What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-01 compared with 2021-02-02 · 142 added, 552 removed, 411 unchanged (63% of the section changed)

13 unchanged sentences

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.

We also derive revenue from advertising on select non-music channels, which is sold under the SXM Media brand, direct sales of our satellite radios and accessories, and other ancillary services.

As of December 31, 2021, our Sirius XM business had approximately 34.0 million subscribers.

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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 also holds a 70% equity interest and 33% voting interest in Sirius XM Canada.

Sirius XM Canada's subscribers are not included in our subscriber count or subscriber-based operating metrics.

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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.

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.

In addition, through AdsWizz, Pandora provides a comprehensive digital audio advertising technology platform, which connects audio publishers and advertisers with a variety of ad insertion, campaign trafficking, yield optimization, programmatic buying, marketplace and podcast monetization solutions.

As of December 31, 2021, our Pandora business had approximately 52.3 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 is a next-generation music entertainment company, powered by an ecosystem of artists, listeners, and curators on the pulse of what's new, now and next in music culture.

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.

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 October 2020, Sirius XM acquired the assets of Stitcher from The E.W.

Scripps Company and certain of its subsidiaries (“Scripps”) for total consideration of $302, which included $266 in cash and $36 related to contingent consideration.

During the year ended December 31, 2021, Stitcher did not achieve certain financial metrics, as a result of which we do not expect to pay to Scripps the 2021 portion of the contingent consideration associated with the transaction.

During the year ended December 31, 2021, we recognized a $17 benefit related to the change in fair value of the 2021 portion of the contingent consideration.

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.

Liberty Media

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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.

Set forth below are our results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020.

Refer to our Form 10-K for the year ended December 31, 2020 filed with the SEC on February 2, 2021 for our results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019.

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.

For the Years Ended December 31, 2020 vs 2019 Change 2019 vs 2018 Change

2020 2019 2018 Amount % Amount %

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 %

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

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 %

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 (394) (390) (350) (4) (1) % (40) (11) %

Loss on extinguishment of debt (40) (57) — 17 30 % (57) nm

Other income (expense) 6 (3) 44 9 300 % (47) (107) %

Total other (expense) income (428) (450) (306) 22 5 % (144) (47) %

Income before income taxes 430 1,197 1,421 (767) (64) % (224) (16) %

Income tax expense (299) (283) (245) (16) (6) % (38) (16) %

Net income $ 131 $ 914 $ 1,176 $ (783) (86) % $ (262) (22) %

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Sirius XM Revenue

Refer to page 42 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 43 for our discussion on Pandora revenue.

Sirius XM Cost of Services

Refer to page 43 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 45 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;

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

For the years ended December 31, 2020 and 2019, acquisition and restructuring costs were $28 and $84, respectively.

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

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

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.

For the years ended December 31, 2020 and 2019, interest expense was $394 and $390, respectively, an increase of 1%, or $4.

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.

For the years ended December 31, 2019 and 2018, interest expense was $390 and $350, respectively, an increase of 11%, or $40.

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.

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.

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.

For the years ended December 31, 2020 and 2019, other income (expense) was $6 and $(3), respectively.

Other income for the year ended December 31, 2020 was driven by 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;

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.

For the years ended December 31, 2019 and 2018, other (expense) income was $(3) and $44, respectively.

Other expense for the year ended December 31, 2019 was driven by losses on other investments 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.

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

For the years ended December 31, 2020 and 2019, income tax expense was $299 and $283, respectively, and our effective tax rate was 69.5% and 23.6%, respectively.

Our effective tax rate of 69.5% 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 23.6% 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.

For the years ended December 31, 2019 and 2018, income tax expense was $283 and $245, respectively, and our effective tax rate was 23.6% and 17.2%, respectively.

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 49 through 53) following our discussion of results of operations.

