UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ________
COMMISSION FILE NUMBER 001-34295
SIRIUS XM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
38-3916511
(I.R.S. Employer Identification No.)
1221 Avenue of the Americas, 35th Floor, New York, NY
(Address of Principal Executive Offices)
10020
(Zip Code)
Registrant’s telephone number, including area code: (212) 584-5100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.001 par value
Trading Symbol(s)
SIRI
Name of exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2020 was $ 6,902,732,943. All executive officers and directors of the registrant
have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
The number of shares of the registrant’s common stock outstanding as of January 29, 2021 was 4,139,978,947.
DOCUMENTS INCORPORATED BY REFERENCE
Information included in our definitive proxy statement for our 2021 annual meeting of stockholders scheduled to be held on Thursday, June 3, 2021 is incorporated by reference into
Items 10, 11, 12, 13 and 14 of Part III of this report.
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Item 7A.
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
2020 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Description
PART I
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
PART III
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Part IV
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ITEM 1. BUSINESS
PART I
This Annual Report on Form 10-K presents information for Sirius XM Holdings Inc. (“Holdings”), a Delaware corporation. The terms “Holdings,” “we,” “us,” “our,”
and “our company” as used herein and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries. “Sirius XM” refers to our wholly
owned subsidiary Sirius XM Radio Inc. and its subsidiaries other than Pandora. “Pandora” refers to Sirius XM’s wholly owned subsidiary Pandora Media, LLC and its
subsidiaries.
Sirius XM Holdings Inc.
Holdings was incorporated in the State of Delaware on May 21, 2013. Holdings has no operations independent of its wholly owned subsidiaries, Sirius XM and Pandora.
Relationship with Liberty Media
As of December 31, 2020, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of
Holdings’ common stock. Liberty Media owns interests in a range of media, communications and entertainment businesses.
Our Businesses
We operate two complementary audio entertainment businesses - our Sirius XM business and our Pandora business. We continue to expand the range of choices for our
listeners – both in terms of compelling content and the array of ways in which it can be consumed. There are approximately 135 million vehicles in operation with Sirius XM
radios, and the proliferation of smart speakers and other connected devices has increased the range of options consumers have for engaging with and consuming our content.
We also are focused on rapidly growing content categories, such as podcasting. A podcast is a digital audio recording in spoken-word format, usually part of a themed
series, which is downloaded or streamed most often to mobile devices. In 2020, an estimated 104 million Americans listened to a podcast at least monthly.
Sirius XM
Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment
services, in the United States on a subscription fee basis. Sirius XM’s premier content bundles include live, curated and certain exclusive and on demand programming. The
Sirius XM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer
electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. Our Sirius XM service is also available through our user interface
which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.
The primary source of revenue from our Sirius XM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual
plans. We also derive revenue from advertising on select non-music channels, direct sales of our satellite radios and accessories, and other ancillary services. As of
December 31, 2020, our Sirius XM business had approximately 34.7 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. These services are designed to enhance the safety,
security and driving experience of consumers. We also offer a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings,
a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-
time weather services in vehicles, boats and planes.
Sirius XM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada Holdings Inc. (“Sirius XM Canada”).
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Pandora
Our Pandora business operates a music, comedy and podcast streaming platform, offering a personalized experience for each listener wherever and whenever they want
to listen, whether through mobile devices, car speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new content, hear
artist- and expert-curated playlists, podcasts and select Sirius XM content as well as search and play songs and albums on-demand. Pandora is available as (1) an ad-supported
radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of December 31, 2020, Pandora had
approximately 6.3 million subscribers.
The majority of revenue from our Pandora business is generated from advertising on our Pandora ad-supported radio service. We also derive subscription revenue from
our Pandora Plus and Pandora Premium subscribers.
Our Pandora business also sells advertising on audio platforms and in podcasts unaffiliated with us. Pandora has an arrangement with SoundCloud Holdings, LLC
("Soundcloud") to be its exclusive US ad sales representative. Through this arrangement Pandora is able to offer advertisers the ability to execute campaigns in the US across
the Pandora and SoundCloud listening platforms. Pandora also has arrangements to serve as the ad sales representative for podcasts produced by certain third parties. In
addition, through AdsWizz Inc., Pandora provides a comprehensive digital audio and programmatic advertising technology platform, which connects audio publishers and
advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.
In June 2020, Sirius XM acquired Audios Ventures Inc. (which does business as Simplecast) ("Simplecast"), a podcast management and analytics platform. Simplecast
complements AdsWizz’s advertising technology platform, allowing the company to offer podcasters a solution for management, hosting, analytics and advertising sales. In
October 2020, Sirius XM also acquired Stitcher and its Midroll advertising network from the E.W Scripps Company. Stitcher is a leader in production, distribution, and ad sales
in the podcast area.
Our Sirius XM Business
Programming
We offer a dynamic programming lineup of commercial-free music plus sports, entertainment, comedy, talk, and news, including:
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an extensive selection of music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin and classical;
live play-by-play sports from major leagues and colleges;
a multitude of talk, entertainment and comedy channels for a variety of audiences;
a wide range of national, international and financial news; and
exclusive limited run channels.
We believe that our diverse programming, including our lineup of exclusive content, is a significant differentiator from terrestrial radio and other audio entertainment
providers. We make changes to our programming lineup from time to time as we strive to attract new subscribers and offer content which appeals to a broad range of audiences
and to our existing subscribers. The channel lineups for our services are available at siriusxm.com.
Streaming Service
Our streaming service includes a variety of music and non-music channels, including channels that are not available on our satellite radio service, and podcasts. We offer
applications to allow consumers to access our streaming service on smartphones, tablets, computers, home devices and other consumer electronic equipment.
Our streaming product currently features: the broad range of music, sports, talk, news and entertainment channels available on satellite radio; access to over 100
additional music channels, which we refer to as Xtra Music Channels; and video content, including video from The Howard Stern Show and performances and interviews from
Sirius XM’s archives, including in-studio performances and behind-the-scenes moments with artists, personalities and newsmakers.
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Our Sirius XM service also includes a library of podcasts, some of which are exclusive to our service, and other on demand content. Our streaming service offers
subscribers the ability to choose their favorite podcast episodes from a catalog of content as well as select material from a growing library of podcasts we are assembling.
Our streaming service is included as part of the price of the vast majority of Sirius XM’s packages, including the Select and All Access packages. Our Personalized
Stations Powered by Pandora feature, which allows subscribers to create their own customized commercial-free music stations within the Sirius XM app, is offered to
consumers as part of the price of Sirius XM’s All Access package. We also offer our streaming service in several standalone packages, which do not include a satellite radio
subscription. These packages, which include the Premier Streaming Plan, Essentials Plan, Student Plan and Military Plan, are available to consumers at various prices and
include a variety of content.
We have entered into agreements with third parties designed to increase the distribution and ease of use of our streaming service, including through connected devices.
We also have arrangements with various services and consumer electronics manufactures to include the Sirius XM streaming functionality with their service and devices.
360L
Our next generation automotive platform, which we call “360L,” combines our satellite and streaming services into a single, cohesive in-vehicle entertainment
experience. We have agreements with many automakers to deploy our 360L interface in a variety of vehicles. We believe that 360L will be included in a majority of vehicles
that include Sirius XM functionality in the future.
360L allows us to take advantage of advanced in-dash infotainment systems. 360L is intended to leverage the ubiquitous signal coverage and low delivery costs of our
satellite infrastructure with the two-way communication capability of a wireless streaming service to provide consumers seamless access to our content, including our live
channels, on demand service, podcasts and even more personalized music services. The wireless streaming connection included in 360L enables enhanced search and
recommendations functions, making discovery of our content in the vehicle easier. In certain cases, 360L also allows consumers to manage aspects of their subscriptions
directly through their vehicles’ equipment and provides us data to better enable us to understand how our subscribers use our service and how we can more effectively market
our service to consumers.
Distribution of Radios
New Vehicles
We distribute satellite radios through the sale and lease of new vehicles. We have agreements with every major automaker to offer satellite radios in their
vehicles. Satellite radios are available as a factory-installed feature in substantially all vehicle makes sold in the United States.
Most automakers include a subscription to our service in the sale or lease of their new vehicles. In certain cases, we receive subscription payments from automakers in
advance of the activation of our service. We share with certain automakers a portion of the revenues we derive from subscribers using vehicles equipped to receive our
service. We also reimburse various automakers for certain costs associated with the satellite radios installed in new vehicles, including in certain cases hardware costs,
engineering expenses and promotional and advertising expenses.
Previously Owned Vehicles
We acquire subscribers through the sale and lease of previously owned vehicles with factory-installed satellite radios. We have entered into agreements with many
automakers to include a subscription to our service in the sale or lease of vehicles which include satellite radios sold through their certified pre-owned programs. We also work
directly with franchise and independent dealers on programs for non-certified used vehicles.
We have developed systems and methods to identify purchasers and lessees of previously owned vehicles which include satellite radios and have established marketing
plans to promote our services to these potential subscribers.
Retail
We sell satellite radios directly to consumers through our website. Satellite radios are also marketed and distributed through national, regional and online retailers, such
as Amazon.com.
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Our Satellite Radio Systems
Our satellite radio systems are designed to provide clear reception in most areas of the continental United States despite variations in terrain, buildings and other
obstructions. We continually monitor our infrastructure and regularly evaluate improvements in technology.
Our satellite radio systems have three principal components:
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satellites, terrestrial repeaters and other satellite facilities;
studios; and
radios.
Satellites, Terrestrial Repeaters and Other Satellite Facilities
Satellites. We provide our service through a fleet of orbiting geostationary satellites. Two of these satellites, FM-5 and FM-6, transmit our service on frequencies
originally licensed by the FCC to Sirius, and two of these satellites, XM-3 and XM-4, transmit our service on frequencies originally licensed by the FCC to XM. Our XM-5
satellite serves as a spare for both the XM and Sirius systems.
We have entered into agreements for the design, construction and launch of two additional satellites, SXM-7 and SXM-8. On December 13, 2020, SXM-7 was
successfully launched. In-orbit testing of SXM-7 began on January 4, 2021. During in-orbit testing of SXM-7, events occurred which have caused failures of certain SXM-7
payload units. An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7 is not yet known.
We do not expect our satellite radio service to be impacted by these adverse SXM-7 events. Our XM-3 and XM-4 satellites continue to operate and are expected to
support our satellite radio service for several years. In addition, our XM-5 satellite remains available as an in-orbit spare. Construction of our SXM-8 satellite is underway and
that satellite is expected to be launched into a geostationary orbit in 2021.
Satellite Insurance. We have procured insurance for SXM-7 and SXM-8 to cover the risks associated with each satellite's launch and first year of in-orbit operation. The
aggregate coverage under those insurance policies with respect to SXM-7 is $225 million. We have notified the underwriters of these policies of a potential claim with respect
to SXM-7. We do not have insurance policies covering our other in-orbit satellites as we consider the premium costs to be uneconomical relative to the risk of satellite failure.
Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception of
satellite signals can be adversely affected. In other areas with a high density of next generation wireless systems our service may experience interference. In many of these
areas, we have deployed terrestrial repeaters to supplement and enhance our signal coverage and, in many other areas, we may deploy additional repeaters to mitigate
interference. We operate over 1,000 terrestrial repeaters across the United States as part of our systems.
Other Satellite Facilities. We control and communicate with our satellites from facilities in North America. Our satellites are monitored, tracked and controlled by a
third party satellite operator.
Studios
Our programming originates from studios in New York City, Los Angeles and Washington D.C. and, to a lesser extent, from smaller studios in Nashville and a variety of
venues across the country. Our corporate headquarters is in New York City. We provide equipment to artists and hosts to enable remote creation and transmission of
programming.
Radios
We do not manufacture radios. We have authorized manufacturers and distributors to produce and distribute radios, and have licensed our technology to various
electronics manufacturers to develop, manufacture and distribute radios under certain brands. We do manage various aspects of the production of satellite radios. To facilitate
the sale of radios, we may subsidize a portion of the radio manufacturing costs to reduce the hardware price to consumers.
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Connected Vehicle Services
We provide connected vehicle services to several automakers. Our connected vehicle services are designed to enhance the safety, security and driving experience for
vehicle operators while providing marketing and operational benefits to automakers and their dealers. We offer a portfolio of location-based services through two-way wireless
connectivity, including safety, security, convenience, maintenance and data services, remote vehicles diagnostics, and stolen or parked vehicle locator services. Subscribers to
our connected vehicle services are not included in our subscriber count or subscriber-based operating metrics.
In May 2020, we terminated the Automatic Labs Inc. (“Automatic”) service, which was part of our connected services business. Automatic operated a service for
consumers and auto dealers and offered an install-it-yourself adapter and mobile application, which transformed vehicles into connected vehicles.
Other Services
Commercial Accounts. Our programming is available for commercial establishments. Commercial subscription accounts are available through providers of in-store
entertainment solutions and directly from us.
Satellite Television Service. Certain of our music channels are offered as part of select programming packages on the DISH Network satellite television service.
Travel Link. We offer Travel Link, a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings.
Real-Time Traffic Services. We offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-
vehicle navigation systems.
Real-Time Weather Services. We offer several real-time weather services in vehicles, boats and planes.
Commercial subscribers are included in our subscriber count. Subscribers to the DISH Network satellite television service are not included in our subscriber count and
subscribers to our Travel Link, real-time traffic services and real-time weather services are not included in our subscriber count, unless the applicable service is purchased by the
subscriber separately and not as part of a radio subscription to our service.
Sirius XM Canada
Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, with the remainder of Sirius XM Canada's voting and equity interests held by two
shareholders.
Sirius XM has entered into a Services Agreement and an Advisory Services Agreement with Sirius XM Canada. Each agreement has a thirty year term. Pursuant to the
Services Agreement, Sirius XM Canada pays Sirius XM 25% of its gross revenues on a monthly basis and pursuant to the Advisory Services Agreement, Sirius XM Canada
pays Sirius XM 5% of its gross revenues on a monthly basis.
As of December 31, 2020, Sirius XM Canada had approximately 2.6 million subscribers. Sirius XM Canada's subscribers are not included in our subscriber count or
subscriber-based operating metrics.
Our Pandora Business
Pandora Media, LLC, which owns and operates our Pandora business, is a wholly owned subsidiary of Sirius XM.
Streaming Radio and On-Demand Music Services
Our Pandora business offers a personalized audio entertainment platform for each listener. Users are able to create personalized stations and playlists and search and play
songs and albums on-demand. The Pandora service utilizes content programming algorithms, data collected from listeners, and attributes of the music managed in the Music
Genome Project to predict user music preferences, play content suited to the tastes of each listener, and introduce each listener to music consistent with the consumer's
preferences.
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The Pandora service is available on iOS and Android mobile devices, web browsers, and other internet connected devices, The Pandora application is free to download
and use. Our Pandora service is also available in vehicles in the United States with smartphone connectivity. Certain automakers now provide embedded streaming connectivity
that supports and makes available the Pandora service in vehicles without the need for smartphone connectivity. In addition, our Pandora service is integrated into consumer
electronic, voice-based devices and smart speakers.
Pandora service is available as an ad-supported radio service, a radio subscription service (Pandora Plus), or an on-demand subscription service (Pandora Premium).
Local and national advertisers deliver targeted messages to our Pandora listeners on the ad-supported service.
Ad-Supported Radio Service
Our Pandora business offers an ad-supported radio service which allows listeners to access our catalog of music, comedy, live streams and podcasts through personalized
stations. This service is free across all platforms and generates stations specific to each listener. Each listener can personalize his or her stations by adding variety to the content.
Listeners of the ad-supported service are provided with the option to temporarily access on-demand listening, including certain features of the Pandora Premium service.
We refer to this temporary access as “Premium Access”.
Subscription Radio Service (Pandora Plus)
Our Pandora business offers Pandora Plus - an ad-free, subscription version of the radio service that includes options for replaying songs, skipping songs, offline
listening, and higher quality audio on supported devices. Content provided to each listener of Pandora Plus is more tailored when the listener interacts more with the platform.
Premium Access is also available to Pandora Plus listeners.
On-Demand Subscription Service (Pandora Premium)
Our Pandora business offers Pandora Premium - an on-demand subscription service that combines the radio features of Pandora Plus with an on-demand experience. The
on-demand experience provides listeners with the ability to search, play and collect songs and albums, download content for offline listening, build playlists, listen to curated
playlists and share playlists on social networks. Listeners can also create partial playlists that Pandora can complete based on the listener’s activity and the Music Genome
Project. Listeners through mobile devices have access to customized profiles which identify information specific to each listener such as recent favorites, playlists and thumbs.
Pandora Premium incorporates social networking features including a centralized stream where listeners can view the music that their social connections are experiencing
and provide and receive recommendations for songs, albums and playlists. Pandora Premium also includes a “share” feature where consumers can share their stations, songs,
albums, podcasts or playlists through social media, messaging applications and email.
Advertising Revenue
Our Pandora business maintains a portfolio of proprietary advertising technologies which include order management, advertising serving and timing, native advertising
formats, targeting and reporting. Pandora provides advertisers with the ability to target and connect with listeners based on various criteria including age, gender, geographic
location and content preferences. The Pandora business’s primary source of revenue is the sale of audio, display and video advertising for connected device platforms, including
computers and mobile devices. Our Pandora business also has agreements to sell the available advertising inventory in the United States for SoundCloud, one of the world’s
largest open audio platforms, and other third parties.
Stitcher
Stitcher creates original podcasts and operates content networks that each target a specific genre and audience. Stitcher also provides podcast advertising services that
generate revenue for approximately 200 shows and offers a mobile app listening platform where consumers can stream the latest in news, sports, talk, and entertainment on
demand.
Stitcher earns revenue by distributing advertising on specific podcasts created by third parties, including placement based on an advertiser’s desired target audience,
and from the sale of advertising on its owned podcasts and podcasts offered
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within the Stitcher app. Stitcher creates and distributes original podcasts through platforms such as its Stitcher app and the iPhone podcast app.
Stitcher also earns subscription revenue from its Stitcher Premium subscription service. Users pay a monthly or annual fee for access on Stitcher Premium to premium
content and ad-free archived podcast episodes.
AdsWizz
Through its AdsWizz subsidiary, our Pandora business is a leader in digital audio advertising technology. AdsWizz operates a digital audio advertising market with an
end-to-end technology platform, including a digital audio software suite of solutions that connect audio publishers to the advertising community. AdsWizz offers a range of
products -- from dynamic ad insertion to advanced programmatic platforms to innovative new audio formats. AdsWizz’s advertising technology also includes ad campaign
monitoring tools and other innovative audio advertising products, such as audio formats that can let consumers trigger an action while listening to an ad as well as other
personalization-based technology.
AdsWizz’s technology is employed by Pandora in its ad-supported business as well as by third party customers. AdsWizz’s third party customers include well-known
music platforms, podcasts and broadcasting groups worldwide.
In June 2020, Sirius XM acquired Simplecast, a podcast management and analytics platform that complements AdsWizz’s audio advertising product offering.
Competition
We face significant competition for listeners and advertisers in our Sirius XM business and our Pandora business, including from providers of radio and other audio
services.
Competition for Subscribers and Listeners
Traditional AM/FM Radio
Our Sirius XM services and Pandora services compete with traditional AM/FM radio. Traditional AM/FM radio has a well-established demand for its services and
offers free broadcasts paid for by commercial advertising rather than by subscription fees. Many radio stations offer information programming of a local nature, such as local
news and sports. The availability of traditional free AM/FM radio may reduce the likelihood that customers would be willing to pay for our subscription services and, by
offering free broadcasts, it may impose limits on what we can charge for our services. Several traditional radio companies own large numbers of radio stations and other media
properties, such as podcast networks.
Streaming and On-Demand Competitors
Streaming and on-demand services, including Amazon Prime, Apple Music, Spotify and YouTube, compete with our Sirius XM and Pandora services. Major online
providers make high fidelity digital streams available at no cost or, in some cases, for less than the cost of a satellite radio subscription. Certain of these services include
advanced functionality, such as personalization and customization and allow the user to access large libraries of content. These services, in some instances, are also offered
through devices sold by the service providers including Apple, Google and Amazon. For some consumers, these services may compete with our services, at home, in vehicles,
and wherever audio entertainment is consumed.
Advanced In-Dash Infotainment Systems
Nearly all automakers have deployed integrated multimedia systems in dashboards, including Apple CarPlay and Android Auto. These systems combine control of audio
entertainment from a variety of sources, including AM/FM/HD radio broadcasts, satellite radio, streaming radio, smartphone applications and stored audio, with navigation and
other advanced applications. Streaming radio and other data are typically connected to the system through an Internet-enabled smartphone or wireless modem installed in the
vehicle, and the entire system may be controlled by touchscreen or voice recognition. These systems enhance the attractiveness of Internet-based competitors by making such
applications more prominent, easier to access, and safer to use in vehicles.
Direct Broadcast Satellite and Cable Audio
A number of providers offer specialized audio services through either direct broadcast satellite or cable audio systems. These services are targeted to fixed locations,
mostly in-home, but also include mobile entertainment. The radio service offered by direct broadcast satellite and cable audio is often included as part of a package of digital
services with video service, and video customers generally do not pay an additional monthly charge for the audio service. In addition, other
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services offered by these providers, such as cable television, on-demand video streaming, and interactive video games compete with our services to the extent they utilize
existing or potential users' and listeners' time that could otherwise be allocated to the use of our Sirius XM or Pandora services.
Other Digital Media Services
The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms that compete with both our Sirius XM and Pandora
services now or that could compete with those services in the future.
Traffic Services
For our Sirius XM business, a number of providers compete with our traffic services. In-dash navigation is threatened by smartphones offering GPS mapping with
sophisticated data-based turn navigation.
Connected Vehicle Services
Our Sirius XM connected vehicle services business operates in a highly competitive environment and competes with several providers as well as with products being
developed for vehicles by automakers and other third parties. OnStar, a division of General Motors, also offers connected vehicle services in GM vehicles. Wireless devices,
such as mobile phones, are also competitors. We compete against other connected vehicle service providers for automaker arrangements on the basis of innovation, service
quality and reliability, technical capabilities and system customization, scope of service, industry experience, past performance and price.
Competition for Advertisers
Our competition for advertisers includes large scale online advertising platforms such as Amazon, Facebook and Google; traditional media companies such as television
broadcasters and national print outlets; broadcast radio providers; podcast distributors and networks; and companies in the broadcast radio market. We compete against these
providers for advertisers on the basis of several factors, including advertisers’ overall budgets, perceived return on investment, effectiveness and relevance of our advertising
platforms, price, delivery of large volumes or precise types of advertisements to targeted demographics, transactional capabilities and reporting capabilities.
The online advertising marketplace continues to evolve rapidly, particularly with the introduction of new digital advertising technologies and expanding capabilities of
larger internet companies.
Government Regulation
General
We are subject to a number of foreign and domestic laws and regulations relating to consumer protection, information security and data protection. There are several
States that require specific information security controls to protect certain types of information and specific notifications to consumers in the event of a security breach that
compromises certain categories of personal information. Certain of our services are also subject to laws in the United States and abroad pertaining to privacy of user data and
other information, including the California Consumer Protection Act and the European General Data Protection Regulation. Our Privacy Policies and customer agreements
describe our practices pertaining to the foregoing. We believe we comply with all of our obligations under all applicable laws and regulations.
Our Sirius XM Business
As operators of a privately-owned satellite system, we are regulated by the FCC under the Communications Act of 1934, principally with respect to:
•
•
•
the licensing of our satellite systems;
preventing interference with or to other users of radio frequencies; and
compliance with FCC rules established specifically for U.S. satellites and satellite radio services.
Any assignment or transfer of control of our FCC licenses must be approved by the FCC. The FCC's order approving our merger with XM Satellite Radio Holdings Inc.
in July 2008 requires us to comply with certain voluntary commitments we made as part of the FCC merger proceeding. We believe we comply with those commitments.
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In 1997, we were the winning bidders for FCC licenses to operate a satellite digital audio radio service and provide other ancillary services. Our FCC licenses for our
Sirius satellites expire in 2022 and 2025. Our FCC licenses for our XM satellites expire in 2021, 2022 and 2026. The FCC has also granted us licenses to construct, deploy and
operate SXM-7 and SXM-8 as replacement satellites. We anticipate that, absent significant misconduct on our part, the FCC will renew our licenses to permit operation of our
satellites for their useful lives, and grant licenses for any replacement satellites.
In some areas, we have installed terrestrial repeaters to supplement our satellite signal coverage. The FCC has established rules governing terrestrial repeaters and has
granted us a license through 2027 to operate our repeater network.
In certain cases, we obtain FCC certifications for satellite radios, including satellite radios that include FM modulators. We believe our radios that are in production
comply with all applicable FCC rules.
We are required to obtain export licenses or other approvals from the United States government to export certain equipment, services and technical data related to our
satellites and their operations. The transfer of such equipment, services and technical data outside the United States or to foreign persons is subject to strict export control and
prior approval requirements from the United States government (including prohibitions on the sharing of certain satellite-related goods and services with China).
Changes in law or regulations relating to communications policy or to matters affecting our services could adversely affect our ability to retain our FCC licenses or the
manner in which we operate.
Copyrights to Programming
In connection with our businesses, we must enter into royalty arrangements with two sets of rights holders: holders of musical compositions copyrights (that is, the
music and lyrics) and holders of sound recordings copyrights (that is, the actual recording of a work). Our Sirius XM business and our Pandora business use both statutory and
direct music licenses as part of their businesses. We license varying rights - such as performance and mechanical rights - for use in our Sirius XM and Pandora businesses based
on the various radio and interactive services they offer. Set forth below is a brief overview of the music composition and sound recording licenses employed by our Sirius XM
and Pandora businesses. These music licensing arrangements are complex and the description below is only a summary of these complicated licensing schemes.
Musical Compositions: Performance Rights and Mechanical Rights
The holders of performance rights in musical compositions, generally songwriters and music publishers, are represented by performing rights organizations such as the
American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”), SESAC, Inc. (“SESAC”) and Global Music Rights LLC (“GMR”). These
organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders.
The holders of the mechanical rights in musical compositions, generally songwriters and their music publishers, have traditionally licensed these rights through the
statutory license set forth in Section 115 of the United States Copyright Act; however, mechanical rights can also be licensed directly.
The changing market for musical compositions may have an adverse effect on our Sirius XM business and our Pandora business, including increasing our costs and
limiting the musical works available to us.
Sirius XM Business. We have arrangements with ASCAP, BMI, SESAC, and GMR to license the musical compositions we use on our satellite radio and streaming
services. These arrangements generally include fixed payments during the term of the agreement. Our Sirius XM business does not require a mechanical license.
Pandora Business. We have arrangements with ASCAP, BMI, SESAC, GMR and a variety of other copyright owners to license the musical compositions performance
rights we use on our Pandora services. For our Pandora ad-supported radio service, each copyright holder receives as a performance royalty its usage-based and ownership-
based share of a royalty pool equal to 21.5% of the content acquisition costs that we pay for sound recordings on our ad-supported service.
Pandora must also license reproduction rights, which are also referred to as mechanical rights, to offer the interactive features of the Pandora services. For our Pandora
subscription services, copyright holders receive payments for these rights at the rates determined in accordance with the statutory license set forth in Section 115 of the United
States Copyright Act. In January 2018, the Copyright Royalty Board (the “CRB”) set a new rate structure for the five-year period commencing January
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1, 2018 and ending on December 31, 2022. The rate was 13.3% of revenues or 24.1% of record label payments in 2020. The rate was scheduled to increase over the five-year
period to 15.1% of revenues or 26.2% of record label payments by 2022.
In August 2020, the United States Court of Appeals for the District of Columbia Circuit concluded that the CRB failed to provide adequate notice of the rate structure it
adopted, failed to explain its rejection of a past settlement agreement as a benchmark for going forward, and never identified the source of its asserted authority to substantively
redefine a material term of its initial determination. For these reasons, the Court of Appeals overturned the CRB’s adopted rate structure and percentage rates and remanded the
proceeding to the CRB for further proceedings. The CRB has announced further proceedings to consider and address the Court of Appeals’ decision.
Sound Recordings
Operators of a non-interactive satellite radio or streaming service are entitled to license sound recordings under the statutory license contained in Section 114 of the
United States Copyright Act (the “statutory license”). Under the statutory license, we may negotiate royalty arrangements with the owners of sound recordings or, if negotiation
is unsuccessful, the royalty rate is established by the CRB. Sound recording rights holders, typically large record companies, are primarily represented by SoundExchange, Inc.
(“SoundExchange”), an organization which negotiates licenses, and collects and distributes royalties on behalf of record companies and performing artists.
Interactive streaming services, such as Pandora Plus and Pandora Premium, do not qualify for the statutory license and the services must negotiate direct license
arrangements with the owners of copyrights in sound recordings.
Sirius XM Business. For the ten-year period commencing January 1, 2018 and ending on December 31, 2027, the CRB set the royalty rate payable by us under the
statutory license covering the performance of sound recordings over our Sirius XM satellite radio service, and the making of ephemeral (server) copies in support of such
performances, to be 15.5% of gross revenues, subject to exclusions and adjustments. The revenue subject to royalty includes subscription revenue from our U.S. satellite digital
audio radio subscribers, and advertising revenue from channels other than those channels that make only incidental performances of sound recordings. The rates and terms
permit us to reduce the payment due each month for those sound recordings directly licensed from copyright owners and exclude from our revenue certain other items, such as
royalties paid to us for intellectual property, sales and use taxes, bad debt expense and generally revenue attributable to areas of our business that do not involve the use of
copyrighted sound recordings.
In 2020, we paid a per performance rate for the streaming of certain sound recordings of $0.0024 on our Sirius XM streaming service.
Pandora Business. For our Pandora business, we have entered into direct license agreements with major and independent music labels and distributors for a significant
majority of the sound recordings that stream on the Pandora ad-supported service, Pandora Plus and Pandora Premium.
For sound recordings that we stream and for which we have not entered into a direct license agreement with the sound recording rights holders, the sound recordings are
streamed pursuant to the statutory license, and applicable rates thereunder, set by the CRB for the period commencing on January 1, 2016 and ending on December 31, 2020.
Effective January 1, 2020, the rate for our non-subscription services, such as our ad-supported radio service, was adjusted for inflation to $0.0018 per play, and the rate for our
subscription services, such as Pandora Plus and Pandora Premium, was adjusted for inflation to $0.0024. Sound recordings subject to the statutory license can only be played
through our radio services and not through services that are offered on-demand or offline or through any replay or additional skip features. The CRB has completed a
proceeding to determine the rates and terms for the sound recordings streamed pursuant to the statutory license for the period commencing on January 1, 2021 and ending on
December 31, 2025. We expect the CRB to issue its determination of these rates and terms on or prior to April 15, 2021.
Prior to the enactment of the Orrin G. Hatch-Bob Goodlatte Music Modernization Act in October 2018, our rights to perform certain sound recordings that were fixed
before February 15, 1972 were governed by state law. We still face a class action lawsuit brought by plaintiffs who allege that Pandora violated their alleged exclusive copyright
ownership rights to the reproduction and public performance of sound recordings created prior to February 15, 1972. See “Item 3. Legal Proceedings” of this Annual Report on
Form 10-K for information on this action.
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Trademarks
Sirius XM Business
We have registered, and intend to maintain, the trademarks “Sirius”, “XM”, “SiriusXM” and “SXM” with the United States Patent and Trademark Office in connection
with the services we offer. We are not aware of any material claims of infringement or other challenges to our right to use the “Sirius”, “XM”, “SiriusXM” or “SXM”
trademarks in the United States. We also have registered, and intend to maintain, trademarks for the names of certain of our channels. We have also registered the trademarks
“Sirius”, “XM” and “SiriusXM” in Canada. We have granted a license to use certain of our trademarks in Canada to Sirius XM Canada.
Pandora Business
We have registered, and intend to maintain, the trademarks “Pandora,” “Ampcast” and “Music Genome Project,” in addition to a number of other Pandora logos and
marks, with the United States Patent and Trademark Office in connection with the services we offer. We also have registered the trademark “Pandora” in Australia, Canada,
Chile, the European Union, India, Israel, Mexico, New Zealand, Switzerland, Taiwan and other countries, and the trademark “Music Genome Project” in Australia, Canada,
China and New Zealand.
Human Capital Resources
General
As of December 31, 2020, we had 5,726 full-time and part-time employees, the overwhelming majority of which were full-time employees. During 2020, our workforce
increased by approximately 450 employees compared to the prior year, and our core voluntary full-time employee turnover rate was approximately 6%.
Our business relies on our ability to attract and retain talented employees. To attract and retain talent, we strive to create a diverse, inclusive and supportive workplace,
with opportunities for our employees to grow and develop in their careers, supported by competitive compensation, benefits and health and wellness programs, and by programs
that build connections between our employees and their communities.
Corporate Culture
We are focused on creating a corporate culture of integrity and respect, with the goal of working together to drive our business to be creative, innovative and competitive.
To achieve these objectives, we have adopted and regularly communicate to our employees the following core values, which we call “AMPLIFY”:
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•
Applaud and encourage new thinking
Move forward and be purposeful in our desire to win
Prioritize honesty, integrity and respectful communication
Lean on each other and learn from one another
Invest in our actions and commit to the follow through
Find ways to give back by focusing on community and feeding your individuality
You Matter. We embrace our differences, empower each other and include everyone
We operate a performance-based environment where results matter and financial discipline is enforced. We have tried to create a highly collaborative culture in which
employees feel a sense of pride that their input is sought after and valued. At the same time, we believe in holding individuals accountable and have tried to create a culture in
which employees “do what they say they are going to do.” Still, we believe that our culture is a long-term competitive advantage for us, fuels our ability to execute and is a
critical underpinning of our employee talent strategy.
Diversity and Inclusion
We believe that a diverse workforce is critical to our success. We cultivate an inclusive environment where human differences are valued, respected, supported and
amplified. We have taken actions to recruit, retain, develop and advance a diverse and talented workforce. Our diversity and inclusion efforts are led by our Vice President,
Head of Diversity & Inclusion. This position regularly reports to our Chief Executive Officer and works with our executive officers.
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We are focused on increasing women and minority representation at all levels of our organization. We recruit talent in diverse communities, including by engaging as a
sponsor of professional conferences, such as Sistas in Sales, Tech Intersections, and AfroTech. We have created a program, that we call Pathways, that provides recent
graduates of Historically Black Colleges and Universities with entry-level full-time opportunities. We also have agreements with third parties designed to offer leadership
development for Black, Latinx and Native American employees. Additionally, we provide a mentoring program to help underrepresented employees benefit from coaching,
guidance, and feedback. We have six employee resource groups, including groups supporting Women, People of Color, Africans and African Americans, Latinx and Hispanic,
Veterans, the LGBTQIA+ community and employees with disabilities.
We also periodically request our employees to voluntarily self-identify personal information related to gender, race, ethnicity, veteran and disability status. This
information about the demographics of our employee population allows us to assess and evaluate our diversity and inclusion efforts.
Health, Safety and Wellness
We are committed to the health, safety and wellness of our employees. We provide our employees and their families with access to a variety of health and wellness
programs, including benefits that support their physical and mental health.
In response to the COVID-19 pandemic, we implemented changes that we consider to be in the best interest of our employees, as well as the communities in which we
operate, and which comply with government regulations. As a result of the COVID-19 pandemic, the vast majority of our employees are working from home. We have
implemented additional safety measures for employees continuing critical on-site work. We believe we have been able to preserve our business continuity without sacrificing
our commitment to keeping our employees safe during the COVID-19 pandemic.
Compensation and Benefits
We operate in a highly competitive and technologically challenging environment. We provide competitive compensation and benefits programs for our employees. In
addition to salaries, these programs (which vary by employee level and by the country where the employees are located) include, among other items, bonuses, stock awards, a
401(k) plan and a non-qualified deferred compensation plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, paid parental leave,
advocacy resources, flexible work schedules and employee assistance programs.
Talent Development
We provide numerous training opportunities for our employees, with a focus on continuous learning and development and methodologies to manage performance,
provide feedback and develop talent. We also have an internal digital workplace which provides employees with quick access to learning resources that cover a variety of topics.
Our talent development programs attempt to provide employees resources to achieve career goals and build management and leadership skills. We offer mentoring
programs, management training and leadership sessions to support the professional growth of our employees.
Building Connections — With Each Other and our Communities
Building connections between our employees, their families and our communities can, in our view, create a more meaningful, fulfilling and enjoyable workplace.
Through our engagement programs, employees can pursue their interests and hobbies, and connect to each other and to volunteering and giving opportunities.
Our corporate giving and volunteering programs encourage employees to give to the causes most meaningful to them. We have a charitable matching program which
offers employees a dollar for dollar match on their charitable contributions up to a specific cap. In addition, full-time employees are eligible to receive five days of paid time off
to volunteer with charitable organizations of their choice. During 2020, over 400 employees volunteered almost 4,500 hours, while over 800 employees utilized our charitable
matching program, benefiting almost 1,000 charitable organizations.
In 2020, we donated over $1.5 million to a number of hospitals in support of COVID-19 relief efforts as well as various charities to support racial equality and address
racial and social injustice. In 2020, we also contributed $25 million to a donor advised fund to support our planned charitable contributions over the next five years, an effort we
call SiriusXM Cares. We expect to use these funds to contribute to organizations and take actions which promote and further social equality, education,
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hiring, and combat racial injustice. Separately, in 2020, we made contributions to the Black Lives Matter Global Network, the Pillsbury Communities Foundation, the Equal
Justice Initiative and the NAACP Legal Defense and Educational Fund.
Corporate Information and Available Information
Our executive offices are located at 1221 Avenue of the Americas, 35th floor, New York, New York 10020 and our telephone number is (212) 584-5100. Our internet
address is www.siriusxm.com. Our annual, quarterly and current reports, and any amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), may be accessed free of charge through our website as soon as reasonably practicable after we have
electronically filed or furnished such material with the SEC. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC. Siriusxm.com (including any other reference to such address in this Annual Report) is an inactive
textual reference only, meaning that the information contained on or accessible from the website is not part of this Annual Report on Form 10-K and is not incorporated in this
report by reference. We may use our website as a distribution channel of material company information. Financial and other important information regarding us is routinely
posted on and accessible through our website at https://www.siriusxm.com. In addition, you may automatically receive email alerts and other information about us when you
enroll your email address by visiting the “Email Alerts” section under the “Shareholder Services” heading at http://investor.siriusxm.com/investor-overview.
Information About Our Executive Officers
Certain information regarding our executive officers as of January 29, 2021 is provided below:
Name
Jennifer C. Witz
Scott A. Greenstein
Dara F. Altman
Patrick L. Donnelly
Sean S. Sullivan
Age
52
61
62
59
53
Chief Executive Officer
President, Chief Content Officer
Executive Vice President and Chief Administrative Officer
Executive Vice President, General Counsel and Secretary
Executive Vice President and Chief Financial Officer
Position
Jennifer C. Witz has served as our Chief Executive Officer since January 1, 2021. From March 2019 through December 2020, she was our President, Sales, Marketing
and Operations. From August 2017 until March 2019 she was our Executive Vice President, Chief Marketing Officer. Ms. Witz joined us in March 2002 and has served in a
variety of senior financial and operating roles. Before joining Sirius XM, Ms. Witz was Vice President, Planning and Development, at Viacom Inc., a global media company,
and prior to that she was Vice President, Finance and Corporate Development, at Metro-Goldwyn-Mayer, Inc., an entertainment company focused on the production and global
distribution of film and television content. Ms. Witz began her career in the Investment Banking Department at Kidder, Peabody & Co Inc. She is a member of the board of
directors of LendingTree, Inc., a leading online marketplace that connects consumers with financial products, and serves on its compensation committee.
Scott A. Greenstein has served as our President and Chief Content Officer since May 2004. Prior to May 2004, Mr. Greenstein was Chief Executive Officer of The
Greenstein Group, a media and entertainment consulting firm. From 1999 until 2002, he was Chairman of USA Films, a motion picture production, marketing and distribution
company. From 1997 until 1999, Mr. Greenstein was Co-President of October Films, a motion picture production, marketing and distribution company. Prior to joining
October Films, Mr. Greenstein was Senior Vice President of Motion Pictures, Music, New Media and Publishing at Miramax Films, and held senior positions at Viacom Inc.
Dara F. Altman has served as our Executive Vice President and Chief Administrative Officer since September 2008. From January 2006 until September 2008,
Ms. Altman served as Executive Vice President, Business and Legal Affairs, of XM. Ms. Altman was Executive Vice President of Business Affairs for Discovery
Communications from 1997 through 2005. From 1993 to 1997, Ms. Altman served as Senior Vice President and General Counsel of Reiss Media Enterprises, which owned
Request TV, a national pay-per-view service. Before Request TV, Ms. Altman served as counsel for Home Box Office. Ms. Altman started her career as an attorney at the law
firm of Willkie Farr & Gallagher LLP.
Patrick L. Donnelly has served as our Executive Vice President, General Counsel and Secretary, since May 1998. From June 1997 to May 1998, he was Vice President
and Deputy General Counsel of ITT Corporation, a hotel, gaming and entertainment company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in February
1998. From October
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1995 to June 1997, he was assistant general counsel of ITT Corporation. Prior to October 1995, Mr. Donnelly was an attorney at the law firm of Simpson Thacher & Bartlett
LLP.
Sean S. Sullivan has served as our Executive Vice President and Chief Financial Officer since October 2020. From June 2011 to October 2020, he was the Executive
Vice President and Chief Financial Officer of AMC Networks Inc., a global entertainment company. From September 2010 to June 2011, he was the Chief Corporate Officer of
Rainbow Media Holdings LLC, the predecessor of AMC Networks Inc. and then a subsidiary of Cablevision Systems Corp. Prior to that, Mr. Sullivan was Chief Financial
Officer of HiT Entertainment, a children’s entertainment company, from 2009 to 2010; the Chief Financial Officer and President of the Commercial Print and Packaging
division of Cenveo, Inc., a diversified manufacturing company focused on print-related products, from 2005 to 2008; and Executive Vice President and Chief Financial Officer
of Spencer Press, Inc., a catalogue printing company, from 2004 to 2005. He is a member of the board of directors of Acushnet Holdings Corp., a leader in the design,
development, manufacturing and distribution of golf products, and serves on its nominating and corporate governance committee and is the chair of its audit committee.
ITEM 1A. RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K, including the information under the caption Item 1. Business “Competition,” the following risk
factors should be considered carefully in evaluating us and our business. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a
number of factors, including those set forth below and elsewhere in this Annual Report on Form 10-K. See “Special Note About Forward-Looking Statements” following this
Item 1A. Risk Factors.
The COVID-19 pandemic is adversely impacting our business.
We are monitoring and continue to assess the ongoing effects of the COVID-19 pandemic on our businesses and operations. The scope of the effects of the COVID-19
pandemic and its related economic impact on our businesses depends on many factors beyond our control, and the effects are difficult to assess or predict with meaningful
precision both generally and specifically as to our Sirius XM and Pandora businesses.
We have taken actions to help ensure the continuity of our audio entertainment service through the COVID-19 pandemic, including activating our business continuity
plans and implementing other steps to enable employees to work remotely. The impact of these steps on our workforce has presented new challenges for our employees as they
balance the demands of the pandemic with their daily operating responsibilities.
In addition, the COVID-19 pandemic has created various uncertainties in our business, including:
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Limits on our ability to fully staff our customer service operations and certain of our marketing efforts, particularly telemarketing,
Changes to our sales and marketing practices as we react to shifts in the volume of auto sales and subscriber expectations, particularly in customer service and billing
operations,
Possible increases in bad debts as the pandemic broadly affects employment and consumer spending,
The loss of sales and orders in our advertising business, particularly as industries that are disproportionately affected by the pandemic - such as the travel and travel-
related industries - curtail and in many cases stop their advertising spending, and
Other consequences in our marketing, sales and other operations which we have not yet identified.
Importantly, the COVID-19 pandemic may have a material adverse effect on other third parties upon which we rely, and our ability to assess those effects in any
meaningful manner are difficult at this time. In addition, a number of third parties upon which we depend may experience financial difficulties or file for bankruptcy protection.
Such third parties may not be able to perform their obligations or may be relieved of their obligations to us as part of the bankruptcy process, which in either case could
adversely affect our business.
Lastly, the negative impact on consumer spending in the United States due to the COVID-19 pandemic may, depending upon the severity, adversely affect several areas
of our Sirius XM and Pandora businesses and may negatively impact our operating results.
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Risks Relating to our Business and Operations
We face substantial competition and that competition is likely to increase over time.
We compete for the time and attention of our listeners with other content providers on the basis of a number of factors, including quality of experience, relevance,
acceptance and perception of content quality, ease of use, price, accessibility, brand awareness, reputation and, in the case of our ad-supported Pandora service, perception of ad
load, features and functionality. Our ability to attract and retain subscribers and listeners depends on our success in creating and providing popular or unique programming. A
summary of certain services that compete with us is contained in the section entitled “Item 1. Business - Competition” of this Annual Report on Form 10-K.
Our subscribers and listeners can obtain similar content for free through terrestrial radio stations, YouTube and other internet services. We also compete for the time and
attention of our listeners with providers of other in-home and mobile entertainment services, and we compete for advertising sales with large scale online advertising platforms,
such as Amazon, Facebook and Google, and with traditional media outlets.
Our streaming services also compete for listeners on the basis of the presence and visibility of our apps, which are distributed via app stores operated by Apple and
Google. We face significant competition for listeners from these companies, which also promote their own music and content. In addition, our competitors’ streaming products
may be pre-loaded or integrated into consumer electronics products or automobiles more broadly than our streaming products, creating a visibility advantage. If we are unable to
compete successfully for listeners against other media providers, then our business may suffer. Additionally, the operator of an app store may reject our app or amend the terms
of their license in a way that inhibits our ability to distribute our apps, negatively affects our business, or limits our ability to increase subscribers and listeners.
Competition could result in lower subscription, advertising or other revenue and an increase in our expenses and, consequently, lower our earnings and free cash
flow. We cannot assure you we will be able to compete successfully with our existing or future competitors or that competition will not have an adverse impact on our
operations and financial condition.
If our efforts to attract and retain subscribers and listeners, or convert listeners into subscribers, are not successful, our business will be adversely affected.
Our business will be adversely affected if we are unable to attract new subscribers and listeners and retain our current subscribers and listeners.
Our ability to increase the number of subscribers and listeners to our services, retain our subscribers and listeners or convert listeners into subscribers, is uncertain and
subject to many factors, including:
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the price of our service;
the ease of use of our service;
the effectiveness of our marketing programs;
with respect to our Sirius XM service, the sale or lease rate of new vehicles in the United States;
the rate at which our self-pay subscribers to our Sirius XM service buy and sell new and used vehicles in the United States;
our ability to convince owners and lessees of new and used vehicles that include satellite radios to purchase subscriptions to our Sirius XM service;
the perceived value of our programming and the packages and services we offer;
our ability to introduce features in a manner that is favorably received by consumers;
our ability to keep up with rapidly evolving technology and features in audio entertainment;
our ability to respond to evolving consumer tastes; and
actions by our competitors, such as Spotify, Apple, Google, Amazon, Facebook and other audio entertainment and information providers.
