SIRIUS XM : RADIO INC. Fourth Quarter 2020

February 02, 2021 at 08:54 pm IST

SIRIUS XM RADIO INC.

(Exact name of company as specified in its charter)

ANNUAL REPORT

For the Fiscal Year Ended December 31, 2020

Explanatory Note

Sirius XM Radio Inc. ("Sirius XM") is furnishing this Annual Report for the fiscal year ended December 31, 2020 (the "Annual Report") in order to comply with the reporting obligations in the indentures governing its 3.875% Senior Notes due 2022, 4.625% Senior Notes due 2024, 5.375% Senior Notes due 2026, 5.00% Senior Notes due 2027, 5.50% Senior Notes due 2029 and 4.125% Senior Notes due 2030 (collectively, the "Notes").

Before making any investment decisions in Sirius XM or Sirius XM Holdings Inc. ("Holdings"), investors should read the following consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") of Sirius XM in conjunction with Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Holdings' other reports available through the Securities and Exchange Commission website at www.sec.gov and our website at www.siriusxm.com, and with Sirius XM's other reports available through our website. Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 2020 is hereby incorporated by reference except for Section 9A and Exhibits 31.1, 31.2, 32.1 and 32.2 contained therein. Sirius XM is a wholly-owned subsidiary of Holdings and Holdings has no operations independent of Sirius XM. Refer to Note 1 to the consolidated financial statements included within this Annual Report for an explanation of differences between Sirius XM and Holdings' consolidated financial statements.

The terms "Sirius XM," "we," "us," "our," and the "Company," as used herein and unless otherwise stated or indicated by context, refer to 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.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

ANNUAL REPORT

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Selected Financial Data	1
Management's Discussion and Analysis of Financial Condition and Results of Operations	2
Financial Statements and Supplementary Data
Independent Auditors' Report	F-1
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018	F-3
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019	F-4
Consolidated Statements of Stockholder Equity for the years ended December 31, 2020, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-8

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SELECTED FINANCIAL DATA

The operating and balance sheet data included in the following selected financial data has been derived from our audited consolidated financial statements. The data below includes Pandora's results for the year ended December 31, 2020 and for the period from February 1, 2019 (the date of the Pandora acquisition) to December 31, 2019. This selected financial data should be read in conjunction with the audited Consolidated Financial Statements and related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report.

As of and for the Years Ended December 31,

(in millions)

2020

2019

2018

2017

2016

Statements of Comprehensive Income Data (1):

Total revenue

Net income attributable to

Sirius XM Radio Inc.'s sole stockholder (2)

Balance Sheet Data:

$	8,040	$	7,794	$	5,771	$	5,425	$	5,017
$	159	$	898	$	1,176	$	648	$	746

Cash and cash equivalents	$	71	$	106	$	54	$	69	$	214
Restricted investments	$	12	$	14	$	11	$	10	$	10

Total assets	$	19,965	$	19,096	$	16,214	$	14,889	$	13,180
Long-term debt, net of current portion	$	8,544	$	7,917	$	6,885	$	6,741	$	5,843

Stockholder equity (3)	$	7,302	$	7,136	$	6,224	$	5,062	$	4,396

_______________________

Net income (loss) per share for Sirius XM is not presented since Sirius XM is a wholly-owned subsidiary of Holdings.
During the year ended December 31, 2020, we recorded a non-cash impairment of goodwill and indefinite-lived assets of $956 and $20, respectively. Refer to Note 8 to our consolidated financial statements for more information.
For the year ended December 31, 2016, we recorded $294 as an increase to our Deferred tax assets and decrease to our Accumulated deficit as a result of the adoption of Accounting Standards Update 2016-09,Compensation-StockCompensation (Topic 718).

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All amounts referenced in this discussion and analysis are in millions, except subscriber amounts are in thousands and per subscriber and per installation amounts are in ones, unless otherwise stated.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report and with Holdings' Annual Report on Form 10-K for the year ended December 31, 2020.

Executive Summary

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 streamed 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 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 December 31, 2020, our Sirius XM business had approximately 34.7 million subscribers.

In addition to our audio entertainment businesses, we provide connected vehicle services to several automakers. 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.

In May 2020, we terminated the Automatic Labs Inc. ("Automatic") service, which was part of our connected services business. Automatic operated a service for consumers and auto dealers and offered an install-it-yourself adapter and mobile application, which transformed vehicles into connected vehicles. During the year ended December 31, 2020, we recorded $24 of restructuring expenses in our consolidated statements of comprehensive income related to this termination of the service. We did not record any restructuring expenses during the years ended December 31, 2019 and 2018.

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 (1) an ad-supported radio service, (2) a radio subscription service (Pandora Plus) and (3) an on-demand subscription service (Pandora Premium). As of December 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. We also derive subscription revenue from our Pandora Plus and Pandora Premium subscribers.

Our Pandora business also sells advertising on audio platforms and in podcasts unaffiliated with us. Pandora is the exclusive US ad sales representative for SoundCloud. Through this arrangement Pandora offers advertisers the ability to execute campaigns in the US across the Pandora and SoundCloud listening platforms. We also have arrangements to serve as the ad sales representative for certain podcasts, such as the podcasts of NBC News. In addition, through AdsWizz, Pandora provides a comprehensive digital audio advertising technology platform, which connects audio publishers and advertisers with a

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variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions. As of December 31, 2020, our Pandora business had approximately 58.9 million monthly active users.

In October 2020, Sirius XM acquired the assets of Stitcher from The E.W. Scripps Company and certain of its subsidiaries for a total consideration of $296, which includes $272 in cash and $30 related to contingent consideration, partially offset by working capital adjustments of $6. The acquisition of Stitcher, in conjunction with Simplecast, creates a full-service platform for podcast creators, publishers and advertisers. Refer to Note 3 to our consolidated financial statements for more information on this acquisition.

In June 2020, Sirius XM acquired Simplecast for $28 in cash. Simplecast is a podcast management and analytics platform. Refer to Note 3 to our consolidated financial statements for more information on this acquisition.

In February 2020, Sirius XM completed a $75 investment 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.

Liberty Media

As of December 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of Holdings' common stock. As a result, Holdings is a "controlled company" for the purposes of the NASDAQ corporate governance requirements.

Results of Operations

Actual Results

Set forth below are our results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 and for the year ended December 31, 2019 compared with the year ended December 31, 2018. The discussion of our results of operations for the year ended December 31, 2020 includes the financial results of Pandora for the entire period, while the results of operations for the year ended December 31, 2019 includes the financial results of Pandora from the date of the Pandora Acquisition, February 1, 2019. The inclusion of Pandora's results in the year ended December 31, 2020 for the entire period may render direct comparisons with results for prior year period less meaningful. The results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for all other items.

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		For the Years Ended December 31,			2020 vs 2019 Change			2019 vs 2018 Change
		2020			2019			2018			Amount	%		Amount	%
Revenue
Sirius XM:
Subscriber revenue	$	5,857	$	5,644	$	5,264	$	213	4 %	$	380	7 %
Advertising revenue		157			205			188			(48)	(23)%		17	9 %
Equipment revenue		173			173			155			-		- %		18	12 %
Other revenue		155			165			164			(10)	(6)%		1	1 %
Total Sirius XM revenue		6,342			6,187			5,771			155	3 %		416	7 %
Pandora:
Subscriber revenue		515			476			-			39	8 %		476		nm
Advertising revenue		1,183			1,131			-			52	5 %		1,131		nm
Total Pandora revenue		1,698			1,607			-			91	6 %		1,607		nm
Total consolidated revenue		8,040			7,794			5,771			246	3 %		2,023	35 %
Cost of services
Sirius XM:
Revenue share and royalties		1,484			1,431			1,394			53	4 %		37	3 %
Programming and content		449			444			406			5	1 %		38	9 %
Customer service and billing		394			398			382			(4)	(1)%		16	4 %
Transmission		123			112			96			11	10 %		16	17 %
Cost of equipment		19			29			31			(10)	(34)%		(2)	(6)%
Total Sirius XM cost of services		2,469			2,414			2,309			55	2 %		105	5 %
Pandora:
Revenue share and royalties		937			860			-			77	9 %		860		nm
Programming and content		32			18			-			14	78 %		18		nm
Customer service and billing		87			77			-			10	13 %		77		nm
Transmission		54			58			-			(4)	(7)%		58		nm
Total Pandora cost of services		1,110			1,013			-			97	10 %		1,013		nm
Total consolidated cost of services		3,579			3,427			2,309			152	4 %		1,118	48 %
Subscriber acquisition costs		362			427			470			(65)	(15)%		(43)	(9)%
Sales and marketing		957			937			484			20	2 %		453	94 %
Engineering, design and development		263			280			123			(17)	(6)%		157	128 %
General and administrative		511			524			354			(13)	(2)%		170	48 %
Depreciation and amortization		506			468			301			38	8 %		167	55 %
Acquisition and restructuring costs		28			84			3			(56)	(67)%		81		nm
Impairment charges		976			-			-			976		nm		-		nm
Total operating expenses		7,182			6,147			4,044			1,035	17 %		2,103	52 %
Income from operations		858			1,647			1,727			(789)	(48)%		(80)	(5)%
Other (expense) income:
Interest expense		(387)			(384)			(350)			(3)	(1)%		(34)	(10)%
Loss on extinguishment of debt		(40)			(57)			-			17	30 %		(57)		nm
Other income (expense)		29			(24)			44			53	221 %		(68)	(155)%
Total other (expense) income		(398)			(465)			(306)			67	14 %		(159)	(52)%
Income before income taxes		460			1,182			1,421			(722)	(61)%		(239)	(17)%
Income tax expense		(301)			(284)			(245)			(17)	(6)%		(39)	(16)%
Net income	$	159	$	898	$	1,176	$	(739)	(82)%	$	(278)	(24)%

nm - not meaningful

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Sirius XM Revenue

Refer to page 10 for our discussion on Sirius XM revenue.

Pandora Revenue

The year ended December 31, 2020 includes Pandora's revenue for the entire period while the year ended December 31, 2019 includes Pandora's revenue from the acquisition date, February 1, 2019. Refer to page 11 for our discussion on Pandora revenue.

Sirius XM Cost of Services

Refer to page 11 for our discussion on Sirius XM cost of services.

Pandora Cost of Services

The year ended December 31, 2020 includes Pandora's cost of services for the entire period while the year ended December 31, 2019 includes Pandora's cost of services from the acquisition date, February 1, 2019. Refer to page 13 for our discussion on Pandora cost of services.

Operating Costs

Subscriber Acquisition Costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers, distributors and automakers; subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; product warranty obligations; and freight. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber. Subscriber acquisition costs do not include advertising costs, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, subscriber acquisition costs were $362 and $427, respectively, a decrease of 15%, or $65, and decreased as a percentage of total revenue. The decrease was driven by a decline in OEM installations as a result of the COVID-19 pandemic as well as lower hardware subsidies as certain subsidy rates decreased.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, subscriber acquisition costs were $427 and $470, respectively, a decrease of 9%, or $43, and decreased as a percentage of total revenue. The decrease was driven by reductions to OEM hardware subsidy rates, lower subsidized costs related to the transition of chipsets, and a decrease in the volume of satellite radio installations.

We expect subscriber acquisition costs to fluctuate with OEM installations; however, the subsidized chipsets cost is expected to decline as we transition to a new generation of chipsets. We intend to continue to offer subsidies and other incentives to induce OEMs to include our technology in their vehicles.

Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative and artist marketing; and personnel related costs including salaries, commissions, and sales support. Marketing costs include expenses related to direct mail, outbound telemarketing, email communications, social media, television and digital performance media.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, sales and marketing expenses were $957 and $937, respectively, an increase of 2%, or $20, and decreased as a percentage of total revenue. The increase was primarily due to the inclusion of Pandora for a full twelve months in 2020, and additional subscriber communications and acquisition campaigns; partially offset by lower travel, entertainment and personnel-related costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, sales and marketing expenses were $937 and $484, respectively, an increase of 94%, or $453, and increased as a percentage of total revenue. The increase was primarily due to the inclusion of Pandora, and additional subscriber communications and acquisition campaigns.

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We anticipate that sales and marketing expenses will increase with growth in our trial subscriber base, as we expand programs to retain our existing subscribers, win back former subscribers, attract new subscribers and listeners, and as we grow advertising revenue.

Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and connected vehicle services, research and development for broadcast information systems and the design and development costs to incorporate Sirius XM radios into new vehicles manufactured by automakers.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, engineering, design and development expenses were $263 and $280, respectively, a decrease of 6%, or $17, and decreased as a percentage of total revenue. The decrease was driven primarily by lower personnel-related costs, partially offset by the inclusion of Pandora for a full twelve months in 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, engineering, design and development expenses were $280 and $123, respectively, an increase of 128%, or $157, and increased as a percentage of total revenue. The increase was driven primarily by the inclusion of Pandora.

We expect engineering, design and development expenses to increase in future periods as we continue to develop our infrastructure, products and services.

General and Administrative primarily consists of compensation and related costs for personnel and facilities, and include costs related to our finance, legal, human resources and information technologies departments.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, general and administrative expenses were $511 and $524, respectively, a decrease of 2%, or $13, and decreased as a percentage of total revenue. The decrease was driven by a one-time $25 legal settlement associated with Do-Not-Call litigation recorded in the first quarter of 2019, lower personnel-related costs, the closure of a sales and use tax audit in the second quarter of 2020, and lower travel and entertainment costs, partially offset by the inclusion of Pandora for a full twelve months in 2020, a $25 million contribution to a donor advised fund that will be the source of our future charitable donations, and higher legal costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, general and administrative expenses were $524 and $354, respectively, an increase of 48%, or $170, and increased as a percentage of total revenue. The increase was driven by the inclusion of Pandora and by a $25 legal settlement associated with Do-Not-Call litigation.

We expect our general and administrative expenses to remain relatively flat.

Depreciation and Amortization represents the recognition in earnings of the cost of assets used in operations, including our satellite constellations, property, equipment and intangible assets, over their estimated service lives.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, depreciation and amortization expense was $506 and $468, respectively, an increase of 8%, or $38, and increased as a percentage of total revenue. The increase was driven by additional assets placed in-service and the inclusion of Pandora for a full twelve months in 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, depreciation and amortization expense was $468 and $301, respectively, an increase of 55%, or $167, and increased as a percentage of total revenue. The increase was driven by the amortization of definite life intangibles resulting from the Pandora Acquisition and higher depreciation costs related to additional assets placed in-service.

Acquisition and Restructuring Costs represents expenses associated with the acquisitions of Pandora, Simplecast and Stitcher and restructuring costs.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, acquisition and restructuring costs were $28 and $84, respectively.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, acquisition and other related costs were $84 and $3, respectively.

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Impairment Charges represents the amount by which the carrying amount of an asset exceeds the asset's fair value.

2020 vs. 2019: For the year ended December 31, 2020, impairment charge was $976. We recorded a goodwill impairment charge of $956 during the year ended December 31, 2020 to reflect the carrying amount of the Pandora goodwill and an impairment charge of $20 to write down the carrying value of our Pandora trademark. We did not record an impairment charge in 2019 or 2018.

Other Income (Expense)

Interest Expense includes interest on outstanding debt.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, interest expense was $387 and $384, respectively, an increase of 1%, or $3. The increase was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029, 4.625% Senior Notes due 2024 in 2019, and 4.125% Senior Notes due 2030 in 2020; partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, redemption of the Pandora convertible notes in 2019, a lower average outstanding balance under the Credit Facility and lower interest rates.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, interest expense was $384 and $350, respectively, an increase of 10%, or $34. The increase was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029 and 4.625% Senior Notes due 2024 as well as the inclusion of Pandora debt, partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, lower interest rates and an increase in capitalized interest associated with construction of new satellites.

Loss on Extinguishment of Debt includes losses incurred as a result of the redemption of certain debt.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, loss on extinguishment of debt was $40 and $57, respectively. The loss on extinguishment of debt recorded in 2020 was due to the redemption of $500 principal amount of Sirius XM's 4.625% Senior Notes due 2023 and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2025. The loss recorded in 2019 was due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior Notes due 2024 and the repurchase of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, loss on extinguishment of debt was $57 and $0, respectively. During the year ended December 31, 2019, we recorded losses due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior Notes due 2024 and the repurchase of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020. There was no loss on extinguishment of debt in 2018.

Other Income (Expense) primarily includes realized and unrealized gains and losses from our Deferred Compensation Plan and other investments, interest and dividend income, our share of the income or loss from equity investments in Sirius XM Canada and SoundCloud, and transaction costs related to non-operating investments.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, other income (expense) was $29 and $(24), respectively. Other income for the year ended December 31, 2020 was driven by a gain on the fair value of Pandora's 2023 Notes of $23 and a one-time lawsuit settlement of $7. Other expense for the year ended December 31, 2019 was driven by losses on other investments of $21 and loss on the fair value of Pandora's 2023 Notes of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading gains associated with the investments held for our Deferred Compensation Plan of $4 and interest income of $3.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, other (expense) income was $(24) and $44, respectively. Other expense for the year ended December 31, 2019 was driven by losses on other investments of $21 and loss on the fair value of Pandora's 2023 Notes of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading gains associated with the investments held for our Deferred Compensation Plan of $4 and interest income of $3. Other income for the year ended December 31, 2018 was driven by unrealized gains of $43 from a fair value adjustment of our investment in Pandora, and interest earned on our loan to Sirius XM Canada of $10, partially offset by losses on other investments of $10.

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Income Taxes

Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, income tax expense was $301 and $284, respectively, and our effective tax rate was 65.4% and 24.0%, respectively.
Our effective tax rate of 65.4% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora goodwill impairment charge, partially offset by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and federal research and development and certain other credits and a worthless stock deduction associated with the termination of the Automatic service. Our effective tax rate of 24.0% for the year ended December 31, 2019 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, income tax expense was $284 and $245, respectively, and our effective tax rate was 24.0% and 17.2%, respectively.
Our effective tax rate of 24.0% for the year ended December 31, 2019 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation. Our effective tax rate of 17.2% for the year ended December 31, 2018 was primarily impacted by the recognition of excess tax benefits related to share based compensation and a benefit related to state and federal research and development credits.

Unaudited Pro Forma Results

Set forth below are our pro forma results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 and for the year ended December 31, 2019 compared with the year ended December 31, 2018. 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 Pandora 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. Pro forma adjustments are not included for the acquisitions of Simplecast and Stitcher. Please refer to the Footnotes to Results of Operations (pages 17 through 21) following our discussion of results of operations.

