Sirius XM Holdings Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Composition of Certain Financial Statement Captions

Composition of Certain Financial Statement Captions

12 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Composition of Certain Financial Statement Captions

Cash, Cash Equivalents and Investments

Cash, cash equivalents and investments consisted of the following:



	As of December 31,
	2015		2016
	(in thousands)
Cash and cash equivalents
Cash	$	104,361	$	144,192
Money market funds	180,021		55,752
Commercial paper	31,089		—
Corporate debt securities	2,000		—
U.S. government and government agency debt securities	17,196		—
Total cash and cash equivalents	$	334,667	$	199,944
Short-term investments
Commercial paper	$	4,792	$	—
Corporate debt securities	31,052		37,109
Total short-term investments	$	35,844	$	37,109
Long-term investments
Corporate debt securities	$	46,369	$	6,252
Total long-term investments	$	46,369	$	6,252
Total cash, cash equivalents and investments	$	416,880	$	243,305

Our short-term investments have maturities of twelve months or less and are classified as available-for-sale. Our long-term investments have maturities of greater than twelve months and are classified as available-for-sale.

The following tables summarize our available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of December 31, 2015 and 2016.



	As of December 31, 2015
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash equivalents and marketable securities
Money market funds	$	180,021	$	—	$	—		$	180,021
Commercial paper	35,881		—		—			35,881
Corporate debt securities	79,760		8		(347		)	79,421
U.S. government and government agency debt securities	17,198		—		(2		)	17,196
Total cash equivalents and marketable securities	$	312,860	$	8	$	(349	)	$	312,519



	As of December 31, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash equivalents and marketable securities
Money market funds	$	55,752	$	—	$	—		$	55,752
Corporate debt securities	43,413		3		(55		)	43,361
Total cash equivalents and marketable securities	$	99,165	$	3	$	(55	)	$	99,113

The following tables present available-for-sale investments by contractual maturity date as of December 31, 2015 and 2016:



	As of December 31, 2015
	Adjusted Cost		Fair Value
	(in thousands)
Due in one year or less	$	266,205	$	266,150
Due after one year through three years	46,655		46,369
Total	$	312,860	$	312,519



	As of December 31, 2016
	Adjusted Cost		Fair Value
	(in thousands)
Due in one year or less	$	92,914	$	92,861
Due after one year through three years	6,251		6,252
Total	$	99,165	$	99,113

The following tables summarize our available-for-sale securities’ fair value and gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position as of December 31, 2015 and 2016:



	As of December 31, 2015
	Twelve Months or Less					More than Twelve Months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
Corporate debt securities	$	64,804	$	(293	)	$	8,531	$	(54	)	$	73,335	$	(347	)
U.S. government and government agency debt securities	16,241		(2		)	—		—			16,241		(2		)
Total	$	81,045	$	(295	)	$	8,531	$	(54	)	$	89,576	$	(349	)



	As of December 31, 2016
	Twelve Months or Less					More than Twelve Months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
Corporate debt securities	$	34,257	$	(52	)	$	4,099	$	(3	)	$	38,356	$	(55	)
Total	$	34,257	$	(52	)	$	4,099	$	(3	)	$	38,356	$	(55	)

Our investment policy requires investments to be investment grade, primarily rated "A1" by Standard & Poor’s or "P1" by Moody’s or better for short-term investments and rated "A" by Standard & Poor’s or "A2" by Moody’s or better for long-term investments, with the objective of minimizing the potential risk of principal loss. In addition, the investment policy limits the amount of credit exposure to any one issuer.

The unrealized losses on our available-for-sale securities as of December 31, 2016 were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. As of December 31, 2016, we owned 30 securities that were in an unrealized loss position. Based on our cash flow needs, we may be required to sell a portion of these securities prior to maturity. However, we expect to recover the full carrying value of these securities. As a result, no portion of the unrealized losses at December 31, 2016 is deemed to be other-than-temporary and the unrealized losses are not deemed to be credit losses. When evaluating the investments for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and our intent to sell, or whether it is more likely than not we will be required to sell, the investment before recovery of the investment’s amortized cost basis. During the year ended December 31, 2016, we did not recognize any impairment charges. During the year ended December 31, 2016, proceeds from the sale of available-for-sale securities were $3.5 million. We did not recognize a realized gain or loss in connection with these sales.