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We engage in extensive marketing efforts and the continued effectiveness of those efforts is an important part of our business.
We engage in extensive marketing efforts across a broad range of media to attract and retain subscribers and listeners to our services. We employ a wide variety of
communications tools as part of our marketing campaigns, including telemarketing efforts and email solicitations. The effectiveness of our marketing efforts is affected by a
broad range of factors, including creative and execution factors. Our ability to reach consumers with radio and television advertising, direct mail materials, email solicitations
and telephone calls is an important part of our efforts and a significant factor in the effectiveness of our marketing. If we are unable to reach consumers through email
solicitations or telemarketing, including as a result of “spam” and email filters, call blocking technologies or "do-not-call" or other marketing regulations, our marketing efforts
will be adversely affected. A decline in the effectiveness of our marketing efforts could have an adverse impact on our operations and financial condition.
We rely on third parties for the operation of our business, and the failure of third parties to perform could adversely affect our business.
Our business depends, in part, on various third parties, including:
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manufacturers that build and distribute satellite radios;
companies that manufacture and sell integrated circuits for satellite radios;
third-party software that we incorporate in and include with our apps and service;
programming providers, including agreements with owners of various copyrights in music, and on-air talent;
vendors that operate our call centers;
vendors that have designed or built, and vendors that support or operate, other important elements of our systems, including our satellites and cloud-based systems
we use;
Apple, who distributes our apps through its App Store and who, in the case of our Pandora service, we rely on to collect fees and approve the terms of our consumer
offers; and
Google, who distributes our apps through its App Store and who, in the case of our Pandora service, we rely on to collect fees and approve the terms of our
consumer offers, and who plays an important role in the fulfillment of the ads we sell on our Pandora platform.
If one or more of these third parties do not perform in a satisfactory or timely manner, including complying with our standards and practices relating to business integrity,
personnel and cybersecurity, our business could be adversely affected.
The operation of our apps and service offerings could be impaired if errors occur in the third party software that we use. It is difficult for us to correct any defects in third
party software because the development and maintenance of the software is not within our control. Our third party licensors may not continue to make their software available to
us on acceptable terms, invest the appropriate levels of resources in their software to maintain and enhance its capabilities, or remain in business. Failure of these third party
licensors could harm our streaming services.
In addition, a number of third parties on which we depend have experienced, and may in the future experience, financial difficulties or file for bankruptcy protection.
Such third parties may not be able to perform their obligations to us in a timely manner, if at all, as a result of their financial condition or may be relieved of their obligations to
us as part of seeking bankruptcy protection.
We may not realize the benefits of acquisitions or other strategic investments and initiatives.
Our strategy includes selective acquisitions, other strategic investments and initiatives that allow us to expand our business. The success of any acquisition depends upon
effective integration, cultural assimilation and management of acquired businesses and assets into our operations, which is subject to risks and uncertainties, including realizing
the growth potential, the anticipated synergies and cost savings, the ability to retain and attract personnel, the diversion of management’s attention for other business concerns,
and undisclosed or potential legal liabilities of the acquired business or assets.
We are devoting significant management attention and resources to integrate the businesses and operations of certain acquisitions. The integration process could result in
the distraction of our management, the disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could
adversely affect our ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits of the acquisition.
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Risks Relating to our Sirius XM Business
A substantial number of our Sirius XM service subscribers periodically cancel their subscriptions and we cannot predict how successful we will be at retaining
customers.
As part of our business, we experience, and expect to experience in the future, subscriber turnover (i.e., churn). If we are unable to retain current subscribers at expected
rates, or the costs of retaining subscribers are higher than expected, our financial performance and operating results could be adversely affected.
We cannot predict how successful we will be at retaining customers who purchase or lease vehicles that include a subscription to our Sirius XM service. A substantial
percentage of our Sirius XM subscribers are on discounted pricing plans and our ability to retain these subscribers or migrate them to higher priced plans is uncertain. Our
discounted pricing strategy is widely known, and this may interfere with our ability to collect our ordinary subscription prices. In addition, a substantial number of those
subscribers periodically cancel their subscriptions when offered a subscription at a higher price.
Our ability to profitably attract and retain subscribers to our Sirius XM service as our marketing efforts reach more price-sensitive consumers is uncertain.
Our efforts to acquire subscribers purchasing or leasing used vehicles may attract price sensitive consumers. For example, consumers purchasing or leasing used vehicles
may be more price sensitive than consumers purchasing or leasing new vehicles, may convert from trial subscribers to self-paying subscribers at a lower rate, and may cancel
their subscriptions more frequently than consumers purchasing or leasing new vehicles. Some of our marketing efforts may also attract more price sensitive subscribers, and our
efforts to increase the penetration of satellite radios in new, lower-priced vehicle lines may result in the growth of more economy-minded subscribers. In addition, over time the
changing demographics of our subscriber base, such as the expected increase in “Millennial generation customers,” may increase the number of subscribers accustomed to
consuming entertainment through ad-supported products. Each of these factors may harm our revenue or require additional spending on marketing efforts to demonstrate the
value of our Sirius XM service.
Our business depends in part upon the auto industry.
A substantial portion of the subscription growth for our satellite radio service has come from purchasers and lessees of new and used automobiles in the United States,
and we expect this to be an important source of subscribers for our satellite radio service in the future.
We have agreements with every major automaker to include satellite radios in new vehicles, although these agreements do not require automakers to install specific or
minimum quantities of radios in any given period. Our business could be adversely affected if automakers do not continue to include our Sirius XM service in their products.
Automotive production and sales 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 our
satellite radio service may be adversely impacted.
Sales of used vehicles represent a significant source of new subscribers for our satellite radio service. We have agreements with auto dealers and companies operating in
the used vehicle market to provide us with data on sales of used satellite radio enabled vehicles, including in many cases the consumer’s name and address. The continuing
availability of this data is important to our future growth, and the loss of such data may harm our revenue and business.
Failure of our satellites would significantly damage our business.
The lives of the satellites required to operate our Sirius XM service vary depending on a number of factors, including:
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degradation and durability of solar panels;
quality of construction;
random failure of satellite components, which could result in significant damage to or loss of a satellite;
amount of fuel the satellite consumes; and
damage or destruction as a result of electrostatic storms, terrorist attacks, collisions with other objects in space or other events, such as nuclear detonations, occurring
in space.
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In the ordinary course of operation, satellites experience failures of component parts and operational and performance anomalies. Components on several of our in-orbit
satellites have failed, and from time to time we have experienced anomalies in the operation and performance of these satellites. These failures and anomalies are expected to
continue in the ordinary course, and we cannot predict if any of these possible future events will have a material adverse effect on our operations or the life of our existing in-
orbit satellites. In addition, our Sirius network of terrestrial repeaters communicates with a single third party satellite. Our XM network of terrestrial repeaters communicates
with a single XM satellite. If the satellites communicating with the applicable repeater network fail unexpectedly, the services would be disrupted for several hours or longer.
On December 13, 2020, our SXM-7 satellite was successfully launched. In-orbit testing of SXM-7 began on January 4, 2021. During in-orbit testing of SXM-7, events
occurred which have caused failures of certain SXM-7 payload units. An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7 is not yet known. We have
purchased insurance policies covering SXM-7 through launch and the first year of in-orbit operation. The aggregate coverage under those insurance policies is $225 million.
We have notified the underwriters of these policies of a potential claim with respect to SXM-7.
Any material failure of our operating satellites could cause us to lose customers for our Sirius XM service and could materially harm our reputation and our operating
results. With the exception of the insurance we have purchased covering the launch and the first year of in-orbit operation of SXM-7 and SXM-8, we do not have insurance for
our in-orbit satellites. Additional information regarding our fleet of satellites is contained in the section entitled “Item 1. Business - Satellites, Terrestrial Repeaters and Other
Satellite Facilities” of this Annual Report on Form 10-K.
Our Sirius XM service may experience harmful interference from wireless operations.
The development of applications and services in spectrum adjacent to the frequencies licensed to us, as well as the combination of signals in other frequencies, may cause
harmful interference to our satellite radio service in certain areas of the United States. Certain operations or combination of operations permitted by the FCC in spectrum, other
than our licensed frequencies, results in the loss of signal to our service, and the reception of our satellite radio service can be adversely affected in certain areas. Elimination of
this interference may not be possible in all cases. In other cases, our efforts to reduce this interference may require extensive engineering efforts and additions to our terrestrial
infrastructure. These mitigation efforts may be costly and take several years to implement and may not be entirely effective. In certain cases, we are dependent on the FCC to
assist us in preventing harmful interference to our service.
Risks Relating to our Pandora Business
Our Pandora ad-supported business has suffered a substantial and consistent loss of monthly active users, which may adversely affect our Pandora business.
The number of monthly active users to our ad-supported Pandora business has declined consistently for several years, and may further contract in the future.
The size of our ad-supported listener base is an important element of our Pandora business. The decline in our listener base has resulted in fewer listener hours and
available advertising spots on our Pandora service, which ultimately may result in declines in our advertising revenue, and adversely affect our Pandora business. The
contraction of our ad-supported listener base also decreases the size of demographic groups targeted by advertisers, which may hurt our ability to deliver advertising in a manner
that maximizes advertisers’ return on investment and compete with other digital advertising platforms.
Our failure to convince advertisers of the benefits of our Pandora ad-supported service could harm our business.
We derive substantial revenue on our Pandora service from the sale of advertising. Our ability to attract and retain advertisers, and ultimately to sell our advertising
inventory, depends on a number of factors, including:
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the number of listener hours on the Pandora ad-supported service, particularly the number of listener hours attributable to high-value demographics;
keeping pace with changes in technology and our competitors, some of which have significant influence over the distribution of our Pandora app;
competing effectively for advertising with other dominant online services, such as Spotify, Google and Facebook, as well as other marketing and media outlets,
some of which provide services to us that we depend upon to fulfill the advertising we sell;
successfully competing for local radio advertising;
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demonstrating the ability of advertisements to reach targeted audiences, including the value of mobile digital advertising;
ensuring that new ad formats and ad product offerings are attractive to advertisers and that inventory management decisions (such as changes to ad load, frequency,
prominence and quality of ads that we serve listeners) do not have a negative impact on listener hours; and
adapting to technologies designed to block the display of our ads.
Our agreements with advertisers are generally short-term and may be terminated at any time by the advertiser. Advertisers may leave us for competing alternatives at any
time. Failure to demonstrate to advertisers the value of our Pandora service would result in reduced spending by, or loss of, advertisers, which would harm our revenue and
business.
If we are unable to maintain revenue growth from our advertising products, particularly in mobile advertising, our results of operations will be adversely affected.
In order to effectively monetize listener hours, we must, among other things, convince advertisers to migrate spending to nascent advertising markets, penetrate local
advertising markets and develop compelling ad product solutions.
The substantial majority of the total listening to our Pandora service occurs on mobile devices. We are engaged in efforts to continue to convince advertisers of the
capabilities and value of mobile digital advertising and to direct an increasing portion of their advertising spend to our ad-supported Pandora service.
We are continuing to build our sales capability to penetrate local advertising markets, which places us in competition with terrestrial radio. We may not be able to capture
an increasing share of local and audio advertising revenue, which may have an adverse impact on our future revenue.
Changes to mobile operating systems and browsers may hinder our ability to sell advertising and market our services.
We use shared common device identifiers that are universal in the advertising technology ecosystem, such as Apple’s Identifier for Advertisers, a random device
identifier assigned by Apple to a user's device. We use these common device identifiers for targeting, advertising effectiveness and measurement for the Pandora’s advertising
business and for Pandora’s consumer marketing purposes. These common device identifiers enable us to match audiences, including with second- and third-party data providers
and measurement vendors, and enhance Pandora’s advertising targeting segments with additional data. In our programmatic advertising business, we use common identifiers for
several important functions, such as targeting and bidding. We also use common device identifiers to evaluate the success of our Pandora brand consumer marketing campaigns.
Apple, as well as mobile operating system and browser providers, have announced product features and plans that may adversely impact our ability to use these
common identifiers and data collected in connection with these common identifiers in our Pandora business.
If we fail to accurately predict and play music, comedy or other content that our Pandora listeners enjoy, we may fail to retain existing and attract new listeners.
A key differentiating factor between our Pandora service and other music content providers is our ability to predict music that our listeners will enjoy. The effectiveness
of our personalized playlist generating system depends, in part, on our ability to gather and effectively analyze large amounts of listener data and feedback. We have no
assurance that we will continue to be successful in enticing listeners to our Pandora service to give a thumbs-up or thumbs-down to enough songs to effectively predict and
select new and existing songs. In addition, our ability to offer listeners songs that they have not previously heard and impart a sense of discovery depends on our ability to
acquire and appropriately categorize additional tracks that will appeal to our listeners’ diverse and changing tastes. Many of our competitors currently have larger music and
content catalogs than we offer and they may be more effective in providing their listeners with an appealing listener experience.
We also provide comedy and podcast content on our Pandora service, and we try to predict what our listeners will enjoy using technology similar to the technology that
we use to generate personalized playlists for music. The risks that apply to our ability to satisfy our listeners’ musical tastes apply to comedy, podcasts and other content to an
even greater extent, particularly since we do not yet have as large a data set on listener preferences for comedy, podcasts and other content, and have a smaller catalog of such
content as compared to music.
Our ability to predict and select music, comedy, podcasts and other content that our listeners enjoy is important to the perceived value of our Pandora service to
consumers and the failure to make accurate predictions would adversely affect our ability to attract and retain subscribers and listeners, increase listener hours and sell
advertising.
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Risks Relating to Laws and Governmental Regulations
Privacy and data security laws and regulations may hinder our ability to market our services, sell advertising and impose legal liabilities.
We receive a substantial amount of data on purchasers and lessees of new and used vehicles from third parties. We use this data to market our services. We collect and
use demographic and other information, including location information, from and about our listeners through the internet. Further, we and third parties use tracking
technologies, including “cookies” and related technologies, to help us manage and track our listeners’ interactions with our services and deliver relevant advertising.
Various federal and state laws and regulations, as well as the laws of foreign jurisdictions, govern the collection, use, retention, sharing and security of the data we
receive. Privacy groups and government authorities have increasingly scrutinized the ways in which companies collect and share data, including linking personal identities and
data associated with particular users or devices with data collected through the internet, and we expect such scrutiny to increase. Alleged violations of laws and regulations
relating to privacy and data may expose us to potential liability, may require us to expend significant resources in responding to and defending such allegations and claims and
could in the future result in negative publicity and a loss of confidence in us by our subscribers, listeners and advertisers.
Privacy-related laws and regulations, such as the California Consumer Privacy Act and the European General Data Protection Regulation, are evolving and subject to
potentially differing interpretations. Various federal and state legislative and regulatory bodies as well as foreign legislative and regulatory bodies may expand current or enact
new laws regarding privacy and data security-related matters. New laws, amendments to or re-interpretations of existing laws and contractual obligations, as well as changes in
our listeners’ expectations and demands regarding privacy and data security, may limit our ability to collect and use consumer data. Restrictions on our ability to collect, access
and harness listener data, or to use or disclose listener data or profiles that we develop using such data, could limit our ability to deliver personalized content to our listeners and
offer targeted advertising opportunities to our advertising customers, each of which are important to the success of our business. Increased regulation of data utilization and
distribution practices could increase our costs of operation or otherwise adversely affect our business.
Consumer protection laws and our failure to comply with them could damage our business.
Federal and state consumer protection laws, rules and regulations cover nearly all aspects of our marketing efforts, including the content of our advertising, the terms of
consumer offers and the manner in which we communicate with consumers. The nature of our business requires us to expend significant resources to try to ensure that our
marketing activities comply with consumer protection laws, including laws relating to telemarketing activities and privacy. These efforts may not be successful, and we may
have to expend even greater resources in our compliance efforts.
Modifications to consumer protection laws, including decisions by courts and administrative agencies interpreting these laws, could have an adverse impact on our
ability to attract and retain subscribers and listeners to our services. There can be no assurance that new laws or regulations will not be enacted or adopted, preexisting laws or
regulations will not be more strictly enforced or that our operations will comply with all applicable laws, which could have an adverse impact on our operations and financial
condition.
Failure to comply with FCC requirements could damage our business.
We hold FCC licenses and authorizations to operate commercial satellite radio services in the United States, including satellites, terrestrial repeaters and related
authorizations. The FCC generally grants licenses and authorizations for a fixed term. Although we expect our licenses and authorizations to be renewed in the ordinary course
upon their expiration, there can be no assurance that this will be the case. Any assignment or transfer of control of any of our FCC licenses or authorizations must be approved
in advance by the FCC.
The operation of our satellite radio systems is subject to significant regulation by the FCC under authority granted through the Communications Act of 1934 and related
federal law. We are required, among other things, to operate only within specified frequencies; to coordinate our satellite radio services with radio systems operating in the same
range of frequencies in neighboring countries; and to coordinate our communications links to our satellites with other systems that operate in the same frequency band.
Noncompliance by us with these requirements or other conditions or with other applicable FCC rules and regulations could result in fines, additional license conditions,
license revocation or other detrimental FCC actions. There is no guarantee that Congress will not modify the statutory framework governing our services, or that the FCC will
not modify its rules and regulations in a manner that would have an adverse impact on our operations.
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Risks Associated with Data and Cybersecurity and the Protection of Consumer Information
If we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions and private litigation and
our reputation could suffer.
The nature of our business involves the receipt and storage of personal information about our subscribers and listeners including, in many cases, credit and debit card
information. We have a program in place to detect and respond to data security incidents. However, the techniques used to gain unauthorized access to data systems are
constantly evolving and may be difficult to detect for long periods of time. We may be unable to anticipate or prevent unauthorized access to data pertaining to our customers,
including credit card and debit card information and other personally identifiable information. Our services, which are supported by our own systems and those of third-party
vendors, are vulnerable to computer malware and attacks, any of which could lead to system interruptions, delays, or shutdowns, causing loss of critical data or the unauthorized
access to personally identifiable information.
If we fail to protect the security of personal information about our customers or if an actual or perceived breach of security occurs on our systems or a vendor’s systems,
we could be exposed to costly government enforcement actions and private litigation and our reputation could suffer. We may also be required to expend significant resources to
address these problems, including notification under various data privacy regulations, and our reputation and operating results could suffer. In addition, our subscribers and
listeners, as well as potential customers, could lose confidence in our ability to protect their personal information, which could cause them to discontinue the use of our services.
This loss of confidence would also harm our efforts to attract and retain advertisers, and unauthorized access to our programming would potentially create additional royalty
expense with no corresponding revenue. Such events could adversely affect our results of operations. The costs of maintaining adequate protection, including insurance
protection, against such threats as they develop in the future (or as legal requirements related to data security increase) could be material.
In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could
unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do
business, through fraud, trickery, or other forms of deceiving our employees, contractors or other agents. We may not be able to effectively control the unauthorized actions of
third parties who may have access to the data we collect.
We may integrate the Pandora service with apps provided by third parties. In such case, we may not be able to control such third parties’ use of listeners’ data, ensure
their compliance with the terms of our privacy policies, or prevent unauthorized access to, or use or disclosure of, information, any of which could expose us to potential
liability and negative publicity and could cause our listeners and advertisers to discontinue use of our services.
To date, we have not had a significant cyber-attack or breach that has had a material impact on our business or results of operations. We have implemented systems and
processes intended to secure our information technology systems and prevent unauthorized access to or loss of sensitive, confidential and personal data, including through the
use of encryption and authentication technologies. Additionally, we have increased our monitoring capabilities to enhance early detection and timely response to potential
security anomalies.
The cyber security measures we have implemented, however, may not be sufficient to prevent all possible attacks and may be vulnerable to hacking, employee error,
malfeasance, system error, faulty password management or other irregularities. Further, the development and maintenance of these measures are costly and require ongoing
monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated.
Interruption or failure of our information technology and communications systems could impair the delivery of our service and harm our business.
We rely on systems housed at our own premises and at those of third party vendors to enable subscribers and listeners to access our Pandora and Sirius XM services in a
dependable and efficient manner. Any degradation in the quality, or any failure, of our systems could reduce our revenues, cause us to lose customers and damage our
brands. Although we have implemented practices designed to maintain the availability of the information technology systems we rely on and mitigate the harm of any
unplanned interruptions, we cannot anticipate all eventualities. We occasionally experience unplanned outages or technical difficulties. We could also experience loss of data or
processing capabilities, which could cause us to lose customers and could harm our reputation and operating results.
We rely on internal systems and external systems maintained by manufacturers, distributors and service providers to take, fulfill and handle customer service requests and
host certain online activities. Any interruption or failure of our internal or external systems could prevent us from servicing customers or cause data to be unintentionally
disclosed. Our services have
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experienced, and we expect them to continue to experience, periodic service interruptions and delays involving our own systems and those of our third-party vendors.
Our data centers and our information technology and communications systems are vulnerable to damage or interruption from natural disasters, malicious attacks, fire,
power loss, telecommunications failures, computer viruses or other attempts to harm our systems. The occurrence of any of these events could result in interruptions in our
services and unauthorized access to, or alteration of, the content and data contained on our systems and that these third party vendors store and deliver on our behalf.
Damage or interruption to our data centers and information technology and communications centers could expose us to data loss or manipulation, disruption of service,
monetary and reputational damages, competitive disadvantage and significant increases in compliance costs and costs to improve the security and resiliency of our computer
systems. The compromise of personal, confidential or proprietary information could also subject us to legal liability or regulatory action under evolving cybersecurity, data
protection and privacy laws and regulations enacted by the U.S. federal and state governments or other foreign jurisdictions or by various regulatory organizations. As a result,
our ability to conduct our business and our results of operations might be adversely affected.
Risks Associated with Certain Intellectual Property Rights
The market for music rights is changing and is subject to significant uncertainties.
We must maintain music programming royalty arrangements with, and pay license fees to, owners of rights in musical works in order to operate our services.
Traditionally, BMI, ASCAP and SESAC have negotiated for these copyright users, collected royalties and distributed them to songwriters and music publishers. These
traditional arrangements are changing. The fracturing of the traditional system for licensing rights in musical works may have significant consequences to our business,
including increasing licensing costs and reducing the availability of certain pieces for use on our services.
Under the United States Copyright Act, we also must pay royalties to copyright owners of sound recordings for the performance of such sound recordings on our Sirius
XM service. Those royalty rates may be established through negotiation or, if negotiation is unsuccessful, by the Copyright Royalty Board. Owners of copyrights in sound
recordings have created SoundExchange, a collective organization, to collect and distribute royalties. SoundExchange is exempt by statute from certain U.S. antitrust laws and
exercises significant market power in the licensing of sound recordings. Under the terms of the Copyright Royalty Board’s existing decision governing sound recording royalties
for satellite radio, we are required to pay a royalty based on our gross revenues associated with our satellite radio service, subject to certain exclusions, of 15.5% per year for
each of the next seven years.
Our Pandora services depend upon maintaining complex licenses with copyright owners, and these licenses contain onerous terms.
Pandora has direct license agreements with many sound recording copyright and musical work copyright owners. These agreements grant us the right to operate Pandora
Premium, and add interactive features, such as replays, additional skips and offline play, to Pandora’s ad-supported service and to Pandora Plus.
The economic terms of these direct licenses are onerous and, as a result, we may not be able to profitably operate the Pandora services. However, the economic terms of
these direct licenses may be “market,” given the rates paid by Pandora’s competitors. Competition for Pandora’s services are primarily offered by entities that provide music
and entertainment services as a small part of a larger business, such as Apple, Google and Amazon. These competitors have the ability to bear these onerous economic
provisions to a much greater extent than our Pandora business. We may not be able to negotiate or obtain lower royalty rates under these direct licenses.
These direct licenses are complex. We may not be in compliance with the terms of these licenses, which could result in the loss of some or all of these licenses and some
or all of the rights they convey. Similarly, many of these licenses provide that if the licensor loses rights in a portion of the content licensed under the agreement, that content
may be removed from the license going-forward.
If Pandora fails to maintain these direct licenses, or if rights to certain music were no longer available under these licenses, then we may have to remove the affected
music from Pandora’s services, or discontinue certain interactive features for such music, and it might become commercially impractical for us to operate Pandora Premium,
Pandora Plus or certain features of our advertising supported service. Any of these occurrences could have an adverse effect on our business, financial condition and results of
operations.
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Several of these direct licenses also include provisions related to the terms of those agreements relative to other content licensing arrangements, which are commonly
referred to as “most favored nation” clauses. These provisions have caused, and may in the future cause, our payments under those agreements to escalate substantially. In
addition, many record labels, music publishers and performing rights organizations have the right to audit our royalty payments, and audits often result in disputes over whether
we have paid the proper amounts. As a result of such audits, we could be required to pay additional amounts, audit fees and interest or penalties, and the amounts involved could
adversely affect our business, financial condition and results of operations.
There is no guarantee that these direct licenses will be renewed in the future or that such licenses will be available on the economic terms associated with the current
licenses. If we are unable to secure and maintain direct licenses for the rights to provide music on our Pandora services on terms similar to those under our current direct
licenses, our content costs could rise and adversely affect our business, financial condition and results of operations.
The rates we must pay for “mechanical rights” to use musical works on our Pandora service have increased substantially and these rates may adversely affect our
business.
Pandora has direct licenses with thousands of music publishers. Those licenses provide that the royalty rate for “reproduction rights” or “mechanical rights”, which are
required to offer the interactive features of our Pandora services, are determined by the rate formula set by the Copyright Royalty Board for the compulsory license made
available by Section 115 of the Copyright Act. These royalty rates also apply to Pandora’s use of musical works for which we do not have a direct license with the copyright
owners.
The Copyright Royalty Board has issued a rate formula for the period from January 1, 2018 through December 31, 2022. Pursuant to that decision, the rate that we
expected to pay to music publishers and songwriters for the mechanical rights and performance rights needed in connection with interactive streaming would have increased
annually between 2018 and 2022. On August 11, 2020, the United States Court of Appeals for the District of Columbia Circuit concluded that the CRB failed to provide
adequate notice of the rate structure it adopted, failed to explain its rejection of a past settlement agreement as a benchmark for going forward, and never identified the source of
its asserted authority to substantively redefine a material term of its initial determination. For these reasons, the Court of Appeals overturned the CRB’s adopted rate structure
and percentage rates and remanded the proceeding to the CRB for further proceedings. The CRB has announced further proceedings to consider and address the Court of
Appeals’ decision.
Our use of pre-1972 sound recordings on our Pandora service could result in additional costs.
Federal copyright protection previously did not apply to sound recordings created prior to February 15, 1972. The protection of such recordings was instead governed by
a patchwork of state statutory and common laws. Copyright owners of pre-1972 sound recordings have brought litigation against Pandora alleging violations of state statutory
and common laws arising from the reproduction and public performance of pre-1972 sound recordings.
If Pandora is found liable for the violation of the exclusive rights of any pre-1972 sound recording copyright owners, then we could be subject to liability, the amount of
which could be significant.
Failure to protect our intellectual property or actions by third parties to enforce their intellectual property rights could substantially harm our business and operating
results.
Development of our systems has depended upon the intellectual property that we have developed, as well as intellectual property licensed from third parties. If the
intellectual property that we have developed or use is not adequately protected, others will be permitted to and may duplicate portions of our systems or services without
liability. In addition, others may challenge, invalidate, render unenforceable or circumvent our intellectual property rights, patents or existing licenses or we may face significant
legal costs in connection with defending and enforcing those intellectual property rights. Some of the know-how and technology we have developed, and plan to develop, is not
now, nor will it be, covered by U.S. patents or trade secret protections. Trade secret protection and contractual agreements may not provide adequate protection if there is any
unauthorized use or disclosure. The loss of necessary technologies could require us to substitute technologies of lower quality performance standards, at greater cost or on a
delayed basis, which could harm us.
Other parties may have patents or pending patent applications, which will later mature into patents or inventions that may block or put limits on our ability to operate our
system or license our technologies. We may have to resort to litigation to enforce our rights under license agreements or to determine the scope and validity of other parties’
proprietary rights in the subject matter of those licenses. This may be expensive and we may not succeed in any such litigation.
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Third parties may assert claims or bring suit against us for patent, trademark or copyright infringement, or for other infringement or misappropriation of intellectual
property rights. Any such litigation could be costly, divert our efforts from our business, subject us to significant liabilities to third parties, require us to seek licenses from third
parties, block our ability to operate our services or license our technology, or otherwise adversely affect our ability to successfully develop and market our services.
Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our services or require that we release the source
code subject to those licenses.
We may incorporate in some products software licensed under “open source” licenses. Open source licenses often require that the source code be made available to the
public and that any modifications or derivative works to the open source software continue to be licensed under open source licenses. Few courts have interpreted open source
licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to uncertainty. In the event that portions of our proprietary technology are
determined to be subject to an open source license, we may be required to publicly release portions of our source code, be forced to re-engineer all or a portion of our
technologies, or otherwise be limited in the licensing of our technologies, each of which could adversely affect our ability to sustain and grow our business.
Rapid technological and industry changes and new entrants could adversely impact our services.
The audio entertainment industry is characterized by rapid technological change, frequent product and feature innovations, changes in customer requirements and
expectations, evolving standards and new entrants offering products and services. If we are unable to keep pace with these changes, our business may not succeed. Products
using new technologies could make our services less competitive in the marketplace.
Risks Related to our Capital and Ownership Structure
We have a significant amount of indebtedness, and our debt contains certain covenants that restrict our operations.
As of December 31, 2020, we had an aggregate principal amount of approximately $8.5 billion of indebtedness outstanding.
Our indebtedness increases our vulnerability to general adverse economic and industry conditions; requires us to dedicate a portion of our cash flow from operations to
payments on indebtedness, reducing the availability of cash flow to fund capital expenditures, marketing and other general corporate activities; limits our ability to borrow
additional funds; and may limit our flexibility in planning for, or reacting to, changes in our business and the audio entertainment industry.
In addition, our borrowings under our Senior Secured Revolving Credit Facility carry a variable interest rate based on London Inter-bank Offered Rate (“LIBOR”) as a
benchmark for establishing the rate of interest. LIBOR is the subject of national, international and other regulatory guidance and proposals for reform. In 2017, the United
Kingdom's Financial Conduct Authority the "FCA"), which regulates LIBOR, announced that it intends to phase out LIBOR. On November 30, 2020, ICE Benchmark
Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the FCA, announced plans to consult on ceasing publication of
LIBOR on December 31, 2021 for only the one week and two month LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. While this announcement extends the
transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. In light of
these recent announcements, the future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to
LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. The consequences of these developments cannot be entirely predicted, but could
include an increase in the cost of our borrowings under the Credit Facility.
We are a “controlled company” within the meaning of the NASDAQ listing rules and, as a result, qualify for, and rely on, exemptions from certain corporate
governance requirements.
We are a “controlled company” for the purposes of the NASDAQ Stock Market listing rules. As such, we have elected not to comply with certain NASDAQ corporate
governance requirements. Although a majority of our board of directors consists of independent directors, we do not have a compensation committee and nominating and
corporate governance committee that consist entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that
are subject to all of the corporate governance requirements of NASDAQ.
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While we currently pay a quarterly cash dividend to holders of our common stock, we may change our dividend policy at any time.
We currently pay a quarterly cash dividend to holders of our common stock, although we have no obligation to do so, and our dividend policy may change at any time
without notice to our stockholders. The declaration and payment of dividends is at the discretion of our board of directors in accordance with applicable law after considering
various factors, including our financial condition, operating results, current and anticipated cash needs, limitations imposed by our indebtedness, legal requirements and other
factors that our board of directors deems relevant.
Our principal stockholder has significant influence, including over actions requiring stockholder approval, and its interests may differ from the interests of other
holders of our common stock.
As of December 31, 2020, Liberty Media beneficially owned approximately 76% of Holdings’ common stock and has the ability to influence our affairs, policies and
operations. One Liberty Media executive, one Liberty Media senior advisor, and one other member of the board of directors of Liberty Media are members of our board of
directors. Our board of directors currently has fourteen members. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of Holdings’
board of directors. Our board of directors is responsible for, among other things, the appointment of executive management, future issuances of common stock or other
securities, the payment of dividends, if any, the incurrence of debt, and the approval of various transactions.
Liberty Media can also determine the outcome of all matters requiring general stockholder approval, including the election of the board of directors and changes to our
certificate of incorporation or by-laws. Liberty Media can also cause or prevent a change of control of Holdings and could preclude any unsolicited acquisition of our
company. The concentration of ownership could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and
might ultimately affect the market price of our common stock. In certain cases, the interests of Liberty Media may not be aligned with the interests of other stockholders of
Holdings.
Other Operational Risks
If we are unable to attract and retain qualified personnel, our business could be harmed.
We believe that our success depends on our ability to attract and retain qualified management, sales, technical and other personnel. All of our employees, including our
executive officers, are free to terminate their employment with us at any time, and their knowledge of our business may be difficult to replace.
Qualified individuals are in high demand, particularly in the media and technology industries in New York and in the San Francisco Bay Area, where we have substantial
operations, and we may incur significant costs to attract and retain employees. If we are unable to attract and retain our key employees, we may not be able to achieve our
objectives, and our business could be harmed.
Our facilities could be damaged by natural catastrophes or terrorist activities.
An earthquake, hurricane, tornado, flood, cyber-attack, terrorist attack, civil unrest or other catastrophic event could damage our data centers, studios, terrestrial repeater
networks or satellite uplink facilities, interrupt our services and harm our business. We also have significant operations in the San Francisco Bay Area, a region known for
seismic activity.
Any damage to the satellites that transmit to our terrestrial repeater networks would likely result in degradation of the affected service for some Sirius XM subscribers
and could result in complete loss of Sirius XM satellite service in certain or all areas. Damage to our satellite uplink facilities could result in a complete loss of our Sirius XM
satellite service until we could transfer operations to suitable back-up facilities.
The unfavorable outcome of pending or future litigation could have an adverse impact on our operations and financial condition.
We are parties to several legal proceedings arising out of various aspects of our business, including class actions arising out of our marketing practices. The outcome of
these proceedings may not be favorable, and one or more unfavorable outcomes could have an adverse impact on our financial condition.
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We may be exposed to liabilities that other entertainment service providers would not customarily be subject to.
We design, establish specifications, source or specify parts and components, and manage various aspects of the logistics of the production of satellite radios and our
apps. As a result of these activities, we may be exposed to liabilities associated with the design, manufacture and distribution of radios that the providers of an entertainment
service would not customarily be subject to, such as liabilities for design defects, patent infringement and compliance with applicable laws, as well as the costs of returned
product.
Our business and prospects depend on the strength of our brands.
Maintaining and enhancing our brands is an important part of our strategy to expand our base of subscribers, listeners and advertisers. Our brands may be impaired by a
number of factors, including service outages, data privacy and security issues and exploitation of our trademarks by others without permission. Our ability to maintain and
enhance our brands also depends in part on our ability to continue to develop and provide an innovative and high-quality entertainment experience, which we may not do
successfully.
Special Note About Forward-Looking Statements
We have made various statements in this Annual Report on Form 10-K that may constitute “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may also be made in our other reports filed with or furnished to the SEC, in our press releases and in other
documents. In addition, from time to time, we, through our management, may make oral forward-looking statements. For example, these forward-looking statements may
include, among other things, our statements about our outlook and our future results of operations and financial condition; share repurchase plans; the impact of economic and
market conditions; and the impact of recent acquisitions. The words “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,”
“plan,” “may,” “should,” “could,” “would,” “likely,” “projection,” “outlook” and similar expressions are intended to identify forward-looking statements. Forward-looking
statements are subject to risks and uncertainties, including those identified above, which could cause actual results to differ materially from such statements. We caution you
that the risk factors described above are not exclusive. There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially
from those in forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the
impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.
We undertake no obligation to update publicly or revise any forward-looking statements, except as required by law.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Below is a list of the principal properties that we own or lease:
Sirius XM
Location
New York, NY
Washington, DC
Lawrenceville, NJ
Deerfield Beach, FL
Farmington Hills, MI
Nashville, TN
Vernon, NJ
Ellenwood, GA
Fredericksburg, VA
Los Angeles, CA
Irving, TX
San Francisco, CA
Purpose
Own/Lease
Corporate headquarters, office facilities and studio/production facilities
Office, studio/production facilities and data center
Office and technical/engineering facilities
Office and technical/engineering facilities
Office and technical/engineering facilities
Studio/production facilities
Technical/engineering facilities
Technical/engineering facilities
Warehouse and technical/engineering facilities
Office and studio/production facilities
Office and engineering facilities/call center
Office and engineering facilities
Lease
Own
Lease
Lease
Lease
Lease
Own
Lease
Lease
Lease
Lease
Lease
We also lease other small facilities that we use as offices for our advertising sales personnel, studios and warehouse and maintenance space. These facilities are not
material to our business or operations.
In addition, we lease or license space at approximately 540 locations for use in connection with the terrestrial repeater networks that support our satellite radio
services. In general, these leases and licenses are for space on building rooftops and communications towers. None of these individual locations are material to our business or
operations.
Pandora
Location
Oakland, CA
New York, NY
Atlanta, GA
Santa Monica, CA
Purpose
Own/Lease
Office and technical/engineering facilities
Office, sales and studio/production facilities
Office, sales and technical/engineering facilities
Office and sales facilities
Lease
Lease
Lease
Lease
We also lease other small facilities that we use as offices for our sales and office personnel. These facilities are not material to our business or operations.
ITEM 3. LEGAL PROCEEDINGS
For a discussion of our “Legal Proceedings,” refer to Note 17 in the notes to our audited consolidated financial statements of this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SIRI.” On January 29, 2021, there were approximately 6,795 record holders of
PART II
our common stock.
Issuer Purchases of Equity Securities
As of December 31, 2020, our board of directors had authorized us to repurchase an aggregate of $16.0 billion of our common stock and have not establish an end date
for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements
of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, including transactions with Liberty Media and its affiliates, or otherwise. As of December 31,
2020, our cumulative repurchases since December 2012 under our stock repurchase program totaled 3.3 billion shares for approximately $14.4 billion, and approximately $1.6
billion remained available under our existing $16.0 billion stock repurchase program. The size and timing of our repurchases will be based on a number of factors, including
price and business and market conditions.
The following table provides information about our purchases of equity securities registered pursuant to Section 12 of the Exchange Act during the quarter ended
December 31, 2020:
Period
October 1, 2020 - October 31, 2020
November 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 2020
Total
Total Number of Shares
Purchased
Average Price Paid Per
Share (a)
45,000,000 $
33,500,000 $
32,868,437 $
111,368,437 $
5.81
6.23
6.40
6.11
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the Plans
or Programs (a)
45,000,000 $
33,500,000 $
32,868,437 $
111,368,437
2,011,053,907
1,802,510,457
1,592,273,446
(a)
These amounts include fees and commissions associated with the shares repurchased. All of these repurchases were made pursuant to our share repurchase program.
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COMPARISON OF CUMULATIVE TOTAL RETURNS
Set forth below is a graph comparing the cumulative performance of our common stock with the Standard & Poor's Composite-500 Stock Index, or the S&P 500, and the
NASDAQ Telecommunications Index from December 31, 2015 to December 31, 2020. The graph assumes that $100 was invested on December 31, 2015 in each of our
common stock, the S&P 500 and the NASDAQ Telecommunications Index. In November 2016, we paid our first quarterly dividend. Our board of directors expects to declare
regular quarterly dividends.
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
Stockholder Return Performance Table
NASDAQ
Telecommunications Index
S&P 500 Index
Sirius XM Holdings Inc.
100.00
114.87
134.90
138.98
154.80
188.92
$
$
$
$
$
$
100.00 $
109.54 $
130.81 $
122.65 $
158.07 $
183.77 $
100.00
109.34
131.70
140.29
175.68
156.51
$
$
$
$
$
$
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Plan Category (shares in millions)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
__________
Equity Compensation Plan Information
Number of Securities to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights
(1)
Weighted-Average Exercise Price
of Outstanding Options, Warrants
and Rights
(2)
Number of Securities Remaining
Available for Future Issuance
under Equity Compensation
Plans
259
—
259
$
$
4.73
—
4.73
160
—
160
(1)
(2)
In addition to shares issuable upon exercise of stock options, amount also includes approximately 75 shares underlying restricted stock units, including performance-based restricted stock
units (“PRSUs”) and dividend equivalents thereon. The number of shares to be issued in respect of PRSUs and dividend equivalents thereon have been calculated based on the
assumption that the maximum levels of performance applicable to the PRSUs will be achieved.
The weighted-average exercise price of outstanding options, warrants and rights relates solely to stock options, which are the only currently outstanding exercisable security.
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ITEM 6. SELECTED FINANCIAL DATA
The operating and balance sheet data included in the following selected financial data has been derived from our audited consolidated financial statements. The data
below includes Pandora's results for the year ended December 31, 2020 and for the period from February 1, 2019 (the date of the Pandora acquisition) to December 31, 2019.
This selected financial data should be read in conjunction with the audited Consolidated Financial Statements and related notes thereto included in Item 8 of this Annual Report
on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K.
(1, 2)
(1, 2)
(in millions, except per share data)
Statements of Comprehensive Income Data:
Total revenue
(1)
Net income
Net income per share - basic
Net income per share - diluted
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
Cash dividends declared per share
Balance Sheet Data:
Cash and cash equivalents
Restricted investments
Total assets
Long-term debt, net of current portion
Stockholders' (deficit) equity
(3)
(2)
2020
8,040 $
131 $
0.03 $
0.03 $
4,330
4,429
0.05457 $
71 $
12 $
10,333 $
8,499 $
(2,285) $
$
$
$
$
$
$
$
$
$
$
As of and for the Years Ended December 31,
2018
2019
2017
7,794 $
914 $
0.20 $
0.20 $
4,501
4,616
0.04961 $
106 $
14 $
11,149 $
7,842 $
(736) $
5,771 $
1,176 $
0.26 $
0.26 $
4,462
4,561
0.0451 $
54 $
11 $
8,173 $
6,885 $
(1,817) $
5,425 $
648 $
0.14 $
0.14 $
4,638
4,724
0.0410 $
69 $
10 $
8,329 $
6,741 $
(1,524) $
2016
5,017
746
0.15
0.15
4,917
4,965
0.0100
214
10
8,004
5,843
(792)
_______________________
(1)
During the year ended December 31, 2020, we recorded a non-cash impairment of goodwill and indefinite-lived assets of $956 and $20, respectively. Refer to Note 9 to
our consolidated financial statements for more information.
The 2017 net income per basic and diluted share includes the impact of $185 in income tax expense, or a decrease of approximately $0.04 per share, due to the reduction in
our net Deferred tax asset balance as a result of the Tax Cut and Jobs Act signed into law on December 22, 2017.
For the year ended December 31, 2016, we recorded $294 as an increase to our Deferred tax assets and decrease to our Accumulated deficit as a result of the adoption of
Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718).
(2)
(3)
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and the
timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those described under “Item 1A - Risk
Factors” and elsewhere in this Annual Report on Form 10-K. See “Special Note About Forward-Looking Statements.”
All amounts referenced in this Item 7 are in millions, except subscriber amounts are in thousands and per subscriber and per installation amounts are in ones, unless
otherwise stated.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial
statements and related notes included elsewhere in this Annual Report on Form 10-K.
Executive Summary
We operate two complementary audio entertainment businesses - our Sirius XM business and our Pandora business.
Sirius XM
Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment
services, in the United States on a subscription fee basis. Sirius XM's premier content bundles include live, curated and certain exclusive and on demand programming. The
Sirius XM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer
electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. Our Sirius XM service is also available through our user interface,
which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.
The primary source of revenue from our Sirius XM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual
plans. We also derive revenue from advertising on select non-music channels, direct sales of our satellite radios and accessories, and other ancillary services. As of
December 31, 2020, our Sirius XM business had approximately 34.7 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. These services are designed to enhance the safety,
security and driving experience of consumers. We also offer a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings,
a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-
time weather services in vehicles, boats and planes.
In May 2020, we terminated the Automatic Labs Inc. (“Automatic”) service, which was part of our connected services business. Automatic operated a service for
consumers and auto dealers and offered an install-it-yourself adapter and mobile application, which transformed vehicles into connected vehicles. During the year ended
December 31, 2020, we recorded $24 of restructuring expenses in our consolidated statements of comprehensive income related to this termination of the service. We did not
record any restructuring expenses during the years ended December 31, 2019 and 2018.
Sirius XM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada Holdings Inc. (“Sirius XM Canada”). Sirius XM Canada's subscribers are not
included in our subscriber count or subscriber-based operating metrics.
Pandora
Our Pandora business operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever
they want to listen, whether through mobile devices, car speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new
content, hear artist- and expert-curated playlists, podcasts and select Sirius XM content as well as search and play songs and albums on-demand. Pandora is available as (1) an
ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of December 31, 2020, Pandora
had approximately 6.3 million subscribers.
The majority of revenue from our Pandora business is generated from advertising on our Pandora ad-supported radio service. We also derive subscription revenue from
our Pandora Plus and Pandora Premium subscribers.
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Our Pandora business also sells advertising on audio platforms and in podcasts unaffiliated with us. Pandora is the exclusive US ad sales representative for SoundCloud.
Through this arrangement Pandora offers advertisers the ability to execute campaigns in the US across the Pandora and SoundCloud listening platforms. We also have
arrangements to serve as the ad sales representative for certain podcasts, such as the podcasts of NBC News. In addition, through AdsWizz, Pandora provides a comprehensive
digital audio advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization,
programmatic buying, marketplace and podcast monetization solutions. As of December 31, 2020, our Pandora business had approximately 58.9 million monthly active users.
In October 2020, Sirius XM acquired the assets of Stitcher from The E.W. Scripps Company and certain of its subsidiaries for a total consideration of $296, which
includes $272 in cash and $30 related to contingent consideration, partially offset by working capital adjustments of $6. The acquisition of Stitcher, in conjunction with
Simplecast, creates a full-service platform for podcast creators, publishers and advertisers. Refer to Note 3 to our consolidated financial statements for more information on this
acquisition.
In June 2020, Sirius XM acquired Simplecast for $28 in cash. Simplecast is a podcast management and analytics platform. Refer to Note 3 to our consolidated financial
statements for more information on this acquisition.
In February 2020, Sirius XM completed a $75 investment in SoundCloud. SoundCloud is the world’s largest open audio platform, with a connected community of
creators, listeners, and curators. SoundCloud’s platform enables its users to upload, promote, share and create audio entertainment. The minority investment complements the
existing ad sales relationship between SoundCloud and Pandora.
Liberty Media
As of December 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of our common stock. As a result, we
are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.
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Table of Contents
Results of Operations
Actual Results
Set forth below are our results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 and for the year ended
December 31, 2019 compared with the year ended December 31, 2018. The discussion of our results of operations for the year ended December 31, 2020 includes the financial
results of Pandora for the entire period, while the results of operations for the year ended December 31, 2019 includes the financial results of Pandora from the date of the
Pandora Acquisition, February 1, 2019. The inclusion of Pandora's results in the year ended December 31, 2020 for the entire period may render direct comparisons with results
for prior year period less meaningful. The results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for
all other items.
