Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019



o		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		38-3916511
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1290 Avenue of the Americas, 11th Floor
New York, New York		10104
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 584-5100

Former name, former address and former fiscal year, if changed since last report: Not Applicable

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 þ No o

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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 þ	Accelerated filer o	Non-accelerated filer o

Smaller reporting company o	Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.



(Class)	(Outstanding as of April 22, 2019)
COMMON STOCK, $0.001 PAR VALUE	4,607,284,743	SHARES

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q



Item No.	Description

	PART I - Financial Information

Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018	2
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	3
	Consolidated Statement of Stockholders' Equity (Deficit) for the three months ended March 31, 2019 and 2018	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	6
	Notes to the Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	56
Item 4.	Controls and Procedures	56

	PART II - Other Information

Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	71
	Signatures	73

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	For the Three Months Ended March 31,
(in millions, except per share data)	2019			2018
Revenue:
Subscriber revenue	$	1,458		$	1,258
Advertising revenue	209			42
Equipment revenue	41			35
Other revenue	36			40
Total revenue	1,744			1,375
Operating expenses:
Cost of services:
Revenue share and royalties	492			310
Programming and content	106			101
Customer service and billing	113			94
Transmission	31			22
Cost of equipment	6			7
Subscriber acquisition costs	108			123
Sales and marketing	183			107
Engineering, design and development	54			31
General and administrative	135			85
Depreciation and amortization	107			72
Acquisition and other related costs	76			—
Total operating expenses	1,411			952
Income from operations	333			423
Other income (expense):
Interest expense	(90		)	(90		)
Loss on extinguishment of debt	(1		)	—
Other income	1			36
Total other expense	(90		)	(54		)
Income before income taxes	243			369
Income tax expense	(81		)	(80		)
Net income	$	162		$	289
Foreign currency translation adjustment, net of tax	7			(9		)
Total comprehensive income	$	169		$	280
Net income per common share:
Basic	$	0.04		$	0.06
Diluted	$	0.03		$	0.06
Weighted average common shares outstanding:
Basic	4,571			4,491
Diluted	4,678			4,586
Dividends declared per common share	$	0.0121		$	0.0110

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



(in millions, except per share data)	March 31, 2019			December 31, 2018
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	62		$	54
Receivables, net	592			233
Inventory, net	20			22
Related party current assets	12			11
Prepaid expenses and other current assets	221			158
Total current assets	907			478
Property and equipment, net	1,586			1,513
Intangible assets, net	3,581			2,501
Goodwill	3,831			2,290
Related party long-term assets	448			960
Deferred tax assets	298			293
Operating lease right-of-use assets	428			—
Other long-term assets	146			138
Total assets	$	11,225		$	8,173
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	1,072		$	736
Accrued interest	86			128
Current portion of deferred revenue	1,994			1,932
Current maturities of debt	4			3
Operating lease current liabilities	46			—
Related party current liabilities	4			4
Total current liabilities	3,206			2,803
Long-term deferred revenue	145			149
Long-term debt	7,181			6,885
Related party long-term liabilities	3			4
Deferred tax liabilities	48			47
Operating lease liabilities	397			—
Other long-term liabilities	91			102
Total liabilities	11,071			9,990
Commitments and contingencies (Note 15)
Stockholders’ equity (deficit):
Common stock, par value $0.001 per share; 9,000 shares authorized; 4,650 and 4,346 shares issued; 4,645 and 4,346 outstanding at March 31, 2019 and December 31, 2018, respectively	5			4
Accumulated other comprehensive income (loss), net of tax	1			(6		)
Additional paid-in capital	2,071			242
Treasury stock, at cost; 5 and 0 shares of common stock at March 31, 2019 and December 31, 2018, respectively	(28		)	—
Accumulated deficit	(1,895		)	(2,057		)
Total stockholders’ equity (deficit)	154			(1,817		)
Total liabilities and stockholders’ equity (deficit)	$	11,225		$	8,173

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)



	Common Stock				Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Treasury Stock					Accumulated Deficit			Total Stockholders’ Equity (Deficit)
(in millions)	Shares		Amount		Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Shares		Amount			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2018	4,346		$	4	$	(6	)	$	242		—		$	—		$	(2,057	)	$	(1,817	)
Comprehensive income, net of tax	—		—		7			—			—		—			162			169
Share-based payment expense	—		—		—			74			—		—			—			74
Exercise of options and vesting of restricted stock units	8		—		—			—			—		—			—			—
Withholding taxes on net share settlement of stock-based compensation	—		—		—			(34		)	—		—			—			(34		)
Cash dividends paid on common stock, $0.0121 per share	—		—		—			(57		)	—		—			—			(57		)
Issuance of common stock as part of Pandora Acquisition	392		1		—			2,354			—		—			—			2,355
Equity component of convertible note	—		—		—			68			—		—			—			68
Common stock repurchased	—		—		—			—			101		(604		)	—			(604		)
Common stock retired	(96	)	—		—			(576		)	(96	)	576			—			—
Balance at March 31, 2019	4,650		$	5	$	1		$	2,071		5		$	(28	)	$	(1,895	)	$	154

