Exhibit 99.4

 

UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information and related notes present the historical financial statements of Sirius XM Holdings Inc. (“Sirius XM”) and Pandora Media, Inc. (“Pandora”), as if the completion of the transactions (as defined below) had occurred on the dates specified below.

 

On September 23, 2018, Sirius XM entered into an agreement and plan of merger and reorganization by and among Sirius XM, Pandora, Billboard Holding Company Inc., a wholly-owned subsidiary of Pandora, Billboard Acquisition Sub, Inc., a wholly-owned subsidiary of Billboard Holding Company, Inc., White Oaks Acquisition Corp, a wholly-owned subsidiary of Sirius XM, and Sirius XM Radio Inc., a wholly-owned subsidiary of Sirius XM (as may be amended from time to time, the “Merger Agreement”). On February 1, 2019, pursuant to the terms of the Merger Agreement, through a series of transactions, Pandora became an indirect wholly-owned subsidiary of Sirius XM (the “transactions”).

 

The unaudited pro forma condensed combined consolidated financial information reflects the estimated aggregate consideration of approximately $2.9 billion, which represents the estimated fair value of Sirius XM common stock issued on the closing of the transactions, estimated value of Sirius XM replacement equity awards attributable to pre-combination service and the fair value of the Pandora preferred stock investment, in each case as valued as of January 30, 2019. The Pandora preferred stock investment, which is all owned by Sirius XM and is accounted for as a related party fair value instrument, has been cancelled in connection with the completion of the transactions and therefore, to reflect the cost to Sirius XM of such cancellation, the fair value of the Pandora preferred stock investment is included in the calculation of total estimated consideration being paid by Sirius XM. The consideration used in the application of acquisition accounting may differ from the amount determined as of January 30, 2019 as Sirius XM finalizes its calculation of the total consideration transferred.

 

The unaudited pro forma condensed combined consolidated financial information related to the transactions was prepared using the acquisition method of accounting and is based on the assumption that the transactions took place as of September 30, 2018 for purposes of the unaudited pro forma balance sheet and as of January 1, 2017 for purposes of the unaudited pro forma condensed combined consolidated statements of operations for the year ended December 31, 2017 and the nine month period ended September 30, 2018.

 

In accordance with the acquisition method of accounting, the actual consolidated financial statements of Sirius XM will reflect the transactions only from and after the date of the completion of the transactions. Sirius XM has undertaken a preliminary analysis of the fair value of Pandora’s assets and liabilities, however, it will not complete the final purchase price allocation related to the transactions until later in 2019. The preliminary allocation of the purchase price to the acquired assets and assumed liabilities set forth below was based upon the preliminary estimate of fair values of certain intangible assets as discussed below. For the preliminary estimate of fair value of these assets assumed, Sirius XM used publicly available benchmarking information as well as a variety of other company specific assumptions, including market participant assumptions. Accordingly, the unaudited pro forma adjustments are preliminary and subject to change as additional information becomes available and additional analyses of these assets, as well as other assets and liabilities to be assumed, are performed. The final acquisition accounting could result in material differences, which could have a material impact on the accompanying unaudited pro forma condensed combined consolidated financial statements and Sirius XM’s future results of operations and financial position.

 

The unaudited pro forma condensed combined consolidated financial information is presented for illustrative purposes only and does not purport to represent what the results of operations or financial position of Sirius XM would actually have been had the transactions occurred on the dates noted above,

 

or to project the results of operations or financial position of Sirius XM for any future periods. The unaudited pro forma adjustments are based on available information and certain assumptions that Sirius XM’s management believes are reasonable. The unaudited pro forma adjustments are directly attributable to the transactions and are expected to have a continuing impact on the results of operations of Sirius XM. In the opinion of Sirius XM’s management, all adjustments necessary to present fairly the unaudited pro forma condensed combined consolidated financial information have been made.

 

The accompanying unaudited pro forma condensed combined consolidated financial information should be read in conjunction with the notes hereto along with Pandora’s most recent historical financial information incorporated by reference to this Registration Statement and Sirius XM’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on October 24, 2018, Sirius XM’s Annual Report on 10-K filed with the SEC on January 31, 2018, Pandora’s Quarterly Report on Form 10-Q filed with the SEC on November 5, 2018 and Pandora’s Annual Report on Form 10-K filed with the SEC on February 26, 2018.