For the Years Ended December 31,
2019
2020
2018
2020 vs 2019 Change
%
Amount
2019 vs 2018 Change
%
Amount
Revenue
Sirius XM:
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total Sirius XM revenue
Pandora:
Subscriber revenue
Advertising revenue
Total Pandora revenue
Total consolidated revenue
Cost of services
Sirius XM:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Cost of equipment
Total Sirius XM cost of services
Pandora:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Total Pandora cost of services
Total consolidated cost of services
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Acquisition and restructuring costs
Impairment charges
Total operating expenses
Income from operations
Other (expense) income:
Interest expense
Loss on extinguishment of debt
Other income (expense)
Total other (expense) income
Income before income taxes
Income tax expense
Net income
nm - not meaningful
$
5,857 $
157
173
155
6,342
5,644 $
205
173
165
6,187
5,264 $
188
155
164
5,771
515
1,183
1,698
8,040
1,484
449
394
123
19
2,469
937
32
87
54
1,110
3,579
362
957
263
511
506
28
976
7,182
858
476
1,131
1,607
7,794
1,431
444
398
112
29
2,414
860
18
77
58
1,013
3,427
427
937
280
524
468
84
—
6,147
1,647
—
—
—
5,771
1,394
406
382
96
31
2,309
—
—
—
—
—
2,309
470
484
123
354
301
3
—
4,044
1,727
(394)
(40)
6
(428)
430
(299)
131 $
(390)
(57)
(3)
(450)
1,197
(283)
914 $
(350)
—
44
(306)
1,421
(245)
1,176 $
$
36
213
(48)
—
(10)
155
39
52
91
246
53
5
(4)
11
(10)
55
77
14
10
(4)
97
152
(65)
20
(17)
(13)
38
(56)
976
1,035
(789)
(4)
17
9
22
(767)
(16)
(783)
4 % $
(23)%
— %
(6)%
3 %
8 %
5 %
6 %
3 %
4 %
1 %
(1)%
10 %
(34)%
2 %
9 %
78 %
13 %
(7)%
10 %
4 %
(15)%
2 %
(6)%
(2)%
8 %
(67)%
nm
17 %
(48)%
(1)%
30 %
300 %
5 %
(64)%
(6)%
(86)% $
380
17
18
1
416
476
1,131
1,607
2,023
37
38
16
16
(2)
105
860
18
77
58
1,013
1,118
(43)
453
157
170
167
81
—
2,103
(80)
(40)
(57)
(47)
(144)
(224)
(38)
(262)
7 %
9 %
12 %
1 %
7 %
nm
nm
nm
35 %
3 %
9 %
4 %
17 %
(6)%
5 %
nm
nm
nm
nm
nm
48 %
(9)%
94 %
128 %
48 %
55 %
nm
nm
52 %
(5)%
(11)%
nm
(107)%
(47)%
(16)%
(16)%
(22)%
Table of Contents
Sirius XM Revenue
Refer to page 42 for our discussion on Sirius XM revenue.
Pandora Revenue
The year ended December 31, 2020 includes Pandora's revenue for the entire period while the year ended December 31, 2019 includes Pandora's revenue from the
acquisition date, February 1, 2019. Refer to page 43 for our discussion on Pandora revenue.
Sirius XM Cost of Services
Refer to page 43 for our discussion on Sirius XM cost of services.
Pandora Cost of Services
The year ended December 31, 2020 includes Pandora's cost of services for the entire period while the year ended December 31, 2019 includes Pandora's cost of services
from the acquisition date, February 1, 2019. Refer to page 45 for our discussion on Pandora cost of services.
Operating Costs
Subscriber Acquisition Costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers, distributors and
automakers; subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; product warranty
obligations; and freight. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber. Subscriber acquisition costs do not include
advertising costs, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, subscriber acquisition costs were $362 and $427, respectively, a decrease of 15%, or $65,
and decreased as a percentage of total revenue. The decrease was driven by a decline in OEM installations as a result of the COVID-19 pandemic as well as
lower hardware subsidies as certain subsidy rates decreased.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, subscriber acquisition costs were $427 and $470, respectively, a decrease of 9%, or $43,
and decreased as a percentage of total revenue. The decrease was driven by reductions to OEM hardware subsidy rates, lower subsidized costs related to the
transition of chipsets, and a decrease in the volume of satellite radio installations.
We expect subscriber acquisition costs to fluctuate with OEM installations; however, the subsidized chipsets cost is expected to decline as we transition to a new
generation of chipsets. We intend to continue to offer subsidies and other incentives to induce OEMs to include our technology in their vehicles.
Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing;
and personnel related costs including salaries, commissions, and sales support. Marketing costs include expenses related to direct mail, outbound telemarketing, email
communications, social media, television and digital performance media.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, sales and marketing expenses were $957 and $937, respectively, an increase of 2%, or $20,
and decreased as a percentage of total revenue. The increase was primarily due to the inclusion of Pandora for a full twelve months in 2020, and additional
subscriber communications and acquisition campaigns; partially offset by lower travel, entertainment and personnel-related costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, sales and marketing expenses were $937 and $484, respectively, an increase of 94%, or
$453, and increased as a percentage of total revenue. The increase was primarily due to the inclusion of Pandora, and additional subscriber communications
and acquisition campaigns.
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Table of Contents
We anticipate that sales and marketing expenses will increase with growth in our trial subscriber base, as we expand programs to retain our existing subscribers, win back
former subscribers, attract new subscribers and listeners, and as we grow advertising revenue.
Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and
connected vehicle services, research and development for broadcast information systems and the design and development costs to incorporate Sirius XM radios into new
vehicles manufactured by automakers.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, engineering, design and development expenses were $263 and $280, respectively, a
decrease of 6%, or $17, and decreased as a percentage of total revenue. The decrease was driven primarily by lower personnel-related costs, partially offset
by the inclusion of Pandora for a full twelve months in 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, engineering, design and development expenses were $280 and $123, respectively, an
increase of 128%, or $157, and increased as a percentage of total revenue. The increase was driven primarily by the inclusion of Pandora.
We expect engineering, design and development expenses to increase in future periods as we continue to develop our infrastructure, products and services.
General and Administrative primarily consists of compensation and related costs for personnel and facilities, and include costs related to our finance, legal, human
resources and information technologies departments.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, general and administrative expenses were $511 and $524, respectively, a decrease of 2%,
or $13, and decreased as a percentage of total revenue. The decrease was driven by a one-time $25 legal settlement associated with Do-Not-Call litigation
recorded in the first quarter of 2019, lower personnel-related costs, the closure of a sales and use tax audit in the second quarter of 2020, and lower travel and
entertainment costs, partially offset by the inclusion of Pandora for a full twelve months in 2020, a $25 million contribution to a donor advised fund that will
be the source of our future charitable donations, and higher legal costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, general and administrative expenses were $524 and $354, respectively, an increase of
48%, or $170, and increased as a percentage of total revenue. The increase was driven by the inclusion of Pandora and by a $25 legal settlement associated
with Do-Not-Call litigation.
We expect our general and administrative expenses to remain relatively flat.
Depreciation and Amortization represents the recognition in earnings of the cost of assets used in operations, including our satellite constellations, property, equipment
and intangible assets, over their estimated service lives.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, depreciation and amortization expense was $506 and $468, respectively, an increase of
8%, or $38, and increased as a percentage of total revenue. The increase was driven by additional assets placed in-service and the inclusion of Pandora for a
full twelve months in 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, depreciation and amortization expense was $468 and $301, respectively, an increase of
55%, or $167, and increased as a percentage of total revenue. The increase was driven by the amortization of definite life intangibles resulting from the
Pandora Acquisition and higher depreciation costs related to additional assets placed in-service.
Acquisition and Restructuring Costs represents expenses associated with the acquisitions of Pandora, Simplecast and Stitcher and restructuring costs.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, acquisition and restructuring costs were $28 and $84, respectively.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, acquisition and other related costs were $84 and $3, respectively.
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Impairment Charges represents the amount by which the carrying amount of an asset exceeds the asset's fair value.
•
2020 vs. 2019: For the year ended December 31, 2020, impairment charge was $976. We recorded a goodwill impairment charge of $956 during the year
ended December 31, 2020 to reflect the carrying amount of the Pandora goodwill and an impairment charge of $20 to write down the carrying value of our
Pandora trademark. We did not record an impairment charge in 2019 or 2018.
Other Income (Expense)
Interest Expense includes interest on outstanding debt.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, interest expense was $394 and $390, respectively, an increase of 1%, or $4. The increase
was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029, 4.625% Senior Notes due 2024 in 2019, and
4.125% Senior Notes due 2030 in 2020; partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, redemption of the Pandora
convertible notes in 2019, a lower average outstanding balance under the Credit Facility, and lower interest rates.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, interest expense was $390 and $350, respectively, an increase of 11%, or $40. The increase
was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029 and 4.625% Senior Notes due 2024 as well
as the inclusion of Pandora debt, partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, lower interest rates and an increase in
capitalized interest associated with construction of new satellites.
Loss on Extinguishment of Debt includes losses incurred as a result of the redemption of certain debt.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, loss on extinguishment of debt was $40 and $57, respectively. The loss on extinguishment
of debt recorded in 2020 was due to the redemption of $500 principal amount of Sirius XM's 4.625% Senior Notes due 2023 and $1,000 principal amount of
Sirius XM's 5.375% Senior Notes due 2025. The loss recorded in 2019 was due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior
Notes due 2024 and the repurchase of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, loss on extinguishment of debt was $57 and $0, respectively. During the year ended
December 31, 2019, we recorded losses due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior Notes due 2024 and the repurchase
of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020. There was no loss on extinguishment of debt in 2018.
Other Income (Expense) primarily includes realized and unrealized gains and losses from our Deferred Compensation Plan and other investments, interest and dividend
income, our share of the income or loss from equity investments in Sirius XM Canada and SoundCloud, and transaction costs related to non-operating investments.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, other income (expense) was $6 and $(3), respectively. Other income for the year ended
December 31, 2020 was driven by a one-time lawsuit settlement of $7. Other expense for the year ended December 31, 2019 was driven by losses on other
investments of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading gains associated with the investments held for our
Deferred Compensation Plan of $4 and interest income of $3.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, other (expense) income was $(3) and $44, respectively. Other expense for the year ended
December 31, 2019 was driven by losses on other investments of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading
gains associated with the investments held for our Deferred Compensation Plan of $4 and interest income of $3. Other income for the year ended
December 31, 2018 was driven by unrealized gains of $43 from a fair value adjustment of our investment in Pandora, and interest earned on our loan to Sirius
XM Canada of $10, partially offset by losses on other investments of $10.
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Income Taxes
Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, income tax expense was $299 and $283, respectively, and our effective tax rate was 69.5%
and 23.6%, respectively.
Our effective tax rate of 69.5% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora goodwill impairment charge,
partially offset by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and federal research and development
and certain other credits and a worthless stock deduction associated with the termination of the Automatic service. Our effective tax rate of 23.6% for the
year ended December 31, 2019 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to
state and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation.
•
2019 vs. 2018: For the years ended December 31, 2019 and 2018, income tax expense was $283 and $245, respectively, and our effective tax rate was 23.6%
and 17.2%, respectively.
Our effective tax rate of 23.6% for the year ended December 31, 2019 was primarily impacted by the recognition of excess tax benefits related to share-based
compensation and benefits related to state and federal research and development and certain other credits, partially offset by the impact of nondeductible
compensation. Our effective tax rate of 17.2% for the year ended December 31, 2018 was primarily impacted by the recognition of excess tax benefits
related to share based compensation and a benefit related to state and federal research and development credits.
Unaudited Pro Forma Results
Set forth below are our pro forma results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 and for the year ended
December 31, 2019 compared with the year ended December 31, 2018. These pro forma results are based on estimates and assumptions, which we believe are reasonable. They
are not the results that would have been realized had the Pandora Acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of
operations in future periods. The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment,
acquisition costs, fair value gain or loss on the Pandora investment and associated tax impacts. Pro forma adjustments are not included for the acquisitions of Simplecast and
Stitcher. Please refer to the Footnotes to Results of Operations (pages 49 through 53) following our discussion of results of operations.
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Revenue
Sirius XM:
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total Sirius XM revenue
Pandora:
Subscriber revenue
Advertising revenue
Total Pandora revenue
Total consolidated revenue
Cost of services
Sirius XM:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Cost of equipment
Total Sirius XM cost of services
Pandora:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Total Pandora cost of services
Total consolidated cost of services
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Acquisition and restructuring costs
Impairment charges
Total operating expenses
Income from operations
Other (expense) income:
Interest expense
Loss on extinguishment of debt
Other income (expense)
Total other (expense) income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA
nm - not meaningful
For the Years Ended December 31,
2019
2020
2018
(Pro Forma)
(Pro Forma)
(Pro Forma)
$
5,857 $
157
173
161
6,348
5,644 $
205
173
172
6,194
5,264 $
188
155
171
5,778
515
1,183
1,698
8,046
1,484
449
394
123
19
2,469
943
32
87
54
1,116
3,585
362
957
263
511
506
28
976
7,188
858
527
1,200
1,727
7,921
1,431
444
398
112
29
2,414
945
18
85
63
1,111
3,525
427
973
294
540
483
—
—
6,242
1,679
478
1,092
1,570
7,348
1,394
406
382
96
31
2,309
929
11
95
50
1,085
3,394
470
883
266
517
465
—
—
5,995
1,353
(394)
(40)
6
(428)
430
(299)
131 $
(392)
(57)
(2)
(451)
1,228
(290)
938 $
(377)
(17)
8
(386)
967
(123)
844 $
2020 vs 2019 Change
%
Amount
2019 vs 2018 Change
%
Amount
213
(48)
—
(11)
154
(12)
(17)
(29)
125
53
5
(4)
11
(10)
55
(2)
14
2
(9)
5
60
(65)
(16)
(31)
(29)
23
28
976
946
(821)
(2)
17
8
23
(798)
(9)
(807)
4 % $
(23)%
— %
(6)%
2 %
(2)%
(1)%
(2)%
2 %
4 %
1 %
(1)%
10 %
(34)%
2 %
— %
78 %
2 %
(14)%
— %
2 %
(15)%
(2)%
(11)%
(5)%
5 %
nm
nm
15 %
(49)%
(1)%
30 %
400 %
5 %
(65)%
(3)%
(86)% $
380
17
18
1
416
49
108
157
573
37
38
16
16
(2)
105
16
7
(10)
13
26
131
(43)
90
28
23
18
—
—
247
326
(15)
(40)
(10)
(65)
261
(167)
94
7 %
9 %
12 %
1 %
7 %
10 %
10 %
10 %
8 %
3 %
9 %
4 %
17 %
(6)%
5 %
2 %
64 %
(11)%
26 %
2 %
4 %
(9)%
10 %
11 %
4 %
4 %
nm
nm
4 %
24 %
(4)%
(235)%
(125)%
(17)%
27 %
(136)%
11 %
$
$
2,575 $
2,427 $
2,131 $
148
6 % $
296
14 %
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Sirius XM Revenue
Sirius XM Subscriber Revenue includes fees charged for self-pay and paid promotional subscriptions, U.S. Music Royalty Fees and other ancillary fees.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, subscriber revenue was $5,857 and $5,644, respectively, an increase of 4%, or $213. The
increase was primarily driven by higher self-pay revenue as a result of increases in certain subscription plans and higher U.S. Music Royalty Fees due to a
higher music royalty rate, partially offset by lower paid promotional revenue.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, subscriber revenue was $5,644 and $5,264, respectively, an increase of 7%, or $380. The
increase was primarily driven by higher U.S. Music Royalty Fees due to a higher music royalty rate, higher self-pay subscription revenue as a result of a 3%
increase in the daily weighted average number of subscribers and higher revenue from our connected vehicle services.
We expect subscriber revenues to increase based on the growth of our subscriber base, increases in the average price charged and the sale of additional services to
subscribers.
Sirius XM Advertising Revenue includes the sale of advertising on Sirius XM’s non-music channels.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, advertising revenue was $157 and $205, respectively, a decrease of 23%, or $48. The
decrease was primarily due to lower advertising as a result of the impact of the COVID-19 pandemic.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, advertising revenue was $205 and $188, respectively, an increase of 9%, or $17. The
increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot.
We expect our Sirius XM advertising revenue to grow as we continue our recovery to pre-COVID-19 levels.
Sirius XM Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, equipment revenue was $173 and $173, respectively. Increased OEM royalty revenue was
offset by lower direct sales to consumers and loss of revenue resulting from the termination of the Automatic service.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, equipment revenue was $173 and $155, respectively, an increase of 12%, or $18. The
increase was driven by an increase in royalty revenue due to our transition to a new generation of chipsets.
We expect equipment revenue to increase as royalty revenue associated with certain new chipsets increases.
Sirius XM Other Revenue includes service and advisory revenue from Sirius XM Canada, revenue from our connected vehicle services, and ancillary revenues.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, other revenue was $161 and $172, respectively, a decrease of 6%, or $11. The decrease was
due to lower revenue from our connected vehicle services, rental car revenue and royalty revenue from Sirius XM Canada.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, other revenue was $172 and $171, respectively, an increase of 1%, or $1. The increase was
primarily driven by higher royalty revenue generated from Sirius XM Canada, partially offset by a decrease in data usage revenue generated from our
connected vehicle services.
We expect other revenue to decrease as royalties from Sirius XM Canada, rental car revenue and revenue generated from our connected vehicle services decline.
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Pandora Revenue
Pandora Subscriber Revenue includes fees charged for Pandora Plus, Pandora Premium, Stitcher and Simplecast subscriptions.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, Pandora subscriber revenue was $515 and $527, respectively, a decrease of 2%, or $12.
The decrease was primarily due to the expiration of the one-year promotional subscriptions generated through an agreement with T-Mobile.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, Pandora subscriber revenue was $527 and $478, respectively, an increase of 10%, or $49.
The increase was primarily due to a greater weighted average number of subscribers and an increase in the average price per paid subscriber due to the
growth of Pandora Premium.
We expect Pandora subscriber revenues to increase with growth of our Pandora andStitcher subscriber base.
Pandora Advertising Revenue is generated primarily from audio, display and video advertising from on-platform and off-platform advertising.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, Pandora advertising revenue was $1,183 and $1,200, respectively, a decrease of 1%, or
$17. The decrease was primarily due to lower advertising as a result of the impact of the COVID-19 pandemic and a decrease in advertising revenue per
thousand hours, partially offset by growth in our off-platform advertising and the inclusion of revenue from Stitcher.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, Pandora advertising revenue was $1,200 and $1,092, respectively, an increase of 10%, or
$108. The increase was primarily due to growth in our off-platform advertising revenue, an increased sell-through percentage, increases in the average price
per ad and revenue growth in the AdsWizz business.
We expect Pandora advertising revenue to increase due to our off-platform advertising opportunities, recovery from the impact of the COVID-19 pandemic and the
addition of Stitcher.
Total Consolidated Revenue
Total Consolidated Revenue for the years ended December 31, 2020 and 2019, was $8,046 and $7,921, respectively, an increase of 2%, or $125. Total Consolidated
Revenue for the years ended December 31, 2019 and 2018, was $7,921 and $7,348, respectively, an increase of 8%, or $573.
Sirius XM Cost of Services
Sirius XM Cost of Services includes revenue share and royalties, programming and content, customer service and billing and transmission expenses.
Sirius XM Revenue Share and Royalties include royalties for transmitting content, including streaming royalties, as well as automaker, content provider and advertising
revenue share.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, revenue share and royalties were $1,484 and $1,431, respectively, an increase of 4%, or
$53, and increased as a percentage of total Sirius XM revenue. The increase was driven by overall greater revenues subject to music royalties and revenue
share to OEMs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, revenue share and royalties were $1,431 and $1,394, respectively, an increase of 3%, or
$37, but decreased as a percentage of total Sirius XM revenue. The increase was driven by overall greater revenues subject to royalties and revenue share. The
increase was partially offset by a $69 charge during the second quarter of 2018 related to the legal settlement that resolved all outstanding claims, including
ongoing audits, under Sirius XM's statutory license for sound recordings for the period January 1, 2007 through December 31, 2017.
We expect our Sirius XM revenue share and royalty costs to increase as our revenues grow.
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Sirius XM Programming and Content includes costs to acquire, create, promote and produce content. We have entered into various agreements with third parties for
music and non-music programming that require us to pay license fees and other amounts.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, programming and content expenses were $449 and $444, respectively, an increase of 1%,
or $5, but decreased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher content licensing costs as well as greater
personnel-related costs partially offset by one-time benefits for reduced sports programming as a result of shortened sports seasons due to the COVID-19
pandemic and lower costs associated with hosting live events.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, programming and content expenses were $444 and $406, respectively, an increase of 9%,
or $38, and increased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher content licensing costs as well as greater
personnel-related costs.
We expect our Sirius XM programming and content expenses to increase as we offer additional programming and renew or replace expiring agreements.
Sirius XM Customer Service and Billing includes costs associated with the operation and management of internal and third party customer service centers, and our
subscriber management systems as well as billing and collection costs, bad debt expense, and transaction fees.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, customer service and billing expenses were $394 and $398, respectively, a decrease of 1%,
or $4, and decreased as a percentage of total Sirius XM revenue. The decrease was driven by reduced staffing resulting from stay at home orders issued in
countries in which our vendors operate call centers.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, customer service and billing expenses were $398 and $382, respectively, an increase of
4%, or $16, but decreased as a percentage of total Sirius XM revenue. The increase was driven by increased transaction fees from a larger subscriber base and
higher bad debt expense.
We expect our Sirius XM customer service and billing expenses to increase as our subscriber base grows.
Sirius XM Transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks; satellites; satellite telemetry, tracking and
control systems; satellite uplink facilities; studios; and delivery of our Internet streaming and connected vehicle services.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, transmission expenses were $123 and $112, respectively, an increase of 10%, or $11, and
increased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher hosting and wireless costs associated with our 360L
platform and our streaming and connected vehicle services.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, transmission expenses were $112 and $96, respectively, an increase of 17%, or $16, and
increased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher hosting and other costs associated with our streaming
services and higher repeater network costs.
We expect our Sirius XM transmission expenses to increase as costs associated with our 360L platform and investments in internet streaming grow.
Sirius XM Cost of Equipment includes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products
purchased for resale in our direct to consumer distribution channels.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, cost of equipment was $19 and $29, respectively, a decrease of 34%, or $10, and decreased
as a percentage of equipment revenue. The decrease was primarily due to lower direct sales to consumers and reduced costs due to the termination of the
Automatic service.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, cost of equipment was $29 and $31, respectively, a decrease of 6%, or $2, and decreased as
a percentage of equipment revenue. The decrease
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was primarily due to lower direct sales to satellite radio and connected vehicle consumers, partially offset by an increase in our inventory reserve.
We expect our Sirius XM cost of equipment to fluctuate with the sales of our satellite radios.
Pandora Cost of Services
Pandora Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.
Pandora Revenue Share and Royalties includes licensing fees paid for streaming music or other content to our subscribers and listeners as well as revenue share paid to
third party ad servers. We make payments to third party ad servers for the period the advertising impressions are delivered or click-through actions occur, and accordingly, we
record this as a cost of service in the related period.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, revenue share and royalties were $943 and $945, respectively, a decrease of 0%, or $2, but
increased as a percentage of total Pandora revenue. The decrease was primarily attributable to a reversal of a pre-acquisition reserve of $16 for royalties
during the first quarter of 2020, lower listening hours, and the expiration during 2019 of certain minimum guarantees in direct license agreements with record
labels; partially offset by the inclusion of Stitcher.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, revenue share and royalties were $945 and $929, respectively, an increase of 2%, or $16,
but decreased as a percentage of total Pandora revenue. The increase was primarily attributable to higher revenue share driven by growth of our off-platform
revenue, partially offset by lower royalty costs resulting from renegotiated agreements with record labels, music and sound recording copyright holders and
distributors.
We expect our Pandora revenue share to increase as off-platform revenue increases and our royalty costs to increase due to higher music royalty rates.
Pandora Programming and Content includes costs to produce live listener events and promote content.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, programming and content expenses were $32 and $18, respectively, an increase of 78%, or
$14, and increased as a percentage of total Pandora revenue. The increase was primarily attributable to higher production costs and personnel-related costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, programming and content expenses were $18 and $11, respectively, an increase of 64%, or
$7, and increased as a percentage of total Pandora revenue. The increase was primarily attributable to higher personnel-related and content costs.
We expect our Pandora programming and content costs to increase as we offer additional programming and produce live listener events and promotions.
Pandora Customer Service and Billing includes transaction fees on subscription purchases through mobile app stores and bad debt expense.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, customer service and billing expenses were $87 and $85, respectively, an increase of 2%,
or $2, and increased as a percentage of total Pandora revenue. The increase was primarily driven by higher bad debt expense, partially offset by lower
transaction costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, customer service and billing expenses were $85 and $95, respectively, a decrease of 11%,
or $10, and decreased as a percentage of total Pandora revenue. The decrease was primarily driven by lower bad debt expense due to recoveries and lower
transaction fees.
We expect our Pandora customer service and billing costs to increase as our subscriber base grows.
Pandora Transmission includes costs associated with content streaming, maintaining our streaming radio and on-demand subscription services and creating and serving
advertisements through third-party ad servers.
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•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, transmission expenses were $54 and $63, respectively, a decrease of 14%, or $9, and
decreased as a percentage of total Pandora revenue. The decrease was primarily driven by lower streaming costs due to lower listener hours and lower
personnel-related costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, transmission expenses were $63 and $50, respectively, an increase of 26%, or $13, and
increased as a percentage of total Pandora revenue. The increase was primarily driven by web hosting and personnel-related costs.
We expect our Pandora transmission costs to fluctuate with changes in listener hours.
Operating Costs
Subscriber Acquisition Costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers, distributors and
automakers; subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; product warranty
obligations; and freight. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber. Subscriber acquisition costs do not include
advertising costs, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, subscriber acquisition costs were $362 and $427, respectively, a decrease of 15%, or $65,
and decreased as a percentage of total revenue. The decrease was driven by a decline in OEM installations as a result of the COVID-19 pandemic as well as
lower hardware subsidies as certain subsidy rates decreased.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, subscriber acquisition costs were $427 and $470, respectively, a decrease of 9%, or $43,
and decreased as a percentage of total revenue. The decrease was driven by reductions to OEM hardware subsidy rates, lower subsidized costs related to the
transition of chipsets, and a decrease in the volume of satellite radio installations.
We expect subscriber acquisition costs to fluctuate with OEM installations; however, the subsidized chipsets cost is expected to decline as we transition to a new
generation of chipsets. We intend to continue to offer subsidies and other incentives to induce OEMs to include our technology in their vehicles.
Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing;
and personnel related costs including salaries, commissions, and sales support. Marketing costs include expenses related to direct mail, outbound telemarketing, email
communications, social media, television and digital performance media.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, sales and marketing expenses were $957 and $973, respectively, a decrease of 2%, or $16,
and decreased as a percentage of total revenue. The decrease was primarily due to lower personnel-related costs and lower travel and entertainment costs,
partially offset by additional subscriber communications and acquisition campaigns.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, sales and marketing expenses were $973 and $883, respectively, an increase of 10%, or
$90, and increased as a percentage of total revenue. The increase was primarily due to additional acquisition campaigns and subscriber communications as
well as higher personnel-related costs.
We anticipate that sales and marketing expenses will increase with growth in our trial subscriber base, as we expand programs to retain our existing subscribers, win back
former subscribers, attract new subscribers and listeners, and as we grow advertising revenue.
Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and
connected vehicle services, research and development for broadcast information systems and costs associated with the incorporation of our radios into new vehicles
manufactured by automakers.
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, engineering, design and development expenses were $263 and $294, respectively, a
decrease of 11%, or $31, and decreased as a percentage of total revenue. The decrease was driven by lower personnel-related costs.
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•
2019 vs. 2018: For the years ended December 31, 2019 and 2018, engineering, design and development expenses were $294 and $266, respectively, an
increase of 11%, or $28, and increased as a percentage of total revenue. The increase was driven by higher personnel-related costs.
We expect engineering, design and development expenses to increase in future periods as we continue to develop our infrastructure, products and services.
General and Administrative primarily consists of compensation and related costs for personnel and facilities, and include costs related to our finance, legal, human
resources and information technologies departments.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, general and administrative expenses were $511 and $540, respectively, a decrease of 5%,
or $29, and decreased as a percentage of total revenue. The decrease was primarily driven a one-time $25 legal settlement associated with Do-Not-Call
litigation recorded in the first quarter of 2019, lower personnel-related costs, the closure of a sales and use tax audit in the second quarter of 2020, and lower
travel and entertainment costs, partially offset by a $25 contribution in 2020 to a donor fund that will be the source of our future charitable donations and
higher legal costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, general and administrative expenses were $540 and $517, respectively, an increase of 4%,
or $23, but decreased as a percentage of total revenue. The increase was primarily driven by a $25 legal settlement associated with Do-Not-Call litigation and
higher rent, partially offset by lower personnel-related costs.
We expect our general and administrative expenses to remain relatively flat.
Depreciation and Amortization represents the recognition in earnings of the cost of assets used in operations, including our satellite constellations, property, equipment
and intangible assets, over their estimated service lives.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, depreciation and amortization expense was $506 and $483, respectively, an increase of 5%,
or $23, and increased as a percentage of total revenue. The increase was driven by additional assets placed in-service.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, depreciation and amortization expense was $483 and $465, respectively, an increase of 4%,
or $18, but decreased as a percentage of total revenue. The increase was driven by additional assets placed in-service.
Impairment Charges represents losses associated with the amount by which the carrying amount of an asset exceeds the asset's fair value.
•
2020 vs. 2019: For the year ended December 31, 2020, impairment charge was $976. We recorded a goodwill impairment charge of $956 during the year
ended December 31, 2020 to write down the carrying amount of the Pandora goodwill and an impairment charge of $20 to write down the carrying value of
our Pandora trademark. We did not record an impairment charge in 2019 or 2018.
Other (Expense) Income
Interest Expense includes interest on outstanding debt.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, interest expense was $394 and $392, respectively, an increase of 1%, or $2. The increase
was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029, 4.625% Senior Notes due 2024 in 2019, and
4.125% Senior Notes due 2030 in 2020; partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, redemption of the Pandora
convertible notes in 2019, a lower average outstanding balance under the Credit Facility and lower interest rates.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, interest expense was $392 and $377, respectively, an increase of 4%, or $15. The increase
was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029 and 4.625% Senior Notes due 2024, partially
offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, the repurchase of the Pandora 1.75% Convertible Senior Notes due 2020 and lower
interest rates.
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Loss on Extinguishment of Debt, includes losses incurred as a result of the redemption of certain debt.
•
•
2020 vs. 2019: For the year ended December 31, 2020, we recorded a $40 loss due to the redemption of $500 principal amount of Sirius XM's 4.625% Senior
Notes due 2023 and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2025. During the year ended December 31, 2019, we recorded a $57
loss due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior Notes due 2024 and the repurchase of $151 in principal amount of
Pandora's 1.75% Convertible Senior Notes due 2020.
2019 vs. 2018: For the year ended December 31, 2019, we recorded a $57 loss due to the redemption of $1,500 in principal amount of Sirius XM's 6.00%
Senior Notes due 2024 and the repurchase of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020. During the year ended
December 31, 2018, we recorded a $17 loss on extinguishment of debt primarily due to the exchange of Pandora's 1.75% Convertible Senior Notes due 2020
for new 1.75% Convertible Senior Notes due 2023.
Other Income (Expense) primarily includes realized and unrealized gains and losses, interest and dividend income, our share of the income or loss from equity
investments, and transaction costs related to non-operating investments.
2020 vs. 2019: For the years ended December 31, 2020 and 2019, other income (expense) was $6 and $(2), respectively. Other income for the year ended
December 31, 2020 was driven by a one-time lawsuit settlement of $7. Other expense for the year ended December 31, 2019 was driven by losses on other
investments of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading gains associated with the investments held for our
Deferred Compensation Plan of $4 and interest income of $3.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, other (expense) income was $(2) and $8, respectively. During the year ended December 31,
2019, other expense was driven by losses on other investments of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading
gains associated with the investments held for our Deferred Compensation Plan of $4 and interest income of $3. During the year ended December 31, 2018,
other income was driven by interest earned on our loan to Sirius XM Canada of $10 and interest income of $8, partially offset by losses on other investments
of $10.
•
•
Income Taxes
Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, income tax expense was $299 and $290, respectively, and our effective tax rate was 69.5%
and 23.6%, respectively. The effective tax rate of 69.5% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora
goodwill impairment charge, partially offset by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and
federal research and development and certain other credits and a worthless stock deduction associated with the termination of the Automatic service. The
effective tax rate of 23.6% was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state
and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, income tax expense was $290 and $123, respectively, and our effective tax rate was 23.6%
and 12.7%, respectively. The effective tax rate of 23.6% for the year ended December 31, 2019 was primarily impacted by the recognition of excess tax
benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits, partially offset by
the impact of nondeductible compensation. The effective tax rate of 12.7% for the year ended December 31, 2018 was primarily impacted by the recognition
of excess tax benefits related to share based compensation and a benefit related to state and federal research and development credits under the Protecting
Americans from Tax Hikes Act of 2015.
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Table of Contents
Footnotes to Pro Forma Results of Operations
The following tables reconcile our results of operations as reported to our pro forma results of operations for the years ended December 31, 2020, 2019 and 2018 which
includes the Pandora pre-acquisition financial information for the applicable periods and the effects of purchase price accounting. These pro forma results are based on
estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had the Pandora Acquisition actually occurred on January 1,
2018 and are not indicative of our consolidated results of operations in future periods. The pro forma results primarily include adjustments related to amortization of acquired
intangible assets, depreciation of property and equipment, acquisition costs, fair value gain or loss on the Pandora investment and associated tax impacts.
49
Table of Contents
Revenue
Sirius XM:
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total Sirius XM revenue
Pandora:
Subscriber revenue
Advertising revenue
Total Pandora revenue
Total consolidated revenue
Cost of services
Sirius XM:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Cost of equipment
Total Sirius XM cost of services
Pandora:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Total Pandora cost of services
Total consolidated cost of services
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Acquisition and restructuring costs
Impairment charges
Total operating expenses
Income (loss) from operations
Other (expense) income:
Interest expense
Loss on extinguishment of debt
Other (expense) income
Total other (expense) income
Income (loss) before income taxes
Income tax expense
Net income
Unaudited for the Year Ended December 31, 2020
As Reported
Predecessor Financial
Information
Purchase Price
Accounting and Pro
Forma Adjustments
Ref
Pro Forma
$
$
5,857 $
157
173
155
6,342
515
1,183
1,698
8,040
1,484
449
394
123
19
2,469
937
32
87
54
1,110
3,579
362
957
263
511
506
28
976
7,182
858
(394)
(40)
6
(428)
430
(299)
131 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
—
—
—
6
6
—
—
—
6
—
—
—
—
—
—
6
—
—
—
6
6
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
$
(a)
(b)
$
5,857
157
173
161
6,348
515
1,183
1,698
8,046
1,484
449
394
123
19
2,469
943
32
87
54
1,116
3,585
362
957
263
511
506
28
976
7,188
858
(394)
(40)
6
(428)
430
(299)
131
(a) This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the merger of Sirius and XM (the "XM Merger").
(b) This adjustment includes the impact of additional expense associated with minimum guarantee royalty contracts recorded as part of the Pandora Acquisition.
50
Table of Contents
Revenue
Sirius XM:
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total Sirius XM revenue
Pandora:
Subscriber revenue
Advertising revenue
Total Pandora revenue
Total consolidated revenue
Cost of services
Sirius XM:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Cost of equipment
Total Sirius XM cost of services
Pandora:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Total Pandora cost of services
Total consolidated cost of services
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Acquisition and restructuring costs
Total operating expenses
Income (loss) from operations
Other (expense) income:
Interest expense
Loss on extinguishment of debt
Other (expense) income
Total other (expense) income
Income (loss) before income taxes
Income tax expense
Net income
Unaudited for the Year Ended December 31, 2019
As Reported
Predecessor Financial
Information (c)
Purchase Price
Accounting and Pro
Forma Adjustments
Ref
Pro Forma
$
$
5,644 $
205
173
165
6,187
— $
—
—
—
—
476
1,131
1,607
7,794
1,431
444
398
112
29
2,414
860
18
77
58
1,013
3,427
427
937
280
524
468
84
6,147
1,647
(390)
(57)
(3)
(450)
1,197
(283)
914 $
46
68
114
114
—
—
—
—
—
—
71
—
8
5
84
84
—
36
14
16
6
1
157
(43)
(2)
—
1
(1)
(44)
—
(44)
$
—
—
—
7
7
5
1
6
13
—
—
—
—
—
—
14
—
—
—
14
14
—
—
—
—
9
(85)
(62)
75
—
—
—
—
75
(7)
68
$
(d)
(e)
(e)
(f)
(g)
(h)
(i)
$
5,644
205
173
172
6,194
527
1,200
1,727
7,921
1,431
444
398
112
29
2,414
945
18
85
63
1,111
3,525
427
973
294
540
483
—
6,242
1,679
(392)
(57)
(2)
(451)
1,228
(290)
938
(c) Represents Pandora’s results for the period January 1, 2019 through January 31, 2019.
(d) This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.
(e) This adjustment relates to the amortization of deferred subscription and deferred advertising revenue that was fair valued in purchase accounting.
(f) This adjustment includes the impact of additional expense associated with minimum guarantee royalty contracts recorded as part of the Pandora Acquisition.
(g) This adjustment includes the impact of the additional amortization associated with the acquired intangible assets recorded as part of the Pandora Acquisition that are subject to
amortization, partially offset by normal depreciation associated with assets revalued in purchase accounting.
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(h) This adjustment eliminates the impact of acquisition and other related costs.
(i) This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at December 31, 2019 to the pro forma adjustments of $75 and Pandora's pre-acquisition loss
before income tax of $(44).
Revenue
Sirius XM:
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total Sirius XM revenue
Pandora:
Subscriber revenue
Advertising revenue
Total Pandora revenue
Total consolidated revenue
Cost of services
Sirius XM:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Cost of equipment
Total Sirius XM cost of services
Pandora:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Total Pandora cost of services
Total consolidated cost of services
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Acquisition and restructuring costs
Total operating expenses
Income (loss) from operations
Other (expense) income:
Interest expense
Loss on extinguishment of debt
Other (expense) income
Total other (expense) income
Income (loss) before income taxes
Income tax expense
Net income
Unaudited for the Year Ended December 31, 2018
As Reported
Predecessor Financial
Information (j)
Purchase Price
Accounting and Pro
Forma Adjustments
Ref
Pro Forma
$
$
5,264 $
188
155
164
5,771
— $
—
—
—
—
—
—
—
5,771
1,394
406
382
96
31
2,309
—
—
—
—
—
2,309
470
484
123
354
301
3
4,044
1,727
478
1,092
1,570
1,570
—
—
—
—
—
—
929
11
95
50
1,085
1,085
—
399
143
169
61
12
1,869
(299)
(350)
—
44
(306)
1,421
(245)
1,176 $
(27)
(17)
7
(37)
(336)
8
(328) $
—
—
—
7
7
—
—
—
7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
103
(15)
82
(75)
—
—
(43)
(43)
(118)
114
(4)
$
(k)
(l)
(m)
(n)
(o)
(p)
$
5,264
188
155
171
5,778
478
1,092
1,570
7,348
1,394
406
382
96
31
2,309
929
11
95
50
1,085
3,394
470
883
266
517
465
—
5,995
1,353
(377)
(17)
8
(386)
967
(123)
844
(j) Represents Pandora’s results for the period January 1, 2018 through December 31, 2018.
(k) This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.
(l) This adjustment eliminates the impact of contract termination fees.
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Table of Contents
(m) This adjustment includes the impact of the additional amortization associated with the acquired intangible assets recorded as part of the Pandora Acquisition that are subject to
amortization, partially offset by normal depreciation associated with assets revalued in purchase accounting.
(n) This adjustment eliminates the impact of transaction related costs, recorded by Pandora, to advisers for the planned acquisition by Sirius XM.
(o) This adjustment eliminates the unrealized gain for the fair value adjustment of our preferred stock investment in Pandora.
(p) This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at December 31, 2018 to the pro forma adjustments of $(118) and Pandora's loss before income
tax of $(336).
Key Financial and Operating Performance Metrics
In this section, we present certain financial performance measures some of which are presented as Non-GAAP items, which include free cash flow and adjusted
EBITDA. We also present certain operating performance measures. Our adjusted EBITDA excludes the impact of share-based payment expense and certain purchase price
accounting adjustments related to the XM Merger and the Pandora Acquisition. Additionally, when applicable, our adjusted EBITDA metric excludes the effect of significant
items that do not relate to the on-going performance of our business. We use these Non-GAAP financial and operating performance measures to manage our business, to set
operational goals and as a basis for determining performance-based compensation for our employees. See the accompanying glossary on pages 62 through 65 for more details
and for the reconciliation to the most directly comparable GAAP measure (where applicable).
We believe these Non-GAAP financial and operating performance measures provide useful information to investors regarding our financial condition and results of
operations. We believe these Non-GAAP financial and operating performance measures may be useful to investors in evaluating our core trends because they provide a more
direct view of our underlying costs. We believe investors may use our adjusted EBITDA to estimate our current enterprise value and to make investment decisions. We believe
free cash flow provides useful supplemental information to investors regarding our cash available for future subscriber acquisitions and capital expenditures, to repurchase or
retire debt, to acquire other companies and our ability to return capital to stockholders. By providing these Non-GAAP financial and operating performance measures, together
with the reconciliations to the most directly comparable GAAP measure (where applicable), we believe we are enhancing investors' understanding of our business and our
results of operations.
Our Non-GAAP financial measures should be viewed in addition to, and not as an alternative for or superior to, our reported results prepared in accordance with
GAAP. In addition, our Non-GAAP financial measures may not be comparable to similarly-titled measures by other companies. Please refer to the glossary (pages 62 through
65) for a further discussion of such Non-GAAP financial and operating performance measures and reconciliations to the most directly comparable GAAP measure (where
applicable). Subscribers and subscription related revenues and expenses associated with our connected vehicle services and Sirius XM Canada are not included in Sirius XM's
subscriber count or subscriber-based operating metrics.
Set forth below are our subscriber balances as of December 31, 2020 compared to December 31, 2019 and as of December 31, 2019 compared to December 31, 2018.
(subscribers in thousands)
Sirius XM
Self-pay subscribers
Paid promotional subscribers
Ending subscribers
Traffic users
Sirius XM Canada subscribers
Pandora
Monthly active users - all services
Self-pay subscribers
Paid promotional subscribers
Ending subscribers
(1)
Includes Pandora's results as of December 31, 2018.
2020
As of December 31,
2019
2018
(1)
2020 vs 2019 Change
%
Amount
2019 vs 2018 Change
%
Amount
28,915
5,124
34,039
8,606
2,644
69,399
5,914
756
6,670
909
(1,104)
(195)
(33)
(85)
(4,626)
133
(6)
127
3 %
(22)%
(1)%
— %
(3)%
(7)%
2 %
(12)%
2 %
1,063
(193)
870
728
63
(5,891)
251
(707)
(456)
4 %
(4)%
3 %
8 %
2 %
(8)%
4 %
(94)%
(7)%
30,887
3,827
34,714
9,301
2,622
58,882
6,298
43
6,341
29,978
4,931
34,909
9,334
2,707
63,508
6,165
49
6,214
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The following table contains our Non-GAAP pro forma financial and operating performance measures which are based on our adjusted results of operations for the years
ended December 31, 2020, 2019 and 2018.
For the Years Ended December 31,
2019
(1)
2018
2020
(2)
2020 vs 2019 Change
%
Amount
2019 vs 2018 Change
%
Amount
(subscribers in thousands)
Sirius XM
Self-pay subscribers
Paid promotional subscribers
Net additions
Weighted average number of subscribers
Average self-pay monthly churn
ARPU
SAC, per installation
(3)
Pandora
Self-pay subscribers
Paid promotional subscribers
909
(1,104)
(195)
34,523
1,063
(193)
870
34,314
1,402
(99)
1,303
33,345
1.7 %
14.10
18.65
$
$
1.7 %
13.82
22.91
$
$
1.7 %
13.34
25.66
$
$
$
$
Net additions
Weighted average number of subscribers
ARPU
Ad supported listener hours (in billions)
Advertising revenue per thousand listener hours (RPM) $
$
Licensing costs per thousand listener hours (LPM)
$
Licensing costs per paid subscriber (LPU)
$
Total Company
Adjusted EBITDA
Free cash flow
(4)
$
$
2,575
1,660
133
(6)
127
6,315
6.76
12.50
79.24
40.14
4.14
251
(707)
(456)
6,654
6.61
13.44
80.41
38.94
4.06
2,427
1,647
$
$
$
$
$
$
436
756
1,192
6,080
6.53
14.79
71.60
37.80
4.47
2,131
1,517
$
$
$
$
$
$
$
$
$
$
$
$
(154)
(911)
(1,065)
209
— %
0.28
(4.26)
(118)
701
583
(339)
0.15
(0.94)
(1.17)
1.20
0.08
148
13
(14)%
(472)%
(122)%
1 %
— %
2 % $
(19)% $
(47)%
99 %
128 %
(5)%
2 % $
(7)%
(1)% $
3 % $
2 % $
(339)
(94)
(433)
969
— %
0.48
(2.75)
(185)
(1,463)
(1,648)
574
0.08
(1.35)
8.81
1.14
(0.41)
6 % $
1 % $
296
130
(24)%
(95)%
(33)%
3 %
— %
4 %
(11)%
(42)%
(194)%
(138)%
9 %
1 %
(9)%
12 %
3 %
(9)%
14 %
9 %
(1) Includes Pandora's results for the twelve month period, including pre-acquisition results for the period January 1, 2019 through January 31, 2019.
(2) Includes Pandora's results for the twelve month period, including pre-acquisition results for the period January 1, 2018 through December 31, 2018.
(3) ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $174, $159 and $111 for the years ended December 31, 2020, 2019 and 2018, respectively.
(4) Free cash flow has not been adjusted for Pandora's pre-acquisition results.
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Sirius XM
Subscribers. At December 31, 2020, we had approximately 34,714 subscribers, a decrease of approximately 195 subscribers, or 1%, from the approximately 34,909
subscribers as of December 31, 2019. The decrease in total subscribers was primarily due to the decline in paid promotional subscribers, partially offset by growth in our self-
pay subscriber base from lower non-pay and vehicle related churn as well as additions from subscriber win back programs.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, net additions were (195) and 870, respectively, a decrease of 122%, or 1,065. Paid promotional
subscribers decreased as shipments and trial subscription starts from automakers offering paid subscriptions declined as a result of the COVID-19 pandemic. Self-
pay net additions decreased year over year as growth in subsequent owner trial conversions, stand-alone streaming net additions, win back programs and reductions
in vehicle related and non-pay churn were offset by reduced additions from new car conversions as well as increases in voluntary churn.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, net additions were 870 and 1,303, respectively, a decrease of 33%, or 433. Self-pay net additions
decreased primarily due to a flat churn rate on a growing subscriber base and lower gross add win-backs, offset by increases in trial conversions. The reduction of
paid promotional subscribers increased due to lower shipments and trial starts from automakers offering paid promotional subscriptions.