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		For the Years Ended December 31,			2020 vs 2019 Change			2019 vs 2018 Change
		2020			2019			2018			Amount	%		Amount	%
Revenue	(Pro Forma)		(Pro Forma)		(Pro Forma)
Sirius XM:
Subscriber revenue	$	5,857	$	5,644	$	5,264	$	213	4 %	$	380		7 %
Advertising revenue		157			205			188			(48)	(23)%			17		9 %
Equipment revenue		173			173			155			-		- %			18		12 %
Other revenue		161			172			171			(11)	(6)%			1		1 %
Total Sirius XM revenue		6,348			6,194			5,778			154	2 %			416		7 %
Pandora:
Subscriber revenue		515			527			478			(12)	(2)%			49		10 %
Advertising revenue		1,183			1,200			1,092			(17)	(1)%			108		10 %
Total Pandora revenue		1,698			1,727			1,570			(29)	(2)%			157		10 %
Total consolidated revenue		8,046			7,921			7,348			125	2 %			573		8 %
Cost of services
Sirius XM:
Revenue share and royalties		1,484			1,431			1,394			53	4 %			37		3 %
Programming and content		449			444			406			5	1 %			38		9 %
Customer service and billing		394			398			382			(4)	(1)%			16		4 %
Transmission		123			112			96			11	10 %			16		17 %
Cost of equipment		19			29			31			(10)	(34)%			(2)		(6)%
Total Sirius XM cost of services		2,469			2,414			2,309			55	2 %			105		5 %
Pandora:
Revenue share and royalties		943			945			929			(2)		- %			16		2 %
Programming and content		32			18			11			14	78 %			7		64 %
Customer service and billing		87			85			95			2	2 %			(10)		(11)%
Transmission		54			63			50			(9)	(14)%			13		26 %
Total Pandora cost of services		1,116			1,111			1,085			5		- %			26		2 %
Total consolidated cost of services		3,585			3,525			3,394			60	2 %			131		4 %
Subscriber acquisition costs		362			427			470			(65)	(15)%			(43)		(9)%
Sales and marketing		957			973			883			(16)	(2)%			90		10 %
Engineering, design and development		263			294			266			(31)	(11)%			28		11 %
General and administrative		511			540			517			(29)	(5)%			23		4 %
Depreciation and amortization		506			483			465			23	5 %			18		4 %
Acquisition and restructuring costs		28			-			-			28		nm			-	nm
Impairment charges		976			-			-			976		nm			-	nm
Total operating expenses		7,188			6,242			5,995			946	15 %			247		4 %
Income from operations		858			1,679			1,353			(821)	(49)%			326		24 %
Other (expense) income:
Interest expense		(387)			(386)			(377)			(1)		- %			(9)		(2)%
Loss on extinguishment of debt		(40)			(57)			(17)			17	30 %			(40)		(235)%
Other income (expense)		29			(23)			8			52	226 %			(31)		(388)%
Total other (expense) income		(398)			(466)			(386)			68	15 %			(80)		(21)%
Income before income taxes		460			1,213			967			(753)	(62)%			246		25 %
Income tax expense		(301)			(291)			(123)			(10)	(3)%			(168)		(137)%
Net income	$	159	$	922	$	844	$	(763)	(83)%	$	78		9 %


Adjusted EBITDA	$	2,575	$	2,427	$	2,131	$	148	6 %	$	296		14 %

nm - not meaningful

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Sirius XM Revenue

Sirius XM Subscriber Revenue includes fees charged for self-pay and paid promotional subscriptions, U.S. Music Royalty Fees and other ancillary fees.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, subscriber revenue was $5,857 and $5,644, respectively, an increase of 4%, or $213. The increase was primarily driven by higher self-pay revenue as a result of increases in certain subscription plans and higher U.S. Music Royalty Fees due to a higher music royalty rate, partially offset by lower paid promotional revenue.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, subscriber revenue was $5,644 and $5,264, respectively, an increase of 7%, or $380. The increase was primarily driven by higher U.S. Music Royalty Fees due to a higher music royalty rate, higher self-pay subscription revenue as a result of a 3% increase in the daily weighted average number of subscribers and higher revenue from our connected vehicle services.

We expect subscriber revenues to increase based on the growth of our subscriber base, increases in the average price charged and the sale of additional services to subscribers.

Sirius XM Advertising Revenue includes the sale of advertising on Sirius XM's non-music channels.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, advertising revenue was $157 and $205, respectively, a decrease of 23%, or $48. The decrease was primarily due to lower advertising as a result of the impact of the COVID-19 pandemic.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, advertising revenue was $205 and $188, respectively, an increase of 9%, or $17. The increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot.

We expect our Sirius XM advertising revenue to grow as we continue our recovery to pre-COVID-19 levels.

Sirius XM Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, equipment revenue was $173 and $173, respectively. Increased OEM royalty revenue was offset by lower direct sales to consumers and loss of revenue resulting from the termination of the Automatic service.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, equipment revenue was $173 and $155, respectively, an increase of 12%, or $18. The increase was driven by an increase in royalty revenue due to our transition to a new generation of chipsets.

We expect equipment revenue to increase as royalty revenue associated with certain new chipsets increases.

Sirius XM Other Revenue includes service and advisory revenue from Sirius XM Canada, revenue from our connected vehicle services, and ancillary revenues.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, other revenue was $161 and $172, respectively, a decrease of 6%, or $11. The decrease was due to lower revenue from our connected vehicle services, rental car revenue and royalty revenue from Sirius XM Canada.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, other revenue was $172 and $171, respectively, an increase of 1%, or $1. The increase was primarily driven by higher royalty revenue generated from Sirius XM Canada, partially offset by a decrease in data usage revenue generated from our connected vehicle services.

We expect other revenue to decrease as royalties from Sirius XM Canada, rental car revenue and revenue generated from our connected vehicle services decline.

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Pandora Revenue

Pandora Subscriber Revenue includes fees charged for Pandora Plus, Pandora Premium, Stitcher and Simplecast subscriptions.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, Pandora subscriber revenue was $515 and $527, respectively, a decrease of 2%, or $12. The decrease was primarily due to the expiration of the one-year promotional subscriptions generated through an agreement with T-Mobile.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, Pandora subscriber revenue was $527 and $478, respectively, an increase of 10%, or $49. The increase was primarily due to a greater weighted average number of subscribers and an increase in the average price per paid subscriber due to the growth of Pandora Premium.

We expect Pandora subscriber revenues to increase with growth of our Pandora andStitcher subscriber base.

Pandora Advertising Revenue is generated primarily from audio, display and video advertising from on-platform and off- platform advertising.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, Pandora advertising revenue was $1,183 and $1,200, respectively, a decrease of 1%, or $17. The decrease was primarily due to lower advertising as a result of the impact of the COVID-19 pandemic and a decrease in advertising revenue per thousand hours, partially offset by growth in our off-platform advertising and the inclusion of revenue from Stitcher.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, Pandora advertising revenue was $1,200 and $1,092, respectively, an increase of 10%, or $108. The increase was primarily due to growth in our off-platform advertising revenue, an increased sell-through percentage, increases in the average price per ad and revenue growth in the AdsWizz business.

We expect Pandora advertising revenue to increase due to our off-platform advertising opportunities, recovery from the impact of the COVID-19 pandemic and the addition of Stitcher.

Total Consolidated Revenue

Total Consolidated Revenue for the years ended December 31, 2020 and 2019, was $8,046 and $7,921, respectively, an increase of 2%, or $125. Total Consolidated Revenue for the years ended December 31, 2019 and 2018, was $7,921 and $7,348, respectively, an increase of 8%, or $573.

Sirius XM Cost of Services

Sirius XM Cost of Services includes revenue share and royalties, programming and content, customer service and billing and transmission expenses.

Sirius XM Revenue Share and Royalties include royalties for transmitting content, including streaming royalties, as well as automaker, content provider and advertising revenue share.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, revenue share and royalties were $1,484 and $1,431, respectively, an increase of 4%, or $53, and increased as a percentage of total Sirius XM revenue. The increase was driven by overall greater revenues subject to music royalties and revenue share to OEMs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, revenue share and royalties were $1,431 and $1,394, respectively, an increase of 3%, or $37, but decreased as a percentage of total Sirius XM revenue. The increase was driven by overall greater revenues subject to royalties and revenue share. The increase was partially offset by a $69 charge during the second quarter of 2018 related to the legal settlement that resolved all outstanding claims, including ongoing audits, under Sirius XM's statutory license for sound recordings for the period January 1, 2007 through December 31, 2017.

We expect our Sirius XM revenue share and royalty costs to increase as our revenues grow.

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Sirius XM Programming and Content includes costs to acquire, create, promote and produce content. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees and other amounts.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, programming and content expenses were $449 and $444, respectively, an increase of 1%, or $5, but decreased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher content licensing costs as well as greater personnel- related costs partially offset by one-time benefits for reduced sports programming as a result of shortened sports seasons due to the COVID-19 pandemic and lower costs associated with hosting live events.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, programming and content expenses were $444 and $406, respectively, an increase of 9%, or $38, and increased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher content licensing costs as well as greater personnel- related costs.

We expect our Sirius XM programming and content expenses to increase as we offer additional programming and renew or replace expiring agreements.

Sirius XM Customer Service and Billing includes costs associated with the operation and management of internal and third party customer service centers, and our subscriber management systems as well as billing and collection costs, bad debt expense, and transaction fees.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, customer service and billing expenses were $394 and $398, respectively, a decrease of 1%, or $4, and decreased as a percentage of total Sirius XM revenue. The decrease was driven by reduced staffing resulting from stay at home orders issued in countries in which our vendors operate call centers.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, customer service and billing expenses were $398 and $382, respectively, an increase of 4%, or $16, but decreased as a percentage of total Sirius XM revenue. The increase was driven by increased transaction fees from a larger subscriber base and higher bad debt expense.

We expect our Sirius XM customer service and billing expenses to increase as our subscriber base grows.

Sirius XM Transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks; satellites; satellite telemetry, tracking and control systems; satellite uplink facilities; studios; and delivery of our Internet streaming and connected vehicle services.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, transmission expenses were $123 and $112, respectively, an increase of 10%, or $11, and increased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher hosting and wireless costs associated with our 360L platform and our streaming and connected vehicle services.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, transmission expenses were $112 and $96, respectively, an increase of 17%, or $16, and increased as a percentage of total Sirius XM revenue. The increase was primarily driven by higher hosting and other costs associated with our streaming services and higher repeater network costs.

We expect our Sirius XM transmission expenses to increase as costs associated with our 360L platform and investments in internet streaming grow.

Sirius XM Cost of Equipment includes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, cost of equipment was $19 and $29, respectively, a decrease of 34%, or $10, and decreased as a percentage of equipment revenue. The decrease was primarily due to lower direct sales to consumers and reduced costs due to the termination of the Automatic service.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, cost of equipment was $29 and $31, respectively, a decrease of 6%, or $2, and decreased as a percentage of equipment revenue. The decrease

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was primarily due to lower direct sales to satellite radio and connected vehicle consumers, partially offset by an increase in our inventory reserve.

We expect our Sirius XM cost of equipment to fluctuate with the sales of our satellite radios.

Pandora Cost of Services

Pandora Cost of Services includes revenue share and royalties, programming and content, customer service and billing, and transmission expenses.

Pandora Revenue Share and Royalties includes licensing fees paid for streaming music or other content to our subscribers and listeners as well as revenue share paid to third party ad servers. We make payments to third party ad servers for the period the advertising impressions are delivered or click-through actions occur, and accordingly, we record this as a cost of service in the related period.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, revenue share and royalties were $943 and $945, respectively, a decrease of 0%, or $2, but increased as a percentage of total Pandora revenue. The decrease was primarily attributable to a reversal of a pre-acquisition reserve of $16 for royalties during the first quarter of 2020, lower listening hours, and the expiration during 2019 of certain minimum guarantees in direct license agreements with record labels; partially offset by the inclusion of Stitcher.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, revenue share and royalties were $945 and $929, respectively, an increase of 2%, or $16, but decreased as a percentage of total Pandora revenue. The increase was primarily attributable to higher revenue share driven by growth of our off-platform revenue, partially offset by lower royalty costs resulting from renegotiated agreements with record labels, music and sound recording copyright holders and distributors.

We expect our Pandora revenue share to increase as off-platform revenue increases and our royalty costs to increase due to higher music royalty rates.

Pandora Programming and Content includes costs to produce live listener events and promote content.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, programming and content expenses were $32 and $18, respectively, an increase of 78%, or $14, and increased as a percentage of total Pandora revenue. The increase was primarily attributable to higher production costs and personnel-related costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, programming and content expenses were $18 and $11, respectively, an increase of 64%, or $7, and increased as a percentage of total Pandora revenue. The increase was primarily attributable to higher personnel-related and content costs.

We expect our Pandora programming and content costs to increase as we offer additional programming and produce live listener events and promotions.

Pandora Customer Service and Billing includes transaction fees on subscription purchases through mobile app stores and bad debt expense.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, customer service and billing expenses were $87 and $85, respectively, an increase of 2%, or $2, and increased as a percentage of total Pandora revenue. The increase was primarily driven by higher bad debt expense, partially offset by lower transaction costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, customer service and billing expenses were $85 and $95, respectively, a decrease of 11%, or $10, and decreased as a percentage of total Pandora revenue. The decrease was primarily driven by lower bad debt expense due to recoveries and lower transaction fees.

We expect our Pandora customer service and billing costs to increase as our subscriber base grows.

Pandora Transmission includes costs associated with content streaming, maintaining our streaming radio and on-demand subscription services and creating and serving advertisements through third-party ad servers.

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2020 vs. 2019: For the years ended December 31, 2020 and 2019, transmission expenses were $54 and $63, respectively, a decrease of 14%, or $9, and decreased as a percentage of total Pandora revenue. The decrease was primarily driven by lower streaming costs due to lower listener hours and lower personnel- related costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, transmission expenses were $63 and $50, respectively, an increase of 26%, or $13, and increased as a percentage of total Pandora revenue. The increase was primarily driven by web hosting and personnel-related costs.

We expect our Pandora transmission costs to fluctuate with changes in listener hours.

Operating Costs

2020 vs. 2019: For the years ended December 31, 2020 and 2019, subscriber acquisition costs were $362 and $427, respectively, a decrease of 15%, or $65, and decreased as a percentage of total revenue. The decrease was driven by a decline in OEM installations as a result of the COVID-19 pandemic as well as lower hardware subsidies as certain subsidy rates decreased.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, subscriber acquisition costs were $427 and $470, respectively, a decrease of 9%, or $43, and decreased as a percentage of total revenue. The decrease was driven by reductions to OEM hardware subsidy rates, lower subsidized costs related to the transition of chipsets, and a decrease in the volume of satellite radio installations.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, sales and marketing expenses were $957 and $973, respectively, a decrease of 2%, or $16, and decreased as a percentage of total revenue. The decrease was primarily due to lower personnel-related costs and lower travel and entertainment costs, partially offset by additional subscriber communications and acquisition campaigns.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, sales and marketing expenses were $973 and $883, respectively, an increase of 10%, or $90, and increased as a percentage of total revenue. The increase was primarily due to additional acquisition campaigns and subscriber communications as well as higher personnel-related costs.

Engineering, Design and Development consists primarily of compensation and related costs to develop chipsets and new products and services, including streaming and connected vehicle services, research and development for broadcast information systems and costs associated with the incorporation of our radios into new vehicles manufactured by automakers.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, engineering, design and development expenses were $263 and $294, respectively, a decrease of 11%, or $31, and decreased as a percentage of total revenue. The decrease was driven by lower personnel-related costs.

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2019 vs. 2018: For the years ended December 31, 2019 and 2018, engineering, design and development expenses were $294 and $266, respectively, an increase of 11%, or $28, and increased as a percentage of total revenue. The increase was driven by higher personnel-related costs.

We expect engineering, design and development expenses to increase in future periods as we continue to develop our infrastructure, products and services.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, general and administrative expenses were $511 and $540, respectively, a decrease of 5%, or $29, and decreased as a percentage of total revenue. The decrease was primarily driven a one-time $25 legal settlement associated with Do-Not-Call litigation recorded in the first quarter of 2019, lower personnel-related costs, the closure of a sales and use tax audit in the second quarter of 2020, and lower travel and entertainment costs, partially offset by a $25 contribution in 2020 to a donor fund that will be the source of our future charitable donations and higher legal costs.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, general and administrative expenses were $540 and $517, respectively, an increase of 4%, or $23, but decreased as a percentage of total revenue. The increase was primarily driven by a $25 legal settlement associated with Do-Not-Call litigation and higher rent, partially offset by lower personnel-related costs.

We expect our general and administrative expenses to remain relatively flat.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, depreciation and amortization expense was $506 and $483, respectively, an increase of 5%, or $23, and increased as a percentage of total revenue. The increase was driven by additional assets placed in-service.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, depreciation and amortization expense was $483 and $465, respectively, an increase of 4%, or $18, but decreased as a percentage of total revenue. The increase was driven by additional assets placed in-service.

Impairment Charges represents losses associated with the amount by which the carrying amount of an asset exceeds the asset's fair value.

2020 vs. 2019: For the year ended December 31, 2020, impairment charge was $976. We recorded a goodwill impairment charge of $956 during the year ended December 31, 2020 to write down the carrying amount of the Pandora goodwill and an impairment charge of $20 to write down the carrying value of our Pandora trademark. We did not record an impairment charge in 2019 or 2018.

Other (Expense) Income

Interest Expense includes interest on outstanding debt.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, interest expense was $387 and $386, respectively, an increase of 0%, or $1. The increase was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029, 4.625% Senior Notes due 2024 in 2019, and 4.125% Senior Notes due 2030 in 2020; partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, redemption of the Pandora convertible notes in 2019, a lower average outstanding balance under the Credit Facility and lower interest rates.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, interest expense was $386 and $377, respectively, an increase of 2%, or $9. The increase was primarily driven by higher average debt due to the issuances of Sirius XM's 5.500% Senior Notes due 2029 and 4.625% Senior Notes due 2024, partially offset by the redemption of Sirius XM's 6.00% Senior Notes due 2024, the repurchase of the Pandora 1.75% Convertible Senior Notes due 2020 and lower interest rates.

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Loss on Extinguishment of Debt, includes losses incurred as a result of the redemption of certain debt.

2020 vs. 2019: For the year ended December 31, 2020, we recorded a $40 loss due to the redemption of $500 principal amount of Sirius XM's 4.625% Senior Notes due 2023 and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2025. During the year ended December 31, 2019, we recorded a $57 loss due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior Notes due 2024 and the repurchase of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020.
2019 vs. 2018: For the year ended December 31, 2019, we recorded a $57 loss due to the redemption of $1,500 in principal amount of Sirius XM's 6.00% Senior Notes due 2024 and the repurchase of $151 in principal amount of Pandora's 1.75% Convertible Senior Notes due 2020. During the year ended December 31, 2018, we recorded a $17 loss on extinguishment of debt primarily due to the exchange of Pandora's 1.75% Convertible Senior Notes due 2020 for new 1.75% Convertible Senior Notes due 2023.

Other Income (Expense) primarily includes realized and unrealized gains and losses, interest and dividend income, our share of the income or loss from equity investments, and transaction costs related to non-operating investments.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, other income (expense) was $29 and
$(23), respectively. Other income for the year ended December 31, 2020 was driven by a gain on the fair value of Pandora's 2023 Notes of $23 and a one-time lawsuit settlement of $7. Other expense for the year ended December 31, 2019 was driven by losses on other investments of $21 and loss on the fair value of Pandora's 2023 Notes of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading gains associated with the investments held for our Deferred Compensation Plan of $4 and interest income of $3.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, other (expense) income was $(23) and $8, respectively. During the year ended December 31, 2019, other expense was driven by losses on other investments of $21 and loss on the fair value of Pandora's 2023 Notes of $21; partially offset by interest earned on our loan to Sirius XM Canada of $10, trading gains associated with the investments held for our Deferred Compensation Plan of $4 and interest income of $3. During the year ended December 31, 2018, other income was driven by interest earned on our loan to Sirius XM Canada of $10 and interest income of $8, partially offset by losses on other investments of $10.