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)

For the Years Ended December 31, 2021 vs 2020 Change

2021 2020 Amount %

Subscriber revenue $ 6,084 $ 5,857 $ 227 4 %

25 unchanged sentences

Depreciation and amortization 533 506 27 5 %

Acquisition and restructuring costs 28 — — 28 nm — nm

Impairment charges 976 — — 976 nm — nm

Impairment, restructuring and acquisition costs 20 1,004 (984) (98) %

Total operating expenses 6,681 7,182 (501) (7) %

3 unchanged sentences

Loss on extinguishment of debt (83) (40) (43) (108) %

Other income (expense) 6 (2) 8 8 400 % (10) (125) %

Other income 9 6 3 50 %

Total other (expense) income (489) (428) (61) (14) %

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Net income $ 1,314 $ 131 $ 1,183 903 %

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

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Sirius XM Revenue

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For the years ended December 31, 2021 and 2020, subscriber revenue was $6,084 and $5,857, respectively, an increase of 4%, or $227.

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.

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.

The increase was primarily driven by growth in our ARPU of 5% and in our self-pay subscriber base of 4% driving higher self-pay revenue and U.S.

Music Royalty Fees, partially offset by lower revenue generated from automakers offering paid promotional subscriptions.

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.

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.

For the years ended December 31, 2021 and 2020, advertising revenue was $188 and $157, respectively, an increase of 20%, or $31.

The increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot.

The increase was due to higher advertising primarily on news and sports channels as we continue to recover to pre-COVID-19 levels.

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.

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.

For the years ended December 31, 2021 and 2020, equipment revenue was $201 and $173, respectively, an increase of 16%, or $28.

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.

The increase was driven by higher royalty revenue from new vehicle production as automakers pushed to get back to pre-COVID-19 manufacturing levels during the first half of 2021 and due to our transition to a new generation of chipsets, partially offset by semiconductor supply shortages in the second half of 2021.

We expect equipment revenue to decrease as a result of the semiconductor supply shortages.

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

For the years ended December 31, 2021 and 2020, other revenue was $151 and $155, respectively, a decrease of 3%, or $4.

The decrease was due to lower revenue from our connected vehicle services, rental car revenue and royalty revenue from Sirius XM Canada.

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.

The decrease was primarily driven by lower revenue generated by rental car arrangements.

We expect other revenue to decrease as revenue generated from our connected vehicle services declines, partially offset by an anticipated growth in royalties from Sirius XM Canada.

Pandora Revenue

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

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.

For the years ended December 31, 2021 and 2020, Pandora subscriber revenue was $530 and $515, respectively, an increase of 3%, or $15.

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.

The increase was primarily driven by the inclusion of Stitcher during the full year 2021 as well as an increase of 3% in average subscribers from 2020.

We expect Pandora subscriber revenues to decrease as our Pandora subscriber base declines.

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

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.

For the years ended December 31, 2021 and 2020, Pandora advertising revenue was $1,542 and $1,183, respectively, an increase of 30%, or $359.

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.

The increase was primarily driven by strong monetization of on platform programming to $102.74 per thousand hours, and higher off-platform revenue as well as a full year of Stitcher revenue.

We expect Pandora advertising revenue to increase due to our off-platform advertising opportunities and the growth of Stitcher.

Total Consolidated Revenue

Total Consolidated Revenue for the years ended December 31, 2021 and 2020, was $8,696 and $8,040, respectively, an increase of 8%, or $656.

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

1 unchanged sentence

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

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.

For the years ended December 31, 2021 and 2020, revenue share and royalties were $1,532 and $1,484, respectively, an increase of 3%, or $48, 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.

The increase was driven by overall greater revenues subject to music royalties and revenue share.

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

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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.

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.

For the years ended December 31, 2021 and 2020, programming and content expenses were $511 and $449, respectively, an increase of 14%, or $62, 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.

The increase was driven by higher content licensing 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.

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.

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.

For the years ended December 31, 2021 and 2020, customer service and billing expenses were $415 and $394, respectively, an increase of 5%, or $21, and increased as a percentage of total Sirius XM revenue.