Traffic Users. We offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation
systems.
Average Self-pay Monthly Churn is derived by dividing the monthly average of self-pay deactivations for the period by the average number of self-pay subscribers
for the period. (See accompanying glossary on pages 62 through 65 for more details.)
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, our average self-pay monthly churn rate was 1.7%. Decreases in non-pay and vehicle related
churn were offset by increased voluntary churn.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, our average self-pay monthly churn rate was 1.7%. Decreased voluntary churn was offset by
increased used vehicle churn.
ARPU is derived from total earned subscriber revenue (excluding revenue derived from our connected vehicle services) and net advertising revenue, divided by the
number of months in the period, divided by the daily weighted average number of subscribers for the period. (See the accompanying glossary on pages 62 through 65 for more
details.)
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, ARPU was $14.10 and $13.82, respectively. The increase was driven by an increase in certain
subscription rates and the U.S. Music Royalty Fee; partially offset by lower advertising revenue.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, ARPU was $13.82 and $13.34, respectively. The increase was driven by increases in the U.S.
Music Royalty Fee, increases in self-pay revenue and higher advertising revenue.
SAC, Per Installation, is derived from subscriber acquisition costs less margins from the sale of radios, components and accessories (excluding connected vehicle
services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. (See the accompanying glossary on pages 62
through 65 for more details.)
2020 vs. 2019: For the years ended December 31, 2020 and 2019, SAC, per installation, was $18.65 and $22.91, respectively. The decrease was driven by reductions
to OEM hardware subsidy rates and our transition to a new generation of chipsets.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, SAC, per installation, was $22.91 and $25.66, respectively. The decrease was driven by our
transition to a new generation of chipsets and reductions to OEM hardware subsidy rates.
•
•
Pandora
Monthly Active Users. At December 31, 2020, Pandora had approximately 58,882 monthly active users, a decrease of 4,626 monthly active users, or 7%, from the 63,508
monthly active users as of December 31, 2019. The decrease in monthly active users was driven by an increase in ad-supported listener churn and a decrease in the number of
new users.
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Subscribers. At December 31, 2020, Pandora had approximately 6,341 subscribers, an increase of 127, or 2%, from the approximately 6,214 subscribers as of
December 31, 2019.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, net additions were 127 and (456), respectively, an increase of 128%, or 583. Net additions
increased as a result of the growth in our Pandora Premium plans during 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, net additions were (456) and 1,192, respectively, a decrease of 138%, or 1,648. Net additions
decreased due to a loss of paid promotional subscribers from the expiration of an agreement with T-Mobile.
ARPU is defined as average monthly revenue per paid subscriber on our Pandora subscription services. (See the accompanying glossary on pages 62 through 65 for more
details.)
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, ARPU was $6.76 and $6.61, respectively. The increase was primarily driven by the expiration of a
lower rate T-Mobile plan in 2019 and a shift in subscriber mix toward Pandora Premium plans.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, ARPU was $6.61 and $6.53, respectively. The increase was primarily driven by an increase in the
number of Pandora Premium subscribers while the number of lower price Pandora Plus subscribers decreased.
Ad supported listener hours are a key indicator of our Pandora business and the engagement of our Pandora listeners. We include ad supported listener hours related to
Pandora's non-radio content offerings in the definition of listener hours.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, ad supported listener hours was 12.50 billion and 13.44 billion, respectively. The decrease in ad
supported listener hours was primarily driven the decline in monthly active users, partially offset by higher hours per active user.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, ad supported listener hours was 13.44 billion and 14.79 billion, respectively. The decline in ad
supported listener hours was primarily driven by a decrease in ad-supported listeners.
RPM is a key indicator of our ability to monetize advertising inventory created by our listener hours on the Pandora services. Ad RPM is calculated by dividing
advertising revenue by the number of thousands of listener hours of our Pandora advertising-based service.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, RPM was $79.24 and $80.41, respectively. The decrease was a result of lower sell-through
percentages as a result of the COVID-19 pandemic.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, RPM was $80.41 and $71.60, respectively. The increase was a result of an increase in the average
price per ad and increased sell-through percentage.
LPM is tracked for our non-subscription, ad-supported service across all Pandora delivery platforms. The content acquisition costs included in our ad LPM calculations
are based on the rates set by our license agreements with record labels, performing rights organizations and music publishers or the applicable rates set by the Copyright Royalty
Board if we have not entered into a license agreement with the copyright owner of a particular sound recording.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, LPM was $40.14 and $38.94, respectively. The increase was primarily driven by higher eligible
advertising revenue.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, LPM was $38.94 and $37.80, respectively. The increase was primarily driven by higher eligible
advertising revenue and increases to track rates.
LPU is defined as average monthly licensing costs per paid subscriber on our Pandora subscription services. LPU is a key measure of our ability to manage costs for our
subscription services.
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, LPU was $4.14 and $4.06, respectively. The increase was due to increased Pandora subscriber
ARPU.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, LPU was $4.06 and $4.47, respectively. The decrease was due to lower minimum guarantees
associated with our direct license agreements with major and independent labels, distributors, performing rights organizations and publishers.
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Total Company
Adjusted EBITDA. EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. Adjusted EBITDA excludes the
impact of other income, loss on extinguishment of debt, acquisition related costs, other non-cash charges, such as certain purchase price accounting adjustments, impairment
charges, share-based payment expense, loss on disposal of assets, and legal settlements and reserves related to the historical use of sound recordings. (See the accompanying
glossary on pages 62 through 65 for a reconciliation to GAAP and for more details.)
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, adjusted EBITDA was $2,575 and $2,427, respectively, an increase of 6%, or $148. The increase
was due to higher subscriber revenue, lower subscriber acquisition costs, travel and entertainment expenses and personnel-related costs, partially offset by higher
revenue share and royalties, lower advertising revenue and a $25 contribution to a donor advised fund that will be the source of our future charitable donations.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, adjusted EBITDA was $2,427 and $2,131, respectively, an increase of 14%, or $296. The increase
was due to: growth of 8% in total revenue which was primarily a result of the increase in our subscriber base; additional revenues from the U.S. Music Royalty Fee;
an increase in advertising revenue; and lower subscriber acquisition costs. The increases were partially offset by higher revenue share and royalty, sales and
marketing, programming and content, transmission, engineering, design and development, and general and administrative costs.
Free Cash Flow includes cash provided by operations, net of additions to property and equipment, restricted and other investment activity and the return of capital from
an investment in an unconsolidated entity. (See the accompanying glossary on pages 62 through 65 for a reconciliation to GAAP and for more details.)
•
•
2020 vs. 2019: For the years ended December 31, 2020 and 2019, free cash flow was $1,660 and $1,647, respectively, an increase of $13, or 1%. The increase was
impacted by $25 for a legal settlement paid during 2019 and lower cash used to construct replacement satellites during 2020, partially offset by a $25 contribution
to a donor advised fund that will be the source of our future charitable donations.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, free cash flow was $1,647 and $1,517, respectively, an increase of $130, or 9%. The increase was
impacted by the one-time lump sum payment of $150 to resolve all outstanding claims under our statutory license for sound recordings for the period January 1,
2007 through December 31, 2017, paid during 2018; partially offset by $25 for a legal settlement paid during 2019.
Liquidity and Capital Resources
Cash Flows for the year ended December 31, 2020 compared with the year ended December 31, 2019 and for the year ended December 31, 2019 compared with the year ended
December 31, 2018.
The following table presents a summary of our cash flow activity for the periods set forth below:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
$
2,018 $
(741)
(1,314)
(37)
120
83 $
2,017 $
(3)
(1,959)
55
65
120 $
1,880 $
(379)
(1,515)
(14)
79
65 $
1 $
(738)
645
(92)
55
(37) $
137
376
(444)
69
(14)
55
For the Years Ended December 31,
2019
2020
2018
2020 vs 2019
2019 vs 2018
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Cash Flows Provided by Operating Activities
Cash flows provided by operating activities increased by $1 to $2,018 for the year ended December 31, 2020 from $2,017 for the year ended December 31, 2019. Cash
flows provided by operating activities increased by $137 to $2,017 for the year ended December 31, 2019 from $1,880 for the year ended December 31, 2018.
Our largest source of cash provided by operating activities is cash generated by subscription and subscription-related revenues. We also generate cash from the sale of
advertising through our Pandora business, advertising on certain non-music channels on Sirius XM and the sale of satellite radios, components and accessories. Our primary
uses of cash from operating activities include revenue share and royalty payments to distributors, programming and content providers, and payments to radio manufacturers,
distributors and automakers. In addition, uses of cash from operating activities include payments to vendors to service, maintain and acquire listeners and subscribers, general
corporate expenditures, and compensation and related costs.
Cash Flows Used in Investing Activities
Cash flows used in investing activities in the year ended December 31, 2020 were primarily due to the acquisition of Stitcher of $272, our $75 investment in SoundCloud,
the acquisition of Simplecast of $28, spending primarily for capitalized software and hardware, and to construct replacement satellites. Cash flows provided by investing
activities in the year ended December 31, 2019 were primarily due to spending for capitalized software and hardware, and to construct replacement satellites, offset by cash
received from the Pandora Acquisition of $313 and from the sale of short-term investments of $73. Cash flows used in investing activities in the year ended December 31, 2018
were primarily due additions to property and equipment of $355 primarily for capitalized software and hardware and to construct replacement satellites. We spent $242, $214
and $166 on capitalized software and hardware as well as $57, $82 and $132 to construct replacement satellites during the years ended December 31, 2020, 2019 and 2018,
respectively.
Cash Flows Used in Financing Activities
Cash flows used in financing activities consists of the issuance and repayment of long-term debt, the purchase of common stock under our share repurchase program, the
payment of cash dividends and taxes paid in lieu of shares issued for stock-based compensation. Proceeds from long term debt have been used to fund our operations, construct
and launch new satellites, invest in other infrastructure improvements and purchase shares of our common stock.
Cash flows used in financing activities in the year ended December 31, 2020 were primarily due to the redemption of Sirius XM's 4.625% Senior Notes due 2023 in the
aggregate amount of $505 and Sirius XM's 5.375% Senior Notes due 2025 in the aggregate amount of $1,033, the purchase and retirement of shares of our common stock under
our repurchase program for $1,555, the payment of cash dividends of $237, and payment of $114 for taxes in lieu of shares issued for share-based compensation; partially offset
by the issuance of $1,481 in aggregate principal amount of Sirius XM's 4.125% Senior Notes due 2030, net of costs and net borrowings of $649 from the Credit Facility. Cash
flows used in financing activities in the year ended December 31, 2019 were primarily due to the purchase and retirement for $2,159 of shares of our common stock under our
repurchase program, the redemption of Sirius XM's 6.00% Senior Notes due 2024 in the aggregate amount of $1,546, repayment under the Credit Facility of $439, the
repurchase for $152 of Pandora's 1.75% Convertible Senior Notes due 2020, the payment of cash dividends of $226 and payment of $150 for taxes in lieu of shares issued for
share-based compensation, partially offset by cash provided by the issuance of $2,715 in aggregate principal amount of Sirius XM's 5.500% Senior Notes due 2029, net of costs,
and Sirius XM's 4.625% Senior Notes due 2024, net of costs.
Future Liquidity and Capital Resource Requirements
Based upon our current business plans, we expect to fund operating expenses, capital expenditures, including the construction of replacement satellites, working capital
requirements, interest payments, taxes and scheduled maturities of our debt with existing cash, cash flow from operations and borrowings under our Credit Facility. As of
December 31, 2020, $649 was outstanding under our Credit Facility. As the amount available for future borrowing is reduced by $1 related to letters of credit issued for the
benefit of Pandora, $1,100 was available for future borrowing under our Credit Facility. We believe that we have sufficient cash and cash equivalents, as well as debt capacity,
to cover our estimated short-term and long-term funding needs, including amounts to construct, launch and insure replacement satellites, as well as fund future stock
repurchases, future dividend payments and pursue strategic opportunities.
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Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors. We
continually review our operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained.
We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and
significantly change our cash requirements. These changes in our business plans or strategy may include: the acquisition of unique or compelling programming; the
development and introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites, equipment or
radio spectrum; and acquisitions and investments, including acquisitions and investments that are not directly related to our existing business.
We may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt,
if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Capital Return Program
As of December 31, 2020, our board of directors had authorized for repurchase an aggregate of $16,000 of our common stock. As of December 31, 2020, our
cumulative repurchases since December 2012 under our stock repurchase program totaled 3,314 shares for $14,408, and $1,592 remained available for additional repurchases
under our existing stock repurchase program authorization.
Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in accelerated stock repurchase
transactions and transactions with Liberty Media and its affiliates. We intend to fund the additional repurchases through a combination of cash on hand, cash generated by
operations and future borrowings. The size and timing of any purchases will be based on a number of factors, including price and business and market conditions.
On January 28, 2021, our board of directors declared a quarterly dividend in the amount of $0.014641 per share of common stock payable on February 26, 2021 to
stockholders of record as of the close of business on February 10, 2021. Our board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of
$0.058564 per share of common stock.
Debt Covenants
The indentures governing Sirius XM's senior notes and Pandora's convertible notes and the agreement governing the Sirius XM Credit Facility include restrictive
covenants. As of December 31, 2020, we were in compliance with such covenants. For a discussion of our “Debt Covenants,” refer to Note 14 to our consolidated financial
statements in Part II, Item 8, of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We do not have any significant off-balance sheet arrangements other than those disclosed in Note 17 to our consolidated financial statements in Part II, Item 8, of this
Annual Report on Form 10-K that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital
resources.
Contractual Cash Commitments
For a discussion of our “Contractual Cash Commitments,” refer to Note 17 to our consolidated financial statements in Part II, Item 8, of this Annual Report on Form 10-
K.
Related Party Transactions
For a discussion of “Related Party Transactions,” refer to Note 13 to our consolidated financial statements in Part II, Item 8, of this Annual Report on Form 10-K.
On February 1, 2021, Holdings entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting
forth agreements with respect to other tax matters. The tax sharing
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agreement was negotiated and approved by a special committee of Holdings’ board of directors, all of whom are independent of Liberty Media.
Under the Internal Revenue Code, two corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock
representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. As of December 31, 2020, Liberty Media beneficially owned,
directly and indirectly, approximately 76% of the outstanding shares of our common stock. We expect that Liberty Media could beneficially own, directly and indirectly, over
80% of the outstanding shares of our common stock at some time in 2021, and Holdings and Liberty Media would then become members of the same consolidated tax group.
Should that happen, the tax sharing agreement would govern certain matters related to the resulting consolidated federal income tax returns, as well as state and local returns
filed on a consolidated or combined basis.
The tax sharing agreement contains provisions that Holdings believes are customary for tax sharing agreements between members of a consolidated group. A copy of the
tax sharing agreement has been filed as Exhibit 10.44 to this Annual Report on Form 10-K for the year ended December 31, 2020. The tax sharing agreement and our inclusion
in Liberty Media’s consolidated tax group is not expected to have any material adverse effect on us.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Accounting estimates require the
use of significant management assumptions and judgments as to future events, and the effect of those events cannot be predicted with certainty. The accounting estimates will
change as new events occur, more experience is acquired and more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and use
outside experts to assist in that evaluation when we deem necessary. We have identified all significant accounting policies in Note 2 to our consolidated financial statements in
Part II, Item 8, of this Annual Report on Form 10-K.
Intangible Assets and Purchase Accounting. We perform purchase price accounting upon an acquisition. We allocate the purchase consideration to the identifiable assets
acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the purchase consideration over the fair value of assets acquired and liabilities
assumed is recorded as goodwill. The determination of the acquisition date fair value of the assets acquired and liabilities assumed required us to make significant estimates and
assumptions regarding projected revenues and related growth rates, royalty rates, customer attrition rates, discount rates and the remaining useful lives of intangible and other
long-term assets. Our intangible assets include goodwill, other indefinite-lived assets (our FCC licenses and trademarks) and definite-lived assets. Our annual impairment
assessment of our goodwill and our indefinite-lived assets is performed as of the fourth quarter of each year. We also review our intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. If an impairment exists, the impairment is measured as the amount by which
the carrying amount of an intangible asset exceeds its estimated fair value.
• Goodwill: ASC 350, Intangibles - Goodwill and Other, states that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Under
the updated guidance per Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment is eliminated. In accordance with updated guidance, we
recognize goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.
Based on our annual impairment test for goodwill as of October 1, 2020, we recognized an impairment charge of $956 to reduce the carrying amount of our Pandora
reporting unit to its fair value. The impairment was primarily due to a reduction in the long-term forecast to reflect an increase in expected royalties for streaming, increased
uncertainty surrounding the projected demand for advertising and a decrease of listening hours. Fair value was determined using a combination of an income approach,
using a discounted cash flow model ("DCF"), and a market approach. The DCF model included significant assumptions about revenue growth rates, long-term growth rates
and enterprise specific discount rates. Additionally, assumptions related to guideline company financial multiples used in the market approach decreased based on current
market observations.
• Indefinite-lived Assets: ASC 350-30-35, Intangibles - General Intangibles Other than Goodwill, provides for an option to first perform a qualitative assessment to
determine whether it is more likely than not that an asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset
exceeds its carrying value, a company is not required to perform a quantitative impairment test. If the qualitative assessment does not support that the
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fair value of the asset exceeds its carrying value, then a quantitative assessment is performed. We recognize impairment as the difference between the carrying amount of
an asset and its estimated fair value.
Based on our annual impairment test for indefinite-lived assets as of October 1, 2020, we recognized an impairment charge of $20 to reduce the carrying amount of our
Pandora trademark to its fair value. Fair value was determined using a discounted cash flow model. The DCF model included significant assumptions about revenue growth
rates, long-term growth rates and enterprise specific discount rates.
• Definite-lived Assets: We carry our definite-lived assets at cost less accumulated amortization. We assess definite-lived assets for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be recoverable. If an event or circumstance is identified indicating the carrying value may not be
recoverable, the sum of future undiscounted cash flows is compared to the carrying value. If carrying value exceeds the future undiscounted cash flows, the carrying value
of the asset is reduced to its fair value. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of
the estimated future cash flows, adjusted as necessary for market factors.
Useful Life of Broadcast/Transmission System. Our satellite system includes the costs of our satellite construction, launch vehicles, launch insurance, capitalized interest,
spare satellites, terrestrial repeater network and satellite uplink facilities. We monitor our satellites for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset is not recoverable.
We operate two in-orbit Sirius satellites, FM-5 and FM-6, which launched in 2009 and 2013, respectively, and estimate they will operate effectively through the end of
their depreciable lives in 2024 and 2028, respectively.
We currently operate three in-orbit XM satellites, XM-3, XM-4 and XM-5. Our XM-3 satellite launched in 2005 reached the end of its depreciable life in 2020. We
estimate that our XM-4 satellite launched in 2006 will reach the end of its depreciable life in 2021. We have entered into agreements for the design construction and launch of
two satellites, SXM-7 and SXM-8. SXM-7 was launched into a geostationary orbit in December 2020. In-orbit testing of SXM-7 began on January 4, 2021. During in-orbit
testing of SXM-7, events occurred which have caused failures of certain SXM-7 payload units. An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7
is not yet known. SXM-8 is expected to be launched into a geostationary orbit in 2021. Our XM-5 satellite was launched in 2010, is used as an in-orbit spare for the Sirius and
XM systems and is expected to reach the end of its depreciable life in 2025.
Our satellites have been designed to last fifteen-years. Our in-orbit satellites may experience component failures which could adversely affect their useful lives. We
monitor the operating condition of our in-orbit satellites and if events or circumstances indicate that the depreciable lives of our in-orbit satellites have changed, we will modify
the depreciable life accordingly. If we were to revise our estimates, our depreciation expense would change.
Income Taxes. Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.
We assess the recoverability of deferred tax assets at each reporting date and, where applicable, a valuation allowance is recognized when, based on the weight of all
available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Our assessment includes an analysis of whether
deferred tax assets will be realized in the ordinary course of operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities
and forecasted income from operations. The underlying assumptions we use in forecasting future taxable income require significant judgment. In the event that actual income
from operations differs from forecasted amounts, or if we change our estimates of forecasted income from operations, we could record additional charges or reduce allowances
in order to adjust the carrying value of deferred tax assets to their realizable amount. Such adjustments could be material to our consolidated financial statements.
As of December 31, 2020, we had a valuation allowance of $54 relating to deferred tax assets that are not more likely than not to be realized due to the timing of certain
state net operating loss limitations and acquired net operating losses that were not likely to be utilized.
ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not that a tax position will be sustained based on its technical merits as of
the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than
not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing
authority. If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax position will not be recorded in the financial statements but
will be shown in tabular format within the uncertain income tax positions. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs due to the following conditions: (1) the tax position is “more likely than not” to be sustained, (2) the tax position, amount, and/or timing is
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ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired. A number of years may elapse before an uncertain tax
position is effectively settled or until there is a lapse in the applicable statute of limitations. We record interest and penalties related to uncertain tax positions in Income tax
expense in our consolidated statements of comprehensive income. As of December 31, 2020, the gross liability for income taxes associated with uncertain tax positions was
$433.
Glossary
Monthly active users - the number of distinct registered users on the Pandora services, including subscribers, which have consumed content within the trailing 30 days to
the end of the final calendar month of the period. The number of monthly active users on the Pandora services may overstate the number of unique individuals who actively
use our Pandora service, as one individual may use multiple accounts. To become a registered user on the Pandora services, a person must sign-up using an email address
or phone number, or access our service using a device with a unique identifier, which we use to create an account for our service.
Average self-pay monthly churn - the Sirius XM monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the
period.
Adjusted EBITDA - EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. We adjust EBITDA to exclude the
impact of other expense (income) as well as certain other charges discussed below. Adjusted EBITDA is a Non-GAAP financial measure that excludes or adjusts for (if
applicable): (i) certain adjustments as a result of the purchase price accounting for the XM Merger and the Pandora Acquisition, (ii) predecessor net income adjusted for
certain expenses, including depreciation and amortization, other income (loss), and share-based payment expense for January 2019, (iii) share-based payment expense, (iv)
impairment charges and (v) other significant operating expense (income) that do not relate to the on-going performance of our business. We believe adjusted EBITDA is a
useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our capital
structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our past operating performance with our
current performance and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use
adjusted EBITDA to estimate our current enterprise value and to make investment decisions. As a result of large capital investments in our satellite radio system, our
results of operations reflect significant charges for depreciation expense. We believe the exclusion of share-based payment expense is useful as it is not directly related to
the operational conditions of our business. We also believe the exclusion of the legal settlements and reserves, acquisition related costs, and loss on extinguishment of debt,
to the extent they occur during the period, is useful as they are significant expenses not incurred as part of our normal operations for the period.
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Adjusted EBITDA has certain limitations in that it does not take into account the impact to our consolidated statements of comprehensive income of certain expenses,
including share-based payment expense and certain purchase price accounting for the XM Merger and the Pandora Acquisition. We endeavor to compensate for the
limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling
items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these
costs, should refer to net income as disclosed in our consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance
measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies;
and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of
net income to the adjusted EBITDA is calculated as follows:
Net income:
Add back items excluded from Adjusted EBITDA:
(3)
(1)
Legal settlements and reserves
Acquisition and restructuring costs
Share-based payment expense
Depreciation and amortization
Impairment charges
Interest expense
Loss on extinguishment of debt
Other (income) expense
Income tax expense
Purchase price accounting adjustments:
Revenues
Operating expenses
Pro forma adjustments
(2)
Adjusted EBITDA
2020
For the Years Ended December 31,
2019
2018
$
131 $
914 $
1,176
(16)
28
223
506
976
394
40
(6)
299
6
(6)
—
2,575 $
25
84
229
468
—
390
57
3
283
13
(14)
(25)
2,427 $
69
3
133
301
—
350
—
(44)
245
7
—
(109)
2,131
$
(1) Acquisition and restructuring costs include $21 of share-based compensation expense for the year ended December 31, 2019.
(2) Pro forma adjustment for year ended December 31, 2019 includes Pandora's Net income for the year ended December 31, 2019 of $(44) plus Depreciation and amortization of $6, Share-
based payment expense of $11, Acquisition and other related costs of $1, and Interest expense of $2, offset by Other income of $1. Pro forma adjustment for year ended December 31, 2018
includes Pandora's Net income for the year ended December 31, 2018 of $(328) plus Depreciation and amortization of $61, Share-based payment expense of $111, Loss on extinguishment
of debt of $17, Interest expense of $27, transaction related costs recorded by Pandora related to its acquisition by Sirius XM of $12, and contract termination fees of $6, offset by Other
income of $7 and Income tax benefit of $8.
(3) Allocation of share-based payment expense:
(in millions)
Programming and content
Customer service and billing
Transmission
Sales and marketing
Engineering, design and development
General and administrative
Total share-based payment expense
2020
For the Years Ended December 31,
2019
2018
$
32
6
6
68
43
68
223 $
30
4
10
78
49
58
229
28
4
5
25
17
54
133
$
$
63
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Free cash flow - is derived from cash flow provided by operating activities, net of additions to property and equipment and purchases of other investments. Free cash flow
is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity. In a
capital intensive business, with significant investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for
future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders.
We exclude from free cash flow certain items that do not relate to the on-going performance of our business, such as cash flows related to acquisitions, strategic and short-
term investments, and net loan activity with related parties and other equity investees. We believe free cash flow is an indicator of the long-term financial stability of our
business. Free cash flow, which is reconciled to “Net cash provided by operating activities,” is a Non-GAAP financial measure. This measure can be calculated by
deducting amounts under the captions “Additions to property and equipment” and deducting or adding Restricted and other investment activity from “Net cash provided by
operating activities” from the consolidated statements of cash flows. Free cash flow should be used in conjunction with other GAAP financial performance measures and
may not be comparable to free cash flow measures presented by other companies. Free cash flow should be viewed as a supplemental measure rather than an alternative
measure of cash flows from operating activities, as determined in accordance with GAAP. Free cash flow is limited and does not represent remaining cash flows available
for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities. We believe free cash flow provides useful
supplemental information to investors regarding our current cash flow, along with other GAAP measures (such as cash flows from operating and investing activities), to
determine our financial condition, and to compare our operating performance to other communications, entertainment and media companies. Free cash flow is calculated as
follows:
Cash Flow information
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Free Cash Flow
Net cash provided by operating activities
Additions to property and equipment
Purchases of other investments
Free cash flow
2020
For the Years Ended December 31,
2019
2018
$
$
$
$
$
2,018 $
(741) $
(1,314) $
2,018 $
(350)
(8)
1,660 $
2,017 $
(3) $
(1,959) $
2,017 $
(363)
(7)
1,647 $
1,880
(379)
(1,515)
1,880
(355)
(8)
1,517
ARPU - Sirius XM ARPU is derived from total earned subscriber revenue (excluding revenue associated with our connected vehicle services) and advertising revenue,
divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Pandora ARPU is defined as average monthly
subscriber revenue per paid subscriber on our Pandora subscription services.
Subscriber acquisition cost, per installation - or SAC, per installation, is derived from subscriber acquisition costs less margins from the sale of radios and accessories
(excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. SAC, per
installation, is calculated as follows:
Subscriber acquisition costs, excluding connected vehicle services
Less: margin from sales of radios and accessories, excluding connected vehicle services
Installations
SAC, per installation
(a)
(a)
Amounts may not recalculate due to rounding.
64
2020
For the Years Ended December 31,
2019
2018
$
$
$
362 $
(154)
208 $
11,091
18.65 $
427 $
(144)
283 $
12,355
22.91 $
470
(122)
348
13,563
25.66
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Ad supported listener hours - is based on the total bytes served over our Pandora advertising supported platforms for each track that is requested and served from our
Pandora servers, as measured by our internal analytics systems, whether or not a listener listens to the entire track. For non-music content such as podcasts, episodes are
divided into approximately track-length parts, which are treated as tracks. To the extent that third-party measurements of advertising hours are not calculated using a
similar server-based approach, the third-party measurements may differ from our measurements.
RPM - is calculated by dividing advertising revenue, excluding AdsWizz and other off-platform revenue, by the number of thousands of listener hours on our Pandora
advertising-based service.
LPM - is calculated by dividing advertising licensing costs by the number of thousands of listener hours on our Pandora advertising-based service.
LPU - is calculated by dividing subscriber licensing costs by the number of paid subscribers on our Pandora subscription services.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of December 31, 2020, we did not hold or issue any derivatives. We hold investments in money market funds and certificates of deposit. These securities are
consistent with the objectives contained within our investment policy. The basic objectives of our investment policy are the preservation of capital, maintaining sufficient
liquidity to meet operating requirements and maximizing yield.
As of December 31, 2020, we also held the following investment:
In connection with the recapitalization of Sirius XM Canada on May 25, 2017, we loaned Sirius XM Canada $130.8 million. The loan is considered a long-term
investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. The loan has a term of fifteen years, bears interest at a rate
of 7.62% per annum and includes customary covenants and events of default, including an event of default relating to Sirius XM Canada’s failure to maintain specified leverage
ratios. The carrying value of the loan as of December 31, 2020 was $122.7 million and approximated its fair value. The loan is denominated in Canadian dollars and it is subject
to changes in foreign currency. Had the Canadian to U.S. dollar exchange rate been 10% lower as of December 31, 2020, the value of this loan would have been
approximately $12.3 million lower.
Our debt includes fixed rate instruments and the fair market value of our debt is sensitive to changes in interest rates. Sirius XM's borrowings under the Credit Facility
carry a variable interest rate, which is currently based on LIBOR, plus an applicable rate based on its debt to operating cash flow ratio. We currently do not use interest rate
derivative instruments to manage our exposure to interest rate fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements and financial statements and financial statement schedule contained in Part IV, Item 15, herein, which are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required
disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An
evaluation was performed under the supervision and with the participation of our management, including Jennifer C. Witz, our Chief Executive Officer, and Sean S. Sullivan,
our Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020. Based on that evaluation, our management, including our Chief Executive Officer and our
Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2020 at the reasonable assurance level.
We acquired Pandora in February 2019. Except for the changes in internal controls at Pandora, there has been no change in our internal control over financial reporting
(as that term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2020 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act. We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of our internal control over financial reporting. Our management used the Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission to perform this evaluation. Based
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on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was
effective as of December 31, 2020.
KPMG LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Annual Report
on Form 10-K, has issued its report on the effectiveness of our internal control over financial reporting.
Audit Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting
firm, as stated in their audit report appearing on page F-4 of this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
On February 1, 2021, Holdings entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting
forth agreements with respect to other tax matters. The tax sharing agreement was negotiated and approved by a special committee of Holdings’ board of directors, all of whom
are independent of Liberty Media.
Under the Internal Revenue Code, two corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock
representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. As of December 31, 2020, Liberty Media beneficially owned,
directly and indirectly, approximately 76% of the outstanding shares of our common stock. We expect that Liberty Media could beneficially own, directly and indirectly, over
80% of the outstanding shares of our common stock at some time in 2021, and Holdings and Liberty Media would then become members of the same consolidated tax group.
Should that happen, the tax sharing agreement would govern certain matters related to the resulting consolidated federal income tax returns, as well as state and local returns
filed on a consolidated or combined basis.
The tax sharing agreement contains provisions that Holdings believes are customary for tax sharing agreements between members of a consolidated group. A copy of the
tax sharing agreement has been filed as Exhibit 10.44 to this Annual Report on Form 10-K for the year ended December 31, 2020. The tax sharing agreement and our inclusion
in Liberty Media’s consolidated tax group is not expected to have any material adverse effect on us.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our executive officers is contained in the discussion entitled “Information About Our Executive Officers” in Part I of this Annual Report on Form 10-
K.
The additional information required by this Item 10 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2021
annual meeting of stockholders set forth under the captions Stock Ownership, Governance of the Company, Item 1. Election of Directors and Item 2. Ratification of Independent
Registered Public Accountants, which we expect to file with the Securities and Exchange Commission prior to April 30, 2021.
Code of Ethics
We have adopted a code of ethics that applies to all employees, including executive officers, and to directors. The Code of Ethics is available on the Corporate
Governance page of our website at www.siriusxm.com. If we ever were to amend or waive any provision of our Code of Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations with respect to any such
waiver or amendment by posting such information on our internet website set forth above rather than filing a Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2021 annual
meeting of stockholders set forth under the captions Item 1. Election of Directors and Executive Compensation, which we expect to file with the Securities and Exchange
Commission prior to April 30, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain information required by this Item 12 is set forth under the heading “Equity Compensation Plan Information” in Part II, Item 5, of this Annual Report on Form 10-
K.
The additional information required by this Item 12 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2021
annual meeting of stockholders set forth under the caption Stock Ownership, which we expect to file with the Securities and Exchange Commission prior to April 30, 2021.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2021 annual
meeting of stockholders set forth under the captions Governance of the Company and Item 1. Election of Directors, which we expect to file with the Securities and Exchange
Commission prior to April 30, 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2021 annual
meeting of stockholders set forth under the caption Item 2. Ratification of Independent Registered Public Accountants - Principal Accountant Fees and Services, which we
expect to file with the Securities and Exchange Commission prior to April 30, 2021.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this report:
(1) Financial Statements. See Index to Consolidated Financial Statements appearing on page F-1.
(2) Financial Statement Schedules. See Index to Consolidated Financial Statements appearing on page F-1.
(3) Exhibits. See Exhibit Index, which is incorporated herein by reference.
ITEM 16. FORM 10-K SUMMARY
None.
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Exhibit
Description
EXHIBIT INDEX
2.1 Certificate of Ownership and Merger, dated as of January 12, 2011, merging XM Satellite Radio Inc. with and into Sirius XM Radio Inc. (incorporated by
reference to Exhibit 3.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on January 12, 2011 (File No. 001-34295)).
2.2 Agreement and Plan of Merger, dated as of November 14, 2013, by and among Sirius XM Radio Inc., Sirius XM Holdings Inc. and Sirius XM Merger Sub Inc.
(incorporated by reference to Exhibit 2.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013 (File No. 001-34295)).
2.3 Agreement and Plan of Merger and Reorganization by and among Sirius XM Holdings Inc., Pandora Media, Inc. and White Oaks Acquisition Corp., dated as
of September 23, 2018 (incorporated by reference to Exhibit 2.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on September 24, 2018 (File
No. 001-34295)).
3.1 Amended and Restated Certificate of Incorporation of Sirius XM Holdings Inc. (incorporated by reference to Exhibit 3.1 to Sirius XM Holdings Inc.’s Current
Report on Form 8-K filed on November 15, 2013 (File No. 001-34295)).
3.2 Amended and Restated By-Laws of Sirius XM Holdings Inc. (incorporated by reference to Exhibit 3.2 to Sirius XM Holdings Inc.'s Current Report on Form 8-
K filed on November 15, 2013 (File No. 001-34295)).
4.1 Form of certificate for shares of Sirius XM Holdings Inc.’s common stock (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2013 (File No. 001-34295)).
4.2
4.3
4.4
4.5
4.6
Indenture, dated as of May 23, 2016, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as a trustee, relating to
the 5.375% Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on May 24, 2016
(File No. 001-34295)).
Indenture, dated as of July 5, 2017, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the
3.875% Senior Notes due 2022 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.'s Current Report on Form 8-K filed on July 5, 2017 (File
No. 001-34295)).
Indenture, dated as of July 5, 2017, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the
5.000% Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to Sirius XM Holdings Inc.'s Current Report on Form 8-K filed on July 5, 2017 (File
No. 001-34295)).
Indenture, dated as of July 2, 2019, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the
4.625% Senior Notes due 2024 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.'s Current Report on Form 8-K filed on July 2, 2019 (File
No. 001-34295)).
Indenture, dated as of June 7, 2019, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the
5.500% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.'s Current Report on Form 8-K filed on June 7, 2019 (File
No. 001-34295)).
4.7 First Supplemental Indenture, dated as of January 31, 2019, relating to the 1.75% Convertible Senior Notes due 2023, between Pandora Media, Inc. and
Citibank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.'s Current Report on Form 8-K filed on January 31, 2019 (File
No. 001-34295)).
4.8 Third Supplemental Indenture, dated as of February 1, 2019, relating to the 1.75% Convertible Senior Notes due 2023, among Pandora Media, LLC (f/k/a
Pandora Media, Inc.), Sirius XM Holdings Inc. and Citibank, N.A. as trustee ((incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.'s Current
Report on Form 8-K filed on February 1, 2019 (File No. 001-34295)).
4.9
Indenture, dated as of June 11, 2020, relating to the 4.125% Senior Notes due 2030, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank
National Association, as trustee, including the form of 4.125% Senior Notes due 2030 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.’s
Current Report on Form 8-K dated June 11, 2020 (File No. 001-34295)).
4.10
Investment Agreement, dated as of February 17, 2009, between Sirius XM Radio Inc. and Liberty Radio LLC (incorporated by reference to Exhibit 4.55 to
Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-34295)).
4.11 Assignment and Assumption of Investment Agreement among Sirius XM Radio Inc., Sirius XM Holdings Inc. and Liberty Radio LLC, dated as of November
15, 2013 (incorporated by reference to Exhibit 4.15 to Sirius XM Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013 (File No.
001-34295)).
4.12 Description of Registrant's Securities (incorporated by reference to Exhibit 4.15 to Sirius XM Holdings Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2019 (File No. 001-34295)).
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Exhibit
Description
10.1 Credit Agreement, dated as of December 5, 2012, among Sirius XM Radio Inc., JPMorgan Chase Bank, N.A. as administrative agent, and the other agents and
lenders party thereto (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on December 10, 2012 (File No.
001-34295)).
10.2 Amendment No. 1, dated as of April 22, 2014, to the Credit Agreement, dated as of December 5, 2012, among Sirius XM Radio Inc., the Lenders party thereto
and JPMorgan Chase Bank, N.A. as administrative agent for the Lenders, as collateral agent for the Secured Parties and as an Issuing Bank (incorporated by
reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on April 22, 2014 (File No. 001-34295)).
10.3 Amendment No. 2, dated as of June 16, 2015, to the Credit Agreement, dated as of December 5, 2012, among Sirius XM Radio Inc., JPMorgan Chase Bank,
N.A., as administrative agent, and the other agents and lenders parties thereto (incorporated by reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current
Report on Form 8-K filed on June 19, 2015 (File No. 001-34295)).
10.4 Amendment No. 3, dated as of June 29, 2018, to the Credit Agreement, dated as of December 5, 2012, among Sirius XM Radio Inc., JPMorgan Chase Bank,
N.A., as administrative agent, and the other agents and lenders parties thereto (incorporated by reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current
Report on Form 8-K filed on July 3, 2018 (File No. 001-34295)).
**10.5 Technology Licensing Agreement among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., WorldSpace Management Corporation and American
Mobile Satellite Corporation, dated as of January 1, 1998, amended by Amendment No. 1 to Technology Licensing Agreement (incorporated by reference to
Exhibit 10.4 to Amendment No. 1 to XM Satellite Radio Holdings Inc.’s Registration Statement on Form S-1 (File No. 333-83619)).
*10.6 Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to Sirius XM Radio Inc.’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File No. 001-34295)).
*10.7 XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to XM Satellite Radio Holdings Inc.’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2007 (File No. 000-27441)).
*10.8 Form of Non-Qualified Stock Option Agreement pursuant to the XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 to XM Satellite Radio Holdings Inc.’s Current Report on Form 8-K filed June 1, 2007 (File No. 000-27441)).
*10.9 Form of Restricted Stock Agreement pursuant to the XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to
XM Satellite Radio Holdings Inc.’s Current Report on Form 8-K filed June 1, 2007 (File No. 000-27441)).
*10.10 Sirius XM Radio 401(k) Savings Plan, January 1, 2009 Restatement (incorporated by reference to Exhibit 10.30 to Sirius XM Radio Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2009 (File No. 001-34295)).
*10.11 Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 4.9 to Sirius XM Radio Inc.’s Registration Statement on
Form S-8 (File No. 333-160386)).
*10.12 Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (incorporated by reference to Appendix A to Sirius XM Holdings Inc.’s definitive Proxy
Statement on Schedule 14A filed on April 6, 2015 (File No. 001-34295)).
*10.13 Form of Director Non-Qualified Stock Option Agreement pursuant to the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by
reference to Exhibit 10.34 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 001-34295)).
*10.14 Form of Director Non-Qualified Stock Option Agreement pursuant to the Sirius XM Holdings Inc. 2009 Long-Term Stock Incentive Plan (incorporated by
reference to Exhibit 10.18 to Sirius XM Holdings Inc.’s Annual Report for the year ended December 31, 2014 (File No. 001-34295)).
*10.15 Form of Non-Qualified Stock Option Agreement pursuant to the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to
Exhibit 10.35 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 001-34295)).
*10.16 Form of Non-Qualified Stock Option Agreement pursuant to the Sirius XM Holdings Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to
Exhibit 10.20 to Sirius XM Holdings Inc.’s Annual Report filed for the year ended December 31, 2014 (File No. 001-34295)).
*10.17 Form of Director Non-Qualified Stock Option Agreement pursuant to the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (incorporated by
reference to Exhibit 10.22 to Sirius XM Holdings Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34295)).
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Exhibit
Description
*10.18 Form of Non-Qualified Stock Option Agreement pursuant to the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (incorporated by reference to
Exhibit 10.23 to Sirius XM Holdings Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34295)).
*10.19 Form of SVP Restricted Stock Unit Agreement pursuant to the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (incorporated by reference to
Exhibit 10.24 to Sirius XM Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016 (001-34295)).
*10.20 Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (incorporated
by reference to Exhibit 10.25 to Sirius XM Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016 (001-34295)).
*10.21 Form of SVP Non-Qualified Stock Option Agreement pursuant to the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (incorporated by
reference to Exhibit 10.26 to Sirius XM Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016 (001-34295)).
*10.22 Employment Agreement, dated as of May 31, 2018, between Sirius XM Radio Inc. and Dara F Altman (incorporated by reference to Exhibit 10.1 to Sirius
XM Holdings Inc.’s Current Report on Form 8-K filed on June 5, 2018 (File No. 001-34295)).
*10.23 Employment Agreement, dated as of June 29, 2015, between Sirius XM Radio Inc. and James A. Cady (incorporated by reference to Exhibit 10.1 to Sirius
XM Holdings Inc.’s Current Report on Form 8-K filed on June 30, 2015 (File No. 001-34295)).
*10.24 Amendment to the Employment Agreement between Sirius XM Radio Inc. and James A Cady, dated as of February 23, 2016 (incorporated by reference to
Exhibit 10.1 to Sirius XM Holdings Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (File No. 001-34295)).
*10.25 Employment Agreement, dated as of June 1, 2018, between Sirius XM Radio Inc. and David J. Frear (incorporated by reference to Exhibit 10.2 to Sirius XM
Holdings Inc.’s Current Report on Form 8-K filed on June 5, 2018 (File No. 001-34295)).
*10.26 Form of Option Award Agreement between Sirius XM Radio Inc. and James E. Meyer (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s
Current Report on Form 8-K filed October 16, 2009 (File No. 001-34295)).
*10.27 Employment Agreement, dated December 24, 2018 between Sirius XM Radio Inc. and Scott A. Greenstein (incorporated by reference to Exhibit 10.1 to
Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on December 26, 2018 (File No. 001-34295)).
*10.28 Employment Agreement, dated as of November 22, 2016 between Sirius XM Radio Inc. and Patrick L. Donnelly (incorporated by reference to Exhibit 10.37
to Sirius XM Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016 (File No. 001-34295)).
*10.29 Employment Agreement, dated as of August 21, 2017 between Sirius XM Radio Inc. and Jennifer Witz (incorporated by reference to Exhibit 10.30 to Sirius
XM Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-34295)).
*10.30 Employment Agreement, dated August 16, 2018, between Sirius XM Radio Inc. and James E. Meyer (incorporated by reference to Exhibit 10.1 to Sirius XM
Holdings Inc.’s Current Report on Form 8-K filed on August 16, 2018 (File No. 001-34295)).
*10.31 Letter agreement, dated August 16, 2018, regarding use of private aircraft between Sirius XM Radio Inc. and James E. Meyer (incorporated by reference to
Exhibit 10.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on August 16, 2018 (File No. 001-34295)).
*10.32 Employment Agreement, dated as of March 5, 2019 between Sirius XM Radio Inc. and Jennifer Witz (incorporated by reference to Exhibit 10.1 to Sirius XM
Holdings Inc.'s Current Report on Form 8-K filed on March 6, 2019 (File No. 001-34295)).
*10.33 Employment Agreement, dated as of September 14, 2020 between Sirius XM Radio Inc. and Jennifer Witz (incorporated by reference to Exhibit 10.1 to Sirius
XM Holdings Inc.'s Current Report on Form 8-K filed on September 15, 2020 (File No. 001-34295)).
*10.34 Letter Agreement, dated September 14, 2020, regarding private use of aircraft between Sirius XM Radio Inc. and Jennifer C. Witz (incorporated by reference
to Exhibit 10.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed September 15, 2020 (File No. 001-34295)).
*10.35 Employment Agreement, dated as of September 14, 2020, between Sirius XM Radio Inc. and Sean S. Sullivan (incorporated by reference to Exhibit 10.3 to
Sirius XM Holdings Inc.’s Current Report on Form 8-K filed September 15, 2020 (File No. 001-34295)).
72
Table of Contents
Exhibit
Description
*10.36 Employment Agreement, dated as of December 27, 2020 between Sirius XM Radio Inc. and Scott A. Greenstein (incorporated by reference to Exhibit 10.1 to
Sirius XM Holdings Inc.'s Current Report on Form 8-K filed on December 8, 2020 (File No. 001-34295)).
*10.37 Agreement and Release, dated as of September 21, 2020 between Sirius XM Radio Inc. and David J. Frear (filed herewith).
*10.38 Consulting Agreement, dated as of January 1, 2021 between Sirius XM Radio Inc. and James E Meyer (filed herewith).
*10.39 Letter Agreement, dated March 5, 2019, between Sirius XM Radio Inc. and Stephen R. Cook (incorporated by reference to Exhibit 10.2 to Sirius XM Holdings
Inc.'s Current Report on Form 8-K filed on March 6, 2019 (File No. 001-34295)).
*10.40 Letter Agreement, dated March 5, 2019, between Sirius XM Radio Inc. and Joseph A. Verbrugge (incorporated by reference to Exhibit 10.3 to Sirius XM
Holdings Inc.'s Current Report on Form 8-K filed on March 6, 2019 (File No. 001-34295)).
*10.41 Assignment and Assumption Agreement, dated as of November 15, 2013, among Sirius XM Holdings Inc. and Sirius XM Radio Inc. (incorporated by
reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013 (File No. 001-34295)).
