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(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.

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(1)	Business & Basis of Presentation

This Quarterly Report on Form 10-Q 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, as well as infotainment services, in the United States on a subscription fee basis. The Sirius XM service is distributed through our two proprietary satellite radio systems and through the internet 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 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, 2020, our Sirius XM business had approximately 34.8 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 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”). 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 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, 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. In 2018, Pandora entered in to an agreement 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. 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 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 11 for more information on this investment. Together, Sirius XM, Pandora and SoundCloud reach more than 140 million listeners, creating North America's largest digital audio advertising marketplace.

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Impact of the coronavirus (“COVID-19”) pandemic

The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain. The extent of the impact on our operational and financial performance will depend on various factors, including the duration and spread of the outbreak and its impact on vehicle sales, advertising and consumer spending. To date, the pandemic has not increased our costs of or access to capital under our revolving credit facility, 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 may not be fully reflected in our results of operations until future periods.

Liberty Media

As of March 31, 2020, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 72% 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 consolidated to conform to our current period presentation.

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, 2020 and for the three months ended March 31, 2020 and 2019 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, 2019, which was filed with the SEC on February 4, 2020.

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 17 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, 2020 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 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.

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(2)	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, 2020 and December 31, 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.

Our liabilities measured at fair value were as follows:

	March 31, 2020														December 31, 2019
	Level 1			Level 2				Level 3			Total Fair Value				Level 1			Level 2				Level 3			Total Fair Value
Liabilities:
Debt (a)	—			$	8,013			—			$	8,013			—			$	8,378			—			$	8,378

(a)	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, 2020 and December 31, 2019.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive loss of $17 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, 2020, we recorded foreign currency translation adjustment loss of $25, net of tax benefit of $8. During the three months ended March 31, 2019, we recorded foreign currency translation adjustment income of $7, net of a tax expense of $2.

Recently Adopted Accounting Policies

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. This ASU aligns 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 will be applied prospectively to all implementation costs incurred after adoption. This ASU will not have a material impact on our consolidated statements of operations.

(3)	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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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 Pandora Acquisition	$	2,879
Value attributed to par at $0.001 par value	$	1
Balance to capital in excess of par value	$	2,354

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 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, 2019:

	For the Three Months Ended March 31,
	2020				2019
Total revenue	$	1,954			$	1,860
Net income	$	293			$	181

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, 2019 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)	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, 2020 and 2019.

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Common stock equivalents of 40 and 60 for the three months ended March 31, 2020 and 2019, 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,
	2020				2019
Numerator:
Net Income available to common stockholders for basic net income per common share	$	293			$	162
Effect of interest on assumed conversions of convertible notes, net of tax	2				1
Net Income available to common stockholders for dilutive net income per common share	$	295			$	163
Denominator:
Weighted average common shares outstanding for basic net income per common share	4,405				4,571
Weighted average impact of assumed convertible notes	29				25
Weighted average impact of dilutive equity instruments	81				82
Weighted average shares for diluted net income per common share	4,515				4,678
Net income per common share:
Basic	$	0.07			$	0.04
Diluted	$	0.07			$	0.03

(5)	Receivables, net

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 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 unaudited consolidated statements of comprehensive income.

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.

Receivables, net, consists of the following:

	March 31, 2020				December 31, 2019
Gross customer accounts receivable	$	481			$	546
Allowance for doubtful accounts	(17		)		(14		)
Customer accounts receivable, net	$	464			$	532
Receivables from distributors	115				113
Other receivables	25				25
Total receivables, net	$	604			$	670

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(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, 2020				December 31, 2019
Raw materials	$	4			$	3
Finished goods	12				13
Allowance for obsolescence	(4		)		(5		)
Total inventory, net	$	12			$	11

(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. 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 March 31, 2020.

As of March 31, 2020, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the three months ended March 31, 2020 and 2019.  As of March 31, 2020, the cumulative balance of goodwill impairments recorded was $4,766, which was recognized during the year ended December 31, 2008 and is included in the carrying value of the goodwill allocated to our Sirius XM reporting unit.