Income Taxes

Income Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, income tax expense was $301 and $291, respectively, and our effective tax rate was 65.4% and 24.0%, respectively. The effective tax rate of 65.4% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora goodwill impairment charge, partially offset by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and federal research and development and certain other credits and a worthless stock deduction associated with the termination of the Automatic service. The effective tax rate of 24.0% was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, income tax expense was $291 and $123, respectively, and our effective tax rate was 24.0% and 12.7%, respectively. The effective tax rate of 24.0% for the year ended December 31, 2019 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation. The effective tax rate of 12.7% for the year ended December 31, 2018 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and a benefit related to state and federal research and development credits under the Protecting Americans from Tax Hikes Act of 2015.

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Footnotes to Pro Forma Results of Operations

The following tables reconcile our results of operations as reported to our pro forma results of operations for the years ended December 31, 2020, 2019 and 2018 which includes the Pandora pre-acquisition financial information for the applicable periods and the effects of purchase price accounting. 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 Pandora 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.

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			Unaudited for the Year Ended December 31, 2020
					Predecessor			Purchase Price
	As Reported			Financial		Accounting and Pro	Ref		Pro Forma
			Information		Forma Adjustments
Revenue
Sirius XM:
Subscriber revenue	$	5,857	$	-	$	-				$	5,857
Advertising revenue		157			-			-					157
Equipment revenue		173			-			-					173
Other revenue		155			-			6		(a)		161
Total Sirius XM revenue		6,342			-			6						6,348
Pandora:
Subscriber revenue		515			-			-					515
Advertising revenue		1,183			-			-					1,183
Total Pandora revenue		1,698			-			-						1,698
Total consolidated revenue		8,040			-			6						8,046
Cost of services
Sirius XM:
Revenue share and royalties		1,484			-			-					1,484
Programming and content		449			-			-					449
Customer service and billing		394			-			-					394
Transmission		123			-			-					123
Cost of equipment		19			-			-					19
Total Sirius XM cost of services		2,469			-			-						2,469
Pandora:
Revenue share and royalties		937			-			6		(b)		943
Programming and content		32			-			-					32
Customer service and billing		87			-			-					87
Transmission		54			-			-					54
Total Pandora cost of services		1,110			-			6						1,116
Total consolidated cost of services		3,579			-			6						3,585
Subscriber acquisition costs		362			-			-					362
Sales and marketing		957			-			-					957
Engineering, design and development		263			-			-					263
General and administrative		511			-			-					511
Depreciation and amortization		506			-			-					506
Acquisition and restructuring costs		28			-			-					28
Impairment charges		976			-			-					976
Total operating expenses		7,182			-			6						7,188
Income (loss) from operations		858			-			-						858
Other (expense) income:
Interest expense		(387)			-			-					(387)
Loss on extinguishment of debt		(40)			-			-					(40)
Other (expense) income		29			-			-					29
Total other (expense) income		(398)			-			-						(398)
Income (loss) before income taxes		460			-			-						460
Income tax expense		(301)			-			-					(301)
Net income	$	159		$	-		$	-					$	159

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").
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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			Unaudited for the Year Ended December 31, 2019
					Predecessor			Purchase Price
	As Reported			Financial		Accounting and Pro	Ref		Pro Forma
		Information (c)		Forma Adjustments
Revenue
Sirius XM:
Subscriber revenue	$	5,644	$	-	$	-				$	5,644
Advertising revenue		205			-			-					205
Equipment revenue		173			-			-					173
Other revenue		165			-			7		(d)		172
Total Sirius XM revenue		6,187			-			7						6,194
Pandora:
Subscriber revenue		476			46			5		(e)		527
Advertising revenue		1,131			68			1		(e)		1,200
Total Pandora revenue		1,607			114			6						1,727
Total consolidated revenue		7,794			114			13						7,921
Cost of services
Sirius XM:
Revenue share and royalties		1,431			-			-					1,431
Programming and content		444			-			-					444
Customer service and billing		398			-			-					398
Transmission		112			-			-					112
Cost of equipment		29			-			-					29
Total Sirius XM cost of services		2,414			-			-						2,414
Pandora:
Revenue share and royalties		860			71			14		(f)		945
Programming and content		18			-			-					18
Customer service and billing		77			8			-					85
Transmission		58			5			-					63
Total Pandora cost of services		1,013			84			14						1,111
Total consolidated cost of services		3,427			84			14						3,525
Subscriber acquisition costs		427			-			-					427
Sales and marketing		937			36			-					973
Engineering, design and development		280			14			-					294
General and administrative		524			16			-					540
Depreciation and amortization		468			6			9		(g)		483
Acquisition and restructuring costs		84			1			(85)		(h)		-
Total operating expenses		6,147			157			(62)						6,242
Income (loss) from operations		1,647			(43)			75						1,679
Other (expense) income:
Interest expense		(384)			(2)			-					(386)
Loss on extinguishment of debt		(57)			-			-					(57)
Other (expense) income		(24)			1			-					(23)
Total other (expense) income		(465)			(1)			-						(466)
Income (loss) before income taxes		1,182			(44)			75						1,213
Income tax expense		(284)			-			(7)		(i)		(291)
Net income	$	898		$	(44)		$	68					$	922

Represents Pandora's results for the period January 1, 2019 through January 31, 2019.
This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.
This adjustment relates to the amortization of deferred subscription and deferred advertising revenue that was fair valued in purchase accounting.
This adjustment includes the impact of additional expense associated with minimum guarantee royalty contracts recorded as part of the Pandora Acquisition.
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.

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This adjustment eliminates the impact of acquisition and other related costs.
This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at December 31, 2019 to the pro forma adjustments of $75 and Pandora's pre-acquisition loss before income tax of $(44).

			Unaudited for the Year Ended December 31, 2018
					Predecessor			Purchase Price
	As Reported			Financial		Accounting and Pro	Ref		Pro Forma
		Information (j)		Forma Adjustments
Revenue
Sirius XM:
Subscriber revenue	$	5,264	$	-	$	-				$	5,264
Advertising revenue		188			-			-					188
Equipment revenue		155			-			-					155
Other revenue		164			-			7		(k)		171
Total Sirius XM revenue		5,771			-			7						5,778
Pandora:
Subscriber revenue		-			478			-					478
Advertising revenue		-			1,092			-					1,092
Total Pandora revenue		-			1,570			-						1,570
Total consolidated revenue		5,771			1,570			7						7,348
Cost of services
Sirius XM:
Revenue share and royalties		1,394			-			-					1,394
Programming and content		406			-			-					406
Customer service and billing		382			-			-					382
Transmission		96			-			-					96
Cost of equipment		31			-			-					31
Total Sirius XM cost of services		2,309			-			-						2,309
Pandora:
Revenue share and royalties		-			929			-					929
Programming and content		-			11			-					11
Customer service and billing		-			95			-					95
Transmission		-			50			-					50
Total Pandora cost of services		-			1,085			-						1,085
Total consolidated cost of services		2,309			1,085			-						3,394
Subscriber acquisition costs		470			-			-					470
Sales and marketing		484			399			-					883
Engineering, design and development		123			143			-					266
General and administrative		354			169			(6)		(l)		517
Depreciation and amortization		301			61			103		(m)		465
Acquisition and restructuring costs		3			12			(15)		(n)		-
Total operating expenses		4,044			1,869			82						5,995
Income (loss) from operations		1,727			(299)			(75)						1,353
Other (expense) income:
Interest expense		(350)			(27)			-					(377)
Loss on extinguishment of debt		-			(17)			-					(17)
Other (expense) income		44			7			(43)		(o)		8
Total other (expense) income		(306)			(37)			(43)						(386)
Income (loss) before income taxes		1,421			(336)			(118)						967
Income tax expense		(245)			8			114		(p)		(123)
Net income	$	1,176		$	(328)		$	(4)					$	844

Represents Pandora's results for the period January 1, 2018 through December 31, 2018.
This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.
This adjustment eliminates the impact of contract termination fees.

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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.
This adjustment eliminates the impact of transaction related costs, recorded by Pandora, to advisers for the planned acquisition by Sirius XM.
This adjustment eliminates the unrealized gain for the fair value adjustment of our preferred stock investment in Pandora.
This adjustment to income taxes was calculated by applying Sirius XM's statutory tax rate at December 31, 2018 to the pro forma adjustments of $(118) and Pandora's loss before income tax of $(336).

Key Financial and Operating Performance Metrics

In this section, we present certain financial performance measures some of which are presented as Non-GAAP items, which include free cash flow and adjusted EBITDA. We also present certain operating performance measures. Our adjusted EBITDA excludes the impact of share-based payment expense and certain purchase price accounting adjustments related to the XM Merger and the Pandora Acquisition. Additionally, when applicable, our adjusted EBITDA metric excludes the effect of significant items that do not relate to the on-going performance of our business. We use these Non-GAAP financial and operating performance measures to manage our business, to set operational goals and as a basis for determining performance- based compensation for our employees. See the accompanying glossary on pages 29 through 33 for more details and for the reconciliation to the most directly comparable GAAP measure (where applicable).

We believe these Non-GAAP financial and operating performance measures provide useful information to investors regarding our financial condition and results of operations. We believe these Non-GAAP financial and operating performance measures may be useful to investors in evaluating our core trends because they provide a more direct view of our underlying costs. We believe investors may use our adjusted EBITDA to estimate our current enterprise value and to make investment decisions. We believe free cash flow provides useful supplemental information to investors regarding our cash available for future subscriber acquisitions and capital expenditures, to repurchase or retire debt, to acquire other companies and our ability to return capital to stockholders. By providing these Non-GAAP financial and operating performance measures, together with the reconciliations to the most directly comparable GAAP measure (where applicable), we believe we are enhancing investors' understanding of our business and our results of operations.

Our Non-GAAP financial measures should be viewed in addition to, and not as an alternative for or superior to, our reported results prepared in accordance with GAAP. In addition, our Non-GAAP financial measures may not be comparable to similarly-titled measures by other companies. Please refer to the glossary (pages 29 through 33) for a further discussion of such Non-GAAP financial and operating performance measures and reconciliations to the most directly comparable GAAP measure (where applicable). Subscribers and subscription related revenues and expenses associated with our connected vehicle services and Sirius XM Canada are not included in Sirius XM's subscriber count or subscriber-based operating metrics.

Set forth below are our subscriber balances as of December 31, 2020 compared to December 31, 2019 and as of December 31, 2019 compared to December 31, 2018..

	As of December 31,			2020 vs 2019 Change		2019 vs 2018 Change
(subscribers in thousands)	2020	2019			2018 (1)		Amount	%		Amount	%
Sirius XM
Self-pay subscribers	30,887	29,978			28,915	909	3 %	1,063	4 %
Paid promotional subscribers	3,827		4,931			5,124		(1,104)	(22)%		(193)	(4)%
Ending subscribers	34,714	34,909			34,039	(195)	(1)%	870	3 %
Traffic users	9,301	9,334			8,606	(33)		- %	728	8 %
Sirius XM Canada subscribers	2,622	2,707			2,644	(85)	(3)%	63	2 %

Pandora
Monthly active users - all services	58,882	63,508			69,399	(4,626)	(7)%	(5,891)	(8)%
Self-pay subscribers	6,298	6,165			5,914	133	2 %	251	4 %
Paid promotional subscribers	43		49			756		(6)	(12)%		(707)	(94)%
Ending subscribers	6,341	6,214			6,670	127	2 %	(456)	(7)%

(1) Includes Pandora's results as of December 31, 2018.

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The following table contains our Non-GAAP pro forma financial and operating performance measures which are based on our adjusted results of operations for the years ended December 31, 2020, 2019 and 2018.

		For the Years Ended December 31,			2020 vs 2019 Change			2019 vs 2018 Change
(subscribers in thousands)		2020			2019 (1)			2018 (2)			Amount	%		Amount	%
Sirius XM
Self-pay subscribers		909			1,063			1,402			(154)	(14)%		(339)	(24)%

Paid promotional subscribers		(1,104)			(193)			(99)			(911)	(472)%		(94)	(95)%
Net additions		(195)			870			1,303			(1,065)	(122)%		(433)	(33)%

Weighted average number of subscribers		34,523			34,314			33,345			209	1 %		969	3 %
Average self-pay monthly churn		1.7 %			1.7 %			1.7 %			- %		- %		- %	- %

ARPU (3)	$	14.10	$	13.82	$	13.34	$	0.28	2 %	$	0.48	4 %
SAC, per installation	$	18.65	$	22.91	$	25.66	$	(4.26)	(19)%	$	(2.75)	(11)%


Pandora

Self-pay subscribers		133			251			436			(118)	(47)%		(185)	(42)%
Paid promotional subscribers		(6)			(707)			756			701	99 %		(1,463)	(194)%
Net additions		127			(456)			1,192			583	128 %		(1,648)	(138)%
Weighted average number of subscribers		6,315			6,654			6,080			(339)	(5)%		574	9 %

ARPU	$	6.76	$	6.61	$	6.53	$	0.15	2 %	$	0.08	1 %
Ad supported listener hours (in billions)		12.50			13.44			14.79			(0.94)	(7)%		(1.35)	(9)%

Advertising revenue per thousand listener	$	79.24	$	80.41	$	71.60	$	(1.17)	(1)%	$	8.81	12 %
hours (RPM)

Licensing costs per thousand listener hours	$	40.14	$	38.94	$	37.80	$	1.20	3 %	$	1.14	3 %
(LPM)
Licensing costs per paid subscriber (LPU)	$	4.14	$	4.06	$	4.47	$	0.08	2 %	$	(0.41)	(9)%

Total Company
Adjusted EBITDA	$	2,575	$	2,427	$	2,131	$	148	6 %	$	296	14 %

Free cash flow (4)	$	1,660	$	1,647	$	1,517	$	13	1 %	$	130	9 %

Includes Pandora's results for the twelve month period, including pre-acquisition results for the period January 1, 2019 through January 31, 2019.
Includes Pandora's results for the twelve month period, including pre-acquisition results for the period January 1, 2018 through December 31, 2018.
ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $174, $159 and $111 for the years ended December 31, 2020, 2019 and 2018, respectively.
Free cash flow has not been adjusted for Pandora's pre-acquisition results.

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Sirius XM

Subscribers. At December 31, 2020, we had approximately 34,714 subscribers, a decrease of approximately 195 subscribers, or 1%, from the approximately 34,909 subscribers as of December 31, 2019. The decrease in total subscribers was primarily due to the decline in paid promotional subscribers, partially offset by growth in our self-pay subscriber base from lower non-pay and vehicle related churn as well as additions from subscriber win back programs.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, net additions were (195) and 870, respectively, a decrease of 122%, or 1,065. Paid promotional subscribers decreased as shipments and trial subscription starts from automakers offering paid subscriptions declined as a result of the COVID-19 pandemic. Self-pay net additions decreased year over year as growth in subsequent owner trial conversions, stand-alone streaming net additions, win back programs and reductions in vehicle related and non-pay churn were offset by reduced additions from new car conversions as well as increases in voluntary churn.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, net additions were 870 and 1,303, respectively, a decrease of 33%, or 433. Self-pay net additions decreased primarily due to a flat churn rate on a growing subscriber base and lower gross add win-backs, offset by increases in trial conversions. The reduction of paid promotional subscribers increased due to lower shipments and trial starts from automakers offering paid promotional subscriptions.

Traffic Users. We offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems.

Average Self-payMonthly Churn is derived by dividing the monthly average of self-pay deactivations for the period by the average number of self-pay subscribers for the period. (See accompanying glossary on pages 29 through 33 for more details.)

2020 vs. 2019: For the years ended December 31, 2020 and 2019, our average self-pay monthly churn rate was 1.7%. Decreases in non-pay and vehicle related churn were offset by increased voluntary churn.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, our average self-pay monthly churn rate was 1.7%. Decreased voluntary churn was offset by increased used vehicle churn.

ARPU is derived from total earned subscriber revenue (excluding revenue derived from our connected vehicle services) and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. (See the accompanying glossary on pages 29 through 33 for more details.)

2020 vs. 2019: For the years ended December 31, 2020 and 2019, ARPU was $14.10 and $13.82, respectively. The increase was driven by an increase in certain subscription rates and the U.S. Music Royalty Fee; partially offset by lower advertising revenue.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, ARPU was $13.82 and $13.34, respectively. The increase was driven by increases in the U.S. Music Royalty Fee, increases in self-pay revenue and higher advertising revenue.

SAC, Per Installation, is derived from subscriber acquisition costs less margins from the sale of radios, components and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. (See the accompanying glossary on pages 29 through 33 for more details.)

2020 vs. 2019: For the years ended December 31, 2020 and 2019, SAC, per installation, was $18.65 and $22.91, respectively. The decrease was driven by reductions to OEM hardware subsidy rates and our transition to a new generation of chipsets.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, SAC, per installation, was $22.91 and $25.66, respectively. The decrease was driven by our transition to a new generation of chipsets and reductions to OEM hardware subsidy rates.

Pandora

Monthly Active Users. At December 31, 2020, Pandora had approximately 58,882 monthly active users, a decrease of

4,626 monthly active users, or 7%, from the 63,508 monthly active users as of December 31, 2019. The decrease in monthly active users was driven by an increase in ad-supported listener churn and a decrease in the number of new users.

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Subscribers. At December 31, 2020, Pandora had approximately 6,341 subscribers, an increase of 127, or 2%, from the approximately 6,214 subscribers as of December 31, 2019.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, net additions were 127 and (456), respectively, an increase of 128%, or 583. Net additions increased as a result of the growth in our Pandora Premium plans during 2020.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, net additions were (456) and 1,192, respectively, a decrease of 138%, or 1,648. Net additions decreased due to a loss of paid promotional subscribers from the expiration of an agreement with T-Mobile.

ARPU is defined as average monthly revenue per paid subscriber on our Pandora subscription services. (See the accompanying glossary on pages 62 through 65 for more details.)

2020 vs. 2019: For the years ended December 31, 2020 and 2019, ARPU was $6.76 and $6.61, respectively. The increase was primarily driven by the expiration of a lower rate T-Mobile plan in 2019 and a shift in subscriber mix toward Pandora Premium plans.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, ARPU was $6.61 and $6.53, respectively. The increase was primarily driven by an increase in the number of Pandora Premium subscribers while the number of lower price Pandora Plus subscribers decreased.

Ad supported listener hours are a key indicator of our Pandora business and the engagement of our Pandora listeners. We include ad supported listener hours related to Pandora's non-radio content offerings in the definition of listener hours.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, ad supported listener hours was 12.50 billion and 13.44 billion, respectively. The decrease in ad supported listener hours was primarily driven the decline in monthly active users, partially offset by higher hours per active user.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, ad supported listener hours was 13.44 billion and 14.79 billion, respectively. The decline in ad supported listener hours was primarily driven by a decrease in ad-supported listeners.