 

SIRIUS XM AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2018

 

in thousands  Sirius XM
As
Reported
  Pandora
As
Reported
  Pro Forma
Adjustments
  Ref  Reclassification
and Others
  Ref  Pro Forma
Combined
Sirius XM
ASSETS                               
Current assets:                               
Cash and cash equivalents  $46,044   $287,523                   $333,567 
Short-term investments       100,119                    100,119 
Receivables, net   245,768    373,418                    619,186 
Inventory, net   19,514                        19,514 
Related party current assets   10,087                        10,087 
Prepaid content acquisition costs       32,219                    32,219 
Prepaid expenses and other current assets   173,035    25,673                    198,708 
Total current assets   494,448    818,952                    1,313,400 
Property and equipment, net   1,498,297    107,802            (39,257)  Note (2)   1,566,842 
Intangible assets, net   2,505,384    55,557    1,367,889   (b)   39,257   Note (2)   3,968,087 
Goodwill   2,289,985    178,917    959,191   (c)           3,428,093 
Related party long-term assets   1,018,740        (554,352)  (d)           464,388 
Deferred tax assets   330,998        363,670   (e)           694,668 
Other long-term assets   135,655    11,575                    147,230 
Total assets  $8,273,507   $1,172,803   $2,136,398      $      $11,582,708 
Current liabilities:                               
Accounts payable and accrued expenses  $799,094   $28,406            239,865   (f)  $1,067,365 
Accrued liabilities       72,311            (72,311)  (f)    
Accrued content acquisition costs       123,910           (123,910)  (f)    
Accrued interest   84,973                2,043   (f)   87,016 
Accrued compensation       45,687            (45,687)  (f)    
Current portion of deferred revenue   1,921,517    55,678                    1,977,195 
Current maturities of long-term debt   4,411                        4,411 
Related current liabilities   4,380                        4,380 
Total current liabilities   2,814,375    325,992                  3,140,367 
Deferred revenue   154,145                        154,145 
Long-term debt   6,562,152    255,272                    6,817,424 
Related party long-term liabilities   5,889                       5,889 
Deferred tax liabilities   8,169        348,390   (j)           356,559 
Other long-term liabilities   104,152    25,660    (588)  (e)           129,224 
Total liabilities   9,648,882    606,924    347,802              10,603,608 
Redeemable convertible preferred stock       513,270    (513,270)  (d)            
Stockholders’ (deficit) equity                               
Common stock   4,449    27    365   (g)           4,841 
Accumulated other comprehensive income (loss), net of tax   12,448    (471)   471               12,448 
Additional paid-in capital   922,376    1,632,178    752,570   (g)           3,307,124 
Treasury stock, at cost   (6,287)                        (6,287)
Accumulated deficit   (2,308,361)   (1,579,125)   1,548,460   (g)           (2,339,026)
Total stockholders’ (deficit) equity   (1,375,375)   52,609    2,301,866              979,100 
Total liabilities, redeemable convertible preferred stock and stockholders’ (deficit) equity  $8,273,507   $1,172,803   $2,136,398      $      $11,582,708 

 

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

 

SIRIUS XM AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

 

in thousands, except per share data  Sirius XM
As
Reported
  Pandora
As
Reported
  Pro Forma
Adjustments
for Pandora
  Ref  Reclassifications
and Other
Adjustments
  Ref  Pro Forma
Combined
Sirius XM
  Ref
Revenue:                                  
Subscriber revenue  $3,418,485   $344,175          $(673)  (f)  $3,761,987    
Advertising revenue   135,477    777,480                   912,957    
Equipment revenue   112,628                       112,628    
Other revenue   608,194               673   (f)   608,867    
                                   
Total revenue   4,274,784    1,121,655                  5,396,439    
Operating expenses:                                  
Cost of services*   1,736,055    765,515    (13,523)  (a)   59,020   (f)   2,547,067    
Subscriber acquisition costs   351,940                        351,940    
Sales and marketing   344,426    374,351    (250)  (a)   (69,347)  (f)   649,180    
Engineering, design and development   89,133    118,788    (291)  (a)   (5,870)  (f)   201,760    
General and administrative   263,110    142,521    (550)  (a)   (30,029)  (f)   375,052    
Depreciation and amortization   222,345        97,125   (a)   29,553   (f)   349,023    
                                   