*10.42 Omnibus Amendment, dated November 15, 2013, to the XM Satellite Radio Holdings Inc. Talent Option Plan, the XM Satellite Radio Holdings Inc. 1998
Shares Award Plan, as amended, the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan, the XM Satellite Radio Holdings
Inc. 2007 Stock Incentive Plan and the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan and their Related Stock Option Agreements, Restricted
Stock Agreements and Restricted Stock Unit Agreements (incorporated by reference to Exhibit 10.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-
K filed on November 15, 2013 (File No. 001-34295)).
*10.43 Sirius XM Holdings Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-K
filed on June 30, 2015 (File No. 001-34295)).
10.44 Tax Sharing Agreement, dated as of February 1, 2021 between Sirius XM Holdings Inc. and Liberty Media Corporation (filed herewith).
21.1 List of Subsidiaries (filed herewith).
23.1 Consent of KPMG LLP (filed herewith).
31.1 Certificate of Jennifer C. Witz, Chief Executive Officer and Director, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certificate of Sean S. Sullivan, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
32.1 Certificate of Jennifer C. Witz, Chief Executive Officer and Director, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith).
32.2 Certificate of Sean S. Sullivan, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.1 Amended and Restated Certificate of Incorporation of Sirius XM Radio Inc., as amended (incorporated by reference to Exhibit 3.3 to Sirius XM Holdings
Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 001-34295)).
99.2 Amended and Restated By-Laws of Sirius XM Radio Inc., as amended (incorporated by reference to Exhibit 3.4 to Sirius XM Holdings Inc.'s Annual Report
on Form 10-K for the year ended December 31, 2013 (File No. 001-34295)).
101.1 The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2020 formatted in Inline eXtensible Business
Reporting Language (Inline XBRL): (i) Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; (ii)
Consolidated Balance Sheets as of December 31, 2020 and 2019; (iii) Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended
December 31, 2020, 2019 and 2018; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; and (v) Combined
Notes to Consolidated Financial Statements.
104.1 Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101.1)
_________________
73
Table of Contents
*
This document has been identified as a management contract or compensatory plan or arrangement.
**
Pursuant to the Commission’s Orders Granting Confidential Treatment under Rule 406 of the Securities Act of 1933 or Rule 24(b)-2 under the Securities Exchange Act
of 1934, certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the
agreements or other documents themselves, and you should not rely on them for any other purpose. In particular, any representations and warranties made by us in these
agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs for any other
purpose as of the date they were made or at any other time.
74
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on this 2nd day of February 2021.
SIGNATURES
SIRIUS XM HOLDINGS INC.
By:
/s/ Sean S. Sullivan
Sean S. Sullivan
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Authorized Officer)
75
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature
Title
Date
/s/ GREGORY B. MAFFEI
(Gregory B. Maffei)
/s/ JAMES E. MEYER
(James E. Meyer)
/s/ JENNIFER C. WITZ
(Jennifer C. Witz)
/s/ SEAN S. SULLIVAN
(Sean S. Sullivan)
/s/ THOMAS D. BARRY
(Thomas D. Barry)
/s/ JOAN L. AMBLE
(Joan L. Amble)
/s/ MARK D. CARLETON
(Mark D. Carleton)
/s/ EDDY W. HARTENSTEIN
(Eddy W. Hartenstein)
/s/ JAMES P. HOLDEN
(James P. Holden)
/s/ EVAN D. MALONE
(Evan D. Malone)
/s/ JAMES F. MOONEY
(James F. Mooney)
/s/ JONELLE PROCOPE
(Jonelle Procope)
/s/ MICHAEL RAPINO
(Michael Rapino)
/s/ KRISTINA M. SALEN
(Kristina M. Salen)
/s/ CARL E. VOGEL
(Carl E. Vogel)
/s/ DAVID M. ZASLAV
(David M. Zaslav)
Chairman of the Board of Directors and Director
February 2, 2021
Vice Chairman of the Board of Directors and Director
February 2, 2021
Chief Executive Officer and Director (Principal Executive Officer)
February 2, 2021
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
76
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
February 2, 2021
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Stockholders' (Deficit) Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Schedule II - Schedule of Valuation and Qualifying Accounts
F-1
F-2
F-5
F-6
F-7
F-8
F-10
F-45
Table of Contents
To the Stockholders and Board of Directors
Sirius XM Holdings Inc.:
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Sirius XM Holdings Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related
consolidated statements of comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2020, and
the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the
three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 2, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of
Accounting Standard Update (ASU) 2016-02 and all related amendments, which established Accounting Standard Codification (ASC) Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to
be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Sufficiency of audit evidence over certain subscriber and advertising revenues
As discussed in Notes 2 and 19 to the consolidated financial statements, and disclosed in the consolidated statements of comprehensive income, the Company generated $8.0
billion of revenues, of which $5.9 billion was Sirius XM subscriber revenue and $1.2 billion was Pandora (Pandora Media, LLC and subsidiaries, the successor to Pandora
Media, Inc. and subsidiaries) advertising revenue, for the year ended December 31, 2020. The Company’s accounting for these subscriber and advertising revenues involve
multiple information technology (IT) systems.
We identified the evaluation of the sufficiency of audit evidence related to these subscriber and advertising revenues as a critical audit matter. Evaluating the sufficiency of
audit evidence required our subjective judgment regarding, among other things, the nature and extent of the evidence relating to each revenue stream, due principally to the
number of IT applications utilized in the revenue recognition process to capture and aggregate the data.
F-2
Table of Contents
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal
controls related to the critical audit matter. This included controls related to the Company’s subscriber and advertising revenue recognition processes. We involved IT
professionals with specialized skills and knowledge, who assisted in testing relevant IT applications and controls used by the Company in its revenue recognition processes
and testing the interface of relevant revenue data between different IT systems used in the revenue recognition processes.
We applied auditor judgment to determine the nature and extent of procedures to be performed over subscriber and advertising revenues. For each revenue stream within
Sirius XM subscriber revenues where procedures were performed, we developed an estimate of subscriber revenues. These estimates were based on a combination of internal
data and publicly available external data and the estimates were compared to the Company’s recorded amounts. In addition, we evaluated the relevance and reliability of the
internal and external data used to develop those estimates. On a sample basis, we tested Pandora advertising revenues by tracing the recorded amounts to underlying source
documents and system reports. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed.
Fair value of the Pandora tradename and goodwill in the Pandora reporting unit
As discussed in Note 9 to the consolidated financial statements, the Company’s goodwill balance associated with the Pandora reporting unit was $832 million as of December
31, 2020. Additionally, as discussed in Note 10 to the consolidated financial statements, the Pandora tradename balance was $311 million as of December 31, 2020. The
Company performs goodwill and indefinite-lived assets impairment testing as of the fourth quarter of each fiscal year, and whenever events and changes in circumstances
indicate that the carrying value of a tradename more likely than not exceeds its fair value or the carrying value of a reporting unit more likely than not exceeds its fair value.
The Company identified events that indicated that it was more likely than not that the carrying value of the Pandora reporting unit and the Pandora tradename exceeded their
fair values. The Company estimated the fair value of the Pandora reporting unit using a combination of a discounted cash flow model and a market approach, and the Pandora
tradename using a discounted cash flow model. As a result, the Company recognized an impairment charge of $956 million for the Pandora reporting unit goodwill and an
impairment charge of $20 million for the Pandora tradename.
We identified the evaluation of the Company’s fair value assessment of the Pandora tradename and goodwill in the Pandora reporting unit as a critical audit matter. There was
a high degree of subjective auditor judgment in applying and evaluating the results of our audit procedures over the discounted cash flow model used to calculate the fair
value of the goodwill in the Pandora reporting unit and the Pandora tradename. Specifically, the revenue growth rates, long-term growth rate, and the discount rates (the key
assumptions), which were used by the Company to estimate the fair value of the reporting unit involved a higher degree of subjectivity. In addition, these key assumptions
used in the fair value assessment were challenging to test due to the sensitivity of the fair value to changes in these assumptions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal
controls related to the Company's goodwill and tradename impairment process. This included controls over the selection of the revenue growth rates, long-term growth rate,
and the discount rates used to estimate the fair value of the Pandora reporting unit and the Pandora tradename. We performed sensitivity analyses to assess the impact of
possible changes to the revenue growth rates, long-term growth rate, and discount rate assumptions on the fair value of the Pandora reporting unit and the Pandora tradename.
We compared the Company’s forecasted revenue growth rate assumptions to the Pandora reporting unit’s historical revenue growth rates, to projected revenue growth rates
for comparable companies, and to other publicly available data, including third party market studies. We compared the Company’s historical revenue forecasts to actual
results to assess the Company’s ability to accurately forecast. We evaluated the relevance and reliability of the internal and external data used to develop those assumptions.
We involved valuation professionals with specialized skills and knowledge who assisted in:
•
•
•
evaluating the Company's discount rates by comparing them to discount rate ranges that were developed using publicly available market data for comparable entities;
developing an estimated range of fair value of the Pandora reporting unit using the reporting unit's cash flow projections, estimated discount rate range, and comparing
the result to the Company’s fair value estimate; and
developing an estimated range of fair value of the Pandora trademark using the Company’s cash flow projections and an estimated discount rate range and comparing the
result to the Company’s fair value estimate.
We have served as the Company’s auditor since 2008.
New York, New York
February 2, 2021
/s/ KPMG LLP
F-3
Table of Contents
To the Stockholders and Board of Directors
Sirius XM Holdings Inc.:
Opinion on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited Sirius XM Holdings Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the
Company as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report
dated February 2, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
New York, New York
February 2, 2021
/s/ KPMG LLP
F-4
Table of Contents
(in millions, except per share data)
Revenue:
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total revenue
Operating expenses:
Cost of services:
Revenue share and royalties
Programming and content
Customer service and billing
Transmission
Cost of equipment
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Acquisition and restructuring costs
Impairment charges
Total operating expenses
Income from operations
Other (expense) income:
Interest expense
Loss on extinguishment of debt
Other income (expense)
Total other (expense) income
Income before income taxes
Income tax expense
Net income
Foreign currency translation adjustment, net of tax
Total comprehensive income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2020
For the Years Ended December 31,
2019
2018
$
$
$
$
$
6,372 $
1,340
173
155
8,040
2,421
481
481
177
19
362
957
263
511
506
28
976
7,182
858
(394)
(40)
6
(428)
430
(299)
131 $
7
138 $
0.03 $
0.03 $
4,330
4,429
6,120 $
1,336
173
165
7,794
2,291
462
475
170
29
427
937
280
524
468
84
—
6,147
1,647
(390)
(57)
(3)
(450)
1,197
(283)
914 $
14
928 $
0.20 $
0.20 $
4,501
4,616
5,264
188
155
164
5,771
1,394
406
382
96
31
470
484
123
354
301
3
—
4,044
1,727
(350)
—
44
(306)
1,421
(245)
1,176
(29)
1,147
0.26
0.26
4,462
4,561
See accompanying notes to the consolidated financial statements.
F-5
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of December 31,
2020
2019
Table of Contents
(in millions, except per share data)
Current assets:
Cash and cash equivalents
Receivables, net
Inventory, net
Related party current assets
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Related party long-term assets
Deferred tax assets
Operating lease right-of-use assets
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses
Accrued interest
Current portion of deferred revenue
Current maturities of debt
Operating lease current liabilities
Related party current liabilities
Total current liabilities
Long-term deferred revenue
Long-term debt
Deferred tax liabilities
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 17)
Stockholders’ equity (deficit):
Common stock, par value $0.001 per share; 9,000 shares authorized; 4,176 and 4,412 shares issued; 4,173 and 4,412
shares outstanding at December 31, 2020 and December 31, 2019, respectively
Accumulated other comprehensive income, net of tax
Additional paid-in capital
Treasury stock, at cost; 3 and 0 shares of common stock at December 31, 2020 and December 31, 2019, respectively
Accumulated deficit
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)
See accompanying notes to the consolidated financial statements.
F-6
$
$
$
$
71 $
672
10
20
194
967
1,629
3,340
3,122
531
111
427
206
10,333 $
1,223 $
174
1,721
1
48
—
3,167
118
8,499
266
419
149
12,618
4
15
—
(19)
(2,285)
(2,285)
10,333 $
106
670
11
22
194
1,003
1,626
3,467
3,843
452
153
466
139
11,149
1,151
160
1,930
2
46
4
3,293
130
7,842
70
456
94
11,885
4
8
395
—
(1,143)
(736)
11,149
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Additional
Paid-in
Capital
Treasury Stock
Shares
Amount
Accumulated
Deficit
(in millions)
Balance at January 1, 2018
Cumulative effect of change in accounting principles
Comprehensive income, net of tax
Share-based payment expense
Exercise of stock options and vesting of restricted stock
units
Withholding taxes on net share settlement of stock-
based compensation
Cash dividends paid on common stock, $0.04510 per
share
Common stock repurchased
Common stock retired
Balance at December 31, 2018
Comprehensive income, net of tax
Share-based payment expense
Exercise of stock options and vesting of restricted stock
units
Withholding taxes on net share settlement of stock-based
compensation
Cash dividends paid on common stock, $0.04961 per
share
Issuance of common stock as part of Pandora
Acquisition
Equity component of convertible note
Common stock repurchased
Common stock retired
Balance at December 31, 2019
Comprehensive income, net of tax
Share-based payment expense
Exercise of stock options and vesting of restricted stock
units
Withholding taxes on net share settlement of stock-based
compensation
Cash dividends paid on common stock, $0.05457 per
share
Common stock repurchased
Common stock retired
Balance at December 31, 2020
4,531 $
—
—
—
27
—
—
—
(212)
4,346 $
—
—
38
—
—
392
—
—
(364)
4,412 $
—
—
28
—
—
—
(264)
4,176 $
4 $
—
—
—
—
—
—
—
—
4 $
—
—
—
—
—
1
—
—
(1)
4 $
—
—
—
—
—
—
—
4 $
19
4
(29)
—
—
—
—
—
—
(6)
14
—
—
—
—
—
—
—
—
8
7
—
—
—
—
—
—
15
$
$
$
$
1,715
30
—
133
—
(121)
(201)
—
(1,314)
242
—
263
8
(150)
(226)
2,354
62
—
(2,158)
395
—
239
—
(115)
(170)
—
(349)
—
Total
Stockholders’
Equity (Deficit)
(1,522)
44
1,147
133
(3,243) $
10
1,176
—
3 $
—
—
—
—
—
—
(17) $
—
—
—
—
—
—
—
—
—
209
(212)
(1,297)
1,314
— $
—
—
— $
—
—
—
—
(2,057) $
914
—
—
—
—
—
—
—
—
—
—
364
(364)
—
(2,159)
2,159
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
(1,143) $
131
—
—
—
(67)
267
(264)
(1,574)
1,555
3 $
(19) $
—
(1,206)
(2,285) $
—
(121)
(201)
(1,297)
—
(1,817)
928
263
8
(150)
(226)
2,355
62
(2,159)
—
(736)
138
239
—
(115)
(237)
(1,574)
—
(2,285)
See accompanying notes to the consolidated financial statements.
F-7
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Impairment charges
Non-cash interest expense, net of amortization of premium
Provision for doubtful accounts
Amortization of deferred income related to equity method investment
Loss on extinguishment of debt
Loss on unconsolidated entity investments, net
Gain on fair value instrument
Dividend received from unconsolidated entity investment
Loss on restructuring
(Gain) loss on other investments
Share-based payment expense
Deferred income taxes
Amortization of right-of-use assets
Changes in operating assets and liabilities:
Receivables
Inventory
Related party, net
Prepaid expenses and other current assets
Other long-term assets
Accounts payable and accrued expenses
Accrued interest
Deferred revenue
Operating lease liabilities
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Purchases of other investments
Acquisition of business, net of cash acquired
Sale of short-term investments
Investments in related parties and other equity investees
Repayment from related party
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Taxes paid from net share settlements for stock-based compensation
Revolving credit facility, net of deferred financing costs
Proceeds from long-term borrowings, net of costs
Proceeds from sale of capped call security
Principal payments of long-term borrowings
Payment of premiums on redemption of debt
Common stock repurchased and retired
Dividends paid
Net cash used in financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
(1)
Cash, cash equivalents and restricted cash at beginning of period
(1)
Cash, cash equivalents and restricted cash at end of period
For the Years Ended December 31,
2020
2019
2018
$
131 $
914 $
1,176
506
976
20
60
(3)
40
16
—
2
24
(3)
223
238
56
(36)
(2)
—
14
(61)
42
13
(223)
(53)
38
2,018
(350)
(8)
(300)
—
(94)
11
(741)
—
(114)
649
1,481
—
(1,507)
(31)
(1,555)
(237)
(1,314)
(37)
120
$
83 $
468
—
17
53
(3)
57
21
—
2
—
(3)
250
259
56
(137)
11
(10)
10
7
109
32
(58)
(47)
9
2,017
(363)
(7)
313
73
(19)
—
(3)
8
(150)
(439)
2,715
3
(1,666)
(45)
(2,159)
(226)
(1,959)
55
65
120 $
301
—
9
51
(3)
—
10
(43)
2
—
1
133
257
—
(42)
(2)
1
(20)
9
(20)
(9)
70
—
(1)
1,880
(355)
(8)
(2)
—
(17)
3
(379)
—
(120)
136
—
—
(16)
—
(1,314)
(201)
(1,515)
(14)
79
65
See accompanying notes to the consolidated financial statements.
F-8
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(in millions)
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized
Income taxes paid
Non-cash investing and financing activities:
Treasury stock not yet settled
Fair value of shares issued related to acquisition of a business
Accumulated other comprehensive income (loss), net of tax
For the Years Ended December 31,
2019
2020
2018
$
$
$
$
$
358 $
38 $
(19) $
— $
7 $
337 $
10 $
— $
2,355 $
14 $
345
6
17
—
(29)
(1)
The following table reconciles cash, cash equivalents and restricted cash per the statement of cash flows to the balance sheet. The restricted cash balances are primarily due to letters of
credit which have been issued to the landlords of leased office space. The terms of the letters of credit primarily extend beyond one year.
(in millions)
Cash and cash equivalents
Restricted cash included in Other long-term assets
Total cash, cash equivalents and restricted cash at end of period
December 31, 2020
December 31, 2019
December 31, 2018
December 31, 2017
$
$
71
12
83
$
$
106
14
120
$
$
54
11
65
$
$
69
10
79
See accompanying notes to the consolidated financial statements.
F-9
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share amounts)
(1)
Business & Basis of Presentation
This Annual Report on Form 10-K presents information for Sirius XM Holdings Inc. and its subsidiaries (collectively “Holdings”). The terms “Holdings,” “we,” “us,”
“our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries. “Sirius XM” refers to our
wholly owned subsidiary Sirius XM Radio Inc. and its subsidiaries. “Pandora” refers to Sirius XM's wholly owned subsidiary Pandora Media, LLC (the successor to Pandora
Media, Inc.) and its subsidiaries. Holdings has no operations independent of Sirius XM and Pandora.
Business
We operate two complementary audio entertainment businesses - our Sirius XM business and our Pandora business.
Sirius XM
Our Sirius XM business features music, sports, entertainment, comedy, talk, news, traffic and weather channels and other content, as well as podcasts and infotainment
services, in the United States on a subscription fee basis. Sirius XM's premier content bundles include live, curated and certain exclusive and on demand programming. The
Sirius XM service is distributed through our two proprietary satellite radio systems and streamed via applications for mobile devices, home devices and other consumer
electronic equipment. Satellite radios are primarily distributed through automakers, retailers and our website. Our Sirius XM service is also available through our user interface,
which we call “360L,” that combines our satellite and streaming services into a single, cohesive in-vehicle entertainment experience.
The primary source of revenue from our Sirius XM business is subscription fees, with most of our customers subscribing to monthly, quarterly, semi-annual or annual
plans. We also derive revenue from advertising on select non-music channels, direct sales of our satellite radios and accessories, and other ancillary services. As of
December 31, 2020, our Sirius XM business had approximately 34.7 million subscribers.
In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. These services are designed to enhance the safety,
security and driving experience of consumers. We also offer a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings,
a traffic information service that includes information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems, and real-
time weather services in vehicles, boats and planes.
In May 2020, we terminated the Automatic Labs Inc. (“Automatic”) service, which was part of our connected services business. Automatic operated a service for
consumers and auto dealers and offered an install-it-yourself adapter and mobile application, which transformed vehicles into connected vehicles. During the year ended
December 31, 2020, we recorded $24 of restructuring expenses in our consolidated statements of comprehensive income related to this termination of the service. We did not
record any restructuring expenses during the years ended December 31, 2019 and 2018. Refer to Note 5 for more information.
Sirius XM also holds a 70% equity interest and 33% voting interest in Sirius XM Canada Holdings Inc. (“Sirius XM Canada”). Sirius XM Canada's subscribers are not
included in our subscriber count or subscriber-based operating metrics.
Pandora
Our Pandora business operates a music, comedy and podcast streaming discovery platform, offering a personalized experience for each listener wherever and whenever
they want to listen, whether through mobile devices, car speakers or connected devices. Pandora enables listeners to create personalized stations and playlists, discover new
content, hear artist- and expert-curated playlists, podcasts and select Sirius XM content as well as search and play songs and albums on-demand. Pandora is available as (1) an
ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of December 31, 2020, Pandora
had approximately 6.3 million subscribers.
The majority of revenue from our Pandora business is generated from advertising on our Pandora ad-supported radio service. We also derive subscription revenue from
our Pandora Plus and Pandora Premium subscribers.
F-10
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Our Pandora business also sells advertising on audio platforms and in podcasts unaffiliated with us. Pandora has an arrangement with SoundCloud Holdings, LLC
("SoundCloud") to be its exclusive US ad sales representative. Through this arrangement Pandora is able to offer advertisers the ability to execute campaigns in the US across
the Pandora and SoundCloud listening platforms. We also have arrangements to serve as the ad sales representative for certain podcasts. In addition, through AdsWizz Inc.,
Pandora provides a comprehensive digital audio and programmatic advertising technology platform, which connects audio publishers and advertisers with a variety of ad
insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.
On October 16, 2020, Sirius XM acquired certain assets and liabilities of Stitcher from The E.W. Scripps Company and certain of its subsidiaries for a total
consideration of $296, which included $272 in cash and $30 related to contingent consideration, partially offset by working capital adjustments of $6. The acquisition of
Stitcher, in conjunction with Simplecast, created a full-service platform for podcast creators, publishers and advertisers. Refer to Note 3 for more information on this
acquisition.
On June 16, 2020, Sirius XM acquired Simplecast for $28 in cash. Simplecast is a podcast management and analytics platform. Refer to Note 3 for more information on
this acquisition.
On February 10, 2020, Sirius XM invested $75 in SoundCloud. SoundCloud is the world’s largest open audio platform, with a connected community of creators,
listeners, and curators. SoundCloud’s platform enables its users to upload, promote, share and create audio entertainment. The minority investment complements the existing ad
sales relationship between SoundCloud and Pandora. Refer to Note 13 for more information on this investment.
Impact of the coronavirus (“COVID-19”) pandemic
The precise extent to which the COVID-19 pandemic will impact our operational and financial performance will depend on various factors. To date, the pandemic has
not increased our costs of or access to capital under our revolving credit facility and in the debt markets, and we do not believe it is reasonably likely to in the future. In
addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our revolving credit facility. Due to
the nature of our subscription business, the effect of the COVID-19 pandemic will not be fully reflected in certain of our results of operations until future periods.
Liberty Media
As of December 31, 2020, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of our
common stock. As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.
Basis of Presentation
The accompanying consolidated financial statements of Holdings have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All
significant intercompany transactions have been eliminated in consolidation. Certain numbers in our prior period consolidated financial statements and footnotes have been
reclassified or consolidated to conform to our current period presentation. Music Royalty Fee revenue was reported as Other revenue in our December 31, 2018 Annual Report
on Form 10-K. This revenue was reclassified to Subscriber revenue to conform with the current period presentation.
F-11
Table of Contents
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total revenue
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
As Reported
For the Year Ended December 31, 2018
Reclassification
Current Report
$
$
4,594 $
188
155
834
5,771 $
670
—
—
(670)
—
$
$
5,264
188
155
164
5,771
Public companies are required to disclose certain information about their reportable operating segments. Operating segments are defined as significant components of an
enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources to
an individual segment and in assessing performance of the segment. We have determined that we have two reportable segments as our chief operating decision maker, our Chief
Executive Officer, assesses performance and allocates resources based on the financial results of these segments. Refer to Note 19 for information related to our segments.
We have evaluated events subsequent to the balance sheet date and prior to the filing of this Annual Report on Form 10-K for the year ended December 31, 2020 and
have determined that no events have occurred that would require adjustment to our consolidated financial statements. For a discussion of subsequent events that do not require
adjustment to our consolidated financial statements refer to Note 20.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those
estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include asset impairment, depreciable lives of our satellites,
share-based payment expense and income taxes.
We are not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require us to update our estimates, judgments or revise the
carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained. Any such changes will be recognized
in the consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our financial statements.
(2)
Summary of Significant Accounting Policies
In addition to the significant accounting policies discussed in this Note 2, the following table includes our significant accounting policies that are described in other notes
to our consolidated financial statements, including the number and page of the note:
Significant Accounting Policy
Acquisition
Fair Value Measurements
Goodwill
Intangible Assets
Property and Equipment
Equity Method Investments
Share-Based Compensation
Legal Reserves
Income Taxes
F-12
Note #
Page #
3 F-16
4 F-19
9 F-21
10 F-22
11 F-24
13 F-28
16 F-31
17 F-35
18 F-39
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Cash and Cash Equivalents
Our cash and cash equivalents consist of cash on hand, money market funds, certificates of deposit, in-transit credit card receipts and highly liquid investments purchased
with an original maturity of three months or less.
Revenue Recognition
Revenue is measured according to Accounting Standards Codification (“ASC”) 606, Revenue - Revenue from Contracts with Customers, and is recognized based on
consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy
a performance obligation by transferring control over a service or product to a customer. We report revenues net of any tax assessed by a governmental authority that is both
imposed on, and concurrent with, a specific revenue-producing transaction between a seller and a customer in our consolidated statements of comprehensive income. Collected
taxes are recorded within Other current liabilities until remitted to the relevant taxing authority. For equipment sales, we are responsible for arranging for shipping and handling.
Shipping and handling costs billed to customers are recorded as revenue and are reported as a component of Cost of equipment.
The following is a description of the principal activities from which we generate our revenue, including from self-pay and paid promotional subscribers, advertising, and
sales of equipment.
Subscriber revenue consists primarily of subscription fees and other ancillary subscription based revenues. Revenue is recognized on a straight line basis when the
performance obligations to provide each service for the period are satisfied, which is over time as our subscription services are continuously transmitted and can be consumed
by customers at any time. Consumers purchasing or leasing a vehicle with a factory-installed satellite radio may receive between a three and twelve month subscription to our
service. In certain cases, the subscription fees for these consumers are prepaid by the applicable automaker. Prepaid subscription fees received from automakers or directly
from consumers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon sale. Activation fees are recognized over one
month as the activation fees are non-refundable and do not provide for a material right to the customer. There is no revenue recognized for unpaid trial subscriptions. In some
cases we pay a loyalty fee to the automakers when we receive a certain amount of payments from self-pay customers acquired from that automaker. These fees are considered
incremental costs to obtain a contract and are, therefore, recognized as an asset and amortized to Subscriber acquisition costs over an average subscriber life. Revenue share and
loyalty fees paid to an automaker offering a paid trial are accounted for as a reduction of revenue as the payment does not provide a distinct good or service.
Music royalty fee primarily consists of U.S. music royalty fees (“MRF”) collected from subscribers. The related costs we incur for the right to broadcast music and other
programming are recorded as Revenue share and royalties expense. Fees received from subscribers for the MRF are recorded as deferred revenue and amortized to Subscriber
revenue ratably over the service period.
We recognize revenue from the sale of advertising as performance obligations are satisfied, which generally occurs as ads are delivered. For our satellite radio service,
ads are delivered when they are aired. For our streaming services, ads are delivered primarily based on impressions. Agency fees are calculated based on a stated percentage
applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. Additionally, we pay certain third parties a percentage of
advertising revenue. Advertising revenue is recorded gross of such revenue share payments as we control the advertising service, including the ability to establish pricing, and
we are primarily responsible for providing the service. Advertising revenue share payments are recorded to Revenue share and royalties during the period in which the
advertising is transmitted.
Equipment revenue and royalties from the sale of satellite radios, components and accessories are recognized upon shipment, net of discounts and rebates. Shipping and
handling costs billed to customers are recorded as revenue. Shipping and handling costs associated with shipping goods to customers are reported as a component of Cost of
equipment. Other revenue primarily includes revenue recognized from royalties received from Sirius XM Canada.
Customers pay for the services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is
recognized as revenue in our consolidated statement of comprehensive income as the services are provided. Changes in the deferred revenue balance during the year ended
December 31, 2020 were not materially impacted by other factors.
F-13
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
As the majority of our contracts are one year or less, we have utilized the optional exemption under ASC 606-10-50-14 and do not disclose information about the
remaining performance obligations for contracts which have original expected durations of one year or less. As of December 31, 2020, less than ten percent of our total deferred
revenue balance related to contracts that extend beyond one year. These contracts primarily include prepaid data trials which are typically provided for three to five years as
well as for self-pay customers who prepay for their audio subscriptions for up to three years in advance. These amounts are recognized on a straight-line basis as our services are
provided.
Revenue Share
We share a portion of our subscription revenues earned from self-pay subscribers with certain automakers. The terms of the revenue share agreements vary with each
automaker, but are typically based upon the earned audio revenue as reported or gross billed audio revenue. Revenue share on self-pay revenue is recognized as an expense and
recorded in Revenue share and royalties in our consolidated statements of comprehensive income. We also pay revenue share to certain talent on non-music stations on our
satellite radio service and to podcast talent based on advertising revenue for the related channel or podcast. Revenue share on non-music channels and podcasts is recognized in
Revenue share and royalties in our consolidated statements of comprehensive income when it is earned. In some cases we prepay minimum guarantees for revenue share to
podcast talent which is recorded in Prepaid and other current assets in our consolidated statements of financial position. The minimum guarantee is recognized in Revenue share
and royalties primarily on a straight line basis over the contractual term. The prepaid balance is regularly reviewed for recoverability and any amount not deemed to be
recoverable is recognized as an expense in the period.
Royalties
In connection with our businesses, we must enter into royalty arrangements with two sets of rights holders: holders of musical compositions copyrights (that is, the music
and lyrics) and holders of sound recordings copyrights (that is, the actual recording of a work). Our Sirius XM and Pandora businesses use both statutory and direct music
licenses as part of their businesses. We license varying rights - such as performance and mechanical rights - for use in our Sirius XM and Pandora businesses based on the
various radio and interactive services they offer. The music rights licensing arrangements for our Sirius XM and Pandora businesses are complex.
Musical Composition Copyrights
We pay performance royalties for our Sirius XM and Pandora businesses to holders and rights administrators of musical compositions copyrights, including performing
rights organizations and other copyright owners. These performance royalties are based on agreements with performing rights organizations which represent the holders of these
performance rights. Our Sirius XM and Pandora businesses have arrangements with these performance rights organizations. Arrangements with Sirius XM generally include
fixed payments during the term of the agreement and arrangements with Pandora for its ad-supported radio service have variable payments based on usage and ownership of a
royalty pool. Pandora must also license reproduction rights, which are also referred to as mechanical rights, to offer the interactive features of the Pandora services. For our
Pandora subscription services, copyright holders receive payments for these rights at the rates determined in accordance with the statutory license set forth in Section 115 of the
United States Copyright Act. These mechanical royalties are calculated as the greater of a percentage of our revenue or a percentage of our payments to record labels.
For our interactive music services offered by our Pandora business, we pay mechanical royalties to copyright holders at the rates determined by the Copyright Royalty
Board (the “CRB”) in accordance with the statutory license set forth in Section 115 of the United States Copyright Act.
Sound Recording Copyrights
For our non-interactive satellite radio or streaming services we may license sound recordings under direct licenses with the owners of sound recordings or based on the
royalty rate established by the CRB. For our Sirius XM business, the royalty rate for sound recordings has been set by the CRB. The revenue subject to royalty includes
subscription revenue from our U.S. satellite digital audio radio subscribers, and advertising revenue from channels other than those channels that make only incidental
performances of sound recordings. The rates and terms permit us to reduce the payment due each month for those sound recording directly licensed from copyright owners and
exclude from our revenue certain other items, such as royalties
F-14
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
paid to us for intellectual property, sales and use taxes, bad debt expense and generally revenue attributable to areas of our business that do not involve the use of copyrighted
sound recordings.
For our Pandora business, we have entered into direct license agreements with major and independent music labels and distributors for a significant majority of the sound
recordings that stream on the Pandora ad-supported service, Pandora Plus and Pandora Premium. For sound recordings that we stream and for which we have not entered into a
direct license agreement with the sound recording rights holders, the sound recordings are streamed pursuant to the statutory royalty rates set by the CRB. Pandora pays royalties
to owners of sound recordings on either a per-performance fee based on the number of sound recordings transmitted or a percentage of revenue associated with the applicable
service. Certain of these agreements also require Pandora to pay a per subscriber minimum amount.
Programming Costs
Programming costs which are for a specified number of events are amortized on an event-by-event basis; programming costs which are for a specified season or include
programming through a dedicated channel are amortized over the season or period on a straight-line basis. We allocate a portion of certain programming costs which are related
to sponsorship and marketing activities to Sales and marketing expense on a straight-line basis over the term of the agreement.
Advertising Costs
Media is expensed when aired and advertising production costs are expensed as incurred. Advertising production costs include expenses related to marketing and
retention activities, including expenses related to direct mail, outbound telemarketing and email communications. We also incur advertising production costs related to
cooperative marketing and promotional events and sponsorships. During the years ended December 31, 2020, 2019 and 2018, we recorded advertising costs of $443, $392 and
$267, respectively. These costs are reflected in Sales and marketing expense in our consolidated statements of comprehensive income.
Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs incurred to acquire new subscribers which include hardware subsidies paid to radio manufacturers, distributors and
automakers, including subsidies paid to automakers who include a satellite radio and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies
paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; commissions paid to retailers and automakers as
incentives to purchase, install and activate radios; product warranty obligations; freight; and provisions for inventory allowance attributable to inventory consumed in our
automotive and retail distribution channels. Subscriber acquisition costs do not include advertising costs, loyalty payments to distributors and dealers of radios and revenue
share payments to automakers and retailers of radios.
Subsidies paid to radio manufacturers and automakers are expensed upon installation, shipment, receipt of product or activation and are included in Subscriber
acquisition costs because we are responsible for providing the service to the customers. Commissions paid to retailers and automakers are expensed upon either the sale or
activation of radios. Chipsets that are shipped to radio manufacturers and held on consignment are recorded as inventory and expensed as Subscriber acquisition costs when
placed into production by radio manufacturers. Costs for chipsets are expensed as Subscriber acquisition costs when the automaker confirms receipt.
Research & Development Costs
Research and development costs are expensed as incurred and primarily include the cost of new product development, chipset design, software development and
engineering. During the years ended December 31, 2020, 2019 and 2018, we recorded research and development costs of $220, $231 and $106, respectively. These costs are
reported as a component of Engineering, design and development expense in our consolidated statements of comprehensive income.
F-15
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Accumulated Other Comprehensive Income (Loss), net of tax
Accumulated other comprehensive income of $15 was primarily comprised of the cumulative foreign currency translation adjustments related to Sirius XM Canada (refer
to Note 13 for additional information). During the year ended December 31, 2020, we recorded a foreign currency translation adjustment gain of $7, which is recorded net of
tax expense of $2. During the years ended December 31, 2019 and 2018, we recorded foreign currency translation adjustment gain (loss) of $14 and $(29), respectively, net of
tax.
Recently Adopted Accounting Policies
ASU 2016-02, Leases (Topic 842). In February 2016, FASB issued ASU 2016-02 which requires companies to recognize lease assets and liabilities arising from
operating leases in the statement of financial position. This ASU does not significantly change the previous lease guidance for how a lessee should recognize, measure, and
present expenses and cash flows arising from a lease. Additionally, the criteria for classifying a finance lease versus an operating lease are substantially the same as the previous
guidance. This ASU was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption was permitted. In
July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, amending certain aspects of the new leasing standard. The amendment allows an
additional optional transition method whereby an entity records a cumulative effect adjustment to opening retained earnings in the year of adoption without restating prior
periods. We adopted this ASU on January 1, 2019 and elected the additional transition method per ASU 2018-11. Our leases consist of repeater leases, facility leases and
equipment leases. We elected the package of practical expedients permitted under the transition guidance within the new standard.
Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities of approximately $347 and $369, respectively, as of January 1, 2019.
The standard did not impact our consolidated statements of comprehensive income, consolidated statements of cash flows or debt. Additionally, we did not record a cumulative
effect adjustment to opening retained earnings.
The effect of the changes made to our consolidated balance sheet as of January 1, 2019 for the adoption of ASU 2016-02 is included in the table below.
Balance Sheet
Assets:
Operating lease right-of-use assets
Liabilities:
Accounts payable and accrued expenses
Operating lease current liabilities
Operating lease liabilities
Other long-term liabilities
(3)
Acquisitions
Stitcher
Balance at December 31,
2018
Adjustments Due to ASU
2016-02
Balance at January 1,
2019
$
$
— $
347 $
736 $
—
—
102
(1) $
30
339
(21)
347
735
30
339
81
On October 16, 2020, Sirius XM acquired certain assets and liabilities of Stitcher from The E.W. Scripps Company and certain of its subsidiaries ("Scripps") for $272 in
cash, which amount includes net working capital adjustments. The agreement provides that Sirius XM will potentially make up to $60 in additional contingent payments to
Scripps based on Stitcher achieving certain financial metrics in 2020 and 2021. The total purchase consideration of $296 includes $30 related to the acquisition date fair value of
the contingent consideration, partially offset by working capital adjustments of $6. The fair value of the contingent consideration was determined using a probability-weighted
cash flow model and will be remeasured to fair value at each subsequent reporting period. Stitcher is included in our Pandora reporting unit.
F-16
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
The table below summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:
Acquired Assets:
Receivables, net
Prepaid expenses and other current assets
Property and equipment
Intangible assets
Goodwill
Operating lease right-of-use assets
Total assets
Assumed Liabilities:
Accounts payable and accrued expenses
Deferred revenue
Operating lease current liabilities
Operating lease liabilities
Total liabilities
Total consideration
$
$
$
$
$
21
16
8
38
218
11
312
4
1
2
9
16
296
The Stitcher acquisition was accounted for using the acquisition method of accounting. We recognized acquisition related costs of $4 that were expensed in Acquisition
and restructuring costs in our consolidated statements of comprehensive income during the year ended December 31, 2020. The acquisition of Stitcher was financed through
borrowings under our Credit Facility.
Simplecast
On June 16, 2020, Sirius XM acquired Simplecast for $28 in cash. Simplecast is a podcast management and analytics platform. Simplecast complements AdsWizz’s
advertising technology platform, allowing the company to offer podcasters a simple solution for management, hosting, analytics and advertising sales, and is included in the
Pandora reporting unit. The Simplecast acquisition was accounted for using the acquisition method of accounting. We recognized goodwill of $17, amortizable intangible assets
of $12, other assets of less than $1 and deferred tax liabilities of $1. Acquisition related costs of less than $1 were expensed in Acquisition and restructuring costs in our
consolidated statements of comprehensive income during the year ended December 31, 2020.
Pandora
On February 1, 2019, through a series of transactions, Pandora Media, Inc., became an indirect wholly owned subsidiary of Sirius XM and continues to operate as
Pandora Media, LLC (the “Pandora Acquisition”). In connection with the Pandora Acquisition, we purchased all of the outstanding shares of the capital stock of Pandora for
$2,355 by converting each outstanding share of Pandora common stock into 1.44 shares of our common stock and we also canceled our preferred stock investment in Pandora
for $524 for total consideration of $2,879. Net cash acquired was $313. As part of the Pandora Acquisition, Holdings unconditionally guaranteed all of the payment obligations
of Pandora under its outstanding 1.75% convertible senior notes due 2020 and 1.75% convertible senior notes due 2023.
F-17
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
The table below shows the value of the consideration paid in connection with the Pandora Acquisition:
Total
Pandora common stock outstanding
Exchange ratio
Common stock issued
Price per share of Holdings common stock
Value of common stock issued to Pandora stockholders
Value of replacement equity awards attributable to pre-combination service
Consideration of common stock and replacement equity awards for pre-combination service
Sirius XM’s Pandora preferred stock investment (related party fair value instrument) canceled
Total consideration for Pandora Acquisition
Value attributed to par at $0.001 par value
Balance to capital in excess of par value
The table below summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:
Acquired Assets:
Cash and cash equivalents
Receivables, net
Prepaid expenses and other current assets
Property and equipment
Intangible assets
Goodwill
Deferred tax assets
Operating lease right-of-use assets
Long term assets
Total assets
Assumed Liabilities:
Accounts payable and accrued expenses
Deferred revenue
Operating lease current liabilities
Current maturities of debt
Long-term debt (a)
Operating lease liabilities
Other long-term liabilities
Total liabilities
Total consideration
272
1.44
392
5.83
2,285
70
2,355
524
2,879
1
2,354
313
353
109
65
1,107
1,553
102
104
7
3,713
324
37
28
151
218
69
7
834
2,879
$
$
$
$
$
$
$
$
$
$
$
$
$
(a)
In order to present the assets acquired and liabilities assumed, the conversion feature associated with Pandora's convertible notes for $62 has been included within Long-term debt in
the table above and included within Additional paid-in-capital within our statement of stockholders' equity (deficit). Refer to Note 14 for additional information.
The Pandora Acquisition was accounted for using the acquisition method of accounting. The excess purchase price over identifiable net tangible and intangible assets of
$1,553 was recorded to Goodwill in our consolidated balance sheets as of December 31, 2019. Refer to Note 9 for a further discussion of Pandora goodwill which was impaired
in the year ended December 31, 2020. A total of $776 has been allocated to identifiable intangible assets subject to amortization and relates to the assessed fair value of the
acquired customer relationships and software and technology and is being amortized over the estimated weighted average useful lives of 8 and 5 years, respectively. A total of
$331 has been allocated to identifiable
F-18
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
indefinite lived intangible assets and relates to the assessed fair value of the acquired trademarks. The fair value assessed for the majority of the remaining assets acquired and
liabilities assumed equaled their carrying value. Goodwill represents synergies and economies of scale expected from the combination of services. Goodwill has been allocated
to the Pandora segment. Additionally, in connection with the Pandora Acquisition, we acquired gross net operating loss (“NOL”) carryforwards of approximately $1,287 for
federal income tax purposes that are available to offset future taxable income. The acquired NOL's are limited by Section 382 of the Internal Revenue Code. Those limitations
are not expected to impact our ability to fully utilize those NOL's within the carryforward period.
We recognized acquisition related costs of $84 that were expensed in Acquisition and restructuring costs in our consolidated statements of comprehensive income during
the year ended December 31, 2019.
Pro Forma Financial Information
Pandora was consolidated into our financial statements starting on the acquisition date, February 1, 2019. The aggregate revenue and net loss of Pandora consolidated
into our financial statements was $1,607 and $303, respectively, for the year ended December 31, 2019. The following pro forma financial information presents our results as if
the Pandora Acquisition had occurred on January 1, 2018:
Total revenue
Net income
2020
For the Years Ended December 31,
2019
2018
$
$
8,046 $
131 $
7,921 $
938 $
7,348
844
These pro forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had the
acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of operations in future periods. The pro forma results primarily include
adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs, fair value gain or loss on the Pandora investment and
associated tax impacts.
(4)
Fair Value Measurements
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants. As of
December 31, 2020 and 2019, the carrying amounts of cash and cash equivalents, receivables, and accounts payable approximated fair value due to the short-term nature of
these instruments. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for input into valuation techniques as follows:
i.
ii.
Level 1 input: unadjusted quoted prices in active markets for identical instrument;
Level 2 input: observable market data for the same or similar instrument but not Level 1, including quoted prices for identical or similar assets or liabilities in markets
that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
iii.
Level 3 input: unobservable inputs developed using management's assumptions about the inputs used for pricing the asset or liability.
Investments are periodically reviewed for impairment and an impairment is recorded whenever declines in fair value below carrying value are determined to be other
than temporary. In making this determination, we consider, among other factors, the severity and duration of the decline as well as the likelihood of a recovery within a
reasonable timeframe.
Our assets and liabilities measured at fair value were as follows:
Liabilities:
(a)
Debt
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Total Fair
Value
Level 1
Level 2
Level 3
Total Fair
Value
—
$
9,011
—
$
9,011
—
$
8,378
—
$
8,378
F-19
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
(a)
The fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. Refer to Note 14 for information related to the carrying value of our
debt as of December 31, 2020 and 2019.
(5)
Restructuring Costs
In May 2020, we terminated the Automatic service, which was part of our connected services business. During the year ended December 31, 2020, we recorded $24 of
restructuring expenses primarily related to the write down of property and equipment, definite lived intangible assets and certain other assets in Acquisition and restructuring
costs in our consolidated statements of comprehensive income. The termination of the Automatic service does not meet the requirements to be reported as a discontinued
operation in our consolidated statements of comprehensive income because the termination of the service does not represent a strategic shift that will have a major effect on our
operations and financial results. There were no restructuring costs during the years ended December 31, 2019 and 2018.
(6)
Earnings per Share
Basic net income per common share is calculated by dividing the income available to common stockholders by the weighted average common shares outstanding during
each reporting period. Diluted net income per common share adjusts the weighted average number of common shares outstanding for the potential dilution that could occur if
common stock equivalents (stock options, restricted stock units and convertible debt) were exercised or converted into common stock, calculated using the treasury stock
method. We had no participating securities during the years ended December 31, 2020, 2019 and 2018.
Common stock equivalents of 62, 66, and 40 for the years ended December 31, 2020, 2019 and 2018, respectively, were excluded from the calculation of diluted net
income per common share as the effect would have been anti-dilutive. We issued 392 shares of our common stock in connection with the Pandora Acquisition.
Numerator:
Net Income available to common stockholders for basic net income per common share
Effect of interest on assumed conversions of convertible notes, net of tax
Net Income available to common stockholders for dilutive net income per common share
Denominator:
Weighted average common shares outstanding for basic net income per common share
Weighted average impact of assumed convertible notes
Weighted average impact of dilutive equity instruments
Weighted average shares for diluted net income per common share
Net income per common share:
Basic
Diluted
(7)
Receivables, net
2020
For the Years Ended December 31,
2019
2018
$
$
$
$
131 $
8
139 $
4,330
30
69
4,429
0.03 $
0.03 $
914 $
7
921 $
4,501
28
87
4,616
0.20 $
0.20 $
1,176
—
1,176
4,462
—
99
4,561
0.26
0.26
Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables. We do not have any customer receivables that individually
represent more than ten percent of our receivables.
Customer accounts receivable, net, includes receivables from our subscribers, advertising customers, including advertising agencies and other customers, and is stated at
amounts due, net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors. We consider historical
experience, the age of the receivable balances, current economic conditions, industry experience and other factors that may affect the counterparty’s ability to pay. Bad debt
expense is included in Customer service and billing expense in our consolidated statements of comprehensive income.