RPM is a key indicator of our ability to monetize advertising inventory created by our listener hours on the Pandora services. Ad RPM is calculated by dividing advertising revenue by the number of thousands of listener hours of our Pandora advertising-based service.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, RPM was $79.24 and $80.41, respectively. The decrease was a result of lower sell-through percentages as a result of the COVID-19 pandemic.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, RPM was $80.41 and $71.60, respectively. The increase was a result of an increase in the average price per ad and increased sell-through percentage.

LPM is tracked for our non-subscription,ad-supported service across all Pandora delivery platforms. The content acquisition costs included in our ad LPM calculations are based on the rates set by our license agreements with record labels, performing rights organizations and music publishers or the applicable rates set by the Copyright Royalty Board if we have not entered into a license agreement with the copyright owner of a particular sound recording.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, LPM was $40.14 and $38.94, respectively. The increase was primarily driven by higher eligible advertising revenue.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, LPM was $38.94 and $37.80, respectively. The increase was primarily driven by higher eligible advertising revenue and increases to track rates.

LPU is defined as average monthly licensing costs per paid subscriber on our Pandora subscription services. LPU is a key measure of our ability to manage costs for our subscription services.

2020 vs. 2019: For the years ended December 31, 2020 and 2019, LPU was $4.14 and $4.06, respectively. The increase was due to increased Pandora subscriber ARPU.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, LPU was $4.06 and $4.47, respectively. The decrease was due to lower minimum guarantees associated with our direct license agreements with major and independent labels, distributors, performing rights organizations and publishers.

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Total Company

Adjusted EBITDA. EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. Adjusted EBITDA excludes the impact of other income, loss on extinguishment of debt, acquisition related costs, other non-cash charges, such as certain purchase price accounting adjustments, impairment charges, share-based payment expense, loss on disposal of assets, and legal settlements and reserves related to the historical use of sound recordings. (See the accompanying glossary on pages 29 through 33 for a reconciliation to GAAP and for more details.)

2020 vs. 2019: For the years ended December 31, 2020 and 2019, adjusted EBITDA was $2,575 and $2,427, respectively, an increase of 6%, or $148. The increase was due to higher subscriber revenue, lower subscriber acquisition costs, travel and entertainment expenses and personnel-related costs, partially offset by higher revenue share and royalties, lower advertising revenue and a $25 contribution to a donor advised fund that will be the source of our future charitable donations.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, adjusted EBITDA was $2,427 and $2,131,
respectively, an increase of 14%, or $296. The increase was due to: growth of 8% in total revenue which was primarily a result of the increase in our subscriber base; additional revenues from the U.S. Music Royalty Fee; an increase in advertising revenue; and lower subscriber acquisition costs. The increases were partially offset by higher revenue share and royalty, sales and marketing, programming and content, transmission, engineering, design and development, and general and administrative costs.

Free Cash Flow includes cash provided by operations, net of additions to property and equipment, restricted and other investment activity and the return of capital from an investment in an unconsolidated entity. (See the accompanying glossary on pages 29 through 33 for a reconciliation to GAAP and for more details.)

2020 vs. 2019: For the years ended December 31, 2020 and 2019, free cash flow was $1,660 and $1,647, respectively, an increase of $13, or 1%. The increase was impacted by $25 for a legal settlement paid during 2019 and lower cash used to construct replacement satellites during 2020, partially offset by a $25 contribution to a donor advised fund that will be the source of our future charitable donations.
2019 vs. 2018: For the years ended December 31, 2019 and 2018, free cash flow was $1,647 and $1,517, respectively, an increase of $130, or 9%. The increase was impacted by the one-time lump sum payment of $150 to resolve all outstanding claims under our statutory license for sound recordings for the period January 1, 2007 through December 31, 2017, paid during 2018; partially offset by $25 for a legal settlement paid during 2019.

Liquidity and Capital Resources

Cash Flows for the year ended December 31, 2020 compared with the year ended December 31, 2019 and for the year ended December 31, 2019 compared with the year ended December 31, 2018.

The following table presents a summary of our cash flow activity for the periods set forth below:

		For the Years Ended December 31,
		2020			2019			2018		2020 vs 2019		2019 vs 2018
Net cash provided by operating activities	$	1,885	$	1,875	$	1,760	$	10	$	115

Net cash used in investing activities		(741)			(3)			(379)			(738)		376

Net cash used in financing activities		(1,181)			(1,817)			(1,395)			636		(422)

Net (decrease) increase in cash, cash equivalents and		(37)			55			(14)			(92)		69
restricted cash

Cash, cash equivalents and restricted cash at		120			65			79			55		(14)
beginning of period

Cash, cash equivalents and restricted cash at end of	$	83	$	120	$	65	$	(37)	$	55
period

Cash Flows Provided by Operating Activities

Cash flows provided by operating activities increased by $10 to $1,885 for the year ended December 31, 2020 from $1,875 for the year ended December 31, 2019. Cash flows provided by operating activities increased by $115 to $1,875 for the year ended December 31, 2019 from $1,760 for the year ended December 31, 2018.

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Our largest source of cash provided by operating activities is cash generated by subscription and subscription-related revenues. We also generate cash from the sale of advertising through our Pandora business, advertising on certain non-music channels on Sirius XM and the sale of satellite radios, components and accessories. Our primary uses of cash from operating activities include revenue share and royalty payments to distributors, programming and content providers, and payments to radio manufacturers, distributors and automakers. In addition, uses of cash from operating activities include payments to vendors to service, maintain and acquire listeners and subscribers, general corporate expenditures, and compensation and related costs.

Cash Flows Used in Investing Activities

Cash flows used in investing activities in the year ended December 31, 2020 were primarily due to the acquisition of Stitcher of $272, our $75 investment in SoundCloud, the acquisition of Simplecast of $28, spending primarily for capitalized software and hardware, and to construct replacement satellites. Cash flows provided by investing activities in the year ended December 31, 2019 were primarily due to spending for capitalized software and hardware, and to construct replacement satellites, offset by cash received from the Pandora Acquisition of $313 and from the sale of short-term investments of $73. Cash flows used in investing activities in the year ended December 31, 2018 were primarily due additions to property and equipment of $355 primarily for capitalized software and hardware and to construct replacement satellites. We spent $242, $214 and $166 on capitalized software and hardware as well as $57, $82 and $132 to construct replacement satellites during the years ended December 31, 2020, 2019 and 2018, respectively.

Cash Flows Used in Financing Activities

Cash flows used in financing activities consists of the issuance and repayment of long-term debt, the purchase of common stock under Holdings' share repurchase program and the payment of cash dividends. Proceeds from long-term debt have been used to fund our operations, construct and launch new satellites, invest in other infrastructure improvements and purchase shares of Holdings' common stock.

Cash flows used in financing activities in the year ended December 31, 2020 were primarily due to the redemption of our 4.625% Senior Notes due 2023 in the aggregate amount of $505 and our 5.375% Senior Notes due 2025 in the aggregate amount of $1,033, the purchase and retirement of shares of Holdings' common stock under Holdings' repurchase program for $1,555 and the payment of cash dividends on Holdings' common stock of $237; partially offset by the issuance of $1,481 in aggregate principal amount of Sirius XM's 4.125% Senior Notes due 2030, net of costs, and net borrowings of $649 from the Credit Facility. Cash flows used in financing activities in the year ended December 31, 2019 were primarily due to the purchase and retirement of shares of Holdings' common stock under Holdings' repurchase program for $2,159, the redemption of Sirius XM's 6.00% Senior Notes due 2024 in the aggregate amount of $1,546, repayment under the Credit Facility of $439, the repurchase for $152 of Pandora's 1.75% Convertible Senior Notes due 2020 and the payment of cash dividends on Holdings' common stock of $226, partially offset by cash provided by the issuance of $2,715 in aggregate principal amount of Sirius XM's 5.500% Senior Notes due 2029, net of costs and Sirius XM's 4.625% Senior Notes due 2024, net of costs.

Future Liquidity and Capital Resource Requirements

Based upon our current business plans, we expect to fund operating expenses, capital expenditures, including the construction of replacement satellites, working capital requirements, interest payments, taxes and scheduled maturities of our debt with existing cash, cash flow from operations and borrowings under our Credit Facility. As of December 31, 2020, $649 was outstanding under our Credit Facility. As the amount available for future borrowing is reduced by $1 related to letters of credit issued for the benefit of Pandora, $1,100 was available for future borrowing under our Credit Facility. We believe that we have sufficient cash and cash equivalents, as well as debt capacity, to cover our estimated short-term and long-term funding needs, including amounts to construct, launch and insure replacement satellites, as well as fund Holdings' future stock repurchases, future dividend payments on Holdings' common stock and pursue strategic opportunities.

Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors. We continually review our operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained.

We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our business plans or strategy may include: the acquisition of unique or compelling programming; the development and introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites,

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equipment or radio spectrum; and acquisitions and investments, including acquisitions and investments that are not directly related to our existing business.

We may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Holdings' Capital Return Program

As of December 31, 2020, Holdings' board of directors had authorized for repurchase an aggregate of $16,000 of

Holdings' common stock. As of December 31, 2020, Holdings' cumulative repurchases since December 2012 under Holdings' stock repurchase program totaled $14,408, and $1,592 remained available for additional repurchases under Holdings' existing stock repurchase program authorization.

Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates. We intend to fund the additional repurchases through a combination of cash on hand, cash generated by operations and future borrowings. The size and timing of any purchases will be based on a number of factors, including price and business and market conditions.

On January 28, 2021, Holdings' board of directors declared a quarterly dividend on Holdings' common stock in the amount of $0.014641 per share of Holdings' common stock payable on February 26, 2021 to Holdings' stockholders of record as of the close of business on February 10, 2021. Holdings' board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of $0.058564 per share of Holdings' common stock.

Debt Covenants

The indentures governing our senior notes and Pandora's convertible notes and the agreement governing the Credit Facility include restrictive covenants. As of December 31, 2020, we were in compliance with such covenants. For a discussion of our "Debt Covenants," refer to Note 13 to our consolidated financial statements in this Annual Report.

Off-Balance Sheet Arrangements

We do not have any significant off-balance sheet arrangements other than those disclosed in Note 16 to our consolidated financial statements in this Annual Report that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Cash Commitments

For a discussion of our "Contractual Cash Commitments," refer to Note 16 to our consolidated financial statements in this Annual Report.

Related Party Transactions

For a discussion of "Related Party Transactions," refer to Note 12 to our consolidated financial statements in this Annual Report.

On February 1, 2021, Holdings entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting forth agreements with respect to other tax matters. The tax sharing agreement was negotiated and approved by a special committee of Holdings' board of directors, all of whom are independent of Liberty Media.

Under the Internal Revenue Code, two corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. As of December 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of our common stock. We expect that Liberty Media could beneficially own, directly and indirectly, over 80% of the outstanding shares of our common stock at some time in 2021, and Holdings and Liberty Media would then become members of the same consolidated tax group. Should that happen, the tax sharing agreement would govern certain matters related to the resulting consolidated federal income tax returns, as well as state and local returns filed on a consolidated or combined basis.

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The tax sharing agreement contains provisions that Holdings believes are customary for tax sharing agreements between members of a consolidated group. A copy of the tax sharing agreement has been filed as Exhibit 10.44 within Holdings' Annual Report on Form 10-K for the year ended December 31, 2020. The tax sharing agreement and our inclusion in Liberty Media's consolidated tax group is not expected to have any material adverse effect on us.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Accounting estimates require the use of significant management assumptions and judgments as to future events, and the effect of those events cannot be predicted with certainty. The accounting estimates will change as new events occur, more experience is acquired and more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and use outside experts to assist in that evaluation when we deem necessary. We have identified all significant accounting policies in Note 2 to our consolidated financial statements in Part II, Item 8, of this Annual Report on Form 10-K.

Intangible Assets and Purchase Accounting. We perform purchase price accounting upon an acquisition. We allocate the purchase consideration to the identifiable assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The determination of the acquisition date fair value of the assets acquired and liabilities assumed required us to make significant estimates and assumptions regarding projected revenues and related growth rates, royalty rates, customer attrition rates, discount rates and the remaining useful lives of intangible and other long-term assets. Our intangible assets include goodwill, other indefinite-lived assets (our FCC licenses and trademarks) and definite-lived assets. Our annual impairment assessment of our goodwill and our indefinite-lived assets is performed as of the fourth quarter of each year. We also review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. If an impairment exists, the impairment is measured as the amount by which the carrying amount of an intangible asset exceeds its estimated fair value.

Goodwill: 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. Under the updated guidance per Accounting Standards Update ("ASU") 2017-04,Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment is eliminated. In accordance with updated guidance, we recognize goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.

Based on our annual impairment test for goodwill as of October 1, 2020, we recognized an impairment charge of $956 to reduce the carrying amount of our Pandora reporting unit to its fair value. The impairment was primarily due to a reduction in the long-term forecast to reflect an increase in expected royalties for streaming, increased uncertainty surrounding the projected demand for advertising and a decrease of listening hours. Fair value was determined using a combination of an income approach, using a discounted cash flow model ("DCF"), and a market approach. The DCF model included significant assumptions about revenue growth rates, long-term growth rates and enterprise specific discount rates. Additionally, assumptions related to guideline company financial multiples used in the market approach decreased based on current market observations.

Indefinite-livedAssets: ASC 350-30-35,Intangibles - General Intangibles Other than Goodwill, provides for an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a company is not required to perform a quantitative impairment test. If the qualitative assessment does not support that the fair value of the asset exceeds its carrying value, then a quantitative assessment is performed. We recognize impairment as the difference between the carrying amount of an asset and its estimated fair value.

Based on our annual impairment test for indefinite-lived assets as of October 1, 2020, we recognized an impairment charge of $20 to reduce the carrying amount of our Pandora trademark to its fair value. Fair value was determined using a discounted cash flow model. The DCF model included significant assumptions about revenue growth rates, long-term growth rates and enterprise specific discount rates.

Definite-livedAssets: We carry our definite-lived assets at cost less accumulated amortization. We assess definite- lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If an event or circumstance is identified indicating the carrying value may not be recoverable, the sum of future undiscounted cash flows is compared to the carrying value. If carrying value exceeds the future undiscounted cash

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flows, the carrying value of the asset is reduced to its fair value. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows, adjusted as necessary for market factors.

Useful Life of Broadcast/Transmission System. Our satellite system includes the costs of our satellite construction, launch vehicles, launch insurance, capitalized interest, spare satellites, terrestrial repeater network and satellite uplink facilities. We monitor our satellites for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset is not recoverable.

We operate two in-orbit Sirius satellites, FM-5 and FM-6, which launched in 2009 and 2013, respectively, and estimate they will operate effectively through the end of their depreciable lives in 2024 and 2028, respectively.

We currently operate three in-orbit XM satellites, XM-3,XM-4 and XM-5. Our XM-3 satellite launched in 2005 reached the end of its depreciable life in 2020. We estimate that our XM-4 satellite launched in 2006 will reach the end of its depreciable life in 2021. We have entered into agreements for the design construction and launch of two satellites, SXM-7 and SXM-8.SXM-7 was launched into a geostationary orbit in December 2020. In-orbittesting of SXM-7began on January 4, 2021. During in-orbit testing of SXM-7, events occurred which have caused failures of certain SXM-7 payload units. An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7 is not yet known. SXM-8 is expected to be launched into a geostationary orbit in 2021. Our XM-5 satellite was launched in 2010, is used as an in-orbit spare for the Sirius and XM systems and is expected to reach the end of its depreciable life in 2025.

Our satellites have been designed to last fifteen-years. Our in-orbit satellites may experience component failures which could adversely affect their useful lives. We monitor the operating condition of our in-orbit satellites and if events or circumstances indicate that the depreciable lives of our in-orbit satellites have changed, we will modify the depreciable life accordingly. If we were to revise our estimates, our depreciation expense would change.

Income Taxes. Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

We assess the recoverability of deferred tax assets at each reporting date and, where applicable, a valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Our assessment includes an analysis of whether deferred tax assets will be realized in the ordinary course of operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities and forecasted income from operations. The underlying assumptions we use in forecasting future taxable income require significant judgment. In the event that actual income from operations differs from forecasted amounts, or if we change our estimates of forecasted income from operations, we could record additional charges or reduce allowances in order to adjust the carrying value of deferred tax assets to their realizable amount. Such adjustments could be material to our consolidated financial statements.

As of December 31, 2020, we had a valuation allowance of $54 relating to deferred tax assets that are not more likely than not to be realized due to the timing of certain state net operating loss limitations and acquired net operating losses that were not likely to be utilized.

ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax position will not be recorded in the financial statements but will be shown in tabular format within the uncertain income tax positions. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs due to the following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired. A number of years may elapse before an uncertain tax position is effectively settled or until there is a lapse in the applicable statute of limitations. We record interest and penalties related to uncertain tax positions in Income tax expense in our consolidated statements of comprehensive income. As of December 31, 2020, the gross liability for income taxes associated with uncertain tax positions was $433.

Glossary

Monthly active users- the number of distinct registered users on the Pandora services, including subscribers, which have consumed content within the trailing 30 days to the end of the final calendar month of the period. The number of monthly active users on the Pandora services may overstate the number of unique individuals who actively use our

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Pandora service, as one individual may use multiple accounts. To become a registered user on the Pandora services, a person must sign-up using an email address or phone number, or access our service using a device with a unique identifier, which we use to create an account for our service.

Average self-paymonthly churn- the Sirius XM monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.

Adjusted EBITDA- EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. We adjust EBITDA to exclude the impact of other expense (income) as well as certain other charges discussed below. Adjusted EBITDA is a Non-GAAP financial measure that excludes or adjusts for (if applicable): (i) certain adjustments as a result of the purchase price accounting for the XM Merger and the Pandora Acquisition, (ii) predecessor net income adjusted for certain expenses, including depreciation and amortization, other income (loss), and share-based payment expense for January 2019, (iii) share-based payment expense, (iv) impairment charges and (v) other significant operating expense (income) that do not relate to the on-going performance of our business. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our past operating performance with our current performance and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use adjusted EBITDA to estimate our current enterprise value and to make investment decisions. As a result of large capital investments in our satellite radio system, our results of operations reflect significant charges for depreciation expense. We believe the exclusion of share-based payment expense is useful as it is not directly related to the operational conditions of our business. We also believe the exclusion of the legal settlements and reserves, acquisition related costs, and loss on extinguishment of debt, to the extent they occur during the period, is useful as they are significant expenses not incurred as part of our normal operations for the period.