Total operating expenses   3,007,009    1,401,175    82,511       (16,673)      4,474,022    
                                   
Income (loss) from operations   1,267,775    (279,520)   (82,511)      16,673       922,417    
Other income (expense):                                  
Interest expense   (262,924)   (20,799)                 (283,723)   
Loss on extinguishment of debt                  (16,673)  (f)   (16,673)   
Other income (expense)   82,334    6,033           (73,880)  (d)   14,487    
                                   
Total other expense   (180,590)   (14,766)          (90,553)      (285,909)   
                                   
Income (loss) before income taxes   1,087,185    (294,286)   (82,511)      (73,880)      636,508    
Income tax (expense) benefit   (162,344)   6,933    20,215   (h)   18,101   (h)   (117,095)   
                                   
Net income (loss)  $924,841   $(287,353)  $(62,296)     $(55,779)     $519,413    
                                   
Foreign currency translation   (9,972)   (241)                 (10,213)   
Change in net unrealized loss on marketable securities       (13)                 (13)   
                                   
Total comprehensive income (loss)  $914,869   $(287,607)  $(62,296)     $(55,779)     $509,187    
                                   
Basic net income (loss) per common share  $0.21   $(1.19)                  $0.107    
                                   
Diluted net income (loss) per common share  $0.20   $(1.19)                  $0.104    
                                   
Basic weighted average common shares outstanding   4,482,249    260,327                    4,874,114   (i)
                                   
Diluted weighted average common shares outstanding   4,586,346    260,327                    4,978,211   (i)
                                   
Dividends declared per common share  $0.033   $                   $0.033    

 

  *   Cost of services excludes the impact of depreciation and amortization.

 

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

 

SIRIUS XM AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2017

 

in thousands, except per share
data
  Sirius XM
As
Reported
  Pandora
As
Reported
  Pro Forma
Adjustments
for Pandora
  Ref   Reclassifications
and Other
Adjustments
  Ref   Pro Forma
Combined
Sirius XM
  Ref
Revenue:                                  
Subscriber revenue  $4,472,522   $315,853          $(744)  (f)  $4,787,631    
Advertising revenue   160,347    1,074,927                   1,235,274    
Equipment revenue   131,586                       131,586    
Other revenue   660,674    76,032           744   (f)   737,450    
                                   
Total revenue   5,425,129    1,466,812                  6,891,941    
Operating expenses:                                  
Cost of services*   2,101,982    967,067    (15,290)  (a)   65,046   (f)   3,118,805    
Subscriber acquisition costs   499,492                        499,492    
Sales and marketing   437,739    492,542    (3,049)  (a)   (73,467)  (f)   853,765    
Engineers, design and development   112,427    154,325    (2,270)  (a)   (8,144)  (f)   256,338    
General and administrative   334,023    190,711    (733)      (34,345)  (f)   489,656    
Depreciation and amortization   298,602        129,500   (a)   41,607   (f)   469,709    
Impairment of goodwill       131,997                    131,997    
Contract termination fees       23,044            (23,044)  (f)       
                                   
Total operating expenses   3,784,265    1,959,686    108,158       (32,347)      5,819,762    
                                   
Income (loss) from operations   1,640,864    (492,874)   (108,158)      32,347       1,072,179    
Other income (expense):                                  
Interest expense   (345,820)   (29,335)                 (375,155)   
Loss on extinguishment of debt   (43,679)                     (43,679)   
Other income (expense)   12,844    3,024           (32,819)  (d)(f)   (16,951)   
                                   
Total other expense   (376,655)   (26,311)          (32,819)      (435,785)   
                                   
Income (loss) before income taxes   1,264,209    (519,185)   (108,158)      (472)      636,394    
Income tax (expense) benefit   (616,301)   790    41,641   (h)   182   (h)   (573,688)   
                                   
Net income (loss)  $647,908   $(518,395)  $(66,517)     $(290)     $62,706    
                                   
Foreign currency translation   18,546    553                  19,099    
Change in net unrealized loss on marketable securities       52                  52    
                                   
Total comprehensive income (loss)  $666,454   $(517,790)  $(66,517)     $(290)     $81,857    
                                   
Basic net income (loss) per common share  $0.14   $(2.29)                  $0.012    
                                   
Diluted net income (loss) per common share  $0.14   $(2.29)                   0.012    
                                   
Basic weighted average common shares outstanding   4,637,553    243,637                    5,029,418   (i)
                                   
Diluted weighted average common shares outstanding   4,723,535    243,637                    5,115,400   (i)
                                   
Dividends declared per common share  $0.041   $                   $0.041    

 

 
     
*   Cost of services excludes the impact of depreciation and amortization.

