Sirius XM Holdings Inc. (SIRI)

FORM 10-Q | Quarterly Report
Jul. 25, 2018 11:26 AM
|
About: Sirius XM Holdings Inc. (SIRI)View as PDF
SIRIUS XM HOLDINGS INC. (Form: 10-Q, Received: 07/25/2018 11:28:59)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE TRANSITION PERIOD FROM __________ TO ________
COMMISSION FILE NUMBER 001-34295
 
SIRIUS XM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
38-3916511
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1290 Avenue of the Americas, 11th Floor
 
 
New York, New York
 
10104
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (212) 584-5100
Former name, former address and former fiscal year, if changed since last report: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ         No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ         No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
 
 
(Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
(Class)
 
(Outstanding as of July 23, 2018)
COMMON STOCK, $0.001 PAR VALUE
 
4,488,104,672
SHARES




 



SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q

Item No.
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
(in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Revenue:
 

 
 

 
 
 
 
Subscriber revenue
$
1,138,962

 
$
1,111,011

 
$
2,256,046

 
$
2,189,268

Advertising revenue
47,242

 
40,178

 
89,290

 
76,194

Equipment revenue
36,840

 
29,674

 
71,929

 
59,332

Music royalty fee and other revenue
209,255

 
166,706

 
390,136

 
316,841

Total revenue
1,432,299

 
1,347,569

 
2,807,401

 
2,641,635

Operating expenses:
 

 
 

 
 
 
 
Cost of services:
 

 
 

 
 
 
 
Revenue share and royalties
404,284

 
292,893

 
714,416

 
570,193

Programming and content
105,650

 
96,255

 
206,486

 
191,799

Customer service and billing
95,582

 
95,324

 
189,447

 
192,099

Satellite and transmission
23,478

 
19,603

 
46,200

 
40,179

Cost of equipment
7,674

 
9,371

 
14,771

 
16,283

Subscriber acquisition costs
119,778

 
125,154

 
242,471

 
252,642

Sales and marketing
119,435

 
106,707

 
226,146

 
203,616

Engineering, design and development
27,485

 
27,783

 
58,122

 
51,600

General and administrative
92,683

 
84,607

 
177,289

 
162,808

Depreciation and amortization
74,623

 
73,519

 
146,835

 
150,223

Total operating expenses
1,070,672

 
931,216

 
2,022,183

 
1,831,442

Income from operations
361,627

 
416,353

 
785,218

 
810,193

Other income (expense):
 

 
 

 
 
 
 
Interest expense
(86,917
)
 
(82,794
)
 
(176,706
)
 
(164,451
)
Other income (expense)
88,212

 
(11,937
)
 
124,100

 
(3,074
)
Total other income (expense)
1,295

 
(94,731
)
 
(52,606
)
 
(167,525
)
Income before income taxes
362,922

 
321,622

 
732,612

 
642,668

Income tax expense
(70,570
)
 
(119,513
)
 
(150,819
)
 
(233,486
)
Net income
$
292,352

 
$
202,109

 
$
581,793

 
$
409,182

Foreign currency translation adjustment, net of tax
(8,242
)
 
2,763

 
(17,826
)
 
2,746

Total comprehensive income
$
284,110

 
$
204,872

 
$
563,967

 
$
411,928

Net income per common share:
 

 
 

 
 
 
 
Basic
$
0.07

 
$
0.04

 
$
0.13

 
$
0.09

Diluted
$
0.06

 
$
0.04

 
$
0.13

 
$
0.09

Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
4,481,930

 
4,652,426

 
4,486,620

 
4,681,223

Diluted
4,589,095

 
4,735,592

 
4,588,986

 
4,759,741

Dividends declared per common share
$
0.011


$
0.010

 
$
0.022

 
$
0.020

 
See accompanying notes to the unaudited consolidated financial statements.


2


SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, 2018

December 31, 2017
ASSETS
(unaudited)



Current assets:
 

 
 

Cash and cash equivalents
$
63,516

 
$
69,022

Receivables, net
247,148

 
241,727

Inventory, net
18,967

 
20,199

Related party current assets
13,692

 
10,284

Prepaid expenses and other current assets
138,015

 
129,669

Total current assets
481,338

 
470,901

Property and equipment, net
1,468,930

 
1,462,766

Intangible assets, net
2,511,121

 
2,522,846

Goodwill
2,286,582

 
2,286,582

Related party long-term assets
1,051,337

 
962,080

Deferred tax assets
371,303

 
505,528

Other long-term assets
128,543

 
118,671

Total assets
$
8,299,154

 
$
8,329,374

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
871,373

 
$
794,341

Accrued interest
128,029

 
137,428

Current portion of deferred revenue
1,935,326

 
1,881,825

Current maturities of long-term debt
4,660

 
5,105

Related party current liabilities
4,103

 
2,839

Total current liabilities
2,943,491

 
2,821,538

Deferred revenue
160,286

 
174,579

Long-term debt
6,443,289

 
6,741,243

Related party long-term liabilities
6,269

 
7,364

Deferred tax liabilities
8,169

 
8,169

Other long-term liabilities
108,218

 
100,355

Total liabilities
9,669,722

 
9,853,248

Commitments and contingencies (Note 14)


 


Stockholders’ (deficit) equity:
 

 
 

Common stock, par value $0.001; 9,000,000 shares authorized; 4,485,774 and 4,530,928 shares issued; 4,485,774 and 4,527,742 outstanding at June 30, 2018 and December 31, 2017, respectively
4,485

 
4,530

Accumulated other comprehensive income, net of tax
4,594

 
18,407

Additional paid-in capital
1,267,630

 
1,713,816

Treasury stock, at cost; zero and 3,186 shares of common stock at June 30, 2018 and December 31, 2017, respectively

 
(17,154
)
Accumulated deficit
(2,647,277
)
 
(3,243,473
)
Total stockholders’ (deficit) equity
(1,370,568
)
 
(1,523,874
)
Total liabilities and stockholders’ (deficit) equity
$
8,299,154

 
$
8,329,374


See accompanying notes to the unaudited consolidated financial statements.

3


SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
 
 
Common Stock
 
Accumulated
Other
Comprehensive Income (Loss)
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Accumulated
Deficit
 
Total
Stockholders’ (Deficit) Equity
(in thousands)
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
Balance at December 31, 2017
 
4,530,928

 
$
4,530

 
$
18,407

 
$
1,713,816

 
3,186

 
$
(17,154
)
 
$
(3,243,473
)
 
$
(1,523,874
)
Cumulative effect of change in accounting principles
 

 

 
4,013

 

 

 

 
14,403

 
18,416

Comprehensive income, net of tax
 

 

 
(17,826
)
 

 

 

 
581,793

 
563,967

Share-based payment expense
 

 

 

 
58,208

 

 

 

 
58,208

Exercise of options and vesting of restricted stock units
 
13,875

 
14

 

 
(14
)
 

 

 

 

Minimum withholding taxes on net share settlement of stock-based compensation
 

 

 

 
(71,540
)
 

 

 

 
(71,540
)
Cash dividends paid on common stock
 

 

 

 
(98,684
)
 

 

 

 
(98,684
)
Common stock repurchased
 

 

 

 

 
55,843

 
(317,061
)
 

 
(317,061
)
Common stock retired
 
(59,029
)
 
(59
)
 

 
(334,156
)
 
(59,029
)
 
334,215

 

 

Balance at June 30, 2018
 
4,485,774

 
$
4,485

 
$
4,594

 
$
1,267,630

 

 
$

 
$
(2,647,277
)
 
$
(1,370,568
)

See accompanying notes to the unaudited consolidated financial statements.