The increase was driven by higher transaction costs, consulting, and personnel-related cost;

partially offset by lower bad debt expense and lower call center expense.

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

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satellite uplink facilities;

and delivery of our Internet streaming and connected vehicle services.

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.

and delivery of our Internet and 360L streaming and connected vehicle services.

For the years ended December 31, 2021 and 2020, transmission expenses were $159 and $123, respectively, an increase of 29%, or $36, 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.

The increase was primarily driven by higher costs associated with cloud hosting, wireless connectivity for our 360L platform, streaming content and our connected vehicle services.

We expect our Sirius XM transmission expenses to increase as costs associated with our 360L platform rise 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.

For the years ended December 31, 2021 and 2020, cost of equipment was $18 and $19, respectively, a decrease of 5%, or $1, 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.

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.

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

The decrease was primarily due to lower direct sales to customers.

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

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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.

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.

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.

For the years ended December 31, 2021 and 2020, revenue share and royalties were $1,140 and $937, respectively, an increase of 22%, or $203, but remained flat as a percentage of total Pandora revenue.

The increase was primarily due to higher royalty rates associated with owned and operated revenue as well as higher AdsWizz revenue, the inclusion of Stitcher and the growth in other off-platform revenue.

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.

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For the years ended December 31, 2021 and 2020, programming and content expenses were $48 and $32, respectively, an increase of 50%, or $16, and increased as a percentage of total Pandora revenue.

The increase was primarily attributable to higher production costs and personnel-related costs.

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.

The increase was primarily attributable to additional live events in 2021, higher license costs, and personnel-related costs driven by the inclusion of Stitcher.

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.

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.

For the years ended December 31, 2021 and 2020, customer service and billing expenses were $86 and $87, respectively, a decrease of 1%, or $1, 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.

The decrease was primarily driven by lower bad debt expense, partially offset by higher transaction fees.

We expect our Pandora customer service and billing costs to decrease as our Pandora subscriber base declines and mobile app commissions fall.

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.

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.

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.

For the years ended December 31, 2021 and 2020, transmission expenses were $59 and $54, respectively, an increase of 9%, or $5, but decreased as a percentage of total Pandora revenue.

The increase was primarily driven by higher streaming costs.

We expect our Pandora transmission costs to fluctuate primarily as a result of changes in listener hours.

Operating Costs

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For the years ended December 31, 2021 and 2020, subscriber acquisition costs were $325 and $362, respectively, a decrease of 10%, or $37, 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.

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.

The decrease was driven by lower subsidies from contract improvements with certain automakers as well as lower costs resulting from the semiconductor supply shortages during 2021, partially offset by slightly higher OEM 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.

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Marketing costs include expenses related to direct mail, outbound telemarketing, email communications, social media, television and digital performance media.

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.

For the years ended December 31, 2021 and 2020, sales and marketing expenses were $1,056 and $957, respectively, an increase of 10%, or $99, 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.

The increase was primarily due to higher brand media, streaming and trial-related direct marketing costs 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.

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.

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.

For the years ended December 31, 2021 and 2020, engineering, design and development expenses were $265 and $263, respectively, an increase of 1%, or $2, and decreased as a percentage of total revenue.

The increase was driven primarily by higher personnel-related costs, and partially offset by lower research and development costs.

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

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.

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.

For the years ended December 31, 2021 and 2020, general and administrative expenses were $514 and $511, respectively, an increase of 1%, or $3, and decreased as a percentage of total revenue.

The increase was primarily driven by higher personnel-related, consulting and technology related costs, partially offset by lower contributions as a result of a $25 donor advised fund created in 2020.

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

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.

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.

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

For the years ended December 31, 2021 and 2020, depreciation and amortization expense was $533 and $506, respectively, an increase of 5%, or $27, and decreased as a percentage of total revenue.

The increase was driven by the addition of software that was developed.