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Adjusted EBITDA has certain limitations in that it does not take into account the impact to our consolidated statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the XM Merger and the Pandora Acquisition. We endeavor to compensate for the limitations of the Non- GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income as disclosed in our consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows:

		For the Years Ended December 31,
	2020				2019		2018
Net income:	$	159	$	898	$	1,176
Add back items excluded from Adjusted EBITDA:

Legal settlements and reserves		(16)			25		69
Acquisition and restructuring costs (1)		28			84		3
Share-based payment expense (3)		223			229		133
Depreciation and amortization		506			468		301
Impairment charges		976			-		-
Interest expense		387			384		350
Loss on extinguishment of debt		40			57		-
Other (income) expense		(29)			24		(44)
Income tax expense		301			284		245
Purchase price accounting adjustments:

Revenues		6			13		7
Operating expenses		(6)			(14)		-
Pro forma adjustments (2)		-			(25)		(109)
Adjusted EBITDA	$	2,575	$	2,427	$	2,131

Acquisition and restructuring costs include $21 of share-based compensation expense for the year ended December 31, 2019.
Pro forma adjustment for year ended December 31, 2019 includes Pandora's Net income for the year ended December 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 income of $1. Pro forma adjustment for year ended December 31, 2018 includes Pandora's Net income for the year ended December 31, 2018 of $(328) plus Depreciation and amortization of $61, Share-based payment expense of $111, Loss on extinguishment of debt of $17, Interest expense of $27, transaction related costs recorded by Pandora related to its acquisition by Sirius XM of $12, and contract termination fees of $6, offset by Other income of $7 and Income tax benefit of $8.
Allocation of share-based payment expense:

		For the Years Ended December 31,
(in millions)		2020			2019		2018
Programming and content	$	32	$	30		28
Customer service and billing		6			4		4
Transmission		6			10		5
Sales and marketing		68			78		25
Engineering, design and development		43			49		17
General and administrative		68			58		54
Total share-based payment expense	$	223	$	229		133

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Free cash flow- is derived from cash flow provided by operating activities, net of additions to property and equipment and purchases of other investments. Free cash flow is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity. In a capital intensive business, with significant investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders. We exclude from free cash flow certain items that do not relate to the on-going performance of our business, such as cash flows related to acquisitions, strategic and short-term investments, and net loan activity with related parties and other equity investees. We believe free cash flow is an indicator of the long-term financial stability of our business. Free cash flow, which is reconciled to "Net cash provided by operating activities," is a Non-GAAP financial measure. This measure can be calculated by deducting amounts under the captions "Additions to property and equipment" and deducting or adding Restricted and other investment activity from "Net cash provided by operating activities" from the consolidated statements of cash flows. Free cash flow should be used in conjunction with other GAAP financial performance measures and may not be comparable to free cash flow measures presented by other companies. Free cash flow should be viewed as a supplemental measure rather than an alternative measure of cash flows from operating activities, as determined in accordance with GAAP. Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities. We believe free cash flow provides useful supplemental information to investors regarding our current cash flow, along with other GAAP measures (such as cash flows from operating and investing activities), to determine our financial condition, and to compare our operating performance to other communications, entertainment and media companies. Free cash flow is calculated as follows:

		For the Years Ended December 31,
	2020				2019		2018
Cash Flow information
Net cash provided by operating activities	$	1,885	$	1,875	$	1,760
Net cash used in investing activities	$	(741)	$	(3)	$	(379)
Net cash used in financing activities	$	(1,181)	$	(1,817)	$	(1,395)
Free Cash Flow
Net cash provided by operating activities	$	1,885	$	1,875	$	1,760
Equity-related transactions for Holdings (a)		133			142		120
Additions to property and equipment		(350)			(363)		(355)
Purchases of other investments		(8)			(7)		(8)
Free cash flow	$	1,660	$	1,647	$	1,517

Subsequent to our corporate reorganization in November 2013, certain equity-related transactions are reported as related party transactions within our consolidated statements of cash flows. For the years ended December 31, 2020 and 2019, this included payments of $114 and $150, respectively, for taxes paid in lieu of shares issued for stock-based compensation, $19 for the repurchase of Holdings' treasury shares during the year ended December 31, 2020 and $8 for proceeds from the exercise of stock options during the year ended December 31, 2019. These equity-related transactions are classified as Cash flows used in financing activities within Holdings' consolidated statements of cash flows, and therefore, are adjusted to reflect free cash flow at Sirius XM.

ARPU- Sirius XM ARPU is derived from total earned subscriber revenue (excluding revenue associated with our connected vehicle services) and advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Pandora ARPU is defined as average monthly subscriber revenue per paid subscriber on our Pandora subscription services.

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Subscriber acquisition cost, per installation -or SAC, per installation, is derived from subscriber acquisition costs less margins from the sale of radios and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. SAC, per installation, is calculated as follows:

		For the Years Ended December 31,
		2020			2019			2018
Subscriber acquisition costs, excluding connected vehicle services	$	362	$	427	$	470
Less: margin from sales of radios and accessories, excluding		(154)			(144)			(122)
connected vehicle services

	$	208	$	283	$	348
Installations
	11,091			12,355			13,563

SAC, per installation (a)	$	18.65		$	22.91		$	25.66

Amounts may not recalculate due to rounding.
Ad supported listener hours- is based on the total bytes served over our Pandora advertising supported platforms for each track that is requested and served from our Pandora servers, as measured by our internal analytics systems, whether or not a listener listens to the entire track. For non-music content such as podcasts, episodes are divided into approximately track-length parts, which are treated as tracks. To the extent that third-party measurements of advertising hours are not calculated using a similar server-based approach, the third-party measurements may differ from our measurements.
RPM- is calculated by dividing advertising revenue, excluding AdsWizz and other off-platform revenue, by the number of thousands of listener hours on our Pandora advertising-based service.
LPM- is calculated by dividing advertising licensing costs by the number of thousands of listener hours on our Pandora advertising-based service.
LPU- is calculated by dividing subscriber licensing costs by the number of paid subscribers on our Pandora subscription services.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors

Sirius XM Radio Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Sirius XM Radio Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholder equity, and cash flows for each of the years in the three-‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standard Update (ASU) 2016-02 and all related amendments, which established Accounting Standard Codification (ASC) Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Sufficiency of audit evidence over certain subscriber and advertising revenues

As discussed in Notes 2 and 18 to the consolidated financial statements, and disclosed in the consolidated statements of comprehensive income, the Company generated $8.0 billion of revenues, of which $5.9 billion was Sirius XM subscriber revenue and $1.2 billion was Pandora (Pandora Media, LLC and subsidiaries, the successor to Pandora Media, Inc. and subsidiaries) advertising revenue, for the year ended December 31, 2020. The Company's accounting for these subscriber and advertising revenues involve multiple information technology (IT) systems.

We identified the evaluation of the sufficiency of audit evidence related to these subscriber and advertising revenues as a critical audit matter. Evaluating the sufficiency of audit evidence required our subjective judgment regarding, among other things, the nature and extent of the evidence relating to each revenue stream, due principally to the number of IT applications utilized in the revenue recognition process to capture and aggregate the data.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company's subscriber and advertising revenue recognition processes. We involved IT professionals with specialized skills and knowledge, who assisted in testing relevant IT applications and controls used

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by the Company in its revenue recognition processes and testing the interface of relevant revenue data between different IT systems used in the revenue recognition processes. We applied auditor judgment to determine the nature and extent of procedures to be performed over subscriber and advertising revenues. For each revenue stream within Sirius XM subscriber revenues where procedures were performed, we developed an estimate of subscriber revenues. These estimates were based on a combination of internal data and publicly available external data and the estimates were compared to the Company's recorded amounts. In addition, we evaluated the relevance and reliability of the internal and external data used to develop those estimates. On a sample basis, we tested Pandora advertising revenues by tracing the recorded amounts to underlying source documents and system reports. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed.

Fair value of the Pandora tradename and goodwill in the Pandora reporting unit

As discussed in Note 8 to the consolidated financial statements, the Company's goodwill balance associated with the Pandora reporting unit was $832 million as of December 31, 2020. Additionally, as discussed in Note 9 to the consolidated financial statements, the Pandora tradename balance was $311 million as of December 31, 2020. The Company performs goodwill and indefinite-lived assets impairment testing as of the fourth quarter of each fiscal year, and whenever events and changes in circumstances indicate that the carrying value of a tradename more likely than not exceeds its fair value or the carrying value of a reporting unit more likely than not exceeds its fair value. The Company identified events that indicated that it was more likely than not that the carrying value of the Pandora reporting unit and the Pandora tradename exceeded their fair values. The Company estimated the fair value of the Pandora reporting unit using a combination of a discounted cash flow model and a market approach, and the Pandora tradename using a discounted cash flow model. As a result, the Company recognized an impairment charge of $956 million for the Pandora reporting unit goodwill and an impairment charge of $20 million for the Pandora tradename.

We identified the evaluation of the Company's fair value assessment of the Pandora tradename and goodwill in the Pandora reporting unit as a critical audit matter. There was a high degree of subjective auditor judgment in applying and evaluating the results of our audit procedures over the discounted cash flow model used to calculate the fair value of the goodwill in the Pandora reporting unit and the Pandora tradename. Specifically, the revenue growth rates, long- term growth rate, and the discount rates (the key assumptions), which were used by the Company to estimate the fair value of the reporting unit involved a higher degree of subjectivity. In addition, these key assumptions used in the fair value assessment were challenging to test due to the sensitivity of the fair value to changes in these assumptions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's goodwill and tradename impairment process. This included controls over the selection of the revenue growth rates, long-term growth rate, and the discount rates used to estimate the fair value of the Pandora reporting unit and the Pandora tradename. We performed sensitivity analyses to assess the impact of possible changes to the revenue growth rates, long-term growth rate and discount rate assumptions on the fair value of the Pandora reporting unit and the Pandora tradename. We compared the Company's forecasted revenue growth rate assumptions to the Pandora reporting unit's historical revenue growth rates, to projected revenue growth rates for comparable companies, and to other publicly available data, including third party market studies. We compared the Company's historical revenue forecasts to actual results to assess the Company's ability to accurately forecast. We evaluated the relevance and reliability of the internal and external data used to develop those assumptions. We involved valuation professionals with specialized skills and knowledge who assisted in:

evaluating the Company's discount rates by comparing them to discount rate ranges that were developed using publicly available market data for comparable entities;
developing an estimated range of fair value of the Pandora reporting unit using the reporting unit's cash flow projections, estimated discount rate range, and comparing the result to the Company's fair value estimate; and
developing an estimated range of fair value of the Pandora trademark using the Company's cash flow projections and an estimated discount rate range and comparing the result to the Company's fair value estimate.

/s/ KPMG LLP

We have served as the Company's auditor since 2008.

New York, NY

February 2, 2021

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		For the Years Ended December 31,
(in millions)	2020	2019	2018

Revenue:

Subscriber revenue

Advertising revenue

Equipment revenue

Other revenue

Total revenue

Operating expenses:

Cost of services:

Revenue share and royalties

Programming and content

Customer service and billing

Transmission

Cost of equipment

Subscriber acquisition costs

Sales and marketing

Engineering, design and development

General and administrative

Depreciation and amortization

Acquisition and restructuring costs

Impairment charges

Total operating expenses

Income from operations

Other (expense) income:

Interest expense

Loss on extinguishment of debt

Other income (expense)

Total other (expense) income

Income before income taxes

Income tax expense

Net income attributable to Sirius XM Radio Inc.'s sole stockholder Foreign currency translation adjustment, net of tax

Total comprehensive income attributable to Sirius XM Radio Inc.'s sole stockholder

$	6,372	$	6,120	$	5,264
	1,340			1,336		188
	173			173		155
	155			165		164
	8,040			7,794		5,771
	2,421			2,291		1,394
	481			462		406
	481			475		382
	177			170		96
	19			29		31
	362			427		470
	957			937		484
	263			280		123
	511			524		354
	506			468		301
	28			84		3
	976			-		-
	7,182			6,147		4,044
	858			1,647		1,727
	(387)			(384)		(350)
	(40)			(57)		-
	29			(24)		44
	(398)			(465)		(306)
	460			1,182		1,421
	(301)			(284)		(245)
$	159	$	898	$	1,176

	7			14		(29)
$	166	$	912	$	1,147

See accompanying notes to the consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

CONSOLIDATED BALANCE SHEETS

		As of December 31,
(in millions, except per share data)		2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	71	$	106
Receivables, net		672			670
Inventory, net		10			11
Related party current assets		20			22
Prepaid expenses and other current assets		194			194
Total current assets		967			1,003
Property and equipment, net		1,629			1,626
Intangible assets, net		3,340			3,467
Goodwill		3,107			3,828
Related party long-term assets		10,167			8,400
Deferred tax assets		122			166
Operating lease right-of-use assets		427			466
Other long-term assets		206			140
Total assets	$	19,965	$	19,096
LIABILITIES AND STOCKHOLDER EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	1,223	$	1,151
Accrued interest		174			160
Current portion of deferred revenue		1,721			1,930
Current maturities of debt		1			2
Operating lease current liabilities		48			46
Related party current liabilities		-			4
Total current liabilities		3,167			3,293
Long-term deferred revenue		118			130
Long-term debt		8,544			7,917
Deferred tax liabilities		266			70
Operating lease liabilities		419			456
Other long-term liabilities		149			94
Total liabilities		12,663			11,960
Commitments and contingencies (Note 16)
Stockholder equity:
Common stock, par value $0.001 per share; 9,000 shares authorized; 0.001 shares
issued and outstanding at December 31, 2020 and December 31, 2019,		-			-
respectively
Accumulated other comprehensive income, net of tax		15			8
Additional paid-in capital		8,680			8,680
Accumulated deficit		(1,393)			(1,552)
Total stockholder equity		7,302			7,136
Total liabilities and stockholder equity	$	19,965	$	19,096

See accompanying notes to the consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDER EQUITY

									Accumulated
			Common Stock				Other			Additional						Total
(in millions)								Comprehensive			Paid-in			Accumulated			Stockholder
		Shares		Amount
						Income (Loss)			Capital			Deficit			Equity
Balance at January 1, 2018			-	$	-	$	19	$	8,680	$	(3,636)	$	5,063
Cumulative effect of change in accounting principles			-			-			4			-			10			14
Comprehensive income, net of tax			-		$	-			(29)			-			1,176			1,147
Balance at December 31, 2018			-			-	$	(6)	$	8,680	$	(2,450)	$	6,224
Comprehensive income, net of tax			-			-			14			-			898			912
Balance at December 31, 2019			-	$	-	$	8	$	8,680	$	(1,552)	$	7,136
Comprehensive income (loss), net of tax			-			-			7			-			159			166
Balance at December 31, 2020			-		$	-		$	15		$	8,680		$	(1,393)		$	7,302

	See accompanying notes to the consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Years Ended December 31,
(in millions)		2020			2019			2018

Cash flows from operating activities:
Net income	$	159	$	898	$	1,176
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		506			468			301
Impairment charges		976			-			-
Non-cash interest expense, net of amortization of premium		12			11			9
Provision for doubtful accounts		60			53			51
Amortization of deferred income related to equity method investment		(3)			(3)			(3)
Loss on extinguishment of debt		40			57			-
Loss on unconsolidated entity investments, net		16			21			10
(Gain) loss on fair value instrument		(23)			21			(43)
Dividend received from unconsolidated entity investment		2			2			2
Loss on restructuring		24			-			-
(Gain) loss on other investments		(3)			(3)			1
Share-based payment expense		223			250			133
Deferred income taxes		241			260			257
Amortization of right-of-use assets		56			56			-
Changes in operating assets and liabilities:
Receivables		(36)			(137)			(42)
Inventory		(2)			11			(2)
Related party, net		(133)			(152)			(102)
Prepaid expenses and other current assets		14			10			(20)
Other long-term assets		(61)			7			9
Accounts payable and accrued expenses		42			109			(37)
Accrued interest		13			32			(9)
Deferred revenue		(223)			(58)			70
Operating lease liabilities		(53)			(47)			-
Other long-term liabilities		38			9			(1)
Net cash provided by operating activities		1,885			1,875			1,760
Cash flows from investing activities:
Additions to property and equipment		(350)			(363)			(355)
Purchases of other investments		(8)			(7)			(8)
Acquisition of business, net of cash acquired		(300)			313			(2)
Sale of short-term investments		-			73			-
Investments in related parties and other equity investees		(94)			(19)			(17)
Repayment from related party		11			-			3
Net cash used in investing activities		(741)			(3)			(379)
Cash flows from financing activities:
Intercompany financing activities		(1,773)			(2,382)			(1,515)
Revolving credit facility, net of deferred financing costs		649			(439)			136
Proceeds from long-term borrowings, net of costs		1,481			2,715			-
Principal payments of long-term borrowings		(1,507)			(1,666)			(16)
Payment of premiums on redemption of debt		(31)			(45)			-
Net cash used in financing activities		(1,181)			(1,817)			(1,395)
Net (decrease) increase in cash, cash equivalents and restricted cash		(37)			55			(14)
Cash, cash equivalents and restricted cash at beginning of period(1)		120			65			79
Cash, cash equivalents and restricted cash at end of period(1)	$	83		$	120		$	65

See accompanying notes to the consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

		For the Years Ended December 31,
(in millions)		2020			2019		2018
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized	$	358	$	337	$	345
Income taxes paid	$	38	$	10	$	6
Non-cash investing and financing activities:
Holdings' shares issued related to acquisition of a business	$	-	$	2,355	$	-
Accumulated other comprehensive income (loss), net of tax	$	7	$	14	$	(29)

The following table reconciles cash, cash equivalents and restricted cash per the statement of cash flows to the balance sheet. The restricted cash balances are primarily due to letters of credit which have been issued to the landlords of leased office space. The terms of the letters of credit primarily extend beyond one year.

(in millions)	December 31, 2020		December 31, 2019		December 31, 2018	December 31, 2017
Cash and cash equivalents	$	71	$	106	$	54	$	69
Restricted cash included in Other long-term assets		12			14			11	10
Total cash, cash equivalents and restricted cash at end of period	$	83	$	120	$	65	$	79

See accompanying notes to the consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in millions, except per share amounts)

Business & Basis of Presentation

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 and other content, as well as podcasts and infotainment services, in the United States on a subscription fee basis. Sirius XM's premier content bundles include live, curated and certain exclusive and on demand programming. The Sirius XM service is distributed through our two proprietary satellite radio systems and streamed 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.

Pandora

Our Pandora business also sells advertising on audio platforms and in podcasts unaffiliated with us. Pandora has an arrangement 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. We also have arrangements to serve as the ad sales representative for certain podcasts. In addition, through AdsWizz Inc., Pandora provides a comprehensive digital audio and programmatic advertising technology platform, which

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.

On October 16, 2020, Sirius XM acquired certain assets and liabilities of Stitcher from The E.W. Scripps Company and certain of its subsidiaries for a total consideration of $296, which included $272 in cash and $30 related to contingent consideration, partially offset by working capital adjustments of $6. The acquisition of Stitcher, in conjunction with Simplecast, created a full-service platform for podcast creators, publishers and advertisers. Refer to Note 3 for more information on this acquisition.

On June 16, 2020, Sirius XM acquired Simplecast for $28 in cash. Simplecast is a podcast management and analytics platform. Refer to Note 3 for more information on this acquisition.

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 12 for more information on this investment.