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)



	Common Stock				Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Treasury Stock					Accumulated Deficit			Total Stockholders’ Equity (Deficit)
(in millions)	Shares		Amount		Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Shares		Amount			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2017	4,531		$	4	$	19		$	1,713		3		$	(17	)	$	(3,243	)	$	(1,524	)
Cumulative effect of change in accounting principles	—		—		4			—			—		—			14			18
Comprehensive income, net of tax	—		—		(9		)	—			—		—			289			280
Share-based payment expense	—		—		—			29			—		—			—			29
Exercise of options and vesting of restricted stock units	5		—		—			—			—		—			—			—
Withholding taxes on net share settlement of stock-based compensation	—		—		—			(24		)	—		—			—			(24		)
Cash dividends paid on common stock, $0.0110 per share	—		—		—			(49		)	—		—			—			(49		)
Common stock repurchased	—		—		—			—			52		(295		)	—			(295		)
Common stock retired	(55	)	—		—			(309		)	(55	)	309			—			—
Balance at March 31, 2018	4,481		$	4	$	14		$	1,360		—		$	(3	)	$	(2,940	)	$	(1,565	)

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	For the Three Months Ended March 31,
(in millions)	2019			2018
Cash flows from operating activities:
Net income	$	162		$	289
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	107			72
Non-cash interest expense, net of amortization of premium	4			2
Provision for doubtful accounts	14			11
Amortization of deferred income related to equity method investment	(1		)	(1		)
Loss on extinguishment of debt	1			—
Loss (gain) on unconsolidated entity investments, net	4			(1		)
Gain on fair value instrument	—			(31		)
Dividend received from unconsolidated entity investment	—			1
Share-based payment expense	70			34
Deferred income taxes	77			72
Changes in operating assets and liabilities:
Receivables	(13		)	(14		)
Inventory	2			3
Related party, net	(1		)	(2		)
Prepaid expenses and other current assets	(31		)	(8		)
Other long-term assets	1			6
Operating lease right-of-use assets	19			—
Accounts payable and accrued expenses	15			(38		)
Accrued interest	(42		)	(53		)
Deferred revenue	20			66
Operating lease liabilities	(17		)	—
Other long-term liabilities	5			7
Net cash provided by operating activities	396			415
Cash flows from investing activities:
Additions to property and equipment	(90		)	(81		)
Purchases of other investments	(6		)	(7		)
Cash received from Pandora Acquisition	313			—
Sale of short-term investments	72			—
Investments in related parties and other equity investees	(5		)	—
Repayment from related party	—			3
Net cash provided by (used in) investing activities	284			(85		)
Cash flows from financing activities:
Taxes paid from net share settlements for stock-based compensation	(33		)	(23		)
Revolving credit facility, net of deferred financing costs	143			65
Proceeds from sale of capped call security	3			—
Principal payments of long-term borrowings	(152		)	(4		)
Common stock repurchased and retired	(576		)	(309		)
Dividends paid	(57		)	(49		)
Net cash used in financing activities	(672		)	(320		)
Net decrease in cash, cash equivalents and restricted cash	8			10
Cash, cash equivalents and restricted cash at beginning of period	65			79
Cash, cash equivalents and restricted cash at end of period⁽¹⁾	$	73		$	89

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(UNAUDITED)



	For the Three Months Ended March 31,
(in millions)	2019			2018
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized	$	128		$	139
Income taxes paid	$	1		$	6
Non-cash investing and financing activities:
Treasury stock not yet settled	$	(28	)	$	14
Fair value of shares issued related to acquisition of a business	$	2,355		$	—
Accumulated other comprehensive income (loss), net of tax	$	7		$	(9	)


(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)	March 31, 2019		December 31, 2018		March 31, 2018		December 31, 2017
Cash and cash equivalents	$	62	$	54	$	79	$	69
Restricted cash included in Other long-term assets	11		11		10		10
Total cash, cash equivalents and restricted cash at end of period	$	73	$	65	$	89	$	79

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)


(1)	Business & Basis of Presentation

This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“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 transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through our two proprietary satellite radio systems. Satellite radios are primarily distributed through automakers, retailers and our website. Subscribers can also receive music and other channels, plus certain other features, over our Internet radio service, including through applications for mobile devices, home devices and other consumer electronic equipment. The primary source of revenue from our Sirius XM business is generated from 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 March 31, 2019, our Sirius XM business had approximately 34.2 million subscribers.

In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers and directly to consumers through aftermarket devices. These services are designed to enhance safety, security and the driving experience. 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 designed for improving situational awareness 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").