4


SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
For the Six Months Ended June 30,
(in thousands)
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
581,793

 
$
409,182

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
146,835

 
150,223

Non-cash interest expense, net of amortization of premium
4,713

 
4,231

Provision for doubtful accounts
23,944

 
27,377

Amortization of deferred income related to equity method investment
(1,388
)
 
(1,388
)
Loss on unconsolidated entity investments, net
64

 
2,183

Gain on fair value instrument
(117,449
)
 

Dividend received from unconsolidated entity investment
1,366

 
3,606

Share-based payment expense
70,448

 
59,697

Deferred income taxes
134,044

 
220,415

Changes in operating assets and liabilities:
 

 
 

Receivables
(29,364
)
 
(38,063
)
Inventory
1,232

 
2,492

Related party, net
(1,722
)
 
(5,756
)
Prepaid expenses and other current assets
(177
)
 
(6,617
)
Other long-term assets
8,356

 
5,937

Accounts payable and accrued expenses
87,857

 
(69,078
)
Accrued interest
(9,399
)
 
(7,042
)
Deferred revenue
85,100

 
30,779

Other long-term liabilities
7,863

 
4,358

Net cash provided by operating activities
994,116

 
792,536

Cash flows from investing activities:
 

 
 

Additions to property and equipment
(174,273
)
 
(119,517
)
Purchases of other investments
(7,138
)
 
(7,355
)
Acquisition of business, net of cash acquired

 
(107,056
)
Investments in related parties and other equity investees
(6,138
)

(302,526
)
Repayment from (loan to) related party
3,242

 
(130,794
)
Net cash used in investing activities
(184,307
)
 
(667,248
)
Cash flows from financing activities:
 

 
 

Taxes paid in lieu of shares issued for stock-based compensation
(71,501
)
 
(22,595
)
Revolving credit facility, net of deferred financing costs
(302,611
)
 
610,000

Principal payments of long-term borrowings
(7,717
)
 
(6,000
)
Common stock repurchased and retired
(334,215
)
 
(783,824
)
Dividends paid
(98,684
)

(93,638
)
Net cash used in financing activities
(814,728
)
 
(296,057
)
Net decrease in cash, cash equivalents and restricted cash
(4,919
)
 
(170,769
)
Cash, cash equivalents and restricted cash at beginning of period
79,374

 
223,828

Cash, cash equivalents and restricted cash at end of period (1)
$
74,455

 
$
53,059

(1)
The following table reconciles cash, cash equivalents and restricted cash per the statement of cash flows to the balance sheet. The restricted cash balances are primarily due to letters of credit which have been issued to the landlords of leased office space. The terms of the letters of credit primarily extend beyond one year.
 
June 30, 2018
 
December 31, 2017
 
June 30, 2017
 
December 31, 2016
Cash and cash equivalents
$
63,516

 
$
69,022

 
$
42,738

 
$
213,939

Restricted cash included in Prepaid expenses and other current assets
150

 
244

 
432

 

Restricted cash included in Other long-term assets
10,789

 
10,108

 
9,889

 
9,889

Total cash, cash equivalents and restricted cash at end of period
$
74,455

 
$
79,374

 
$
53,059

 
$
223,828

See accompanying notes to the unaudited consolidated financial statements.

5


SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)

 
For the Six Months Ended June 30,
(in thousands)
2018
 
2017
Supplemental Disclosure of Cash and Non-Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized
$
178,850

 
$
164,147

Income taxes paid
$
5,625

 
$
12,264

Non-cash investing and financing activities:
 
 
 
Capital lease obligations incurred to acquire assets
$
499

 
$

Change in treasury stock not yet settled
$
17,154

 
$
8,123

Other comprehensive loss (income), net of tax benefit
$
17,826

 
$
(2,746
)
Issuance of common stock as part of recapitalization of Sirius XM Canada
$

 
$
178,850


See accompanying notes to the unaudited consolidated financial statements.


6

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)



(1)
Business & Basis of Presentation
This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“Holdings”).  The terms “Holdings,” “we,” “us,” “our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries, and “Sirius XM” refers to our wholly-owned subsidiary Sirius XM Radio Inc. Holdings has no operations independent of its wholly-owned subsidiary, Sirius XM.
Business
We transmit music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through our two proprietary satellite radio systems.  Subscribers can also receive music and other channels, plus features such as SiriusXM On Demand, over our Internet radio service, including through applications for mobile devices, home devices and other consumer electronic equipment.  We also provide connected vehicle services.  Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle operators while providing marketing and operational benefits to automakers and their dealers.
We have agreements with every major automaker (“OEMs”) to offer satellite radio in their vehicles, through which we acquire the majority of our subscribers. We also acquire subscribers through marketing to owners and lessees of previously owned vehicles that include factory-installed satellite radios that are not currently subscribing to our services. Our satellite radios are primarily distributed through automakers, retailers, and our website. Satellite radio services are also offered to customers of certain rental car companies.
Our primary source of revenue is subscription fees, with most of our customers subscribing to annual, semi-annual, quarterly or monthly plans.  We offer discounts for prepaid, longer-term subscription plans, as well as a multiple subscription discount.  We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic and data services.
In many cases, a subscription to our radio services is included with the purchase of new or previously owned vehicles. The length of these subscriptions varies but is typically three to twelve months .  We receive payments for these subscriptions from certain automakers.  We also reimburse various automakers for certain costs associated with satellite radios installed in new vehicles and pay revenue share to various automakers.
As of June 30, 2018 , Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 70% of the outstanding shares of our common stock.  As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Holdings and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain numbers in our prior period consolidated financial statements and footnotes have been reclassified or consolidated to conform to our current period presentation.
All significant intercompany transactions have been eliminated in consolidation. In the opinion of our management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 have been made.
Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2017 , which was filed with the SEC on January 31, 2018.
Public companies are required to disclose certain information about their reportable operating segments.  Operating segments are defined as significant components of an enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We have determined that we have  one reportable segment as our chief

7

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

operating decision maker, our Chief Executive Officer, assesses performance and allocates resources based on the consolidated results of operations of our business.
We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2018 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements.  For a discussion of subsequent events that do not require adjustment to our unaudited consolidated financial statements refer to Note 16.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes.  Estimates, by their nature, are based on judgment and available information.  Actual results could differ materially from those estimates.  Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense, and income taxes.

(2)
Summary of Significant Accounting Policies
Fair Value Measurements
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are based on unadjusted quoted prices in active markets for identical instruments. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. As of June 30, 2018 and December 31, 2017 , the carrying amounts of cash and cash equivalents, receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.
Our assets and liabilities measured at fair value were as follows:
 
June 30, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
Assets:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Pandora Media, Inc. (“Pandora”) - investment (a)

 
$
597,921

 

 
$
597,921

 

 
$
480,472

 

 
$
480,472

Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Debt (b)

 
$
6,342,699

 

 
$
6,342,699

 

 
$
6,987,473

 

 
$
6,987,473

(a)
During the year ended December 31, 2017, Sirius XM completed a $480,000 investment in Pandora. We have elected the fair value option to account for this investment. Refer to Note 10 for information on this transaction.
(b)
The fair value for non-publicly traded debt is based upon estimates from a market maker and brokerage firm.  Refer to Note 11 for information related to the carrying value of our debt as of June 30, 2018 and December 31, 2017 .

Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income of  $4,594  was primarily comprised of the cumulative foreign currency translation adjustments related to our investment in and loan to Sirius XM Canada Holdings Inc. (“Sirius XM Canada”) (refer to Note 10 for additional information). During the  three and six months ended  June 30, 2018 , we recorded a foreign currency translation adjustment loss of  $8,242 and $17,826 net of tax of  $2,663 and $5,735 , respectively. In addition, we reclassified stranded tax effects of $4,013 related to the adoption of Accounting Standards Update ("ASU") 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, during the six months ended June 30, 2018 .

8

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

Recent Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. We are in the process of evaluating the impact of adoption of this ASU on our consolidated financial statements.
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842) . This ASU requires a company to recognize lease assets and liabilities arising from operating leases in the statement of financial position. This ASU does not significantly change the previous lease guidance for how a lessee should recognize the recognition, measurement, and presentation of expenses and cash flows arising from a lease. Additionally, the criteria for classifying a finance lease versus an operating lease are substantially the same as the previous guidance. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. The FASB recently issued an exposure draft amending certain aspects of the new leasing standard. The proposed amendment allows adoption of the standard as of the effective date without restating prior periods. We plan to adopt this ASU on January 1, 2019. We expect the adoption of ASU 2016-02 will result in the recognition of right-of-use assets and lease liabilities on our consolidated balance sheets for operating leases.
Recently Adopted Accounting Policies
ASU 2014-09, Revenue - Revenue from Contracts with Customers . In May 2014, the FASB issued ASU 2014-09 which requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We adopted ASU 2014-09, and all related amendments, which established ASC Topic 606 (the "new revenue standard"), effective as of January 1, 2018. We adopted the new revenue standard using the modified retrospective method by recognizing the cumulative effect of initially applying the new revenue standard to all non-completed contracts as of January 1, 2018 as an adjustment to opening Accumulated deficit in the period of adoption. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
The new revenue standard primarily impacts how we account for revenue share payments and also has other immaterial impacts.
Revenue Share - Paid Trials
We previously recorded revenue share related to paid trials as Revenue share and royalties expense. Under the new revenue standard, we have recorded these revenue share payments as a reduction to revenue as the payments do not transfer a distinct good or service to us. Prior to the adoption, we recognized revenue share related to paid trial subscriptions as the Current portion of deferred revenue. Under the new revenue standard, we reclassified the revenue share related to paid trial subscriptions existing as of the date of adoption from Current portion of deferred revenue to Accounts payable and accrued expenses. For new paid trial subscriptions, the net amount of the paid trial subscription will be recorded as deferred revenue and the portion of revenue share will be recorded to Accounts payable and accrued expenses.
Other Impacts
Other impacts of the new revenue standard include:
Activation fees were previously recognized over the expected subscriber life using the straight-line method. Under the new revenue standard, the activation fees have been recognized over a one month period from activation as the

9

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

activation fees are non-refundable and they do not convey a material right. As of January 1, 2018, we reduced deferred revenue related to activation fees of $8,260 , net of tax, to Accumulated deficit.
Loyalty payments to OEMs were previously expensed when incurred as Subscriber acquisition costs. Under the new revenue standard, these costs have been capitalized in Prepaid expenses and other current assets as costs to obtain a contract and these costs will be amortized to Subscriber acquisition costs over an average self-pay subscriber life of that OEM. As of January 1, 2018, we capitalized previously expensed loyalty payments of $10,156 , net of tax, to Prepaid expenses and other current assets by reducing Accumulated deficit.
These changes do not have a material impact to our financial statements.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued ASU 2018-02 to amend its standard on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) that was passed in December 2017 from accumulated other comprehensive income (“AOCI”) directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The guidance is effective for interim and fiscal years beginning after December 15, 2018, with early adoption permitted. We elected to adopt ASU 2018-02 effective January 1, 2018 and reclassified the stranded tax effects due to the Tax Act of $4,013 related to the currency translation adjustment from our investment balance and note receivable with Sirius XM Canada from AOCI to Accumulated deficit.
The cumulative effect of the changes made to our consolidated balance sheet as of January 1, 2018 for the adoption of ASU 2014-09 and ASU 2018-02 are included in the table below.
 
Balance at
December 31, 2017
 
Adjustments Due to ASU 2014-09
 
Adjustments Due to ASU 2018-02
 
Balance at
January 1, 2018
Balance Sheet
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Prepaid expenses and other current assets
$
129,669

 
$
8,262

 
$

 
$
137,931

Other long-term assets
118,671

 
2,576

 

 
121,247

Deferred tax assets
505,528

 
(5,915
)
 

 
499,613

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Accounts payable and accrued expenses
794,341

 
32,399

 

 
826,740

Current portion of deferred revenue
1,881,825

 
(41,902
)
 

 
1,839,923

Deferred revenue
174,579

 
(3,990
)
 

 
170,589

 
 
 
 
 

 
 
Equity:
 
 
 
 
 
 
 
Accumulated deficit
(3,243,473
)
 
18,416

 
(4,013
)
 
(3,229,070
)
AOCI, net of tax
18,407

 

 
4,013

 
22,420

The following table illustrates the impact of adopting ASU 2014-09 on our unaudited consolidated statement of comprehensive income. The adoption of ASU 2018-02 did not impact our unaudited consolidated statement of comprehensive income.

10

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

 
For the Three Months Ended June 30, 2018
 
For the Six Months Ended June 30, 2018
 
As Reported
 
Impact of Adopting ASU 2014-09
 
Balances Without Adoption of ASU 2014-09
 
As Reported
 
Impact of Adopting ASU 2014-09
 
Balances Without Adoption of ASU 2014-09
Income Statement
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
Subscriber revenue
$
1,138,962

 
$
23,787

 
$
1,162,749

 
$
2,256,046

 
$
48,179

 
$
2,304,225

 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
Revenue share and royalties
404,284

 
22,235

 
426,519

 
714,416

 
44,304

 
758,720

Subscriber acquisition costs
119,778

 
800

 
120,578

 
242,471

 
1,845

 
244,316

Income tax expense
(70,570
)
 
(146
)
 
(70,716
)
 
(150,819
)
 
(418
)
 
(151,237
)
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
$
292,352

 
$
606

 
$
292,958

 
$
581,793

 
$
1,612

 
$
583,405


The adoption of the new revenue standard did not have a material impact on our unaudited consolidated balance sheet as of June 30, 2018 .
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This ASU updates the guidance related to the statement of cash flows and requires that the statement include restricted cash with cash and cash equivalents when reconciling beginning and ending cash. The guidance was effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. We adopted this ASU effective January 1, 2018. As a result of the adoption, we have added restricted cash to the reconciliation of beginning and ending cash and cash equivalents and included a reconciliation of total cash, cash equivalents and restricted cash to the balance sheet for each period presented in the unaudited consolidated statements of cash flows.