F-20
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Receivables from distributors primarily include billed and unbilled amounts due from automakers for services included in the sale or lease price of vehicles, as well as
billed amounts due from wholesale distributors of our satellite radios. Other receivables primarily include amounts due from manufacturers of our radios, modules and chipsets
where we are entitled to subsidies and royalties based on the number of units produced. We have not established an allowance for doubtful accounts for our receivables from
distributors or other receivables as we have historically not experienced any significant collection issues with automakers or other third parties and do not expect issues in the
foreseeable future.
Receivables, net, consists of the following:
Gross customer accounts receivable
Allowance for doubtful accounts
Customer accounts receivable, net
Receivables from distributors
Other receivables
Total receivables, net
(8)
Inventory, net
December 31, 2020
December 31, 2019
$
$
$
574 $
(15)
559 $
73
40
672 $
546
(14)
532
113
25
670
Inventory consists of finished goods, refurbished goods, chipsets and other raw material components used in manufacturing radios. Inventory is stated at the lower of
cost or market. We record an estimated allowance for inventory that is considered slow moving or obsolete or whose carrying value is in excess of net realizable value. The
provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of
equipment in our consolidated statements of comprehensive income. The provision related to inventory consumed in our OEM channel is reported as a component of
Subscriber acquisition costs in our consolidated statements of comprehensive income.
Inventory, net, consists of the following:
Raw materials
Finished goods
Allowance for obsolescence
Total inventory, net
(9) Goodwill
December 31, 2020
December 31, 2019
$
$
— $
13
(3)
10 $
3
13
(5)
11
Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations.
Our annual impairment assessment of our two reporting units is performed as of the fourth quarter of each year, and an assessment is performed at other times if an event occurs
or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASC 350, Intangibles - Goodwill and Other, states
that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASC 350 also states that a reporting unit with a zero or negative
carrying amount is not required to perform a qualitative assessment. Our Sirius XM reporting unit, which has an allocated goodwill balance of $2,290, had a negative carrying
amount as of December 31, 2020.
We determined the fair value of our reporting units using a combination of an income approach, employing a discounted cash flow model, and a market approach. The
discounted cash flow model relies on making assumptions, such as the extent of the economic downturn related to the COVID-19 pandemic, the expected timing of recovery,
expected growth in profitability and discount rate, which we believe are appropriate. Additionally, assumptions related to guideline company financial multiples used in the
market approach decreased based on current market observations. The results of our goodwill impairment test indicated that the estimated fair value of the Sirius XM reporting
unit exceeded its carrying amount. The carrying amount of the Pandora reporting unit exceeded its estimated fair value primarily due to a reduction in the long-term forecast to
reflect
F-21
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
increased costs related to royalty rates for streaming and increased uncertainty surrounding the projected demand for advertising and decrease of listening hours. As a result, we
recorded a goodwill impairment charge of $956 during the year ended December 31, 2020 to write down the carrying amount of the Pandora goodwill in the Impairment charges
line item in our consolidated statements of comprehensive income. No impairment losses were recorded for goodwill during the years ended December 31, 2019 and 2018.
As of December 31, 2020, the cumulative balance of goodwill impairments recorded was $5,722, of which $4,766 was recognized during the year ended December 31,
2008 and is included in the carrying amount of the goodwill allocated to our Sirius XM reporting unit and $956 was recognized during the year ended December 31, 2020 and is
included in the carrying amount of the goodwill allocated to our Pandora reporting unit.
As a result of the Simplecast and Stitcher acquisitions, we recorded additional goodwill of $17 and $218, respectively, during the year ended December 31, 2020 in our
Pandora reporting unit. The goodwill of Simplecast is not deductible for tax purposes, however, the goodwill of Stitcher is deductible as it was an asset acquisition. Refer to
Note 3 for information on these acquisitions.
Refer to the table below for our goodwill activity for the years ended December 31, 2020 and 2019.
Balance at December 31, 2018
Acquisition
Balance at December 31, 2019
Acquisition
Impairment charge
Balance at December 31, 2020
(10)
Intangible Assets
Our intangible assets include the following:
Sirius XM
Pandora
Total
$
$
2,290 $
—
2,290
—
—
2,290 $
— $
1,553
1,553
235
(956)
832 $
2,290
1,553
3,843
235
(956)
3,122
Indefinite life intangible assets:
FCC licenses
Trademarks
Definite life intangible assets:
OEM relationships
Licensing agreements
Software and technology
Due to Pandora and Stitcher Acquisitions:
Indefinite life intangible assets:
Trademarks
Definite life intangible assets:
Customer relationships
Software and technology
Total intangible assets
Weighted
Average
Useful Lives
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
December 31, 2020
December 31, 2019
Indefinite $
Indefinite
$
2,084
250
$
—
—
$
2,084
250
$
2,084
251
15 years
12 years
7 years
220
45
31
(105)
(45)
(16)
115
—
15
220
45
35
$
—
—
(90)
(42)
(25)
Indefinite $
311
$
—
$
311
$
331
$
—
$
8 years
5 years
$
441
373
3,755
$
(104)
(145)
(415)
$
337
228
3,340
$
403
373
3,742
$
(49)
(69)
(275)
$
2,084
251
130
3
10
331
354
304
3,467
F-22
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Indefinite Life Intangible Assets
We have identified our FCC licenses and XM and Pandora trademarks as indefinite life intangible assets after considering the expected use of the assets, the regulatory
and economic environment within which they are used and the effects of obsolescence on their use.
We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. Each of the FCC licenses authorizes us to use radio spectrum, a
reusable resource that does not deplete or exhaust over time.
ASC 350-30-35, Intangibles - Goodwill and Other, provides for an option to first perform a qualitative assessment to determine whether it is more likely than not that an
asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a quantitative impairment test is
not required. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. Our annual impairment assessment of our
identifiable indefinite lived intangible assets is performed as of the fourth quarter of each year. An assessment is performed at other times if an event occurs or circumstances
change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess.
We completed a quantitative assessment of our FCC licenses and XM and Pandora trademarks during the fourth quarter of 2020 and qualitative assessments during the
fourth quarter of 2019 and 2018. As of the date of our annual assessment for 2020, our impairment assessment of the fair value of our indefinite intangible assets indicated that
the carrying value of our Pandora trademark exceeded the fair value of the asset by $20. The excess carrying value has been written off and recognized in the Impairment
charges line item in our consolidated statements of comprehensive income. The impairment assessment for our FCC licenses and XM trademark indicate that the fair value of
such assets substantially exceeded their carrying value and therefore were not at risk of impairment. As of the date of our annual assessment for 2019 and 2018, our impairment
assessment of the fair value of our indefinite intangible assets indicated that the fair value of such assets substantially exceeded their carrying value and therefore were not at
risk of impairment.
During the year ended December 31, 2020, we also recognized an impairment loss of less than $1 for intangible assets with indefinite lives related to the termination of
the Automatic service.
No impairment loss was recognized for intangible assets with indefinite lives during the years ended December 31, 2019 and 2018.
Definite Life Intangible Assets
Definite-lived intangible assets are amortized over their respective estimated useful lives to their estimated residual values, in a pattern that reflects when the economic
benefits will be consumed, and are reviewed for impairment under the provisions of ASC 360-10-35, Property, Plant and Equipment/Overall/Subsequent Measurement. We
review intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the
carrying amount of the asset exceeds its fair value. No impairment loss was recognized for intangible assets with definite lives during the years ended December 31, 2020, 2019
and 2018.
Amortization expense for all definite life intangible assets was $152, $141 and $23 for the years ended December 31, 2020, 2019 and 2018, respectively. There were
retirements of definite lived intangible assets of $17, which included a loss of $4, due to the termination of the Automatic service, during the year ended December 31, 2020. As
part of the Simplecast acquisition, $12 was allocated to identifiable intangible assets subject to amortization and related to the assessed fair value of software and technology,
which was determined by using the multi-period excess earnings method, as of the acquisition date. As part of the Stitcher acquisition, $38 was allocated to identifiable
intangible assets subject to amortization and related to the assessed fair value of advertising relationship of $6, trademark of $3 and talent and content contracts of $29.
F-23
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
The expected amortization expense for each of the fiscal years 2021 through 2025 and for periods thereafter is as follows:
Years ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total definite life intangible assets, net
(11) Property and Equipment
Amount
153
154
141
75
69
103
695
$
$
Property and equipment, including satellites, are stated at cost, less accumulated depreciation. Equipment under capital leases is stated at the present value of minimum
lease payments. Depreciation is calculated using the straight-line method over the following estimated useful life of the asset:
Satellite system
Terrestrial repeater network
Broadcast studio equipment
Capitalized software and hardware
Satellite telemetry, tracking and control facilities
Furniture, fixtures, equipment and other
Building
Leasehold improvements
15 years
5
3
2
3
2
20
Lesser of useful life or remaining lease term
15 years
15 years
7 years
15 years
7 years
30 years
-
-
-
-
-
or
We review long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated future cash flows, an impairment charge is recognized in an amount by which the
carrying amount exceeds the fair value of the asset. We did not record any impairments during the years ended December 31, 2020, 2019 and 2018.
F-24
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Property and equipment, net, consists of the following:
Satellite system
Terrestrial repeater network
Leasehold improvements
Broadcast studio equipment
Capitalized software and hardware
Satellite telemetry, tracking and control facilities
Furniture, fixtures, equipment and other
Land
Building
Construction in progress
Total property and equipment
Accumulated depreciation and amortization
Property and equipment, net
Construction in progress consists of the following:
Satellite system
Terrestrial repeater network
Capitalized software and hardware
Other
Construction in progress
December 31, 2020
December 31, 2019
1,587 $
105
111
100
1,372
96
92
38
63
510
4,074
(2,445)
1,629 $
1,587
100
105
137
1,086
87
89
38
63
505
3,797
(2,171)
1,626
December 31, 2020
December 31, 2019
429 $
8
52
21
510 $
371
7
107
20
505
$
$
$
$
Depreciation and amortization expense on property and equipment was $354, $327 and $278 for the years ended December 31, 2020, 2019 and 2018,
respectively. Property and equipment of $94, which included a loss of $13 related to the termination of the Automatic service, was retired during the year ended December 31,
2020. We retired property and equipment of $9 and $35 during the years ended December 31, 2019 and 2018.
We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites. Capitalized interest is recorded as part of the asset’s cost
and depreciated over the satellite’s useful life. Capitalized interest costs were $19, $17 and $12 for the years ended December 31, 2020, 2019 and 2018, respectively, which
related to the construction of our SXM-7 and SXM-8 satellites. We also capitalize a portion of share-based compensation related to employee time for capitalized software
projects. Capitalized share-based compensation costs were $17 and $13 for the years ended December 31, 2020 and 2019, respectively. We did not capitalize any share-based
compensation for the year ended December 31, 2018.
F-25
Table of Contents
Satellites
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
As of December 31, 2020, we operate a fleet of five satellites. Each satellite requires an FCC license, and prior to the expiration of each license, we are required to apply
for a renewal of the FCC satellite license. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred. The chart below
provides certain information on our satellites as of December 31, 2020:
Satellite Description
SIRIUS FM-5
SIRIUS FM-6
XM-3
XM-4
XM-5
Year Delivered
2009
2013
2005
2006
2010
Estimated End of
Depreciable Life
FCC License Expiration Year
2025
2022
2021
2022
2026
2024
2028
2020
2021
2025
We have entered into agreements for the design construction and launch of two satellites, SXM-7 and SXM-8. On December 13, 2020, SXM-7 was successfully
launched. In-orbit testing of SXM-7 began on January 4, 2021. During in-orbit testing of SXM-7, events occurred which have caused failures of certain SXM-7 payload units.
An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7 is not yet known. As of December 31, 2020, we had $220 capitalized in construction in progress
related to SXM-7.
(12) Leases
We have operating and finance leases for offices, terrestrial repeaters, data centers and certain equipment. Our leases have remaining lease terms of less than 1 year to 17
years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. We elected the
practical expedient to account for the lease and non-lease components as a single component. Additionally, we elected the practical expedient to not recognize right-of-use
assets or lease liabilities for short-term leases, which are those leases with a term of twelve months or less at the lease commencement date.
The components of lease expense were as follows:
Operating lease cost
Finance lease cost
Sublease income
Total lease cost
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
F-26
For the Years Ended December 31,
2019
2020
82 $
1
(2)
81 $
For the Years Ended December 31,
2019
2020
79 $
1 $
7 $
80
4
(3)
81
70
3
83
$
$
$
$
$
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets
Operating lease current liabilities
Operating lease liabilities
Total operating lease liabilities
Finance Leases
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
Current maturities of debt
Long-term debt
Total finance lease liabilities
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
Maturities of lease liabilities were as follows:
Year ending December 31,
2020 (remaining)
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
Less imputed interest
Total
December 31, 2020
December 31, 2019
427 $
48
419
467 $
466
46
456
502
December 31, 2020
December 31, 2019
8
(7)
1
1
—
1
$
$
$
$
15
(12)
3
1
1
2
$
$
$
$
$
$
December 31, 2020
December 31, 2019
9 years
1 year
9 years
2 years
December 31, 2020
December 31, 2019
5.3 %
1.7 %
5.3 %
1.7 %
Operating Leases
Finance Leases
$
$
71 $
74
71
62
62
247
587
(120)
467 $
—
1
—
—
—
—
1
—
1
F-27
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
(13) Related Party Transactions
In the normal course of business, we enter into transactions with related parties such as Sirius XM Canada and SoundCloud.
Liberty Media
As of December 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of our common stock. Liberty Media
has one executive, one senior advisor and one of its directors on our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the
Chairman of our board of directors.
Sirius XM Canada
Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, a privately held corporation. We own 591 shares of preferred stock of Sirius XM
Canada, which has a liquidation preference of one Canadian dollar per share. Sirius XM also made a loan to Sirius XM Canada in the aggregate amount of $131. The loan is
denominated in Canadian dollars and is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income.
During the years ended December 31, 2020 and 2019, Sirius XM Canada repaid $11 and less than $1 of the principal amount of the loan, respectively.
Sirius XM has a Services Agreement and an Advisory Services Agreement with Sirius XM Canada. Each agreement has a thirty-year term. Pursuant to the Services
Agreement, Sirius XM Canada currently pays Sirius XM 25% of its gross revenues on a monthly basis, and pursuant to the Advisory Services Agreement, Sirius XM Canada
pays Sirius XM 5% of its gross revenues on a monthly basis.
Sirius XM Canada is accounted for as an equity method investment, and its results are not consolidated in our consolidated financial statements. Sirius XM Canada does
not meet the requirements for consolidation as we do not have the ability to direct the most significant activities that impact Sirius XM Canada's economic performance.
Our related party long-term assets as of December 31, 2020 and December 31, 2019 included the carrying value of our investment balance in Sirius XM Canada of $332
and $321, respectively, and, as of December 31, 2020 and December 31, 2019, also included $123 and $131, respectively, for the long-term value of the outstanding loan to
Sirius XM Canada.
Sirius XM Canada paid gross dividends to us of $2 during each of the years ended December 31, 2020, 2019 and 2018. Dividends are first recorded as a reduction to our
investment balance in Sirius XM Canada to the extent a balance exists and then as Other (expense) income for any remaining portion.
We recorded revenue from Sirius XM Canada as Other revenue in our consolidated statements of comprehensive income of $97, $98 and $97 during the years ended
December 31, 2020, 2019 and 2018.
SoundCloud
In February 2020, Sirius XM completed a $75 investment in SoundCloud's Series G Membership Units ("Series G Units"). The Series G Units are convertible at the
option of the holders at any time into shares of ordinary membership units of SoundCloud at a ratio of one ordinary membership unit for each Series G Unit. The investment in
SoundCloud is accounted for as an equity method investment which is recorded in Related party long-term assets in our consolidated balance sheet. Sirius XM has appointed
two individuals to serve on SoundCloud's nine-member board of managers. For the year ended December 31, 2020, Sirius XM's share of SoundCloud's net loss was $1, which
was recorded in Other income (expense) in our consolidated statement of comprehensive income.
In addition to our investment in SoundCloud, Pandora has an agreement with SoundCloud to be its exclusive US ad sales representative. Through this arrangement
Pandora offers advertisers the ability to execute campaigns in the US across the Pandora and SoundCloud listening platforms. We recorded revenue share expense of $55, $40
and $0 for the years ended December 31, 2020, 2019 and 2018, respectively. We also had related party liabilities of $24 as of December 31, 2020 related to this agreement.
F-28
Table of Contents
(14) Debt
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Our debt as of December 31, 2020 and December 31, 2019 consisted of the following:
Issuer /
Borrower
Pandora
(b) (c) (h)
Sirius XM
(d)
Sirius XM
(d) (g)
Pandora
(b) (e)
Sirius XM
(d)
Sirius XM
(d) (g)
Sirius XM
(d)
Sirius XM
(d)
Sirius XM
(d)
Sirius XM
(d)
Sirius XM
(f)
Sirius XM
Total Debt
Issued
December 2015
July 2017
Debt
1.75% Convertible Senior
Notes
3.875% Senior Notes
Maturity Date
December 1, 2020
August 1, 2022
May 2013
4.625% Senior Notes
May 15, 2023
June 2018
July 2019
1.75% Convertible Senior
Notes
4.625% Senior Notes
December 1, 2023
July 15, 2024
March 2015
5.375% Senior Notes
April 15, 2025
May 2016
5.375% Senior Notes
July 15, 2026
July 2017
5.00% Senior Notes
August 1, 2027
June 2019
5.500% Senior Notes
July 1, 2029
June 2020
4.125% Senior Notes
July 1, 2030
Interest Payable
semi-annually on June 1
and December 1
semi-annually on February
1 and August 1
semi-annually on
May 15 and November 15
semi-annually on June 1
and December 1
semi-annually on
January 15 and July 15
semi-annually on
April 15 and October 15
semi-annually on January
15 and July 15
semi-annually on February
1 and August 1
semi-annually on January
1 and July 1
semi-annually on January
1 and July 1
variable fee paid quarterly
December 2012
Various
Senior Secured Revolving
Credit Facility (the "Credit
Facility")
Finance leases
June 29, 2023
Various
n/a
Less: total current maturities
Less: total deferred financing costs
Total long-term debt
Principal Amount at
December 31, 2020
December 31, 2020
December 31, 2019
Carrying value at
(a)
$
—
$
—
$
1,000
—
193
1,500
—
1,000
1,500
1,250
1,500
649
n/a
$
997
—
170
1,488
—
993
1,490
1,237
1,484
649
1
8,509
1
9
8,499
$
1
995
498
163
1,485
993
992
1,488
1,236
—
—
2
7,853
2
9
7,842
The carrying value of the obligations is net of any remaining unamortized original issue discount.
Holdings has unconditionally guaranteed all of the payment obligations of Pandora under these notes.
(a)
(b)
(c) We acquired $152 in principal amount of the 1.75% Convertible Senior Notes due 2020 as part of the Pandora Acquisition. On February 14, 2019, Pandora announced a tender offer to
repurchase for cash any and all of its outstanding 1.75% Convertible Senior Notes due 2020 at a price equal to 100% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to, but not including, the repurchase date. On March 18, 2019, we purchased $151 in aggregate principal amount of the 1.75% Convertible Senior Notes due 2020 that
had been validly tendered and not validly withdrawn in the repurchase offer. We recorded a $1 Loss on extinguishment of debt in connection with this transaction. In addition, we
unwound a capped call security acquired as part of the Pandora Acquisition in March 2019 for $3.
All material domestic subsidiaries, including Pandora and its subsidiaries, that guarantee the Credit Facility have guaranteed these notes.
(d)
(e) We acquired $193 in principal amount of the 1.75% Convertible Senior Notes due 2023 as part of the Pandora Acquisition. We allocate the principal amount of the 1.75% Convertible
Senior Notes due 2023 between the liability and equity components. The value assigned to the debt components of the 1.75% Convertible Senior Notes due 2023 is the estimated fair
value as of the issuance date of similar debt without the conversion feature. The difference between the fair value of the debt and this estimated fair value represents the value which has
been assigned to the equity component. The equity component is recorded to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity
classification. The excess of the principal amount of the Notes
F-29
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
over the carrying amount of the liability component is recorded as a debt discount and is being amortized to interest expense using the effective interest method through the December 1,
2023 maturity date. The 1.75% Convertible Senior Notes due 2023 were not convertible into common stock and not redeemable as of December 31, 2020. As a result, we have classified
the debt as Long-term within our consolidated balance sheets.
The $1,750 Credit Facility expires in June 2023. Sirius XM's obligations under the Credit Facility are guaranteed by certain of its material domestic subsidiaries, including Pandora and
its subsidiaries, and are secured by a lien on substantially all of Sirius XM's assets and the assets of its material domestic subsidiaries. Interest on borrowings is payable on a monthly
basis and accrues at a rate based on LIBOR plus an applicable rate. Sirius XM is also required to pay a variable fee on the average daily unused portion of the Credit Facility which is
payable on a quarterly basis. The variable rate for the unused portion of the Credit Facility was 0.25% per annum as of December 31, 2020. All of Sirius XM's outstanding borrowings
under the Credit Facility are classified as Long-term debt within our consolidated balance sheets due to the long-term maturity of this debt. Additionally, the amount available for future
borrowing under the Credit Facility is reduced by letters of credit issued for the benefit of Pandora, which were $1 as of December 31, 2020.
On July 9, 2020, Sirius XM redeemed $500 in outstanding principal amount of the 4.625% Senior Notes due 2023 for an aggregate purchase price, including premium and interest, of
$507. On July 9, 2020, Sirius XM also redeemed $1,000 in outstanding principal amount of the 5.375% Senior Notes due 2025 for an aggregate purchase price, including premium and
interest, of $1,039. Sirius XM used the proceeds from the 4.125% Senior Notes due 2030 for both redemptions. During the year ended December 31, 2020, we recognized $40 to Loss on
extinguishment of debt, consisting primarily of unamortized discount, deferred financing fees and redemption premium, as a result of these redemptions.
On December 1, 2020, the 1.75% Convertible Senior Notes due 2020 were paid at their stated maturity.
(f)
(g)
(h)
Covenants and Restrictions
Under the Credit Facility, Sirius XM, our wholly owned subsidiary, must comply with a debt maintenance covenant that it cannot exceed a total leverage ratio, calculated
as consolidated total debt to consolidated operating cash flow, of 5.0 to 1.0. The Credit Facility generally requires compliance with certain covenants that restrict Sirius XM's
ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions,
(iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of Sirius
XM's assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.
The indentures governing Sirius XM's notes restrict Sirius XM's non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without
such non-guarantor subsidiary guaranteeing each such series of notes on a pari passu basis. The indentures governing the notes also contain covenants that, among other things,
limit Sirius XM's ability and the ability of its subsidiaries to create certain liens; enter into sale/leaseback transactions; and merge or consolidate.
Under Sirius XM's debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of
principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount;
(v) certain events of bankruptcy; (vi) a judgment for payment of money exceeding a specified aggregate amount; and (vii) voidance of subsidiary guarantees, subject to grace
periods where applicable. If an event of default occurs and is continuing, our debt could become immediately due and payable.
The indentures governing the Pandora Convertible Notes contain covenants that limit Pandora’s ability to merge or consolidate and provide for customary events of
default, which include nonpayment of principal or interest, breach of covenants, payment defaults or acceleration of other indebtedness and certain events of bankruptcy.
At December 31, 2020 and December 31, 2019, we were in compliance with our debt covenants.
Pandora Convertible Notes
Pandora's 1.75% Convertible Senior Notes due 2023 (the “Pandora 2023 Notes”) are unsecured, senior obligations of Pandora. Holdings has guaranteed the payment and
performance obligations of Pandora under the Pandora 2023 Notes and the indenture governing the Pandora 2023 Notes.
The Pandora 2023 Notes will mature on December 1, 2023, unless earlier repurchased or redeemed by Pandora or converted in accordance with their terms. As of
December 31, 2020, the conversion rate applicable to the Pandora 2023 Notes
F-30
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
was 151.9533 shares of Holdings' common stock per one thousand principal amount of the Pandora 2023 Notes plus carryforward adjustments not yet effected pursuant to the
terms of the indenture governing the Pandora 2023 Notes.
(15) Stockholders’ Equity
Common Stock, par value $0.001 per share
We are authorized to issue up to 9,000 shares of common stock. There were 4,176 and 4,412 shares of common stock issued and 4,173 and 4,412 shares of common stock
outstanding on December 31, 2020 and December 31, 2019, respectively.
As of December 31, 2020, there were 259 shares of common stock reserved for issuance in connection with outstanding stock-based awards to members of our board of
directors, employees and third parties.
Quarterly Dividends
During the year ended December 31, 2020, we declared and paid the following dividends:
Declaration Date
Dividend Per Share
Record Date
Total Amount
Payment Date
January 30, 2020 $
April 21, 2020 $
July 14, 2020 $
October 6, 2020 $
0.01331
0.01331
0.01331
0.01464
February 12, 2020 $
May 8, 2020 $
August 7, 2020 $
November 6, 2020 $
59
58
58
62
February 28, 2020
May 29, 2020
August 31, 2020
November 30, 2020
Stock Repurchase Program
As of December 31, 2020, our board of directors had approved for repurchase an aggregate of $16,000 of our common stock. Our board of directors did not establish an
end date for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the
requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, including transactions with Liberty Media and its affiliates, or otherwise. As of
December 31, 2020, our cumulative repurchases since December 2012 under our stock repurchase program totaled 3,314 shares for $14,408, and $1,592 remained available for
future share repurchases under our stock repurchase program.
The following table summarizes our total share repurchase activity for the years ended:
Share Repurchase Type
Open Market Repurchases
(a)
December 31, 2020
December 31, 2019
December 31, 2018
Shares
Amount
Shares
Amount
Shares
Amount
267 $
1,574
364 $
2,159
209 $
1,297
(a)
As of December 31, 2020, $19 of common stock repurchases had not settled, nor been retired, and were recorded as Treasury stock within our consolidated balance sheets and consolidated
statement of stockholders’ equity (deficit).
Preferred Stock, par value $0.001 per share
We are authorized to issue up to 50 shares of undesignated preferred stock with a liquidation preference of $0.001 per share. There were no shares of preferred stock
issued or outstanding as of December 31, 2020 and December 31, 2019.
(16) Benefit Plans
We recognized share-based payment expense of $223, $250 and $133 for the years ended December 31, 2020, 2019 and 2018, respectively. The amount recognized
during the year ended December 31, 2019 includes $21 of share-based compensation expense recorded in Acquisition and restructuring costs in our consolidated statements of
comprehensive income.
We account for equity instruments granted in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation payments
to be recognized in the financial statements based on fair value. We use the Black-Scholes-Merton option-pricing model to value stock option awards and have elected to treat
awards with graded vesting as a single award. Share-based compensation expense is recognized ratably over the requisite service period, which is generally
F-31
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
the vesting period. We measure restricted stock awards and units using the fair market value of the restricted shares of common stock on the day the award is granted. Stock-
based awards granted to employees, non-employees and members of our board of directors include stock options and restricted stock units.
Fair value as determined using the Black-Scholes-Merton model varies based on assumptions used for the expected life, expected stock price volatility, expected dividend
yield and risk-free interest rates. For the years ended December 31, 2020, 2019 and 2018, we estimated the fair value of awards granted using the hybrid approach for volatility,
which weights observable historical volatility and implied volatility of qualifying actively traded options on our common stock. The expected life assumption represents the
weighted-average period stock-based awards are expected to remain outstanding. These expected life assumptions are established through a review of historical exercise
behavior of stock-based award grants with similar vesting periods. Where historical patterns do not exist for non-employees, contractual terms are used. Dividend yield is based
on the current expected annual dividend per share and our stock price. The risk-free interest rate represents the daily treasury yield curve rate at the grant date based on the
closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term. Our assumptions may change in future periods.
2015 Long-Term Stock Incentive Plan
In May 2015, our stockholders approved the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”). Employees, consultants and members of
our board of directors are eligible to receive awards under the 2015 Plan. The 2015 Plan provides for the grant of stock options, restricted stock awards, restricted stock units
and other stock-based awards that the compensation committee of our board of directors deems appropriate. Stock-based awards granted under the 2015 Plan are generally
subject to a graded vesting requirement, which is generally three to four years from the grant date. Stock options generally expire ten years from the date of grant. Restricted
stock units include performance-based restricted stock units (“PRSUs”), the vesting of which are subject to the achievement of performance goals and the employee's continued
employment and generally cliff vest on the third anniversary of the grant date. Each restricted stock unit entitles the holder to receive one share of common stock upon
vesting. As of December 31, 2020, 160 shares of common stock were available for future grants under the 2015 Plan.
In connection with the Pandora Acquisition, we assumed all shares available for issuance (including any shares that later become available for issuance in accordance
with the terms of the applicable plans) under each of the 2014 Stock Incentive Plan of AdsWizz Inc., the Pandora Media, Inc. 2011 Equity Incentive Plan, the Pandora Media,
Inc. 2004 Stock Plan and the TheSavageBeast.com, Inc. 2000 Stock Incentive Plan, which were previously approved by stockholders of Pandora or the applicable adopting
entity. All shares available under these stock plans became additional shares available for grant pursuant to the terms of the 2015 Plan (as adjusted, to the extent appropriate, to
reflect the application of the exchange ratio). Subject to certain limitations set forth in the 2015 Plan, such shares may be used for awards under the 2015 Plan.
Other Plans
We maintain six share-based benefit plans in addition to the 2015 Plan — the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan, the Amended and Restated
Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan, the 2014 Stock Incentive Plan of AdsWizz Inc., the Pandora Media, Inc. 2011 Equity Incentive Plan, the Pandora
Media, Inc. 2004 Stock Plan and the TheSavageBeast.com, Inc. 2000 Stock Incentive Plan. Excluding dividend equivalent units granted as a result of a declared dividend, no
further awards may be made under these plans.
The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of
directors:
Risk-free interest rate
Expected life of options — years
Expected stock price volatility
Expected dividend yield
2020
1.0%
3.91
28%
0.8%
For the Years Ended December 31,
2019
2.4%
3.41
26%
0.8%
2018
2.7%
4.38
23%
0.7%
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Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
The following table summarizes stock option activity under our share-based plans for the years ended December 31, 2020, 2019 and 2018:
Options
Weighted-
Average
Exercise
Price Per Share
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding at the beginning of January 1, 2018
Granted
Exercised
Forfeited, cancelled or expired
Outstanding as of December 31, 2018
Awards granted in connection with acquisition
Granted
Exercised
Forfeited, cancelled or expired
Outstanding as of December 31, 2019
Granted
Exercised
Forfeited, cancelled or expired
Outstanding as of December 31, 2020
Exercisable as of December 31, 2020
280 $
32 $
(65) $
(4) $
243 $
7 $
15 $
(53) $
(4) $
208 $
11 $
(33) $
(2) $
184 $
147 $
3.76
6.59
3.35
4.76
4.22
3.85
6.10
3.65
5.58
4.46
6.87
3.66
6.28
4.73
4.31
4.80 $
3.96 $
318
309
The weighted average grant date fair value per stock option granted during the years ended December 31, 2020, 2019 and 2018 was $1.46, $1.26 and $1.45. The total
intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018 was $94, $146 and $215, respectively. During the years ended
December 31, 2020, 2019 and 2018, the number of net settled shares issued as a result of stock option exercises were 8, 15 and 19, respectively.
In connection with the Pandora Acquisition, each option granted by Pandora under its stock incentive plans to purchase shares of Pandora common stock, whether vested
or unvested, was assumed and converted into an option to purchase shares of our common stock, with appropriate adjustments (based on the 1.44 exchange ratio) to the exercise
price and number of shares of our common stock subject to such option, and has the same vesting schedule and exercise conditions as in effect as of immediately prior to the
closing of the Pandora Acquisition; provided, that any Pandora stock option that had an exercise price per share that was equal to or greater than the value, at the closing of the
Pandora Acquisition, of our common stock issued as merger consideration in exchange for each share of Pandora common stock, was canceled without payment. We recorded
$8 to Goodwill related to pre-acquisition replacement equity awards attributable to pre-combination service.
We recognized share-based payment expense associated with stock options of $45, $60 and $67 for the years ended December 31, 2020, 2019 and 2018, respectively.
F-33
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
The following table summarizes the restricted stock unit, including PRSU, activity under our share-based plans for the years ended December 31, 2020, 2019 and 2018:
Nonvested at the beginning of January 1, 2018
Granted
Vested
Forfeited
Nonvested as of December 31, 2018
Awards granted in connection with acquisition
Granted
Vested
Forfeited
Nonvested as of December 31, 2019
Granted
Vested
Forfeited
Nonvested as of December 31, 2020
Shares
Grant Date
Fair Value
Per Share
31 $
18 $
(13) $
(1) $
35 $
48 $
38 $
(38) $
(8) $
75 $
37 $
(32) $
(5) $
75 $
4.54
6.40
4.43
4.99
5.50
5.83
6.01
5.53
5.85
5.95
6.14
5.89
6.00
6.06
The total intrinsic value of restricted stock units, including PRSUs, vesting during the years ended December 31, 2020, 2019 and 2018 was $196, $235 and $85,
respectively. During the years ended December 31, 2020, 2019 and 2018, the number of net settled shares issued as a result of restricted stock units vesting totaled 20, 23 and 7,
respectively. During the years ended December 31, 2020, 2019 and 2018, we granted 4, 6 and 5, respectively PRSUs to certain employees. We believe it is probable that the
performance target applicable to these PRSUs will be achieved.
In connection with the Pandora Acquisition, each unvested restricted stock unit granted by Pandora under its stock incentive plans was assumed and converted into an
unvested restricted stock unit of Holdings, with appropriate adjustments (based on the 1.44 exchange ratio) to the number of shares of our common stock to be received, and has
the same vesting schedule and settlement date as in effect as of immediately prior to the closing of the Pandora Acquisition. We recorded $62 to Goodwill related to pre-
acquisition replacement equity awards attributable to pre-combination service.
In connection with the cash dividends paid during the years ended December 31, 2020, 2019 and 2018, we granted 1 restricted stock units, including PRSUs, in
accordance with the terms of existing award agreements. These grants did not result in any additional incremental share-based payment expense being recognized during the
years ended December 31, 2020, 2019 and 2018.
We recognized share-based payment expense associated with restricted stock units, including PRSUs, of $178, $190 and $66 for the years ended December 31, 2020,
2019 and 2018, respectively.
Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units, including PRSUs, granted to
employees, members of our board of directors and third parties at December 31, 2020 and December 31, 2019 was $385 and $415, respectively. The total unrecognized
compensation costs at December 31, 2020 are expected to be recognized over a weighted-average period of 2.6 years.
401(k) Savings Plans
Sirius XM Radio Inc. 401(k) Savings Plan
Sirius XM sponsors the Sirius XM Radio Inc. 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees. The Sirius XM Plan allows eligible employees to
voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions per pay
period on the first 6% of an employee’s pre-tax salary up to a maximum of 3% of eligible compensation. We may also make additional discretionary matching, true-up
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
matching and non-elective contributions to the Sirius XM Plan. Employer matching contributions under the Sirius XM Plan vest at a rate of 33.33% for each year of
employment and are fully vested after three years of employment for all current and future contributions. Our cash employer matching contributions are not used to purchase
shares of our common stock on the open market, unless the employee elects our common stock as their investment option for this contribution.
Pandora Media, LLC 401(k) Profit Sharing Plan and Trust
Pandora sponsors the Pandora Media, LLC 401(k) Profit Sharing Plan and Trust (the “Pandora Plan”) for eligible employees. The Pandora Plan allows eligible
employees to voluntarily contribute from 1% to 75% of their pre-tax eligible earnings, subject to certain defined limits. Effective January 1, 2020, we began matching 50% of
an employee’s voluntary contributions per pay period on the first 6% of an employee’s pre-tax salary up to a maximum of 3% of eligible compensation.
We recognized expenses of $16, $9 and $9 for the years ended December 31, 2020, 2019 and 2018, respectively, in connection with the Sirius XM and Pandora Plans.
Sirius XM Holdings Inc. Deferred Compensation Plan
The Sirius XM Holdings Inc. Deferred Compensation Plan (the “DCP”) allows members of our board of directors and certain eligible employees to defer all or a portion
of their base salary, cash incentive compensation and/or board of directors’ cash compensation, as applicable. Pursuant to the terms of the DCP, we may elect to make
additional contributions beyond amounts deferred by participants, but we are under no obligation to do so. We have established a grantor (or “rabbi”) trust to facilitate the
payment of our obligations under the DCP.
Contributions to the DCP, net of withdrawals, for the years ended December 31, 2020, 2019 and 2018 were $8, $7 and $8, respectively. As of December 31, 2020 and
2019, the fair value of the investments held in the trust were $46 and $34, respectively, which is included in Other long-term assets in our consolidated balance sheets and
classified as trading securities. Trading gains and losses associated with these investments are recorded in Other (expense) income within our consolidated statements of
comprehensive income. The associated liability is recorded within Other long-term liabilities in our consolidated balance sheets, and any increase or decrease in the liability is
recorded in General and administrative expense within our consolidated statements of comprehensive income. For both the years ended December 31, 2020 and 2019, we
recorded gains on investments held in the trust of $3.
(17) Commitments and Contingencies
The following table summarizes our expected contractual cash commitments as of December 31, 2020:
2021
2022
2023
2024
2025
Thereafter
Total
Debt obligations
Cash interest payments
Satellite and transmission
Programming and content
Sales and marketing
Satellite incentive payments
Operating lease obligations
Royalties, minimum guarantees and other
Total
(1)
$
$
1 $
389
50
382
69
8
69
327
1,295 $
1,000 $
387
3
291
20
8
68
205
1,982 $
842 $
341
3
209
11
9
61
25
1,501 $
1,500 $
329
3
156
3
9
47
7
2,054 $
— $
259
2
121
3
9
45
—
439 $
5,250 $
788
18
195
5
38
137
—
6,431 $
8,593
2,493
79
1,354
111
81
427
564
13,702
(1)
The table does not include our reserve for uncertain tax positions, which at December 31, 2020 totaled $30.
Debt obligations. Debt obligations include principal payments on outstanding debt and finance lease obligations.
Cash interest payments. Cash interest payments include interest due on outstanding debt and capital lease payments through maturity.
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Satellite and transmission. We have entered into agreements with several third parties to design, build, launch and insure two satellites, SXM-7 and SXM-8. We also
have entered into agreements with third parties to operate and maintain satellite telemetry, tracking and control facilities and certain components of our terrestrial repeater
networks.
Programming and content. We have entered into various programming and content agreements. Under the terms of these agreements, our obligations include fixed
payments, advertising commitments and revenue sharing arrangements. In certain of these agreements, the future revenue sharing costs are dependent upon many factors and
are difficult to estimate; therefore, they are not included in our minimum contractual cash commitments.
Sales and marketing. We have entered into various marketing, sponsorship and distribution agreements to promote our brands and are obligated to make payments to
sponsors, retailers, automakers, radio manufacturers and other third parties under these agreements. Certain programming and content agreements also require us to purchase
advertising on properties owned or controlled by the licensors.
Satellite incentive payments. Boeing Satellite Systems International, Inc., the manufacturer of certain of our in-orbit satellites, may be entitled to future in-orbit
performance payments upon XM-4 meeting its fifteen-year design life, which we expect to occur. Boeing may also be entitled to up to $10 of additional incentive payments if
our XM-4 satellite continues to operate above baseline specifications during the five years beyond the satellite’s fifteen-year design life.
Maxar Technologies (formerly Space Systems/Loral), the manufacturer of certain of our in-orbit satellites, may be entitled to future in-orbit performance payments upon
XM-5, SIRIUS FM-5 and SIRIUS FM-6 meeting their fifteen-year design life, which we expect to occur.
Operating lease obligations. We have entered into both cancelable and non-cancelable operating leases for office space, terrestrial repeaters, data centers and
equipment. These leases provide for minimum lease payments, additional operating expense charges, leasehold improvements and rent escalations that have initial terms ranging
from one to fifteen years, and certain leases have options to renew. Total rent recognized in connection with leases for the years ended December 31, 2020, 2019 and 2018 was
$73, $75 and $43, respectively.
Royalties, Minimum Guarantees and Other. We have entered into music royalty arrangements that include fixed payments. Certain of our content agreements also
contain minimum guarantees and require that we make upfront minimum guaranteed payments. During the year ended December 31, 2020, we prepaid $5 in content costs
related to minimum guarantees. As of December 31, 2020, we had future fixed minimum guarantee commitments of $26, of which $14 will be paid in 2021 and the remainder
will be paid thereafter. On a quarterly basis, we record the greater of the cumulative actual content costs incurred or the cumulative minimum guarantee based on forecasted
usage for the minimum guarantee period. The minimum guarantee period is the period of time that the minimum guarantee relates to, as specified in each agreement, which may
be annual or a longer period. The cumulative minimum guarantee, based on forecasted usage, considers factors such as listening hours, revenue, subscribers and other terms of
each agreement that impact our expected attainment or recoupment of the minimum guarantees based on the relative attribution method.
Several of our content agreements also include provisions related to the royalty payments and structures of those agreements relative to other content licensing
arrangements, which, if triggered, could cause our payments under those agreements to escalate. In addition, record labels, publishers and performing rights organizations
(“PROs”) with whom we have entered into direct license agreements have the right to audit our content payments, and any such audit could result in disputes over whether we
have paid the proper content costs.
We have also entered into various agreements with third parties for general operating purposes. The cost of our common stock acquired in our capital return program but
not paid for as of December 31, 2020 was also included in this category.
In addition to the minimum contractual cash commitments described above, we have entered into other variable cost arrangements. These future costs are dependent upon
many factors and are difficult to anticipate; however, these costs may be substantial. We may enter into additional programming, distribution, marketing and other agreements
that contain similar variable cost provisions. We also have a surety bond of approximately $45 primarily used as security against non-performance in the normal course of
business. We do not have any other significant off-balance sheet financing arrangements that are
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Legal Proceedings
In the ordinary course of business, we are a defendant or party to various claims and lawsuits, including those discussed below.
We record a liability when we believe that it is both probable that a liability will be incurred, and the amount of loss can be reasonably estimated. We evaluate
developments in legal matters that could affect the amount of liability that has been previously accrued and make adjustments as appropriate. Significant judgment is required to
determine both probability and the estimated amount of a loss or potential loss. We may be unable to reasonably estimate the reasonably possible loss or range of loss for a
particular legal contingency for various reasons, including, among others, because: (i) the damages sought are indeterminate; (ii) the proceedings are in the relative early stages;
(iii) there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) there is uncertainty as to the likelihood of settlement and the outcome of
any negotiations with respect thereto; (v) there remain significant factual issues to be determined or resolved; (vi) the relevant law is unsettled; or (vii) the proceedings involve
novel or untested legal theories. In such instances, there may be considerable uncertainty regarding the ultimate resolution of such matters, including the likelihood or
magnitude of a possible eventual loss, if any.
Pre-1972 Sound Recording Litigation. On October 2, 2014, Flo & Eddie Inc. filed a class action suit against Pandora in the federal district court for the Central District of
California. The complaint alleges a violation of California Civil Code Section 980, unfair competition, misappropriation and conversion in connection with the public
performance of sound recordings recorded prior to February 15, 1972 (which we refer to as, “pre-1972 recordings”). On December 19, 2014, Pandora filed a motion to strike the
complaint pursuant to California’s Anti-Strategic Lawsuit Against Public Participation (“Anti-SLAPP”) statute, which following denial of Pandora’s motion was appealed to the
Ninth Circuit Court of Appeals. In March 2017, the Ninth Circuit requested certification to the California Supreme Court on the substantive legal questions. The California
Supreme Court accepted certification. In May 2019, the California Supreme Court issued an order dismissing consideration of the certified questions on the basis that, following
the enactment of the Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Pub. L. No. 115-264, 132 Stat. 3676 (2018) (the “MMA”), resolution of the questions posed by
the Ninth Circuit Court of Appeals was no longer “necessary to . . . settle an important question of law.”
The MMA grants a potential federal preemption defense to the claims asserted in the aforementioned lawsuits. In July 2019, Pandora took steps to avail itself of this
preemption defense, including making the required payments under the MMA for certain of its uses of pre-1972 recordings. Based on the federal preemption contained in the
MMA (along with other considerations), Pandora asked the Ninth Circuit to order the dismissal of the Flo & Eddie, Inc. v. Pandora Media, Inc. case. On October 17, 2019, the
Ninth Circuit Court of Appeals issued a memorandum disposition concluding that the question of whether the MMA preempts Flo and Eddie's claims challenging Pandora's
performance of pre-1972 recordings “depends on various unanswered factual questions” and remanded the case to the District Court for further proceedings.
In October 2020, the District Court denied Pandora’s renewed motion to dismiss the case under California’s anti-SLAPP statute, finding the case no longer qualified for
anti-SLAPP due to intervening changes in the law, and denied Pandora’s renewed attempt to end the case. Alternatively, the District Court ruled that the preemption defense
likely did not apply to Flo & Eddie’s claims, in part because the District Court believed that the Music Modernization Act did not apply retroactively. Pandora promptly
appealed the District Court’s decision to the Ninth Circuit, and moved to stay appellate briefing pending the appeal of a related case against Sirius XM. On January 13, 2021,
the Ninth Circuit issued an order granting the stay of appellate proceedings pending the resolution of a related case against Sirius XM.
We believe we have substantial defenses to the claims asserted in this action, and we intend to defend these actions vigorously.
Copyright Royalty Board Proceeding to Determine the Rate for Statutory Webcasting. Pursuant to Sections 112 and 114 of the Copyright Act, the Copyright Royalties
Board (the "CRB") initiated a proceeding in January 2019 to set the rates and terms by which webcasters may perform sound recordings via digital transmission over the internet
and make ephemeral reproductions of those recordings during the 2021-2025 rate period under the authority of statutory licenses provided under
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Sections 112 and 114 of the Copyright Act. We filed a petition to participate in the proceeding on behalf of our Sirius XM and Pandora businesses, as did other webcasters
including Google Inc. and the National Association of Broadcasters. SoundExchange, a collective organization that collects and distributes digital performance royalties to
artists and copyright holders, represents the various copyright owner participants in the proceeding, including Sony Music Entertainment, Universal Music Group and Warner
Music Group. Because the proceeding focuses on setting statutory rates for non-interactive online music streaming (commonly identified as “webcasting”), the proceeding will
set the rates that our Pandora business pays for music streaming on its free, ad-supported tier and that our Sirius XM business pays for streaming on its subscription internet
radio service. This proceeding will not set the rates that we pay for our other music offerings (satellite radio, business establishment services) or that we pay for interactive
streaming on our Pandora Plus and Pandora Premium services.
