin increase of 3.0 percentage points.
Adjusted EBITDA
$79.0
$68.7
$16.6
$16.6
Q4 2014
Q4 2013
FY 2014
FY 2013
Adjusted EBITDA
 Fourth quarter: Adjusted EBITDA remained flat at $16.6 million in the fourth quarters of 2014 and
2013. Adjusted EBITDA remained unchanged compared to the same period last year as the increase
due to a $1.4 million revenue improvement, and lower marketing costs of $0.7 million were offset by
higher Cost of Revenue of $1.6 million and higher overhead costs of $0.4 million. As a percentage of
revenue, Adjusted EBITDA decreased to 21.5% in the fourth quarter of 2014 from 21.9% in the fourth
quarter of 2013.
 Full-year: Adjusted EBITDA improved by $10.3 million or 15.0% to $79.0 million in 2014 from $68.7
million in 2013. Adjusted EBITDA improved compared to the same period last year primarily due to a
$14.6 million revenue improvement, lower marketing costs of $1.0 million, offset by higher Cost of
Revenue of $5.1 million. As a percentage of revenue, Adjusted EBITDA increased to 26.0% in 2014
from 23.8% in 2013. The increase in the Adjusted EBITDA margin is a result of operational leverage
partially offset by the absence of approximately $2.1 million from lower NHL license expenses due to
the delayed NHL season in 2013. Excluding this one-time benefit in 2013, the EBITDA margin was
23.1% instead of 23.8%, resulting in a margin increase of 2.9 percentage points.
28
TSX: XSR
Page 23
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Finance Costs
Interest Income – Interest income includes income from our cash, cash equivalent balances and short
term investments.
 Fourth quarter: Interest income remained unchanged at $0.2 million for the fourth quarters of 2014
and 2013.
 Full-year: Interest income for the year ended August 31, 2014 was $0.8 million compared to $0.7
million for the year ended August 31, 2013. The slight increase in interest income was due to a
temporary higher than usual cash balance due to refinancing of the Company’s senior debt during the
year.
Interest Expense – Interest expense includes costs associated with the Company’s 9.75% 2018 Senior
Notes which were due June 21, 2018, but have since been redeemed, the 5.625% 2021 Senior Notes, due
April 23, 2021 and the $20 million 8% unsecured subordinated convertible notes (the “Convertible
notes”) due September 12, 2014, which were converted to Class A Shares by Convertible note holders in
second quarter of fiscal 2014, the $35 million credit facility and interest and interest accretion associated
with other long term obligations.
 Fourth quarter: Interest expense for the three months ended August 31, 2014 was $3.0 million
compared to $3.5 million for the three months ended August 31, 2013. The decrease in interest
expense is due to a lower effective interest rate on outstanding debt partially offset by a higher debt
balance.
 Full-year: Interest expense for the year ended August 31, 2014 was $15.2 million compared to $15.4
million for the year ended August 31, 2013. The slight decrease in interest expense is due to a lower
interest rate on 2021 Senior Notes, redemption of the Convertible notes as the Convertible notes
were converted into Class A shares in second quarter of fiscal 2014, offset by a higher debt balance
and additional interest carrying costs for the period of one month when both the 2021 Senior Notes
and the 2018 Senior were outstanding.
Loss on debt repayment – due to the early settlement of the Company’s $130.8 million 2018 Senior
Notes with an interest rate of 9.75%.
 Fourth quarter: The Company did not incur any loss on debt repayment in fourth quarters of 2014
and 2013.
 Full-year: The Company incurred a loss on account of early repayment of its debt in the third quarter,
as it issued $200.0 million principal amount of 2021 Senior Notes and redeemed its $130.8 million 2018
Senior Notes. This redemption resulted in the Company recording a pre-tax debt refinancing charge
of $13.2 million. The components of this cost included the early redemption premium of $10.4 million
and the amortization of the remaining balance of previously paid financing costs of $2.8 million.
Change in value of embedded derivative – Change in fair value of the embedded derivative related to
the early redemption feature of the Company’s $130.8 million 2018 Senior Notes with an interest rate of
9.75% and subsequently the $200 million 2021 Senior notes. The 2021 Senior notes also contains an
embedded derivative based on the Company’s option to prepay the notes prior to maturity.
 Fourth quarter: There was no material change in the embedded derivative in the fourth quarter of
2014.
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 24
29
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
 Full-year: In the third quarter, early redemption of $130.8 million of 2018 Senior Notes resulted in a
change in the fair value of derivative of $3.4 million related to the early redemption feature of the
Company’s $130.8 million 2018 Senior Notes. In 2013, there was a gain of $2.3 million in the value of
the embedded derivative due to revaluation of the call feature of the 2018 Senior Notes.
Foreign exchange – includes gains and losses associated with the change in ending balances for payments
in US dollars.
 Fourth quarter: The Company had a foreign exchange loss of nil for the fourth quarter of 2014 and a
loss of $0.1 million for the fourth quarter of 2013.
 Full-year: The Company had a foreign exchange loss of $0.3 million in 2014 compared to a foreign
exchange loss of $0.7 million in prior year.
Income Tax Expense
 Fourth quarter: The Company had an income tax expense of $2.0 million in fourth quarter of 2014
compared to an income tax expense of $1.7 million in the corresponding quarter of 2013. Income tax
expense increased on account of higher net income before income taxes in the fourth quarter of 2014
compared to same period in 2013.
 Full-year: The Company incurred income tax expense of $3.9 million in 2014 compared to an income
tax expense of $5.4 million in 2013. Income tax expense of $3.9 million in 2014 is comprised of expense
of $3.0 million due to net income in the current year and $0.9 million due to non-deductible expenses.
In 2013, income tax expense of $5.4 million is comprised of expense of $4.7 million due to net income
in 2013 and $0.7 million due to non-deductible expenses. The decrease in income tax expense is due
to lower net income before income taxes primarily due to the $16.6 million pre-tax debt refinancing
charge.
Net Income
 Fourth quarter: The Company had a net income of $4.4 million in the fourth quarter of 2014 compared
to a net income of $4.1 million in the fourth quarter of 2013. Net Income increased primarily due to
higher pre-tax income in the fourth quarter of 2014 compared to same period in 2013.
 Full-year: The Company had a net income of $7.5 million in 2014 compared to a net income of $12.2
million in 2013. The decrease in net income is primarily the result of the $12.2 million after-tax debt
refinancing charge as mentioned previously. Removing the after-tax impact of this item would have
resulted in net income of $19.7 million or an increase of 61.7%.
Liquidity and Capital Resources
Total cash, cash equivalents and short-term investments at the end of fiscal 2014 were $23.9 million, a decrease of
$77.6 million from the third quarter of 2014. This decrease was primarily due to payments of dividends totaling
$88.3 million offset by an increase in free cash flow of $10.5 million. Free cash flow increased by $10.5 million during
the period compared to an increase of $9.7 million in the same period last year. The increase in free cash flow on a
comparative basis is due primarily to $1.4 million of the lower capital expenditures. For the full-year, free cash flow
decreased due to the payment of the call premium of $10.4 million on account of early repayment of debt, negative
working capital and incremental $3.4 million of capital expenditures in 2014, compared to last year. Net debt to
30
TSX: XSR
Page 25
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
adjusted EBITDA increased to 2.17 from 1.37 times in the comparative period last year primarily due to an increase
in long-term debt. However, management believes that the remaining cash on hand, cash flow from operations and
the existing credit facility will provide sufficient liquidity to fund operations going forward.
The Company’s cash flows from operating, investing and financing activities are summarized in the following table:
Cash Flow Data
(in $ 000's)
Cash flow provided by operating activities
Cash flow used in investing activities
Cash flow used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Cash and cash equivalents, end of the period
Three months ended
August 31,
August 31,
2014
2013
14,215
(640)
(88,162)
(74,587)
98,455
23,868
14,825
(4,996)
(12,056)
(2,227)
46,306
44,079
August 31,
2014
Year ended
August 31,
2013
49,565
(8,770)
(61,006)
(20,210)
44,079
23,868
60,251
(15,748)
(51,459)
(6,956)
51,035
44,079
August 31,
2014
Year ended
August 31,
2013
49,565
(14,031)
35,534
60,251
(10,619)
49,633
The calculation of free cash flow is shown in the following table:
Free Cash Flow Data
(in $ 000's)
Cash flow provided by operating activities
Capital expenditures
Free Cash Flow*
Three months ended
August 31,
August 31,
2014
2013
14,215
(3,714)
10,502
14,825
(5,121)
9,704
*Full-Year Free Cash Flow includes the call premium of $10.4 million on early repayment of debt
Operating Activities – Cash flow from operating activities primarily consists of net income adjusted for certain noncash items including amortization, deferred tax expense or recovery, stock-based compensation, foreign exchange
gains and losses and the effect of changes in non-cash working capital and accruals for cash interest payments.
 Fourth quarter: During the current quarter, cash generated from operating activities was $14.2 million,
consisting of net income of $4.4 million adjusted for net non-cash expenses and losses of $12.2 million
and a $2.4 million decrease in working capital. Cash from operating activities declined by $0.6 million
compared to the fourth quarter of 2013, due to working capital changes.
 Full-year: In FY2014, the Company completed a refinancing resulting in a $10.4 million call premium
payment for early repayment of the Company’s 9.75% Senior Notes. Adjusting for this payment, the
Company generated $60.0 million in cash from operating activities or $49.6 million in cash from
operating activities after call premium for early repayment of debt. Cash generated from operating
activities of $49.6 million, consisted of net income of $7.5 million adjusted for net non-cash items of
$48.9 million and a $6.8 million decrease in working capital. The decrease in working capital in the
period is due primarily to reductions in liabilities, payments to related parties offset by a decrease in
prepaid expenses.
Investing Activities – Cash flow from investing activities consists primarily of capital expenditures, purchases of
intangible assets relating to computer software, payment of activation fees to Sirius XM and purchase and
maturities of short-term investments.
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 26
31
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
 Fourth quarter: During the current quarter, cash used in investing activities was $0.6 million, which
consisted of $0.1 million for the purchase of property and equipment and $3.6 million for the purchase
of intangible assets, of which $2.6 was spent on developing the Company’s SMS and the remaining
amounts on software, offset by the maturity of short-term investments of $3.1 million.
 Full-year: During the current period, cash used in investing activities was $8.8 million consisted of $1.1
million for the purchase of property and equipment and $12.9 million for the purchase of intangible
assets of which $7.1 million was spent on developing the Company’s SMS and $3.8 million on computer
software and licenses. Offsetting the investments in capital expenditures above is $5.3 from the maturity
of short-term investments.
Financing Activities
 Fourth quarter: During the current quarter, cash used in financing activities was $88.2 million due
primarily to payments of dividends totaling $88.3 million, of which $74.9 was payment of a special
dividend.
 Full-year: During the current period, cash used in financing activities was $61.0 million due primarily
to the payment of dividends totaling $127.9 million, of which $74.9 million was paid as a special dividend,
offset by the net proceeds of $64.5 million from the refinancing activities and $2.4 million from the
exercise of stock options.
Capital Allocation Policy
The Company’s goal is to maximize shareholder value by generating consistent free cash flow by growing our
revenues primarily through subscriptions as well as maintaining effective cost controls, managing subscriber
acquisition costs and creating a long-term loyal customer base by offering high quality customer service.
The Company regularly assesses ways to deploy capital in the most effective manner and has instituted a quarterly
dividend to return value to shareholders. The amount and timing of any dividend is within the discretion of the Board
of Directors. The timing and the amount of dividend payments will depend on the Company’s financial condition,
compliance with the terms and conditions of the Company’s credit and contractual arrangements on an on-going
basis, general business conditions, and other factors that the Board of Directors considers to be relevant. Subject
to such conditions, the Company may pay a quarterly dividend on all of the issued and outstanding Class A Shares
and Class C Shares, and on all of the issued and outstanding Class B Shares.
During the fiscal year 2014, the company declared and paid the following dividends to shareholders of each of its
Class A, Class B and Class C Shares. Class B Shares are entitled to 1/3 the dividend amount per share relative to
Class A Shares and Class C Shares.
32
Type
Declaration Date
Record Date
Payment Date
Dividend per Class A Share
Quarterly
Quarterly
Quarterly
Special
Quarterly
Total
November 14, 2013
January 15, 2014
April 14, 2014
May 38, 2014
July 14, 2014
November 28, 2013
January 28, 2014
April 29, 2014
June 9, 2014
July 29, 2014
December 5, 2013
February 18, 2014
May 14, 2014
June 19, 2014
August 14, 2014
$0.1050
$0.1050
$0.1050
$0.5850
$0.1050
$1.0050
TSX: XSR
Page 27
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Long-term Debt
Debt (in $s)
Senior Notes
Convertible Notes
Total debt
August 31, 2014
As at
August 31, 2013
195,463,860
195,463,860
124,199,370
19,507,824
143,707,194
Senior Notes - During the year, the Company refinanced its high yield debt through issuance of new senior debt
in the aggregate amount of $200 million at 5.625% and the redemption of its existing unsecured 9.75% senior notes
in the aggregate principal amount of $130.8 million. On April 23, 2014, the Company issued new 5.625% senior
unsecured notes due April 23, 2021 in the aggregate principal amount of $200.0 million. Interest payments on the
2021 Senior Notes are due semi-annually on April 23 and October 23 of each year commencing on October 23,
2014. The 2021 Senior Notes are redeemable at the option of the Company. At any time prior to April 23, 2017,
the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2021
Senior Notes at a redemption price of 105.625% of the principal amount. The premium on early redemption will
vary based on date of redemption.
On May 23, 2014, the Company used the net proceeds from the 2021 Senior Notes to fund the redemption of all
of the Company's $130.8 million 2018 Senior Notes at a redemption price equal to approximately 107.9616% of the
principal amount of the Senior Notes plus accrued and unpaid interest as at May 23, 2014. The early redemption of
the 2018 Senior Notes resulted in the Company recording a pre-tax debt repayment charge of $16.6 million. The
components of this cost included early redemption premium of $10.4 million, and non-cash write-offs of the fair
value of embedded derivative of $3.4 million and unamortized financing fees of $2.8 million.
As part of the issuance of the 2021 Senior Notes, the Company incurred fees paid to agents, legal and other costs
amounting to $4.7 million which were included in the carrying value of the notes and will be amortized to interest
expense using the effective interest rate method. The effective interest rate is 6.00%. During the year ended August
31, 2014, $4.2 million of interest expense was included in the consolidated statement of operations and
comprehensive income.
Canaccord Genuity, for which one of the members of the Company’s board of directors is a principal, received
underwriting fees of $0.3 million for placement of a portion of the 2021 Senior Notes. These fees are included in
the $4.7 million refinancing fees as noted above.
During the year ended August 31, 2014, the cash interest expense was $11.7 million (2013 – $12.8 million).
Bank Credit Facility – On May 23, 2014, the Company entered into a revolving term credit facility agreement
with a syndicate of banks (the “Lenders). The Lenders established in favour of the Company a resolving term credit
facility (the “Credit Facility”) in the amount of $35.0 million for a one year renewable term due May 23, 2015. The
revolving facility, as generally required, contains financial covenants requiring the Company to meet a maximum
senior debt to EBITDA ratio of 2.0 and a minimum fixed charge coverage ratio of 2.5. The interest rate on the
revolving term credit facility fluctuates with Canadian prime rate, Canadian bankers’ acceptances, US based rates
and/or LIBOR plus an applicable margin.
As at August 31, 2014, there were no advances outstanding under the Company’s credit facility.
As at August 31, 2014, the Company was in compliance with all financial covenants, financial ratios and all of the
terms and conditions of our debt and bank credit facility agreements.
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33
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Convertible Notes - The Company had outstanding $20.0 million of unsecured subordinated Convertible notes
due September 12, 2014, and bore an interest at 8.0% payable semi-annually, on June 30 and December 31. The
note holders could have elected to receive interest payments in the form of Class A Subordinate Voting Shares of
the Company based on the market price at the time of the payment.
On January 15, 2014, the Company gave notice of redemption to holders of the Convertible notes in accordance
with the terms of the trust indenture. Subsequently during the year all holders of the Convertible notes exercised
their election to convert the notes into Class A shares of the Company at a conversion price of $5.92. The notes
were converted into 3,378,371 Class A shares. 675,675 of these shares were received by Sirius XM, and 287,158
shares by John I. Bitove and affiliates.
The Convertible Notes were convertible at the option of the note holders at any time at a conversion price of $5.92
per share. The notes were redeemable at the option of the Company at any time provided certain thresholds were
met. This financial instrument contained both a liability and an equity element. The Company assigned the residual
amount of $1.5 million to the equity component. Over the term of the Convertible Notes, the liability was accreted
to its estimated future payment amount with the increase in liability value recorded as interest expense over the
period the liability is outstanding. The effective interest rate based on the liability element was 11.0%.
During the year ended August 31, 2014 the cash interest expense for the Convertible Notes was $1.0 million (2013
- $1.6 million).
Contractual Commitments
The Company has entered into a number of leases and other contractual commitments. The following table
summarizes its outstanding contractual commitments as of August 31, 2014 (in $000’s):
Contracts and Commitments (1) – Consolidated
(in $ 000's)
Total
Less than
1 Yr.
1-3 Yrs.
As at August 31, 2014
More than
4-5 Yrs.
5 Yrs.
Operating leases
8,817
1,990
2,876
2,638
1,312
NHL agreement
7,500
7,500
Principal on 2021 Senior Note
200,000
200,000
Interest on 2021 Senior Note
78,750
11,250
22,500
22,500
22,500
Service provider agreements
CBC
16,800
2,100
4,200
4,200
6,300
Sirius XM
1,214
416
798
Others
22,064
16,527
5,249
288
Advertising and marketing
10,352
5,496
4,191
665
Total
345,497
45,279
39,814
30,292
230,112
Notes:
1. The Company must pay certain royalties for the use of music under Canadian copyright law outlined in tariffs certified
by the Copyright Board of Canada or by agreement. The Company also pays license royalties to Sirius XM and fees to
certain OEMs. These arrangements have not been included in the table above because the specific amounts payable are
contingent on the Company’s revenue and/or subscriber levels, which themselves are subject to various economic
assumptions and future results and cannot be estimated.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Arrangements, Relationships and Transactions with Related Parties
Related parties of the Company include shareholders with a significant interest in the Company. Significant
shareholders of the Company include Sirius XM, The Canadian Broadcasting Corporation (“CBC”), Slaight
Communications Inc. (“Slaight”), and Obelysk Media Inc. (“Obelysk”), a company controlled by John I. Bitove. Related
parties also include companies controlled or influenced by these shareholders and members of the Board of
Directors, management and immediate family members of management or shareholders with significant influence.
The balances outstanding with the related parties are set out in Note 10 of the Company’s consolidated annual
financial statements.
Transactions with CBC – The Company has a non-exclusive, non-transferable license agreement with CBC
whereby the Company has distribution rights to transmit channels currently owned by CBC.
The Company incurred costs during the three months and year ended August 31, 2014 primarily related to the
CBC license agreement and advertising in the amount of $757,451 and $2,884,783 (three months and year
ended August 31, 2013 was $748,219 and $3,165,443).
As at August 31, 2014, amounts due to CBC related to the transactions described above also include a noninterest bearing promissory note of $402,777 (2013 - $402,777).
Transactions with Slaight – As at August 31, 2014, amounts due to Slaight include non-interest bearing
promissory notes of $402,777 (2013 - $402,777).
Transactions with Sirius XM – The Company has the right to distribute the Sirius network channels owned
or licensed by Sirius XM within Canada. In return, the Company is obligated to pay Sirius XM a percentage of
its gross revenue (up to 15%) and additional royalties for certain types of subscription revenue and
reimbursement of other charges paid on Company’s behalf.
The Company has the right to distribute the XM network channels owned or licensed by Sirius XM within
Canada. In return, the Company is obligated to pay Sirius XM a percentage of subscriber revenue (15%),
additional royalties for certain types of subscription revenues, activation charges, fees under the Technical
Service Agreement and reimbursement of other charges paid on Company’s behalf.