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(8)	Intangible Assets

Our intangible assets include the following:

			March 31, 2020												December 31, 2019
	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				(94		)		126				220				(90		)		130
Licensing agreements	12 years		45				(43		)		2				45				(42		)		3
Software and technology	7 years		35				(26		)		9				35				(25		)		10
Due to Pandora Acquisition:
Indefinite life intangible assets:
Trademarks	Indefinite		$	331			$	—			$	331			$	331			$	—			$	331
Definite life intangible assets:
Customer relationships	8 years		403				(62		)		341				403				(49		)		354
Software and technology	5 years		373				(88		)		285				373				(69		)		304
Total intangible assets			$	3,742			$	(313	)		$	3,429			$	3,742			$	(275	)		$	3,467

Indefinite Life Intangible Assets

We have identified our FCC licenses and XM, Pandora 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.

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 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. As of March 31, 2020, 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, 2020 and 2019.

Definite Life Intangible Assets

Amortization expense for all definite life intangible assets was $38 and $27 for the three months ended March 31, 2020 and 2019, respectively. There were no retirements of definite lived intangible assets during the three months ended March 31, 2020.

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The expected amortization expense for each of the fiscal years 2020 through 2024 and for periods thereafter is as follows:

Years ending December 31,		Amount
2020 (remaining)		$	114
2021		146
2022		144
2023		134
2024		69
Thereafter		156
Total definite life intangible assets, net		$	763

(9)	Property and Equipment

Property and equipment, net, consists of the following:

	March 31, 2020				December 31, 2019
Satellite system	$	1,587			$	1,587
Terrestrial repeater network	100				100
Leasehold improvements	106				105
Broadcast studio equipment	138				137
Capitalized software and hardware	1,083				1,086
Satellite telemetry, tracking and control facilities	88				87
Furniture, fixtures, equipment and other	90				89
Land	38				38
Building	63				63
Construction in progress	554				505
Total property and equipment	3,847				3,797
Accumulated depreciation and amortization	(2,238		)		(2,171		)
Property and equipment, net	$	1,609			$	1,626

Construction in progress consists of the following:

	March 31, 2020				December 31, 2019
Satellite system	$	384			$	371
Terrestrial repeater network	8				7
Capitalized software and hardware	141				107
Other	21				20
Construction in progress	$	554			$	505

Depreciation and amortization expense on property and equipment was $94 and $80 for the three months ended March 31, 2020 and 2019, respectively.  Property and equipment of $29 was retired during the three months ended March 31, 2020.

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 $5 and $4 for the three months ended March 31, 2020 and 2019, 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 $4 and $3 for the three months ended March 31, 2020 and 2019, respectively.

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Satellites

As of March 31, 2020, we owned a fleet of five satellites.  The chart below provides certain information on our satellites as of March 31, 2020:

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 18 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,
	2020				2019
Operating lease cost	$	20			$	17
Finance lease cost	—				1
Sublease income	—				(1		)
Total lease cost	$	20			$	17

(11)	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 March 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 72% 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

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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 three months ended March 31, 2020 and 2019, Sirius XM Canada repaid $3 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 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.

Our related party long-term assets balance as of March 31, 2020 and December 31, 2019 included the carrying value of our investment balance in Sirius XM Canada of $300 and $321, respectively, and, as of March 31, 2020 and December 31, 2019, also included $118 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 less than $1 during each of the three months ended March 31, 2020 and 2019.  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 unaudited consolidated statements of comprehensive income of $25 and $24 for the three months ended March 31, 2020 and 2019, respectively.

SoundCloud

On February 10, 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 unaudited consolidated balance sheet. Sirius XM has appointed two individuals to serve on SoundCloud's nine-member board of managers. For the three months ended March 31, 2020, we recorded less than $1 representing our share of SoundCloud's net loss in Other income (expense) in our unaudited consolidated statement of comprehensive income.