 

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

 

Note 1—Basis of Pro Forma Presentation

 

The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2018 and the unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 are based on (i) the historical unaudited consolidated financial statements of Sirius XM as of and for the nine months ended September 30, 2018 contained in Sirius XM’s Quarterly Report on Form 10-Q filed with the SEC on October 24, 2018, (ii) the historical audited consolidated financial information of Sirius XM for the year ended December 31, 2017 contained in Sirius XM’s Annual Report on 10-K filed with the SEC on January 31, 2018, (iii) the historical unaudited consolidated financial statements of Pandora as of and for the nine months ended September 30, 2018 contained in Pandora’s Quarterly Report on Form 10-Q filed with the SEC on November 5, 2018 and (iv) the historical audited consolidated financial information of Pandora for the year ended December 31, 2017 contained in Pandora’s Annual Report on Form 10-K filed with the SEC on February 26, 2018.

 

The pro forma adjustments are included only to the extent they are (i) directly attributable to the transactions (ii) factually supportable and (iii) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the combined results.

 

The unaudited pro forma condensed combined consolidated financial information is presented for illustrative purposes only and does not purport to represent what the results of operations or financial position of Sirius XM would actually have been had the transactions occurred in prior periods, or to project the results of operations or financial position of Sirius XM for any future periods. The unaudited pro forma adjustments are based on available information and certain assumptions that Sirius XM’s management believes are reasonable. The unaudited pro forma adjustments are directly attributable to the transactions and are expected to have a continuing impact on the results of operations of Sirius XM. In the opinion of Sirius XM’s management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial information have been made.

 

Note 2—Estimated Consideration and Pro Forma Purchase Price Allocation

 

Estimated Consideration

 

As required by acquisition accounting, an estimate of such consideration has been made at estimated fair value of approximately $2.9 billion, which represents the estimated fair value of Sirius XM common stock issued on the closing of the transactions, estimated value of Sirius XM replacement equity awards attributable to pre-combination service and the fair value of the Pandora preferred stock investment, in each case as valued as of January 30, 2019. The Pandora preferred stock investment, which is all owned by Sirius XM and is accounted for as a related party fair value instrument, has been cancelled in connection with the completion of the transactions and therefore, to reflect the cost to Sirius XM of such cancellation, the fair value of the Pandora preferred stock investment is included in the calculation of total estimated consideration being paid by Sirius XM. The consideration used in the application of acquisition accounting may differ from the amount determined as of January 30, 2019 as Sirius XM finalizes its calculation of the total consideration transferred.

 

The estimated consideration is as follows:

 

(in thousands except for share data)   
Pandora common stock outstanding at January 30, 2019   272,128,212 
Exchange ratio   1.44 
Sirius XM common stock to be issued   391,864,625 
Price per share of Sirius XM common stock as of January 30, 2019  $5.92 
Estimated value of Sirius XM common stock to be issued to Pandora stockholders pursuant to the transactions  $2,319,839 
Estimated value of Sirius XM replacement equity awards attributable to pre-combination service*  $65,301 
Estimated consideration of Sirius XM common stock and replacement equity awards for pre-combination service  $2,385,140 
Sirius XM’s Pandora preferred stock investment (related party fair value instrument) cancelled  $523,687 
Total estimated consideration for transactions  $2,908,827 
Value attributed to par at $0.001 par value  $392 
Balance to capital in excess of par value  $2,319,447 

 

 

  *   The estimated value of Sirius XM replacement equity awards attributable to pre-combination service is based on the estimated fair value of restricted stock units and stock options that will be assumed by Sirius XM upon completion of the transactions. ASC 805 requires that the fair value of replacement awards attributable to pre-combination service be included in the consideration transferred. The majority of this amount is related to restricted stock units and is based on the market price of Pandora common stock of $8.49 as of January 30, 2019.