During the three months and year ended August 31, 2014, costs incurred under these agreements were
$11,474,415 and $44,789,535 (three months and year ended August 31, 2013 was $11,663,762 and
$41,773,994).
In addition to the amounts expensed above for the three and year August 31, 2014, intangible assets of $631,514
and $3,858,246 (three months and year ended August 31, 2013 - $67,046 and $5,537,697) relating to XM
activation fees and computer software, net of amortization are presented within the balance sheet. During the
three months and year ended August 31, 2014, cash payments related to the intangible assets made to Sirius
XM totaled $378,668 and $6,694,993 (three months and year ended August 31, 2013 - $1,330,675 and
$3,953,974).
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Sirius XM Canada Holdings Inc. Annual Report 2014
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35
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
As at August 31, 2014, amounts due to Sirius XM also include a non-interest bearing promissory note of
$402,777 (2013 - $402,778).
Transactions with John I. Bitove, Obelysk and its affiliates – In 2011, the Company entered into a
reimbursement agreement with Obelysk for the purchase of third party advertising services. The Company has
agreed to reimburse Obelysk an amount of $208,000 for advertising services as used to the end of 2015.
The Company incurred costs from Obelysk and other entities affiliated with Obelysk and John I. Bitove, including
costs associated with the reimbursement agreement. These costs were related to advertising, business events,
and operating costs. During the three and year ended August 31, 2014, the costs totaled $4,468 and $45,411
(three months and year ended August 31, 2013 of $21,963 and $97,985). As at August 31, 2014, the balance
due was $4,469 (2013 - $21,000).
Critical Accounting Estimates and Judgments
In our 2014 Annual Audited Consolidated Financial Statements and Notes thereto, as well as in our 2014 Annual
MD&A, we have identified the accounting policies and estimates that are critical to the understanding of our business
operations and our results of operations.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the actual results. The estimates and assumptions that are critical to the determination of
carrying values of assets and liabilities are addressed below. The Company also makes judgments regarding the
application of the accounting policies which are described below.
Impairment of non-financial assets
The impairment test on non-financial assets, which are comprised primarily of property and equipment, intangible
assets and goodwill, is carried out by comparing the carrying value of a CGU that includes these assets to the
recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less costs to sell,
and its value in use.
Goodwill and indefinite lived intangibles are tested at least annually for impairment. For the purpose of impairment
testing, goodwill is tested for impairment using the fair value less cost to sell model at the operating segment level.
The business is managed as one operating segment based on how financial information is produced internally for the
purposes of making operating decisions.
In assessing the Company’s broadcast license for impairment, the Company compares the aggregate recoverable
amounts of the assets and related liabilities included in a CGU to its respective carrying amount. For the purpose of
the impairment test carried out during the year ended August 31, 2014 the CGU was equivalent to the entire Sirius
XM business.
In assessing both the goodwill and broadcast license for impairment, the Company compares the aggregate
recoverable amount which is fair value less cost to sell (and is determined based on the value of the Company’s
quoted shares and estimated fair value of its debt) to the carrying value of its net assets excluding long term debt.
An impairment charge is recognized to the extent that the carrying value exceeds the recoverable amount.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
No impairment charges have arisen as a result of the reviews performed during the years ended August 31, 2014
and August 31, 2013. Reasonably possible changes in key assumptions would not cause the recoverable amount of
goodwill or the broadcast license to fall below the carrying value.
Stock-based Compensation
The estimated fair value of stock awards granted to employees as of the date of grant is recognized as compensation
expense over the period in which the related employee services are rendered. For stock options granted to nonemployees, the estimated fair value of stock awards granted to non-employees is recognized as expense over the
period in which the related goods or services are rendered. The determination of the fair value of stock awards
includes the use of option pricing models and the use of the following estimates: expected volatility, expected option
life and expected interest rates.
In addition to granting stock options, the Company also grants restricted stock units (“RSUs”) and performance
stock units (“PSUs”). For expenses associated with RSUs and PSUs, please see the section entitled “Stock-Based
Compensation” in the “Discussion of Financial and Operating Results” in this MD&A.
Revenue Recognition
Revenue from subscribers consists of our monthly subscription fee (including the music royalty fee and other fees),
which is recognized as the service is provided, and a non-refundable activation fee that is recognized on a pro-rata
basis over an estimated term of the subscriber relationship (current maximum of 42 months), which is based upon
management’s analysis of historical churn rates. We continually review this estimate. If the actual term of our
subscriber relationships is significantly greater than our current maximum estimate of 42 months, the period over
which we recognize the non-refundable activation fee will be extended to reflect the actual term of our subscriber
relationships. Fees received in advance are recognized as deferred revenue. Sales incentives, consisting of discounts
and rebates to subscribers, offset earned revenue.
Provisions
Considerable estimation is used in measuring and recognizing certain provisions and the exposure to contingent
liabilities. Management also applies judgment in determining the likelihood that a pending litigation or other claim
will succeed or a liability will arise, and to quantify the possible range of the final settlement. Provisions that involve
estimation and judgment include liabilities related to product obligations, where the Company may be required to
make payments to retailers to facilitate the sale of radios held by retailers and decommissioning liabilities, where the
estimated costs are computed based on management’s estimate of the fair value of the expenditures expected to be
required to settle the obligations using a pre-tax discount rate, updated at each reporting date, which reflects current
market assessments of the time value of money and the risks specific to the obligations.
Income taxes
The recognition of deferred tax assets is based on whether it is more likely than not that sufficient and suitable
taxable income will be available in the future against which the reversal of temporary differences can be deducted.
The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment
of the company’s taxable income in the future increases or decreases, or its ability to utilize the underlying future
tax deductions changes, the Company would be required to recognize more or less of the tax deductions as deferred
tax assets, which would decrease or increase the income tax expense in the period in which this is determined.
As at August 31, 2014, the Company has recognized deferred tax assets of $50,592,132 (2013 - $54,483,616) on the
basis that realization of the tax benefit is probable. However, the Company has not recognized deferred tax assets
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Sirius XM Canada Holdings Inc. Annual Report 2014
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37
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
of $43,273,000 in respect of losses amounting to $163,294,000, on the basis that the Company does not have
sufficient evidence that it is probable they will be utilized.
For the year ended August 31, 2014 and August 31, 2013, deferred taxes were reported using a combined income
tax rate of 26.5%, based on the 2012 Ontario budget which froze the general income tax rate at 11.5%, until the
province returns to a balanced budget, and the expected timing of reversals.
At August 31, 2014, taxation years dating back to the period ended August 31, 2006 (“2006 audit”) are open for
review at the discretion of various taxation authorities and are subject to audit uncertainties.
In 2013, Canada Revenue Agency (“CRA”) completed its audit of the 2006 taxation year, and is proposing to disallow
the deduction of non-capital losses and eligible capital expenditures related to deductions taken on payments made
to Sirius XM and certain OEMs. The 2006 audit is still in progress and discussions with CRA are ongoing. As
previously disclosed, should the Company not be successful in sustaining its filing position, along with the
$163,294,000 losses not recognized as indicated above, the impact of the 2006 audit would result in the reversal of
an additional $68,000,000 in tax losses (representing a $18,000,000 deferred tax asset recorded on the consolidated
balance sheets).
The CRA is also proposing to reassess filing positions taken in a prior year and is also proposing to assess material
amounts for withholding taxes and interest and penalties related to certain transactions which would be payable
should the Company’s filing position not be sustained. The Company has not recognized a provision for any amounts
related to the proposed amounts as it believes CRA’s proposal has no merit.
The Company continues to be confident of its filings. The position continues to be supported by the Company’s
professional advisors. The Company expects that the filing position will be sustained upon full examination of the
facts by CRA, or if required by the federal courts. The Company will continue to vigorously defend its position and
it believes it will be successful.
From time to time the Company may be engaged in legal proceedings or claims that have arisen in the ordinary
course of business. The outcome of all of the proceedings or claims against the Company, are subject to future
resolution, including the uncertainties of litigation. Based on information currently known to the Company,
management believes that the probable ultimate resolution of any such proceedings and claims will not have a
material adverse effect on the financial condition of the Company taken as a whole.
The calculation of current and deferred taxes involves significant estimation and judgment in respect of certain items
whose tax treatment cannot be finally determined until resolution is reached with the CRA. The final resolution of
the 2006 Audit may result in adjustments to the recognized and unrecognized deferred tax assets. Note 7 and note
20 of the Company’s annual consolidated financial statements provide additional information regarding income taxes
and any related contingencies.
Disclosure Controls and Procedures
Management has designed disclosure controls and procedures to provide reasonable assurance that material
information relating to the Company is made known to it by others. As at August 31, 2014, the Chief Executive
Officer and the Chief Financial Officer, with participation of the Company’s management, have concluded that the
design and operation of the Company’s disclosure controls and procedures were effective to provide that
information required to be disclosed by the Company in reports that it files or submits under the applicable Canadian
securities laws is (i) recorded, processed, summarized and reported within the time periods specified in applicable
rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and
Chief Financial Officer, to allow timely decisions regarding required disclosure. Due to the inherent limitations in
control systems and procedures, their evaluation can provide only reasonable, not absolute, assurance that such
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
disclosure controls and procedures are operating effectively. A control system, no matter how well conceived or
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Changes in Internal Control over Financial Reporting
During the three months ended August 31, 2014, there were no changes in the Company’s internal controls over
financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
International Financial Reporting Standards (“IFRS”)
Accounting standards issued but not yet effective
Unless otherwise noted, the following revised standards and amendments are effective for annual periods beginning
on or after January 1, 2014 with earlier application permitted. These would be applicable for the Company on
September 1, 2014 unless otherwise noted. The Company has not yet assessed the impact of these standards and
amendments or determined whether it will early adopt them.
IAS 32, Financial Instruments: Presentation was amended to clarify requirements for offsetting financial assets and
financial liabilities such that the right of set-off must be available today – that is, it is not contingent on a future event.
It also must be legally enforceable for all counterparties in the normal course of business, as well as in the event of
default, insolvency or bankruptcy. The amendments also clarify that gross settlement mechanisms (such as through
a clearing house) with features that both (i) eliminate credit and liquidity risk and (ii) process receivables and payables
in a single settlement process, are effectively equivalent to net settlement; they would therefore satisfy the IAS 32
criterion in these instances. The Company is currently assessing the impact of the standard.
IAS 36, Impairment of Assets was amended to remove the requirement to disclose recoverable amount when a cash
generating unit (CGU) contains goodwill or indefinite lived intangible assets but there has been no impairment; to
require disclosure of the recoverable amount of an asset or CGU when an impairment loss has been recognized or
reversed; and to require detailed disclosure of how the fair value less costs of disposal has been measured when an
impairment loss has been recognized or reversed. The Company is currently assessing the impact of the standard.
IFRS 2, Share-base Payment was amended to clarify the definitions of “vesting conditions” and “market condition”
and separately defines for “performance condition” and “service condition” (which were previously part of the
definition “vesting condition”). The amendment applies to share-base payment transactions for which the grant date
is on or after July 1, 2014. The Company is currently assessing the impact of the standard.
IFRS 9, Financial Instruments (“IFRS 9”), was issued in November 2009 and addresses classification and measurement
of financial assets. It replaces the multiple category and measurement models in International Accounting Standard
(“IAS”) 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost
and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such
instruments are either recognized at fair value through profit or loss or at fair value through OCI. Where equity
instruments are measured at fair value through OCI, dividends are recognized in profit or loss to the extent that
they do not clearly represent a return of investment; however, other gains and losses (including impairments)
associated with such instruments remain in AOCI indefinitely.
Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing
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Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
requirements in IAS 39, Financial Instrument: Recognition and Measurement (“IAS 39”), except that fair value changes
due to credit risk for liabilities designated at fair value through profit or loss are generally recorded in OCI. In January
2012, the effective date was revised to January 1, 2015 with earlier application permitted.
IFRS 9 was amended In November 2013, to (i) include guidance on hedge accounting, (ii) allow entities to early adopt
the requirement to recognize changes in fair value attributable to changes in an entity’s own credit risk, from financial
liabilities designated under the fair value option, in OCI (without having to adopt the remainder of IFRS 9) and (iii)
remove the previous mandatory effective date of January 1, 2015, although the standard is available for early adoption.
IFRS 13, Fair Value Measurement was amended to clarify that the scope of the portfolio exception defined in
paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments:
Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of
financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. The amendment is
effective for reporting periods beginning on or after July 1, 2014. The Company is currently assessing the impact of
the standard.
IFRS 15, Revenue from Contracts with Customers was issued to provide a single comprehensive model for entities
to use in accounting for revenue arising from contracts with customers. Under this standard, revenue may be
recognized over time in a manner that best reflects the Company’s performance, or at a point in time, when control
of the good or service is transferred to customers. The standard is effective for reporting periods beginning on or
after January 1, 2017 and early adoption is permitted.
IFRIC 21, Levies was issued to clarify that an entity recognizes a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued progressively
only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation.
For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be
recognized before the specified minimum threshold is reached. This is effective for annual periods beginning on or
after January 1, 2014 and cannot be early adopted. The Company is currently assessing the impact of the standard.
Risks and Uncertainties
This section outlines some of the risks that could affect our business, financial condition and results of operations and
should be considered in connection with any forward looking statements in this document. For a detailed description
of risk factors associated with the Company, readers are advised to review the “Risk Factors” section of the Company’s
AIF dated November 14, 2013.
The Company is currently being audited by the CRA and could be assessed material amounts for withholding
taxes and interest and penalties.
Please refer to the section entitled “Income taxes” in an earlier section of this MD&A.
We rely on our exclusive relationship with Sirius XM for the provision of our satellite radio services and
other offerings.
The Company has various agreements with Sirius XM to provide satellite digital audio radio services, or SDARS, and
other services in Canada. Its success as a business depends on Sirius XM’s cooperation and its programming content,
satellite network and underlying technology, as well as Sirius XM’s operational and marketing efficacy, competitiveness,
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
finances, regulatory status and overall success in the U.S. Because of the Company’s dependency on Sirius XM, should
Sirius XM’s business suffer as a result of increased competition, increased costs of programming, satellite malfunctions,
regulatory changes, adverse effects of litigation or other factors, its business may suffer as well. Furthermore, a breach
of its agreement with Sirius XM or a failure by Sirius XM to perform its part of the agreement would have detrimental
financial consequences to the Company’s business. We may not be able to renew or extend our agreements with Sirius
XM on favorable terms.
We face substantial competition and that competition is likely to increase over time.
In seeking market acceptance, we encounter competition for both listeners and advertising revenues from many
sources including traditional and digital AM/FM radio, internet-based audio providers; direct broadcast satellite
television audio service, and digital cable systems that carry audio service. Our ability to retain and attract subscribers
depends on our success in creating and providing popular or unique music, entertainment, news and sports
programming. Our subscribers can obtain certain similar content for free through terrestrial radio stations or Internet
radio services. Audio content delivered via the Internet, including through mobile devices, is increasingly competitive
with our services. A number of automakers and aftermarket manufacturers have introduced, or will shortly introduce,
factory-installed radios capable of accessing Internet delivered audio programming and music services
Unlike satellite radio, traditional AM/FM offers free broadcast reception supported by commercial advertising, rather
than by a subscription fee. Many radio stations offer information programming of a local nature, such as traffic and
weather reports, which we are not permitted to offer under our CRTC broadcasting license. To the extent that
consumers place a high value on these features of traditional AM/FM radio, we are at a competitive disadvantage to
the dominant providers of such audio entertainment services.
Internet radio and music services can provide listeners with audio programming from across the country and around
the world. Major media and telecommunications companies, online-only service providers, and increasingly large
mobile, computer, and cloud platform vendors, make high fidelity streams available over the Internet for free, or in
some cases, for less than the cost of satellite radio subscriptions. We expect that improvements in bandwidth, faster
mobile Internet connections, and evolving features and programming selection will continue to drive Internet radio
and online music service adoption. These services compete with our service in the home, on mobile devices, and
increasingly in the automobile.
Mobile devices like smartphones and tablets have experienced tremendous growth over the past several years. These
devices access Internet radio and music services via dedicated applications, oftentimes with the ability to cache music
or programming when an Internet connection is not available. Apple iOS, Google Android, and other mobile devices
allow access to Internet radio and music services via feature-rich dedicated applications. These applications are often
free to the user and offer music and talk content as long as the user is subscribed to a sufficiently large mobile data
plan. Internet radio and online music services available in Canada include Songza, iheartradio, Rdio, Spotify, Google
Play Music and Microsoft Xbox Music, some of which might not be subject to the rules of Canadian regulatory
bodies. Certain of these services also offer paid subscriptions which include on-demand access to extensive music
catalogs. For large platform vendors such as Google and Microsoft, online music services are a complement to their
respective computing platforms rather than a core business. While Internet audio and music service availability in
Canada lags the United States – notably, Pandora, Apple’s iTunes Radio and Beats Music, and Amazon Prime Music
are not available in this country – Internet music and audio service availability has increased substantially.
Although presently available Internet radio and music services have drawbacks such as bandwidth, usability, and
network availability constraints, which we believe make satellite radio a more attractive option to most consumers,
Internet-based radio and music services are becoming increasingly competitive as quality improves and costs are
reduced. SiriusXM Internet Radio offers subscribers access to the vast majority of Satellite Radio Service channels,
exclusive Internet channels, on-demand satellite radio programming, and the ability to tailor music channel content
to the preferences of individual listeners through the “MySXM” feature. We believe our online services have
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Sirius XM Canada Holdings Inc. Annual Report 2014
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41
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
attractive points of differentiation relative to our Internet delivered competitors, including exclusive content available
on-demand and music channels that are curated by expert music programmers that can then be further tailored to
suit individual tastes.
Third Generation (3G), Fourth Generation (4G) and Long Term Evolution (LTE) mobile networks have enabled a
steady increase in the audio quality and reliability of mobile audio streaming, and this is expected to further increase
as the reach of higher bandwidth networks expands. We expect that improvements in bandwidth, wider
programming selection, and advancements in functionality are likely to make mobile Internet radio, music and audio
services increasingly significant competitors. We expect Internet delivered radio and music services will likely
become increasingly integrated into connected cars in the future. These developments will also increase access to
our SiriusXM Internet Radio service in the vehicle.
A number of automakers have deployed or are planning to deploy integrated multimedia systems in dash boards,
such as Ford’s SYNC, Toyota’s Entune, and BMW/Mini’s Connected systems. These systems can combine control
of audio entertainment from a variety of sources, including traditional radio broadcasts, satellite radio, smartphone
applications and stored audio, with navigation and other advanced applications. Live Internet radio and other data is
typically pulled into the car via a Bluetooth link to an Internet-enabled smartphone, and the entire system may be
controlled by touchscreen or voice recognition. Other systems are equipped with their own dedicated mobile
Internet connection. These advanced systems enhance the attractiveness of our Internet-based competition by
making such applications more prominent, easier to access and safer to use in the car.
Rapid technological and industry changes could adversely impact our satellite radio services.
The audio entertainment industry is characterized by rapid technological change, frequent new product innovations,
changes in customer requirements and expectations, and evolving standards. Competing technologies and services
may emerge quickly. If we are unable to keep pace with these changes, our business may be detrimentally affected.
Products using new technologies, or emerging industry standards, could make our satellite radio services less
competitive in the marketplace.
Our business depends in large part upon automakers, whose sales are dependent on general
macroeconomic conditions.
The Company has agreements with majority of the Canadian auto manufacturers for factory installation of satellite
radios in new cars in Canada. We spend a significant amount of money on marketing expenditures towards auto
manufacturers’ initiatives, and purchasers of these new vehicles represent a substantial proportion of our subscriber
base. The sale and lease of these vehicles with satellite radios is an important source of subscribers for our satellite
radio services.