In addition to our investment in SoundCloud, in 2018 Pandora entered in to 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 $12 and $3 related to this agreement during the three months ended March 31, 2020 and 2019, respectively. We also had related party liabilities of $18 as of March 31, 2020 related to this agreement.

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(12)	Debt

Our debt as of March 31, 2020 and December 31, 2019 consisted of the following:

Carrying value(a) at

Issuer / Borrower

Issued

Debt

Maturity Date

Interest Payable

Principal Amount at March 31, 2020

March 31, 2020

December 31, 2019

Pandora (b) (c)

December 2015

1.75% Convertible Senior Notes

December 1, 2020

semi-annually on June 1 and December 1

$

1

$

1

$

1

Sirius XM (d)

July 2017

3.875% Senior Notes

August 1, 2022

semi-annually on February 1 and August 1

1,000

996

995

Sirius XM (d)

May 2013

4.625% Senior Notes

May 15, 2023

semi-annually on May 15 and November 15

500

498

498

Pandora (b) (e)

June 2018

1.75% Convertible Senior Notes

December 1, 2023

semi-annually on June 1 and December 1

193

165

163

Sirius XM (d)

July 2019

4.625% Senior Notes

July 15, 2024

semi-annually on January 15 and July 15

1,500

1,485

1,485

Sirius XM (d)

March 2015

5.375% Senior Notes

April 15, 2025

semi-annually on April 15 and October 15

1,000

994

993

Sirius XM (d)

May 2016

5.375% Senior Notes

July 15, 2026

semi-annually on January 15 and July 15

1,000

992

992

Sirius XM (d)

July 2017

5.00% Senior Notes

August 1, 2027

semi-annually on February 1 and August 1

1,500

1,489

1,488

Sirius XM (d)

June 2019

5.500% Senior Notes

July 1, 2029

semi-annually on January 1 and July 1

1,250

1,237

1,236

Sirius XM (f)

December 2012

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

June 29, 2023

variable fee paid quarterly

—

—

—

Sirius XM

Various

Finance leases

Various

n/a

n/a

1

2

Total Debt

7,858

7,853

Less: total current maturities

2

2

Less: total deferred financing costs

9

9

Total long-term debt

$

7,847

$

7,842

(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 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.

(d)	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

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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 March 31, 2020. As a result, we have classified the debt as Long-term within our unaudited consolidated balance sheets.

(f)

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 March 31, 2020.  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, 2020.

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 March 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 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 the Pandora Convertible Notes and the indentures governing the 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. As of March 31, 2020, the conversion rate applicable to the Pandora 2020 Notes was 88.5816 shares of Holdings’ common stock per one thousand 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, we purchased $151 in aggregate principal amount of the Pandora 2020 Notes. See footnote (c) to the table above.

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(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 4,379 and 4,412 shares of common stock issued and outstanding on March 31, 2020 and December 31, 2019, respectively.

As of March 31, 2020, there were 274 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 three months ended March 31, 2020, we declared and paid the following dividends:

Declaration Date

Dividend Per Share

Record Date

Total Amount

Payment Date

January 30, 2020

$

0.01331

February 12, 2020

$

59

February 28, 2020

Stock Repurchase Program

As of March 31, 2020, 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, 2020, our cumulative repurchases since December 2012 under our stock repurchase program totaled 3,088 shares for $13,076, and $924 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, 2020							March 31, 2019
Share Repurchase Type		Shares			Amount				Shares			Amount
Open Market Repurchases		41			$	243			101			$	604

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, 2020 and December 31, 2019.