 

Preliminary Purchase Price Allocation

 

In accordance with the acquisition method of accounting, the actual consolidated financial statements of Sirius XM will reflect the transactions only from and after the date of the completion of the acquisition. Sirius XM has undertaken a preliminary analysis of the fair value of Pandora’s assets and liabilities, however, it will not complete its final purchase price allocation related to the transactions until later in 2019. The preliminary allocation of the purchase price to the acquired assets and assumed liabilities was based upon the preliminary estimate of fair values of certain intangible assets as discussed below. For the preliminary estimate of fair values of these assets assumed, Sirius XM used publicly available benchmarking information as well as a variety of other company specific assumptions, including market participant assumptions. Accordingly, the unaudited pro forma adjustments are preliminary and subject to change as additional information becomes available and additional analyses of these assets, as well as other assets and liabilities to be assumed, are performed. The final acquisition accounting could result in material differences, which could have a material impact on the accompanying unaudited pro forma condensed combined consolidated financial statements and Sirius XM’s future results of operations and financial position.

 

The following table sets forth a preliminary allocation of the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed of Pandora using Pandora’s unaudited consolidated balance sheet as of September 30, 2018, with the excess recorded to goodwill:

 
(in thousands)   
Current assets  $818,952 
Property and equipment   68,545 
Intangible assets (estimated fair value)   1,462,703 
Deferred Tax Assets   363,670 
Long term assets   11,575 
Total assets   2,725,445 
Current liabilities   (325,992)
Long-term debt   (255,272)
Other long term liabilities   (25,072)
Deferred tax liabilities   (348,390)
Total liabilities   (954,726)
Net assets acquired (a)   1,770,719 
Estimated merger consideration (b)   2,908,827 
Estimated goodwill (b) - (a)  $1,138,108 
Elimination of existing Goodwill recorded by Pandora  $(178,917)
Additional Goodwill recorded as a result of the transactions  $959,191 

 

Intangible Assets

 

Preliminary identifiable intangible assets in the unaudited pro forma condensed combined consolidated financial information consist of the following:

 

(in thousands, except
for
estimated useful life)
Intangible Assets
  Book Value as of
September 30,
2018
(Excluding
AdsWizz)
(a)
  Reclassifications
from Property
and Equipment
(b)
  Estimated Fair
Value as of
September 30,
2018
(Excluding
AdsWizz)
(c)
  Pro Forma
Adjustment
(c - a - b)
  Estimated
Useful Life
  Fair Value Range
Trademark  $77   $   $470,000   $469,923   Indefinite  $280,000 - $660,000
Customer Relationships           632,000    632,000   8 - 10 years  $330,000 - $935,000
Developed Technology   14,777    39,257    320,000    265,966   5 years  $120,000 - $520,000
                           
Total  $14,854   $39,257   $1,422,000   $1,367,889       

 

   Book Value as of
September 30,
2018
(AdsWizz)
(d)
  Estimated Fair
Value as of
September 30,
2018
(Total)
(c + d)
Trademark  $547   $470,547 
Customer Relationships   10,952    642,952 
Developed Technology   29,204    349,204 
           
Total  $40,703   $1,462,703 

 

Sirius XM has assessed the value of intangible assets related to Pandora’s acquisition of AdsWizz Inc. on May 25, 2018 at carrying value as of September 30, 2018, $40,703. Accordingly a fair value analysis was performed by an independent third party to determine the fair value of the net assets acquired from AdsWizz. This valuation was completed on July 31, 2018 and represents the best available information at this time. For purposes of the pro forma financial statements, we included this amount at carrying value.

 

The amortization related to the identifiable intangible assets is reflected as a pro forma adjustment in the unaudited pro forma condensed combined consolidated statements of operations based on the estimated

 

useful lives above and as further described in Note 3(a). The identifiable intangible assets and related amortization are preliminary and are based on management’s estimates after consideration of similar transactions. As discussed above, the amount that will ultimately be allocated to identifiable intangible assets, and the related amount of amortization, may differ materially from this preliminary allocation. In addition, the amortization impacts will ultimately be based upon the periods in which the associated economic benefits or detriments are expected to be derived or, where appropriate, based on the use of a straight-line method. Therefore, the amount of amortization following the transactions may differ significantly between periods based upon the final value assigned and amortization methodology used for each identifiable intangible asset.