Automotive sales and production are dependent on many factors, including the availability of consumer credit,
general economic conditions, consumer confidence, and fuel costs. To the extent vehicle sales by automakers decline
or the penetration of factory-installed satellite radios in those vehicles is reduced, subscriber growth for the
Company may be adversely impacted.
General economic conditions may adversely affect the Company’s financial results, financial position and
business
The Company’s business plans contain assumptions predicated on an economy that is expected to improve as it pertains
to vehicle sales. However there are no assurances that our assumptions will materialize. The Company’s ability to
continue to generate solid revenue growth and year-over-year improvement in financial results may be negatively
affected should Canadian demand for automobiles equipped with the satellite receiver decline in a significant manner.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
Higher than expected costs of attracting new subscribers, higher subscriber turnover could each adversely
affect our financial performance and operating results.
We are still spending substantial funds on advertising, marketing and subsidizing costs of radio devices in transactions
with car and radio manufacturers, retailers and other parties to attract new subscribers. Our ability to maintain positive
free cash flow and remain profitable depends on our ability to continue to maintain or lower these acquisition costs. If
the costs of attracting new subscribers and retaining subscribers are greater than expected, our financial performance
and results of operations could be adversely affected.
We are experiencing, and expect to continue to experience, subscriber turnover, or churn. We cannot predict the
amount of churn we will experience over the longer term. If we are unable to retain our current subscribers, or the
cost of retaining subscribers is higher than we expect, our financial performance and operating results could be
adversely affected.
We must maintain and pay copyright license fees for music rights which may increase and become more costly
than expected.
We are subject to music royalty arrangements with the following Canadian copyright collectives in order to operate
our Satellite Radio Services and online offerings: the Society of Composers, Authors and Music Publishers of
Canada/Société canadienne des auteurs, compositeurs et éditeurs de musique (SOCAN), Re:Sound, and CSI Inc.,
(CSI), the joint venture of The Canadian Musical Reproduction Rights Agency Ltd. (CMRRA) and The Society for the
Reproduction Rights of Authors, Composers and Publishers in Canada Inc./Société du droit de reproduction des
auteurs, compositeurs, et éditeurs au Canada (SODRAC) Inc. SOCAN administers the public performance right
with respect to musical works. Re:Sound administers the right to equitable remuneration for the public performance
and communication to the public by telecommunication of performers’ performances and sound recordings. CSI
administers the reproduction right with respect to musical works.
On August 13, 2014, Industry Canada announced that the WIPO Performances and Phonograms Treaty came into
force in Canada. As a result of amendments to the Copyright Act that came into force on the same day, American
and other foreign rights holders of WPPT member states are entitled to equitable remuneration for the public
performance and the communication to the public of their sound recordings and performers’ performances in
Canada. Please refer to the section entitled “Recent Developments – Copyright Royalty Changes” for more
information.
The Company’s online offerings are subject to SOCAN Tariff 22.D, which was certified for the years 1996-2006.
The Company continues to pay copyright royalties for its online use of musical works at the rates set out in Tariff
22.D. SOCAN has since submitted successor tariffs for subsequent years. SOCAN’s proposed rates are higher than
the certified Tariff 22.D rate. As the Company’s online offerings evolve, or if the Copyright Board chooses to modify
the structure of SOCAN’s online tariffs, our online offerings may become subject to a different SOCAN tariff.
On May 17, 2014, the Copyright Board issued its decision in Re:Sound Tariff 8. The new tariff excludes online
simulcasts of the Company’s satellite service but introduces a per play rate for the “semi-interactive” personalization
functions of our streaming service. On June 16, 2014, Re:Sound filed an application with the Federal Court of Appeal
seeking judicial review of the Copyright Board’s Tariff 8 decision and tariff. Re:Sound argues that the Tariff 8 rates
are unreasonably low and that the Copyright Board did not properly consider the higher royalty rates for streaming
in other jurisdictions and in private agreements for streaming in Canada. While we do not expect the royalty rates
outlined in Tariff 8 to have a significant impact on our business or financial condition, if Re:Sound were to be
successful in its challenge, the Federal Court of Appeal could direct the Copyright Board to reconsider Tariff 8 based
on the considerations Re:Sound has advanced. The Tariff 8 royalty rates could increase as a result, as could the
royalty rates of future associated or follow-on tariffs.
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Sirius XM Canada Holdings Inc. Annual Report 2014
Page 38
43
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
The transition of some automaker partners from the Sirius radio service to the XM radio service may increase
our royalties payable to Sirius XM, which may impact our financial performance.
The Sirius Radio Service and XM Radio Service infrastructures are distinct platforms, operating on different
frequencies and servicing satellite radios specific to each network. As mentioned in “Recent Developments - Unified
Branding and Operations”, in the AIF, the Company is increasingly delivering services under the SiriusXM brand.
SiriusXM branded satellite radios operate on the XM Radio Service infrastructure. As a result, automakers that
previously installed Sirius Radio Service radios in their vehicles are migrating to XM Radio Service radios. Royalties
to Sirius XM for radio installed in these transitioning automakers are thus increasingly payable under the XM Licence
Agreement where previously they had been payable under the Sirius Licence Agreement. As the royalty rate under
the XM Licence Agreement is higher than that under the Sirius Licence Agreement, this transition may increase the
Company’s overall costs in providing the Satellite Radio Services, potentially impacting our financial performance.
Foreign currency risk
The Company is exposed to fluctuations of the Canadian dollar in relation to the US dollar due to its current liabilities
in respect of the NHL and other payments to Sirius XM, which are denominated in US dollars. Management has not
engaged in mitigating this risk through formal hedging strategies. A one percent change in the exchange rate represents
less than $0.3 million impact to the cash flows of the Company.
In addition to above mentioned risks, the Company also faces risks of disruption to its network infrastructure of
terrestrial repeaters due to natural disasters; risks of adverse impact of litigation, claims, copyright and other
infringements, risks related to change in regulation and consumer protection laws, and piracy of its content.
Outstanding Share Data and Other Information
The Company is authorized to issue an unlimited number of Class A Shares, an unlimited number of Class B Shares
and an unlimited number of Class C Shares. As at October 30, 2014, there were 104,169,210 fully paid and nonassessable Class A Shares, and 30,729,510 fully paid and non-assessable Class B Shares and 13,638,527 fully paid and
non-assessable Class C Shares outstanding. A total of 2,171,025 stock options were outstanding under the Company’s
stock option plan. Additional information concerning the Company, including our AIF for the year ended August 31,
2013, is available on SEDAR at www.sedar.com.
Assuming conversion of the Class B Shares, which are convertible into Class A Shares on a 3 to 1 basis, and the
conversion of Class C Shares convertible into Class A Shares on a 1 to 1 basis, the total number of Class A Shares
outstanding would be 128,050,907.
Definitions of Industry Terminology
In addition to our results reported in accordance with IFRS, we use certain non-GAAP financial indicators, including
non-GAAP information and operating measures for internal planning purposes and as a basis for investors and
analysts to evaluate and compare the periodic operating performances and value similar companies in our industry,
although our metrics may not be comparable to similarly titled metrics of other companies. Subsequent to the closing
of the merger, the Company conducted a metrics review and realignment exercise. Therefore, some metrics may
44
TSX: XSR
Page 39
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
not be comparable to metrics disclosed publicly by the Company prior to the consummation of the merger. Provided
below are the definitions of metrics.
(a) Aftermarket: refers to non-OEM channels, which includes Retail, Direct to Consumer and Special Markets.
(b) Average Monthly Subscription Revenue Per subscriber (ARPU): derived from the total of earned
subscription revenue and the music royalty fee and activation fees, divided by the monthly weighted average
number of Self-Paying subscribers and a portion of the Paid-Promotional subscribers where consumers have
already started to consume their promotional service. ARPU is a measure of operational performance and
not a measure of financial performance under IFRS. We believe ARPU is a useful measure of our operating
performance and is a significant basis used by management to measure the operating performance of our
business. This non-GAAP measure, which uses certain revenue line items from our Consolidated Statement
of Operations and Comprehensive Income, should be used in addition to, but not as a substitute for, the
analysis provided in the Consolidated Statement of Operations and Comprehensive Income. ARPU may
fluctuate based on promotions, changes in our subscription rates, as well as the adoption rate of annual and
multi-year prepayment plans, multi-radio discount plans (such as the family plan), commercial plans and
premium services.
(c) Cost Per Gross Addition (CPGA): includes the amounts in SAC, as well as marketing, which includes
advertising, media and other discretionary marketing expenses divided by the number of total gross
additions excluding Non-Paid Promotional subscribers. CPGA costs do not include the costs of marketing
staff. CPGA is a measure of operational performance and not a measure of financial performance under
IFRS. We believe CPGA is a useful measure of our operating performance and is a significant basis used by
management to measure the operating performance of our business. This non-GAAP measure, which uses
certain expense line items from our Consolidated Statement of Operations and Comprehensive Income,
should be used in addition to, but not as a substitute for, the analysis provided in our financial statements.
(d) Monthly customer care and billing costs per Self-Paying subscriber: is calculated by dividing the total
customer care and billing costs by average Self-Paying subscribers for the period.
(e) OEM: refers to original equipment manufacturer. OEM, as it relates to the Company’s satellite radio
business, includes automotive manufacturers with which the Company has a contractual agreement in place
to factory install a satellite radio in the particular manufacturer’s vehicles.
(f) Self-pay churn: is defined as Self-Pay subscriber deactivations for the period divided by the average number
of Self-Pay subscribers for the period divided by the number of months in the period.
(g) Subscribers:
a.
Self-Paying subscribers: subscribers who are receiving and have paid or agreed to pay for
our satellite radio service by credit card, prepaid card or invoice.
b. Paid-Promotional subscribers: Subscribers currently in a trial period and vehicles factoryactivated with one of the SXM services, whereby automakers have agreed to pay for all or a
portion of the trial period service.
c.
Non-Paid Promotional subscribers: subscribers currently in a trial period and vehicles
factory-activated with one of the SXM services, whereby the Company has agreed to
compensate certain automakers to install satellite radios and the automakers have agreed to
promote the trial period service to the consumer. Automakers are not paying for any portion
of the trial period service.
(h) Subscriber Acquisition Costs (SAC): includes Subsidies costs and net costs related to equipment sold
directly to the consumer divided by total gross additions excluding the Non-Paid Promotional subscribers
for the period. SAC is a measure of operational performance and not a measure of financial performance
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 40
45
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
under IFRS. Management believes SAC is a useful measure of the operating performance of the business.
This non-GAAP measure, which uses certain expense line items from our Consolidated Statement of
Operations and Comprehensive Income, should be used in addition to, but not as a substitute for, the
analysis provided in the Consolidated Statement of Operations and Comprehensive Income. In our financial
statements, most of our Subscriber Acquisition Costs are captured in the marketing section.
(i) Subscription Revenue: consists primarily of monthly subscription fees (including Music Royalty Fee) for
our satellite radio service charged to consumers, commercial establishments and businesses that purchase
or lease vehicles for use in their business and is recognized as the service is provided. Promotions and
discounts are treated as a reduction to revenue over the term of the plan purchased by the subscriber.
Subscription revenue growth is predominantly driven by growth in our subscriber base but is also affected
by fluctuations in the percentage of subscribers in our various discount plans, family plans as well as changes
in our subscription rates.
Non-GAAP Financial Measures
(a) EBITDA: is defined as earnings before interest income and expense, taxes, amortization, gain on revaluation
of derivatives and foreign exchange gains and losses.
(b) Adjusted EBITDA: is a non-GAAP financial measure, which is defined as earnings before integration,
severance and merger costs, stock-based compensation, interest income and expense, taxes, amortization,
fair value adjustments arising due to purchase price accounting, gain on revaluation of derivative and foreign
exchange gains and losses. Management believes that Adjusted EBITDA is an important indicator of the
Company’s ability to generate liquidity through operating cash flow to fund future working capital needs,
service outstanding debt, fund future capital expenditures and pay dividends and uses the metric for this
purpose. The exclusion of fair value adjustments, gain (loss) on revaluation of derivative and foreign
exchange gains and losses eliminates the non-cash impact of these items. Adjusted EBITDA is used by
investors and analysts for the purpose of company valuation. The intent of Adjusted EBITDA is to provide
additional useful information to investors and analysts and the measure does not have any standardized
meaning under IFRS. Hence, Adjusted EBITDA should not be considered in isolation or used as a substitute
for measures of performance prepared in accordance with IRFS. Other companies may calculate Adjusted
EBITDA differently.
(c) Fixed Charge Coverage Ratio: ratio calculated by dividing Adjusted EBITDA and cash and payable interest
expense for the last four consecutive quarters.
(d) Free Cash Flow: is defined as cash provided by operating activities less capital expenditures for the purchase
of property and equipment and intangible assets. Management believes that Free Cash Flow is an important
indicator of the Company’s ability to generate liquidity through operating cash flow to fund dividend
payments and other significant strategic initiatives. The intent of Free Cash Flow is to provide additional
useful information to investors and analysts and the measure does not have any standardized meaning under
IFRS.
(e) Cost of Revenue: includes revenue share and royalties, customer care and billing operations expenses, cost
of merchandise, broadcast and operations expenses and programming and content expenses. Management
uses Cost of Revenue to measure the variable costs associated with revenue. Cost of Revenue as a
percentage of total revenue is also used by management to gauge the Company’s variable/fixed cost
structure, which is a measure of operational leverage.
(f) Net Debt: is defined as the total debt (Senior Notes) less cash, cash equivalents and short term investments.
46
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Page 41
Sirius XM Canada Holdings Inc. Annual Report 2014
Management’s Discussion and Analysis
Year and Fourth Quarter Ended August 31, 2014
(g) Net Debt to Adjusted EBITDA: is defined as the net debt at the end of the period divided by 12-months
of trailing adjusted EBITDA. This ratio is used by investors as a measure of company-specific risk.
Management believes Net Debt to Adjusted EBITDA is a key performance indicator that assess’ the
Company’s ability to meet short term and long term obligations through cash flow from operations. This is
a non-GAAP financial measure that does not have a standardized meaning and may not be comparable to
similar measures used by other companies. This measure is not recognized by IFRS. This measure is useful
to investors as it indicates whether the Company’s leverage has changed compared to the corresponding
period prior year.
TSX: XSR
Sirius XM Canada Holdings Inc. Annual Report 2014
Page 42
47
Consolidated Financial
Statements
August 31, 2014 and 2013
Sirius XM Canada Holdings Inc.
CANADA
October 30, 2014
Independent Auditor’s Report
To the Shareholders of
Sirius XM Canada Holdings Inc.
We have audited the accompanying consolidated financial statements of Sirius XM Canada Holdings Inc.
and its subsidiary, which comprise the consolidated balance sheets as at August 31, 2014 and
August 31, 2013 and the consolidated statements of operations and comprehensive income, changes in
shareholders’ equity (deficiency) and cash flows for the years then ended, and the related notes, which
comprise a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Sirius XM Canada Holdings Inc. and its subsidiaries as at August 31, 2014 and August 31, 2013
and their financial performance and their cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Sirius XM Canada Holdings Inc. Annual Report 2014
51
CONSOLIDATED BALANCE SHEETS
At
(Canadian dollars)
August 31,
2014
August 31,
2013
4
23,868,423
—
13,454,489
4,251,306
559,081
44,078,584
5,157,798
13,359,446
6,778,736
234,349
5
6
7
8
42,133,299
456,039
4,508,188
134,971,363
50,592,132
96,732,525
69,608,913
100,157
5,979,911
152,217,165
54,483,616
96,732,525
329,393,546
379,122,287
44,121,466
9,146,135
3,965,753
146,110,758
505,783
203,849,895
47,145,257
9,620,750
2,704,449
144,885,091
1,327,974
205,683,521
15,075,749
533,049
1,323,965
195,463,860
374,240
17,105,210
1,669,229
2,390,608
143,707,194
323,112
416,620,758
370,878,874
176,862,133
6,067,419
(270,156,764)
(87,227,212)
151,794,596
6,161,440
(149,712,623)
8,243,413
329,393,546
379,122,287
Notes
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Prepaid expenses and other
Inventory
15
15
Total current assets
Long-term prepaid expenses
Property and equipment
Intangible assets
Deferred tax assets
Goodwill
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Trade and other payables
Due to related parties
Interest payable
Deferred revenue
Provisions
Total current liabilities
Deferred revenue
Other long-term liabilities
Due to related parties
Long-term debt
Provisions
9, 15
10
11
12
15
10
11
12
Total liabilities
Shareholders' equity (deficiency)
Share capital
Contributed surplus
Accumulated deficit
Total shareholders' equity (deficiency)
Total liabilities and shareholders’ equity (deficiency)
See accompanying notes
13
Contracts, Contingencies and Commitments (note 20)
Approved by Board of Directors
(signed) John I. Bitove
John I. Bitove, Director
52
(signed) Anthony Viner
Anthony Viner, Director
Sirius XM Canada Holdings Inc. Annual Report 2014
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(DEFICIENCY)
Share
Contributed
Accumulated
Total
Shareholders'
Notes
Capital
Surplus
Deficit
Equity (Deficiency)
14
148,393,493
—
—
—
3,401,103
5,057,501
—
2,257,295
—
(1,153,356)
(108,196,240)
12,190,542
—
(53,706,925)
—
45,254,754
12,190,542
2,257,295
(53,706,925)
2,247,747
151,794,596
6,161,440
(149,712,623)
8,243,413
6,161,440
—
2,549,965
(149,712,623)
7,481,208
—
8,243,413
7,481,208
2,549,965
For the year ended August 31
(Canadian dollars)
Balance, September 1, 2012
Net income for the year
Stock-based compensation
Dividends
Stock options exercised
14
Balance, August 31, 2013
Balance, September 1, 2013
Net income for the year
Stock-based compensation
14
14
151,794,596
—
—
Dividends
13
—
—
(127,925,349)
(127,925,349)
Stock options exercised
14
3,528,341
(1,104,790)
—
2,423,551
Conversion of Convertible Notes
11
21,539,196
(1,539,196)
—
20,000,000
Balance, August 31, 2014
14
176,862,133
6,067,419
(270,156,764)
(87,227,212)
See accompanying notes
Sirius XM Canada Holdings Inc. Annual Report 2014
53
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
For the year ended August 31
(Canadian dollars)
2014
2013
16
303,500,408
288,900,782
Operating costs
17
227,093,144
222,650,627
Depreciation and amortization
5, 6
33,727,257
35,575,596
42,680,007
30,674,559
842,470
686,132
Revenue
Notes
Operating expenses
Operating income
Finance costs, net
Interest income
Interest expense
11
(15,249,222)
(15,410,960)
Loss on debt repayment
11
(13,195,918)
—
(264,645)
(675,789)
(3,440,000)
2,291,378
(31,307,315)
(13,109,239)
11,372,692
17,565,320
(3,891,484)
(5,374,778)
7,481,208
12,190,542
0.06
0.10
Foreign exchange loss
Change in fair value of embedded derivative
15
Finance costs, net
Net income before income tax
Income tax expense
7
Net income and comprehensive income
Earnings per share – basic and diluted
18
See accompanying notes
54
Sirius XM Canada Holdings Inc. Annual Report 2014
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended August 31
(Canadian dollars)
Cash provided by (used in)
OPERATING ACTIVITIES
Net income for the year
Add(deduct) items not involving cash
Amortization of intangible assets
Depreciation of property and equipment
Loss on disposal of property and equipment
Income tax expense
Stock-based compensation
Accrued interest
Interest accretion
Change in fair value of embedded derivative
Foreign exchange loss
Net change in non-cash working capital and
deferred revenue related to operations
Cash provided by operating activities
INVESTING ACTIVITIES
Purchase of property and equipment
Purchase of intangible assets
Prepayment for property and equipment
Purchase of short-term investments
Maturity of short-term investments
Interest received on short-term investments
2014
2013
7,481,208
12,190,542
30,860,756
2,866,501
—
3,891,484
2,549,965
1,261,304
3,820,690
3,440,000
171,173
33,167,880
2,407,716
11,109
5,374,778
2,257,295
—
954,375
(2,291,378)
769,540
19
(6,777,622)
49,565,459
5,409,419
60,251,276
5
6
(1,147,655)
(12,883,718)
—
—
5,063,000
198,575
(753,788)
(7,624,829)
(2,240,000)
(5,306,295)
—
176,649
(8,769,798)
(15,748,263)
(127,925,349)
200,000,000
(4,733,024)
(130,771,000)
2,423,551
(53,706,925)
—
—
—
2,247,747
(61,005,822)
(51,459,178)
(20,210,161)
44,078,584
23,868,423
(6,956,165)
51,034,749
44,078,584
Notes
6
5
5
7
14
11
11
15
15
15
Cash used in investing activities
FINANCING ACTIVITIES
Payment of dividends
Proceeds from issuance of debt
Debt financing fees
Repayments of debt
Proceeds from exercise of stock options
Cash used in financing activities
Net decrease in cash and cash equivalents
during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
13
11
11
11
14
See accompanying notes
Sirius XM Canada Holdings Inc. Annual Report 2014
55
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Sirius XM Canada Holdings Inc. (the “Company” or “SXM”) was incorporated on July 31, 2002 for the purpose
of establishing and operating a Canadian satellite radio service. The Company broadcasts music, sports, talk,
entertainment and other content on a subscription fee basis in Canada. Subscribers can also receive certain content
over the Internet on personal computers and mobile devices. The Company’s Satellite radios are distributed
through automakers (“OEMs”), retail locations, call centres, and through the Company’s website. SXM has
agreements with every major automaker to offer satellite radios as factory installed or dealer installed equipment
in their vehicles.