(3)
Revenues
Adoption of the new revenue standard
We adopted the new revenue standard using the modified retrospective method by recognizing the cumulative effect of initially applying the new revenue standard to all non-completed contracts as of January 1, 2018 as an adjustment to opening Accumulated deficit in the period of adoption. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605.
Disaggregation of Revenue
We disaggregate our revenues as shown in the unaudited consolidated statements of comprehensive income.
Nature of goods and services
The following is a description of principal activities from which we generate our revenue, including from subscribers, advertising, and sales of equipment.
Subscription Revenue
Subscription revenue consists primarily of subscription fees and other ancillary subscription based revenues. Revenue is recognized on a straight line basis when the performance obligations to provide each service for the period are satisfied, which is over time as our subscription services are continuously transmitted and can be consumed by customers at any time. Consumers purchasing or leasing a vehicle with a factory-installed satellite radio typically receive between a three and twelve month subscription to our service.  In certain cases, the subscription fees for these consumers are prepaid by the applicable

11

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

automaker. Prepaid subscription fees received from certain automakers or directly from consumers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon sale and activation. Activation fees are recognized over one month as the activation fees are non-refundable and do not provide for a material right to the customer. There is no revenue recognized for unpaid trial subscriptions. In some cases we pay a loyalty fee to the OEM when we receive a certain amount of payments from self-pay customers acquired from that OEM. These fees are considered incremental costs to obtain a contract and are, therefore, recognized as an asset and amortized to Subscriber acquisition costs over an average subscriber life of that OEM. Revenue share and loyalty fees paid to the OEM offering a paid trial are accounted for as a reduction of revenue as the payment does not provide a distinct good or service.
Advertising Revenue
We recognize revenue from the sale of advertising as performance obligations are satisfied upon airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is transmitted. Agency fees are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue.  Additionally, we pay certain third parties a percentage of advertising revenue.  Advertising revenue is recorded gross of such revenue share payments as we control the advertising service, including the ability to establish pricing, and we are primarily responsible for providing the service.  Advertising revenue share payments are recorded to Revenue share and royalties during the period in which the advertising is transmitted.
Equipment Revenue
Equipment revenue and royalties from the sale of satellite radios, components and accessories are recognized when the performance obligation is satisfied and control is transferred, which is generally upon shipment. Revenue is recognized net of discounts and rebates.
Music Royalty Fee and Other Revenue
Music Royalty Fee and Other Revenue primarily consists of U.S. music royalty fees ("MRF"). The related costs we incur for the right to broadcast music and other programming are recorded as Revenue share and royalties expense.  Fees received from subscribers for the MRF are recorded as deferred revenue and amortized to revenue ratably over the service period as the royalties relate to the subscription services which are continuously delivered to our customers.
Deferred Revenue
Customers generally pay for the services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in our unaudited consolidated statement of comprehensive income as the services are provided. Changes in the liability balance during the period ended June 30, 2018 was not materially impacted by other factors.
Transaction Price Allocated to the Remaining Performance Obligations
As the majority of our contracts are one year or less, we have utilized the optional exemption under ASC 606-10-50-14 and will not disclose information about the remaining performance obligations for contracts which have original expected durations of one year or less. As of June 30, 2018, less than ten percent of our total deferred revenue balance related to contracts that extended beyond one year. These contracts primarily include prepaid data trials which are typically provided for three to five years as well as for self-pay customers who prepay for their audio subscriptions for up to three years in advance. These amounts will be recognized on a straight-line basis as our services are provided.

(4)
Earnings per Share
Basic net income per common share is calculated by dividing the income available to common stockholders by the weighted average common shares outstanding during each reporting period.  Diluted net income per common share adjusts the weighted average number of common shares outstanding for the potential dilution that could occur if common stock equivalents (stock options and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method. We had no participating securities during the three and six months ended June 30, 2018 and 2017 .

12

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

Common stock equivalents of 24,191 and 35,468 for the three months ended June 30, 2018 and 2017 , respectively, and 45,032 and 35,447 for the six months ended June 30, 2018 and 2017 , respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 

 
 

 
 
 
 
Net income available to common stockholders for basic and diluted net income per common share
$
292,352

 
$
202,109

 
$
581,793

 
$
409,182

Denominator:
 

 
 

 
 

 
 
Weighted average common shares outstanding for basic net income per common share
4,481,930

 
4,652,426

 
4,486,620

 
4,681,223

Weighted average impact of dilutive equity instruments
107,165

 
83,166

 
102,366

 
78,518

Weighted average shares for diluted net income per common share
4,589,095

 
4,735,592

 
4,588,986

 
4,759,741

Net income per common share:
 

 
 

 
 

 
 
Basic
$
0.07

 
$
0.04

 
$
0.13

 
$
0.09

Diluted
$
0.06

 
$
0.04

 
$
0.13

 
$
0.09


(5)
Receivables, net
Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables.
Customer accounts receivable, net, includes receivables from our subscribers and other customers, including advertising, and is stated at amounts due, net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors.  We consider historical experience, the age of the receivable balances, current economic conditions and other factors that may affect the counterparty’s ability to pay.  Bad debt expense is included in Customer service and billing expense in our unaudited consolidated statements of comprehensive income.
Receivables from distributors primarily include billed and unbilled amounts due from OEMs for services included in the sale or lease price of vehicles, as well as billed amounts due from wholesale distributors of our satellite radios.  Other receivables primarily include amounts due from manufacturers of our radios, modules and chipsets where we are entitled to subsidies and royalties based on the number of units produced.  We have not established an allowance for doubtful accounts for our receivables from distributors or other receivables as we have historically not experienced any significant collection issues with OEMs or other third parties.
Receivables, net, consists of the following:
 
June 30, 2018
 
December 31, 2017
Gross customer accounts receivable
$
105,764

 
$
100,342

Allowance for doubtful accounts
(8,302
)
 
(9,500
)
Customer accounts receivable, net
$
97,462

 
$
90,842

Receivables from distributors
121,407

 
121,410

Other receivables
28,279

 
29,475

Total receivables, net
$
247,148

 
$
241,727


(6)
Inventory, net
Inventory consists of finished goods, refurbished goods, chipsets and other raw material components used in manufacturing radios and connected vehicle devices. Inventory is stated at the lower of cost or market.  We record an estimated allowance for inventory that is considered slow moving or obsolete or whose carrying value is in excess of net realizable value.  The provision related to products purchased for resale in our direct to consumer distribution channel and components

13

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

held for resale by us is reported as a component of Cost of equipment in our unaudited consolidated statements of comprehensive income.  The provision related to inventory consumed in our OEM channel is reported as a component of Subscriber acquisition costs in our unaudited consolidated statements of comprehensive income.
Inventory, net, consists of the following:
 
June 30, 2018
 
December 31, 2017
Raw materials
$
5,615

 
$
6,489

Finished goods
18,915

 
21,225

Allowance for obsolescence
(5,563
)
 
(7,515
)
Total inventory, net
$
18,967

 
$
20,199


(7)
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our single reporting unit is performed as of the fourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASC 350, Intangibles - Goodwill and Other , states that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASC 350 also states that a reporting unit with a zero or negative carrying amount is not required to perform a qualitative assessment. The carrying amount recorded for our one reporting unit and goodwill was $(1,370,568) and $2,286,582 , respectively, as of June 30, 2018 .
As of June 30, 2018 , there were no indicators of impairment, and no impairment losses were recorded for goodwill during the three and six months ended June 30, 2018 and 2017 .  As of June 30, 2018 , the cumulative balance of goodwill impairments recorded since the July 2008 merger (the “Merger”) between our wholly owned subsidiary, Vernon Merger Corporation, and XM Satellite Radio Holdings Inc. (“XM”), was $4,766,190 , which was recognized during the year ended December 31, 2008.