 

Property and Equipment

 

The following table presents the net book value, reclassification adjustments and pro forma fair value of property and equipment by asset class in the unaudited pro forma combined condensed consolidated balance sheet as of September 30, 2018. We reclassified the net book value of ‘Software developed for internal use—customer facing’ to Intangible Assets, as this technology was included in the estimated fair value of Developed Technology determined above. Sirius XM has not yet undertaken a detailed analysis of the fair value of Pandora’s property and equipment and therefore all other property and equipment has been recorded at cost basis in the unaudited pro forma combined condensed consolidated balance sheet as of September 30, 2018.

   Book Value as of
September 30,
2018
  Reclassification to
Intangible Assets
  Pro Forma
Fair Value
as of September
30,
2018
Property and equipment, net               
Servers, computers and other related equipment  $18,864   $   $18,864 
Software developed for internal use—customer facing   39,257    (39,257)    
Software developed for internal use—other   10,462        10,462 
Leasehold improvements   18,678        18,678 
Construction in progress   17,482        17,482 
Office furniture and equipment   3,059        3,059 
Total property and equipment, net  $107,802   $(39,257)  $68,545 

 

Note 3—Pro Forma Adjustments

(a)   Depreciation and amortization

 

The adjustment for the nine months ended September 30, 2018 and year ended December 31, 2017 reverses historical depreciation of developed technology and historical amortization of intangible assets, and includes the addition for estimated amortization of pro forma intangible assets based on their estimated useful life.

 

   Pro Forma Nine
Months
Ended
September 30, 2018
  Pro Forma 12
Months
Ended
December 31, 2017
Reversal of Pandora’s historical depreciation related to developed technology  $(10,059)  $(8,258)
Reversal of Pandora’s historical amortization related to intangible assets   (4,555)   (13,084)
Amortization of purchased identifiable intangible assets   97,125    129,500 
Net change to depreciation and amortization  $82,511   $108,158 
 
(b)   Reflects the estimated fair value of additional intangible assets identified and the elimination of certain existing intangibles. See “Intangible Assets” discussion in Note 2 above.
(c)   Reflects the impact of pro forma adjustments to goodwill based on the preliminary purchase price allocation discussed above.
(d)   The adjustment eliminates the impact of the Pandora preferred stock investment, which included a $73,880 and $472 unrealized gain recorded in Sirius XM’s financial statements during the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.
(e)   Sirius XM management has performed a preliminary analysis of Pandora’s net operating losses of approximately $973 million as of December 31, 2017 and additional estimated net operating losses of approximately $294 million for the nine months ended September 30, 2018. Based on this preliminary analysis, no limitation as to the total value of such net operating losses was identified under Section 382 of the Code. However, there may be limitations on the amount of net operating losses that can be used by Sirius XM within a specific year. The pro forma adjustment considers the estimated taxable income of the combined entity through September 30, 2018 and therefore, the valuation allowance previously recorded in Pandora’s financial statements related to such net operating losses will no longer be recorded post-combination. Upon completion of the final analysis, the pro forma financial information presented above will be updated.
(f)   The adjustment represents reclassifications to conform Pandora’s financial statement presentation and accounting policies to those of Sirius XM. Specifically, within the unaudited pro forma combined condensed consolidated balance sheet, current liabilities have been reclassified between financial statement captions to conform to Sirius XM’s presentation. Specifically, within the unaudited pro forma combined condensed consolidated statements of comprehensive income, refer to the table below for the reclassifications and adjustments made to the consolidated statements of comprehensive income for the nine months ended September 30, 2018 and year ended December 31, 2017. Sirius XM is still in the process of evaluating the pro forma adjustments necessary to conform the accounting policies of Pandora to those of Sirius XM and expects further adjustments may be necessary as Sirius XM conducts a more detailed review of Pandora’s accounting policies.