The Company operates and markets itself as SiriusXM Canada. The Company is incorporated and domiciled in
Canada. The Company’s head office is located at 135 Liberty Street, 4th Floor, Toronto, Ontario, M6K 1A7.
The Company has a single license granted by Canadian Radio-television Telecommunications Commission
(“CRTC”) for a six-year term ending August 31, 2018.
These financial statements were approved by the Board of Directors for issue on October 30, 2014.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of these consolidated financial statements are described
below. These policies have been consistently applied to all years presented, unless otherwise stated.
Basis of Preparation and Measurement
The Company prepares its consolidated financial statements in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"), defined as International Financial Reporting Standards (“IFRS”) as set
out in the Handbook of The Chartered Professional Accountants Canada (formerly “The Canadian Institute of
Chartered Accountants”). The preparation of consolidated financial statements in accordance with IFRS requires
the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the
Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions are significant to the consolidated financial statements are disclosed later in this note.
The consolidated financial statements have been prepared under the historical cost convention, except for certain
financial assets and liabilities measured at fair value, including embedded derivatives.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company
takes into account the characteristics of the asset or liability if market participants would take those characteristics
into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or
disclosure purposes in these consolidated financial statements is determined on such a basis, except for sharebased payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of
IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable
value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purpose, fair value measurements are categorized into Level 1, 2 or 3 based on
the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to
the fair value measurement in its entirety, which are described as follows:
2
56
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
entity can access at the measurement date;
Level 2 - inputs are inputs other than quoted prices included within Level 1, that are observable for the
asset or liability, either directly or indirectly; and
Level 3 - inputs are unobservable inputs for the asset or liability.
Consolidation
The consolidated financial statements consolidate the accounts of Sirius XM Canada Holdings Inc. and its
subsidiary, Sirius XM Canada Inc.
Subsidiaries are those entities which Sirius XM Canada Holdings Inc. controls by having the power to govern the
financial and operating policies. The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether Sirius XM Canada Holdings Inc. controls another entity.
Subsidiaries are fully consolidated from the date on which control is obtained by Sirius XM Canada Holdings Inc.
and are de-consolidated from the date that control ceases. All intercompany transactions, balances and unrealized
gains and losses from intercompany transactions are eliminated on consolidation.
Business combinations
The Company uses the acquisition method of accounting to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and
the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date. The Company recognizes any non-controlling
interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of
consideration transferred, non-controlling interest recognized and previously held interest measured is less than the
fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized
directly in the income statement.
Foreign currency translation
Items included in the financial statements of each consolidated entity in the Sirius XM Canada Holdings Inc.
group are measured using the currency of the primary environment in which the entity operates (the “functional
currency”). The functional currency of all entities in the group is the Canadian dollar. The consolidated financial
statements are also presented in Canadian dollars.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency
transactions and from the translation at year-end of monetary assets and liabilities denominated in currencies other
than an operation’s functional currency are recognized in the statements of operations and comprehensive income.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and short term highly liquid investments with original
maturity of three months or less that are subject to an insignificant risk of changes in value.
Short-term investments
Short-term investments represent investments in corporate bonds, which have original maturities in excess of three
months but less than twelve months. These investments were being accounted for at amortized cost.
Prepaid expenses
Prepaid expenses consist primarily of prepayments for goods and services, including payments for marketing
services, and copyright royalties paid relating to future periods. These amounts are deferred and expensed as the
goods or services are used by the Company.
Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the
assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of
ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged,
cancelled or expires.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the
asset and settle the liability simultaneously.
At initial recognition, the Company classifies its financial instruments in the following categories depending on
the nature of the financial instrument and the purpose for which the instruments were acquired:
(i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is
classified in this category if acquired principally for the purpose of selling or repurchasing in the short
term. The Company does not currently have any such instruments.
(ii) Available-for-sale investments: are non-derivatives that are either designated in this category or not
classified in any of the other categories. The Company currently does not have any available-for-sale
investments.
(iii) Held-to-maturity: are non-derivative financial assets with fixed or determinable payments that the
Company intends and is able to hold to maturity and that do not meet the definition of loans and
receivables and are not designated on initial recognition as assets at fair value through profit or loss or as
available for sale. Held-to-maturity investments are measured at amortized cost. The Company currently
does not have any held-to-maturity investments.
(iv) Loans and receivables: are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. The Company’s loans and receivables are comprised of trade receivables
and cash and cash equivalents, and are included in current assets due to their short-term nature. Loans
and receivables are initially recognized at the amount expected to be received less, when material, a
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are
measured at amortized cost using the effective interest rate method less a provision for impairment.
(v) Financial liabilities at amortized cost: include trade and other payables, due to related parties, other longterm liabilities, and long-term debt. Trade and other payables are initially recognized at the amount
required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently,
trade and other payables are measured at amortized cost using the effective interest rate method. Longterm debt is recognized initially at fair value, net of any transaction costs incurred, and subsequently at
amortized cost using the effective interest rate method.
Financial liabilities are classified as current liabilities if payment is due within twelve months.
Otherwise, they are presented as non-current liabilities.
(vi) Derivative financial instruments: Derivatives are initially recognized at fair value on the date a derivative
contract is entered into and would be subsequently re-measured at their fair value. The Company has not
entered into any standalone derivative instruments.
(vii) Embedded derivatives: are separated from the host contract and accounted for separately if the economic
characteristics and risks of the host contract and the embedded derivative are not closely related, a
separate instrument with the same terms as the embedded derivative would meet the definition of a
derivative, and the combined instrument is not measured at fair value through profit or loss. The carrying
amounts related to embedded derivatives are included in long term debt. Gains or losses arising from the
changes in fair value are presented in the statements of operations and comprehensive income as gain or
loss on revaluation of derivatives in the period in which they arise.
Compound financial instruments
Compound financial instruments issued by the Company were comprised of Convertible Notes that can be
converted to share capital at the option of the holder. The number of shares potentially issuable did not vary with
changes in the fair value of the underlying shares (see note 11 for further details).
The liability of a compound financial instrument was recognized initially at the fair value of a similar liability that
does not have an equity conversion option. The equity component is recognized initially at the difference between
the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any
directly attributable costs are allocated to the liability and equity components in proportion to their initial carrying
amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument was measured at
amortized cost using the effective interest method. The equity component of a compound financial instrument was
not re-measured subsequent to initial recognition except on conversion or expiry.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement
of the liability for at least 12 months after the end of the reporting period.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired.
If such evidence exists, the Company recognizes an impairment loss, as follows:
(i) Financial assets carried at amortized cost: The loss is the difference between the amortized cost of the
loan or receivable and the present value of the estimated future cash flows, discounted using the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount
either directly or indirectly through the use of an allowance account.
(ii) Available-for-sale financial assets: The impairment loss is the difference between the original cost of the
asset and its fair value at the measurement date, less any impairment losses previously recognized in the
statements of operations and comprehensive income. This amount represents the cumulative loss in
accumulated other comprehensive income that is reclassified to net income. The Company currently does
not have any available for sale financial assets.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of
the loss decreases and the decrease can be related objectively to an event occurring after the impairment was
recognized.
Inventory
Inventory is stated at the lower of cost and net realizable value. Cost of sales is determined using the average
weighted cost method. The entire balance consists of finished goods. The cost of finished goods comprises
invoiced cost, shipping costs and other costs directly attributable to acquiring the inventory. Net realizable value
is the estimated selling price less estimated selling expenses. If the carrying value exceeds net realizable value, a
write down is recognized. The write-down may be reversed in a subsequent period if the circumstances which
caused it to exist no longer exist.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
charged to the income statement on a straight-line basis over the period of the lease.
Leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property
and the present value of the minimum lease payments. The Company does not have any finance leases.
Property and equipment
Property and equipment is measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of
property and equipment have different useful lives, they are accounted for as separate items (major components)
of property and equipment.
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item
if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost
can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and
maintenance are charged to the income statement as incurred.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their
estimated useful lives, as follows:
Terrestrial repeaters
Computer hardware
Office equipment
Furniture and fixtures
Broadcast studio equipment
Leasehold improvements
7 years
3-5 years
3-5 years
7 years
3-10 years
Term of lease
Depreciation methods, useful lives and residual values are reviewed at least at each financial year end and adjusted
if appropriate prospectively.
Intangible assets
The Company’s intangible assets include distribution rights with automotive companies, subscriber relationships,
XM activation fees, rights to use trademarks, and computer software and licenses with finite useful lives. These
assets are capitalized and amortized on a straight-line basis in the statements of operations and comprehensive
income over the period of their expected useful lives as follows:
General Motors of Canada Limited
(“GMCL”) distribution rights
Nissan distribution rights
Toyota distribution rights
Subscriber relationships
XM activation fees
National Hockey League (“NHL”)
Trademark
Computer software
Computer software licenses
7.4 years; 4.3 years remaining
4.8 years; 1.6 years remaining
5.6 years; 2.4 years remaining
3.5 years; 0.3 year remaining
1.7 - 2.5 years
4.2 years; 1 year remaining
3-5 years
Term of license
Intangible assets are stated at cost less accumulated amortization. Intangible assets related to computer software
and licenses and XM activation fees are measured at cost paid to third parties or the internal cost to develop
computer software. Other intangible assets, including distribution rights and subscriber relationships, were
acquired as part of the business combination, and were initially recorded at their estimated fair value at the date of
the business combination.
XM activation fees comprise activation fees relating to XM subscribers, which are paid to Sirius XM Radio Inc.
(“Sirius XM”). These are included in intangible assets and amortized over the estimated life of the average
subscriber relationship.
Amortization methods and amortization periods are reviewed at least at each financial year end and adjusted if
appropriate prospectively. The Company’s CRTC broadcast license is an intangible with an indefinite life and
therefore is not amortized. The Company has determined the broadcast license has an indefinite life as the license
can be renewed without substantial cost. Intangible assets with indefinite lives are reviewed each period to
determine whether events and circumstances continue to support an indefinite useful life assessment for that asset.
The broadcast license is tested for impairment at least annually or when an indicator of impairment exists.
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their
estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible
assets with indefinitely useful lives that are acquired separately are carried at costs less accumulated impairment
losses.
Costs related to research activities for internally generated assets are recognized as an expense in the period when
it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal
project) is recognized as an intangible asset if, and only if, all of the following have been demonstrated:






The technical feasibility of completing the intangible asset so that it will be available for use or sale.
The intention to complete the intangible asset and use or sell it.
The ability to use or sell the intangible asset.
How the intangible asset will generate probable future economic benefits.
The availability of adequate technical, financial and other resources to complete the development and to
use or sell the intangible asset.
The ability to measure reliably the expenditure attributable to the intangible during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial
recognition, internally-generated intangible assets are reported at cost less accumulated amortization and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the
acquired subsidiary at the date of acquisition. Goodwill is tested at least annually for impairment in accordance
with the policy on impairment of non-financial assets and is carried at cost less accumulated impairment losses.
Goodwill is allocated to a cash-generating unit (“CGU” or “CGUs”) that is expected to benefit from the related
business combination. Impairment losses on goodwill are not reversed.
Impairment of non-financial assets
Property and equipment and definite life intangible assets are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring
recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash
inflows (CGUs). Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being
the present value of the expected future cash flows of the relevant asset or CGU).
Goodwill, indefinite lived intangible assets and intangible assets not yet available for use are reviewed for
impairment annually or at any time if an indicator of impairment exists. Management monitors and tests goodwill
for impairment based at the CGU level to which the goodwill relates.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when events or
circumstances warrant such consideration and accordingly, goodwill is assessed for impairment together with the
assets and liabilities of the related goodwill cash generating unit.
8
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Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee benefits
Group Registered Retirement Savings Plan
The Company sponsors a Group Registered Retirement Savings Plan ("RRSP") (the "Plan") for eligible
employees. The Plan allows eligible employees to voluntarily contribute to a Group RRSP subject to certain
defined limitations. Currently, the Company matches 100% of an employee's voluntary contributions, up to 4% of
an employee's pre-tax base salary, in the form of cash contributions. Company payments to the Group RRSP are
charged to expense as the contributions become payable.
Stock-based compensation
Stock option awards
The Company grants stock options to certain employees, directors and senior officers. Stock options vest either
immediately or equally over either four or five years and expire after seven years. Each tranche of an award is
considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is
determined as at the date of grant using the Black-Scholes option pricing model. Compensation expense is
recognized over the tranche’s vesting period by increasing contributed surplus based on the number of awards
expected to vest. The number of awards expected to vest is reviewed at least annually, with any change in
estimate recognized immediately in compensation expense with a corresponding adjustment to contributed
surplus.
Non-market performance and service conditions are included in assumptions about the number of options that are
expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied.
When the options are exercised, the Company issues new shares. The proceeds received net of any directly
attributable transaction costs are credited to share capital.
Restricted stock units (“RSUs”) and performance stock units (“PSUs”)
The Company also grants RSUs and PSUs to certain employees, directors and senior officers. For each RSU and
PSU granted, the Company recognizes compensation expense equal to the market value of a Class A Subordinate
Voting Share of the Company at the date of grant based on the number of RSUs and PSUs expected to vest,
recognized over the term of the vesting period, with a corresponding credit to contributed surplus for equity settled
RSUs and PSUs. RSUs and PSUs vest over a three year period and the number of PSUs that will vest will vary
depending on the Company meeting performance conditions attached to the award.
Compensation expense is adjusted for subsequent changes in management’s estimate of the number of RSUs and
PSUs that are expected to vest. The effect of these changes is recognized in the period of change. Upon
settlement of equity settled RSUs and PSUs, any difference between the cost of the shares purchased on the open
market and the amount of credited to contributed surplus is reflected in accumulated deficit. Vested RSUs and
PSUs are settled in common shares, at the discretion of the Board of Directors, however they may be settled in
cash. Currently the Company expects all RSUs and PSUs to be settled in shares.
Termination benefits
The Company recognizes termination benefits when it is demonstrably committed to terminating the employment
of current employees according to a detailed formal plan without the possibility of withdrawal. Benefits falling
due more that twelve months after the end of a reporting period are discounted to their present value.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past
events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the
amount can be reliably estimated. Provisions are measured at management’s best estimate of the expenditure
required to settle the obligation at the end of the reporting period, and are discounted to present value where the
effect is material. The Company performs evaluations to identify onerous contracts and, where applicable, records
provisions for such contracts. Provisions include the following:
i)
Product obligations - A provision for product obligation is due to the Company’s operating relationship with
distributors and retailer vendors. There is a constructive obligation that the Company will subsidize discounts
and provide price protection in order to move existing obsolete products in order to sell new products.
ii) Decommissioning liabilities - A provision is made for the present value of the future costs of retiring
terrestrial repeater equipment and restoration of leased facilities to their original state at the end of the lease
term. The estimated costs are computed based on management’s estimate of the fair value of the expenditures
expected to be required to settle the obligations using a pre-tax discount rate, updated at each reporting date,
which reflects current market assessments of the time value of money and the risks specific to the obligations.
The corresponding amount is capitalized as part of property and equipment and depreciated over the period
from the lease inception until the time the Company expects to remove the terrestrial repeater equipment and
vacate the premises, with the liability accreted over the same period. Any adjustment arising from the
assessment of estimated decommissioning cost is capitalized, while the charge arising from the accretion of
the discount applied to the decommissioning liabilities is treated as a component of interest expense in the
statements of operations and comprehensive income.
Income tax
Income tax comprises current and deferred tax. Income tax is recognized in the statements of operations and
comprehensive income except to the extent that it relates to items recognized directly in equity, in which case the
income tax is also recognized directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively
enacted, at the end of the reporting period, and any adjustment to tax payable in respect to previous years.
In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not
recognized if it arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a
transaction other than a business combination that, at the time of the transaction, affects neither accounting nor
taxable profit or loss. Deferred tax is provided on temporary differences arising on investments in subsidiaries,
except in the case of subsidiaries, where the timing of the reversal of the temporary difference is controlled by the
Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset or liability is
settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be
available against which the deductible temporary differences can be utilized.
Deferred tax assets and liabilities are presented as non-current.
10
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Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognition
The Company derives revenue primarily from subscription, activation fees (net of customer rebates earned),
equipment sales, and advertising. Revenue is measured at the fair value of the consideration received or
receivable. The Company recognizes revenue when the amount of the revenue and costs can be reliably measured;
when it is probable that future economic benefits will flow to the Company; and when specific criteria have been
met for each of the Company’s activities, as described below.
Subscription and activation fees
The Company recognizes subscription fees as service is provided to the subscriber. Subscription fees include
music royalty and regulatory fees (MRF) and other fees. Prepaid subscription fees billed in advance are recorded
as deferred revenue and recognized as revenue ratably over the term of the applicable subscription plan.
At the time of sale, certain vehicle owners purchasing or leasing a vehicle with a subscription to the Company’s
service typically receive between a three-month and one-year prepaid or trial subscription. Prepaid subscription
fees received from automakers are recorded as deferred revenue and amortized to revenue ratably over the service
period, upon activation. The Company reimburses automakers for certain costs associated with the satellite radio
installed in the applicable vehicle at the time the vehicle is manufactured. The associated payments to the
automakers are included in subscriber acquisition costs, which are part of sales and marketing. Although the
Company may receive payments for the subscription from the automakers, they do not resell the service; the
automakers facilitate the sale of the service to their customers, acting similarly to an agent for the Company; for
which the Company pays a revenue share to certain OEMs. The Company is principally obligated in these
relationships as the Company is responsible for providing the service to the customers, including being obligated
to the customers in the case of an interruption of service.
Sales incentives consisting of rebates to customers are accounted for as reductions of revenue when the revenue is
recognized or the incentive is offered. Certain fees billed to automakers for services offered to automobile
purchasers during the promotional periods are offset by amounts paid to the automakers for subsidies related to the
sale of the automobiles with the Company’s product.
Activation fees are recognized over the term of a subscriber relationship to a maximum of 42 months. The
Company currently estimates the average amortization period to be 36 months. Fees received in advance are
recognized as deferred revenue.
Equipment sales
Equipment revenue from the direct sale of satellite radios and accessories is recognized upon shipment. Shipping
and handling costs billed to customers are recorded as revenue. Shipping and handling costs associated with
shipping goods to customers are recorded within cost of merchandise expense.
Under IAS 18 - Revenue, the Company recognizes revenue for sales of bundled packages, which might include a
radio, activation and/or service component, by allocating the consideration received based on the relative fair
values of the individual components, consisting of service fees (subscription and activation fees) and equipment
sales. Objective and reliable evidence of fair value exists for all units of accounting in the arrangement.