(14)	Benefit Plans

We recognized share-based payment expense of $55 and $70 for the three months ended March 31, 2020 and 2019, 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 (“PRSUs”), the vesting of which are subject to the achievement of performance goals and the employee's continued

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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, 2020, 158 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:

	For the Three Months Ended March 31,
	2020		2019
Risk-free interest rate	1.4%		2.5%
Expected life of options — years	3.82		3.36
Expected stock price volatility	25%		26%
Expected dividend yield	0.7%		0.8%

The following table summarizes stock option activity under our share-based plans for the three months ended March 31, 2020:

	Options			Weighted- Average Exercise Price Per Share				Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2019	208			$	4.46
Granted	7			$	7.20
Exercised	(11	)		$	4.17
Forfeited, cancelled or expired	(1	)		$	5.93
Outstanding as of March 31, 2020	203			$	4.56			5.51		$	165
Exercisable as of March 31, 2020	144			$	4.03			4.67		$	153

The weighted average grant date fair value per stock option granted during the three months ended March 31, 2020 was $1.41.  The total intrinsic value of stock options exercised during the three months ended March 31, 2020 and 2019 was $32 and $10, respectively.  During the three months ended March 31, 2020, the number of net settled shares which were issued as a result of stock option exercises was 3.

We recognized share-based payment expense associated with stock options of $11 and $20 for the three months ended March 31, 2020 and 2019, respectively.

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The following table summarizes the restricted stock unit, including PRSU, activity under our share-based plans for the three months ended March 31, 2020:

	Shares			Grant Date Fair Value Per Share
Nonvested as of December 31, 2019	75			$	5.95
Granted	6			$	7.18
Vested	(8	)		$	5.81
Forfeited	(2	)		$	5.94
Nonvested as of March 31, 2020	71			$	6.07

The total intrinsic value of restricted stock units, including PRSUs, vesting during the three months ended March 31, 2020 and 2019 was $58 and $74, respectively. During the three months ended March 31, 2020, the number of net settled shares which were issued as a result of restricted stock units vesting totaled 5. During the three months ended March 31, 2020, we granted 3 PRSUs to certain employees. We believe it is probable that the performance target applicable to these PRSUs will be achieved.

In connection with the cash dividends paid during the three months ended March 31, 2020, 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, 2020.

We recognized share-based payment expense associated with restricted stock units, including PRSUs, of $44 and $50 for the three months ended March 31, 2020 and 2019, 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, 2020 and December 31, 2019 was $397 and $415, respectively.  The total unrecognized compensation costs at March 31, 2020 are expected to be recognized over a weighted-average period of 2.3 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 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 $5 and $2 for the three months ended March 31, 2020 and 2019, 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’

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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 each of the three months ended March 31, 2020 and 2019 was $6. As of March 31, 2020 and December 31, 2019, the fair value of the investments held in the trust were $36 and $34, 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 (expense) 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, 2020 and 2019, we recorded unrealized (losses) gains on investments held in the trust of $(5) and $2, respectively.

(15)	Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of March 31, 2020:

	2020				2021				2022				2023				2024				Thereafter				Total
Debt obligations	$	1			$	1			$	1,000			$	693			$	1,500			$	4,750			$	7,945
Cash interest payments	237				390				390				339				321				703				2,380
Satellite and transmission	40				50				2				1				1				1				95
Programming and content	239				231				151				85				42				97				845
Sales and marketing	54				32				24				9				3				8				130
Satellite incentive payments	5				8				9				9				9				47				87
Operating lease obligations	53				72				64				57				43				173				462
Advertising sales commitments	6				15				—				—				—				—				21
Royalties, minimum guarantees and other	357				233				162				17				7				—				776
Total (1)	$	992			$	1,032			$	1,802			$	1,210			$	1,926			$	5,779			$	12,741

(1)	The table does not include our reserve for uncertain tax positions, which at March 31, 2020 totaled $11.

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.

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-3 and XM-4 meeting their fifteen-year design life,

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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.

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, 2020, we had future minimum guarantee commitments of $21, of which $6 will be paid in 2020 and the remainder will be paid thereafter. On a quarterly basis, we record the greater of the cumulative actual expense incurred or the cumulative minimum guarantee based on our forecast for the minimum guarantee period. The minimum guarantee period is the period of time that the minimum guarantee relates to, as specified in the agreement, which may be annual or a longer period.