In light of the COVID-19 pandemic, the multi-week hearing before the Copyright Royalty Judges originally scheduled to begin in Washington, DC in March 2020, was
postponed and conducted virtually via videoconference between August 4 and September 9, 2020. Subsequent to the hearing, the parties submitted post-trial briefing and reply
briefing. Closing arguments were held in November 2020. The final rates proposed for the 2021-2025 period by Sirius XM, Pandora, and the other webcaster participants are
below the existing statutory rates. Specifically, Sirius XM and Pandora proposed rates of $0.0011 per performance for nonsubscription commercial webcasters and $0.0016 per
performance for subscription commercial webcasters. SoundExchange proposed increasing the existing statutory rates to $0.0028 per performance for nonsubscription
commercial webcasters and $0.0031 per performance for commercial subscription webcasters. Given the delay in the proceeding, the deadline for the CRB to deliver its initial
rate determination has been extended to April 15, 2021.
Other Matters. In the ordinary course of business, we are a defendant in various other lawsuits and arbitration proceedings, including derivative actions; actions filed by
subscribers, both on behalf of themselves and on a class action basis; former employees; parties to contracts or leases; and owners of patents, trademarks, copyrights or other
intellectual property. None of these other matters, in our opinion, is likely to have a material adverse effect on our business, financial condition or results of operations.
F-38
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(18)
Income Taxes
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
There is no current U.S. federal income tax provision, as all federal taxable income was offset by utilizing U.S. federal net operating loss carryforwards. The current state
income tax provision is primarily related to taxable income in certain states that have suspended or limited the ability to use net operating loss carryforwards or where net
operating losses have been fully utilized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.
We file a consolidated federal income tax return for all of our wholly owned subsidiaries, including Sirius XM and Pandora. Income tax expense consisted of the
following:
Current taxes:
Federal
State
Total current taxes
Deferred taxes:
Federal
State
Total deferred taxes
Total income tax expense
2020
For the Years Ended December 31,
2019
2018
$
$
— $
(61)
(61)
(219)
(19)
(238)
(299) $
— $
(24)
(24)
(229)
(30)
(259)
(283) $
The following table presents a reconciliation of the U.S. federal statutory tax rate and our effective tax rate:
Federal tax expense, at statutory rate
State income tax expense, net of federal benefit
Change in valuation allowance
Tax credits
Share-based compensation
Impact of nondeductible compensation
Automatic worthless stock deduction
Goodwill impairment
Uncertain tax positions
Other, net
Effective tax rate
2020
For the Years Ended December 31,
2019
2018
21.0 %
4.2 %
0.7 %
(10.2)%
(3.5)%
2.6 %
(3.5)%
53.7 %
4.4 %
0.1 %
69.5 %
21.0 %
3.9 %
0.3 %
(2.7)%
(2.4)%
1.6 %
— %
— %
— %
1.9 %
23.6 %
—
12
12
(259)
2
(257)
(245)
21.0 %
3.6 %
1.0 %
(6.8)%
(3.1)%
0.7 %
— %
— %
— %
0.8 %
17.2 %
Our effective tax rate of 69.5% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora goodwill impairment charge, partially offset
by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and federal research and development and certain other credits and a
worthless stock deduction associated with the termination of the Automatic service. Our effective tax rate of 23.6% for the year ended December 31, 2019 was primarily
impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other
credits, partially offset by the impact of nondeductible compensation. Our effective tax rate of 17.2% for the year ended December 31, 2018 was primarily impacted by the
recognition of excess tax benefits related to share-based compensation and a benefit related to state and federal research and development credits.
Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can
be carried forward under tax law. Our evaluation of the realizability of deferred tax assets considers both positive and negative evidence, including historical financial
performance, scheduled reversal of deferred tax assets and liabilities, projected taxable income and tax planning strategies. The weight given to the potential effects of positive
and negative evidence is based on the extent to which it can be objectively verified. A valuation allowance is recognized when, based on the weight of all available evidence, it
is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities, shown before jurisdictional netting, are
presented below:
Deferred tax assets:
Net operating loss carryforwards and tax credits
Deferred revenue
Accrued bonus
Expensed costs capitalized for tax
Investments
Stock based compensation
Operating lease liability
Total deferred tax assets
Deferred tax liabilities:
Depreciation of property and equipment
FCC license
Other intangible assets
Right of use asset
Other
Total deferred tax liabilities
Net deferred tax assets before valuation allowance
Valuation allowance
Total net deferred tax (liability) asset
For the Years Ended December 31,
2020
2019
745 $
62
29
11
21
74
118
1,060
(237)
(521)
(292)
(106)
(5)
(1,161)
(101)
(54)
(155) $
1,010
81
34
14
22
72
126
1,359
(228)
(519)
(340)
(116)
(3)
(1,206)
153
(70)
83
$
$
Net operating loss carryforwards and tax credits decreased as a result of the utilization of net operating losses related to current year taxable income. For the years ended
December 31, 2020 and 2019, we recorded $44 and $33 for state and federal tax credits, respectively. As of December 31, 2020, our gross federal net operating loss
carryforwards were approximately $1,354. We expect to utilize a majority of our federal income tax credits, which consist of research and development tax credits, refined coal
credits and foreign tax credits, by December 31, 2022.
As of December 31, 2020 and 2019, we had a valuation allowance related to deferred tax assets of $54 and $70, respectively, which were not likely to be realized due to
the timing of certain federal and state net operating loss limitations. During the year ended December 31, 2020, our allowance decreased primarily due to the expiration of
unused federal research and development credit carryforwards.
ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not that a tax position will be sustained based on its technical merits as of
the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely
than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing
authority. If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax position will not be recorded in the financial statements but
will be shown in tabular format within the uncertain income tax positions. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs due to the
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
following conditions: (1) the tax position is “more likely than not” to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or
litigation, or (3) the statute of limitations for the tax position has expired. A number of years may elapse before an uncertain tax position is effectively settled or until there is a
lapse in the applicable statute of limitations. We record interest and penalties related to uncertain tax positions in Income tax expense in our consolidated statements of
comprehensive income.
As of December 31, 2020 and 2019, we had unrecognized tax benefits and uncertain tax positions of $433 and $406, respectively. If recognized, $310 of unrecognized
tax benefits would affect our effective tax rate. Uncertain tax positions are recognized in Other long-term liabilities which, as of December 31, 2020 and 2019, were $30 and
$12, respectively, including accrued interest.
We have state income tax audits pending. We do not expect the ultimate outcome of these audits to have a material adverse effect on our financial position or results of
operations. We also do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2020 will significantly increase or decrease
during the year ending December 31, 2021. Various events could cause our current expectations to change. Should our position with respect to the majority of these uncertain
tax positions be upheld, the effect would be recorded in our consolidated statements of comprehensive income as part of the income tax provision. We recorded interest
expense of $6 and $2 for the years ended December 31, 2020 and 2019, respectively, related to unrecognized tax benefits.
Changes in our unrecognized tax benefits and uncertain tax positions from January 1 through December 31 are set forth below:
Balance, beginning of year
Increases in tax positions for prior years
Increases in tax positions for current year
Decreases in tax positions for prior years
Balance, end of year
(19) Segments and Geographic Information
2020
2019
$
$
406 $
14
20
(7)
433 $
387
—
31
(12)
406
In accordance with FASB ASC Topic 280, Segment Reporting, we disaggregate our operations into two reportable segments: Sirius XM and Pandora. The financial
results of these segments are utilized by the chief operating decision maker, who is our Chief Executive Officer, for evaluating segment performance and allocating resources.
We report our segment information based on the "management" approach. The management approach designates the internal reporting used by management for making
decisions and assessing performance as the source of our reportable segments. For additional information on our segments refer to Note 1.
Segment results include the revenues and cost of services which are directly attributable to each segment. There are no indirect revenues or costs incurred that are
allocated to the segments. There are planned intersegment advertising campaigns which will be eliminated. We had less than $1 of intersegment advertising revenue during the
years ended December 31, 2020 and 2019.
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
Segment revenue and gross profit were as follows during the periods presented:
Revenue
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total revenue
Cost of services
Segment gross profit
(a)
Sirius XM
For the Year Ended December 31, 2020
Pandora
Total
$
$
5,857 $
157
173
155
6,342
(2,430)
3,912 $
515 $
1,183
—
—
1,698
(1,105)
593 $
6,372
1,340
173
155
8,040
(3,535)
4,505
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:
(a)
(a)
Segment Gross Profit
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Share-based payment expense
Acquisition and restructuring costs
Impairment charges
Total other (expense) income
Consolidated income before income taxes
(a)
For the Year Ended
December 31, 2020
4,505
(362)
(889)
(220)
(443)
(506)
(223)
(28)
(976)
(428)
430
$
$
(a) Share-based payment expense of $44 related to cost of services, $68 related to sales and marketing, $43 related to engineering, design and development and $68 related to general and
administrative has been excluded for the year ended December 31, 2020.
Revenue
Subscriber revenue
Advertising revenue
Equipment revenue
Other revenue
Total revenue
Cost of services
Segment gross profit
(b)
Sirius XM
For the Year Ended December 31, 2019
Pandora
Total
$
$
5,644 $
205
173
165
6,187
(2,378)
3,809 $
476 $
1,131
—
—
1,607
(1,005)
602 $
6,120
1,336
173
165
7,794
(3,383)
4,411
The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
(b)
Segment Gross Profit
Subscriber acquisition costs
Sales and marketing
Engineering, design and development
General and administrative
Depreciation and amortization
Share-based payment expense
Acquisition and other related costs
Total other (expense) income
Consolidated income before income taxes
(b)
(b)
For the Year Ended
December 31, 2019
4,411
(427)
(859)
(231)
(466)
(468)
(229)
(84)
(450)
1,197
$
$
(b) Share-based payment expense of $44 related to cost of services, $78 related to sales and marketing, $49 related to engineering, design and development and $58 related to general and
administrative has been excluded for the year ended December 31, 2019.
A measure of segment assets is not currently provided to the Chief Executive Officer and has therefore not been provided.
As of December 31, 2020, long-lived assets were predominantly located in the United States. No individual foreign country represented a material portion of our
consolidated revenue during the year ended December 31, 2020.
(20) Subsequent Events
Capital Return Program
For the period from January 1, 2021 to January 29, 2021 we repurchased 33 shares of our common stock on the open market for an aggregate purchase price of $203,
including fees and commissions.
On January 28, 2021, our board of directors declared a quarterly dividend on our common stock in the amount of $0.014641 per share of common stock payable on
February 26, 2021 to stockholders of record as of the close of business on February 10, 2021.
Tax Sharing Agreement
On February 1, 2021, Holdings entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting
forth agreements with respect to other tax matters. The tax sharing agreement was negotiated and approved by a special committee of Holdings’ board of directors, all of whom
are independent of Liberty Media.
Under the Internal Revenue Code, two corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock
representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. As of December 31, 2020, Liberty Media beneficially owned,
directly and indirectly, approximately 76% of the outstanding shares of our common stock. We expect that Liberty Media could beneficially own, directly and indirectly, over
80% of the outstanding shares of our common stock at some time in 2021, and Holdings and Liberty Media would then become members of the same consolidated tax group.
Should that happen, the tax sharing agreement would govern certain matters related to the resulting consolidated federal income tax returns, as well as state and local returns
filed on a consolidated or combined basis.
The tax sharing agreement contains provisions that Holdings believes are customary for tax sharing agreements between members of a consolidated group.
SXM-7 Satellite
We have entered into agreements for the design, construction and launch of two additional satellites, SXM-7 and SXM-8. On December 13, 2020, SXM-7 was
successfully launched. In-orbit testing of SXM-7 began on January 4, 2021.
F-43
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars and shares in millions, except per share amounts)
During in-orbit testing of SXM-7, events occurred which have caused failures of certain SXM-7 payload units. An evaluation of SXM-7 is underway. The full extent of the
damage to SXM-7 is not yet known.
We do not expect our satellite radio service to be impacted by these adverse SXM-7 events. Our XM-3 and XM-4 satellites continue to operate and are expected to
support our satellite radio service for several years. In addition, our XM-5 satellite remains available as an in-orbit spare. Construction of our SXM-8 satellite is underway and
that satellite is expected to be launched into a geostationary orbit in 2021.
We have procured insurance for SXM-7 and SXM-8 to cover the risks associated with each satellite's launch and first year of in-orbit operation. The aggregate coverage
under those insurance policies with respect to SXM-7 is $225. We have notified the underwriters of these policies of a potential claim with respect to SXM-7. As of December
31, 2020, we have $220 capitalized in construction in progress related to SXM-7.
(21) Quarterly Financial Data--Unaudited
Our quarterly results of operations are summarized below:
2020
Total revenue
Cost of services
Income from operations
Net income
Net income per common share--basic
Net income per common share--diluted
(1)
(1)
2019
Total revenue
Cost of services
Income from operations
Net income
Net income per common share--basic
Net income per common share--diluted
(1)
(1)
March 31
June 30
September 30
December 31
For the Three Months Ended
$
$
$
$
$
$
$
$
$
$
$
$
1,952 $
(850) $
468 $
293 $
0.07 $
0.07 $
1,744 $
(748) $
333 $
162 $
0.04 $
0.03 $
1,874 $
(866) $
415 $
243 $
0.06 $
0.05 $
1,977 $
(882) $
439 $
263 $
0.06 $
0.06 $
2,025 $
(895) $
478 $
272 $
0.06 $
0.06 $
2,011 $
(881) $
476 $
246 $
0.06 $
0.05 $
2,189
(968)
(503)
(677)
(0.16)
(0.16)
2,062
(916)
399
243
0.05
0.05
(1)
Basic and Diluted earnings per share are computed quarterly and the sum of the quarterly calculation may not necessarily agree to the net income per share for the year due to rounding.
F-44
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
Schedule II - Schedule of Valuation and Qualifying Accounts
(in millions)
Description
2020
2019
2018
Allowance for doubtful accounts
Deferred tax assets—valuation allowance
Allowance for doubtful accounts
Deferred tax assets—valuation allowance
Allowance for doubtful accounts
Deferred tax assets—valuation allowance
Balance
January 1,
Charged to
Expenses
Write-offs/
Payments/ Other
Balance
December 31,
$
$
$
$
$
$
14
70
7
66
10
53
F-45
60
3
53
4
51
13
(59)
(19)
(46)
—
(54)
—
$
$
$
$
$
$
15
54
14
70
7
66
Exhibit 10.37
AGREEMENT AND RELEASE
This Agreement and Release, dated as of September 21, 2020 (this “Agreement”), is entered into by and between DAVID J.
FREAR (the “Executive”) and SIRIUS XM RADIO INC. (the “Company”).
The purpose of this Agreement is to completely and finally settle, resolve, and forever extinguish all obligations, disputes and
differences arising out of the Executive’s employment with and separation from the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the Executive and
the Company hereby agree as follows:
1.
2.
The Executive’s employment with the Company was terminated as of September 14, 2020 (the “Termination Date”).
The Company and the Executive agree that the Executive shall be provided severance pay and other benefits, less all
legally required and authorized deductions, in accordance with the terms of Section 6(f)(ii) of the Employment Agreement between the
Executive and the Company, dated as of June 1, 2018 (the “Employment Agreement”); provided that no such severance benefits shall be paid
or provided if the Executive revokes this Agreement pursuant to Section 4 below, except for the Accrued Payments and Benefits. In addition,
the Company will pay the Executive a pro-rated bonus for the year ending December 31, 2020 (the amount of which shall be based on actual
achievement of applicable performance criteria by the Company, and based on the number of days the Executive was employed by the
Company during 2020), payable in 2021 when annual bonuses are normally paid to other executive officers of the Company. The severance
pay and other benefits, excluding all legally required and authorized deductions, payable in accordance with the terms of Section 6(f)(ii) of the
Employment Agreement is set forth on Exhibit A to this Agreement. The Executive acknowledges and agrees that he is entering into this
Agreement in consideration of such severance benefits and the Company’s agreements set forth herein. All vacation pay earned and unused as
of the Termination Date will be paid to the Executive within thirty (30) days following the Termination Date to the extent required by law.
Except as set forth above, the Executive will not be eligible for any other compensation or benefits following the Termination Date, other than
the rights, if any, granted to the Executive under the terms of the stock option, restricted stock, and performance-based restricted stock award
agreements described in Section 14 of this Agreement.
3.
The Executive, for himself, and for his heirs, attorneys, agents, spouse and assigns, hereby waives, releases and forever
discharges Sirius XM Holdings Inc. (“Holdings”), the Company and their respective parents, subsidiaries, and affiliated companies and its and
their predecessors, successors, and assigns, if any, as well as all of their respective officers, directors and employees, stockholders, agents,
servants, representatives, and attorneys, and the predecessors, successors, heirs and assigns of each of them (collectively “Released Parties”),
from any and all grievances, claims, demands, causes of action, obligations, damages and/or liabilities of any nature whatsoever, whether
known or unknown, suspected or claimed, which the Executive ever had, now has, or claims to have against the Released Parties, by reason of
any
act or omission occurring before the Executive’s execution of this Agreement, including, without limiting the generality of the foregoing, (a)
any act, cause, matter or thing stated, claimed or alleged, or which was or which could have been alleged in any manner against the Released
Parties prior to the execution of this Agreement and (b) all claims for any payment under the Employment Agreement, and (c) all claims for
discrimination, harassment, hostile work environment and/or retaliation, under Title VII of the Civil Rights Act of 1964, as amended, the Civil
Rights Act of 1991, as amended, the New York State Human Rights Law, as amended, the Age Discrimination in Employment Act (“ADEA”)
and the Older Workers Benefit Protection Act (“OWBPA”), and the Americans with Disabilities Act of 1990, as well as any and all claims,
demands, causes of action, charges, obligations and liabilities arising out of any alleged contract of employment, whether written, oral, express
or implied, or any other federal, state or local civil or human rights or labor law, ordinances, rules, regulations, guidelines, statutes, common
law, contract or tort law, arising out of or relating to the Executive’s employment with and/or separation from the Company, including but not
limited to the termination of his employment on the Termination Date, and/or any events occurring prior to the execution of this Agreement;
provided that nothing contained in this Agreement shall affect the Executive’s rights (i) to indemnification from the Company as provided in
the Employment Agreement or otherwise; (ii) to coverage under the Company’s directors and officers liability insurance policies; (iii) to
vested benefits which by their express terms entitle the Executive to benefits beyond the Executive’s separation from employment (including,
without limitation, the Executive’s rights under Section 6(f) of the Employment Agreement); and (iv) under this Agreement.
4.
Pursuant to the OWBPA, the Executive understands and specifically acknowledges that by executing this Agreement he
is waiving all rights or claims that he has or may have under ADEA (which includes, but is not limited to, any claim that any Released Party
discriminated against the Executive on account of the Executive’s age), including, without limitation, those arising out of or relating to the
Executive’s employment with and/or separation from the Company, the termination of his employment on the Termination Date, and/or any
events occurring prior to the execution of this Agreement. In accordance with the ADEA, the Company specifically hereby advises the
Executive that: (1) he may and should consult an attorney before signing this Agreement, (2) he has twenty-one (21) days following receipt of
this Agreement on September 14, 2020 to consider this Agreement, and (3) he has seven (7) days after signing this Agreement to revoke this
Agreement.
5.
Notwithstanding the above, nothing in this Agreement prevents or precludes the Executive from (a) challenging or
seeking a determination of the validity of this Agreement under the ADEA; or (b) filing an administrative charge of discrimination under any
applicable statute or participating in any investigation or proceeding conducted by a governmental agency. Section 7(c) of the Employment
Agreement is hereby incorporated by reference in its entirety.
6.
The Executive acknowledges that he may hereafter discover claims or facts in addition to or different from those which
he now knows or believes to exist with respect to the subject matter of this Agreement which, if known or suspected at the time the Executive
executes this Agreement, may have materially affected this Agreement and the Executive’s
decision to enter into it. Nevertheless, except to the extent expressly not waived as part of this Agreement, the Executive hereby waives any
right, claim or cause of action that might arise as a result of such different or additional claims or facts.
7.
This release does not affect or impair the Executive’s rights with respect to workman’s compensation or similar claims
under applicable law or any claims under medical, dental, disability, life or other insurance arising prior to the date hereof.
8.
The Executive warrants that he has not made any assignment, transfer, conveyance or alienation of any potential claim,
cause of action, or any right of any kind whatsoever, including but not limited to, potential claims and remedies for discrimination, harassment,
retaliation, or wrongful termination, and that no other person or entity of any kind has had, or now has, any financial or other interest in any of
the demands, obligations, causes of action, debts, liabilities, rights, contracts, damages, costs, expenses, losses or claims which could have been
asserted by the Executive against the Company or any other Released Party.
9.
The Executive shall not make any disparaging remarks about any of Holdings, the Company, Liberty Media Corporation
or any of their directors, officers, agents or employees (collectively, the “Nondisparagement Group”) and/or any of their respective practices or
products; provided that the Executive may provide truthful and accurate facts and opinions about any member of the Nondisparagement Group
where required to do so by law and may respond to disparaging remarks about the Executive made by any member of the Nondisparagement
Group. The Company and Holdings shall not, and they shall instruct their officers not to, make any disparaging remarks about the Executive;
provided that any member of the Nondisparagement Group may provide truthful and accurate facts and opinions about the Executive where
required to do so by law and may respond to disparaging remarks made by the Executive or the Executive’s agents or family members.
10.
The parties expressly agree that this Agreement shall not be construed as an admission by any of the parties of any
violation, liability or wrongdoing, and shall not be admissible in any proceeding as evidence of or an admission by any party of any violation or
wrongdoing. The Company expressly denies any violation of any federal, state, or local statute, ordinance, rule, regulation, order, common law
or other law in connection with the employment and termination of employment of the Executive.
11.
In the event of a dispute concerning the enforcement of this Agreement, the finder of fact shall have the discretion to
award the prevailing party reasonable costs and attorneys’ fees incurred in bringing or defending an action, and shall award such costs and fees
to the Executive in the event the Executive prevails on the merits of any action brought hereunder. All other requests for relief or damages
awards shall be governed by Sections 20(a) and 20(b) of the Employment Agreement.
12.
The parties declare and represent that no promise, inducement, or agreement not expressed herein has been made to
them.
13.
This Agreement in all respects shall be interpreted, enforced and governed under the laws of the State of New York and
any applicable federal laws relating to the subject matter of this Agreement. The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. This Agreement shall be construed as if
jointly prepared by the Executive and the Company. Any uncertainty or ambiguity shall not be interpreted against any one party.
14.
This Agreement, the Employment Agreement, the Stock Option Agreement, dated July 2, 2015, between the Executive
and Holdings, the Stock Option Agreement, dated June 1, 2018, between the Executive and Holdings, the Restricted Stock Unit Agreement,
dated June 1, 2018, between the Executive and Holdings and the Performance-Based Restricted Stock Unit Agreement, dated June 1, 2018,
between the Executive and Holdings contain the entire agreement of the parties as to the subject matter hereof. No modification or waiver of
any of the provisions of this Agreement shall be valid and enforceable unless such modification or waiver is in writing and signed by the party
to be charged, and unless otherwise stated therein, no such modification or waiver shall constitute a modification or waiver of any other
provision of this Agreement (whether or not similar) or constitute a continuing waiver.
15.
The Executive and the Company represent that they have been afforded a reasonable period of time within which to
consider the terms of this Agreement (including but not limited to the foregoing release), that they have read this Agreement, and they are fully
aware of its legal effects. The Executive and the Company further represent and warrant that they enter into this Agreement knowingly and
voluntarily, without any mistake, duress, coercion or undue influence, and that they have been provided the opportunity to review this
Agreement with counsel of their own choosing. In making this Agreement, each party relies upon his or its own judgment, belief and
knowledge, and has not been influenced in any way by any representations or statements not set forth herein regarding the contents hereof by
the entities who are hereby released, or by anyone representing them.
16.
This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall
become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. The parties further
agree that delivery of an executed counterpart by facsimile shall be as effective as delivery of an originally executed counterpart. This
Agreement shall be of no force or effect until executed by all the signatories.
17.
The Executive warrants that he will return to the Company all software, computers, computer-related equipment, keys
and all materials (including, without limitation, copies) obtained or created by the Executive in the course of his employment with the
Company on or before the Termination Date; provided that the Executive will be able to keep his cell phones, personal computers, personal
contact list and the like so long as any confidential information is removed from such items.
18.
Any existing obligations the Executive has with respect to confidentiality, nonsolicitation of clients, nonsolicitation of
employees and noncompetition, in each case with the
Company or its affiliates, shall remain in full force and effect, including, but not limited to, Sections 7 and 8 of the Employment Agreement.
19.
Any disputes arising from or relating to this Agreement shall be subject to arbitration pursuant to Section 20 of the
Employment Agreement.
20.
Should any provision of this Agreement be declared or be determined by a forum with competent jurisdiction to be
illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term, or
provision shall be deemed not to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the respective dates set forth below.
Dated: September 21, 2020
SIRIUS XM RADIO INC.
By:
/s/ Patrick Donnelly
Patrick Donnelly
Executive Vice President, General Counsel and
Secretary
Dated: September 21, 2020
/s/ David J. Frear
David J. Frear
Exhibit A
Benefits under Section 6(f)(ii) of the Employment Agreement
• Any earned but unpaid Base Salary and any business expenses incurred but not reimbursed, in each case, prior to the Termination Date,
which amount was paid on Friday, September 18, 2020 as part of the Company’s regular payroll
• Vested benefits under other benefit or incentive plans or programs in accordance with the terms of such plans and programs
•
$4,150,000, representing a lump sum amount equal to the sum of (x) the Executive’s annualized Base Salary then in effect ($1,400,000)
and (y) an amount in cash equal to the Bonus last paid ($2,750,000)
• The continuation for eighteen (18) months, at the Company’s expense (by direct payment, not reimbursement to the Executive), of
medical and dental benefits in a manner that will not be taxable to the Executive
• Life insurance benefits on the same terms as provided by the Company for active employees for one (1) year following the Termination
Date; provided that (I) the Company’s cost for such life insurance shall not exceed twice the amount that the Company would have paid
to provide such life insurance benefit to the Executive if he were an active employee on the Termination Date, and (II) such life insurance
coverage shall cease if the Executive obtains a life insurance benefit from another employer during the remainder of such one (1)-year
period.
Exhibit 10.38
CONSULTING AGREEMENT
This Consulting Agreement (this “Agreement”) by and between James E. Meyer (“Consultant”) and Sirius XM Radio Inc. (the
“Company”) (collectively referred to as the “Parties”), is effective as of January 1, 2021 (the “Effective Date”).
RECITALS
WHEREAS, prior to the Effective Date, Consultant was employed by the Company as its Chief Executive Officer pursuant to
the Employment Agreement between the Parties, dated as of October 10, 2019 (the “Employment Agreement”); and
WHEREAS, the Company wishes to retain Consultant to perform consulting services and fulfill certain related duties and
obligations under the terms and conditions of this Agreement;
NOW THEREFORE, for and in consideration of the mutual promises and covenants set forth herein, the Parties hereby agree as
follows:
1.
Consulting Services. (a) During the term of this Agreement, Consultant will render consulting services related to his specialized
areas of knowledge, experience and expertise (including, but not limited to, assisting with the transition of the executive officer of the
Company and Sirius XM Holdings Inc. (“Holdings”), meeting with Company clients and customers, and such other services as may be
reasonably requested by the Chairman of the Board of Directors of Holdings or the Chief Executive Officer of the Company or Holdings from
time to time). Consultant will have no authority to bind the Company, Holdings or any of their subsidiaries or affiliates, nor to act on their
behalf, nor to make decisions for the Company, Holdings or any of their subsidiaries or affiliates. The Company, being ultimately interested
only in the results of Consultant’s performance of the services set forth in this Agreement, will give only broad direction to Consultant.
Consultant will determine the method, details and means of performing the services contemplated by this Agreement. Notwithstanding the
foregoing, the level of bona fide services Consultant performs for the Company hereunder will not exceed 20% of the average level of bona
fide services Consultant performed during the 36-month period preceding the Effective Date.
(b) This Agreement will commence on the Effective Date and will continue until, and will end upon, the three (3)-year
anniversary of the Effective Date.
(c) In consideration of Consultant’s agreement to perform and his performance of the consulting services, during the term of this
Agreement, the Company will pay Consultant $3,200,000 per year, payable in accordance with the Company’s regular payroll practices (but in
no event less frequently than monthly). During the term of this Agreement, Consultant and his dependents will be eligible to participate in the
Company’s medical, dental and life insurance plans, subject to the terms and conditions of such plans; provided that, in the event the Company
determines that Consultant and his dependents may not participate in the Company’s applicable
medical and dental plan(s), (i) the Company will pay to Consultant a lump sum cash amount, on the sixtieth (60th) day following such
determination, equal to the costs of continuation of medical and dental insurance coverage for Consultant and his dependents under the
Company’s medical and dental insurance plan(s) in effect on the date of such determination from the date of such determination through the
eighteen (18)-month anniversary of the Effective Date (less any amounts payable by the Company under the Employment Agreement in
respect of medical and/or dental insurance coverage during any portion of such period) and (ii) thereafter Consultant will have the option to
continue such benefits pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), to the extent permitted by law
and the terms and conditions of the applicable plan(s), through the three (3)-year anniversary of the Effective Date, at the Company’s expense.
In the event that, during the three (3)-year period following the Effective Date, Consultant and his dependents are not eligible to participate in
the Company’s medical, dental or life insurance plan(s), and also not eligible for such coverage under COBRA, the Company will pay
Consultant a monthly amount equal to the actual monthly costs to Consultant to obtain medical, dental and/or life insurance benefits
substantially similar to those benefits that would have been provided to Consultant and his dependents under the Company’s plans through the
third (3 ) anniversary of the Effective Date (less any amounts payable by the Company under the Employment Agreement in respect of
medical, dental and/or life insurance coverage during any portion of such period); provided that (1) the amount of such monthly payments will
not exceed twice the amount that the Company would have paid to provide such benefit to Consultant and his dependents if he were an active
employee on the Effective Date, (2) such payments will cease if Consultant obtains such benefit from another employer following the eighteen
(18)-month anniversary of the Effective Date, and (3) any such payments will be reduced by the amount of any lump sum payment made in
accordance with this Section 1(c).
rd
(d) Upon reasonable documentation of expenses from Consultant, the Company will reimburse Consultant in accordance with
the Company’s expense reimbursement policies for all reasonable business expenses incurred by Consultant in the performance of
Consultant’s services under this Agreement. Notwithstanding the foregoing, any expense in excess of $10,000 to be incurred by Consultant in
connection with this Agreement will require the prior written approval of the Company.
(e) Consultant hereby assigns exclusively to the Company the ownership of all work product prepared or provided by
Consultant to the Company or otherwise generated as a result of Consultant’s provision of consulting services hereunder, along with all
intellectual property rights (including, without limitation, all copyrights) related thereto.
(f) The Company acknowledges that Consultant’s services hereunder will be provided by Consultant on a nonexclusive basis,
and that Consultant may engage in any other business activities as long as such activities (i) do not interfere with or harm the operations of the
Company, Holdings or any of their subsidiaries or affiliates; (ii) do not materially interfere with Consultant’s obligations to the Company under
this Agreement; and (iii) are consistent with the Consultant’s continuing obligations to the Company and Holdings which, under the
Employment Agreement, survive his termination of employment.
2.
Prior Agreement Restrictive Covenants. Consultant warrants and represents that he has complied, and by this Agreement agrees
that he will continue to comply, with all applicable terms of the Employment Agreement. The Parties agree and acknowledge that this
Agreement supplements the Employment Agreement to the extent set forth herein and that in all other respects the applicable terms of the
Employment Agreement remain in full force and effect. Consultant acknowledges and agrees that the restrictive covenant provisions set forth
in the Employment Agreement remain in full force and effect to the fullest extent provided therein.
3.
Independent Contractor. Consultant warrants that, during the term of this Agreement, Consultant will at all times be and remain
an independent contractor, and Consultant will not be considered the agent, partner, principal, employee or servant of the Company, Holdings
or any of their subsidiaries or affiliates. Consultant will be free to exercise Consultant’s own judgment as to the manner and method of
providing the consulting services to the Company, subject to applicable laws and requirements reasonably imposed by the Company.
Consultant will at all times indemnify, hold harmless and defend the Company for all liabilities, losses, damages, costs (including, without
limitation, legal costs and other professional fees on an indemnity basis) and expenses of whatsoever nature incurred or suffered by the
Company, Holdings or any of their subsidiaries or affiliates arising from: (a) any income taxes or other taxes due on amounts paid to or on
behalf of Consultant by the Company, or any other required remittances to any governmental entities, agencies or programs (including, without
limitation, any interest, penalties or gross-ups thereon) arising in respect of Consultant for which the Company, Holdings or any of their
subsidiaries or affiliates is called upon to account to the relevant taxing authority; and (b) any liability for any employment-related claim or any
claim based on worker status brought by Consultant against the Company, Holdings or any of their subsidiaries or affiliates arising out of or in
connection with Consultant’s provision of services pursuant to this Agreement. Consultant hereby acknowledges that Consultant will have no
recourse against the Company or Holdings (or any of their directors, officers, personnel, representatives, agents, successors, subsidiaries or
affiliates) for any such liability, loss, damage, cost or expense.
4.
Indemnification. The Company will indemnify Consultant during the term of this Agreement and thereafter to the full extent
permitted by law as if he were an officer of the Company for all claims related to or arising out of his serving as a consultant of the Company
hereunder; provided that in no event will Consultant be indemnified pursuant to this Section 4 in connection with any claims, causes of action,
demands, fees or liabilities of any kind whatsoever, arising out of or relating to (a) the enforcement of the Company’s rights hereunder or with
respect to the Employment Agreement or any agreements identified in the Employment Agreement or (b) Consultant’s illegal conduct, fraud
(including, without limitation, undiscovered financial fraud), embezzlement or other willful misconduct.
5.
Early Termination of Agreement. In the event this Agreement is terminated prior to its expiration due to Consultant’s death or
disability or by the Company without Cause (as defined in the Employment Agreement to the extent applicable) or by Consultant after a
material breach of this Agreement by the Company, the Company will continue to pay Consultant, without set-off, counterclaim or other
withholding, the consulting fee through the originally
scheduled expiration date of this Agreement, and will continue to provide Consultant and his dependents with COBRA (or other medical,
dental and/or life insurance benefits) consistent with Section 1(c) through the originally scheduled expiration date of this Agreement.
6.
Survival. Sections 2, 3 and 4 will survive and continue in full force in accordance with the terms thereof, notwithstanding any
termination of this Agreement.
7.
Severability. The Parties agree that if any provision of this Agreement is declared or determined by any court of competent
jurisdiction to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining parts, terms or provisions will not
be affected thereby, and said illegal, unenforceable or invalid part, term or provision will be deemed not to be part of this Agreement.
8.
Entire Agreement; Amendment. Except as otherwise set forth herein, this Agreement represents the entire agreement and
understanding between Consultant and the Company concerning the specific subject matter of this Agreement and supersedes and replaces any
and all prior agreements and understandings between Consultant and the Company concerning the specific subject matter of this Agreement.
Any modification or amendment of this Agreement, or additional obligation assumed in connection with this Agreement, will be effective only
if placed in writing and signed by both Parties or by authorized representatives of each of the Parties.
9.
Captions; Drafter Protection. This Agreement’s headings and captions are provided for reference and convenience only, and will
not be employed in the construction of this Agreement. It is agreed and understood that the general rule pertaining to construction of contracts,
that ambiguities are to be construed against the drafter, will not apply to this Agreement.
10.
Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an
original and will constitute an effective, binding agreement on the part of each of the undersigned.
11.
Binding Effect; Assignment. Neither this Agreement, nor any rights or benefits hereunder, may be assigned, delegated,
transferred, pledged or hypothecated without the prior written consent of the Parties, except that the Company may assign this Agreement to
any assignee of or successor to substantially all of the business or assets of the Company or Holdings or any direct or indirect subsidiary of
either of them without prior written consent of Consultant. In the event of Consultant’s death, any amounts owed to Consultant hereunder shall
instead be paid to Consultant’s designated beneficiary (or, if none, to Consultant’s estate).
12.
No Reliance. Consultant acknowledges and agrees that he has not relied upon any advice whatsoever from the Company as to
any provision of this Agreement, including, but not limited to, the taxability, whether pursuant to federal, state, local or foreign income tax
statutes or regulations, or otherwise, of the payments made, action taken, or consideration transferred hereunder and that Consultant will be
solely liable for all tax obligations arising therefrom.
13.
Governing Law; Arbitration. This Agreement will be governed by and construed and enforced according to the laws of the State
of New York. Any disputes arising from or relating to this Agreement shall be subject to arbitration pursuant to Section 21 of the Employment
Agreement (which provisions shall be deemed expanded to apply to any dispute concerning or relating to Consultant’s service with the
Company or Holdings, or the termination of Consultant’s service).
14.
No Waiver. The failure of any party to insist upon the performance of any of the terms and conditions in this Agreement, or the
failure to prosecute any breach of any of the terms and conditions of this Agreement, will not be construed thereafter as a waiver of any such
terms or conditions. This entire Agreement will remain in full force and effect as if no such forbearance or failure of performance had occurred.
15. Warranties. Consultant warrants that he will not deliver or disclose to the Company information which infringes any property
right of any third party relating to proprietary or trade secret information or copyrights. Consultant warrants that he is not a party to any other
existing agreement which would prevent him from entering into this Agreement or which would adversely affect this Agreement, and agrees
that he will not, during the term of this Agreement, enter into any such agreement.
16.
Confidentiality. Unless otherwise required by law or regulation, or as necessary to perform his services for the Company
hereunder, Consultant agrees to maintain absolute confidentiality of the services performed by Consultant hereunder and the information,
reports and other work product produced by, or made available to, Consultant in connection with this Agreement or his services hereunder.
17.
Voluntary Execution. Consultant acknowledges that he is executing this Agreement voluntarily and of his own free will.
Consultant further acknowledges that he has read, fully understands and intends to be bound by the terms of this Agreement, and has had an
opportunity to carefully review it with his attorney prior to executing it or warrants that he has chosen not to have his attorney review this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
SIRIUS XM RADIO INC.
By:
/s/ Patrick Donnelly
Patrick Donnelly
Executive Vice President, General Counsel and Secretary
/s/ James E. Meyer
James E. Meyer
Exhibit 10.44
TAX SHARING AGREEMENT
This Tax Sharing Agreement (this “Agreement”) is made and entered into as of February 1, 2021, by and between LIBERTY
MEDIA CORPORATION , a Delaware corporation (“LMC”), for and on behalf of itself and each LMC Affiliate (as defined below), and
SIRIUS XM HOLDINGS INC., a Delaware corporation (the “Company”), for and on behalf of itself and each Company Affiliate (as defined
below).
WITNESSETH:
WHEREAS, LMC and the Company are expected to become a part of an Affiliated Group (as defined below), and such
Affiliated Group expects to file a consolidated federal income Tax Return in accordance with Section 1501 of the Code (and certain
consolidated state and local income Tax Returns) for the Tax year during which the Company becomes a Member (as defined below) of such
Affiliated Group and for subsequent Tax years; and
WHEREAS, it is deemed equitable and desirable that the parties hereto enter into this Agreement to set forth (i) the general
principles under which they will calculate, allocate, and share consolidated federal, state and local income Tax liabilities (as determined under
Treasury Regulation Section 1.1502-2 and any analogous provisions of state or local Tax Law) of the Affiliated Group as between the LMC
Group, on the one hand, and the Company Group, on the other hand, (ii) the manner in which they will prepare and file various Tax Returns
(as defined below) and meet certain other reporting obligations, (iii) the method for reimbursing LMC for payment of the Company Group’s
allocable share of consolidated federal, state and local income Tax liabilities and compensating the Company for use of a Tax Asset (as defined
below) of any Member of the Company Group in arriving at such consolidated federal, state and local income Tax liabilities, and (iv) the
provisions governing various related matters.
NOW, THEREFORE, the parties signatory hereto agree as follows:
1.
Definitions. For purposes of this Agreement, the following terms shall be defined as follows:
(a)
files a Joint Return.
“Affiliated Group” shall mean, for any federal, state, or local Tax jurisdiction, the consolidated, combined or unitary group that
(b)
“Agreement” shall have the meaning set forth in the first paragraph hereof, as such agreement may be amended or
supplemented from time to time.
(c)
“Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in New York, New
York are authorized or required by law or executive order to close.
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(d)
(e)
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Company” shall have the meaning set forth in the first paragraph hereof, except as otherwise provided by Section
(f)
“Company Affiliate” means any corporation or other Legal Entity directly or indirectly “controlled” by the Company at the time
in question, where “control” means the ownership of 50% or more of the equity interests of such corporation or other Legal Entity (by voting
power or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such
corporation or other Legal Entity.
(g)
“Company Group” means, with respect to any Taxable year (or portion thereof) beginning on or after the Effective Date, the
Company and each Subsidiary of the Company (but only while such Subsidiary is a Subsidiary of the Company).
(h)
“Company Successor” shall have the meaning given to such term in Section 23(a)
(i)
(j)
“Company Successor Parent” shall have the meaning given to such term in Section 23(a).
“Consolidated Return Regulations” shall mean the Treasury Regulations promulgated under Chapter 6 of Subtitle A of the
Code, including, as applicable, any predecessor or successor regulations thereto.
(k)
(l)
“Contested Company Group Item” shall have the meaning given to such term in Section 9(b).
“Controlling Party” shall have the meaning given to such term in Section 9(a).
(m)
“Deconsolidation Event” means, with respect to the Company and each member of the Company Group, any event or
transaction that causes the Company and/or one or more members of the Company Group to no longer be eligible to join with LMC or one or
more members of the LMC Group in the filing of a Joint Return.
(n)
“DIT” shall mean any “deferred intercompany transaction” or “intercompany transaction” within the meaning of the
Consolidated Return Regulations, or any similar provisions of state, local or prior federal Tax Law.
(o)
(p)
(q)
“Due Date” shall have the meaning given to such term in Section 6(b).
“Effective Date” shall mean the date of this Agreement.
“ELA” shall mean any “excess loss account” within the meaning of the Consolidated Return Regulations, or any similar
provisions of state, local or prior federal Tax Law.
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(r)
“Estimated Tax Installment Date” means, with respect to United States federal income Taxes, the estimated Tax installment due
dates prescribed in Section 6655(c) of the Code and, in the case of any other Tax, means any other date on which an installment payment of an
estimated amount of such Tax is required to be made.
(s)
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(t)
“Final Determination” shall mean the final resolution of liability for any Tax for any Taxable period, by or as a result of: (i) a
closing agreement or similar final settlement with the Internal Revenue Service or the relevant state or local Governmental Authorities, (ii) an
agreement contained in Internal Revenue Service Form 870-AD or other similar form, (iii) an agreement that constitutes a determination under
Section 1313(a)(4) of the Code, (iv) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all
periods during which such refund or credit may be recovered by the jurisdiction imposing the Tax, (v) a deficiency notice with respect to
which the period for filing a petition with the Tax Court or the relevant state or local tribunal has expired, (vi) a decision, judgment, decree or
other order of any court of competent jurisdiction that is not subject to appeal or as to which the time for appeal has expired, or (vii) the
payment of any Tax with respect to any item disallowed or adjusted by a Tax Authority provided that LMC and the Company agree that no
action should be taken to recoup such payment.
(u)
(v)
“Group” shall mean either the LMC Group or the Company Group.
“Independent Accountant” shall have the meaning set forth in Section 2(b)(i)
(w)
“Interest Rate” means the Rate determined below, as adjusted as of each Interest Rate Determination Date. The “Rate” means,
with respect to each period between two consecutive Interest Rate Determination Dates, a rate determined two (2) Business Days before the
earlier Interest Rate Determination Date equal to the interest rate that would be applicable on such date to a “large corporate underpayment”
(within the meaning of Section 6621(c) of the Code) under Sections 6601 and 6621 of the Code. Interest will be calculated on the basis of a
year of 360 days and the actual number of days for which due.
(x)
thereafter.
“Interest Rate Determination Date” means the Due Date and each March 31, June 30, September 30, and December 31
(y)
“Joint Return” shall mean any federal, state or local Tax Return for any Taxable period ending on or after the Effective Date
that includes at least two Members, of which one Member is a member of the Company Group and the other Member is a member of the LMC
Group.
(z)
“Legal Entity” shall mean a corporation, partnership, limited liability company or other legal entity under the corporation,
partnership, limited liability company or other organizational laws of a state or other jurisdiction.
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(aa)
“LMC” shall have the meaning set forth in the first paragraph hereof, except as otherwise provided by Section 23.
(ab)
“LMC Affiliate” shall mean any corporation or other Legal Entity directly or indirectly “controlled” by LMC where “control”
means the ownership of 50% or more of the equity interests of such corporation or other Legal Entity (by voting power or value) or the
possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other Legal
Entity; provided, however, that such term shall not include the Company or any Company Affiliate.
(ac)
“LMC Group” means, with respect to any Taxable year (or portion thereof) beginning on or after the Effective Date, LMC and
each Subsidiary of LMC (but only while such Subsidiary is a Subsidiary of LMC); provided, however, that such term shall not include any
Subsidiary of LMC for such Taxable year (or portion thereof) as and to the extent that such Subsidiary is a member of the Company Group.
(ad)
“LMC Successor” shall have the meaning given to such term in Section 23(b)(i).
(ae)
“LMC Successor Parent” shall have the meaning given to such term in Section 23(b)(i).
(af)
“LMC Successor Transaction” shall have the meaning given to such term in Section 23(b)(ii).
(ag)
“Losses” shall mean any and all damages, losses, deficiencies, liabilities, obligations, penalties, judgments, settlements, claims,
payments, fines, interest, costs and expenses (including, without limitation, the fees and expenses of any and all actions and demands,
assessments, judgments, settlements and compromises relating thereto and the costs and expenses of attorneys’, accountants’, consultants’ and
other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder); provided,
however, that “Losses” shall exclude any special or punitive damages; provided, further, that the foregoing proviso will not be interpreted to
limit indemnification for Losses incurred as a result of the assertion by a claimant (other than the parties hereto and their successors and
assigns) in a third-party claim for special or punitive damages.
(ah)
“Member” or “member” shall mean an entity that is an includible corporation as defined in Section 1504(b) of the Code (or any
analogous provisions of state, local or other applicable Tax Law).
(ai)
“Parent” shall mean, as the context may require, the common parent of any consolidated, combined, or unitary group that has
filed, or is required to file, any Joint Return.
(aj)
“Person” shall mean an individual, corporation, limited liability company, partnership, trust, incorporated or unincorporated
association, joint venture or other entity.
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(ak)
“Post-Deconsolidation Period” means any Taxable period beginning after the date of a Deconsolidation Event.
(al)
“Pre-Deconsolidation Period” means any Taxable period beginning on or before the date of a Deconsolidation Event.
(am)
“Redetermination” shall mean any redetermination of Taxes as the result of any Tax Proceeding, a claim for refund, an amended
Tax Return or otherwise in which (x) additional Taxes to which such determination relates are subsequently paid, (y) a Tax Refund or a Tax
Benefit relating to such Taxes is received or used, or (z) the amount or character of any Tax Item is adjusted or redetermined.
(an)
“Separate Return” shall mean any Tax Return that is not a Joint Return.