Pandora

Our Pandora business operates a music discovery platform, offering a personalized experience for each listener wherever and whenever they want to listen to music, whether through mobile devices, car speakers or connected devices in the home. Pandora enables listeners to create personalized stations and playlists, as well as search and play songs and albums on-demand. Pandora is available as an ad-supported radio service, a radio subscription service, called Pandora Plus, and an on-demand subscription service, called Pandora Premium. As of March 31, 2019, Pandora had approximately 6.9 million subscribers. The majority of revenue from our Pandora business is generated from advertising on our ad-supported radio service. In addition, as a result of the May 2018 acquisition of AdsWizz Inc. by Pandora, we provide a comprehensive digital audio advertising technology platform, which connects audio publishers and advertisers. As of March 31, 2019, our Pandora business had approximately 66.0 million active users.

Liberty Media

As of March 31, 2019, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 68% 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 unaudited 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

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

consolidated to conform to our current period presentation. Music Royalty Fee revenue was reported as Other revenue in our March 31, 2018 Quarterly Report on Form 10-Q. This revenue was reclassified to Subscriber revenue to conform with the current period presentation.



	For the Three Months Ended March 31, 2018
	As Reported		Reclassification			Current Year
Subscriber revenue	$	1,117	$	141		$	1,258
Advertising revenue	42		—			42
Equipment revenue	35		—			35
Other revenue	181		(141		)	40
Total revenue	$	1,375	$	—		$	1,375

In the opinion of our management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 have been made.

Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on January 30, 2019.

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 16 for information related to our segments.

We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three months ended March 31, 2019 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events that do not require adjustment to our unaudited consolidated financial statements refer to Note 18.

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 unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense, income taxes, and the purchase accounting related to the Pandora Acquisition (defined below).


(2)	Acquisition

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.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(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	272
Exchange ratio	1.44
Common stock issued	392
Price per share of Holdings common stock	$	5.83
Value of common stock issued to Pandora stockholders	$	2,285
Value of replacement equity awards attributable to pre-combination service	$	70
Consideration of common stock and replacement equity awards for pre-combination service	$	2,355
Sirius XM’s Pandora preferred stock investment (related party fair value instrument) canceled	$	524
Total consideration for transactions	$	2,879
Value attributed to par at $0.001 par value	$	1
Balance to capital in excess of par value	$	2,354

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	$	313
Receivables, net	361
Prepaid expenses and other current assets	109
Property and equipment	65
Intangible assets	1,107
Goodwill	1,541
Deferred tax assets	83
Operating lease right-of-use assets	96
Long term assets	7
Total assets	$	3,682

Assumed Liabilities:
Accounts payable and accrued expenses	$	302
Deferred revenue	37
Operating lease current liabilities	27
Current maturities of debt	151
Long-term debt (a)	218
Operating lease liabilities	62
Other long-term liabilities	6
Total liabilities	$	803
Total Consideration	$	2,879


(a)	In order to present the assets acquired and liabilities assumed, the conversion feature associated with the convertible notes for $68 has been included within Long-term debt in the table above and included within Additional paid-in-capital within our unaudited statements of stockholders' equity (deficit). Refer to note 12 for additional information.

The Pandora Acquisition was accounted for using the acquisition method of accounting. The initial purchase price allocation is preliminary and is subject to revision as permitted by ASC 805, Business Combinations. The primary areas of the purchase price allocation that are not yet finalized are related to certain current assets, contingencies and tax balances. The excess purchase price over identifiable net tangible and intangible assets of $1,541 has been recorded to Goodwill in our unaudited consolidated balance sheets as of March 31, 2019. 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

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

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 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 $1,199 for federal income tax purposes 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 $76 that were expensed in Acquisition and other related costs in our unaudited consolidated statements of comprehensive income during the three months ended March 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 since the date of acquisition was $251 and $122, respectively, for the three months ended March 31, 2019. The following pro forma financial information presents our results as if the Pandora Acquisition had occurred on January 1, 2018:



	For the Three Months Ended March 31,
	2019		2018
Total revenue	$	1,860	$	1,697
Net income	$	181	$	172

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 and associated tax impacts.


(3)	Summary of Significant Accounting Policies

Fair Value Measurements

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are based on unadjusted quoted prices in active markets for identical instruments. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. As of March 31, 2019 and December 31, 2018, the carrying amounts of cash and cash equivalents, receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.

Our assets and liabilities measured at fair value were as follows:



	March 31, 2019						December 31, 2018
	Level 1	Level 2		Level 3	Total Fair Value		Level 1	Level 2		Level 3	Total Fair Value
Assets:
Pandora investment ^(a)	—	—		—	$	—	—	$	523	—	$	523
Liabilities:
Debt ^(b)	—	$	7,403	—	$	7,403	—	$	6,633	—	$	6,633


(a)	During the year ended December 31, 2017, Sirius XM completed a $480 preferred stock investment in Pandora. Prior to the Pandora Acquisition, we elected the fair value option to account for this investment. This investment was canceled in conjunction with the Pandora Acquisition. Refer to Note 2 for information on this acquisition.