 

   For the Nine Months Ended September 30, 2018
   Reclassifications and other adjustments
   Bad debt
expense,
credit card
fees, and other
customer
service
and billing
costs
  Depreciation
and
amortization
  Loss on
extinguishment
of debt
  Elimination of
SXM Unrealized
Gain on
Investment
Ref (d)
  Other
Revenue
  Total
Ref (d)(f)
Revenue:                              
Subscriber revenue                      $(673)  $(673)
Advertising revenue                             
Equipment revenue                             
Other revenue                       673    673 
Total revenue                        
Operating expenses:                              
Cost of services   68,760    (9,740)                  59,020 
Subscriber acquisition costs                             
Sales and marketing   (58,839)   (10,508)                  (69,347)
Engineering, design and development        (5,870)                  (5,870)
General and administrative   (9,921)   (3,435)   (16,673)             (30,029)
Depreciation and amortization        29,553                   29,553 
Impairment of goodwill                             
Contract termination fees                             
Total operating expenses           (16,673)           (16,673)
Income from operations           16,673            16,673 
Other income (expense):                              
Interest expense                             
Loss on extinguishment of debt             (16,673)             (16,673)
Other income (expense)                  (73,880)        (73,880)
Total other expense           (16,673)   (73,880)       (90,553)
 
   For the Year Ended December 31, 2017
   Reclassifications and other adjustments
   Bad debt
expense,
credit card
fees, and
other
customer
service
and billing
costs
  Depreciation
and
amortization
  Contract
Termination
Fees
  Loss on
sales of
subsidiaries
  Elimination of
SXM
Unrealized
Gain on
Investment
Ref (d)
  Other
Revenue
  Total
Ref (d)(f)
Revenue:                                   
Subscriber revenue                           $(744)  $(744)
Advertising revenue                                  
Equipment revenue                                  
Other revenue                            744    744 
Total revenue                            
Operating expenses:                                   
Cost of services   73,743    (8,697)                       65,046 
Subscriber acquisition costs                                  
Sales and marketing   (53,924)   (19,543)                       (73,467)
Engineering, design and development        (8,144)                       (8,144)
General and administrative   (19,819)   (5,223)        (9,303)             (34,345)
Depreciation and amortization        41,607                        41,607 
Impairment of goodwill                                  
Contract termination fees             (23,044)                  (23,044)
Total operating expenses           (23,044)   (9,303)           (32,347)
Income from operations                                 32,347 
Other income (expense):                                   
Interest expense                                  
Loss on extinguishment of debt                                  
Other income (expense)             (23,044)   (9,303)   (472)        (32,819)
Total other expense           (23,044)   (9,303)   (472)       (32,819)

 

(g)   Reflects the impact of the following equity activity:

 

Elimination of Pandora common stock  $(27)
Par value of Sirius XM common stock   392 
Total adjustment of common stock   365 
Elimination of Pandora additional paid-in capital  $(1,632,178)
Estimated value of Sirius XM additional paid-in capital   2,319,447 
Estimated value of Sirius XM replacement equity awards attributable to the pre-combination service   65,301 
Total adjustment to additional paid-in capital   752,570 
Elimination of Pandora accumulated deficit  $1,579,125 
Loss on cancellation of Pandora preferred stock investment (related party note receivable)   (30,665)
Total adjustment to accumulated deficit   1,548,460 
 
(h)   The adjustment to income taxes was calculated by applying Sirius XM’s statutory tax rate at September 30, 2018 and December 31, 2017 of approximately 24.5% and 38.5%, respectively, to the taxable pro forma adjustments.
(i)   As of January 30, 2019, Sirius XM intends to issue approximately 392 million shares of Sirius XM common stock to Pandora stockholders and Pandora employees upon completion of the transactions. Therefore, pro forma shares used to compute earnings per share were calculated using Sirius XM’s historical weighted average shares outstanding at September 30, 2018 and December 31, 2017, plus the approximately 392 million shares that will be issued in connection with the transactions.
(j)  Adjusts the deferred tax liabilities resulting from the transactions. The estimated increase in deferred tax liabilities to $348.4 million stems primarily from the fair value adjustments related to intangible assets excluding goodwill, based on an estimated tax rate of 24.5%. This estimate of deferred income tax balances is preliminary and subject to change based on Sirius XM’s final determination of the fair value of assets acquired and liabilities assumed by jurisdiction.