Impact of the coronavirus ("COVID-19") pandemic

The precise extent to which the COVID-19 pandemic will impact our operational and financial performance will depend on various factors. To date, the pandemic has not increased our costs of or access to capital under our revolving credit facility and in the debt markets, 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 will not be fully reflected in certain of our results of operations until future periods.

Liberty Media

As of December 31, 2020, Liberty Media Corporation ("Liberty Media") beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of Holdings' common stock. As a result, Holdings is a "controlled company" for the purposes of the NASDAQ corporate governance requirements.

Basis of Presentation

The accompanying consolidated financial statements 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. Music Royalty Fee revenue was reported as Other revenue in our December 31, 2018 Annual Report. This revenue was reclassified to Subscriber revenue to conform with the current period presentation.

		For the Year Ended December 31, 2018
		As Reported			Reclassification		Current Report
Subscriber revenue	$	4,594	$	670	$	5,264
Advertising revenue		188			-		188
Equipment revenue		155			-		155
Other revenue		834			(670)		164
Total revenue	$	5,771	$	-	$	5,771

The consolidated financial statements for Sirius XM for the fiscal year ended December 31, 2020 are essentially identical to the consolidated financial statements included in Holdings' Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 2, 2021, with the following exceptions:

As a result of our corporate reorganization effective November 15, 2013, all of the outstanding shares of Sirius XM's common stock were converted, on a share for share basis, into identical shares of common stock of Holdings and all

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

equity-related transactions, including repurchases of Holdings' common stock, dividend payments on shares of Holdings' common stock, the issuance of equity related to stock-based compensation to Sirius XM employees, Holdings' directors and third parties, and the issuance of Holdings' common stock related to the Pandora Acquisition have been reported as related party transactions within Sirius XM's consolidated financial statements. Refer to Note 12 for additional information related to related party transactions.

As a result of the Pandora Acquisition effective February 1, 2019, we assumed Pandora's 1.75% Convertible Senior Notes due 2023 (the "Pandora 2023 Notes"). Upon the occurrence of certain events, the Pandora 2023 Notes can be convertible into shares of Holdings' common stock. Holdings allocates the principal amount of the Pandora 2023 Notes between liability and equity components. We have elected to measure the Pandora 2023 Notes at fair value with changes in fair value recorded within Sirius XM's consolidated statements of operations. Refer to Note 13 for more information regarding the Pandora 2023 Notes.

This Annual Report should be read together with Holdings' Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 2, 2021.

Public companies, including our parent Holdings, 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 18 for information related to our segments.

We have evaluated events subsequent to the balance sheet date and prior to the furnishing of this Annual Report for the year ended December 31, 2020 and have determined that no events have occurred that would require adjustment to our consolidated financial statements. For a discussion of subsequent events that do not require adjustment to our consolidated financial statements refer to Note 19.

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 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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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Summary of Significant Accounting Policies

In addition to the significant accounting policies discussed in this Note 2, the following table includes our significant accounting policies that are described in other notes to our consolidated financial statements, including the number and page of the note:

Significant Accounting Policy		Note #		Page #
Acquisition	3		F-15
Fair Value Measurements	4		F-18
Goodwill	8		F-19
Intangible Assets	9		F-21
Property and Equipment	10		F-22
Equity Method Investments	12		F-26
Share-Based Compensation	15		F-30
Legal Reserves	16		F-34
Income Taxes	17		F-36

Cash and Cash Equivalents

Our cash and cash equivalents consist of cash on hand, money market funds, certificates of deposit, in-transit credit card receipts and highly liquid investments purchased with an original maturity of three months or less.

Revenue Recognition

Revenue is measured according to Accounting Standards Codification ("ASC") 606, Revenue - Revenue from Contracts with Customers, and is recognized based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a service or product to a customer. We report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific revenue-producing transaction between a seller and a customer in our consolidated statements of comprehensive income. Collected taxes are recorded within Other current liabilities until remitted to the relevant taxing authority. For equipment sales, we are responsible for arranging for shipping and handling. Shipping and handling costs billed to customers are recorded as revenue and are reported as a component of Cost of equipment.

The following is a description of the principal activities from which we generate our revenue, including from self-pay and paid promotional subscribers, advertising, and sales of equipment.

Subscriber revenue consists primarily of subscription fees and other ancillary subscription based revenues. Revenue is recognized on a straight line basis when the performance obligations to provide each service for the period are satisfied, which is over time as our subscription services are continuously transmitted and can be consumed by customers at any time.

Consumers purchasing or leasing a vehicle with a factory-installed satellite radio may receive between a three and twelve month subscription to our service. In certain cases, the subscription fees for these consumers are prepaid by the applicable automaker. Prepaid subscription fees received from automakers or directly from consumers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon sale. Activation fees are recognized over one month as the activation fees are non-refundable and do not provide for a material right to the customer. There is no revenue recognized for unpaid trial subscriptions. In some cases we pay a loyalty fee to the automakers when we receive a certain amount of payments from self-pay customers acquired from that automaker. These fees are considered incremental costs to obtain a contract and are, therefore, recognized as an asset and amortized to Subscriber acquisition costs over an average subscriber life. Revenue share and loyalty fees paid to an automaker offering a paid trial are accounted for as a reduction of revenue as the payment does not provide a distinct good or service.

Music royalty fee primarily consists of U.S. music royalty fees ("MRF") collected from subscribers. The related costs we incur for the right to broadcast music and other programming are recorded as Revenue share and royalties expense. Fees

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

received from subscribers for the MRF are recorded as deferred revenue and amortized to Subscriber revenue ratably over the service period.

We recognize revenue from the sale of advertising as performance obligations are satisfied, which generally occurs as ads are delivered. For our satellite radio service, ads are delivered when they are aired. For our streaming services, ads are delivered primarily based on impressions. Agency fees are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. Additionally, we pay certain third parties a percentage of advertising revenue. Advertising revenue is recorded gross of such revenue share payments as we control the advertising service, including the ability to establish pricing, and we are primarily responsible for providing the service. Advertising revenue share payments are recorded to Revenue share and royalties during the period in which the advertising is transmitted.

Equipment revenue and royalties from the sale of satellite radios, components and accessories are recognized upon shipment, net of discounts and rebates. Shipping and handling costs billed to customers are recorded as revenue. Shipping and handling costs associated with shipping goods to customers are reported as a component of Cost of equipment. Other revenue primarily includes revenue recognized from royalties received from Sirius XM Canada.

Customers pay for the services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in our consolidated statement of comprehensive income as the services are provided. Changes in the deferred revenue balance during the year ended December 31, 2020 were not materially impacted by other factors.

As the majority of our contracts are one year or less, we have utilized the optional exemption under ASC 606-10-50-14 and do not disclose information about the remaining performance obligations for contracts which have original expected durations of one year or less. As of December 31, 2020, less than ten percent of our total deferred revenue balance related to contracts that extend beyond one year. These contracts primarily include prepaid data trials which are typically provided for three to five years as well as for self-pay customers who prepay for their audio subscriptions for up to three years in advance. These amounts are recognized on a straight-line basis as our services are provided.

Revenue Share

We share a portion of our subscription revenues earned from self-pay subscribers with certain automakers. The terms of the revenue share agreements vary with each automaker, but are typically based upon the earned audio revenue as reported or gross billed audio revenue. Revenue share on self-pay revenue is recognized as an expense and recorded in Revenue share and royalties in our consolidated statements of comprehensive income. We also pay revenue share to certain talent on non-music stations on our satellite radio service and to podcast talent based on advertising revenue for the related channel or podcast. Revenue share on non-music channels and podcasts is recognized in Revenue share and royalties in our consolidated statements of comprehensive income when it is earned. In some cases we prepay minimum guarantees for revenue share to podcast talent which is recorded in Prepaid and other current assets in our consolidated statements of financial position. The minimum guarantee is recognized in Revenue share and royalties primarily on a straight line basis over the contractual term. The prepaid balance is regularly reviewed for recoverability and any amount not deemed to be recoverable is recognized as an expense in the period.

Royalties

In connection with our businesses, we must enter into royalty arrangements with two sets of rights holders: holders of musical compositions copyrights (that is, the music and lyrics) and holders of sound recordings copyrights (that is, the actual recording of a work). Our Sirius XM and Pandora businesses use both statutory and direct music licenses as part of their businesses. We license varying rights - such as performance and mechanical rights - for use in our Sirius XM and Pandora businesses based on the various radio and interactive services they offer. The music rights licensing arrangements for our Sirius XM and Pandora businesses are complex.

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Musical Composition Copyrights

We pay performance royalties for our Sirius XM and Pandora businesses to holders and rights administrators of musical compositions copyrights, including performing rights organizations and other copyright owners. These performance royalties are based on agreements with performing rights organizations which represent the holders of these performance rights. Our Sirius XM and Pandora businesses have arrangements with these performance rights organizations. Arrangements with Sirius XM generally include fixed payments during the term of the agreement and arrangements with Pandora for its ad-supported radio service have variable payments based on usage and ownership of a royalty pool. Pandora must also license reproduction rights, which are also referred to as mechanical rights, to offer the interactive features of the Pandora services. For our Pandora subscription services, copyright holders receive payments for these rights at the rates determined in accordance with the statutory license set forth in Section 115 of the United States Copyright Act. These mechanical royalties are calculated as the greater of a percentage of our revenue or a percentage of our payments to record labels.

For our interactive music services offered by our Pandora business, we pay mechanical royalties to copyright holders at the rates determined by the Copyright Royalty Board (the "CRB") in accordance with the statutory license set forth in Section 115 of the United States Copyright Act.

Sound Recording Copyrights

For our non-interactive satellite radio or streaming services we may license sound recordings under direct licenses with the owners of sound recordings or based on the royalty rate established by the CRB. For our Sirius XM business, the royalty rate for sound recordings has been set by the CRB. The revenue subject to royalty includes subscription revenue from our U.S. satellite digital audio radio subscribers, and advertising revenue from channels other than those channels that make only incidental performances of sound recordings. The rates and terms permit us to reduce the payment due each month for those sound recording directly licensed from copyright owners and exclude from our revenue certain other items, such as royalties paid to us for intellectual property, sales and use taxes, bad debt expense and generally revenue attributable to areas of our business that do not involve the use of copyrighted sound recordings.

For our Pandora business, we have entered into direct license agreements with major and independent music labels and distributors for a significant majority of the sound recordings that stream on the Pandora ad-supported service, Pandora Plus and Pandora Premium. For sound recordings that we stream and for which we have not entered into a direct license agreement with the sound recording rights holders, the sound recordings are streamed pursuant to the statutory royalty rates set by the CRB. Pandora pays royalties to owners of sound recordings on either a per-performancefee based on the number of sound recordings transmitted or a percentage of revenue associated with the applicable service. Certain of these agreements also require Pandora to pay a per subscriber minimum amount.

Programming Costs

Programming costs which are for a specified number of events are amortized on an event-by-event basis; programming costs which are for a specified season or include programming through a dedicated channel are amortized over the season or period on a straight-line basis. We allocate a portion of certain programming costs which are related to sponsorship and marketing activities to Sales and marketing expense on a straight-line basis over the term of the agreement.

Advertising Costs

Media is expensed when aired and advertising production costs are expensed as incurred. Advertising production costs include expenses related to marketing and retention activities, including expenses related to direct mail, outbound telemarketing and email communications. We also incur advertising production costs related to cooperative marketing and promotional events and sponsorships. During the years ended December 31, 2020, 2019 and 2018, we recorded advertising costs of $443, $392 and $267, respectively. These costs are reflected in Sales and marketing expense in our consolidated statements of comprehensive income.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Subscriber Acquisition Costs

Subscriber acquisition costs consist of costs incurred to acquire new subscribers which include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include a satellite radio and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chipsets and certain other components used in manufacturing radios; device royalties for certain radios and chipsets; commissions paid to retailers and automakers as incentives to purchase, install and activate radios; product warranty obligations; freight; and provisions for inventory allowance attributable to inventory consumed in our automotive and retail distribution channels. Subscriber acquisition costs do not include advertising costs, loyalty payments to distributors and dealers of radios and revenue share payments to automakers and retailers of radios.

Subsidies paid to radio manufacturers and automakers are expensed upon installation, shipment, receipt of product or activation and are included in Subscriber acquisition costs because we are responsible for providing the service to the customers. Commissions paid to retailers and automakers are expensed upon either the sale or activation of radios. Chipsets that are shipped to radio manufacturers and held on consignment are recorded as inventory and expensed as Subscriber acquisition costs when placed into production by radio manufacturers. Costs for chipsets are expensed as Subscriber acquisition costs when the automaker confirms receipt.

Research & Development Costs

Research and development costs are expensed as incurred and primarily include the cost of new product development, chipset design, software development and engineering. During the years ended December 31, 2020, 2019 and 2018, we recorded research and development costs of $220, $231 and $106, respectively. These costs are reported as a component of Engineering, design and development expense in our consolidated statements of comprehensive income.

Accumulated Other Comprehensive Income (Loss), net of tax

Accumulated other comprehensive income of $15 was primarily comprised of the cumulative foreign currency translation adjustments related to Sirius XM Canada (refer to Note 12 for additional information). During the year ended December 31, 2020, we recorded a foreign currency translation adjustment gain of $7, which is recorded net of tax expense of $2. During the years ended December 31, 2019 and 2018, we recorded foreign currency translation adjustment gain (loss) of $14 and $(29), respectively, net of tax.

Recently Adopted Accounting Policies

ASU 2016-02,Leases (Topic 842). In February 2016, FASB issued ASU 2016-02 which requires companies to recognize lease assets and liabilities arising from operating leases in the statement of financial position. This ASU does not significantly change the previous lease guidance for how a lessee should recognize, measure, and present expenses and cash flows arising from a lease. Additionally, the criteria for classifying a finance lease versus an operating lease are substantially the same as the previous guidance. This ASU was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption was permitted. In July 2018, the FASB issued ASU 2018-11,Leases (Topic 842) Targeted Improvements, amending certain aspects of the new leasing standard. The amendment allows an additional optional transition method whereby an entity records a cumulative effect adjustment to opening retained earnings in the year of adoption without restating prior periods. We adopted this ASU on January 1, 2019 and elected the additional transition method per ASU 2018-11. Our leases consist of repeater leases, facility leases and equipment leases. We elected the package of practical expedients permitted under the transition guidance within the new standard.

Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities of approximately $347 and $369, respectively, as of January 1, 2019. The standard did not impact our consolidated statements of comprehensive income, consolidated statements of cash flows or debt. Additionally, we did not record a cumulative effect adjustment to opening retained earnings.

The effect of the changes made to our consolidated balance sheet as of January 1, 2019 for the adoption of ASU 2016-02 is included in the table below.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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

Liabilities:
Accounts payable and accrued expenses	$	736	$	(1)	$	735
Operating lease current liabilities		-			30		30
Operating lease liabilities		-			339		339
Other long-term liabilities		102			(21)		81
(3)	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.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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, Holdings 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 Holdings' 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
Holdings' common stock issued		392
Price per share of Holdings common stock	$	5.83
Value of Holdings' common stock issued to Pandora stockholders	$	2,285
Value of replacement equity awards attributable to pre-combination service	$	70
Consideration of Holdings' 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

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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

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 13 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 8 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:

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

		For the Years Ended December 31,
	2020				2019		2018
Total revenue	$	8,046	$	7,921	$	7,348
Net income	$	159	$	922	$	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.

Fair Value Measurements

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants. As of December 31, 2020 and 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. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for input into valuation techniques as follows:

Level 1 input: unadjusted quoted prices in active markets for identical instrument;
Level 2 input: observable market data for the same or similar instrument but not Level 1, including quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 input: unobservable inputs developed using management's assumptions about the inputs used for pricing the asset or liability.

Investments are periodically reviewed for impairment and an impairment is recorded whenever declines in fair value below carrying value are determined to be other than temporary. In making this determination, we consider, among other factors, the severity and duration of the decline as well as the likelihood of a recovery within a reasonable timeframe.

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

				December 31, 2020								December 31, 2019
	Level 1			Level 2		Level 3		Total Fair		Level 1	Level 2		Level 3		Total Fair
						Value					Value
Liabilities:
Debt (a)	-	$	9,011		-	$	9,011		- $	8,378		-	$	8,378

The fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. Refer to Note 13 for information related to the carrying value of our debt as of December 31, 2020 and 2019.

Restructuring Costs

In May 2020, we terminated the Automatic service, which was part of our connected services business. During the year ended December 31, 2020, we recorded $24 of restructuring expenses primarily related to the write down of property and equipment, definite lived intangible assets and certain other assets in Acquisition and restructuring costs in our consolidated statements of comprehensive income. The termination of the Automatic service does not meet the requirements to be reported as a discontinued operation in our consolidated statements of comprehensive income because the termination of the service does not represent a strategic shift that will have a major effect on our operations and financial results. There were no restructuring costs during the years ended December 31, 2019 and 2018.

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.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Customer accounts receivable, net, includes receivables from our subscribers, advertising customers, including advertising agencies 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 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 and do not expect issues in the foreseeable future.

Receivables, net, consists of the following:

	December 31, 2020		December 31, 2019
Gross customer accounts receivable	$	574	$	546
Allowance for doubtful accounts		(15)			(14)
Customer accounts receivable, net	$	559	$	532
Receivables from distributors		73			113
Other receivables		40			25
Total receivables, net	$	672	$	670

Inventory, net

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

Inventory, net, consists of the following:

	December 31, 2020		December 31, 2019
Raw materials	$	-	$	3
Finished goods		13			13
Allowance for obsolescence		(3)			(5)
Total inventory, net	$	10	$	11

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.

We determined the fair value of our reporting units using a combination of an income approach, employing a discounted cash flow model, and a market approach. The discounted cash flow model relies on making assumptions, such as the extent of

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

the economic downturn related to the COVID-19 pandemic, the expected timing of recovery, expected growth in profitability and discount rate, which we believe are appropriate. Additionally, assumptions related to guideline company financial multiples used in the market approach decreased based on current market observations. The results of our goodwill impairment test indicated that the estimated fair value of the Sirius XM reporting unit exceeded its carrying amount. The carrying amount of the Pandora reporting unit exceeded its estimated fair value primarily due to a reduction in the long-term forecast to reflect increased costs related to royalty rates for streaming and increased uncertainty surrounding the projected demand for advertising and decrease of listening hours. As a result, we recorded a goodwill impairment charge of $956 during the year ended December 31, 2020 to write down the carrying amount of the Pandora goodwill in the Impairment charges line item in our consolidated statements of comprehensive income. No impairment losses were recorded for goodwill during the years ended December 31, 2019 and 2018.

As of December 31, 2020, the cumulative balance of goodwill impairments recorded was $5,722, of which $4,766 was recognized during the year ended December 31, 2008 and is included in the carrying amount of the goodwill allocated to our Sirius XM reporting unit and $956 was recognized during the year ended December 31, 2020 and is included in the carrying amount of the goodwill allocated to our Pandora reporting unit.

As a result of the Simplecast and Stitcher acquisitions, we recorded additional goodwill of $17 and $218, respectively, during the year ended December 31, 2020 in our Pandora reporting unit. The goodwill of Simplecast is not deductible for tax purposes, however, the goodwill of Stitcher is deductible as it was an asset acquisition. Refer to Note 3 for information on these acquisitions.

Refer to the table below for our goodwill activity for the years ended December 31, 2020 and 2019.

		Sirius XM			Pandora		Total
Balance at December 31, 2018	$	2,290	$	-	$	2,290
Acquisition		-			1,553		1,553
Balance at December 31, 2019		2,290			1,553		3,843
Acquisition		-			235		235
Impairment charge		-			(956)		(956)
Balance at December 31, 2020	$	2,290	$	832	$	3,122

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Intangible Assets
Our intangible assets include the following:

					December 31, 2020					December 31, 2019
	Weighted		Gross			Accumulated	Net Carrying			Gross			Accumulated	Net Carrying
	Average		Carrying					Carrying
	Useful Lives		Value			Amortization		Value			Value			Amortization	Value
Indefinite life intangible assets:
FCC licenses	Indefinite	$	2,084	$	-	$	2,084	$	2,084	$	-	$	2,084
Trademarks	Indefinite		250				-		250			251			-		251
Definite life intangible assets:

OEM relationships	15 years		220				(105)			115			220			(90)		130
Licensing agreements	12 years		45				(45)			-			45			(42)		3
Software and technology	7 years		31				(16)			15			35			(25)		10
Due to Pandora and Stitcher Acquisitions:

Indefinite life intangible assets:
Trademarks	Indefinite	$	311	$	-	$	311	$	331	$	-	$	331
Definite life intangible assets:
Customer relationships	8 years		441				(104)			337			403			(49)		354
Software and technology	5 years		373				(145)			228			373			(69)		304
Total intangible assets			$	3,755	$	(415)		$	3,340	$	3,742	$	(275)		$	3,467

Indefinite Life Intangible Assets

We have identified our FCC licenses and XM and Pandora 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.

ASC 350-30-35,Intangibles - Goodwill and Other, provides for an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a quantitative impairment test is not required. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. 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.

We completed a quantitative assessment of our FCC licenses and XM and Pandora trademarks during the fourth quarter of 2020 and qualitative assessments during the fourth quarter of 2019 and 2018. As of the date of our annual assessment for 2020, our impairment assessment of the fair value of our indefinite intangible assets indicated that the carrying value of our Pandora trademark exceeded the fair value of the asset by $20. The excess carrying value has been written off and recognized in the Impairment charges line item in our consolidated statements of comprehensive income. The impairment assessment for our FCC licenses and XM trademark indicate that the fair value of such assets substantially exceeded their carrying value and therefore were not at risk of impairment. As of the date of our annual assessment for 2019 and 2018, our impairment assessment of the fair value of our indefinite intangible assets indicated that the fair value of such assets substantially exceeded their carrying value and therefore were not at risk of impairment.

During the year ended December 31, 2020, we also recognized an impairment loss of less than $1 for intangible assets with indefinite lives related to the termination of the Automatic service.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

No impairment loss was recognized for intangible assets with indefinite lives during the years ended December 31, 2019 and 2018.

Definite Life Intangible Assets

Definite-lived intangible assets are amortized over their respective estimated useful lives to their estimated residual values, in a pattern that reflects when the economic benefits will be consumed, and are reviewed for impairment under the provisions of ASC 360-10-35,Property, Plant and Equipment/Overall/Subsequent Measurement. We review intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the carrying amount of the asset exceeds its fair value. No impairment loss was recognized for intangible assets with definite lives during the years ended December 31, 2020, 2019 and 2018.

Amortization expense for all definite life intangible assets was $152, $141 and $23 for the years ended December 31, 2020, 2019 and 2018, respectively. There were retirements of definite lived intangible assets of $17, which included a loss of $4, due to the termination of the Automatic service, during the year ended December 31, 2020. As part of the Simplecast acquisition, $12 was allocated to identifiable intangible assets subject to amortization and related to the assessed fair value of software and technology, which was determined by using the multi-period excess earnings method, as of the acquisition date. As part of the Stitcher acquisition, $38 was allocated to identifiable intangible assets subject to amortization and related to the assessed fair value of advertising relationship of $6, trademark of $3 and talent and content contracts of $29.

The expected amortization expense for each of the fiscal years 2021 through 2025 and for periods thereafter is as follows:

Years ending December 31,			Amount
2021	$	153
2022			154
2023			141
2024			75
2025			69
Thereafter			103
Total definite life intangible assets, net	$	695

Property and Equipment

Property and equipment, including satellites, are stated at cost, less accumulated depreciation. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation is calculated using the straight-line method over the following estimated useful life of the asset:

Satellite system	15 years
Terrestrial repeater network	5	-	15 years
Broadcast studio equipment	3	-	15 years
Capitalized software and hardware	2	-	7 years
Satellite telemetry, tracking and control facilities	3	-	15 years
Furniture, fixtures, equipment and other	2	-	7 years
Building	20	or	30 years
Leasehold improvements	Lesser of useful life or remaining lease term

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

We review long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated future cash flows, an impairment charge is recognized in an amount by which the carrying amount exceeds the fair value of the asset. We did not record any impairments during the years ended December 31, 2020, 2019 and 2018.

Property and equipment, net, consists of the following:

	December 31, 2020		December 31, 2019
Satellite system	$	1,587	$	1,587
Terrestrial repeater network		105			100
Leasehold improvements		111			105
Broadcast studio equipment		100			137
Capitalized software and hardware		1,372			1,086
Satellite telemetry, tracking and control facilities		96			87
Furniture, fixtures, equipment and other		92			89
Land		38			38
Building		63			63
Construction in progress		510			505
Total property and equipment		4,074			3,797
Accumulated depreciation and amortization		(2,445)			(2,171)
Property and equipment, net	$	1,629	$	1,626
Construction in progress consists of the following:

	December 31, 2020		December 31, 2019
Satellite system	$	429		$	371
Terrestrial repeater network		8			7
Capitalized software and hardware		52			107
Other		21			20
Construction in progress	$	510		$	505

Depreciation and amortization expense on property and equipment was $354, $327 and $278 for the years ended December 31, 2020, 2019 and 2018, respectively. Property and equipment of $94, which included a loss of $13 related to the termination of the Automatic service, was retired during the year ended December 31, 2020. We retired property and equipment of $9 and $35 during the years ended December 31, 2019 and 2018.

We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites. Capitalized interest is recorded as part of the asset's cost and depreciated over the satellite's useful life. Capitalized interest costs were $19, $17 and $12 for the years ended December 31, 2020, 2019 and 2018, 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$17 and $13 for the years ended December 31, 2020 and 2019, respectively. We did not capitalize any share-based compensation for the year ended December 31, 2018.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Satellites

As of December 31, 2020, we operate a fleet of five satellites. 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 license. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred. The chart below provides certain information on our satellites as of December 31, 2020:

Satellite Description		Year Delivered		Estimated End of	FCC License
		Depreciable Life		Expiration Year
SIRIUS FM-5	2009	2024	2025
SIRIUS FM-6	2013	2028	2022
XM-3	2005	2020	2021
XM-4	2006	2021	2022
XM-5	2010	2025	2026

We have entered into agreements for the design construction and launch of two satellites, SXM-7 and SXM-8. On December 13, 2020, SXM-7 was successfully launched. In-orbit testing of SXM-7 began on January 4, 2021. During in-orbit testing of SXM-7, events occurred which have caused failures of certain SXM-7 payload units. An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7 is not yet known. As of December 31, 2020, we had $220 capitalized in construction in progress related to SXM-7.

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 17 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 Years Ended December 31,
	2020			2019
Operating lease cost	$	82	$	80
Finance lease cost		1			4
Sublease income		(2)			(3)
Total lease cost	$	81	$	81
Supplemental cash flow information related to leases was as follows:

	For the Years Ended December 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	79	$	70
Financing cash flows from finance leases	$	1	$	3

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7	$	83

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Supplemental balance sheet information related to leases was as follows:

	December 31, 2020		December 31, 2019
Operating Leases
Operating lease right-of-use assets	$	427	$	466

Operating lease current liabilities		48			46
Operating lease liabilities		419			456
Total operating lease liabilities	$	467	$	502

	December 31, 2020		December 31, 2019
Finance Leases
Property and equipment, gross	$	8	$	15
Accumulated depreciation		(7)			(12)
Property and equipment, net	$	1	$	3


Current maturities of debt	$	1	$	1
Long-term debt		-			1
Total finance lease liabilities	$	1	$	2

	December 31, 2020		December 31, 2019
Weighted Average Remaining Lease Term
Operating leases		9 years			9 years
Finance leases		1 year			2 years
	December 31, 2020		December 31, 2019
Weighted Average Discount Rate
Operating leases		5.3 %			5.3 %
Finance leases		1.7 %			1.7 %
Maturities of lease liabilities were as follows:
		Operating Leases			Finance Leases
Year ending December 31,
2020 (remaining)	$	71	$	-
2021		74			1
2022		71			-
2023		62			-
2024		62			-
Thereafter		247			-
Total future minimum lease payments		587			1
Less imputed interest		(120)			-
Total	$	467	$	1

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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 December 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of Holdings' common stock. Liberty Media has one executive, one senior advisor and one of its directors on our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Sirius XM Holdings

Sirius XM is a wholly-owned subsidiary of Holdings. Holdings has no operations independent of Sirius XM. All equity-related transactions, including repurchases of Holdings' common stock, dividend payments on shares of Holdings' common stock, the issuance of equity related to share-based compensation for Sirius XM employees, Holdings' directors and third parties and the issuance of Holdings' common stock related to the recapitalization of Sirius XM Canada and the Pandora Acquisition have been reported as related party transactions within our consolidated financial statements. The share-based compensation for Sirius XM employees, Holdings' directors and third parties has been recorded in our consolidated financial statements. The Related party long-term assets balance as of December 31, 2020 and December 31, 2019 of Sirius XM includes $9,636 and $7,948 respectively, primarily for net amounts due from Holdings in connection with these equity-related transactions.

During the year ended December 31, 2020, we used $1,773 of our cash for the purchase and retirement of shares of Holdings' common stock under Holdings' repurchase program and payment of a cash dividend on Holdings' common stock. This amount is included in our Related party long-term asset balance as a receivable due from Holdings.

Sirius XM Canada

We hold 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 years ended December 31, 2020 and 2019, Sirius XM Canada repaid $11 and less than $1 of the principal amount of the loan, respectively.

We also entered into a Services Agreement and an Advisory Services Agreement with Sirius XM Canada. Each agreement has a thirty-year term. Pursuant to the Services Agreement, Sirius XM Canada 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 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 as of December 31, 2020 and December 31, 2019 included the carrying value of our investment balance in Sirius XM Canada of $332 and $321, respectively, and, as of December 31, 2020 and December 31, 2019, also included $123 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 $2 during each of the years ended December 31, 2020, 2019 and

2018. Dividends are first recorded as a reduction to our investment balance in Sirius XM Canada to the extent a balance exists and then as Other (expense) income for any remaining portion.

We recorded revenue from Sirius XM Canada as Other revenue in our consolidated statements of comprehensive income of $97, $98 and $97 during the years ended December 31, 2020, 2019 and 2018.

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

SoundCloud

In February 2020, we 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 consolidated balance sheet. Sirius XM has appointed two individuals to serve on SoundCloud's nine-member board of managers. For the year ended December 31, 2020, our share of SoundCloud's net loss was $1, which was recorded in Other income (expense) in our consolidated statement of comprehensive income.

In addition to our investment in SoundCloud, Pandora has 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 $55, $40 and $0 for the years ended December 31, 2020, 2019 and 2018, respectively. We also had related party liabilities of $24 as of December 31, 2020 related to this agreement.

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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

Carrying value(a) at

Issuer /

Maturity

Principal Amount

Issued

Debt

Interest Payable

at December 31,

December 31, 2020

December 31, 2019

Borrower

Date

2020

Pandora

December

1.75% Convertible

December 1,

semi-annually on

(b) (c) (h)

2015

Senior Notes

2020

June 1 and

December 1

Sirius XM

July 2017

3.875% Senior Notes

August 1,

semi-annually on

1,000

997

995

(d)

2022

February 1 and

August 1

Sirius XM

May 2013

4.625% Senior Notes

May 15,

semi-annually on

498

(d) (g)

2023

May 15 and

November 15

Pandora

June 2018

1.75% Convertible

December 1,

semi-annually on

193

215

238

(b) (e)

Senior Notes

2023

June 1 and

December 1

Sirius XM

July 2019

4.625% Senior Notes

July 15,

semi-annually on

1,500

1,488

1,485

(d)

2024

January 15 and

July 15

Sirius XM

March 2015

5.375% Senior Notes

April 15,

semi-annually on

993

(d) (g)

2025

April 15 and

October 15

Sirius XM

May 2016

5.375% Senior Notes

July 15,

semi-annually on

1,000

993

992

(d)

2026

January 15 and

July 15

Sirius XM

July 2017

5.00% Senior Notes

August 1,

semi-annually on

1,500

1,490

1,488

(d)

2027

February 1 and

August 1

Sirius XM

June 2019

5.500% Senior Notes

July 1, 2029

semi-annually on

1,250

1,237

1,236

(d)

January 1 and

July 1

Sirius XM

June 2020

4.125% Senior Notes

July 1, 2030

semi-annually on

1,500

1,484

(d)

January 1 and

July 1

Sirius XM

December

Senior Secured

June 29,

variable fee paid

649

(f)

2012

Revolving Credit

2023

quarterly

Facility (the "Credit

Facility")

Sirius XM

Various

Finance leases

Various

n/a

Total Debt

8,554

7,928

Less: total current maturities

Less: total deferred financing costs

Total long-term debt

8,544

7,917

The carrying value of the obligations is net of any remaining unamortized original issue discount.
Holdings has unconditionally guaranteed all of the payment obligations of Pandora under these notes.
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.
All material domestic subsidiaries, including Pandora and its subsidiaries, that guarantee the Credit Facility have guaranteed these notes.
We acquired $193 in principal amount of the 1.75% Convertible Senior Notes due 2023 as part of the Pandora Acquisition. We elected to record the 1.75% Convertible Senior Notes due 2023 at fair value which will be remeasured each reporting period. The changes in fair value will be recorded in our consolidated statements of operations. The 1.75% Convertible Senior Notes due 2023 were not convertible into Holdings' common stock and not redeemable as of December 31, 2020. As a result, we have classified the debt as Long-term within our consolidated balance sheets.

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

The $1,750 Credit Facility expires in June 2023. Our obligations under the Credit Facility are guaranteed by certain of our material domestic subsidiaries, including Pandora and its subsidiaries, and are secured by a lien on substantially all of our assets and the assets of our material domestic subsidiaries. Interest on borrowings is payable on a monthly basis and accrues at a rate based on LIBOR plus an applicable rate. We are 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 December 31, 2020. Our outstanding borrowings under the Credit Facility are classified as Long-term debt within our 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 December 31, 2020.
On July 9, 2020, we redeemed $500 in outstanding principal amount of the 4.625% Senior Notes due 2023 for an aggregate purchase price, including premium and interest, of $507. On July 9, 2020, we also redeemed $1,000 in outstanding principal amount of the 5.375% Senior Notes due 2025 for an aggregate purchase price, including premium and interest, of $1,039. We used the proceeds from the 4.125% Senior Notes due 2030 for both redemptions. During the years ended December 31, 2020, we recognized $40 to Loss on extinguishment of debt, consisting primarily of unamortized discount, deferred financing fees and redemption premium, as a result of these redemptions.
On December 1, 2020, the 1.75% Convertible Senior Notes due 2020 were paid at their stated maturity.

Covenants and Restrictions

Under the Credit Facility, we 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 our 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 our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.

The indentures governing our notes restrict our 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 our ability and the ability of its subsidiaries to create certain liens; enter into sale/leaseback transactions; and merge or consolidate.

Under our debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest;

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 December 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 2023 (the "Pandora 2023 Notes") are unsecured, senior obligations of Pandora. Holdings has guaranteed the payment and performance obligations of Pandora under the Pandora 2023 Notes and the indenture governing the Pandora 2023 Notes.

The Pandora 2023 Notes will mature on December 1, 2023, unless earlier repurchased or redeemed by Pandora or converted in accordance with their terms. As of December 31, 2020, the conversion rate applicable to the Pandora 2023 Notes was 151.9533 shares of Holdings' common stock per one thousand principal amount of the Pandora 2023 Notes plus carryforward adjustments not yet effected pursuant to the terms of the indenture governing the Pandora 2023 Notes.

F-29

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Stockholder Equity

Common Stock, par value $0.001 per share

We are authorized to issue up to 9,000 shares of common stock. As of December 31, 2020 and December 31, 2019, there were 0.001 shares of common stock of Sirius XM issued and outstanding, which were owned by Holdings.

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 December 31, 2020 and December 31, 2019.

Benefit Plans

We recognized share-based payment expense of $223, $250 and $133 for the years ended December 31, 2020, 2019 and 2018, respectively. The amount recognized during the year ended December 31, 2019 includes $21 of share-based compensation expense recorded in Acquisition and restructuring costs in our consolidated statements of comprehensive income.

We account for equity instruments granted in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation payments to be recognized in the financial statements based on fair value. We use the Black-Scholes-Mertonoption-pricing model to value stock option awards and have elected to treat awards with graded vesting as a single award. Share-based compensation expense is recognized ratably over the requisite service period, which is generally the vesting period. We measure restricted stock awards and units using the fair market value of the restricted shares of common stock on the day the award is granted. Stock-based awards granted to employees, non-employees and members of our board of directors include stock options and restricted stock units.

Fair value as determined using the Black-Scholes-Merton model varies based on assumptions used for the expected life, expected stock price volatility, expected dividend yield and risk-free interest rates. For the years ended December 31, 2020, 2019 and 2018, we estimated the fair value of awards granted using the hybrid approach for volatility, which weights observable historical volatility and implied volatility of qualifying actively traded options on Holdings' common stock. The expected life assumption represents the weighted-average period stock-based awards are expected to remain outstanding. These expected life assumptions are established through a review of historical exercise behavior of stock-based award grants with similar vesting periods. Where historical patterns do not exist for non-employees, contractual terms are used. Dividend yield is based on the current expected annual dividend per share and our stock price. The risk-free interest rate represents the daily treasury yield curve rate at the grant date based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term. Our assumptions may change in future periods.

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 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 December 31, 2020, 160 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.

F-30

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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 and members of our board of directors:

		For the Years Ended December 31,
	2020		2019		2018
Risk-free interest rate	1.0%	2.4%		2.7%
Expected life of options - years	3.91	3.41		4.38
Expected stock price volatility	28%	26%		23%
Expected dividend yield	0.8%	0.8%		0.7%

The following table summarizes stock option activity under our share-based plans for the years ended December 31, 2020, 2019 and 2018:

				Weighted-		Weighted-
					Average			Aggregate
				Average			Remaining
	Options			Exercise			Contractual		Intrinsic
			Price Per Share		Term (Years)			Value
Outstanding at the beginning of January 1, 2018	280	$	3.76
Granted	32	$	6.59
Exercised	(65)	$	3.35
Forfeited, cancelled or expired		(4)	$	4.76
Outstanding as of December 31, 2018	243	$	4.22
Awards granted in connection with acquisition	7	$	3.85
Granted	15	$	6.10
Exercised	(53)	$	3.65
Forfeited, cancelled or expired		(4)	$	5.58
Outstanding as of December 31, 2019	208	$	4.46
Granted	11	$	6.87
Exercised	(33)	$	3.66
Forfeited, cancelled or expired		(2)	$	6.28
Outstanding as of December 31, 2020	184	$	4.73	4.80	$	318

Exercisable as of December 31, 2020		147	$	4.31	3.96	$	309

The weighted average grant date fair value per stock option granted during the years ended December 31, 2020, 2019 and 2018 was $1.46, $1.26 and $1.45. The total intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018 was $94, $146 and $215, respectively.