(b)	The fair value for non-publicly traded debt is based upon estimates from a market maker and brokerage firm. Refer to Note 12 for information related to the carrying value of our debt as of March 31, 2019 and December 31, 2018.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income of $1 was primarily comprised of the cumulative foreign currency translation adjustments related to our investment in and loan to Sirius XM Canada (refer to Note 11 for additional information). During the three months ended March 31, 2019 and 2018, we recorded foreign currency translation adjustment income (loss) of $7 and $(9), respectively, net of tax (expense) benefit of $(2) and $3, respectively.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The guidance in this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted including adoption in any interim period. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after adoption. This ASU will not have a material impact on our consolidated statements of operations.

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 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is 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 operations, consolidated statements of cash flows or debt. Additionally, we did not record a cumulative effect adjustment to opening retained earnings.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

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 at December 31, 2018		Adjustments Due to ASU 2016-02			Balance at January 1, 2019
Balance Sheet
Assets:
Operating lease right-of-use assets	$	—	$	347		$	347

Liabilities:
Accounts payable and accrued expenses	$	736	$	(1	)	$	735
Operating lease current liabilities	—		30			30
Operating lease liabilities	—		339			339
Other long-term liabilities	102		(21		)	81


(4)	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 three months ended March 31, 2019 and 2018.

Common stock equivalents of 60 and 44 for the three months ended March 31, 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.



	For the Three Months Ended March 31,
	2019		2018
Numerator:
Net Income available to common stockholders for basic net income per common share	$	162	$	289
Effect of interest on assumed conversions of convertible debt, net of tax	1		—
Net Income available to common stockholders for dilutive net income per common share	$	163	$	289
Denominator:
Weighted average common shares outstanding for basic net income per common share	4,571		4,491
Weighted average impact of assumed Convertible Notes	25		—
Weighted average impact of dilutive equity instruments	82		95
Weighted average shares for diluted net income per common share	4,678		4,586
Net income per common share:
Basic	$	0.04	$	0.06
Diluted	$	0.03	$	0.06


(5)	Receivables, net

Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables.

Customer accounts receivable, net, includes receivables from our subscribers, advertising customers 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 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 unaudited consolidated statements of comprehensive income.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

Receivables from distributors primarily include billed and unbilled amounts due from OEMs 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 OEMs or other third parties.

Receivables, net, consists of the following:



	March 31, 2019			December 31, 2018
Gross customer accounts receivable	$	465		$	105
Allowance for doubtful accounts	(20		)	(7		)
Customer accounts receivable, net	$	445		$	98
Receivables from distributors	121			107
Other receivables	26			28
Total receivables, net	$	592		$	233


(6)	Inventory, net

Inventory consists of finished goods, refurbished goods, chipsets and other raw material components used in manufacturing radios and connected vehicle devices. 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 unaudited 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 unaudited consolidated statements of comprehensive income.

Inventory, net, consists of the following:



	March 31, 2019			December 31, 2018
Raw materials	$	6		$	5
Finished goods	20			23
Allowance for obsolescence	(6		)	(6		)
Total inventory, net	$	20		$	22


(7)	Goodwill

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.

As of March 31, 2019, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the three months ended March 31, 2019 and 2018. As of March 31, 2019, the cumulative balance of goodwill impairments recorded since the July 2008 merger between our wholly owned subsidiary, Vernon Merger Corporation, and XM Satellite Radio Holdings Inc. (“XM”), was $4,766, which was recognized during the year ended December 31, 2008.

As a result of the Pandora Acquisition, we recorded additional goodwill of $1,541 during the three months ended March 31, 2019 at our Pandora reporting unit. The goodwill of the acquired company is not deductible for tax purposes. Refer to Note 2 for information on this acquisition.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)


(8)	Intangible Assets

Our intangible assets include the following:



		March 31, 2019							December 31, 2018
	Weighted Average Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Indefinite life intangible assets:
FCC licenses	Indefinite	$	2,084	$	—		$	2,084	$	2,084	$	—		$	2,084
Trademarks	Indefinite	251		—			251		251		—			251
Definite life intangible assets:
OEM relationships	15 years	220		(79		)	141		220		(76		)	144
Licensing agreements	12 years	45		(39		)	6		45		(38		)	7
Software and technology	7 years	35		(21		)	14		35		(20		)	15
Due to Pandora Acquisition:
Indefinite life intangible assets:
Trademarks	Indefinite	$	331	$	—		$	331	$	—	$	—		$	—
Definite life intangible assets:
Customer relationships	8 years	403		(9		)	394		—		—			—
Software and technology	5 years	373		(13		)	360		—		—			—
Total intangible assets		$	3,742	$	(161	)	$	3,581	$	2,635	$	(134	)	$	2,501

Indefinite Life Intangible Assets

We have identified our FCC licenses and the Pandora, XM and Automatic 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. As part of the Pandora Acquisition, we also identified $331 related to its trademarks, for which the fair value was determined using the relief from royalty method as of the acquisition date.