(8)
Intangible Assets
Our intangible assets include the following:
 
 
 
June 30, 2018
 
December 31, 2017
 
Weighted
Average
Useful Lives
 
Gross
Carrying
Value
 
Accumulated Amortization
 
Net Carrying
Value
 
Gross
Carrying
Value
 
Accumulated Amortization
 
Net Carrying
Value
Indefinite life intangible assets:
 
 
 

 
 

 
 

 
 

 
 

 
 

FCC licenses
Indefinite
 
$
2,083,654

 
$

 
$
2,083,654

 
$
2,083,654

 
$

 
$
2,083,654

Trademarks
Indefinite
 
250,800

 

 
250,800

 
250,800

 

 
250,800

Definite life intangible assets:
 
 
 

 
 

 
 

 
 

 
 

 
 

Subscriber relationships
9 years
 

 

 

 
380,000

 
(380,000
)
 

OEM relationships
15 years
 
220,000

 
(68,444
)
 
151,556

 
220,000

 
(61,111
)
 
158,889

Licensing agreements
12 years
 
45,289

 
(36,193
)
 
9,096

 
45,289

 
(34,350
)
 
10,939

Software and technology
7 years
 
33,872

 
(17,857
)
 
16,015

 
43,915

 
(25,351
)
 
18,564

Total intangible assets
 
 
$
2,633,615

 
$
(122,494
)
 
$
2,511,121

 
$
3,023,658

 
$
(500,812
)
 
$
2,522,846


Indefinite Life Intangible Assets
We have identified our FCC licenses and the XM and Automatic Labs Inc. trademarks as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use.

14

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our satellite licenses expires:
FCC satellite licenses
 
Expiration year
SIRIUS FM-5
 
2025
SIRIUS FM-6
 
2022
XM-3
 
2021
XM-4
 
2022
XM-5
 
2018
Prior to expiration, we are required to apply for a renewal of our FCC licenses.  The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred.  Each of the FCC licenses authorizes us to use the radio spectrum, which is a renewable, reusable resource that does not deplete or exhaust over time.
Our annual impairment assessment of our identifiable indefinite life intangible assets is performed as of the fourth quarter of each year. An assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets exceeds its fair value, an impairment loss is recognized. As of June 30, 2018 , there were no indicators of impairment, and no impairment loss was recognized for intangible assets with indefinite lives during the three and six months ended June 30, 2018 and 2017 .
Definite Life Intangible Assets
Amortization expense for all definite life intangible assets was $5,863 and $12,098 for the three months ended June 30, 2018 and 2017 , respectively, and $11,725 and $23,626 for the six months ended June 30, 2018 and 2017 , respectively. We retired definite lived intangible assets of $390,043 during the six months ended June 30, 2018 primarily related to fully amortized subscriber relationships. There were no retirements of definite lived intangible assets during the six months ended June 30, 2017 . The expected amortization expense for the remaining period in 2018 , each of the fiscal years 2019 through 2022 and for periods thereafter is as follows:
Years ending December 31,
 
Amount
2018 (remaining)
 
$
11,413

2019
 
22,701

2020
 
22,121

2021
 
16,678

2022
 
15,542

Thereafter
 
88,212

Total definite life intangible assets, net
 
$
176,667



15

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

(9)
Property and Equipment
Property and equipment, net, consists of the following:
 
June 30, 2018
 
December 31, 2017
Satellite system
$
1,586,794

 
$
1,586,794

Terrestrial repeater network
124,904

 
123,254

Leasehold improvements
59,477

 
57,635

Broadcast studio equipment
101,338

 
96,582

Capitalized software and hardware
719,433

 
639,516

Satellite telemetry, tracking and control facilities
74,201

 
69,147

Furniture, fixtures, equipment and other
98,849

 
96,965

Land
38,411

 
38,411

Building
61,844

 
61,824

Construction in progress
347,196

 
301,153

Total property and equipment
3,212,447

 
3,071,281

Accumulated depreciation and amortization
(1,743,517
)
 
(1,608,515
)
Property and equipment, net
$
1,468,930

 
$
1,462,766

Construction in progress consists of the following:
 
June 30, 2018
 
December 31, 2017
Satellite system
$
231,047

 
$
183,243

Terrestrial repeater network
2,972

 
2,515

Capitalized software and hardware
95,555

 
94,456

Other
17,622

 
20,939

Construction in progress
$
347,196

 
$
301,153

Depreciation and amortization expense on property and equipment was $68,760 and $61,421 for the three months ended June 30, 2018 and 2017 , respectively, and $135,110 and $126,597 for the six months ended June 30, 2018 and 2017 , respectively.  We retired property and equipment of $14,760 during the six months ended June 30, 2017 . There were no retirements of property and equipment during the six months ended June 30, 2018 .
We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites. Capitalized interest is recorded as part of the asset’s cost and depreciated over the satellite’s useful life. Capitalized interest costs were $2,901 and $1,005 for the three months ended June 30, 2018 and 2017 , respectively, and $5,155 and $1,723 for the six months ended June 30, 2018 and 2017 , respectively, which related to the construction of our SXM-7 and SXM-8 satellites.
Satellites
As of June 30, 2018 , we owned a fleet of five satellites.  The chart below provides certain information on our satellites as of June 30, 2018 :
Satellite Description
 
Year Delivered
 
Estimated End of
Depreciable Life
SIRIUS FM-5
 
2009
 
2024
SIRIUS FM-6
 
2013
 
2028
XM-3
 
2005
 
2020
XM-4
 
2006
 
2021
XM-5
 
2010
 
2025

16

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)


(10)
Related Party Transactions  
In the normal course of business, we enter into transactions with related parties such as Liberty Media, Sirius XM Canada and Pandora.

Liberty Media
As of June 30, 2018 , Liberty Media beneficially owned, directly and indirectly, approximately 70% of the outstanding shares of our common stock. Liberty Media has two executives and one of its directors on our board of directors.  Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Sirius XM Canada
On May 25, 2017, Sirius XM completed a recapitalization of Sirius XM Canada (the “Transaction”), which is now a privately held corporation.
Following the Transaction, Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, with the remainder of the voting power and equity interests held by two of Sirius XM Canada’s previous shareholders. The total consideration from Sirius XM to Sirius XM Canada, excluding transaction costs, during the year ended December 31, 2017 was $308,526 , which included $129,676 in cash and we issued 35,000 shares of our common stock with an aggregate value of $178,850 to the holders of the shares of Sirius XM Canada acquired in the Transaction. Sirius XM received common stock, non-voting common stock and preferred stock of Sirius XM Canada. We own 590,950 shares of preferred stock of Sirius XM Canada, which has a liquidation preference of one Canadian dollar per share.
In connection with the Transaction, Sirius XM also made a contribution in the form of a loan to Sirius XM Canada in the aggregate amount of $130,794 . The loan is denominated in Canadian dollars and is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. The loan has a term of fifteen years , bears interest at a rate of 7.62% per annum and includes customary covenants and events of default, including an event of default relating to Sirius XM Canada’s failure to maintain specified leverage ratios. The terms of the loan require Sirius XM Canada to prepay a portion of the outstanding principal amount of the loan within sixty days of the end of each fiscal year in an amount equal to any cash on hand in excess of C$10,000 at the last day of the financial year if all target dividends have been paid in full. During the six months ended June 30, 2018 , Sirius XM Canada repaid $3,242 of the principal amount of the loan.
In connection with the Transaction, Sirius XM also entered into a Services Agreement and an Advisory Services Agreement with Sirius XM Canada. Each agreement has a thirty year term. Pursuant to the Services Agreement, Sirius XM Canada pays Sirius XM 25% of its gross revenues on a monthly basis through December 31, 2021 and 30% of its gross revenues on a monthly basis thereafter. Pursuant to the Advisory Services Agreement, Sirius XM Canada pays Sirius XM 5% of its gross revenues on a monthly basis. These agreements superseded and replaced the former agreements between Sirius XM Canada and its predecessors and Sirius XM.
Sirius XM Canada is accounted for as an equity method investment, and its results are not consolidated in our unaudited consolidated financial statements. Sirius XM Canada does not meet the requirements for consolidation as we do not have the ability to direct the most significant activities that impact Sirius XM Canada's economic performance.
We had the following related party balances associated with Sirius XM Canada:

June 30, 2018

December 31, 2017
Related party current assets
$
13,692

 
$
10,284

Related party long-term assets
$
453,416

 
$
481,608

Related party current liabilities
$
4,103

 
$
2,839

Related party long-term liabilities
$
6,269

 
$
7,364

As of June 30, 2018 and December 31, 2017 , our related party current asset balance included amounts due under the Services Agreement and Advisory Services Agreement and certain amounts related to transactions outside the scope of the new services arrangements. Our related party long-term assets balance as of June 30, 2018 and December 31, 2017 included the

17

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

carrying value of our investment balance in Sirius XM Canada of $323,226 and $341,214 , respectively, and, as of June 30, 2018 and December 31, 2017 , also included $130,190 and $140,073 , respectively, for the long-term value of the outstanding loan to Sirius XM Canada. Our related party liabilities as of each of June 30, 2018 and December 31, 2017 included $2,776 for the current portion of deferred revenue and $3,700 and $5,088 , respectively, for the long-term portion of deferred revenue recorded as of the Merger date related to agreements with legacy XM Canada, now Sirius XM Canada.  These costs are being amortized on a straight line basis through 2020.

Sirius XM Canada paid gross dividends to us of $408 during the three months ended June 30, 2018 and $1,439 and $3,796 during the six months ended June 30, 2018 and 2017 , respectively. Sirius XM Canada did no t pay any dividends to us during the three months ended June 30, 2017 .  Dividends are first recorded as a reduction to our investment balance in Sirius XM Canada to the extent a balance exists and then as Other income for any remaining portion.
We recorded the following revenue and other income associated with Sirius XM Canada in our unaudited consolidated statements of comprehensive income:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenue (a)(b)
$
23,273

 
$
28,129

 
$
47,370


$
40,345

Other income
 

 
 

 





Share of net earnings (b)
$
(896
)
 
$
(5,197
)
 
$
85


$
(2,183
)
Interest income (c)
$
2,557


$
803


$
5,204


$
803

(a)
Prior to the Transaction, under our former agreements with Sirius XM Canada, we received a percentage-based fee of 10% and 15% for certain types of subscription revenue earned by Sirius XM Canada for the use of the Sirius and XM platforms, respectively, and additional fees for premium services and fees for activation fees and reimbursements for other charges.  We record revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income.
(b)
Prior to the Transaction, we recognized our proportionate share of revenue and earnings or losses attributable to Sirius XM Canada on a one month lag. As a result of the Transaction, there is no longer a one -month lag and Sirius XM Canada changed its fiscal year-end to December 31 to align with us. For the three and six months ended June 30, 2018 , Share of net earnings included $611 and $1,234 , respectively, of amortization related to equity method intangible assets.
(c)
This interest income relates to the loan to Sirius XM Canada and is recorded as Other income in our unaudited consolidated statements of comprehensive income.

Pandora
On September 22, 2017, Sirius XM completed a $480,000 investment in Pandora. Pursuant to an Investment Agreement with Pandora, Sirius XM purchased 480 shares of Pandora’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $480,000 . As of June 30, 2018 , the Series A Preferred Stock, including accrued but unpaid dividends, represents a stake of approximately 18% of Pandora's common stock outstanding and approximately a 15% interest on an as-converted basis. Pandora operates an internet-based music discovery platform, offering a personalized experience for listeners.
The Series A Preferred Stock is convertible at the option of the holders at any time into shares of common stock of Pandora (“Pandora Common Stock”) at an initial conversion price of $10.50 per share of Pandora Common Stock and an initial conversion rate of 95.2381 shares of Pandora Common Stock per share of Series A Preferred Stock, subject to certain customary anti-dilution adjustments. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable quarterly in arrears, if and when declared. Pandora has the option to pay dividends in cash when authorized by their Board and declared by Pandora or accumulate dividends in lieu of paying cash. Any conversion of Series A Preferred Stock may be settled by Pandora, at its option, in shares of Pandora Common Stock, cash or any combination thereof. However, unless and until Pandora’s stockholders have approved the issuance of greater than 19.99% of the outstanding Pandora Common Stock, the Series A Preferred Stock may not be converted into more than 19.99% of Pandora’s outstanding Pandora Common Stock as of June 9, 2017. The liquidation preference of the Series A Preferred Stock, including accrued dividends of $25,684 , was $505,684 as of June 30, 2018 .
The investment includes a mandatory redemption feature on any date from and after September 22, 2022 whereby Sirius XM, at its option, may require Pandora to purchase the Series A Preferred Stock at a price equal to 100% of the liquidation

18

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

preference plus accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, and as such the investment qualifies as a debt security under ASC 320, Investments-Debt and Equity Securities . As the investment includes a conversion option, we have elected to account for this investment under the fair value option to reduce the accounting asymmetry that would otherwise arise when recognizing the changes in the fair value of available-for-sale investments. Under the fair value option, any gains (losses) associated with the change in fair value will be recognized in Other income within our unaudited consolidated statements of comprehensive income. An $86,074 and $117,449 unrealized gain associated with this investment was recognized during the three and six months ended June 30, 2018 , respectively, as Other income in our unaudited consolidated statements of comprehensive income. The fair value of our investment, including accrued dividends, as of June 30, 2018 and December 31, 2017 was $597,921 and $480,472 , respectively, and is recorded as a related party long-term asset within our unaudited consolidated balance sheets. This investment does not meet the requirements for the equity method of accounting as it does not qualify as in-substance common stock.
Sirius XM has appointed James E. Meyer, our Chief Executive Officer, David J. Frear, our Senior Executive Vice President and Chief Financial Officer, and Gregory B. Maffei, the Chairman of our Board of Directors, to Pandora's Board of Directors pursuant to our designation rights under the Investment Agreement. Mr. Maffei also serves as the Chairman of Pandora's Board of Directors.
Sirius XM's right to designate directors will fall away once Sirius XM and its affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock issued upon conversion thereof equal to (on an as-converted basis) at least 50% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement. Following the earlier to occur of (i) September 22, 2019 and (ii) the date on which Sirius XM and its affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock that were issued upon conversion thereof equal to (on an as-converted basis) at least 75% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement, Sirius XM has the right to designate only two directors.
We are subject to certain standstill restrictions, including, among other things, that we are restricted from acquiring additional securities of Pandora until December 9, 2018.
Except as to matters that may be voted upon separately by holders of the Series A Preferred Stock, Sirius XM is entitled to vote as a single class with the holders of Pandora Common Stock on an as-converted basis (up to a maximum of 19.99% of the Pandora Common Stock outstanding on June 9, 2017, unless stockholder approval has been received). Sirius XM is also entitled to a separate class vote with respect to certain amendments to Pandora’s organizational documents, issuances by Pandora of securities that are senior to, or equal in priority with, the Series A Preferred Stock and the incurrence of certain indebtedness by Pandora.
Upon certain change of control events involving Pandora, Pandora is required to repurchase all of the Series A Preferred Stock at a price equal to the greater of (1) an amount in cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends through June 9, 2022 (assuming such shares of Series A Preferred Stock remain outstanding through such date) and (2) the consideration the holders would have received if they had converted their shares of Series A Preferred Stock into Pandora Common Stock immediately prior to the change of control event (disregarding the 19.99% cap).
Beginning on September 22, 2020, if the volume weighted average price per share of Pandora Common Stock exceeds $18.375 , as may be adjusted, for at least 20 trading days in any period of 30 consecutive trading days, Pandora may redeem all of the outstanding Series A Preferred Stock at a price equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, provided that, unless stockholder approval has been received, Pandora may not settle the redemption for shares of Pandora Common Stock to the extent the 19.99% cap would be exceeded.
Pursuant to a registration rights agreement entered into with Pandora, Sirius XM has certain customary registration rights with respect to the Series A Preferred Stock and Pandora Common Stock issued upon conversion thereof.