Advertising revenue
The Company recognizes advertising revenue from the sale of advertisements in the period in which the
advertising is broadcast.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Broadcast license and renewal costs
All costs related to renewing the broadcast license are expensed as incurred.
CRTC and Canadian Content Development Obligations
Under conditions of its broadcasting license from CRTC, the Company is obligated to contribute a percentage of
its gross revenues from its satellite radio undertaking on qualifying Canadian Content Development (“CCD”).
Amounts are expensed during the year to which they relate.
Copyright royalty arrangements
The Company is responsible for the payment of copyright royalties to a number of Canadian copyright collectives.
The Company pays these royalties based on tariffed rates that have been set for previous periods by the Copyright
Board of Canada or under agreements reached with collectives. The cost of these royalty arrangements is
expensed as an operating expense.
Sales and marketing costs
Sales and marketing includes advertising and costs for media and events, which are expensed as incurred as an
operating expense.
Marketing also includes incentives and subsidies to retailers and manufacturers to promote the distribution of
radios with the capacity to receive either XM satellite digital radio programming (“XM radios”) or Sirius satellite
digital radio programming (“Sirius radios”). These costs are expensed at the time of payment which approximates
the timing of the sale or activation of the XM radios and Sirius radios.
Subsidies and distribution costs
Subsidies and distribution costs consist of costs incurred to acquire new subscribers and include hardware
subsidies paid to radio manufacturers, distributors and automakers. Subsidies are paid to certain automakers who
include a satellite radio and a prepaid or trial subscription to the Company's service in the sale or lease price of a
new vehicle. Subsidies are also paid for chip sets and certain other components used in manufacturing radios
device royalties for certain radios, commissions paid to retailers and automakers as incentives to purchase, install
and activate radios, and provisions to reduce inventory to net realizable value.
Based on contractual terms, subsidies paid to radio manufacturers and automakers are expensed on shipment of the
product or activation of the radio. Commissions paid to retailers and automakers are expensed on either the
purchase or activation of radios, based on contractual terms.
Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing the net income for the period attributable to the
Company’s equity owners by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive
instruments. The Company has the following categories of dilutive securities which may be converted into shares:
stock options, restricted stock units and performance stock units and convertible debt. The number of shares
included with respect to stock options is computed using the treasury stock method.
12
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting standards adopted in the current year
The following amendments to the standards were adopted in the current year:
IFRS 7
In December 2011, the IASB amended IFRS 7 – Financial Instruments: Disclosures, to require disclosures to
better assess the effect or potential effect of offsetting arrangements in the statements of financial position. This
amendment did not impact the Company’s disclosures as there are no material offsetting arrangements.
IFRS 10
In May 2011, the IASB issued IFRS 10 – Consolidated Financial Statements, which establishes principles for the
presentation and preparation of consolidated financial statements. Under IFRS 10, control is identified as the
single basis of consolidation for all types of entities. The adoption of IFRS 10 did not result in any change in the
consolidation status of the Company’s subsidiary, Sirius XM Canada Inc.
IFRS 12
In May 2011, the IASB issued IFRS 12 – Disclosure of Interests in Other Entities, which integrates and enhances
the disclosure requirements for entities that have an interest in a subsidiary, a joint arrangement, an associate or an
unconsolidated structured entity. The Company does not have any joint arrangements, associates or arrangements
with structured entities.
IFRS 13
In May 2011, the IASB issued IFRS 13 – Fair Value Measurement, which establishes a single source of guidance
for fair value measurement under IFRS. The measurement of the fair value of an asset or liability is based on
assumptions that market participants would use when pricing the asset or liability under current market conditions,
including assumptions about risk. The Company adopted IFRS 13 on September 1, 2013 on a prospective basis.
The adoption of IFRS 13 did not require any measurement adjustments or changes to the fair value valuation
techniques.
Accounting standards issued but not yet effective
Unless otherwise noted, the following revised standards and amendments are effective for annual periods
beginning on or after January 1, 2014 with earlier application permitted. The Company has not yet assessed the
impact of these standards and amendments or determined whether it will early adopt them.
IAS 32, Financial Instruments: Presentation was amended to clarify requirements for offsetting financial assets
and financial liabilities such that the right of set-off must be available today – that is, it is not contingent on a
future event. It also must be legally enforceable for all counterparties in the normal course of business, as well as
in the event of default, insolvency or bankruptcy. The amendments also clarify that gross settlement mechanisms
(such as through a clearing house) with features that both (i) eliminate credit and liquidity risk and (ii) process
receivables and payables in a single settlement process, are effectively equivalent to net settlement; they would
therefore satisfy the IAS 32 criterion in these instances. The Company is currently assessing the impact of the
standard.
IAS 36, Impairment of Assets was amended to remove the requirement to disclose recoverable amount when a
cash generating unit (CGU) contains goodwill or indefinite lived intangible assets but there has been no
impairment; to require disclosure of the recoverable amount of an asset or CGU when an impairment loss has been
recognised or reversed; and to require detailed disclosure of how the fair value less costs of disposal has been
measured when an impairment loss has been recognised or reversed. The Company is currently assessing the
impact of the standard.
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IFRS 2, Share-base Payment was amended to clarify the definitions of “vesting conditions” and “market
condition” and separately defines for “performance condition” and “service condition” (which were previously
part of the definition “vesting condition”). The amendment applies to share-base payment transactions for which
the grant date is on or after July 1, 2014. The Company is currently assessing the impact of the standard.
IFRS 9, Financial Instruments (“IFRS 9”), was issued in November 2009 and addresses classification and
measurement of financial assets. It replaces the multiple category and measurement models in International
Accounting Standard (“IAS”) 39 for debt instruments with a new mixed measurement model having only two
categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring
equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value
through OCI. Where equity instruments are measured at fair value through OCI, dividends are recognized in profit
or loss to the extent that they do not clearly represent a return of investment; however, other gains and losses
(including impairments) associated with such instruments remain in AOCI indefinitely.
Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward
existing requirements in IAS 39, Financial Instrument: Recognition and Measurement (“IAS 39”), except that fair
value changes due to credit risk for liabilities designated at fair value through profit or loss are generally recorded
in OCI. In January 2012, the effective date was revised to January 1, 2015 with earlier application permitted.
IFRS 9 was amended In November 2013, to (i) include guidance on hedge accounting, (ii) allow entities to early
adopt the requirement to recognize changes in fair value attributable to changes in an entity’s own credit risk, from
financial liabilities designated under the fair value option, in OCI (without having to adopt the remainder of IFRS
9) and (iii) remove the previous mandatory effective date of January 1, 2015, although the standard is available for
early adoption.
IFRS 13, Fair Value Measurement was amended to clarify that the scope of the portfolio exception defined in
paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments:
Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of
financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. The amendment is
effective for reporting periods beginning on or after July 1, 2014. The Company is currently assessing the impact
of the standard.
IFRS 15, Revenue from Contracts with Customers was issued to provide a single comprehensive model for entities
to use in accounting for revenue arising from contracts with customers. Under this standard, revenue may be
recognized over time in a manner that best reflects the Company’s performance, or at a point in time, when control
of the good or service is transferred to customers. The standard is effective for reporting periods beginning on or
after January 1, 2017 and early adoption is permitted.
IFRIC 21, Levies was issued to clarify that an entity recognizes a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued
progressively only if the activity that triggers payment occurs over a period of time, in accordance with the
relevant legislation. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies
that no liability should be recognized before the specified minimum threshold is reached. This is effective for
annual periods beginning on or after January 1, 2014 and cannot be early adopted. The Company is currently
evaluating the impact of the standard.
14
68
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will,
by definition, seldom equal the actual results. The estimates and assumptions that are critical to the determination
of carrying values of assets and liabilities are addressed below. The Company also makes judgments regarding the
application of the accounting policies which are described below.
Impairment of non-financial assets
The impairment test on non-financial assets, which are comprised primarily of property and equipment, intangible
assets and goodwill, is carried out by comparing the carrying value of a CGU that includes these assets to the
recoverable amount of a CGU. The recoverable amount of a CGU is the higher of fair value less costs to sell, and
its value in use.
Goodwill and indefinite lived intangibles are tested at least annually for impairment. For the purpose of
impairment testing, goodwill is tested for impairment using the fair value less cost to sell model at the operating
segment level. The business is managed as one operating segment based on how financial information is produced
internally for the purposes of making operating decisions.
In assessing the Company’s broadcast license for impairment, the Company compares the aggregate recoverable
amounts of the assets and related liabilities included in a CGU to its respective carrying amount. For the purpose
of the impairment test carried out during the year ended August 31, 2014 the CGU was equivalent to the entire
Sirius XM business.
In assessing both the goodwill and broadcast license for impairment, the Company compares the aggregate
recoverable amount which is fair value less cost to sell (and is determined based on the value of the Company’s
quoted shares and the estimated fair value of its debt) to the carrying value of its net assets excluding long term
debt. An impairment charge is recognized to the extent that the carrying value exceeds the recoverable amount.
No impairment charges have arisen as a result of the reviews performed during the years ended August 31, 2014
and August 31, 2013. Reasonably possible changes in key assumptions would not cause the recoverable amount
of goodwill or the broadcast license to fall below the carrying value.
Income taxes
The recognition of deferred tax assets is based on whether it is more likely than not that sufficient and suitable
taxable income will be available in the future against which the reversal of temporary differences can be deducted.
The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the
assessment of the Company’s taxable income in the future increases or decreases, or its ability to utilize the
underlying future tax deductions changes, the Company would be required to recognize more or less of the tax
deductions as deferred tax assets, which would decrease or increase the income tax expense in the period in which
this is determined.
The calculation of current and deferred taxes also involves significant estimation and judgment in respect of
certain items whose tax treatment cannot be finally determined until resolution is reached with the Canada
Revenue Agency (“CRA”). The final resolution of the audit of the 2006 taxation year may result in adjustments to
the recognized and unrecognized deferred tax assets. See notes 7 and 20 for additional information.
15
Sirius XM Canada Holdings Inc. Annual Report 2014
69
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provisions
Considerable estimation is used in measuring and recognizing certain provisions and the exposure to contingent
liabilities. Management also applies judgment in determining the likelihood that a pending litigation or other
claim will succeed or a liability will arise, and to quantify the possible range of the final settlement. Provisions
that involve estimation and judgment include liabilities related to product obligations, where the Company may be
required to make payments to retailers to facilitate the sale of radios held by retailers and decommissioning
liabilities, where the estimated costs are computed based on management’s estimate of the fair value of the
expenditures expected to be required to settle the obligations using a pre-tax discount rate, updated at each
reporting date, which reflects current market assessments of the time value of money and the risks specific to the
obligations.
Revenue recognition
As described in note 2, the Company assessed the criteria for the recognition of revenue related to arrangements
that have multiple components as set out in IAS 18 – Revenue. Judgment is necessary to determine when
components can be recognized separately and the allocation of the related consideration to each component.
Intangible assets
Amortization of intangible assets involves the use of estimates for determining the expected useful lives of
intangible assets. Estimates of the average life of a subscriber relationship are based on historical experience.
Estimates related to distribution rights are based on their contractual periods taking into account known renewal
options.
Critical judgments in applying accounting policies
The following critical judgments that were made by management have the most significant effect on the amounts
recognized in the financial statements.
Determination of cash generating units
Goodwill and indefinite lived intangibles are required to be tested for impairment at least annually by comparing
the recoverable amount of the CGU which includes these assets to their recoverable amount. The Company
performs an impairment test at June 1 of each year. The Company’s broadcast license is tested for impairment
along with other assets including the subscriber relationships, distribution rights and property and equipment at a
CGU level that is equal to the Sirius XM business. The Company applies judgment in determining the lowest level
for which the assets generate independent cash inflows as well as the recoverability of its CGU. Given that the
Company has a single license, which is required to operate the business, there is one CGU for the purposes of
indefinite lived intangible asset impairment testing.
4. INVENTORY
Inventory consists of radios held for sale through our website and is as follows:
At
Finished goods
August 31,
2014
August 31,
2013
$
$
559,081
234,349
The amount of inventory recognized as an expense in operating costs for the year ended August 31, 2014 was
$3,450,225 (2013 - $2,438,784).
16
70
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
Sirius XM Canada
Holdings Inc.
NOTES
TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTES
TO CONSOLIDATED
FINANCIAL STATEMENTS
5.
PROPERTY
AND EQUIPMENT
5. PROPERTY AND EQUIPMENT
At September 1, 2012
At September 1, 2012
Cost
Cost
Accumulated
depreciation
Accumulated
depreciation
Repeaters
Repeaters
At August 31, 2013
Closing net book
Cost
value
At August depreciation
31, 2013
Accumulated
Net
Costbook value - August 31, 2013
Net book value - August 31, 2013
Additions
Disposals
Depreciation
At September
1, 2013
Closing net book value
Additions
At August 31, 2014
Disposals
Cost
Depreciation
Accumulated
depreciation
Net
book value
- August
31, 2014
Closing
net book
value
Total
1,595,940
245,273
9,724 245,273 533,078
9,724 15,917,262 533,078
(112,948)
(1,406,266)
(9,503)
(112,948)(403,234)
(9,503) (8,299,863)(403,234)
2,628,834
4,536,501
2,628,834
189,674
132,325
189,674
132,325
189,674
85,716
2,628,834
4,536,501
528,614
——
—
(1,486,927)
(686,414)
—
2,628,834
—
528,614
—
3,049,574 (1,486,927)
2,471,034
51,123
(686,414)
10,073,550
3,049,574
3,988,311
(7,023,976)
(1,517,277)
3,049,574
2,471,034
10,073,550
Accumulated depreciation
At September 1, 2013
fixtures
3,459,697
1,595,940
4,536,501
—
Closing
net book value
Depreciation
equipment
(1,406,266)
(830,863)
At September 1, 2012
At
September 1, 2012
Additions
Depreciation
Disposals
equipment
Furniture and
fixtures
10,073,550
3,459,697
10,073,550
4,536,501
Additions
Disposals
Computers
Office
Broadcast
Office
Broadcast
Furniture and
Computers
equipment
equipment
(5,537,049) (5,537,049)
(830,863)
Net book value
Net book value
Leaseholds
Leaseholds
(7,023,976)
3,049,574
323,607
—
(1,329,890)
2,043,291
10,397,157
2,471,034
(138,551)
—
2,471,034
189,674
(3,515)
—
(34,649)
—
179,877
(138,551)
51,123
1,472,231
316,872
(1,421,108)
(136,995)
51,123
3,988,311
179,877
1,472,231
(1,517,277)
(1,421,108)
221
221
129,844
167,007 132,325
—
—
85,716 (7,594)
(3,515)(60,969)
167,022(34,649) 61,281
(206) 5,979,911 (60,969)
176,731
(9,709)
167,022
699,221
—
114,223
—
52,387
—
(1,358,708)
3,049,574
(72,697)
2,471,034
(53,721)
51,123
205,639
—
699,221
—
4,193,950
677,647
2,171,452
240,379
431,095
(418,444)
(136,995)
179,877
1,317,965
479,725
167,022 316,872 61,281
51,123
323,607
—
179,877
179,877
229,118
114,223
—
167,022
—
(299)
42,182
477,791
61,281
16,507,420
(10,527,509)
176,731 5,979,911 479,725
(9,709)
61,281
(32,685) 179,877(18,800)
186,724
221
167,007
7,617,399
781,337
(206)
2,471,034
205,639
—
221 7,617,399 129,844
129,844
—
(11,109)
— (2,407,716) (7,594)
3,049,574
51,123
132,325
129,844
167,022
(418,444)
5,979,911
61,281
1,395,077
(299)
167,022 (2,866,501) 61,281
52,387
—
4,508,188
—
(299)
17,900,563
(8,353,866) (1,329,890)
(2,875,985)
(1,358,708)
(1,493,805)
(72,697)
(190,716)
(42,394)(53,721)
(435,609)
(32,685)(13,392,375) (18,800)
1,317,965
2,043,291
677,647
1,317,965
240,379
677,647
186,724 240,379 42,182
186,724 4,508,188 42,182
2,043,291
At August 31, 2014
Cost
10,397,157
4,193,950
2,171,452
431,095
229,118
477,791
Accumulated depreciation
(8,353,866)
(2,875,985)
(1,493,805)
(190,716)
(42,394)
(435,609)
2,043,291
1,317,965
677,647
240,379
186,724
Net book value - August 31, 2014
Sirius XM Canada Holdings Inc. Annual Report 2014
17
71
42,182
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sirius XM Canada Holdings Inc.
6. INTANGIBLE
ASSETS
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
6. INTANGIBLE ASSETS
Distribution Rights
Computer
software &
licenses
Computer
At September 1, 2012
Cost
At September 1, 2012
Cost
Accumulated
amortization
Accumulated amortization
Net book value
Net book value
software &
licenses
12,755,147
12,755,147
(7,923,600)
(7,923,600)
4,831,547
CRTC license
CRTC license
GMCL
85,800,000
85,800,000
—
GMCL
Distribution Rights
Honda
Honda
22,714,521
5,408,219
—22,300,001
(3,507,865)
(9,636,465)
(3,507,865)
(9,636,465)
18,792,136
13,078,056
85,800,000
18,792,136
85,800,000
At September
1, 2012 1, 2012
At September
4,831,547
4,831,547
85,800,00018,792,13618,792,136
85,800,000
13,078,056
Additions
7,375,784
7,375,784
—
Closing net book value
10,212,977
20,120,809
At August 31, 2013
Cost2013
At August 31,
Accumulated amortization
Netamortization
book value - August 31, 2013
Accumulated
Net book value - August 31, 2013
At September 1, 2013
10,212,977
(9,907,832)
20,120,809
10,212,977
(9,907,832)
10,212,977
—
—
(3,006,742)
(8,259,826)
85,800,000
15,785,394
4,818,230
85,800,000
22,300,001
21,941,918
(1,328,335)
21,941,918
Subscriber
relationships
1,966,040
(4,584,878)
(555,996)
(818,336)
17,357,040
1,410,044
2,104,290
13,078,056
4,079,884
4,079,884
17,357,040
17,357,040 2,104,290 1,410,044
1,410,044
28,533,334
——
——
17,357,040
2,022,930
—
(14,266,666)
1,410,044
28,533,334
— 2,022,930
—
(1,138,572)
(3,929,896)
(1,908,488)
(701,430)
(12,228,572)
2,941,312
13,427,144
1,524,486
1,402,860
16,304,762
22,714,521
5,408,219
21,941,918
3,988,970
2,922,626
—
(6,514,607)
(17,896,291)
85,800,000
22,300,001
(2,466,907)
22,714,521
(8,514,774)
5,408,219
4,818,230
—15,785,394
(6,514,607)
2,941,312
(17,896,291)
13,427,144
(2,466,907)
85,800,000
85,800,000
85,800,000
(3,006,742)
15,785,394
15,785,394
4,818,230
2,941,312
1,524,486
28,5
175,986,331
9,398,714
—
(33,167,880)
(701,430)
1,402,860
42,800,000
227,997,064
(2,464,484)
(26,495,238)
21,941,918(1,519,766) 3,988,970
(75,779,899)
2,922,626
13,427,144
—
—
—
—
2,128,181
—
—
13,614,954
(4,818,230)
(1,138,572)
(3,929,895)
(1,960,621)
(701,430)
(12,228,572)
(30,860,756)
Closing net book value
18,623,057
1,802,740
9,497,249
At August 31, 2014
Cost
amortization
netAccumulated
book value
August Net
31,book
2014value - August 31, 2014
Cost
(3,076,693)
31,607,582
(12,984,525)
18,623,057
18,623,057
31,607,582
85,800,000
—
—
(3,006,743)
—
4,818,230
—
(4,818,230)
22,300,001
—
—
(9,521,350)
85,800,000
12,778,651
—
(3,605,479)
—
—
1,802,740
85,800,000
12,778,651
85,800,000
22,300,001
5,408,219
—
Hyundai Distribution right in the amount of $6,335,342 were fully amortized in the prior years and have been removed from the table above.