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.

Our annual impairment assessment of our identifiable indefinite life 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. As of March 31, 2019, there were no indicators of impairment, and no

impairment loss was recognized for intangible assets with indefinite lives during the three months ended March 31, 2019 and

2018.

Definite Life Intangible Assets

Amortization expense for all definite life intangible assets was $27 and $6 for the three months ended March 31, 2019 and 2018, respectively. There were no retirements of definite lived intangible assets during the three months ended March 31, 2019. As part of the Pandora Acquisition, $776 was allocated to identifiable intangible assets subject to amortization and related to the assessed fair value of customer relationships and software and technology, which was determined by using the multi-period excess earnings method and the relief from royalty method, respectively, as of the acquisition date.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

The expected amortization expense for each of the fiscal years 2019 through 2023 and for periods thereafter is as follows:



Years ending December 31,	Amount
2019 (remaining)	$	114
2020	152
2021	146
2022	144
2023	134
Thereafter	225
Total definite life intangible assets, net	$	915


(9)	Property and Equipment

Property and equipment, net, consists of the following:



	March 31, 2019			December 31, 2018
Satellite system	$	1,587		$	1,587
Terrestrial repeater network	99			98
Leasehold improvements	76			58
Broadcast studio equipment	112			111
Capitalized software and hardware	875			824
Satellite telemetry, tracking and control facilities	80			76
Furniture, fixtures, equipment and other	101			97
Land	38			38
Building	63			63
Construction in progress	486			412
Total property and equipment	3,517			3,364
Accumulated depreciation and amortization	(1,931		)	(1,851		)
Property and equipment, net	$	1,586		$	1,513

Construction in progress consists of the following:



	March 31, 2019		December 31, 2018
Satellite system	$	321	$	296
Terrestrial repeater network	5		5
Capitalized software and hardware	117		77
Other	43		34
Construction in progress	$	486	$	412

Depreciation and amortization expense on property and equipment was $80 and $66 for the three months ended March 31, 2019 and 2018, respectively. There were no retirements of property and equipment during the three months ended March 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 $4 and $2 for the three months ended March 31, 2019 and 2018, respectively, which related to the construction of our SXM-7 and SXM-8 satellites. We also capitalize a portion of stock based compensation related to employee time for capitalized software projects. Capitalized stock based compensation costs were $3 for the three months ended March 31, 2019. We did not capitalize any stock based compensation for the three months ended March 31, 2018.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

Satellites

As of March 31, 2019, we owned a fleet of five satellites. The chart below provides certain information on our satellites as of March 31, 2019:



Satellite Description	Year Delivered	Estimated End of Depreciable Life
SIRIUS FM-5	2009	2024
SIRIUS FM-6	2013	2028
XM-3	2005	2020
XM-4	2006	2021
XM-5	2010	2025

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 licenses. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred.

The following table outlines the years in which each of our satellite licenses expires:



FCC satellite licenses		Expiration year
SIRIUS FM-5		2025
SIRIUS FM-6		2022
XM-3		2021
XM-4		2022
XM-5		2026


(10)	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 19 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:



	For the Three Months Ended March 31,
	2019
Operating lease cost	$	17
Finance lease cost
Amortization of right-of-use assets	1
Sublease income	(1		)
Total lease cost	$	17

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

Supplemental cash flow information related to leases was as follows:



	For the Three Months Ended March 31,
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17
Financing cash flows from finance leases	$	1

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2

Supplemental balance sheet information related to leases was as follows:



	March 31, 2019
Operating Leases
Operating lease right-of-use assets	$	428

Operating lease current liabilities	46
Operating lease liabilities	397
Total operating lease liabilities	$	443



	March 31, 2019
Finance Leases
Property and equipment, gross	$	31
Accumulated depreciation	(22		)
Property and equipment, net	$	9

Current maturities of debt	$	4
Long-term debt	1
Total finance lease liabilities	$	5



	March 31, 2019
Weighted Average Remaining Lease Term
Operating leases	10 years
Finance leases	2 years



	March 31, 2019
Weighted Average Discount Rate
Operating leases	5.3	%
Finance leases	1.9	%

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

Maturities of lease liabilities were as follows:



	Operating Leases			Finance Leases
Year ending December 31,
2019 (remaining)	$	48		$	3
2020	70			2
2021	59			1
2022	56			—
2023	53			—
Thereafter	290			—
Total future minimum lease payments	576			6
Less imputed interest	(133		)	(1		)
Total	$	443		$	5

As of March 31, 2019, we had entered into an additional operating lease for office space that has not yet commenced of $33. This operating lease will commence in the second quarter of 2019 with a lease term of 11 years.


(11)	Related Party Transactions

In the normal course of business, we enter into transactions with related parties such as Liberty Media and Sirius XM Canada.

