Annual report pursuant to Section 13 and 15(d)

Acquisitions

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Acquisitions
 12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Acquisitions Acquisitions
Stitcher
On October 16, 2020, Sirius XM acquired certain assets and liabilities of Stitcher from The E.W. Scripps Company and certain of its subsidiaries ("Scripps") for $272 in cash, which amount includes net working capital adjustments. The agreement provides that Sirius XM will potentially make up to $60 in additional contingent payments to Scripps based on Stitcher achieving certain financial metrics in 2020 and 2021. The total purchase consideration of $296 includes $30 related to the acquisition date fair value of the contingent consideration, partially offset by working capital adjustments of $6. The fair value of the contingent consideration was determined using a probability-weighted cash flow model and will be remeasured to fair value at each subsequent reporting period. Stitcher is included in our Pandora reporting unit.
The table below summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:
Acquired Assets:
Receivables, net $ 21 
Prepaid expenses and other current assets 16 
Property and equipment 8 
Intangible assets 38 
Goodwill 218 
Operating lease right-of-use assets 11 
Total assets $ 312 
Assumed Liabilities:
Accounts payable and accrued expenses $ 4 
Deferred revenue 1 
Operating lease current liabilities 2 
Operating lease liabilities 9 
Total liabilities $ 16 
Total consideration $ 296 
The Stitcher acquisition was accounted for using the acquisition method of accounting. We recognized acquisition related costs of $4 that were expensed in Acquisition and restructuring costs in our consolidated statements of comprehensive income during the year ended December 31, 2020. The acquisition of Stitcher was financed through borrowings under our Credit Facility.
Simplecast
On June 16, 2020, Sirius XM acquired Simplecast for $28 in cash. Simplecast is a podcast management and analytics platform. Simplecast complements AdsWizz’s advertising technology platform, allowing the company to offer podcasters a simple solution for management, hosting, analytics and advertising sales, and is included in the Pandora reporting unit. The Simplecast acquisition was accounted for using the acquisition method of accounting. We recognized goodwill of $17, amortizable intangible assets of $12, other assets of less than $1 and deferred tax liabilities of $1. Acquisition related costs of less than $1 were expensed in Acquisition and restructuring costs in our consolidated statements of comprehensive income during the year ended December 31, 2020.
Pandora
On February 1, 2019, through a series of transactions, Pandora Media, Inc., became an indirect wholly owned subsidiary of Sirius XM and continues to operate as Pandora Media, LLC (the “Pandora Acquisition”). In connection with the Pandora Acquisition, we purchased all of the outstanding shares of the capital stock of Pandora for $2,355 by converting each outstanding share of Pandora common stock into 1.44 shares of our common stock and we also canceled our preferred stock investment in Pandora for $524 for total consideration of $2,879. Net cash acquired was $313. As part of the Pandora Acquisition, Holdings unconditionally guaranteed all of the payment obligations of Pandora under its outstanding 1.75% convertible senior notes due 2020 and 1.75% convertible senior notes due 2023.
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 
The table below summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date:
Acquired Assets:
Cash and cash equivalents $ 313 
Receivables, net 353 
Prepaid expenses and other current assets 109 
Property and equipment 65 
Intangible assets 1,107 
Goodwill 1,553 
Deferred tax assets 102 
Operating lease right-of-use assets 104 
Long term assets 7 
Total assets $ 3,713 
Assumed Liabilities:
Accounts payable and accrued expenses $ 324 
Deferred revenue 37 
Operating lease current liabilities 28 
Current maturities of debt 151 
Long-term debt (a) 218 
Operating lease liabilities 69 
Other long-term liabilities 7 
Total liabilities $ 834 
Total consideration $ 2,879 
(a)In order to present the assets acquired and liabilities assumed, the conversion feature associated with Pandora's convertible notes for $62 has been included within Long-term debt in the table above and included within Additional paid-in-capital within our statement of stockholders' equity (deficit). Refer to Note 14 for additional information.
The Pandora Acquisition was accounted for using the acquisition method of accounting. The excess purchase price over identifiable net tangible and intangible assets of $1,553 was recorded to Goodwill in our consolidated balance sheets as of December 31, 2019. Refer to Note 9 for a further discussion of Pandora goodwill which was impaired in the year ended December 31, 2020. A total of $776 has been allocated to identifiable intangible assets subject to amortization and relates to the assessed fair value of the acquired customer relationships and software and technology and is being amortized over the estimated weighted average useful lives of 8 and 5 years, respectively. A total of $331 has been allocated to identifiable
indefinite lived intangible assets and relates to the assessed fair value of the acquired trademarks. The fair value assessed for the majority of the remaining assets acquired and liabilities assumed equaled their carrying value. Goodwill represents synergies and economies of scale expected from the combination of services. Goodwill has been allocated to the Pandora segment. Additionally, in connection with the Pandora Acquisition, we acquired gross net operating loss (“NOL”) carryforwards of approximately $1,287 for federal income tax purposes that are available to offset future taxable income. The acquired NOL's are limited by Section 382 of the Internal Revenue Code. Those limitations are not expected to impact our ability to fully utilize those NOL's within the carryforward period.
We recognized acquisition related costs of $84 that were expensed in Acquisition and restructuring costs in our consolidated statements of comprehensive income during the year ended December 31, 2019.
Pro Forma Financial Information
Pandora was consolidated into our financial statements starting on the acquisition date, February 1, 2019. The aggregate revenue and net loss of Pandora consolidated into our financial statements was $1,607 and $303, respectively, for the year ended December 31, 2019. The following pro forma financial information presents our results as if the Pandora Acquisition had occurred on January 1, 2018:
For the Years Ended December 31,
2020 2019 2018
Total revenue $ 8,046  $ 7,921  $ 7,348 
Net income $ 131  $ 938  $ 844 

These pro forma results are based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had the acquisition actually occurred on January 1, 2018 and are not indicative of our consolidated results of operations in future periods. The pro forma results primarily include adjustments related to amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs, fair value gain or loss on the Pandora investment and associated tax impacts.