Impairment, Restructuring and Acquisition Costs represents impairment charges, net of insurance recoveries, associated with the carrying amount of an asset exceeding the asset's fair value, restructuring expenses associated with the abandonment of certain leased office spaces and acquisition costs.

For the years ended December 31, 2021 and 2020, impairment, restructuring, and acquisition costs were $20 and $1,004, respectively.

During 2021, we recorded restructuring costs of $25 resulting from the termination of leased office space and $12 related to acquisition costs, partially offset by the reversal of a liability related to the Stitcher acquisition.

During 2020, we recorded a goodwill impairment charge of $956 to reflect the carrying amount of the Pandora goodwill, an impairment charge of $20 to write down the carrying value of our Pandora trademark, costs of $24 associated with the termination of the Automatic service and costs associated with the acquisition of Simplecast.

Other Income (Expense)

Interest Expense includes interest on outstanding debt.

For the years ended December 31, 2021 and 2020, interest expense was $415 and $394, respectively, an increase of 5%, or $21.

For the years ended December 31, 2019 and 2018, interest expense was $392 and $377, respectively, an increase of 4%, or $15.

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.

The increase was primarily driven by a higher average outstanding debt balance as well as lower capitalized interest, partially offset by lower interest rates.

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

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.

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.

For the years ended December 31, 2020 and 2019, other income (expense) was $6 and $(2), respectively.

For the years ended December 31, 2021 and 2020, loss on extinguishment of debt was $83 and $40, respectively.

The loss on extinguishment of debt recorded in 2021 was due to the redemption of $1,000 principal amount of Sirius XM's 3.875% Senior Notes due 2022, $1,500 principal amount of Sirius XM's 4.625% Senior Notes due 2024, and $1,000 principal amount of Sirius XM's 5.375% Senior Notes due 2026.

For the years ended December 31, 2021 and 2020, other income was $9 and $6, respectively.

Other income for the year ended December 31, 2021 was primarily driven by interest earned on our loan to Sirius XM Canada.

Other income for the year ended December 31, 2020 was driven by 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;

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.

For the years ended December 31, 2019 and 2018, other (expense) income was $(2) and $8, respectively.

During the year ended December 31, 2019, other expense was driven by losses on other investments 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 Tax Expense includes the change in our deferred tax assets, current federal and state tax expenses, and foreign withholding taxes.

For the years ended December 31, 2021 and 2020, income tax expense was $212 and $299, respectively, and our effective tax rate was 13.9% and 69.5%, respectively.

The effective tax rate of 69.5% 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 23.6% 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.

For the years ended December 31, 2019 and 2018, income tax expense was $290 and $123, respectively, and our effective tax rate was 23.6% and 12.7%, respectively.

The effective tax rate of 23.6% 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.

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.

Unaudited for the Year Ended December 31, 2020

As Reported Predecessor Financial Information Purchase Price

Accounting and Pro

Forma Adjustments Ref Pro Forma

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

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

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

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 (394) — — (394)

Loss on extinguishment of debt (40) — — (40)

Other (expense) income 6 — — 6

Total other (expense) income (428) — — (428)

Income (loss) before income taxes 430 — — 430

Income tax expense (299) — — (299)

Net income $ 131 $ — $ — $ 131

(a) This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the merger of Sirius and XM (the "XM Merger").

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

Unaudited for the Year Ended December 31, 2019

As Reported Predecessor Financial Information (c) Purchase Price

Accounting and Pro

Forma Adjustments Ref Pro Forma

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

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

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

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 (390) (2) — (392)

Loss on extinguishment of debt (57) — — (57)

Other (expense) income (3) 1 — (2)

Total other (expense) income (450) (1) — (451)

Income (loss) before income taxes 1,197 (44) 75 1,228

Income tax expense (283) — (7) (i) (290)

Net income $ 914 $ (44) $ 68 $ 938

(d) This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.

(e) This adjustment relates to the amortization of deferred subscription and deferred advertising revenue that was fair valued in purchase accounting.