Liberty Media

As of March 31, 2019, Liberty Media beneficially owned, directly and indirectly, approximately 68% of the outstanding shares of our common stock. Liberty Media has two executives 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

On May 25, 2017, Sirius XM completed a recapitalization of Sirius XM Canada (the “Transaction”), which is now a privately held corporation.

Following the Transaction, Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, with the remainder of the voting power and equity interests held by two of Sirius XM Canada’s previous shareholders. The total consideration from Sirius XM to Sirius XM Canada, excluding transaction costs, during the year ended December 31, 2017 was $309, which included $130 in cash and we issued 35 shares of our common stock with an aggregate value of $179 to the holders of the shares of Sirius XM Canada acquired in the Transaction. Sirius XM received common stock, non-voting common stock and preferred stock of Sirius XM Canada. We own 591 shares of preferred stock of Sirius XM Canada, which has a liquidation preference of one Canadian dollar per share.

In connection with the Transaction, 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. 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 terms of the loan require Sirius XM Canada to prepay a portion of the outstanding principal amount of the loan within sixty days of the end of each fiscal year in an amount equal to any cash on hand in excess of C$10 at the last day of the financial year if all target dividends have been paid in full. During the three months ended March 31, 2019 and 2018, Sirius XM Canada repaid less than $1 and $3 of the principal amount of the loan, respectively.

In connection with the Transaction, Sirius XM also 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 through December 31, 2021 and 30% of its gross

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

revenues on a monthly basis thereafter. Pursuant to the Advisory Services Agreement, Sirius XM Canada pays Sirius XM 5% of its gross revenues on a monthly basis. These agreements superseded and replaced the former agreements between Sirius XM Canada and its predecessors and Sirius XM.

Sirius XM Canada is accounted for as an equity method investment, and its results are not consolidated in our unaudited 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.

We had the following related party balances associated with Sirius XM Canada:



	March 31, 2019		December 31, 2018
Related party current assets	$	12	$	11
Related party long-term assets	$	448	$	437
Related party current liabilities	$	4	$	4
Related party long-term liabilities	$	3	$	4

As of March 31, 2019 and December 31, 2018, our related party current asset balance included amounts due under the Services Agreement and Advisory Services Agreement and certain amounts related to transactions outside the scope of the new services arrangements. Our related party long-term assets balance as of March 31, 2019 and December 31, 2018 included the carrying value of our investment balance in Sirius XM Canada of $320 and $311, respectively, and, as of March 31, 2019 and December 31, 2018, also included $128 and $126, respectively, for the long-term value of the outstanding loan to Sirius XM Canada. Our related party liabilities for both March 31, 2019 and December 31, 2018 included $3 for the current portion of deferred revenue and $2 for the long-term portion of deferred revenue recorded as of the date of the Sirius and XM merger related to agreements with legacy XM Canada, now Sirius XM Canada. These costs are being amortized on a straight line basis through 2020.

Sirius XM Canada paid gross dividends to us of less than $1 during each of the three months ended March 31, 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 income for any remaining portion.

We recorded the following revenue and other income associated with Sirius XM Canada in our unaudited consolidated statements of comprehensive income:



	For the Three Months Ended March 31,
	2019		2018
Revenue ^(a)	$	24	$	24
Other income
Share of net earnings ^(b)	$	3	$	1
Interest income ^(c)	$	2	$	3


(a)	We record revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income.


(b)	For both the three months ended March 31, 2019 and 2018, Share of net earnings included $1 of amortization expense related to equity method intangible assets.


(c)	This interest income relates to the loan to Sirius XM Canada and is recorded as Other income (expense) in our unaudited consolidated statements of comprehensive income.

Pandora

The $523 preferred stock investment in Pandora as of December 31, 2018 was canceled in conjunction with the Pandora Acquisition. Refer to Note 2 for information on this acquisition.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)


(12)	Debt

Our debt as of March 31, 2019 and December 31, 2018 consisted of the following:

Carrying value^(a) at

Issuer / Borrower

Issued

Debt

Maturity Date

Interest Payable

Principal Amount at March 31, 2019

March 31, 2019

December 31, 2018

Pandora
(b) (c)

December 2015

1.75% Convertible Senior Notes

December 1, 2020

semi-annually on June 1 and December 1

—

Sirius XM
(d)

July 2017

3.875% Senior Notes

August 1, 2022

semi-annually on February 1 and August 1

1,000

994

Sirius XM
(d)

May 2013

4.625% Senior Notes

May 15, 2023

semi-annually on May 15 and November 15

500

497

Pandora
(b) (e)

June 2018

1.75% Convertible Senior Notes

December 1, 2023

semi-annually on June 1 and December 1

193

151

—

Sirius XM
(d)

May 2014

6.00% Senior Notes

July 15, 2024

semi-annually on January 15 and July 15

1,500

1,490

Sirius XM
(d)

March 2015

5.375% Senior Notes

April 15, 2025

semi-annually on April 15 and October 15

1,000

993

992

Sirius XM
(d)