19

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

(11)
Debt
Our debt as of June 30, 2018 and December 31, 2017 consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value (a)  at
Issuer / Borrower
 
Issued
 
Debt
 
Maturity Date
 
Interest Payable
 
Principal Amount at June 30, 2018
 
June 30, 2018
 
December 31, 2017
Sirius XM
(b)
 
July 2017
 
3.875% Senior Notes
 
August 1, 2022
 
semi-annually on February 1 and August 1
 
$
1,000,000

 
$
992,811

 
$
992,011

Sirius XM
(b)
 
May 2013
 
4.625% Senior Notes
 
May 15, 2023
 
semi-annually on May 15 and November 15
 
500,000

 
496,923

 
496,646

Sirius XM
(b)
 
May 2014
 
6.00% Senior Notes
 
July 15, 2024
 
semi-annually on January 15 and July 15
 
1,500,000

 
1,488,758

 
1,488,002

Sirius XM
(b)
 
March 2015
 
5.375% Senior Notes
 
April 15, 2025
 
semi-annually on April 15 and October 15
 
1,000,000

 
991,777

 
991,285

Sirius XM
(b)
 
May 2016
 
5.375% Senior Notes
 
July 15, 2026
 
semi-annually on January 15 and July 15
 
1,000,000

 
990,597

 
990,138

Sirius XM
(b)
 
July 2017
 
5.00% Senior Notes
 
August 1, 2027
 
semi-annually on February 1 and August 1
 
1,500,000

 
1,486,728

 
1,486,162

Sirius XM
(c)
 
December 2012
 
Senior Secured Revolving Credit Facility (the "Credit Facility")
 
June 29, 2023
 
variable fee paid quarterly
 
1,750,000

 

 
300,000

Sirius XM
 
Various
 
Capital leases
 
Various
 
 n/a
 
 n/a

 
8,324

 
10,597

Total Debt
 
6,455,918

 
6,754,841

Less: total current maturities
 
4,660

 
5,105

Less: total deferred financing costs for Notes
 
7,969

 
8,493

Total long-term debt
 
$
6,443,289

 
$
6,741,243

(a)
The carrying value of the obligations is net of any remaining unamortized original issue discount.
(b)
Substantially all of our domestic wholly-owned subsidiaries have guaranteed these notes.
(c)
In June 2018, Sirius XM entered into an amendment to extend the maturity of the Credit Facility to June 2023. Sirius XM's obligations under the Credit Facility are guaranteed by certain of its material domestic subsidiaries and are secured by a lien on substantially all of Sirius XM's assets and the assets of its material domestic subsidiaries.  Interest on borrowings is payable on a monthly basis and accrues at a rate based on LIBOR plus an applicable rate.  Sirius XM is also required to pay a variable fee on the average daily unused portion of the Credit Facility which is payable on a quarterly basis.  The variable rate for the unused portion of the Credit Facility was 0.25% per annum as of June 30, 2018 .  All of Sirius XM's outstanding borrowings under the Credit Facility are classified as Long-term debt within our unaudited consolidated balance sheets due to the long-term maturity of this debt.
Covenants and Restrictions
Under the Credit Facility, Sirius XM, our wholly-owned subsidiary, must comply with a debt maintenance covenant that it cannot exceed a total leverage ratio, calculated as consolidated total debt to consolidated operating cash flow, of 5.0 to 1.0.  The Credit Facility generally requires compliance with certain covenants that restrict Sirius XM's ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of Sirius XM's assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.
The indentures governing Sirius XM's notes restrict Sirius XM's non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiary guaranteeing each such series of notes on a pari passu basis.  The indentures governing the notes also contain covenants that, among other things, limit Sirius XM's ability and the ability of its subsidiaries to create certain liens; enter into sale/leaseback transactions; and merge or consolidate.
Under Sirius XM's debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness

20

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

after final maturity or acceleration of other indebtedness exceeding a specified amount; (v) certain events of bankruptcy; (vi) a judgment for payment of money exceeding a specified aggregate amount; and (vii) voidance of subsidiary guarantees, subject to grace periods where applicable.  If an event of default occurs and is continuing, our debt could become immediately due and payable.
At June 30, 2018 and December 31, 2017 , we were in compliance with our debt covenants.

(12)
Stockholders’ Equity
Common Stock, par value $0.001 per share
We are authorized to issue up to 9,000,000 shares of common stock. There were 4,485,774 and 4,530,928 shares of common stock issued and 4,485,774 and 4,527,742 shares outstanding on June 30, 2018 and December 31, 2017 , respectively.
As of June 30, 2018 , there were 281,863 shares of common stock reserved for issuance in connection with outstanding stock based awards to be granted to members of our board of directors, employees and third parties.
Quarterly Dividends
During the six months ended June 30, 2018 , our board of directors declared the following dividends:
Declaration Date
 
Dividend Per Share
 
Record Date
 
Total Amount
 
Payment Date
January 23, 2018
 
$
0.011

 
February 7, 2018
 
$
49,397

 
February 28, 2018
April 26, 2018
 
$
0.011

 
May 10, 2018
 
$
49,287

 
May 31, 2018
Stock Repurchase Program
As of June 30, 2018 , our board of directors had approved for repurchase an aggregate of $12,000,000 of our common stock.  Our board of directors did not establish an end date for this stock repurchase program.  Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, including transactions with Liberty Media and its affiliates, or otherwise.  As of June 30, 2018 , our cumulative repurchases since December 2012 under our stock repurchase program totaled 2,529,978 shares for $9,694,181 , and $2,305,819 remained available under our stock repurchase program.
The following table summarizes our total share repurchase activity for the six months ended:
 
 
June 30, 2018
 
June 30, 2017
Share Repurchase Type
 
Shares
 
Amount
 
Shares
 
Amount
Open Market
 
55,843

 
$
317,061

 
155,711

 
$
775,701

Preferred Stock, par value $0.001 per share
We are authorized to issue up to 50,000 shares of undesignated preferred stock with a liquidation preference of $0.001 per share.  There were no shares of preferred stock issued or outstanding as of June 30, 2018 and 2017 .