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 three months ended March 31, 2020, we prepaid $5 in content costs related to minimum guarantees. As of March 31, 2020, we had future fixed minimum guarantee commitments of $183, of which $171 will be paid in 2020 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.

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 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

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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.

After Flo & Eddie filed its action in 2014 against Pandora, several other plaintiffs commenced separate actions, both on an individual and class action basis, alleging a variety of violations of common law and state copyright and other statutes arising from allegations that Pandora owed royalties for the public performance of pre-1972 recordings. Many of these separate actions have been dismissed or are in the process of being dismissed. None of the remaining pending actions is likely to have a material adverse effect on our business, financial condition or results of operations.

We believe we have substantial defenses to the claims asserted in these actions, 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 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 September 2019, the participants filed written direct statements, including proposed rates and terms for the 2021-2025 period. We and other webcaster participants proposed rates below the existing statutory rates, which for commercial webcasters are currently set at $0.0018 per performance for non-subscription transmissions (such as offered by our Pandora ad-supported business) and $0.0024 per performance for subscription transmissions (such as offered by our Sirius

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XM internet radio service). SoundExchange has proposed increasing the commercial webcasting rates to $0.0028 per performance for non-subscription transmissions and $0.0031 per performance for subscription transmissions.

In January 2020, the participants filed written rebuttal statements, responding to each other’s proposals. A multi-week hearing was scheduled to begin before the CRB in March 2020, but has been delayed as a result of the COVID-19 pandemic. We expect the hearing to begin before the CRB sometime this summer.

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.

(16)	Income Taxes

We file a consolidated federal income tax return for all of our wholly owned subsidiaries.  For the three months ended March 31, 2020 and 2019, income tax expense was $80 and $81, respectively.

Our effective tax rate for the three months ended March 31, 2020 and 2019 was 21.4% and 33.3%, respectively. The effective tax rate for the three months ended March 31, 2020 was primarily impacted by the recognition of excess tax benefits related to share-based compensation. The effective tax rate for the three months ended March 31, 2019 was primarily impacted by the increase to the valuation allowance related to the federal research and development credits that are no longer expected to be realizable. We estimate our effective tax rate for the year ending December 31, 2020 will be approximately 23%.

As of each of March 31, 2020 and December 31, 2019, we had a valuation allowance related to deferred tax assets of $70 that was not likely to be realized due to certain net operating loss limitations, including tax credits, and acquired net operating losses that were not more likely than not going to be utilized.

(17)	Segments and Geographic Information

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 both the three months ended March 31, 2020 and 2019.

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Segment revenue and gross profit were as follows during the periods presented:

	For the Three Months Ended March 31, 2020
	Sirius XM				Pandora				Total
Revenue
Subscriber revenue	$	1,457			$	128			$	1,585
Advertising revenue	44				241				285
Equipment revenue	41				—				41
Other revenue	41				—				41
Total revenue	1,583				369				1,952
Cost of services (a)	(593		)		(246		)		(839		)
Segment gross profit	$	990			$	123			$	1,113

The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:

	For the Three Months Ended March 31, 2020
Segment Gross Profit	$	1,113
Subscriber acquisition costs	(99		)
Sales and marketing (a)	(208		)
Engineering, design and development (a)	(60		)
General and administrative (a)	(91		)
Depreciation and amortization	(132		)
Share-based payment expense	(55		)
Total other (expense) income	(95		)
Consolidated income before income taxes	$	373

(a)	Share-based payment expense of $11 related to cost of services, $17 related to sales and marketing, $11 related to engineering, design and development and $16 related to general and administrative has been excluded.