May 2016

5.375% Senior Notes

July 15, 2026

semi-annually on January 15 and July 15

1,000

991

Sirius XM
(d)

July 2017

5.00% Senior Notes

August 1, 2027

semi-annually on February 1 and August 1

1,500

1,488

1,487

Sirius XM
(f)

December 2012

Senior Secured Revolving Credit Facility (the "Credit Facility")

June 29, 2023

variable fee paid quarterly

1,750

582

439

Sirius XM

Various

Finance leases

Various

n/a

Total Debt

7,192

6,895

Less: total current maturities

Less: total deferred financing costs

Total long-term debt

7,181

6,885


(a)	The carrying value of the obligations is net of any remaining unamortized original issue discount.


(b)	Holdings has unconditionally guaranteed all of the payment obligations of Pandora under these notes.

(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 $1 Loss on extinguishment of debt in connection with this transaction. In addition, we unwound the capped call security acquired as part of the Pandora Acquisition in March 2019 for $3.


(d)	Substantially all material domestic subsidiaries, including Pandora and its subsidiaries, that guarantee the credit facility have guaranteed these notes.

(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 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 and not redeemable as of March 31, 2019. As a result, we have classified the debt as Long-term within our unaudited consolidated balance sheets. This classification will be reassessed each reporting period.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollars and shares in millions, except per share amounts)

(f)

In June 2018, Sirius XM entered into an amendment to extend the maturity of the Credit Facility to 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 March 31, 2019. All of Sirius XM's outstanding borrowings under the Credit Facility are classified as Long-term debt within our unaudited 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 March 31, 2019.

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.

Pandora Convertible Notes

Pandora's 1.75% Convertible Senior Notes due 2020 (the “Pandora 2020 Notes”) and Pandora's 1.75% Convertible Senior Notes due 2023 (the “Pandora 2023 Notes” and, together with the Pandora 2020 Notes, the “Pandora Convertible Notes”) are unsecured, senior obligations of Pandora. Holdings has guaranteed the payment and performance obligations of Pandora under each series of the Pandora Convertible Notes and the indentures governing such Pandora Convertible Notes.

The Pandora 2020 Notes will mature on December 1, 2020, unless earlier repurchased or redeemed by Pandora or converted in accordance with their terms. Upon consummation of the Pandora Acquisition, the conversion rate applicable to the Pandora 2020 Notes was 87.7032 shares of Holdings’ common stock per $1,000 principal amount of the Pandora 2020 Notes. Pandora has irrevocably elected and determined to settle all conversion obligations from and after February 1, 2019 with respect to the Pandora 2020 Notes solely in cash. During the three months ended March 31, 2019, Pandora purchased $151 in aggregate principal amount of the Pandora 2020 Notes. See footnote (c) to the table above.

The Pandora 2023 Notes will mature on December 1, 2023, unless earlier repurchased or redeemed by Pandora or converted in accordance with their terms. Upon consummation of the Pandora Acquisition, the conversion rate applicable to the Pandora 2023 Notes was 150.4466 shares of Holdings common stock per $1,000 principal amount of the Pandora 2023 Notes.

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 March 31, 2019 and December 31, 2018, we were in compliance with our debt covenants.

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(Dollars and shares in millions, except per share amounts)


(13)	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 4,650 and 4,346 shares of common stock issued and 4,645 and 4,346 shares outstanding on March 31, 2019 and December 31, 2018, respectively. As part of the Pandora Acquisition, we issued 392 shares of our common stock.

As of March 31, 2019, there were 337 shares of common stock reserved for issuance in connection with outstanding stock based awards to be granted to members of our board of directors, employees and third parties.

Quarterly Dividends

During the three months ended March 31, 2019, we declared and paid the following dividends:

Declaration Date

Dividend Per Share

Record Date

Total Amount

Payment Date

January 29, 2019

0.0121

February 11, 2019

February 28, 2019

Stock Repurchase Program

As of March 31, 2019, our board of directors had approved for repurchase an aggregate of $14,000 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 March 31, 2019, our cumulative repurchases since December 2012 under our stock repurchase program totaled 2,784 shares for $11,278, and $2,722 remained available for future share repurchases under our stock repurchase program.

The following table summarizes our total share repurchase activity for the three months ended:



	March 31, 2019			March 31, 2018
Share Repurchase Type	Shares	Amount		Shares	Amount
Open Market and Privately Negotiated Repurchases ^(a)	101	$	604	52	$	295


(a)	As of March 31, 2019, $28 of common stock repurchases had not settled, nor been retired, and were recorded as Treasury stock within our unaudited consolidated balance sheets and unaudited consolidated statements of stockholders’ (deficit) equity. For a discussion of subsequent events refer to Note 18.

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 March 31, 2019 and 2018.