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

(g) 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.

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

(i) 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

As Reported Predecessor Financial Information (j) Purchase Price

Accounting and Pro

Forma Adjustments Ref Pro Forma

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

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

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

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

(j) Represents Pandora’s results for the period January 1, 2018 through December 31, 2018.

(k) This adjustment eliminates the impact of additional revenue associated with certain programming agreements recorded as part of the XM Merger.

(l) This adjustment eliminates the impact of contract termination fees.

(m) 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.

(n) This adjustment eliminates the impact of transaction related costs, recorded by Pandora, to advisers for the planned acquisition by Sirius XM.

(o) This adjustment eliminates the unrealized gain for the fair value adjustment of our preferred stock investment in Pandora.

(p) 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).

Our effective tax rate of 13.9% for the year ended December 31, 2021 was primarily impacted by settlements with various states as well as a benefit related to research and development and certain other credits, partially offset by federal and state income tax expense.

Key Financial and Operating Performance Metrics

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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.

Our adjusted EBITDA excludes the impact of share-based payment expense and certain purchase price accounting adjustments related to the merger of Sirius and XM ("XM Merger") and our February 2019 acquisition of Pandora ("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 62 through 65 for more details and for the reconciliation to the most directly comparable GAAP measure (where applicable).

See the accompanying Glossary 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.

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In addition, our Non-GAAP financial measures may not be comparable to similarly-titled measures by other companies.

Please refer to the glossary (pages 62 through 65) for a further discussion of such Non-GAAP financial and operating performance measures and reconciliations to the most directly comparable GAAP measure (where applicable).

Please refer to the Glossary 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 %

Set forth below are our subscriber balances as of December 31, 2021 compared to December 31, 2020.

Refer to our Form 10-K for the year ended December 31, 2020 filed with the SEC on February 2, 2021 for our subscriber balances as of December 31, 2020 compared to December 31, 2019.

As of December 31, 2021 vs 2020 Change

(subscribers in thousands) 2021 2020 Amount %

Self-pay subscribers 32,039 30,887 1,152 4 %

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Ending subscribers 6,393 6,341 52 1 %

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

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)

Amount % Amount %

The following table contains our Non-GAAP financial and operating performance measures which are based on our adjusted results of operations for the years ended December 31, 2021 and 2020.

Refer to our Form 10-K for the year ended December 31, 2020 filed with the SEC on February 2, 2021 for our Non-GAAP financial and operating performance measures for the year ended December 31, 2020 compared with the year ended December 31, 2019.

For the Years Ended December 31, 2021 vs 2020 Change

(subscribers in thousands) 2021 2020 Amount %

Self-pay subscribers 1,152 909 243 27 %

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Free cash flow $ 1,831 $ 1,660 $ 171 10 %

$ 1,660 $ 1,647 $ 1,517 $ 13 1 % $ 130 9 %

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

(2) Includes Pandora's results for the twelve month period, including pre-acquisition results for the period January 1, 2018 through December 31, 2018.

(1) ARPU for Sirius XM excludes subscriber revenue from our connected vehicle services of $190 and $174 for the years ended December 31, 2021 and 2020, respectively.

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

At December 31, 2021, we had approximately 34,033 subscribers, a decrease of approximately 681 subscribers, or 2%, from the approximately 34,714 subscribers as of December 31, 2020.

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.

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.

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.

The decrease in total subscribers was due to the decline in paid promotional subscribers, partially offset by growth in our self-pay subscriber base.

For the years ended December 31, 2021 and 2020, net subscriber additions were (681) and (195), respectively, a decline of 249%, or 486.

Paid promotional subscribers decreased due to a shift to shorter paid or free trials at certain automakers.

Self-pay net additions increased driven by higher new vehicle conversion resulting from vehicle sales growth during the first half of 2021, lower non-pay and voluntary churn, and a shift by automakers to shorter trial periods.