(ao)
“Separate Return Tax Liability” means an amount equal to the hypothetical federal, state or local Tax liability that the members
of the Company Group included in a Joint Return filed in any Tax jurisdiction would have incurred if they had filed a consolidated return,
combined return (including nexus combination, domestic combination, line of business combination or any other form of combination), unitary
return, or separate return, as the case may be, separate from the members of the LMC Group, for the relevant Tax period in such Tax
jurisdiction (based upon the assumption that such members of the Company Group were required to file in such Tax jurisdiction), and their
income was taxable at the highest corporate tax rate in effect for such period in such Tax jurisdiction; provided, however, that (1) the Separate
Return Tax Liability shall be computed by LMC using such methods, conventions, practices, principles, positions, and elections (for example,
the election to deduct or credit foreign Taxes) as are consistent with the methods, conventions, practices, principles, positions and elections that
are used by LMC or Parent, as the case may be, in preparing the applicable Joint Return, and by taking into account only those Tax Assets of
the Company Group (or other Tax Items of loss, deduction or credit of the Company Group) that are included in and used in the applicable
Joint Return to create any Tax Benefit (without regard to whether the Company Group could have used such Tax Assets or Tax Items on its
hypothetical separate return), (2) the Consolidated Return Regulations (or any similar provisions of state or local Tax Law) and the Joint
Returns filed by the Affiliated Group in such Tax jurisdiction shall determine the timing of the recognition of Tax Items with respect to DITs
and ELAs and the determination of which Legal Entity shall bear the Tax benefit or burden of such Tax Items, and the Company Group shall
be responsible for the Tax Items recognized by its respective members with respect to any DITs and ELAs, (3) the Separate Return Tax
Liability with respect to a Joint Return filed in a state or locality shall be computed by taking into account such Tax Items, and such receipts or
other data used to compute apportionment factors, of each Company Group member as are taken into account with respect to such Company
Group member in preparing such Joint Return, regardless of whether such Company Group member separately has tax nexus with such state or
locality, and (4) although the Separate Return Tax Liability is to be computed on a hypothetical basis as if the members of the Company Group
that are part of the Affiliated Group were separate from the other members of the Affiliated Group, the fact that such members of the Company
Group are included in a Joint Return and the effect that such inclusion has on the calculation of any Tax
5
Item or on any Tax reporting requirement, shall nevertheless be taken into account for purposes of computing the Separate Return Tax
Liability.
(ap)
“spin-off entity” shall have the meaning given to such term in Section 12(b).
(aq)
“Subsidiary” when used with respect to any Person, means (i)(A) a corporation a majority in voting power of whose share
capital or capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such
Person and/or one or more Subsidiaries of such Person, whether or not such power is subject to a voting agreement or similar encumbrance, (B)
a partnership or limited liability company in which such Person or a Subsidiary of such Person is, at the date of determination, (1) in the case
of a partnership, a general partner of such partnership with the power affirmatively to direct the policies and management of such partnership or
(2) in the case of a limited liability company, the managing member or, in the absence of a managing member, a member with the power
affirmatively to direct the policies and management of such limited liability company, or (C) any other Person (other than a corporation,
partnership, or limited liability company) in which such Person and/or one or more Subsidiaries of such Person, directly or indirectly, at the
date of determination thereof, has or have (1) the power to elect or direct the election of a majority of the members of the governing body of
such Person, whether or not such power is subject to a voting agreement or similar encumbrance, or (2) in the absence of such a governing
body, at least a majority voting interest or (ii) any other Person of which an aggregate of 50% or more of the equity interests are, at the time,
directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person.
(ar)
“Tax” and “Taxes” means any and all federal, state, local or non-U.S. taxes, charges, fees, duties, levies, imposts, rates or other
like governmental assessments or charges, and, without limiting the generality of the foregoing, shall include income, gross receipts, net worth,
property, sales, use, license, excise, franchise, capital stock, employment, payroll, unemployment insurance, social security, Medicare, stamp,
environmental, value added, alternative or added minimum, ad valorem, trade, recording, withholding, occupation or transfer taxes, together
with any related interest, penalties and additions imposed by any Tax Authority. The term “Taxable” shall have a correlative meaning; provided
that, references to “Taxable period” for any franchise or other doing business Tax (including, but not limited to, the Texas franchise Tax) shall
mean the Taxable period during which the income, operations, assets, or capital comprising the base of such Tax is measured, regardless of
whether the right to do business for another Taxable period is obtained by the payment of such Tax.
(as)
“Tax Asset” shall mean any Tax Item that has accrued for Tax purposes, but has not been realized during the Taxable period in
which it has accrued, and that could reduce a Tax in another Taxable period, including a net operating loss, net capital loss, disallowed
business interest, general business tax credit, foreign tax credit, charitable deduction, credit related to alternative minimum tax, or any other
Tax credit.
(at)
“Tax Authority ” means, with respect to any Tax, the governmental entity or political subdivision, agency, commission or
authority thereof that imposes such Tax, and the
6
agency, commission or authority (if any) charged with the assessment, determination or collection of such Tax for such entity or subdivision.
(au)
“Tax Benefit” means a reduction in the Tax liability (or increase in Tax Refund) of a Taxpayer for any Taxable period. Except
as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been realized or received from a Tax Item in a Taxable period
only if and to the extent that the Tax liability (or Tax Refund) of the Taxpayer for such period, after taking into account the effect of the Tax
Item on the Tax liability (or Tax Refund) of such Taxpayer in the current period and all prior periods, is less than (or, in case of a Tax Refund,
greater than) it would have been had such Tax liability (or Tax Refund) been determined without regard to such Tax Item.
(av)
“Tax Item” shall mean any item of income, gain, loss, deduction, credit, recapture of credit or any other item which increases or
decreases Taxes paid or payable, including an adjustment under Section 481 of the Code resulting from a change in accounting method.
(aw)
“Tax Law” means the law of any governmental entity or political subdivision thereof, and any controlling judicial or
administrative interpretations of such law, relating to any Tax.
(ax)
“Tax Package” shall have the meaning given to such term in Section 3(c).
(ay)
“Tax Proceeding” shall mean any Tax audit, assessment, or other examination by any Tax Authority, as well as any controversy,
litigation, other proceeding, or appeal thereof relating to Taxes, whether administrative or judicial, including proceedings relating to competent
authority determinations.
(az)
otherwise.
“Tax Refund” shall mean any refund of Taxes, including any reduction in a Tax liability by means of a credit, offset or
(ba)
“Tax Return” means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes,
or any other similar report, statement, declaration, or document filed or required to be filed (by paper, electronically or otherwise) under any
applicable Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any
amendments or supplements to any of the foregoing.
(bb)
“Taxpayer” means any taxpayer and its Affiliated Group or similar group of entities as defined under corresponding provisions
of the laws of any other jurisdiction of which a taxpayer is a member.
(bc)
“Treasury Regulations” shall mean the regulations promulgated by the U.S. Department of the Treasury under the Code.
2.
Separate Return Tax Liability of the Company Group; Payments for Tax Benefits
(a)
Payment of Separate Return Tax Liability by the Company to LMC
7
Estimated Tax Payments. With respect to each Taxable period for which a Joint Return will be filed, at least five (5)
(i)
Business Days prior to each relevant Estimated Tax Installment Date, the Company shall pay to LMC an amount equal to the
installment of the estimated Separate Return Tax Liability, as shown in the computation provided by LMC to the Company
pursuant to Section 2(b)(i). For the avoidance of doubt, the amounts paid by the Company to LMC under this Section 2(a)(i) shall
be taken into account in determining the amounts to be paid by the Company or LMC, as the case may be, pursuant to Section
2(a)(ii).
(ii)
Final Return Tax Payments . With respect to each Taxable period for which a Joint Return will be filed (other than a Joint
Return relating to estimated Tax payments), at least ten (10) Business Days prior to the due date (including extensions) for the
filing of each such Joint Return,
(1)
the Company shall pay to LMC an amount equal to the excess, if any, of (x) the Separate Return Tax Liability of
the Company Group for such Taxable period and such Joint Return over (y) the aggregate amount, if any, previously paid
by the Company to LMC with respect to such Taxable period and such Joint Return under Section 2(a)(i), as shown in the
computation provided by LMC to the Company pursuant to Section 2(b)(i); and
(2)
LMC shall pay to the Company an amount equal to the excess, if any, of (x) the aggregate amount, if any,
previously paid by the Company to LMC with respect to such Taxable period and such Joint Return under Section 2(a)(i)
over (y) the Separate Return Tax Liability of the Company Group for such Taxable period and such Joint Return, as
shown in the computation provided by LMC to the Company pursuant to Section 2(b)(i).
(b)
Determination of Separate Return Tax Liability.
Manner of Calculation. For each Taxable period during which a Joint Return will be filed, LMC shall provide to the
(i)
Company, not less than twenty (20) Business Days prior to the due date (including extensions) for the filing of such Joint Return
(1) a pro forma draft of the portion of such Joint Return that reflects the Tax Items of the Company Group, (2) a statement that
sets forth in reasonable detail the computation of the Separate Return Tax Liability of the Company Group in respect of such Joint
Return, and (3) the amount payable by the Company or LMC, as determined in accordance with this Agreement, pursuant to
Section 2(a); provided, however, that in the case of any Joint Return relating to estimated Tax payments, LMC shall provide the
foregoing information to the Company not less than ten (10) Business Days prior to each relevant Estimated Tax Installment
Date. If the Company disagrees with any Tax Item of the Company Group reflected on the pro forma draft of any Joint Return or
any tax position relating to the computation of the Separate Return Tax Liability, then the
8
Company shall promptly notify LMC and the parties shall use their reasonable best efforts to resolve the dispute. If the parties are
unable to resolve any such dispute within ten (10) Business Days after the Company gives notice to LMC, then the matter shall
be referred to a nationally recognized accounting firm that is mutually acceptable to LMC and the Company (the “Independent
Accountant”) to resolve such dispute. All costs, fees, and expenses incurred with respect to the resolution of such dispute shall be
borne equally by LMC and the Company, except that if the Independent Accountant determines that the proposed position
submitted by a party to the Independent Accountant for its determination is frivolous, has not been asserted in good faith, or is not
supported by substantial authority, then 100% of such costs, fees, and expenses shall be borne by such party. If any dispute related
to the computation of the Separate Return Tax Liability has not been resolved by the due date for the payment of the Separate
Return Tax Liability (including installments of estimated Separate Return Tax Liability) with respect to the applicable Joint
Return as described in Section 2(a), then the Company or LMC, as the case may be, shall make its payment based upon the
original statement prepared by LMC, and any adjustments to such payment will be made in accordance with Section 5 following
the resolution of such dispute.
Separate Return Tax Liability. For purposes of this Agreement, the “Separate Return Tax Liability” shall be determined as
(ii)
if the Company Group were filing a separate Tax Return under the Code or any analogous provisions of state or local Tax Law,
and the term will not have the same meaning as set forth in Treasury Regulation Section 1.1502-12. For the avoidance of doubt,
(A) the computation of the Separate Return Tax Liability of the Company Group shall be determined without regard to whether
the Affiliated Group is obligated to pay a Tax liability for the applicable Taxable period and (B) no Tax Asset or other Tax Item
that has previously been taken into account in any Taxable period for the Company Group’s benefit in determining the Separate
Return Tax Liability payable under Section 2(a) or any amount payable under Section 2(c) or Section 5, or that has otherwise
been realized by the Company Group, shall again be taken into account in this computation. If the Separate Return Tax Liability
of the Company Group for a Taxable period is less than zero, then the Separate Return Tax Liability of the Company Group shall
be deemed to be zero for such period for purposes of Section 2(a).
(c)
Payment for Tax Benefits. Within ten (10) Business Days of filing a Joint Return, LMC shall (i) pay to the Company an amount
equal to the Tax Benefit (if any) that the LMC Group recognized on such Joint Return as a result of the Separate Return Tax Liability being
less than zero for such Taxable period or otherwise as a result of the use by the LMC Group of Tax Assets of the Company Group and (ii)
provide to the Company a statement setting forth in reasonable detail the computation of the amount so payable. For the avoidance of doubt, no
Tax Asset or other Tax Item that has been taken into account in any Taxable period for the Company Group’s benefit in determining the
Separate Return Tax Liability payable under Section 2(a) or
9
any amount payable under this Section 2(c) or Section 5, or that has otherwise been realized by the Company Group, shall again be taken into
account for purposes of determining any amount payable under this Section 2(c).
3.
Preparation and Filing of Tax Returns.
(a)
Joint Returns. LMC shall be responsible for (i) preparing and filing (or causing to be prepared and filed) all Joint Returns for
any Taxable period and (ii) remitting (or causing to be remitted) to the proper Tax Authority the Tax shown on such Joint Returns.
(b)
Separate Returns.
(i)
LMC Separate Returns. LMC shall be responsible for (1) preparing and filing (or causing to be prepared and filed) all
Separate Returns for any Taxable period that include one or more members of the LMC Group and (2) remitting (or causing to be
remitted) to the proper Tax Authority the Tax shown on such Separate Returns.
Company Separate Returns. The Company shall be responsible for (1) preparing and filing (or causing to be prepared and
(ii)
filed) all Separate Returns for any Taxable period that include one or more members of the Company Group and (2) remitting (or
causing to be remitted) to the proper Tax Authority the Tax shown on such Separate Returns.
(c)
Provision of Information. The Company shall provide LMC with all information necessary for LMC or Parent to properly and
timely file all Joint Returns. Such information may include, but need not be limited to (i) a Tax Return package for Joint Returns and Separate
Returns of the Company Group, (ii) an estimated Tax package for Joint Returns and Separate Returns of the Company Group, (iii) a Tax
provision package, (iv) a Tax projection package, and (v) workpapers and other supporting documentation relating to the foregoing
(collectively, the “Tax Package”). With respect to any Tax Items of the Company Group includible in a Joint Return, the Tax Package shall be
prepared, with respect to such Tax Items, using the methods, conventions, practices, principles, positions, and elections used by LMC or Parent
in preparing the applicable Joint Return. In the event the Company fails to provide information necessary for LMC or Parent to properly and
timely file a Joint Return in the form reasonably requested by LMC and within sufficient time to permit the timely filing of such Joint Return,
the twenty (20) Business Day notice period (or ten (10) Business Day notice period in the case of estimated Tax payments) in Section 2(b)(i)
shall be waived, and any penalties, interest, or other payment obligation assessed against the Affiliated Group by reason of a delay in filing
such Tax Return shall be payable by the Company, but only to the extent that such delay is attributable to the Company’s failure to provide the
necessary information on a timely basis. If the Company provides information in the form requested by LMC and within sufficient time to
permit the timely filing of a particular Tax Return, any penalties, interest, or other payments assessed against the Affiliated Group by reason of
a delay in filing such Tax Return shall not be payable by the Company.
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(d)
Special Rules Relating to the Preparation of Tax Returns.
(i)
Except as otherwise provided in this Agreement, the party that is responsible for filing (or causing to be filed) a Tax
Return pursuant to this Section 3 shall have the exclusive right, in its sole discretion, with respect to such Tax Return to determine
(1) the manner in which such Tax Return shall be prepared and filed, including the methods, conventions, practices, principles,
positions, and elections to be used and the manner in which any Tax Item shall be reported, (2) whether any extensions may be
requested, (3) whether an amended Tax Return shall be filed, (4) whether any claims for refund shall be made, (5) whether any
refunds shall be paid by way of refund or credited against any liability for the related Tax, and (6) whether to retain outside firms
to prepare or review such Tax Return; provided, however, that with respect to Joint Returns, LMC shall prepare such Joint
Returns in good faith and shall consult with the Company prior to changing any method of accounting if such action would
impact the Company Group.
(ii) With respect to any Separate Return for which the Company is responsible for filing (or causing to be filed), the Company
may not take (and shall cause the members of the Company Group not to take) any positions that it knows, or reasonably should
know, are inconsistent with the methods, conventions, practices, principles, positions, or elections used by LMC in preparing any
Joint Return, except to the extent that (A) the failure to take such position would be contrary to applicable Tax Law or (B) taking
such position would not reasonably be expected to adversely affect any member of the LMC Group. The Company and the other
members of the Company Group shall (1) allocate Tax Items between such Separate Return for which the Company is
responsible and any related Joint Return for which LMC is responsible that is filed in the same Tax year in a manner that is
consistent with the reporting of such Tax Items on such related Joint Return and (2) make any applicable elections required under
applicable Tax Law necessary to effect such allocation.
Tax Liability of the Company in the Event of Disaffiliation. Although neither party has any plan or intent to effectuate any
4.
transaction that would constitute a Deconsolidation Event, the parties have set forth how certain Tax matters with respect to a Deconsolidation
Event would be handled in the event that, as a result of changed circumstances, a transaction that constitutes a Deconsolidation Event occurs at
some future time.
(a)
In General. In the case of a Deconsolidation Event, (i) the Company and the Company Affiliates shall remain liable under this
Agreement for the Separate Return Tax Liability of the Company Group for the Taxable period during which such Deconsolidation Event
occurs and for prior Taxable periods in which any such disaffiliated members of the Company Group were members of the Affiliated Group,
and the Company shall be required to pay LMC all amounts for such Taxable periods that are determined pursuant to this Agreement and (ii)
the Company shall remain entitled to receive, and LMC shall remain liable to pay, any
11
Tax Benefit, Tax Refund or other amounts payable to the Company under this Agreement that relate to any Pre-Deconsolidation Period.
Moreover, should a Tax Proceeding ultimately result in assessment of a Tax deficiency (or payment of a Tax Refund) against any Affiliated
Group for years in which the Company or the other members of the Company Group were affiliated with such Affiliated Group, the Company
and the Company Affiliates shall remain liable for the Company Group’s portion of such Tax deficiency (or remain entitled to receive their
portion of such Tax Refund) determined pursuant to this Agreement, plus interest and penalties as provided in Section 6(a), if any.
(b)
Allocation of Tax Items. In the case of a Deconsolidation Event, all Tax computations for (i) any Pre-Deconsolidation Periods
ending on the date of the Deconsolidation Event and (ii) the immediately following Taxable period of the Company or any disaffiliated
members of the Company Group, shall be made pursuant to the principles of Section 1.1502-76(b) of the Treasury Regulations or any similar
provision of federal, state or local Tax Law, as reasonably determined by LMC.
(c)
Carrybacks.
In General. In the case of a Deconsolidation Event, LMC agrees to pay to the Company the Tax Benefit from the
(i)
recognition by LMC or Parent on a Joint Return for any Pre-Deconsolidation Period of a carryback of any Tax Asset of the
Company Group from a Post-Deconsolidation Period (other than a carryback of any Tax Asset which increases any Taxes, or
reduces any Tax Benefit, attributable to the LMC Group for any reason); provided, however, that no payment shall be required to
be made with respect to any Tax Benefit recognized by LMC or Parent with respect to any Tax Asset that has previously been
taken into account in any Taxable period for the Company Group’s benefit to reduce the Separate Return Tax Liability payable
under Section 2(a) or to determine any amount payable to the Company under Section 2(c) or Section 5. If subsequent to the
payment by LMC to the Company for any such Tax Benefit, there shall be a Redetermination which results in a decrease (1) to
the amount of the Tax Asset so carried back or (2) to the amount of such Tax Benefit, the Company shall repay to LMC any
amount paid to the Company pursuant to this Section 4(c)(i) which would not have been payable to the Company pursuant to this
Section 4(c)(i) had the amount of the Tax Benefit been determined in light of these events. Nothing in this Section 4(c)(i) shall
require LMC to file an amended Tax Return or claim for refund of Taxes.
(ii)
Relinquishment. In the case of a Deconsolidation Event, notwithstanding any other provision of this Agreement, to the
extent permitted by law, the Company hereby expressly agrees to elect (under Section 172(b)(3) of the Code and, to the extent
feasible, any similar provision of any federal, state or local Tax Law, including Section 1.1502-21(b)(3) of the Treasury
Regulations) to relinquish any right to carryback net operating losses (or other Tax Items, to the extent permissible) to any Pre-
Deconsolidation Periods of LMC (in which event no
12
payment shall be due from LMC to the Company in respect of such net operating losses or other Tax Items).
(d)
Continuing Covenants . Each of LMC (for itself and each LMC Affiliate) and the Company (for itself and each Company
Affiliate) agrees (i) not to take any action reasonably expected to result in an increased Tax liability to the other, a reduction in a Tax Asset of
the other or an increased liability to the other under this Agreement, and (ii) to take any action reasonably requested by the other that would
reasonably be expected to result in a Tax Benefit; provided, in either such case, that the taking or refraining to take such action does not result
in any additional cost not fully compensated for by the other party or any other adverse effect to such party. The parties hereby acknowledge
that the preceding sentence is not intended to limit, and therefore shall not apply to, the rights of the parties with respect to matters otherwise
covered by this Agreement.
5.
Adjustments.
(a)
Adjustment Payments. In the event of any Redetermination of any Joint Return, or resolution of any dispute between the parties
by the Independent Accountant or otherwise, which affects the calculation of the Company Group’s Separate Return Tax Liability or any other
calculations or determinations under this Agreement for any Taxable period, the amounts required to be paid pursuant to Section 2(a) and
Section 2(c), as applicable, (as well as any amounts required to be paid under Section 6 below) shall be recomputed for such Taxable period to
take into account such Redetermination or dispute resolution. The Company shall pay LMC, or LMC shall pay the Company, as applicable, an
amount equal to the difference between the payment or payments previously made between the parties in respect of such redetermined Joint
Return or Separate Return Tax Liability and the amount that would have been paid pursuant to this Agreement in respect of such redetermined
Joint Return (if such redetermined Joint Return had been filed on the basis of the Redetermination) or Separate Return Tax Liability. In the
event LMC or Parent is required to pay to any Tax Authority any amount for additional Taxes due to the disallowance of all or part of any Tax
Item for which the Company received a payment pursuant to Section 2(c) (or if LMC or Parent would have been so required to pay any Tax
Authority but for other credits or adjustments), the Company shall pay to LMC the amount of such additional Tax paid by LMC or Parent (or
which LMC or Parent would have been required to pay but for other credits or adjustments); provided, however, the amount so paid by the
Company to LMC shall not exceed the cumulative amount paid to the Company pursuant to Section 2(c) with respect to such Tax Item (except
as provided in Section 6 below). If a payment is made as a result of a Redetermination or dispute resolution which does not conclude the
matter, further adjusting payments will be made, as appropriate, to reflect the outcome of any subsequent Redeterminations or dispute
resolution, as applicable.
(b)
Timing of Payments. Any payment by LMC or the Company required (x) by any dispute resolution shall be paid within five (5)
Business Days after the date such dispute is resolved and (y) by any Redetermination in which (i) additional Taxes are paid, will be due five
(5) Business Days after the date on which the additional Taxes were paid or, if later, five (5) Business Days after the date of a request from the
other party for the payment, (ii) a Tax Refund
13
or Tax Benefit is received or used, will be due five (5) Business Days after the Tax Refund or Tax Benefit was received or used, or (iii) the
amount or character of a Tax Item was adjusted or redetermined, will be due five (5) Business Days after the date on which the final action
resulting in such adjustment or redetermination is taken by a Tax Authority or either party or their Subsidiaries, as applicable.
6.
Payments.
(a)
Payment of Interest, Penalties, and Expenses. Interest, penalties, and expenses incurred by LMC or Parent in connection with the
amendment of any Joint Return and/or any Tax Proceeding, shall be borne equitably by those parties whose Tax liability may be affected by
such amendment or Tax Proceeding, unless otherwise provided under this Agreement. LMC shall act in good faith with respect to any interest,
penalties, and expenses to be charged to the Company.
(b)
Interest on Late Payments. Payments pursuant to this Agreement that are not made by the date prescribed in this Agreement or, if
no such date is prescribed, not later than five (5) Business Days after demand for payment is made (the “Due Date”) shall bear interest for the
period from and including the date immediately following the Due Date through and including the date of payment at the Interest Rate. Such
interest will be payable at the same time as the payment to which it relates.
(c)
Rules Regarding Payments for Tax Refunds or Tax Benefits. If a party receives or uses a Tax Refund or Tax Benefit for which
the other party is entitled to reimbursement under this Agreement, then unless otherwise specified in this Agreement, the party receiving or
using the Tax Refund or Tax Benefit shall pay to the other party entitled to reimbursement, within five (5) Business Days following the receipt
or use of such Tax Refund or Tax Benefit, an amount equal to such Tax Refund or Tax Benefit. For purposes of this Agreement, a Tax Benefit
(other than a Tax Refund) shall be considered used or received (i) at the time the Tax Return is filed with respect to such Tax Benefit, or (ii) if
no Tax Return is filed, (x) at the time a Tax Refund generated by use of such Tax Benefit is received or (y) if no Tax Refund is received, at the
time the Tax would have been due in the absence of such Tax Benefit. The amount of such Tax Benefit shall be the amount by which Taxes are
actually reduced by such Tax Benefit (or the amount by which a Tax Refund is actually increased by such Tax Benefit).
(d)
Tax Consequences of Payments. For all Tax purposes and to the extent permitted by applicable Tax Law, the parties hereto shall
treat any payment made pursuant to this Agreement as a capital contribution or a distribution, as the case may be, under the principles of
Treasury Regulation Section 1.1552-1(b)(2), Treasury Regulation Section 1.1502-33(d)(1)(ii), Revenue Ruling 73-605, 1973-2 C.B. 109 or
Revenue Ruling 76-302, 1976-2 C.B. 257, as applicable, and such payments will not create liabilities or receivables among the parties. If the
receipt or accrual of any payment under this Agreement causes, directly or indirectly, an increase in the taxable income of the recipient under
one or more applicable Tax Laws, such payment shall be increased so that, after the payment of any Taxes with respect to the payment, the
recipient thereof shall have realized the same net amount it would have realized had the payment not resulted in taxable income. To the extent
that any payment for which any party
14
hereto (the indemnifying party) is required to pay another party (the indemnified party) pursuant to this Agreement may be deducted or credited
in determining the amount of any other Taxes required to be paid by the indemnified party (for example, state Taxes which are permitted to be
deducted in determining federal Taxes), the amount of any payment made to the indemnified party by the indemnifying party shall be
decreased by taking into account any resulting reduction in other Taxes of the indemnified party. If such a reduction in Taxes of the
indemnified party occurs following the payment made to the indemnified party with respect to the relevant indemnified Taxes, the indemnified
party shall promptly repay the indemnifying party the amount of such reduction when actually realized. If the Tax Benefit arising from the
foregoing reduction of Taxes described in this Section 6(d) is subsequently decreased or eliminated, then the indemnifying party shall promptly
pay the indemnified party the amount of the decrease in such Tax Benefit.
7.
Indemnification.
(a)
Indemnification by LMC. LMC shall indemnify and hold harmless each member of the Company Group from and against (i)
any Taxes which a member of the LMC Group is required to pay to a Tax Authority (except for Taxes, including the amount of any Separate
Return Tax Liability, which LMC has a right of reimbursement hereunder from the Company), or in respect of which LMC is required to make
a payment hereunder to the Company, (ii) any Taxes imposed upon any member of the Company Group pursuant to Treasury Regulation
Section 1.1502-6 or any analogous provision of state or local Tax Law for any Taxable period for which a Joint Return was filed in any Tax
jurisdiction (except for Taxes, including the amount of any Separate Return Tax Liability, which LMC has a right of reimbursement hereunder
from the Company) and (iii) any Taxes and Losses arising out of or based upon any breach or nonperformance of any covenant or agreement
made or to be performed by LMC contained in this Agreement. For the avoidance of doubt, in no event shall LMC be required to indemnify the
Company with respect to the loss of any Tax attributes by any member of the Company Group.
(b)
Indemnification by the Company. The Company shall indemnify and hold harmless each member of the LMC Group from and
against (i) any Taxes which a member of the Company Group is required to pay to a Tax Authority (except for Taxes which the Company has a
right of reimbursement hereunder from LMC or Taxes described in Section 7(a)(ii)) or in respect of which the Company is required to make a
payment hereunder to LMC and (ii) any Taxes and Losses arising out of or based upon any breach or nonperformance of any covenant or
agreement made or to be performed by the Company contained in this Agreement. For the avoidance of doubt, in no event shall the Company
be required to indemnify LMC with respect to the loss of any Tax attributes by any member of the LMC Group.
8.
Appointment of Agent. The Company consents to the appointment of LMC (and Parent, if Parent is not LMC) as agent for the
members of the Company Group in respect of all matters relating to Joint Returns, and agrees that LMC (and Parent) shall have full authority to
determine the Company Group’s Separate Return Tax Liability in accordance with Section 2, to file Joint Returns (or otherwise cause any Joint
Returns to be filed) and to make or change any Tax elections (or cause any Tax elections to be made or changed) on behalf of the Company
15
Group, and to control Tax Proceedings in accordance with Section 9, in each case, except as otherwise provided in this Agreement. The agency
power of LMC (and Parent), as described in this Section 8, shall extend to all periods during which the Company or any member of the
Company Group is a member of any Affiliated Group, and, in the event of the disaffiliation of the Company or any member of the Company
Group, LMC (and Parent) shall retain its agency powers described herein to make or change on behalf of the Company, or any member of the
Company Group, any election or other decision affecting Tax liabilities for such periods that the Company or such member of the Company
Group was affiliated with the Affiliated Group.
9.
Tax Proceedings.
(a)
In General. Except as provided in Section 9(b), (i) with respect to any Joint Returns and any Separate Returns described in
Section 3(b)(i), LMC, and (ii) with respect to Separate Returns described in Section 3(b)(ii), the Company (in either case, the “Controlling
Party”), shall have the exclusive right, in its sole discretion, to control, contest, and represent the interests of each member of the LMC Group
and/or the Company Group, as applicable, in any Tax Proceeding relating to such Tax Return and to resolve, settle or agree to any deficiency,
claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Tax Proceeding. Except as otherwise provided
i n Section 9(b), the Controlling Party’s rights shall extend to any matter pertaining to the management and control of a Tax Proceeding,
including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item.
(b)
Participation of Non-Controlling Party. In any Tax Proceeding relating to a Joint Return in which any Tax Item of the Company
Group is a subject of such Tax Proceeding (a “Contested Company Group Item”), the Company shall be entitled to participate in such Tax
Proceeding at its expense, insofar as the liabilities of the Company Group are concerned, and LMC shall consult with the Company with
respect to any Contested Company Group Item, shall act in good faith with a view to the merits in connection with such Tax Proceeding, shall
keep the Company updated and informed with respect to such Contested Company Group Item and shall not settle or compromise any
Contested Company Group Item in excess of $500,000 without the Company’s prior written consent, such consent not be unreasonably
withheld or delayed.
(c)
Notice. If a party becomes aware of the existence of a Tax issue that may give rise to an indemnification obligation under this
Agreement, such party shall give prompt notice to the other party of such issue (and such notice shall contain factual information, to the extent
known, describing any asserted Tax liability in reasonable detail), and shall promptly forward to the other party copies of all notices and
material communications with any Tax Authority relating to such issue. Failure to give timely notice shall not affect the indemnities given
hereunder except, and only to the extent that, the indemnifying party shall have been actually materially prejudiced as a result of such failure.
Cooperation. The parties shall cooperate with one another in all matters relating to Taxes (and each shall cause its respective affiliates
10.
to so cooperate). The Company shall provide LMC, and LMC shall provide the Company, with such cooperation and information as is
necessary in order to enable LMC, Parent and the Company to satisfy its Tax, accounting and
16
other legitimate requirements. Unless otherwise provided under this Agreement, such cooperation and information shall include (i) making the
parties’ respective knowledgeable employees available during normal business hours, (ii) providing the information required by reasonable
Tax and accounting questionnaires from the other party (at the times and in the format as reasonably required by such other party), (iii)
maintaining such books and records and providing such information as may be necessary or reasonably useful in the filing of Joint Returns and
Separate Returns, (iv) executing such documents as may be necessary or reasonably useful in connection with any Tax Proceeding, the filing of
Joint Returns and Separate Returns, or the filing of refund claims by a member of the LMC Group or the Company Group (including
certification, to the best of a party’s knowledge, of the accuracy and completeness of the information it has supplied), and (v) taking any
actions which the other party may reasonably request in connection with the foregoing matters.
Foreign Tax Returns. If the parties (or any members of their respective Groups) are required to file (or the parties determine that it is
11.
in their best interests to file) a foreign Tax Return for any Taxable period ending on or after the Effective Date that includes at least two Legal
Entities, of which one Legal Entity is a member of the Company Group and the other Legal Entity is a member of the LMC Group (or any such
Legal Entity of one Group is required or able to file a Tax Return reflecting the Tax Assets of a Legal Entity of the other Group pursuant to a
similar or analogous scheme under applicable foreign Tax Law), the parties shall reasonably cooperate with one another to complete such Tax
Returns, and to allocate the responsibility for payment of any Taxes or Tax Benefits with respect to such Tax Returns, consistent with the
underlying principles of calculation and allocation in this Agreement, with such changes as are necessary to reflect the Tax Laws of the
applicable jurisdiction.
12.
Binding Effect; Assignment.
(a)
General. Except as otherwise provided in Section 12(b) or 23, this Agreement shall be binding upon and shall inure to the
benefit of LMC, the Company, and each other party hereto and each other Legal Entity that becomes a party hereto pursuant to Section 12(b) or
23, and this Agreement shall inure to the benefit of, and be binding upon, any successors or assigns of the parties hereto. Except as otherwise
provided in Section 12(b) or 23, each of LMC and the Company may assign its right to receive payments under this Agreement but may not
assign or delegate any other right or obligation hereunder.
(b)
Assignment for Spin-Off Transaction. If LMC effects a spin-off, split-off or other distribution of the shares of a Subsidiary of
LMC (such Subsidiary, a “spin-off entity”) that is the beneficial owner (as determined pursuant to Rule 13d-3 and Rule 13d-5 under the
Exchange Act and any successor regulation) of equity securities of the Company representing at least 80% of the combined voting power and
80% of the value of the total outstanding equity securities of the Company (within the meaning of Section 1504(a)(2) of the Code), and the
shares of any series of capital stock of such spin-off entity are registered under Section 12(b) or 12(g) of the Exchange Act, then LMC shall
have the right to assign its rights and obligations under this Agreement to the spin-off entity for Taxable periods (or portions thereof) beginning
after the effective date of such transaction. Notwithstanding any assignment to the spin-off entity, LMC shall continue to
17
have all of its rights and obligations under this Agreement with respect to Taxable periods (or portions thereof) ending on or before the
effective date of such transaction. The parties agree to cooperate in entering into any agreement reasonably requested to reflect the foregoing
assignment of rights and obligations by LMC to the spin-off entity.
No Third Party Beneficiaries. Except as provided in Sections 7, 12 and 23, this Agreement is solely for the benefit of LMC and the
13.
Company and is not intended to confer upon any other Person any rights or remedies hereunder.
Application of Agreement. This Agreement shall be applicable only to Taxable periods of the Company and the members of the
14.
Company Group ending on or after the Effective Date and to each Taxable period thereafter.
15.
Interpretation. This Agreement is intended to calculate, allocate and settle certain Tax liabilities of the members of the LMC Group
and the Company Group, and any situation or circumstance concerning such calculation and allocation that is not specifically contemplated
hereby or provided for herein shall be dealt with in a manner consistent with the underlying principles of calculation and allocation in this
Agreement.
16.
Legal and Accounting Fees. Unless otherwise specified herein, any fees or expenses (including internal expenses) for legal,
accounting or other professional services rendered in connection with Tax research relating to the Company Group, the preparation of a Joint
Return or any statement relating to any Separate Return Tax Liability or other calculations under this Agreement or the conduct of any Tax
Proceeding shall be allocated between LMC and the Company in a manner resulting in LMC and the Company, respectively, bearing a
reasonable approximation of the actual amount of such fees or expenses hereunder reasonably related to, and for the benefit of, their respective
Groups. The Company shall pay LMC for any fees and expenses allocated to the Company pursuant to this Section 16 within five (5) Business
Days after the date the Company receives notice from LMC requesting such payment.
Effect of the Agreement. This Agreement shall determine the liability of LMC and the Company to each other as to the matters
17.
provided for herein, whether or not such determination is effective for purposes of the Code or state or local Tax Laws, or for financial
reporting purposes or for any other purposes.
Allocation Among the Company and Its Included Subsidiaries. Nothing herein shall be deemed to preclude or require any allocation
18.
of the Separate Return Tax Liability of the Company Group among or between the Company and its Subsidiaries.
19. Modifications. This Agreement shall not be modified or terminated except by a writing duly signed by each of the parties hereto, and
no waiver of any provisions of this Agreement shall be effective unless in a writing duly signed by the party sought to be bound, except that
any addition of a new party pursuant to Section 12(b) or 23 shall not require a writing signed by any other party.
18
Entire Agreement. This Agreement embodies the entire agreement among the parties hereto with respect to the matters covered
20.
hereby and thereby, and all prior written or oral agreements, representations, warranties or covenants previously existing between the parties
with respect to such subject matter are cancelled and are not part of this Agreement.
21.
Changes in Law.
(a)
Any references to the Code or Treasury Regulations, or a law of another jurisdiction, shall be deemed to refer to the relevant
provisions of any successor statute or regulation and shall refer to such provisions as in effect from time to time.
(b)
If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having
jurisdiction subsequent to the Effective Date, performance of any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means
to achieve the same or substantially the same result as that contemplated by such provision.
Notices. All notices, requests, and other communications hereunder shall be in writing and shall be delivered in person, by facsimile
22.
(with confirming copy sent by one of the other delivery methods specified herein), by electronic mail, by overnight courier or sent by certified,
registered or express air mail, postage prepaid, and shall be deemed given when so delivered in person, or when so received by facsimile,
electronic mail or courier, or, if mailed, three (3) calendar days after the date of mailing, as follows:
If to LMC or any member of the LMC Group:
Liberty Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Attention: Chief Legal Officer
Email: legalnotices@libertymedia.com
Facsimile: (720) 875-5401
If to the Company or any member of the Company Group:
Sirius XM Holdings Inc.
1221 Avenue of the Americas
35 Floor
New York, New York 10017
th
Attention: Chief Financial Officer
Facsimile: (212) 584-5353
19
or to such other address as the party to whom notice is given may have previously furnished to the other party in writing in the manner set forth
above.
23.
Successors.
(a)
Successors to the Company. In the event of any merger, consolidation, reorganization, statutory share exchange, conversion of
the Company from a corporation to a limited liability company or other legal entity or other transaction affecting the Company, that results in
the exchange or conversion of the equity securities of the Company for or into equity securities of (x) the successor to the Company in such
transaction (or to the extent applicable, the acquiror of all or substantially all of the Company’s businesses) (a “Company Successor”) or (y)
any Person of which the Company or such successor is a Subsidiary as a result of and after giving effect to such transaction (a “Company
Successor Parent”), then (A) for Taxable periods (or portions thereof) beginning at or after the effective time of such transaction, (i) all
references herein to the Company, other than in the last sentence of this Section 23(a), shall mean and refer to such Company Successor or
Company Successor Parent, as applicable, and (ii) all references herein to any equity securities of the Company shall mean and refer to the
equity securities or ownership interests of such Company Successor or Company Successor Parent, as applicable, into which such equity
securities shall have been converted (or for which such equity securities shall have been exchanged), and (B) in connection with any such
transaction, the Company will cause such Company Successor or Company Successor Parent, as applicable, to become a party to this
Agreement, and be bound hereby, as of the effective time of such transaction. For the avoidance of doubt, this Agreement shall continue to be
binding upon the Company notwithstanding any change in ownership of the Company.
(b)
Successors to LMC.
(i)
In the event of any merger, consolidation, reorganization, statutory share exchange, conversion of LMC from a
corporation to a limited liability company or other legal entity or other transaction affecting LMC, that results in the exchange or
conversion of any class or series of capital stock of LMC for or into equity securities of (x) the successor to LMC in such
transaction (or to the extent applicable, the acquiror of all or substantially all of LMC’s businesses) (a “LMC Successor”) or (y)
any Person of which LMC or such successor is a Subsidiary after giving effect to such transaction (a “LMC Successor Parent”),
and if (but only if) such LMC Successor or LMC Successor Parent owns, directly or indirectly, the equity securities of the
Company that were owned, directly or indirectly, by LMC immediately prior to such transaction, then (A) for Taxable periods (or
portions thereof) beginning at or after the effective time of such transaction, (i) all references in this Agreement to LMC, other
than in Section 23(b)(ii), shall mean and refer to such LMC Successor or LMC Successor Parent, as applicable, and (ii) all
references herein to any class or series of capital stock of LMC shall mean and refer to the equity securities or ownership interests
of such LMC Successor or LMC Successor Parent, as applicable, into which such class or series of capital stock of LMC shall
have been converted (or for which it shall
20
have been exchanged), and (B) such LMC Successor or LMC Successor Parent, as applicable, shall become a party to this
Agreement, and be bound hereby, as if such Person were a signatory hereto (whether or not such Person signs a counterpart of
this Agreement or enters into a joinder agreement or similar instrument with respect hereto).
Notwithstanding the provisions of clause (i) of this Section 23(b), and without limiting the rights of any LMC Successor
(ii)
or LMC Successor Parent, the Company agrees that following the effective time of a transaction described in clause (i) of this
Section 23(b) (a “LMC Successor Transaction”) in which LMC continues as a legal entity, and with respect to Joint Returns for
Taxable periods beginning prior to the effective time of such LMC Successor Transaction, (a) LMC shall continue to have the
authority to act as agent for the members of the Company Group, (b) LMC shall have the authority to file such Joint Returns (or
otherwise cause such Joint Returns to be filed) and to make or change any Tax elections (or cause any Tax elections to be made
or changed) on behalf of the Company Group, and (c) LMC shall have the right to control Tax Proceedings with respect to any
member of the Company Group relating to such Joint Returns, subject to providing the Company with the participation and
control rights to which it would otherwise be entitled pursuant to Section 9.
24.
Governing Law; Jurisdiction; Waiver of Jury Trial.
(a)
This Agreement and the legal relations among the parties hereto will be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware applicable to contracts made and performed wholly therein, without giving effect
to any choice or conflict of laws provisions or rules that would cause the application of the laws of any other jurisdiction. Each of the parties
hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement, and the rights and obligations arising hereunder,
or for recognition and enforcement of any judgment in respect of this Agreement, and the rights and obligations arising hereunder brought by
the other party hereto or its successors or assigns, shall be brought and determined exclusively in the Delaware Court of Chancery and any state
appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular
matter, any state or federal court within the State of Delaware). Each of the parties hereto hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts
and agrees that it will not bring any action relating to this Agreement or the transactions contemplated hereby in any court other than the
aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement (a) any claim that it is not personally subject to the jurisdiction of the above named courts
for any reason other than the failure to serve in accordance with Section 22 and this Section 24, (b) any claim that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and
21
(c) to the fullest extent permitted by applicable law, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement or the subject matter hereof may not be enforced in
or by such courts. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without
the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section
22 shall be deemed effective service of process on such party.
EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT. EACH PARTY HERETO
CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH
ACTION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED
THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH
PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 24(b).
Termination. This Agreement shall terminate at such time as all obligations and liabilities of the parties hereto have been satisfied. The
25.
obligations and liabilities of the parties arising under this Agreement shall continue in full force and effect until all such obligations have been
met and such liabilities have been paid in full, whether by expiration of time, operation of law, or otherwise. The obligations and liabilities of
each party are made for the benefit of, and shall be enforceable by, the other parties and their successors and permitted assigns.
26.
Headings; Interpretation. The headings used in this Agreement are for convenience only and shall not in any way affect the meaning
or interpretation of any provision hereof. When a reference is made in this Agreement to a “Section” or “Sections,” such reference shall be to a
Section or Sections of this Agreement unless otherwise indicated. The words “include,” “includes,” “included,” and “including,” when used
herein shall be deemed in each case to be followed by the words “without limitation.” The words “hereof,” “herein,” “hereby,” and
“hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The words “date hereof” shall refer to the date of this Agreement. The term “or” is not exclusive and means
“and/or” unless the context in which such phrase is used shall dictate otherwise. The word “extent” in the phrase “to the extent” shall mean the
degree to which a subject or other such thing extends, and such phrase shall not mean simply “if” unless the context in which such phrase is
used shall dictate otherwise. The definitions contained in this Agreement are applicable to the singular as
22
well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
Counterparts. This Agreement may be executed in multiple counterparts each of which shall be deemed an original, but all of which
27.
shall together constitute one Agreement.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be executed by its respective duly authorized
officer as of the date first set forth above.
LIBERTY MEDIA CORPORATION
for itself and on behalf of each LMC Affiliate
BY: /s/ Tim Lenneman
Tim Lenneman
Senior Vice President
SIRIUS XM HOLDINGS INC.
for itself and on behalf of each Company Affiliate
BY: /s/ Thomas Barry
Thomas Barry
Senior Vice President
23
SIRIUS XM HOLDINGS INC.
SUBSIDIARIES
Exhibit 21.1
Sirius XM Radio Inc.
Automatic Labs Inc.
Satellite CD Radio LLC
Sirius XM Connected Vehicle Services Inc.
Sirius XM Connected Vehicle Services Holdings Inc.
SXM CVS Canada Inc.
XM 1500 Eckington LLC
XM Emall Inc.
XM Investment LLC
XM Radio LLC
Pandora Media, LLC
AdsWizz Inc.
Stitcher Media LLC
Audios Ventures Inc. (dba Simplecast)
The Board of Directors
Sirius XM Holdings Inc.:
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the registration statements No. 333-229468, 333-228088, 333-152574, 333-159206, 333-160386, 333-179600, 333-204302, and
333-205409 of Sirius XM Holdings Inc. of our reports dated February 2, 2021, with respect to the consolidated balance sheets of Sirius XM Holdings Inc. and subsidiaries as of
December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the three-year
period ended December 31, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and the effectiveness of internal
control over financial reporting as of December 31, 2020, which reports appear in the December 31, 2020 annual report on Form 10-K of Sirius XM Holdings Inc.
Our report on the consolidated financial statements refers to a change in the method of accounting for leases effective January 1, 2019 due to the adoption of Accounting
Standard Update (ASU) 2016-02 and all related amendments, which established Accounting Standard Codification (ASC) Topic 842, Leases.
/s/ KPMG LLP
New York, New York
February 2, 2021
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Exhibit 31.1
I, Jennifer C. Witz, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020 of Sirius XM Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial
reporting.
February 2, 2021
By:
/s/ JENNIFER C. WITZ
Jennifer C. Witz
Chief Executive Officer and Director
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Exhibit 31.2
I, Sean S. Sullivan, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020 of Sirius XM Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial
reporting.
February 2, 2021
By:
/s/ SEAN S. SULLIVAN
Sean S. Sullivan
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Sirius XM Holdings Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Jennifer C. Witz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By:
/s/ JENNIFER C. WITZ
Jennifer C. Witz
Chief Executive Officer and Director
(Principal Executive Officer)
February 2, 2021
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Sirius XM Holdings Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Sean S. Sullivan, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By:
/s/ SEAN S. SULLIVAN
Sean S. Sullivan
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 2, 2021
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.