	For the Three Months Ended March 31, 2019
	Sirius XM				Pandora				Total
Revenue
Subscriber revenue	$	1,370			$	88			$	1,458
Advertising revenue	46				163				209
Equipment revenue	41				—				41
Other revenue	36				—				36
Total revenue	1,493				251				1,744
Cost of services (b)	(569		)		(170		)		(739		)
Segment gross profit	$	924			$	81			$	1,005

The reconciliation between reportable segment gross profit to consolidated income before income tax is as follows:

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	For the Three Months Ended March 31, 2019
Segment Gross Profit	$	1,005
Subscriber acquisition costs	(108		)
Sales and marketing (b)	(168		)
Engineering, design and development (b)	(45		)
General and administrative (b)	(119		)
Depreciation and amortization	(107		)
Share-based payment expense	(49		)
Acquisition and other related costs	(76		)
Total other (expense) income	(90		)
Consolidated income before income taxes	$	243

(b)	Share-based payment expense of $9 related to cost of services, $15 related to sales and marketing, $9 related to engineering, design and development and $16 related to general and administrative has been excluded.

A measure of segment assets is not currently provided to the Chief Executive Officer and has therefore not been provided.

As of March 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 three months ended March 31, 2020 and 2019.

(18)	Subsequent Events

Capital Return Program

On April 21, 2020, our board of directors declared a quarterly dividend on our common stock in the amount of $0.01331 per share of common stock payable on May 29, 2020 to stockholders of record as of the close of business on May 8, 2020.

Asset Disposal

In April 2020, we announced that we are discontinuing the Automatic product. We will take an impairment and restructuring charge in the second quarter of 2020 related to this disposal.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

•	The current COVID-19 pandemic is adversely impacting our business

•	We face substantial competition and that competition is likely to increase over time

•	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 Pandora ad-supported business has suffered a loss of monthly active users, which may adversely affect our Pandora business

•	Privacy and data security laws and regulations may hinder our ability to market our services, sell advertising and impose legal liabilities

•	We engage in extensive marketing efforts and the continued effectiveness of those efforts are an important part of our business

•	Consumer protection laws and our failure to comply with them could damage our business

•	A substantial number of our Sirius XM subscribers periodically cancel their subscriptions and we cannot predict how successful we will be at retaining customers

•	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 failure to convince advertisers of the benefits of our Pandora ad-supported service could harm our 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

•	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

•	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

•	Interruption or failure of our information technology and communications systems could impair the delivery of our service and harm our business

•	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 upon the auto industry

•	Our Pandora business depends in part upon consumer electronics manufacturers

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•	The market for music rights is changing and is subject to significant uncertainties

•	Our ability to offer interactive features in our Pandora services depends upon maintaining licenses with copyright owners

•	The rates we must pay for “mechanical rights” to use musical works on our Pandora service have increased substantially and these new rates may adversely affect our business

•	Failure of our satellites would significantly damage our business

•	Our Sirius XM service may experience harmful interference from wireless operations

•	Failure to comply with FCC requirements could damage our business

•	Economic conditions, including advertising budgets and discretionary spending, may adversely affect our business and operating results

•	If we are unable to attract and retain qualified personnel, our business could be harmed

•	We may not realize the benefits of acquisitions or other strategic investments and initiatives, including the acquisition of Pandora

•	Our use of pre-1972 sound recordings on our Pandora service could result in additional costs

•	We may from time to time modify our business plan, and these changes could adversely affect us and our financial condition

•	We have a significant amount of indebtedness, and our debt contains certain covenants that restrict our operations

•	Our facilities could be damaged by natural catastrophes or terrorist activities

•	The unfavorable outcome of pending or future litigation could have an adverse impact on our operations and financial condition

•	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

•	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

•	Rapid technological and industry changes and new entrants could adversely impact our services

•	Existing or future laws and regulations could harm our business

•	We may be exposed to liabilities that other entertainment service providers would not customarily be subject to

•	Our business and prospects depend on the strength of our brands

•	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

•	While we currently pay a quarterly cash dividend to holders of our common stock, we may change our dividend policy at any time

•	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

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•	adversely affect our subscriber revenue due to the decline in sales of new and used vehicles, reduced drive time, increased churn and the inability of our vendors to fully staff call centers;

•	cause a decline in advertising revenues in our Pandora and SiriusXM businesses as third parties pull back on advertising spending generally;

•	have an adverse effect on our equipment revenue and the sale of satellite radios, components and accessories;