Traffic Users.

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Average Self-pay Monthly 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 62 through 65 for more details.)

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.

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.

(See accompanying Glossary for more details.)

For the years ended December 31, 2021 and 2020, our average self-pay monthly churn rate was 1.6% and 1.7%, respectively.

The decrease was driven by lower non-pay churn and voluntary 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 62 through 65 for more details.)

(See the accompanying Glossary for more details.)

For the years ended December 31, 2021 and 2020, ARPU was $14.76 and $14.10, 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.

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.

Music Royalty Fee as well as 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 62 through 65 for more details.)

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.

(See the accompanying Glossary for more details.)

For the years ended December 31, 2021 and 2020, SAC, per installation, was $12.58 and $18.65, respectively.

The decrease was driven by our transition to a new generation of chipsets and reductions to OEM hardware subsidy rates.

The decrease was driven by reductions to hardware subsidy rates for certain automakers.

Monthly Active Users.

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At December 31, 2021, Pandora had approximately 6,393 subscribers, an increase of 52, or 1%, from the approximately 6,341 subscribers as of December 31, 2020.

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.

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.

For the years ended December 31, 2021 and 2020, net subscriber additions were 52 and 127, respectively, a decrease of 59%, or 75.

Net additions decreased as a result of a decline in trial starts, partially offset by lower churn.

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.)

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.

(See the accompanying Glossary for more details.)

For the years ended December 31, 2021 and 2020, ARPU was $6.69 and $6.76, 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.

The decrease in subscriber ARPU was primarily due to a change in the mix of Pandora's premium plans.

Ad supported listener hours are a key indicator of our Pandora business and the engagement of our Pandora listeners.

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For the years ended December 31, 2021 and 2020, ad supported listener hours was 11.55 billion and 12.50 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.

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.

The decrease in ad supported listener hours was primarily driven by the decline in monthly active users, partially offset by higher hours per active user.

RPM is a key indicator of our ability to monetize advertising inventory created by our listener hours on the Pandora services.

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For the years ended December 31, 2021 and 2020, RPM was $102.74 and $79.24, respectively.

The decrease was a result of lower sell-through percentages as a result of the COVID-19 pandemic.

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.

The increase was a result of higher sell-through and pricing increases in advertising implemented by Pandora.

LPM is tracked for our non-subscription, ad-supported service across all Pandora delivery platforms.

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The increase was primarily driven by higher eligible advertising revenue.

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.

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For the years ended December 31, 2021 and 2020, LPU was $4.23 and $4.14, respectively.

The increase was due to increased Pandora subscriber ARPU.

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.

The increase was due to higher publisher and CRB rates in 2021.

Total Company

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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 62 through 65 for a reconciliation to GAAP and for more details.)

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.

Adjusted EBITDA excludes the impact of other expense (income), loss on extinguishment of debt, other non-cash charges, such as certain purchase price accounting adjustments, share-based payment expense, legal settlements and reserves, and impairment, restructuring and acquisition costs (if applicable).

(See the accompanying Glossary for a reconciliation to GAAP and for more details.)

For the years ended December 31, 2021 and 2020, adjusted EBITDA was $2,770 and $2,575, respectively, an increase of 8%, or $195.

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 62 through 65 for a reconciliation to GAAP and for more details.)

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.

The increase was due to higher advertising and subscriber revenue as well as lower subscriber acquisition costs, partially offset by higher revenue share and royalties, sales and marketing, programming, and personnel-related costs.

Free Cash Flow includes cash provided by operations plus insurance recoveries on our satellites, net of additions to property and equipment, and restricted and other investment activity.

(See the accompanying Glossary for a reconciliation to GAAP and for more details.)

For the years ended December 31, 2021 and 2020, free cash flow was $1,831 and $1,660, respectively, an increase of $171, or 10%.

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.