Accumulated amortization
(12,984,525)
—
(9,521,350)
—
Honda Distribution rights in the amount of $22,714,521 were fully amortized in the current year and have been removed from the table above.
Net book value - August 31, 2014
18,623,057
85,800,000
12,778,651
—
2,941,312
—
(1,138,572)
21,941,918
(12,444,669)
1,802,740
9,497,249
13,427,144
1,692,046
—
(3,929,895)
6,117,151
1,402,860
701,430
16,304,762
1,524,486
4,076,190
2,128,181
(1,960,621)
2,922,626
42,800,000
(4,425,105)
(38,723,810)
9,497,249(2,221,196) 1,692,046
1,692,046
701,430
4,076,190
16,3
134,971,363
—
(701,430)
(12,2
218,897,497
(83,926,134)
701,430
4,0
134,971,363
21,941,918
6,117,151
2,922,626
(12,444,669)
(4,425,105)
(2,221,196)
1,802,740
9,497,249
1,692,046
701,430
Sirius XM Canada Holdings Inc. Annual Report 2014
16,3
1,402,860
5,408,219
Honda Distribution rights in the amount of $22,714,521 were fully amortized in the current year and have been removed from the table above.
(26,4
152,217,165
(3,605,479)
Hyundai Distribution right in the amount of $6,335,342 were fully amortized in the prior years and have been removed from the table above.
72
42,8
1,402,860
(3,006,743)
15,785,394
1,524,486
1,524,486
—
12,778,651
16,3
1,524,486
16,304,762 (1,519,766)
152,217,165
(8,514,774) 1,402,860
(2,464,484)
—
—
(12,2
152,217,165
11,486,773
85,800,000
13,427,144
13,427,144
(1,908,488)
28,5
2,104,290
175,986,331
(3,076,693)
85,800,000
2,941,312
2,941,312
(3,929,896)
(42,622,141)
Amortization
11,486,773
4,818,230
4,818,230
(1,138,572)
(14,2
2,104,290
Additions
10,212,977
15,785,394
(8,259,826)
42,8
42,800,000
218,608,472
(4,584,878) 2,922,626 (555,996)
(818,336)
4,079,884
4,079,884
Total
1,966,040
(1,328,335)
13,078,056
Subscr
relation
2,922,626
85,800,000
Amortization
At
(1,994,354)
—
5,408,219
NHL
trademark
10,212,977
At September 1, 2013
Closing
—
(1,994,354)
Closing net book value
Additions
—
Amortization
Amortization
Cost
—
XMToyota
activation
NHL
fees
trademark
Toyota
22,714,521
4,831,547
Additions
Nissan
Nissan
22,300,001
XM
activation
fees
42,8
(38,7
4,0
18
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The statutory income tax rate was calculated using the income tax rates applicable federally and in the province of
Ontario. The provisions for income taxes included in the consolidated statements of operations and comprehensive
income differ from the statutory income tax rate for the years ended August 31, 2014 and August 31, 2013 as
follows:
For the year ended August 31
Net income before taxes
Statutory tax rate
Income tax expense at statutory tax rate
Permanent items- non deductible
Prior year adjustments - deferred tax
Income tax expense
2014
2013
11,372,692
26.50%
3,013,763
908,950
(31,229)
3,891,484
17,565,320
26.50%
4,654,810
683,660
36,308
5,374,778
$
$
For the years ended August 31, 2014 and August 31, 2013, deferred taxes were reported using a combined income
tax rate of 26.5%, based on the 2012 Ontario budget which froze the general income tax rate at 11.5%, until the
province returns to a balanced budget, and the expected timing of reversals. Deferred taxes are as follows:
At
August 31,
2014
August 31,
2013
957,662
4,580,868
1,411,702
55,810,525
62,760,757
—
—
529,621
70,052,429
70,582,050
(800,125)
(11,368,500)
—
(12,168,625)
50,592,132
(227,300)
(11,368,500)
(4,502,634)
(16,098,434)
54,483,616
$
$
Deferred income tax assets
Deferred tax asset on other intangibles
Deferred tax asset on financing costs
Other
Non-capital loss carry forwards
Total deferred tax assets
Book value in excess of tax basis
Deferred tax liability on broadcast license
Deferred tax liability on other intangibles
Total deferred tax liability
Net deferred tax asset
Net deferred tax assets expected to be recovered within 12 months are $11,000,000. Net deferred tax assets expected
to be recovered after more than 12 months are $39,592,132.
19
Sirius XM Canada Holdings Inc. Annual Report 2014
73
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At August 31, 2014, the Company has approximately $374,000,000 in Canadian non-capital tax losses available to
be applied against future years' taxable income, which expire as follows:
2025
2026
2027
2028
2029
2030
2031
2032
$
170,000,000
66,000,000
46,000,000
26,000,000
21,000,000
41,000,000
—
4,000,000
374,000,000
As at August 31, 2014, the Company has recognized net deferred tax assets of $50,592,132 (2013 - $54,483,616) on
the basis that realization of the tax benefit is probable. However, the Company has not recognized deferred tax
assets of $43,273,000 in respect of losses amounting to $163,294,000, on the basis that the Company does not have
sufficient evidence that it is probable they will be utilized.
At August 31, 2014, taxation years dating back to the period ended August 31, 2006 (“2006 audit”) are open for
review at the discretion of various taxation authorities and are subject to audit uncertainties.
In 2013, CRA completed its audit of the 2006 taxation year, and is proposing to disallow the deduction of non-capital
losses and eligible capital expenditures related to deductions taken on payments made to Sirius XM and certain
OEMs. The 2006 audit is still in progress, and discussions with CRA are ongoing. As previously disclosed, should
the Company not be successful in sustaining its filing position, along with the $163,294,000 in losses which would
not be recognized as indicated above, the impact of the 2006 audit would result in the reversal of an additional
$68,000,000 in tax losses (representing a $18,000,000 deferred tax asset that is recorded on the consolidated balance
sheets).
The Company continues to be confident of its filings. The position continues to be supported by the Company’s
professional advisors. The Company expects that the filing position will be sustained upon full examination of the
facts by CRA, or if required by the federal courts. The Company will continue to vigorously defend its position and
it believes it will be successful.
8. GOODWILL
The following table discloses the change in goodwill for the years ended August 31, 2014 and August 31, 2013:
At
Balance - beginning of year
Goodwill acquired (impaired)
Balance - end of year
August 31,
2014
August 31,
2013
96,732,525
96,732,525
—
—
96,732,525
96,732,525
The Company performs its annual test for goodwill impairment at June 1. No impairment charges have arisen as a
result of the reviews performed during the years ended August 31, 2014 and August 31, 2013. Reasonably possible
20
74
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
changes in key assumptions would not cause the recoverable amount of goodwill or the broadcast license to fall
below the carrying value.
9. TRADE AND OTHER PAYABLES
Trade and other payables consist of:
At
Accounts payable
Subsidies and distribution accruals
Revenue share accruals
Accrued payroll and related benefits
Due to CRTC
NHL accruals
Other payables and accruals
August 31,
2014
8,533,602
12,794,891
6,788,253
4,185,373
3,840,742
981,888
6,996,717
August 31,
2013
5,156,758
12,561,497
10,570,697
3,379,207
3,561,983
5,736,301
6,178,814
44,121,466
47,145,257
10. RELATED PARTY TRANSACTIONS
Related parties of the Company include shareholders who have significant interest in the Company. Significant
shareholders of the Company include Sirius XM, The Canadian Broadcasting Corporation (“CBC”), Slaight
Communication Inc. (“Slaight”), and Obelysk Media Inc. (“Obelysk”), a company controlled by John I. Bitove.
Related parties also include companies controlled, jointly controlled or influenced by these shareholders. Related
parties also include members of the Board of Directors, management and immediate family members of management
or shareholders with significant influence. These transactions are recorded at the exchange amount.
Amounts due to related parties
At
CBC
Slaight
Sirius XM
Obelysk (including related parties of Obelysk)
Less: current portion
Long-term portion
August 31,
2014
1,024,267
402,777
9,038,587
4,469
August 31,
2013
784,149
402,777
10,803,432
21,000
10,470,100
12,011,358
(9,146,135)
(9,620,750)
1,323,965
2,390,608
21
Sirius XM Canada Holdings Inc. Annual Report 2014
75
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Related party transactions
(i) Transactions with CBC
The Company has a non-exclusive, non-transferable license agreement with CBC whereby the Company has
distribution rights to transmit channels currently owned by CBC.
The Company incurred costs during the year ended August 31, 2014 primarily related to the CBC license
agreement and advertising in the amount of $2,844,783 (2013 - $3,165,443).
As at August 31, 2014, amounts due to CBC related to the transactions described above also include a noninterest bearing promissory note of $402,777 (2013 - $402,777).
(ii) Transactions with Slaight
As at August 31, 2014, amounts due to Slaight are comprised of a non-interest bearing promissory note of
$402,777 (2013 - $402,777).
(iii) Transactions with Sirius XM
The Company has the right to distribute the Sirius network channels owned or licensed by Sirius XM within
Canada. In return, the Company is obligated to pay Sirius XM a percentage of its gross revenue (up to 15%) and
additional royalties for certain types of subscription revenue and reimbursement of other charges paid on the
Company’s behalf.
The Company has the right to distribute the XM network channels owned or licensed by Sirius XM within
Canada. In return, the Company is obligated to pay Sirius XM a percentage of subscriber revenue (15%),
additional royalties for certain types of subscription revenue, activation charges, fees under the Technical
Service Agreement and reimbursement of other charges paid on the Company’s behalf.
The costs incurred during the year ended August 31, 2014 related to the Sirius XM agreements was $45,789,535
(2013 - $41,773,994).
In addition to the amounts expensed above for the year ended August 31, 2014, intangible assets of $3,858,246
(2013 - $5,537,697) relating to XM activation fees and computer software, net of amortization are presented
within the balance sheet. During the year ended August 31, 2014, cash payments related to these intangible
assets made to Sirius XM totaled $6,694,993 (2013 - 3,953,974).
As at August 31, 2014, amounts due to Sirius XM include a non-interest bearing promissory note of $402,778
(2013 - $402,778).
(iv) Transactions with John I. Bitove, Obelysk and its affiliates
In 2011, the Company entered into a reimbursement agreement with Obelysk for the purchase of third party
advertising services. The Company has agreed to reimburse Obelysk a total amount of $208,000 for advertising
services as used to the end of 2015.
The Company incurred costs from Obelysk and other entities affiliated with Obelysk and John I. Bitove,
including costs associated with the reimbursement agreement. These costs were related to advertising, business
22
76
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
events, and operating costs. During the year end ended August 31, 2014, the costs totaled $45,411 (2013 $97,985). As at August 31, 2014, the balance due was $4,469 (2013 - $21,000).
Compensation of key management
Key management includes the CEO and his direct reports who make up the Company’s Executive Committee.
Compensation awarded to key management, and the composition thereof, included:
For the year ended August 31
Salaries and short-term employee benefits
Share-based payments
2013
2,993,369
1,131,835
4,125,204
2014
2,976,837
1,278,053
4,254,890
11. DEBT
2018 Senior
Convertible
2021 Senior
Notes
Notes
Notes
Total
At September 1, 2012
Interest accretion
Change in fair value of embedded
derivative
125,961,506
477,864
19,031,313
476,511
—
—
144,992,819
954,375
(2,240,000)
—
—
(2,240,000)
At August 31, 2013
124,199,370
19,507,824
—
143,707,194
A September 1, 2013
Issuance of debt, net of financing costs
Interest accretion
Change in fair value of embedded
derivative
124,199,370
—
3,131,630
19,507,824
—
492,176
—
195,266,976
196,884
143,707,194
195,266,976
3,820,690
3,440,000
—
—
3,440,000
(130,771,000)
—
(130,771,000)
—
(20,000,000)
195,463,860
195,463,860
Debt repayment
Conversion of Convertible Notes
—
—
(20,000,000)
At August 31, 2014
—
—
2018 Senior Notes and 2021 Senior Notes
In April 2014, the Company settled its existing unsecured 9.75% Senior Notes which were due June 21, 2018 (“2018
Senior Notes”) for newly issued unsecured 5.625% Senior Notes due April 23, 2021 (“2021 Senior Notes”). On
April 23, 2014, the Company issued the 2021 Senior Notes for a $200,000,000 aggregate principal amount. Interest
payments on the 2021 Senior Notes are due semi-annually on April 23 and October 23 of each year commencing on
October 23, 2014. The 2021 Senior Notes are redeemable at the option of the Company. At any time prior to April
23, 2017, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of
the 2021 Senior Notes at a redemption price of 105.625% of the principal amount. The premium on early
redemption will vary on date of redemption. If an event of default occurs and is continuing, the principal of (and
premium, if any) and accrued and unpaid interest on all of the outstanding notes will thereupon become and be
23
Sirius XM Canada Holdings Inc. Annual Report 2014
77
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
immediately due and payable with or without any declaration, notice or other action on the part of the trustee or any
debt holder, depending on the nature of the default.
On May 23, 2014, the Company used the net proceeds from the 2021 Senior Notes to fund the redemption of all of
the Company's $130,771,000 2018 Senior Notes at a redemption price equal to approximately 107.9616% of the
principal amount of the 2018 Senior Notes plus accrued and unpaid interest as at May 23, 2014. The early
redemption of the 2018 Senior Notes resulted in the Company recording a pre-tax debt repayment cost of
$13,195,918. The components of this cost included an early redemption premium of $10,411,448, and accretion of
the remaining unamortized financing fees of $2,784,470. The early redemption also resulted in a change in the fair
value of the embedded derivative of $3,440,000.
As part of the issuance of the 2021 Senior Notes, the Company incurred fees paid to agents, legal and other costs
amounting to $4,733,024 which were included in the carrying value of the 2021 Senior Notes and will be amortized
to interest expense using the effective interest rate method. The effective interest rate is 6.0%. During the year
ended August 31, 2014, $4,162,637 of interest expense was included in the consolidated statements of operations and
comprehensive income.
Canaccord Genuity, for which one of the members of the Company’s board of directors is a principal, received
underwriting fees of $300,000 for placement of a portion of the 2021 Senior Notes. These fees are included in the
$4,733,024 refinancing fees noted above.
As described above, the 2021 Senior Notes include the right to redeem the notes at the option of the Company. This
redemption right has been determined to be an embedded derivative that is required to be bifurcated from the
underlying debt, or host contract, and accounted for as a derivative at fair value with changes in fair value recorded
in the consolidated statements of operations and comprehensive income (see note 15 for further details).
The principal balance of senior notes outstanding as at August 31, 2014 was $200,000,000 (2013 - $130,771,000),
and included in Interest payable at August 31, 2014 was $3,965,753 (2013 - $2,437,783). During the year ended
August 31, 2014 the cash interest expense was $11,737,145 (2013 - $12,750,173).
Bank Credit Facility
On May 23, 2014, the Company entered into a revolving term credit facility agreement with a syndicate of banks (the
“Lenders”). The Lenders established in favour of the Company a revolving term credit facility (the “Credit Facility”)
in the amount of $35,000,000 with establishment of a one year term renewable term due May 23, 2015. The
revolving facility, as generally required, contains financial covenants requiring the Company to meet a maximum
senior debt to EBITDA ratio of 2.0 and a minimum fixed charge coverage ratio of 2.5. The interest rate on the
revolving term credit facility fluctuates with Canadian prime rate, Canadian bankers’ acceptances, US based rates
and/or LIBOR plus an applicable margin.
As at August 31, 2014, no advances were drawn from the Credit Facility.
As at August 31, 2014, the Company was in compliance with all financial covenants, financial ratios and all of the
terms and conditions of our debt and bank credit facility agreements.
Convertible Notes
The Company had outstanding unsecured subordinated Convertible Notes (the “Convertible Notes”) due September
12, 2014, and bore interest at 8.0% payable semi-annually, on June 30 and December 31. The Convertible Notes
24
78
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
holders could have elected to receive interest payments in the form of Class A Subordinate Voting Shares of the
Company based on the market price at the time of the payment.
On January 15, 2014, the Company gave notice of redemption to holders of the Convertible Notes in accordance
with the terms of the trust indenture. Subsequently during the year all holders of the Convertible Notes exercised
their election to convert the Convertible Notes into Class A Subordinate Voting Shares of the Company at a
conversion price of $5.92. The Convertible Notes were converted into 3,378,371 Class A Subordinate Voting
Shares. 675,675 of these shares were received by Sirius XM, and 287,158 shares by John I. Bitove and affiliates.
The Convertible Notes were convertible at the option of the Convertible Notes holders at any time at a conversion
price of $5.92 per share. The notes were redeemable at the option of the Company at any time provided certain
thresholds were met. This Convertible Notes contained both a liability and an equity element. The Company
assigned the residual amount of $1,539,196 to the equity component. Over the term of the Convertible Notes, the
liability was accreted to its estimated future payment amount with the increase in liability value recorded as interest
expense over the period the liability is outstanding. The effective interest rate based on the liability element was
11.0%.
The principal balance outstanding as at August 31, 2014 was $nil (2013 - $20,000,000), and the interest payable
balance as at August 31, 2014 was $nil (2013 - $266,666). During the year ended August 31, 2014 the cash interest
expense for the Convertible Notes was $963,369 (2013 - $1,600,000).
25
Sirius XM Canada Holdings Inc. Annual Report 2014
79
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. PROVISIONS
Product
Obligations
Other
Total
At September 1, 2012
Charged/(credited) to the statements of operations and
comprehensive income:
Additional provisions
Unused amounts reversed
Paid during period
880,057
749,642
1,629,699
487,656
(22,206)
(214,497)
41,795
(271,361)
—
529,451
(293,567)
(214,497)
At August 31, 2013
1,131,010
520,076
1,651,086
Current
Non-current
1,131,010
—
196,964
323,112
1,327,974
323,112
At August 31, 2013
1,131,010
520,076
1,651,086
At September 1, 2013
Charged/(credited) to the statements of operations and
comprehensive income:
Additional provisions
Unused amounts reversed
Paid during period
1,131,010
520,076
1,651,086
85,488
(330,359)
(654,805)
236,122
(34,290)
(73,219)
321,610
(364,649)
(728,024)
At August 31, 2014
231,334
648,689
880,023
Current
Non-current
231,334
—
274,449
374,240
505,783
374,240
At August 31, 2014
231,334
648,689
880,023
The product obligations provisions are in place for the movement of obsolete inventory that may require assistance to
be sold at retailers. Contractual obligations from existing arrangements also require funds to be set aside for
products that will become obsolete. During the year, the Company revised its estimate for provisions of obsolete
products and reversed a portion of these provisions which is included above as unused amounts reversed.
Other provisions relate to decommissioning liabilities and an amount related to potential obligation to a supplier.
13. SHARE CAPITAL
The Company's authorized share capital consists of the following:



Unlimited number of Class A Subordinate Voting Shares with no par value and no fixed dividends;
Unlimited number of Class B Voting Shares with no par value and no fixed dividends; and
Unlimited number of Class C Non-Voting Shares with no par value and no fixed dividends.
The Class B Voting Shares are convertible at any time at the holder’s option into fully paid and non-assessable Class
A Subordinate Voting Shares upon the basis of one Class A Subordinate Voting Share for three Class B Voting
26
80
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares. Each Class B Voting Share participates in the equity of the Company on a per share basis equal to one third
of the rate of participation of the Class A Subordinate Voting Shares and the Class C Non-Voting Shares.
The Class A Subordinate Voting Shares are convertible at any time at the holder’s option into fully paid and
non-assessable Class C Non-Voting Shares on the basis of one Class A Subordinate Voting Share for each Class C
Non-Voting Share. The Class C Non-Voting Shares are also convertible at any time at the holder’s option into fully
paid and non-assessable Class A Subordinate Voting Shares on the basis of one Class C Non-Voting Share for each
Class A Subordinate Voting Share.