•	negatively impact our other revenue as the pandemic is anticipated to have similar adverse effects on Sirius XM Canada and its service as well as adversely affect our connected services business;

•	reduce our revenue share and royalties expenses, although in our Pandora ad-supported service royalty reductions may not be commensurate with the decline in ad revenues;

•	not significantly affect our programming and content expenses as we expect to continue to honor our agreements to acquire, create, promote and produce content, including our obligations in some cases to sports leagues that have cancelled significant portions of their seasons;

•	reduce our customer service and billing costs as we may experience lower costs as a result of the inability of our vendors to fully staff the operation and management of customer service centers, although such cost reductions are expected to be partially offset by increased bad debt expense;

•	not significantly affect our transmission expenses and costs of equipment expenses;

•	reduce subscriber acquisition costs as hardware subsidies paid to radio manufacturers, distributors and automakers and subsidies paid for chipsets and certain other components used in manufacturing radios are expected to decline as a result of a reduction in vehicle production and possible disruptions to the supply chain;

•	decrease sales and marketing expenses as the reduction in auto sales is anticipated to reduce trial subscription starts, the volume of our marketing campaigns and the associated expenses related to direct mail, outbound telemarketing and email communications, and as we likely reduce our spending on marketing, advertising, media and production, and digital performance media;

•	reduce our engineering, design and development expenses as we plan to slow the development of new products and services, including streaming and connected vehicle services, and research and development efforts in the ordinary course;

•	reduce our general and administrative expenses as a result of reductions in compensation, travel and entertainment and other costs; and

•	not affect our depreciation and amortization expenses.

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(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.

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(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 includes the impact of additional expense associated with minimum guarantee royalty contracts recorded as part of the Pandora Acquisition.

(f)	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.

(g)	This adjustment eliminates the impact of acquisition and other related costs.

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(h)	This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at March 31, 2019 to the pro forma adjustments of $69 and Pandora's loss before income tax of $(44).

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(1)	Includes Pandora's results for the three month period, including pre-acquisition results for the period January 1, 2019 through January 31, 2019.

(2)	ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $44 and $36 for the three months ended March 31, 2020 and 2019, respectively.

(3)	Amounts may not sum as a result of rounding.

(4)	Free cash flow has not been adjusted for Pandora's pre-acquisition results.

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(1)	Acquisition and other related costs include $21 of share-based compensation expense for the three months ended March 31, 2019.

(2)	Pro forma adjustment for three months ended March 31, 2019 includes Pandora's Net income for the three months ended March 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 expense (income) of $1, plus purchase price accounting impacts of $1.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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In connection with the recapitalization of Sirius XM Canada, on May 25, 2017, we loaned Sirius XM Canada $131 million. The loan is denominated in Canadian dollars and is subject to changes in foreign currency. It is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. Such 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 March 31, 2020 was $118.0 million and approximates its fair value as of such date. Had the Canadian to U.S. dollar exchange rate been 10% lower as of March 31, 2020, the value of this loan would have been approximately $12 million lower.

ITEM 4.	CONTROLS AND PROCEDURES

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ITEM 1.	LEGAL PROCEEDINGS

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ITEM 1A.	RISK FACTORS

•	Possible disruptions in the supply of radios and other components that are essential elements of our service,

•	Limits on our ability to adequately staff our customer service operations and certain of our marketing efforts, particularly telemarketing, in states and jurisdictions that have declared emergencies,

•	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 auto dealers and the travel and travel-related industries - curtail and in many cases stop their advertising spending,

•	Possible delays associated with the delivery of our new SXM-7 and SXM-8 satellites due to the quarantine affecting the area in which they are being manufactured, and

•	Other consequences in our marketing, sales and other operations which we have not yet identified.

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ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)	These amounts include fees and commissions associated with the shares repurchased.

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

ITEM 4.	MINE SAFETY DISCLOSURES

ITEM 5.	OTHER INFORMATION

ITEM 6.	EXHIBITS

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