The increase was driven by satellite insurance recoveries and growth in cash generated by operations, partially offset by higher spending on property and equipment and a decrease in deferred revenue driven by a shift to shorter term self-pay and trial subscriptions as well as a shift to free trials at certain automakers.

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:

The following table presents a summary of our cash flow activity for the year ended December 31, 2021 compared with the year ended December 31, 2020.

Refer to our Form 10-K for the year ended December 31, 2020 filed with the SEC on February 2, 2021 for our cash flows for the year ended December 31, 2020 compared with the year ended December 31, 2019.

For the Years Ended December 31,

2020 2019 2018 2020 vs 2019 2019 vs 2018

2021 2020 2021 vs 2020

Net cash provided by operating activities $ 1,998 $ 2,018 $ (20)

1 unchanged sentence

Net cash used in financing activities (1,682) (1,314) (368)

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

Net increase (decrease) in cash, cash equivalents and restricted cash 116 (37) 153

Cash, cash equivalents and restricted cash at beginning of period 83 120 (37)

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Cash Flows Provided by Operating Activities

Cash flows provided by operating activities increased by $1 to $2,018 for the year ended December 31, 2020 from $2,017 for the year ended December 31, 2019.

Cash flows provided by operating activities increased by $137 to $2,017 for the year ended December 31, 2019 from $1,880 for the year ended December 31, 2018.

Cash flows provided by operating activities decreased by $20 to $1,998 for the year ended December 31, 2021 from $2,018 for the year ended December 31, 2020.

Our largest source of cash provided by operating activities is cash generated by subscription and subscription-related revenues.

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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.

Cash flows used in investing activities in the year ended December 31, 2021 were primarily due to spending for capitalized software and hardware, and to construct a replacement satellite, partially offset by proceeds collected from satellite insurance policies associated with SXM-7.

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 for $28, spending for capitalized software and hardware, and to construct replacement satellites.

We spent $238 and $242 on capitalized software and hardware as well as $93 and $57 to construct replacement satellites during the years ended December 31, 2021 and 2020, respectively.

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Cash flows used in financing activities consists of the issuance and repayment of long-term debt, the purchase of common stock under our share repurchase program, the payment of cash dividends and taxes paid in lieu of shares issued for stock-based compensation.

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 our common stock.

Proceeds from long term debt have been used to fund our operations, construct and launch new satellites, fund acquisitions, invest in other infrastructure improvements and purchase shares of our common stock.

Cash flows used in financing activities in the year ended December 31, 2021 were primarily due to the redemptions of Sirius XM's 3.875% Senior Notes due 2022 for $1,019, 4.625% Senior Notes due 2024 for $1,541 and 5.375% Senior Notes due 2026 for $1,034, the purchase and retirement of shares of our common stock under our repurchase program for $1,523, the payment of cash dividends of $268, payment of $103 for taxes in lieu of shares issued for share-based compensation, and the repayment of borrowings under our Credit Facility of $653;

partially offset by the issuance of $2,000 in aggregate principal amount of Sirius XM's 4.00% Senior Notes due 2028, $1,000 in aggregate principal amount of Sirius XM's 3.125% Senior Notes due 2026, and $1,500 in aggregate principal amount of Sirius XM's 3.875% Senior Notes due 2031.

Cash flows used in financing activities in the year ended December 31, 2020 were primarily due to the redemption of Sirius XM's 4.625% Senior Notes due 2023 in the aggregate amount of $505 and Sirius XM's 5.375% Senior Notes due 2025 in the aggregate amount of $1,033, the purchase and retirement of shares of our common stock under our repurchase program for $1,555, the payment of cash dividends of $237 and payment of $114 for taxes in lieu of shares issued for share-based compensation;

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 for $2,159 of shares of our common stock under our repurchase program, 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, the payment of cash dividends of $226 and payment of $150 for taxes in lieu of shares issued for share-based compensation, 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 of December 31, 2021, no amounts were 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, $1,749 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 future stock repurchases, future dividend payments 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.

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Our board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of $0.087846 per share of common stock.