The Company may not issue, and any holder of Class C Non-Voting Shares or Class B Voting Shares may not
receive, any Class A Subordinate Voting Shares in connection with the conversion rights discussed above, if
subsequent to any such conversion the number of votes attached to the voting shares or the total number of issued
and outstanding voting shares that are held by members of the Restricted Class exceeds 33 1/3% of the voting rights
attached to all the issued and outstanding voting shares or represents more than 33 1/3% of the total number of issued
and outstanding voting shares.
During the year ended August 31, 2014 Obelysk converted 18,300,000 (2013 - 28,500,000) Class B Voting Shares to
6,100,000 (2013 - 9,500,000) Class A Subordinate Voting Shares.
During the year ended August 31, 2014 Sirius XM converted 13,180,065 (2013 - 9,499,999) Class B Voting Shares
to 4,393,355 (2013 - 3,166,667) Class A Subordinate Voting Shares and converted 13,638,527 (2013 - nil) Class A
Subordinate Voting Shares to 13,638,527 (2013 - nil) Class C Non-Voting Shares.
In the year ended August 31, 2014, Slaight converted 32,100,000 (2013 - nil) Class B Voting Shares to 10,700,000
(2013 - nil) Class A Subordinate Voting Shares.
In the year ended August 31, 2014, CBC converted 53,570,361 (2013 - nil) Class B Voting Shares to 17,856,787
(2013 - nil) Class A Subordinate Voting Shares.
In November 2012, the Board of Directors instituted a dividend policy and announced a special dividend and
initiation of quarterly dividends equal to $0.0825 to all issued and outstanding Class A Subordinate Voting Shares
and Class C Non-Voting Shares and $0.0275 for Class B Voting Shares. In July 2013, the dividend per share was
increased to $0.1050 per Class A Subordinate Voting Share and Class C Non-Voting Share and $0.0350 per Class B
Voting Share. Total dividends payable and paid for the year ended August 31, 2014 was $53,045,406.
In addition to the quarterly dividends, on June 19, 2014, the Company paid a special dividend to shareholders of
record on the close of business on June 9, 2014, of $0.5850 per issued and outstanding Class A Subordinate Voting
Share and Class C Non-Voting Share, and $0.1950 per issued and outstanding Class B Voting Share for a total of
$74,879,943.
27
Sirius XM Canada Holdings Inc. Annual Report 2014
81
Sirius XM Canada Holdings Inc.
NOTES
TO CONSOLIDATED
FINANCIAL STATEMENTS
Sirius XM Canada
Holdings Inc.
NOTESCAPITAL
TO CONSOLIDATED FINANCIAL STATEMENTS
SHARE
Common Shares
SHARE CAPITAL
Common Shares
Class
Class A
Number
Number
Carrying
of Shares
Value
of Shares
AtAtSeptember
2012
September 1,1,
2012
Issued on
on exercise
of of
Issued
exercise
employee stock
employee
stockoptions
options
Conversion of shares by
Conversion
related partiesof shares by
related parties
At August 31, 2013
At August 31, 2013
At September 1, 2013
Issued on exercise of
Atemployee
September
1, 2013
stock options
Conversion
of
shares
by
Issued on exercise of
related parties
employee
stock
options
Convertible Notes equity
Conversion
of shares by
portion
Conversion
of
related
parties
Convertible Notes
Convertible
Notes equity
At August 31, 2014
portion
Conversion of
Convertible Notes
At August 31, 2014
Common Shares
A
Common Shares
Carrying
Class B
Number
Value
of Shares
61,194,252
61,194,252
83,094,27383,094,273
185,879,935
790,750790,750
3,401,103 3,401,103
—
12,666,667
13,349,318
(37,999,999)
74,651,669
99,844,694
147,879,936
74,651,669
99,844,694
147,879,936
Class B
Number
Carrying
of Shares
Value
Common Shares
Class C
Carrying
Number
Carrying
of Shares
Value
Value
—
790,750
— 3,401,103
790,7
—
—
(25,333,332)
—
—
—
—
—
(13,349,318)
74,651,669
99,844,694
147,879,936
51,949,902
147,879,936
—
51,949,902
—
(117,150,426)
(41,169,995)
13,638,527
14,373,558
—
—
—
—
26,796,437
—
1,539,196
—
3,378,371
20,000,000
—
715,775
25,411,615
104,157,430
3,528,341
26,796,437
151,708,668
30,729,510
—
1,539,196
—
—
(117,150,426)
(41,169,995)
10,779,907
—
13,638,527
—
—
—
—
—
—
—
222,531,605
—
151,794,596
—
222,531,6
151,794,596
715,775
— 3,528,341
222,531,6
—
715,7
(78,100,284)
—
—
1,539,196
—
3,378,371
20,000,000
14,373,558
— 148,525,467
176,862,133
—
13,638,527
(25,333,33
222,531,605
14,373,558
(78,100,28
3,378,371
20,000,000
—
—
—
—
3,378,3
104,157,430
151,708,668
30,729,510
10,779,907
13,638,527
14,373,558
148,525,4
28
82
of Shar
—
(37,999,999)
25,411,615
Value
Value
—
—
13,349,318
—
of Shares
Numb
247,074,1
12,666,667
74,651,669
715,775
3,528,34199,844,694
Carrying
—
148,393,493
—
—
51,949,902
of Shares
Carrying
Number
— 247,074,187
65,299,220
—
51,949,902
Number
T
Total
—
185,879,935
65,299,220
(13,349,318)
Share
Class CShare Capital
Common Shares
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCK-BASED COMPENSATION
Details of Stock-Based Compensation
Reflected in the Consolidated Statements of Operations and Comprehensive Income as employee benefits expenses
are the following stock-based compensation amounts:
For the year ended August 31
Stock option awards
Restricted stock units
Performance stock units
Stock-Based Compensation
2014
1,644,815
391,019
514,131
2,549,965
2013
1,685,095
237,007
335,193
2,257,295
(a) Stock option awards
The Company uses stock option awards as a form of providing additional incentives to attract and retain employees,
directors and senior officers of the Company. The stock option plan permits the Board of Directors of the Company
to grant employees, directors and senior officers stock options to purchase common shares up to a maximum of 10%
of the number of shares outstanding. Under the plan, unless otherwise fixed by the Board, options expire on the
seventh anniversary of the grant date. Any option not exercised prior to the expiry date will become null and void.
In connection with certain substitution events or change of control transactions, as these terms are defined in the
plan, including a take-over bid, merger or other structured acquisition, the Board of Directors may accelerate the
vesting date of all unvested options such that all optionees will be entitled to exercise their full allocation of options.
The following table presents a summary of the activities related to the Company’s share option plans for the years
ended August 31, 2014 and August 31, 2013.
Stock options outstanding:
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise Price
Total
Vested
Unvested
At September 1, 2012
Granted
Vested
Exercised
Forfeited
4.9
$3.40
$4.76
—
$2.84
$4.73
3,226,975
749,700
—
(790,750)
(747,825)
1,212,950
225,000
500,050
(790,750)
(547,875)
2,014,025
524,700
(500,050)
—
(199,950)
At August 31, 2013
5.2
$3.60
2,438,100
599,375
1,838,725
At September 1, 2013
Granted
Vested
Exercised
Forfeited
5.2
$3.60
$8.49
—
$3.39
$5.80
2,438,100
435,800
—
(715,775)
(26,325)
599,375
124,200
495,150
(715,775)
(6,500)
1,838,725
311,600
(495,150)
—
(19,825)
At August 31, 2014
4.8
$4.64
2,131,800
496,450
1,635,350
Exercise prices for the outstanding options at August 31, 2014 range from $1.37 per unit to $8.49 per unit.
29
Sirius XM Canada Holdings Inc. Annual Report 2014
83
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock options granted:
On November 18, 2013, the Company granted stock options to the Board of Directors and members of the
Company’s management team for 435,800 Class A Subordinate Voting Shares with an exercise price of $8.49. The
exercise price was the 5 day volume weighted average price of the shares at the time of grant. The options vest
immediately or over 4 years. The fair value of the options was estimated using the Black-Scholes option pricing
model. The following assumptions were used for the tranches within the grant:
Fair value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected time until exercise
Weighted Average
$3.27
1.5%
5.0%
48.4%
4.5
On November 16, 2012, the Company granted stock options to the Board of Directors and members of the
Company’s management team for 749,700 Class A Subordinate Voting Shares with an exercise price of $4.76. The
exercise price was the 5 day volume weighted average price of the shares at the time of grant. The options vest
immediately or over 4 years. The fair value of the options was estimated using the Black-Scholes option pricing
model. The following assumptions were used for the tranches within the grant:
Fair value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected time until exercise
Weighted Average
$2.21
1.4%
7.0%
57.6%
4.5
The expected volatility is based on the historic volatility of the Company’s share price over the previous 3 years
since the merger.
(b) Restricted and Performance Stock Units
With approval from the Company’s Board of Directors, the Company grants RSUs and PSUs to certain of its
employees as a form of incentive compensation. The RSUs and PSUs cliff vest in three years, and can be settled in
cash or shares at the discretion of the Company’s Board of Directors. The PSUs are subject to minimum
performance targets.
On November 18, 2013, the Company granted 11,780 RSUs and 241,600 PSUs. As at August 31, 2014, due to
forfeitures, the range of PSUs that may vest is from nil if minimum performance targets are not met, to a maximum
of 235,800 units. The grant date fair value for both RSUs and PSUs is $8.20 per unit.
On November 16, 2012, the Company granted 200,190 RSUs and 390,280 PSUs. As at August 31, 2014, due to
forfeitures, the range of PSUs that may vest is from nil if minimum performance targets are not met, to a maximum
of 360,100 units. The grant date fair value for both RSUs and PSUs is $4.71 per unit.
30
84
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The RSUs and PSUs grant certain employees either a cash or share based payment at the option of the Company.
The cash payment per RSU or PSU would be equal to the weighted average price of the Company’s common share
on the Toronto Stock Exchange (“TSX”) in the five trading days preceding the end of a three year performance
period multiplied by the number of units that vest. For the PSUs, the number of units that vest will vary based on the
achievement of non-market performance measures. The Company recognizes compensation expense in operating
costs for each RSU and PSU expected to vest equal to the market value of the Company’s common share less the net
present value of the expected dividend stream at the date on which RSUs and PSUs are awarded to each participant.
For PSUs expected to be settled in shares, the compensation expense is prorated over the performance period
reflecting changes in the number of PSUs expected to vest until the end of the performance period based on the
achievement of non-market performance measures. Forfeitures are estimated at the grant date and are revised to
reflect a change in expected or actual forfeitures.
Since the settlement method of the RSUs and PSUs is at the discretion of the Company’s Board of Directors, and the
Company does not have a prior practice of settling in cash and currently intends to settle the awards by issuing
shares, the Company accounts for RSUs and PSUs compensation related expense using the equity settlement method.
From cumulative grants made, including current year’s grants, as at August 31, 2014, the number of non-vested
RSUs is 196,160 units. The number of PSUs that may vest based on conditions existing at the balance sheet date is
324,958 units.
31
Sirius XM Canada Holdings Inc. Annual Report 2014
85
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL INSTRUMENTS
The Company has designated the following classifications for its financial assets and financial liabilities:
Cash and cash equivalents are classified as loans and receivables with a total carrying value of $23,868,423 at
August 31, 2014 (2013 - $44,078,584).
Short-term investments were classified as held-to-maturity investments, and were measured at amortized cost using
the effective interest rate method. Interest income of $61,260 in relation to these instruments was recognized in the
financial statements for the year ended August 31, 2014 (2013 - $67,606).
Accounts receivable are classified as loans and receivables, which are measured at amortized cost using the effective
interest rate method. No interest expense in relation to these instruments was recognized in the financial statements
for the years ended August 31, 2014 and August 31, 2013.
Trade and other payables, and amounts due to related parties are classified as other financial liabilities, which are
measured at amortized cost using the effective interest rate method. No interest expense in relation to these
instruments was recognized in the statements of operations and comprehensive income for the years ended August
31, 2014 and August 31, 2013.
Long term debt and other long-term liabilities are classified as other financial liabilities and measured at amortized
cost using the effective interest rate method.
At
Financial Assets
Loans and receivables
Cash and cash equivalents
Trade Receivables
Held-to Maturity Investments
Financial Liabilities
Amortized cost
Trade and other payables
Due to related parties
Other long-term liabilities
2018 Senior Notes
2021 Senior Notes
Interest payable on 2018 Senior Notes
Interest payable on 2021 Senior Notes
Liability component of Convertible Notes
Interest Payable on Convertible Notes
Fair value through profit and loss
Other derivative liabilities
August 31,
2014
August 31,
2013
23,868,423
13,454,489
37,322,912
—
44,078,584
13,359,446
57,438,030
5,157,798
44,121,466
10,470,100
533,049
—
195,463,860
—
3,965,753
—
—
254,554,228
47,145,257
12,011,358
1,669,229
124,199,370
—
2,437,783
—
19,507,824
266,666
207,237,487
—
2,291,378
32
86
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risk includes foreign exchange risk, interest rate risk and other price risk.
To perform a sensitivity analysis, the Company assesses the impact of hypothetical changes in interest rates and
foreign currency exchange rates on foreign currency denominated and interest-bearing financial instruments.
Information provided by the analysis does not represent the Company's view of future market changes, nor does it
necessarily represent the actual changes in fair value that would occur under normal market conditions because, of
necessity, all variables other than the specific market risk factor are held constant. In reality, changes in one factor
may result in a change to another, which may magnify or counteract the sensitivities.
Foreign currency risk
The Company is exposed to fluctuations of the Canadian dollar in relation to the US dollar, resulting from US dollardenominated cash, and certain liabilities.
Most of the Company's revenue and expenses are received or paid in Canadian dollars. The Company's only
exposure to foreign currency risk is with respect to a license and service agreement with Sirius XM and the NHL
contract.
Given that the Company's exposure is limited to the aforementioned payments, management does not actively
manage this risk. The Company does not currently use foreign currency derivatives.
As at August 31, 2014, the Canadian/U.S. foreign exchange rate was 1.087. Assuming that all other variables remain
constant, a decrease of 10% (with opposite impacts on an increase of similar proportion) in the Canadian dollar
would have the following impact on the ending balances of certain balance sheet items:
At
Assets
Cash
Liabilities
Trade and other payables
Due to related parties
Net foreign exchange loss
August 31,
2014
(199,714)
146,876
470,054
417,216
Interest rate risk
The Company is subject to interest rate risk from changes in interest rates on the Company's cash balances and
floating rate bank credit facility. The interest rate on the Company’s 2021 Senior Notes is fixed and therefore the
Company is not exposed to material interest rate risk. Consequently, the Company does not use interest rate
derivative instruments to manage exposure to interest rate fluctuations.
33
Sirius XM Canada Holdings Inc. Annual Report 2014
87
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing
to discharge an obligation. The Company is exposed to credit risk, primarily in relation to its cash and cash
equivalents, short-term investments and accounts receivable, all of which are uncollateralized.
The carrying amounts of these financial assets represent the maximum credit exposure which was as follows:
At
Cash and cash equivalents
Short-term investments
Accounts receivable
August 31,
2014
23,868,423
—
13,454,489
August 31,
2013
44,078,584
5,157,798
13,359,446
The Company's objective is to minimize its exposure to credit risk in order to prevent losses on financial assets by
placing its cash with major chartered Canadian banks. All of these chartered Canadian banks have a risk rating of B
or higher per Moody’s. Due to their short-term nature and placement with major chartered Canadian banks, cash is
not exposed to material credit risk.
With respect to short-term investments, there is some risk that the issuer will fail to honour the promise to pay
interest and repay the principal on the maturity date. The Company has managed its exposure to the risk by choosing
investments with short-term nature, high credit ratings and low volatility placed with companies with strong
investment grade ratings.
With respect to accounts receivable, exposure to credit risk varies due to the composition of individual customer
balances and subscription fees from OEMs.
The Company assesses the credit risk of accounts receivable by evaluating the age of accounts receivable based on
the invoice date. Accounts receivable are considered past due 31 days after the invoice date. The following table
sets out details of the aging of accounts receivable that are outstanding and past due:
At
Current
31-60 days
61-90 days
Over 90 days
August 31,
2014
8,035,445
4,566,123
449,060
403,861
13,454,489
August 31,
2013
10,265,611
2,282,586
374,847
436,402
13,359,446
No past due accounts have been renegotiated with different terms.
The Company has a concentration of credit risk with certain OEMs who are billed for trial subscriptions. Within
accounts receivable that are outstanding, $5,803,073 is due from Chrysler Canada and a total of $2,371,568 is from
other OEMs. The Company believes that the concentration of credit risk of the remainder of accounts receivable is
limited as accounts receivable are widely distributed among many subscribers across Canada and there are no
specific types of customers that have unique characteristics.
34
88
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset. The Company's management believes that
cash flows from operations should be sufficient to cover committed cash requirements for capital investments,
working capital and potential dividends in the future.
Cash flow forecasting is performed by the Company to ensure it has sufficient cash to meet operational needs while
maintaining sufficient headroom at all times so that the Company does not breach borrowing limits or covenants
(where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Company’s debt
financing plans, covenant compliance, compliance with internal balance sheet ratio targets, dividend payments and,
if applicable external regulatory or legal requirements. Surplus cash held by the Company over and above the
balance required for working capital management is transferred to money market funds. At the reporting date, the
Company held money market funds of $3,109,847 that are expected to readily generate cash inflows for managing
liquidity risk.
The table below analyses the Company’s non-derivative financial liabilities into relevant maturity groupings based
on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the
table are the contractual undiscounted cash flows.
August 31, 2014
Less than 1
year
1- 3 years
4-5 years
More than
5 years
Total
Trade and other payables
Trade and other payables*
Due to related parties
Due to related parties*
Other long-term liabilities
43,061,568
1,059,898
4,561,227
4,584,908
—
—
—
—
115,633
196,369
—
—
—
—
229,746
—
—
1,208,332
—
106,934
43,061,568
1,059,898
5,769,559
4,700,541
533,049
Principal on 2021 Senior Notes
Interest on 2021 Senior Notes
—
11,250,000
—
22,500,000
—
22,500,000
200,000,000
22,500,000
200,000,000
78,750,000
59,818
—
—
—
59,818
64,577,419
22,812,002
22,729,746
223,815,266
333,934,433
Interest on NHL Trademark*
Total
* Balance denominated in US dollars and converted to Canadian dollars using rate in effective at August 31, 2014,
subject to fluctuations in exchange rate
35
Sirius XM Canada Holdings Inc. Annual Report 2014
89
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2013
Less than 1
year
1- 3 years
4-5 years
More than
5 years
Total
Trade and other payables
Trade and other payables*
Due to related parties
Due to related parties*
Other long-term liabilities
Other long-term liabilities*
41,408,959
5,736,298
3,859,045
5,761,705
—
—
—
—
—
1,182,276
374,076
950,910
—
—
—
—
159,404
—
—
—
1,208,332
—
184,839
—
41,408,959
5,736,298
5,067,377
6,943,981
718,319
950,910
Principal on 2018 Senior Notes
Interest on 2018 Senior Notes
—
12,750,173
—
25,500,345
130,771,000
25,500,345
—
—
130,771,000
63,750,863
—
1,600,000
20,000,000
324,384
—
—
—
—
20,000,000
1,924,384
231,165
57,931
—
—
289,096
71,347,345
48,389,922
156,430,749
1,393,171
277,561,187
Principal on 8.00% Convertible Notes
Interest on 8.00% Convertible Notes
Interest on NHL Trademark*
Total
* Balance denominated in US dollars and converted to Canadian dollars using rate in effective at August 31, 2013,
subject to fluctuations in exchange rate
Fair value
Cash and cash equivalents, accounts receivables, and trade and other payable are reflected in the consolidated
financial statements at carrying values that approximate fair values because of the short-term maturities of these
financial instruments.
The carrying value of the 2021 Senior Notes is $195,463,860 while the face value of the 2021 Senior Notes is
$200,000,000. The fair value of the 2021 Senior Notes is $202,500,000 and is based on the period end trading
values.
The 2021 Senior Notes have two components of value – the conventional notes and an early redemption right. This
redemption right has been determined to be an embedded derivative that is required to be bifurcated from the
underlying notes and accounted for as a financial asset or liability through profit and loss. The fair value of the
embedded derivative was not significant at inception of the instrument and at August 31, 2014 and was estimated
using the Hull-White model. The model uses the following inputs: risk-free rate, expected volatility and the
Company’s estimated credit spread. The embedded derivative is classified as level 2 as defined in note 2.
Fair value estimates are made at a specific point in time based on relevant market information and information about
the financial instruments. The estimates are subjective in nature and involve uncertainties and matters of judgment.
All other financial assets, financial liabilities and derivatives carried at fair value are individually and in aggregate
immaterial.
36
90
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital disclosures
The Company's objectives when managing capital are to:
(a) maintain financial flexibility to meet financial obligations and growth objectives;
(b) maintain a capital structure that allows multiple financing options to the Company should a financing need arise;
and
(c) deploy capital to provide appropriate investment return to shareholders.
The Company defines the capital that it manages as its long-term debt and shareholders' (equity) deficiency.
2018 Senior Notes
2021 Senior Notes
Convertible Notes
Shareholders' deficiency (equity)
Total capital
Cash and cash equivalents
August 31,
2014
—
(195,463,860)
—
87,227,212
(108,236,648)
23,868,423
August 31,
2013
(124,199,370)
—
(19,507,824)
(8,243,413)
(151,950,607)
44,078,584
In managing capital, the Company focuses on liquid resources available for operations. The need for sufficient
liquid resources is considered in the preparation of an annual budget and in the monitoring of cash flows and actual
operating results compared to the budget.
The basis for the Company's capital structure is dependent on the Company's expected growth, financial obligations
and changes in the business. To maintain or adjust its capital structure, the Company may issue additional shares or
raise debt.
The Company's objectives and strategies are reviewed periodically.
37
Sirius XM Canada Holdings Inc. Annual Report 2014
91
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. REVENUE
For the year ended August 31
Broadcasting
Equipment
2014
299,685,592
3,814,816
303,500,408
2013
286,069,482
2,831,300
288,900,782
2014
2013
Revenue share & royalties
90,039,273
89,869,730
Customer care and billing operations
19,739,654
19,351,598
Costs of merchandise
4,444,789
3,420,428
Broadcast and operations
1,812,017
1,650,548
Programming and content
11,048,219
7,683,345
General and administrative
11,038,034
8,894,846
Information technology
9,129,634
11,202,385
Stock-based compensation
2,549,965
2,257,295
Marketing support
8,840,854
7,431,159
Subsidies
40,107,882
42,872,026
Marketing
28,342,823
28,017,267
227,093,144
222,650,627
17. OPERATING EXPENSES
For the year ended August 31
Operating costs
Included in the expenses above are wages and benefit expense for the year ended August 31, 2014 $20,558,565
(2013 - $17,684,668).
38
92
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. EARNINGS PER SHARE
For the year ended August 31
Net income for the year
Weighted average number of shares outstanding:
Basic
Diluted
Earnings per share:
Basic and Diluted
2014
7,481,208
2013
12,190,542
126,288,250
127,485,260
123,454,881
124,334,090
0.06
0.10
The stock options where the exercise price is above the average share price during the period, and PSUs where
vesting is contingent on performance conditions that were not met as at August 31, 2014 were not included in the
computation of diluted earnings per share as they would have been anti-dilutive for the periods presented. The
impact of the convertible debt was not included as it was anti-dilutive.
19. SUPPLEMENTAL CASH FLOW DISCLOSURE
The net change in non-cash working capital and deferred revenue related to operations balances consists of the
following:
For the year ended August 31
Decrease (increase) in assets
Accounts receivable
Prepaid expenses and other
Inventory
Increase (decrease) in liabilities
Trade, other payables and provisions
Due to related parties
Deferred revenue
Long-term liabilities
Net change in non-cash working capital and deferred revenue
related to operations
2014
2013
(95,043)
2,068,070
(324,732)
(1,226,308)
(1,226,187)
89,967
(4,995,813)
(1,541,258)
(803,794)
(1,085,052)
5,582,248
4,027,425
3,416,582
(5,254,308)
(6,777,622)
5,409,419
2014
905,008
12,700,514
—
2013
646,678
14,350,173
—
Operating activities include the following payments and receipts:
For the year ended August 31
Interest income received
Interest paid
Taxes paid
39
Sirius XM Canada Holdings Inc. Annual Report 2014
93
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. CONTRACTS, CONTINGENCIES AND COMMITMENTS
Less than
1 year
1- 3 years
4-5 years
More than 5
years
Total
Operating leases
NHL agreement
2021 Senior Notes - Principal
2021 Senior Notes - Interest
Service, marketing and other
1,989,925
7,500,000
—
11,250,000
24,538,804
2,876,292
—
—
22,500,000
14,437,997
2,638,438
—
—
22,500,000
5,153,355
1,312,323
—
200,000,000
22,500,000
6,300,000
8,816,978
7,500,000
200,000,000
78,750,000
50,430,156
Total Contractual Obligations
45,278,729
39,814,289
30,291,793
230,112,323
345,497,134
Operating leases
Operating leases are for office spaces and terrestrial repeater sites. The amounts disclosed do not include any
common costs, such as property taxes and utilities, which cannot be determined in advance. The leases range in
length from one to seven years, and majority of the lease agreements are renewable at the end of the lease period at
market rate.
The above includes $287,857 in operating lease commitments with CBC. The total lease expenditure included in
operating costs for the year ended August 31, 2014 is $1,913,639 (2013 - $1,777,649).
National Hockey League
The Company has commitments to reimburse Sirius XM for a portion of its obligations under a term sheet signed on
September 9, 2005 between Sirius XM and the National Hockey League to secure satellite radio National Hockey
League broadcast and marketing rights. The agreement between Sirius XM and the NHL expires at the end of the
2014-2015 NHL season, with the Company’s remaining commitment related to the agreement being $7,500,000.
Service, marketing and other
The Company has commitments with CBC of $16,800,000 and Sirius XM of $1,200,000 million which are detailed
within note 10 and included in amounts above.
The Company also has agreement with other vendors for other goods and services, including maintenance and
development services for SXM’s customer care and billing system, CCD, broadcasting and programming rights, and
marketing and advertising with commercial partners.
Along with commitments above, the Company also has requirements for the following:
Broadcast license
As a condition of the broadcast license from the CRTC, the Company must contribute a minimum of 4% of the gross
revenues of the satellite radio undertaking to eligible third parties directly connected to the development of Canadian
musical and artistic talent during each broadcast year over the current license term. Upon license renewal from
40
94
Sirius XM Canada Holdings Inc. Annual Report 2014
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CRTC, effective December 1, 2012, the Company’s annual contribution level was lowered from 5% to 4% of its
prior year revenues. Accordingly, for periods prior to December 1, 2012, the amount paid is 5% of prior year
revenues, and 4% thereafter. These amounts are recognized as an operating expense.
Copyright royalties
The Company must pay royalties for the use of music on its satellite and internet radio services. Through copyright
collective societies the Company pays royalties to two sets of rights holders: rights holders in musical works, which
are the music and the lyrics; and, rights holders in performers’ performances and sounds recordings, which are the
actual performances and recordings of the musical works.
On April 11, 2009 the Copyright Board certified the Statement of Royalties to be Collected by SOCAN, NRCC and
CSI in Respect of Multi-Channel Subscription Satellite Radio Services, later amended by an Erratum issued on May
16, 2009 (as amended, the “Satellite Radio Tariff”). The Satellite Radio Tariff expired in 2009 with respect to
SOCAN and in 2010 with respect to Re:Sound. The Company has continued paying royalties under the Satellite
Radio Tariff after its expiry in anticipation of a successor tariff, as required by the Copyright Act, or by agreement.
During the financial year ended August 31, 2014, the Company entered into settlement agreements with SOCAN and
Re:Sound for the public performance and communication to the public of musical works, performers’ performances,
and sound recordings on the Company’s Satellite Radio Services, whose associated tariffs remain subject to review
and certification by the Copyright Board at the time of filing of this disclosure. The Copyright Board has discretion
to accept or reject the agreed-on royalty rates.
The Company continues to pay copyright royalties for its online use of musical works at the rates set out in Tariff
22.D, as required by the Copyright Act.
On May 17, 2014, the Copyright Board of Canada issued its decision in Re:Sound Tariff 8 and certified royalty rates
for the public performance and communication to the public of sound recordings and performers’ performances for
certain types of Internet uses of music for the years 2009-2012. There had previously been no certified tariff for
Internet uses of sound recordings and performers’ performances in Canada. The new tariff excludes online
simulcasts of the Company’s satellite service but introduces a per play rate for the “semi-interactive” personalization
functions of our streaming service. The Company does not expect the royalty rates outlined in Tariff 8 to have a
significant impact on its business or financial condition.
Revenue share and royalties
The Company pays license royalties to Sirius XM and fees to certain OEMs. These arrangements have not been
included in the contracts and commitment table above because the specific amounts payable are contingent on the
Company’s revenue and/or subscriber levels, which themselves are subject to various economic assumptions and
future results and cannot be estimated.
Contingencies
From time to time the Company may be engaged in legal proceedings or claims that have arisen in the ordinary
course of business. The outcome of all of the proceedings or claims against the Company, are subject to future
resolution, including the uncertainties of litigation. Based on information currently known to the Company,
management believes that the probable ultimate resolution of any such proceedings and claims will not have a
material adverse effect on the financial condition of the Company taken as a whole.
41
Sirius XM Canada Holdings Inc. Annual Report 2014
95
Sirius XM Canada Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The CRA is proposing to reassess filing positions taken in a prior year and is also proposing to assess material
amounts for withholding taxes and interest and penalties related to certain transactions which would be payable
should the Company’s filing position not be sustained. The Company has not recognized a provision for any
amounts related to the proposed amounts as it believes CRA’s proposal has no merit. The Company will continue to
vigorously defend its filings and it believes it will be successful in defending its position.
42
96
Sirius XM Canada Holdings Inc. Annual Report 2014
Corporate
Information
BOARD OF DIRECTORS
AUDITOR
John Bitove
Chairman
PricewaterhouseCoopers LLP
Toronto, ON
Dara Altman
Timothy Casgrain
David Coriat
Philip Evershed
TRANSFER AGENT
CST Trust Company
Toronto, ON
David Frear
LEGAL COUNSEL
Guy Johnson
Oliver Jaakkola
Senior Vice President & General Counsel
SiriusXM Canada
Christine Magee
Anthony Viner
SENIOR OFFICERS
Mark Redmond
President & Chief Executive Officer
Michael Washinushi
Chief Financial Officer
CORPORATE HEADQUARTERS
135 Liberty Street, 4th Floor
Toronto, ON M6K 1A7
ANNUAL GENERAL & SPECIAL MEETING
Tuesday, January 13, 2015, 10:00 a.m.
TMX Broadcast Centre
130 King Street West
Toronto, ON
CLASS A SUBORDINATE VOTING SHARES
Sirius XM Canada Holdings Inc.
Class A Subordinate Voting Shares are
traded on the Toronto Stock Exchange
(TSX) under the trading symbol “XSR”.
INVESTOR RELATIONS
Morlan Reddock
Director Treasury & Investor Relations
SiriusXM Canada
416-513-7418
morlan.reddock@siriusxm.ca
Kristen Dickson
TMX Equicom
416-815-0700 ext. 273
kdickson@tmxequicom.com
COMMERCIAL-FREE MUSIC
POP
02 SiriusXM Hits 1 – Top 40 Hits
03 Venus- Rhythmic Pop From
the 2000s - Today
04 ’40s on 4
05 ’50s on 5
06 ’60s on 6
07 ’70s on 7
08 ’80s on 8
09 ’90s on 9
10 Pop2K – 2000s Pop Hits
15 The Pulse – 2000s and Today
16 The Blend – Lite Pop Hits
17 SiriusXM Love
163Chansons – SiriusXM’s
“chansons” music channel F
165Multicultural Radio – The
Cultures of Canada (SIRIUS Only)
174Influence Franco – The New
Indie Pop Alternative F
(XM Only)
ROCK
19 Elvis Radio
20 E Street Radio – Bruce
Springsteen 24/7
21 Underground Garage – Little
Steven’s Underground Garage
22 Pearl Jam Radio
23 Grateful Dead Channel
24 Radio Margaritaville
25 Classic Rewind – ’70s & ’80s
Classic Rock
26 Classic Vinyl – ’60s & ’70s
Classic Rock
27 Deep Tracks – Deep Classic
Rock
28 The Spectrum – Adult Album
Rock
29 Jam On – Jam Bands
30 The Loft – Contemporary
Eclectic
31 The Coffee House – Acoustic
Singer-Songwriters
32 The Bridge – Mellow Rock
33 First Wave – Classic
Alternative
34 Lithium – ’90s Alternative/
Grunge
35 SiriusXMU – Indie Rock
36 Alt Nation – New Alternative
Rock
37 Octane – New Hard Rock
38 Ozzy’s Boneyard – Classic
Hard Rock
39 Hair Nation – ’80s Hair Bands
40 Liquid Metal – Heavy Metal
41 Faction – Music of Action
Sports,Tony Hawk
161 Iceberg – Canadian Adult
Alternative Music (SIRIUS Only)
162 CBC Radio3 – Canadian Indie
Music
164 Attitude Franco – The New
Rock Alternative F (SIRIUS Only)
171CBC Music: Sonica – Adult
Alternative Artists
173The Verge – Best New Rock
with Unsigned Artists (XM Only)
HIP-HOP, R&B & REGGAE
42 The Joint – Reggae
44Hip-Hop Nation
45 Shade 45 – Eminem’s Uncut
Hip-Hop
46 Backspin – Old Skool Rap
47 The Heat – R&B Hits
48 Heart & Soul – Adult R&B Hits
49 Soul Town – Classic Soul/
Motown
50The Groove – Old School R&B
ELECTRONIC, DANCE & LATIN
51 BPM – Dance Hits
52 Electric Area – Progressive
House, Trance & Electro
53 SiriusXM Chill – Smooth
Electronic
54 Studio 54 Radio – The Ultimate
Classic Dance Channel
150 Caliente – Tropical Latin Music
500Viva – Contemporary Latin
Pop & Ballads (Online Only)
COUNTRY
56 The Highway – New Country
57Y2Kountry – Country Hits
From the 2000’s
58 Prime Country – ’90s Country
& More
59 Willie’s Roadhouse – Classic
Country
60 Outlaw Country – Rockin’
Country Rebels
61 Bluegrass Junction
166FrancoCountry – Francophone
& Canadian Country-folk
741The Village – Folk (Online Only)
CHRISTIAN
63 The Message – Christian Pop &
Rock
64 Kirk Franklin’s Praise – Gospel
(Online Only for Sirius)
65 enLighten – Southern Gospel
JAZZ, BLUES & STANDARDS
66 Watercolors – Smooth/
Contemporary Jazz
67 Real Jazz – Classic Jazz
68 Spa – New Age
69 Escape – Beautiful Music
70 B.B. King’s Bluesville
71 Siriusly Sinatra – Sinatra/
American Standards
72 On Broadway – Show Tunes
750Cinemagic – Movie Music
(Online Only)
CLASSICAL
74 Met Opera Radio – Opera/
Classical Vocals
76 Symphony Hall – Traditional
Classical
750 SiriusXM Pops – Classical Pops
(Online Only)
SPORTS
83 ESPN Radio – ESPN’s Sports
Talk Channel
84 ESPN XTRA – The Latest
Sports News
85 Mad Dog Sports Radio – “Mad
Dog” Russo Takes on Sports
86SiriusXM NBA Radio
87SiriusXM Fantasy Sports
88 SiriusXM NFL Radio
89MLB Network Radio
90 SiriusXM Nascar Radio
91 SiriusXM College Sports
Nation
92 SiriusXM Sports Zone – Sports
Games and Talk
93SiriusXM PGA TOUR Radio
94 SiriusXM FC – Your SiriusXM
Home for Soccer
176–189MLB Play-by-Play
190–192SEC Play-by-Play
(XM Only)
193–194 ACC Play-by-Play
(XM Only)
195 –196Big Ten Play-by-Play
(XM Only)
197 –198 PAC-12 Play-by-Play
(XM Only)
199–200 Big 12 Play-by-Play
(XM Only)
201 –207 Sports Play-by-Play –
Live Sports Play-by-Play
(XM Only)
208 Bleacher Report Radio Sports Talk by Bleacher
Report
209
Verizon IndyCar Series
210–211 Sports Play-by-Play –
Live Sports Play-by-Play
(XM Only)
212 –217NBA Play-by-Play
(XM Only)
212 –220 Sports Play-by-Play –
Live Sports Play-by-Play
(SIRIUS Only)
218SiriusXM NHL Network
Radio
219 –223NHL Hockey Play-byPlay
(XM Only)
225 –234NFL Play-by-Play
(XM Only)
235 –236 Sports Play-by-Play –
Live Sports Play-by-Play
(XM Only)
800–831NFL Play-by-Play
(Online Only)
840–869MLB Play-by-Play
(Online Only)
980 –909NBA Play-by-Play
(Online Only)
920 –949 NHL Play-by-Play
960 –969Sports Play-by-Play
NEWS, TALK,
ENTERTAINMENT,
FAMILY & HEALTH
TALK & ENTERTAINMENT
80 RURAL Radio – Agriculture &
Western Lifestyle
81 Doctor Radio – Real Doctors
Helping Real People
100 Howard 100 – The OFFICIAL
Howard Stern Channel
101 Howard 101 – The Stern Show
West Coast Replay & Special
Programs
102 Indie – Indie Talk Radio
103Opie Radio – Opie, Jim Norton
& Special Guests
105Entertainment Weekly Radio
106 OutQ – Gay & Lesbian Radio
108Today Show Radio (XM Only)
109SiriusXM Stars – Celebrity
Hosts & Lifestyle Shows
128 Joel Osteen Radio – Positive
Inspiration For Life
146Road Dog Trucking Radio –
Just for Truckers
COMEDY
95Comedy Central Radio – Uncut
stand-up direct to your brain
96 The Foxxhole – Your AllAccess Pass to the World of
Jamie Foxx
97 Blue Collar Comedy
98 Laugh USA – Family Comedy
99 Raw Dog Comedy Hits –
Comedy Uncensored
168Canada Laughs – Canada’s
Extraordinary Comedy
FAMILY & KIDS
78 Kids Place Live
79 Radio Disney
82 Radio Classics – Classic Radio
Shows
RELIGION
129 The Catholic Channel
130 EWTN – Global Catholic Radio
Network (Online Only for XM)
131 Family Talk – Christian Talk
NEWS
111Business Radio – 24/7
Business Talk from Wharton
112 CNBC
113FOX Business
114 FOX News Channel
115 CNN
116 HLN
117 MSNBC
119 Bloomberg Radio
120 C-SPAN Radio (Online Only)
121SiriusXM Public Radio (Online
Only for SIRIUS)
122 NPR Now
124 POTUS – Politics of the United
States
125 SiriusXM Patriot – Conservative
Talk (Online Only for XM)
127 SiriusXM Progress – Liberal
Talk (Online Only for SIRIUS)
167Canada Talks – Canadian
Current Affairs & Talk
169 CBC Radio One
170 ICI Radio-Canada Première
– Radio-Canada News &
Information F
172 Canada 360 by AMI – Canada’s
News/Weather by AMI-Audio
INTERNATIONAL
118 BBC World Service News
* Some channel numbers vary depending
on Sirius or XM lineup. Please see
www.siriusxm.ca/channelguide for full
accurate listings.
135 LIBERTY STREET, 4TH FLOOR
TORONTO, ON M6K 1A7