Accounts Receivable, net

Accounts receivable, net consisted of the following as of December 31, 2015 and 2016:



	As of December 31,
	2015			2016
	(in thousands)
Accounts receivable, net
Accounts receivable	$	279,240		$	312,900
Allowance for doubtful accounts	(2,165		)	(3,633		)
Total accounts receivable, net	$	277,075		$	309,267

The following table summarizes our beginning allowance for doubtful accounts balance for each period, additions, write-offs net of recoveries and the balance at the end of each period for the years December 31, 2014, 2015 and 2016:



Allowance for Doubtful Accounts	Balance at Beginning of Period		Additions	Write-offs, Net of Recoveries		Balance at End of Period
	(in thousands)
For the year ended December 31, 2014	$	1,272	1,064	(1,118	)	$	1,218
For the year ended December 31, 2015	$	1,218	2,085	(1,138	)	$	2,165
For the year ended December 31, 2016	$	2,165	3,508	(2,040	)	$	3,633

Prepaid Content Acquisition Costs

Prepaid content acquisition costs consist primarily of minimum guarantees under content acquisition agreements. These

minimum guarantees may take the form of either a contractually obligated minimum over a specified period of time that requires a true-up payment at the end of the specified period if the cumulative payments have not met or exceeded the specified minimum, or cash advance payments made at the beginning of, or at intervals during, the specified period, which cash payments are then recoupable against content acquisition costs over the specified period. On a quarterly basis, we record the greater of the cumulative actual content acquisition 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 on a non-straight line basis. As of December 31, 2015 and 2016, we had prepaid content acquisition costs of $2.1 million and $46.3 million.

Prepaid and Other Current Assets

Prepaid and other current assets consisted of the following as of December 31, 2015 and 2016:



	As of December 31,
	2015		2016
	(in thousands)
Prepaid and other current assets
Other current assets	$	15,821	$	13,858
Prepaid expenses	13,908		13,533
Ticketing contract advances—short term, net	4,092		5,800
Total prepaid and other current assets	$	33,821	$	33,191

As of December 31, 2015 and 2016, other current assets consisted primarily of $12.9 million and $9.1 million in receivables for the reimbursement of costs of leasehold improvements in connection with our operating leases.

Other Long-Term Assets

Other long-term assets consisted of the following as of December 31, 2015 and 2016:



	As of December 31,
	2015		2016
	(in thousands)
Other long-term assets
Ticketing contract advances—long-term	$	9,824	$	15,395
Long-term security deposits	9,039		9,090
Other	10,929		7,048
Total other long-term assets	$	29,792	$	31,533

Property and Equipment, net

Property and equipment, net consisted of the following as of December 31, 2015 and 2016:



	As of December 31,
	2015			2016
	(in thousands)
Property and equipment, net
Servers, computers and other related equipment	$	57,309		$	85,541
Leasehold improvements	35,947			63,519
Office furniture and equipment	5,470			9,037
Construction in progress	12,550			20,393
Software developed for internal use	10,239			34,983
Total property and equipment	$	121,515		$	213,473
Less accumulated depreciation and amortization	(55,145		)	(89,385		)
Total property and equipment, net	$	66,370		$	124,088

Depreciation expenses totaled $14.7 million, $20.4 million and $34.2 million for the years ended December 31, 2014, 2015 and 2016, respectively. There were no material write-offs during the years ended December 31, 2014, 2015 and 2016.

Software developed for internal use generally has an expected useful life of three to five years from the date placed in service. As of December 31, 2015 and 2016 the net carrying amount was $6.3 million and $25.7 million, including accumulated amortization of $4.0 million and $9.3 million. Amortization expense for the years ended December 31, 2014, 2015 and 2016 was $1.1 million, $2.2 million and $5.3 million, respectively.

Other Current Liabilities

Other current liabilities consisted of the following as of December 31, 2015 and 2016:



	As of December 31,
	2015		2016
	(in thousands)
Other current liabilities
Ticketing amounts due to clients	$	13,104	$	20,666
Other	2,528		327
Total other current liabilities	$	15,632	$	20,993

Ticketing amounts due to clients consists of the face value of tickets sold and the revenue share costs related to tickets sold on the Ticketfly ticketing platform that are owed to clients. The face value of tickets sold on the Ticketfly ticketing platform is collected by Ticketfly and remitted to clients. Revenue share costs owed to clients related to tickets sold on the Ticketfly ticketing platform consist of fees paid to clients for their share of convenience and order processing fees.

Other Long-Term Liabilities

Other long-term liabilities consisted of the following as of December 31, 2015 and 2016:



	As of December 31,
	2015		2016
	(in thousands)
Other long-term liabilities
Long-term deferred rent	$	23,662	$	24,245
Other	7,200		9,942
Total other long-term liabilities	$	30,862	$	34,187

For operating leases that include escalation clauses over the term of the lease, tenant improvement reimbursements and rent abatement periods, we recognize rent expense on a straight-line basis over the lease term including expected renewal periods. The difference between rent expense and rent payments is recorded as deferred rent.