In connection with the Pandora Acquisition, each option granted by Pandora under its stock incentive plans to purchase shares of Pandora common stock, whether vested or unvested, was assumed and converted into an option to purchase shares of Holdings' common stock, with appropriate adjustments (based on the 1.44 exchange ratio) to the exercise price and number of shares of Holdings' common stock subject to such option, and has the same vesting schedule and exercise conditions as in effect as of immediately prior to the closing of the Pandora Acquisition; provided, that any Pandora stock option that had an exercise price per share that was equal to or greater than the value, at the closing of the Pandora Acquisition, of Holdings' common stock

F-31

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

issued as merger consideration in exchange for each share of Pandora common stock, was canceled without payment. We recorded $8 to Goodwill related to pre-acquisition replacement equity awards attributable to pre-combination service.

We recognized share-based payment expense associated with stock options of $45, $60 and $67 for the years ended December 31, 2020, 2019 and 2018, respectively.

The following table summarizes the restricted stock unit, including PRSU, activity under our share-based plans for the years ended December 31, 2020, 2019 and 2018:

					Grant Date
	Shares				Fair Value
				Per Share
Nonvested at the beginning of January 1, 2018	31	$	4.54
Granted	18	$	6.40
Vested	(13)	$	4.43
Forfeited		(1)	$	4.99
Nonvested as of December 31, 2018	35	$	5.50
Awards granted in connection with acquisition	48	$	5.83
Granted	38	$	6.01
Vested	(38)	$	5.53
Forfeited		(8)	$	5.85
Nonvested as of December 31, 2019	75	$	5.95
Granted	37	$	6.14
Vested	(32)	$	5.89
Forfeited		(5)	$	6.00
Nonvested as of December 31, 2020	75	$	6.06

The total intrinsic value of restricted stock units, including PRSUs, vesting during the years ended December 31, 2020, 2019 and 2018 was $196, $235 and $85, respectively. During the years ended December 31, 2020, 2019 and 2018, we granted 4, 6 and 5, respectively PRSUs to certain employees. We believe it is probable that the performance target applicable to these PRSUs will be achieved.

In connection with the Pandora Acquisition, each unvested restricted stock unit granted by Pandora under its stock incentive plans was assumed and converted into an unvested restricted stock unit of Holdings, with appropriate adjustments (based on the 1.44 exchange ratio) to the number of shares of Holdings' common stock to be received, and has the same vesting schedule and settlement date as in effect as of immediately prior to the closing of the Pandora Acquisition. We recorded $62 to Goodwill related to pre-acquisition replacement equity awards attributable to pre-combination service.

In connection with the cash dividends paid during the years ended December 31, 2020, 2019 and 2018, we granted 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 years ended December 31, 2020, 2019 and 2018.

We recognized share-based payment expense associated with restricted stock units, including PRSUs, of $178, $190 and $66 for the years ended December 31, 2020, 2019 and 2018, respectively.

Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units, including PRSUs, granted to employees, members of our board of directors and third parties at December 31, 2020 and December 31, 2019 was $385 and $415, respectively. The total unrecognized compensation costs at December 31, 2020 are expected to be recognized over a weighted-average period of 2.6 years.

F-32

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

401(k) Savings Plans

Sirius XM Radio Inc. 401(k) Savings Plan

We sponsor 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 Holdings' common stock on the open market, unless the employee elects Holdings' 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 $16, $9 and $9 for the years ended December 31, 2020, 2019 and 2018, 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 Holdings' board of directors and certain eligible employees to defer all or a portion of their base salary, cash incentive compensation and/or board of directors' cash compensation, as applicable. Pursuant to the terms of the DCP, Holdings or any of its subsidiaries may elect to make additional contributions beyond amounts deferred by participants, but is under no obligation to do so. Holdings has established a grantor (or "rabbi") trust to facilitate the payment of its obligations under the DCP.

Contributions to the DCP, net of withdrawals, for the years ended December 31, 2020, 2019 and 2018 were $8, $7 and $8, respectively. As of December 31, 2020 and 2019, the fair value of the investments held in the trust were $46 and $34, respectively, which is included in Other long-term assets in our consolidated balance sheets and classified as trading securities. Trading gains and losses associated with these investments are recorded in Other (expense) income within our consolidated statements of comprehensive income. The associated liability is recorded within Other long-term liabilities in our consolidated balance sheets, and any increase or decrease in the liability is recorded in General and administrative expense within our consolidated statements of comprehensive income. For both the years ended December 31, 2020 and 2019 we recorded gains on investments held in the trust of $3.

F-33

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Commitments and Contingencies
The following table summarizes our expected contractual cash commitments as of December 31, 2020:

		2021			2022			2023			2024			2025	Thereafter	Total
Debt obligations	$	1	$	1,000	$	842	$	1,500	$	-	$	5,250	$	8,593
Cash interest payments		389			387			341			329			259	788	2,493
Satellite and transmission		50			3			3			3			2	18	79
Programming and content		382			291			209			156			121	195	1,354
Sales and marketing		69			20			11			3			3	5	111
Satellite incentive payments		8			8			9			9			9	38	81
Operating lease obligations		69			68			61			47			45	137	427
Royalties, minimum
guarantees and other		327			205			25			7			-	-	564
Total (1)	$	1,295	$	1,982	$	1,501	$	2,054	$	439	$	6,431	$	13,702

The table does not include our reserve for uncertain tax positions, which at December 31, 2020 totaled $30.
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-4 meeting its fifteen-year design life, which we expect to occur. Boeing may also be entitled to up to $10 of additional incentive payments if our XM-4 satellite continues to operate above baseline specifications during the five years beyond the satellite's fifteen-year design life.

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. Total rent recognized in connection with leases for the years ended December 31, 2020, 2019 and 2018 was $73, $75 and $43, respectively.

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 year ended December 31, 2020, we prepaid $5 in content costs related to minimum

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

guarantees. As of December 31, 2020, we had future fixed minimum guarantee commitments of $26, of which $14 will be paid in 2021 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. The cost of Holdings' common stock acquired in our capital return program but not paid for as of December 31, 2020 was also included in this category.

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 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-1972Sound 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."

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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.

In October 2020, the District Court denied Pandora's renewed motion to dismiss the case under California's anti-SLAPP statute, finding the case no longer qualified for anti-SLAPP due to intervening changes in the law, and denied Pandora's renewed attempt to end the case. Alternatively, the District Court ruled that the preemption defense likely did not apply to Flo

Eddie's claims, in part because the District Court believed that the Music Modernization Act did not apply retroactively. Pandora promptly appealed the District Court's decision to the Ninth Circuit, and moved to stay appellate briefing pending the appeal of a related case against Sirius XM. On January 13, 2021, the Ninth Circuit issued an order granting the stay of appellate proceedings pending the resolution of a related case against Sirius XM.

We believe we have substantial defenses to the claims asserted in this action, 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 light of the COVID-19 pandemic, the multi-week hearing before the Copyright Royalty Judges originally scheduled to begin in Washington, DC in March 2020, was postponed and conducted virtually via videoconference between August 4 and September 9, 2020. Subsequent to the hearing, the parties submitted post-trial briefing and reply briefing. Closing arguments were held in November 2020. The final rates proposed for the 2021-2025 period by Sirius XM, Pandora, and the other webcaster participants are below the existing statutory rates. Specifically, Sirius XM and Pandora proposed rates of $0.0011 per performance for nonsubscription commercial webcasters and $0.0016 per performance for subscription commercial webcasters. SoundExchange proposed increasing the existing statutory rates to $0.0028 per performance for nonsubscription commercial webcasters and $0.0031 per performance for commercial subscription webcasters. Given the delay in the proceeding, the deadline for the CRB to deliver its initial rate determination has been extended to April 15, 2021.

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.

Income Taxes

There is no current U.S. federal income tax provision, as all federal taxable income was offset by utilizing U.S. federal net operating loss carryforwards. The current state income tax provision is primarily related to taxable income in certain states that have suspended or limited the ability to use net operating loss carryforwards or where net operating losses have been fully utilized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

Sirius XM and its wholly-owned subsidiaries are included in the consolidated federal income tax returns of Holdings. Holdings files a consolidated federal income tax return with its wholly-owned subsidiaries, including Sirius XM and Pandora. Income tax expense consisted of the following:

For the Years Ended December 31,

	2020				2019		2018
Current taxes:
Federal	$	-	$	-	$	-
State		(61)			(24)		12
Total current taxes		(61)			(24)		12
Deferred taxes:
Federal		(220)			(230)		(259)
State		(20)			(30)		2
Total deferred taxes		(240)			(260)		(257)
Total income tax expense	$	(301)	$	(284)	$	(245)

The difference in Income before income taxes in the respective consolidated statements of comprehensive income of Sirius XM and Holdings fully relates to the accounting for the convertible debentures. Income tax expense for Sirius XM and Holdings was the same for the years ended December 31, 2019 and 2018. The following table presents a reconciliation of the U.S. federal statutory tax rate and our effective tax rate:

	For the Years Ended December 31,
	2020		2019			2018
Federal tax expense, at statutory rate	21.0 %	21.0 %			21.0 %
State income tax expense, net of federal benefit	4.2 %	3.9 %			3.6 %
Change in valuation allowance	0.7 %	0.3 %			1.0 %
Tax credits	(9.7)%	(2.7)%			(6.8)%
Share-based compensation	(3.5)%	(2.4)%			(3.1)%
Impact of nondeductible compensation	2.6 %	1.6 %			0.7 %
Automatic worthless stock deduction	(3.5)%		- %	- %
Goodwill impairment	50.4 %		- %	- %
Uncertain tax positions	4.4 %		- %	- %
Other, net	(1.2)%		2.3 %			0.8 %
Effective tax rate	65.4 %	24.0 %			17.2 %

Our effective tax rate of 65.4% for the year ended December 31, 2020 was primarily impacted by the nondeductible Pandora goodwill impairment charge, partially offset by the recognition of excess tax benefits related to share-based compensation, a benefit related to state and federal research and development and certain other credits and a worthless stock deduction associated with the termination of the Automatic service. Our effective tax rate of 24.0% for the year ended December 31, 2019 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and benefits related to state and federal research and development and certain other credits, partially offset by the impact of nondeductible compensation. Our effective tax rate of 17.2% for the year ended December 31, 2018 was primarily impacted by the recognition of excess tax benefits related to share-based compensation and a benefit related to state and federal research and development credits.

Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried forward under tax law. Our evaluation of the realizability of

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

deferred tax assets considers both positive and negative evidence, including historical financial performance, scheduled reversal of deferred tax assets and liabilities, projected taxable income and tax planning strategies. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities, shown before jurisdictional netting, are presented below:

		For the Years Ended December 31,
		2020			2019
Deferred tax assets:
Net operating loss carryforwards and tax credits	$	745	$	1,010
Deferred revenue		62			81
Accrued bonus		29			34
Expensed costs capitalized for tax		11			14
Investments		21			22
Stock based compensation		74			72
Operating lease liability		118			126
Other		13			13
Total deferred tax assets		1,073			1,372
Deferred tax liabilities:
Depreciation of property and equipment		(237)			(228)
FCC license		(521)			(519)
Other intangible assets		(292)			(340)
Right of use asset		(106)			(116)
Other		(7)			(3)
Total deferred tax liabilities		(1,163)			(1,206)
Net deferred tax assets before valuation allowance		(90)			166
Valuation allowance		(54)			(70)
Total net deferred tax (liability) asset	$	(144)	$	96

Net operating loss carryforwards and tax credits decreased as a result of the utilization of net operating losses related to current year taxable income. For the years ended December 31, 2020 and 2019, we recorded $44 and $33 for state and federal tax credits, respectively. As of December 31, 2020, our gross federal net operating loss carryforwards were approximately $1,354. We expect to utilize a majority of our federal income tax credits, which consist of research and development tax credits, refined coal credits and foreign tax credits, by December 31, 2022.

As of December 31, 2020 and 2019, we had a valuation allowance related to deferred tax assets of $54 and $70, respectively, which were not likely to be realized due to the timing of certain federal and state net operating loss limitations. During the year ended December 31, 2020, our allowance decreased primarily due to the expiration of unused federal research and development credit carryforwards.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired. A number of years may elapse before an uncertain tax position is effectively settled or until there is a lapse in the applicable statute of limitations. We record interest and penalties related to uncertain tax positions in Income tax expense in our consolidated statements of comprehensive income.

As of December 31, 2020 and 2019, we had unrecognized tax benefits and uncertain tax positions of $433 and $406, respectively. If recognized, $310 of unrecognized tax benefits would affect our effective tax rate. Uncertain tax positions are recognized in Other long-term liabilities which, as of December 31, 2020 and 2019, were $30 and $12, respectively, including accrued interest.

We have state income tax audits pending. We do not expect the ultimate outcome of these audits to have a material adverse effect on our financial position or results of operations. We also do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2020 will significantly increase or decrease during the year ending December 31, 2021. Various events could cause our current expectations to change. Should our position with respect to the majority of these uncertain tax positions be upheld, the effect would be recorded in our consolidated statements of comprehensive income as part of the income tax provision. We recorded interest expense of $6 and $2 for the years ended December 31, 2020 and 2019, respectively, related to unrecognized tax benefits.

Changes in our unrecognized tax benefits and uncertain tax positions from January 1 through December 31 are set forth below:

	2020				2019
Balance, beginning of year	$	406	$	387
Increases in tax positions for prior years		14			-
Increases in tax positions for current year		20			31
Decreases in tax positions for prior years		(7)			(12)
Balance, end of year	$	433	$	406

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 the years ended December 31, 2020 and 2019.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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

		For the Year Ended December 31, 2020
		Sirius XM			Pandora		Total

Revenue
Subscriber revenue	$	5,857	$	515	$	6,372

Advertising revenue		157			1,183		1,340
Equipment revenue		173			-		173

Other revenue		155			-		155
Total revenue		6,342			1,698		8,040

Cost of services (a)		(2,430)			(1,105)		(3,535)
Segment gross profit	$	3,912	$	593	$	4,505

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

	For the Year Ended
	December 31, 2020
Segment Gross Profit	$	4,505

Subscriber acquisition costs		(362)
Sales and marketing (a)		(889)
Engineering, design and development (a)		(220)
General and administrative (a)		(443)
Depreciation and amortization		(506)
Share-based payment expense		(223)

Acquisition and restructuring costs		(28)
Impairment charges		(976)

Total other (expense) income		(398)
Consolidated income before income taxes	$	460

Share-basedpayment expense of $44 related to cost of services, $68 related to sales and marketing, $43 related to engineering, design and development and $68 related to general and administrative has been excluded for the year ended December 31, 2020.

		For the Year Ended December 31, 2019
		Sirius XM			Pandora		Total

Revenue
Subscriber revenue	$	5,644	$	476	$	6,120
Advertising revenue		205			1,131		1,336
Equipment revenue		173			-		173
Other revenue		165			-		165
Total revenue		6,187			1,607		7,794
Cost of services (b)		(2,378)			(1,005)		(3,383)
Segment gross profit	$	3,809	$	602	$	4,411

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

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

Segment Gross Profit

Subscriber acquisition costs

Sales and marketing (b)

Engineering, design and development (b)

General and administrative (b) Depreciation and amortization Share-based payment expense Acquisition and other related costs Total other (expense) income

Consolidated income before income taxes

For the Year Ended December 31, 2019

4,411
(427)
(859)
(231)
(466)
(468)
(229)
(84)

(465)

1,182

Share-basedpayment expense of $44 related to cost of services, $78 related to sales and marketing, $49 related to engineering, design and development and $58 related to general and administrative has been excluded for the year ended December 31, 2019.

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

As of December 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 year ended December 31, 2020.

Subsequent Events

Holdings' Capital Return Program

For the period from January 1, 2020 to January 29, 2021 we repurchased $203 of Holdings' common stock on the open market, including fees and commissions.

Tax Sharing Agreement

Under the Internal Revenue Code, two corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. As of December 31, 2020, Liberty Media beneficially owned, directly and indirectly, approximately 76% of the outstanding shares of our common stock. We expect that Liberty Media could beneficially own, directly and indirectly, over 80% of the outstanding shares of our common stock at some time in 2021, and Holdings and Liberty Media would then become members of the same consolidated tax group. Should that happen, the operative provisions of the tax sharing agreement will become effective on the date on which that occurs.

The tax sharing agreement contains provisions that Holdings believes are customary for tax sharing agreements between members of a consolidated group.

SXM-7 Satellite

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Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Sirius XM Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

We have entered into agreements for the design, construction and launch of two additional satellites, SXM-7 and SXM-8. On December 13, 2020, SXM-7was successfully launched. In-orbittesting of SXM-7began on January 4, 2021. During in-orbit testing of SXM-7, events occurred which have caused failures of certain SXM-7 payload units. An evaluation of SXM-7 is underway. The full extent of the damage to SXM-7 is not yet known.

We do not expect our satellite radio service to be impacted by these adverse SXM-7 events. Our XM-3 and XM-4 satellites continue to operate and are expected to support our satellite radio service for several years. In addition, our XM-5 satellite remains available as an in-orbit spare. Construction of our SXM-8 satellite is underway and that satellite is expected to be launched into a geostationary orbit in 2021.

We have procured insurance for SXM-7 and SXM-8 to cover the risks associated with each satellite's launch and first year of in-orbit operation. The aggregate coverage under those insurance policies with respect to SXM-7 is $225. We have notified the underwriters of these policies of a potential claim with respect to SXM-7. As of December 31, 2020, we have $220 capitalized in construction in progress related to SXM-7.

Quarterly Financial Data--Unaudited
Our quarterly results of operations are summarized below:

					For the Three Months Ended
		March 31			June 30			September 30	December 31
2020 (1)
Total revenue	$	1,952	$	1,874	$	2,025	$	2,189
Cost of services	$	(850)	$	(866)	$	(895)	$	(968)
Income from operations	$	468	$	415	$	478	$	(503)
Net income	$	326	$	231	$	280	$	(678)
2019 (1)
Total revenue	$	1,744	$	1,977	$	2,011	$	2,062
Cost of services	$	(748)	$	(882)	$	(881)	$	(916)
Income from operations	$	333	$	439	$	476	$	399
Net income	$	166	$	266	$	236	$	230

Net income per share for Sirius XM is not presented since Sirius XM is a wholly-owned subsidiary of Holdings.

F-42

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Sirius XM Holdings Inc. published this content on 02 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 February 2021 15:23:03 UTC.

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