(14)	Benefit Plans

We recognized share-based payment expense of $70 and $34 for the three months ended March 31, 2019 and 2018, respectively. This amount includes $21 of share-based compensation expense recorded in Acquisition and other related costs in our unaudited consolidated statements of comprehensive income during the three months ended March 31, 2019.

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

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(“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 March 31, 2019, 153 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 additional share-based benefit plans — 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:



	For the Three Months Ended March 31,
	2019	2018
Risk-free interest rate	2.5%	2.4%
Expected life of options — years	3.36	3.57
Expected stock price volatility	26%	21%
Expected dividend yield	0.8%	0.7%

The following table summarizes stock option activity under our share-based plans for the three months ended March 31, 2019:



	Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2018	243		$	4.22
Options granted in connection with Pandora Acquisition	7		$	3.85
Granted	13		$	6.00
Exercised	(4	)	$	3.58
Forfeited, cancelled or expired	(1	)	$	5.48
Outstanding as of March 31, 2019	258		$	4.30	6.15	$	386
Exercisable as of March 31, 2019	150		$	3.66	5.05	$	303

The weighted average grant date fair value per share of stock options granted during the three months ended March 31, 2019 was $1.26. The total intrinsic value of stock options exercised during the three months ended March 31, 2019 and 2018 was $10 and $55, respectively. During the three months ended March 31, 2019, the number of net settled shares which were issued as a result of stock option exercises was 1.

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

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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 $20 and $19 for the three months ended March 31, 2019 and 2018, respectively.

The following table summarizes the restricted stock unit, including PRSU, activity under our share-based plans for the three months ended March 31, 2019:



	Shares		Grant Date Fair Value Per Share
Nonvested as of December 31, 2018	35		$	5.50
Units granted in connection with Pandora Acquisition	48		$	5.83
Granted	11		$	5.92
Vested	(13	)	$	5.82
Forfeited	(2	)	$	5.79
Nonvested as of March 31, 2019	79		$	5.69

The total intrinsic value of restricted stock units, including PRSUs, vesting during the three months ended March 31, 2019 and 2018 was $74 and $1, respectively. During the three months ended March 31, 2019, the number of net settled shares which were issued as a result of restricted stock units vesting totaled 7. During the three months ended March 31, 2019, we granted 5 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 dividend paid during the three months ended March 31, 2019, we granted less than 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 three months ended March 31, 2019.

We recognized share-based payment expense associated with restricted stock units, including PRSUs, of $50 and $15 for the three months ended March 31, 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 March 31, 2019 and December 31, 2018 was $477 and $254, respectively. The total unrecognized compensation costs at March 31, 2019 are expected to be recognized over a weighted-average period of 2.0 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 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

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(Dollars and shares in millions, except per share amounts)

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. We recognized $2 in expense during both the three months ended March 31, 2019 and 2018 in connection with the Sirius XM Plan.

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 50% of their pre-tax eligible earnings, subject to certain defined limits. There is no employer matching of employee's contributions.

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 three months ended March 31, 2019 and 2018 were $6 and $7, respectively. As of March 31, 2019 and 2018, the fair value of the investments held in the trust were $30 and $22, respectively, which is included in Other long-term assets in our unaudited consolidated balance sheets and classified as trading securities. Trading gains and losses associated with these investments are recorded in Other income within our unaudited consolidated statements of comprehensive income. The associated liability is recorded within Other long-term liabilities in our unaudited consolidated balance sheets, and any increase or decrease in the liability is recorded in General and administration expense within our unaudited consolidated statements of comprehensive income. For the three months ended March 31, 2019 and 2018, we recorded an immaterial amount of unrealized gains and losses on investments, respectively, held in the trust.


(15)	Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of March 31, 2019:



	2019		2020		2021		2022		2023		Thereafter		Total
Debt obligations	$	3	$	2	$	1	$	1,000	$	1,275	$	5,000	$	7,281
Cash interest payments	232		367		367		367		304		632		2,269
Satellite and transmission	76		51		4		2		1		3		137
Programming and content	193		227		129		56		33		130		768
Sales and marketing	28		12		11		7		4		11		73
Satellite incentive payments	8		10		9		9		9		53		98
Operating lease obligations	49		74		59		52		45		171		450
Advertising sales commitments	15		20		15		—		—		—		50
Royalties, minimum guarantees and other	337		181		100		30		12		7		667
Total ⁽¹⁾	$	941	$	944	$	695	$	1,523	$	1,683	$	6,007	$	11,793


(1)	The table does not include our reserve for uncertain tax positions, which at March 31, 2019 totaled $8.

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.

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.

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(Dollars and shares in millions, except per share amounts)

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 and radio manufacturers 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-3 and XM-4 meeting their 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, which is currently not expected to occur.

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.

Advertising Sales Commitments. We have entered into agreements with third parties that contain minimum advertising sales guarantees, and require that we make guaranteed payments. As of March 31, 2019, we had future minimum guarantee commitments of $50, of which $15 will be paid in 2019 and the remain