(13)
Benefit Plans  
We recognized share-based payment expense of $36,215 and $30,251 for the three months ended June 30, 2018 and $70,448 and $59,697 for the six months ended June 30, 2018 and 2017 , respectively.
2015 Long-Term Stock Incentive Plan
In May 2015, our stockholders approved the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”).  Employees, consultants and members of our board of directors are eligible to receive awards under the 2015 Plan.  The 2015 Plan provides for the grant of stock options, restricted stock awards, restricted stock units and other stock-based awards that the compensation committee of our board of directors deems appropriate.  Stock-based awards granted under the 2015 Plan

21

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

are generally subject to a graded vesting requirement, which is generally three to four years from the grant date.  Stock options generally expire ten years from the date of grant.  Restricted stock units include performance-based restricted stock units (“PRSUs”), the vesting of which are subject to the achievement of performance goals and the employee's continued employment and generally cliff vest on the third anniversary of the grant date. Each restricted stock unit entitles the holder to receive one share of common stock upon vesting.  As of June 30, 2018 , 171,619 shares of common stock were available for future grants under the 2015 Plan.
Other Plans
We maintain three other share-based benefit plans — the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan, the XM 2007 Stock Incentive Plan and the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan. Excluding dividend equivalent units granted as a result of a declared dividend, no further awards may be made under these plans.
The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Risk-free interest rate
2.6%
 
1.6%
 
2.5%
 
1.6%
Expected life of options — years
3.48
 
4.35
 
3.54
 
4.07
Expected stock price volatility
22%
 
26%
 
22%
 
26%
Expected dividend yield
0.6%
 
0.8%
 
0.7%
 
0.8%
There were no options granted to third parties during the three and six months ended June 30, 2018 and 2017 .
The following table summarizes stock option activity under our share-based plans for the six months ended June 30, 2018 :
 
Options
 
Weighted-
Average
Exercise
Price Per Share
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2017
280,457

 
$
3.76

 
 
 
 
Granted
10,617

 
$
6.44

 
 
 
 
Exercised
(41,644
)
 
$
3.18

 
 
 
 
Forfeited, cancelled or expired
(1,926
)
 
$
4.48

 
 
 
 
Outstanding as of June 30, 2018
247,504

 
$
3.96

 
6.40
 
$
695,499

Exercisable as of June 30, 2018
115,544

 
$
3.40

 
5.30
 
$
389,015

The weighted average grant date fair value per share of stock options granted during the six months ended June 30, 2018 was $1.19 .  The total intrinsic value of stock options exercised during the six months ended June 30, 2018 and 2017 was $139,812 and $47,572 , respectively.  During the six months ended June 30, 2018 the number of net settled shares which were issued as a result of stock option exercises was 12,054 .
We recognized share-based payment expense associated with stock options of $20,776 and $20,125 for the three months ended June 30, 2018 and 2017 , respectively, and $40,435 and $39,637 for the six months ended June 30, 2018 and 2017 , respectively.

22

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

The following table summarizes the restricted stock unit, including PRSU, activity under our share-based plans for the six months ended June 30, 2018 :
 
Shares
 
Grant Date
Fair Value
Per Share
Nonvested as of December 31, 2017
31,323

 
$
4.54

Granted
7,123

 
$
6.27

Vested
(3,518
)
 
$
3.92

Forfeited
(569
)
 
$
4.80

Nonvested as of June 30, 2018
34,359

 
$
4.93

The total intrinsic value of restricted stock units, including PRSUs, vesting during the six months ended June 30, 2018 and 2017 was $22,656 and $4,802 , respectively. During the six months ended June 30, 2018 , the number of net settled shares which were issued as a result of restricted stock units vesting totaled 1,821 . During the six months ended June 30, 2018 , we granted 3,768 PRSUs to certain employees. We believe it is probable that the performance target applicable to these PRSUs will be achieved.
In connection with the cash dividends paid during the six months ended June 30, 2018 , we granted 126 restricted stock units, including PRSUs, in accordance with the terms of existing award agreements. These grants did not result in any additional incremental share-based payment expense being recognized during the six months ended June 30, 2018 .
We recognized share-based payment expense associated with restricted stock units, including PRSUs, of $15,439 and $10,126 for the three months ended June 30, 2018 and 2017 , respectively, and $30,013 and $20,060 for the six months ended June 30, 2018 and 2017 , respectively.
Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units, including PRSUs, granted to employees, members of our board of directors and third parties at June 30, 2018 and December 31, 2017 was $251,588 and $241,521 , respectively.  The total unrecognized compensation costs at June 30, 2018 are expected to be recognized over a weighted-average period of 1.72 years.
401(k) Savings Plan
Sirius XM sponsors the Sirius XM Radio Inc. 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees. The Sirius XM Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions per pay period on the first 6% of an employee’s pre-tax salary up to a maximum of 3% of eligible compensation.  We may also make additional discretionary matching, true-up matching and non-elective contributions to the Sirius XM Plan.  Employer matching contributions under the Sirius XM Plan vest at a rate of 33.33% for each year of employment and are fully vested after three years of employment for all current and future contributions.  Our cash employer matching contributions are not used to purchase shares of our common stock on the open market, unless the employee elects our common stock as their investment option for this contribution.  We recognized $2,159 and $1,835 in expense during three months ended June 30, 2018 and 2017 , respectively, and $4,028 and $3,517 in expense during the six months ended June 30, 2018 and 2017 , respectively, in connection with the Sirius XM Plan.
Sirius XM Holdings Inc. Deferred Compensation Plan
In 2015, we adopted the Sirius XM Holdings Inc. Deferred Compensation Plan (the “DCP”).  The DCP allows members of our board of directors and certain eligible employees to defer all or a portion of their base salary, cash incentive compensation and/or board of directors’ cash compensation, as applicable.  Pursuant to the terms of the DCP, we may elect to make additional contributions beyond amounts deferred by participants, but we are under no obligation to do so.  We have established a grantor (or “rabbi”) trust to facilitate the payment of our obligations under the DCP.
Contributions to the DCP, net of withdrawals, for the three months ended June 30, 2018 and 2017 were $307 and $334 , respectively, and for the six months ended June 30, 2018 and 2017 were $7,138 and $7,355 , respectively. As of June 30, 2018 and December 31, 2017 , the fair value of the investments held in the trust were $22,375 and $14,641 , respectively, which is

23

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

included in Other long-term assets in our unaudited consolidated balance sheets and are classified as trading securities.  Trading gains and losses associated with these investments are recorded in Other income within our unaudited consolidated statements of comprehensive income.  The associated liability is recorded within Other long-term liabilities in our unaudited consolidated balance sheets, and any increase or decrease in the liability is recorded in General and administration expense within our unaudited consolidated statements of comprehensive income.  For the three and six months ended June 30, 2018 and 2017 , we recorded an immaterial amount of unrealized gains on investments held in the trust.

(14)
Commitments and Contingencies  
The following table summarizes our expected contractual cash commitments as of June 30, 2018 :
 
2018
 
2019
 
2020
 
2021
 
2022

Thereafter

Total
Debt obligations
$
2,455


$
3,935


$
1,207


$
727


$
1,000,000


$
5,500,000


$
6,508,324

Cash interest payments
168,407


338,887


338,844


338,817


338,811


919,243


2,443,009

Satellite and transmission
59,557


94,922


51,056


4,347


2,428


4,288


216,598

Programming and content
136,122


251,953


207,728


118,706


52,475


162,938


929,922

Sales and marketing
9,990


12,817


7,701


7,446


1,644


203


39,801

Satellite incentive payments
8,001


10,652


10,197


8,574


8,558


61,767


107,749

Operating lease obligations