On January 31, 2022, our board of directors declared a special cash dividend on our common stock in the amount of $0.25 per share of common stock payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

Debt Covenants

8 unchanged sentences

For a discussion of “Related Party Transactions,” refer to Note 12 to our consolidated financial statements in Part II, Item 8, of this Annual Report on Form 10-K.

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.

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 to this 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

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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, 2021, there were no indicators of impairment, and no impairment losses were recorded for goodwill during the year ended December 31, 2021.

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.

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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.

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, 2021, there were no indicators of impairment, and no impairment losses were recorded for indefinite-lived assets during the year ended December 31, 2021.

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.

Fair value was determined using a DCF model.

The DCF model included significant assumptions about revenue growth rates, long-term growth rates and enterprise specific discount rates.

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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 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 flows, the carrying value of the asset is reduced to its fair value.

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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-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.

SXM-8 is expected to be launched into a geostationary orbit in 2021.

We currently operate four in-orbit XM satellites, XM-3, XM-4, XM-5 and SXM-8.

Our XM-3 satellite launched in 2005 reached the end of its depreciable life in 2020 and our XM-4 satellite launched in 2006 reached the end of its depreciable life 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.

SXM-7 was launched into a geostationary orbit in December 2020 and in-orbit testing of SXM-7 began on January 4, 2021.

During in-orbit testing of SXM-7, events occurred which caused failures of certain SXM-7 payload units.

The evaluation of SXM-7 concluded that the satellite will not function as intended and the asset was fully impaired in 2021.

Our SXM-8 satellite was successfully launched into a geostationary orbit on June 6, 2021 and was placed into service on September 8, 2021 following the completion of in-orbit testing.

The SXM-8 satellite replaced our XM-3 satellite, which remains available as an in-orbit spare along with XM-5.

We have entered into agreements for the design, construction and launch of two satellites, SXM-9 and SXM-10.

Our satellites have been designed to last fifteen-years.

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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.

(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.

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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-pay monthly 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.

Average self-pay monthly churn - for satellite-enabled subscriptions, 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.

1 unchanged sentence

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.

(i) certain adjustments as a result of the purchase price accounting for the XM Merger and the Pandora Acquisition, (ii) share-based payment expense, (iii) impairment, restructuring and acquisition costs, (iv) legal settlements/reserves 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.

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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.

We also believe the exclusion of the legal settlements and reserves, impairment, restructuring and 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.

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.

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$ 1,314 $ 131

$ 131 $ 914 $ 1,176

Add back items excluded from Adjusted EBITDA:

Legal settlements and reserves — (16)

Acquisition and restructuring costs (1)

Impairment, restructuring and acquisition costs 20 1,004

Share-based payment expense (1)

Depreciation and amortization 533 506

Impairment charges 976 — —

Interest expense 415 394

Loss on extinguishment of debt 83 40

Other (income) expense (6) 3 (44)

Other income (9) (6)

Income tax expense 212 299

Purchase price accounting adjustments:

Revenues 6 13 7

Operating expenses — (6)

Pro forma adjustments (2)

Adjusted EBITDA $ 2,770 $ 2,575

(1) Acquisition and restructuri ng costs include $21 of share-based compensation expense for the year ended December 31, 2019.

(2) 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.

(1) Allocation of share-based payment expense:

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Total share-based payment expense $ 202 $ 223

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 derived from cash flow provided by operating activities plus insurance recoveries on our satellites, 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.

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For the Years Ended December 31,

2020 2019 2018

Cash Flow information

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Purchases of other investments (4) (8)

Satellite insurance recoveries 225 —

Free cash flow $ 1,831 $ 1,660

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For the Years Ended December 31,

2020 2019 2018

Subscriber acquisition costs, excluding connected vehicle services $ 325 $ 362

margin from sales of radios and accessories, excluding connected vehicle services (183) (154)

$ 208 $ 283 $ 348

Installations 11,174 11,091

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis