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EX-32.2 - EXHIBIT 32.2 - SIRIUS XM HOLDINGS INC.exhibit322-20161231.htm
EX-32.1 - EXHIBIT 32.1 - SIRIUS XM HOLDINGS INC.exhibit321-20161231.htm
EX-31.2 - EXHIBIT 31.2 - SIRIUS XM HOLDINGS INC.exhibit312-20161231.htm
EX-31.1 - EXHIBIT 31.1 - SIRIUS XM HOLDINGS INC.exhibit311-20161231.htm
EX-23.1 - EXHIBIT 23.1 - SIRIUS XM HOLDINGS INC.exhibit231-20161231.htm
EX-21.1 - EXHIBIT 21.1 - SIRIUS XM HOLDINGS INC.exhibit211subsidiaries.htm
EX-10.37 - EXHIBIT 10.37 - SIRIUS XM HOLDINGS INC.exhibit1037.htm
EX-10.28 - EXHIBIT 10.28 - SIRIUS XM HOLDINGS INC.exhibit1028.htm
EX-10.27 - EXHIBIT 10.27 - SIRIUS XM HOLDINGS INC.exhibit1027.htm
EX-10.26 - EXHIBIT 10.26 - SIRIUS XM HOLDINGS INC.exhibit1026formofnon-quali.htm
EX-10.25 - EXHIBIT 10.25 - SIRIUS XM HOLDINGS INC.exhibit1025formofperforman.htm
EX-10.24 - EXHIBIT 10.24 - SIRIUS XM HOLDINGS INC.exhibit1024formofrestricte.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________________________________________________________________________
FORM 10-K
___________________________________________________________________________________________________________________
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
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 Number)
 
 
 
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
___________________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
 
Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share
 
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
___________________________________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ        No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  o        No  þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
 
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o        No  þ
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2016 was $6,800,292,544.  All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
The number of shares of the registrant’s common stock outstanding as of January 31, 2017 was 4,715,160,369.
DOCUMENTS INCORPORATED BY REFERENCE
Information included in our definitive proxy statement for our 2017 annual meeting of stockholders scheduled to be held on Thursday, May 18, 2017 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.
 



SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
2016 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item No.
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I
ITEM 1.
BUSINESS
This Annual Report on Form 10-K presents information for Sirius XM Holdings Inc. (“Holdings”).  The terms “we,” “us,” “our,” and “our company” as used herein and unless otherwise stated or indicated by context, refer to Sirius XM Radio Inc. (“Sirius XM”) and its subsidiaries.
Sirius XM Holdings Inc.
Sirius XM is a wholly-owned subsidiary of Holdings.  Holdings was incorporated in the State of Delaware on May 21, 2013.  Holdings has no operations independent of its subsidiary Sirius XM.
Relationship with Liberty Media
As of December 31, 2016, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately 67% of the outstanding shares of Holdings’ common stock.  Liberty Media owns interests in a range of media, communications and entertainment businesses.
Sirius XM Radio Inc.
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 and MySXM, over our Internet radio service, including through applications for mobile devices, home devices and other consumer electronic equipment.  We are also a leader in providing 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.
As of December 31, 2016, we had approximately 31.3 million subscribers.  Our subscribers include:
subscribers under our regular and discounted pricing plans;
subscribers that have prepaid, including payments made or due from automakers for subscriptions included in the sale or lease price of a vehicle;
subscribers to our Internet services who do not also have satellite radio subscriptions; and
certain subscribers to our weather, traffic and data services who do not also have satellite radio subscriptions.
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.
Our satellite radios are primarily distributed through automakers; retail stores nationwide; and through our website.  We have agreements with every major automaker to offer satellite radios in their vehicles.  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. Satellite radio services are also offered to customers of certain rental car companies.
Programming
We offer a dynamic programming lineup of commercial-free music plus sports, entertainment, comedy, talk, and news, including:
an extensive selection of music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin and classical;
live play-by-play sports from major leagues and colleges;
a multitude of talk and entertainment channels for a variety of audiences;
a wide range of national, international and financial news; and

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exclusive limited run channels.
Our diverse spectrum of programming, including our lineup of exclusive material, is a significant differentiator from terrestrial radio and other audio entertainment providers.  We make changes to our programming lineup from time to time as we strive to attract new subscribers and offer content which appeals to a broad range of audiences and to our existing subscribers.  The channel line-ups for our services are available at siriusxm.com.
Internet Radio Service
We stream select music and non-music channels over the Internet.  Our Internet radio service also includes certain channels and features that are not available on our satellite radio service.  Access to our Internet radio service is offered to subscribers for a fee.  We also offer applications to allow consumers to access our Internet radio service on smartphones, tablets, computers, home devices and other consumer electronic equipment.
SiriusXM Internet Radio offers listeners enhanced programming discovery and the ability to connect with content currently playing across our commercial-free music, sports, comedy, news, talk and entertainment channels or available through SiriusXM On Demand.
SiriusXM On Demand offers our Internet radio subscribers listening on our online media player and on smartphones the ability to choose their favorite episodes from a catalog of content whenever they want.  MySXM permits subscribers to personalize our existing commercial-free music and comedy channels to create a more tailored listening experience.  Channel-specific sliders allow users to create over 100 variations of each of more than 50 channels by adjusting characteristics like library depth, familiarity, music style, tempo, region, and multiple other channel-specific attributes.  SiriusXM On Demand and MySXM are offered to our Internet radio subscribers at no extra charge.
360L
We are developing a product, which we call “360L” (formerly called SXM17), that combines our satellite and Internet services into a single, cohesive in-vehicle entertainment experience. 360L is expected to allow us to take advantage of advanced in-dash infotainment systems.  360L is intended to leverage the ubiquitous signal coverage of our satellite infrastructure and low delivery costs with the two-way communication capability of wireless Internet service to provide consumers seamless access to our content, including our live channels, SiriusXM On Demand programming and more personalized music services.  The wireless Internet connection included in 360L will enable enhanced search and recommendations functions, making discovery of our content in the vehicle easier than ever.  360L will also allow consumers to manage aspects of their subscriptions directly through their vehicles’ equipment.
Distribution of Radios
Automakers
We distribute satellite radios through the sale and lease of new vehicles.  We have agreements with every major automaker to offer satellite radios in their vehicles.  Satellite radios are available as a factory or dealer-installed option in substantially all vehicle makes sold in the United States.
Most automakers include a subscription to our radio service in the sale or lease of their new vehicles.  In certain cases, we receive subscription payments from automakers in advance of the activation of our service.  We share with certain automakers a portion of the revenues we derive from subscribers using vehicles equipped to receive our service.  We also reimburse various automakers for certain costs associated with the satellite radios installed in new vehicles, including in certain cases hardware costs, engineering expenses and promotional and advertising expenses.
Previously Owned Vehicles
We acquire subscribers through the sale and lease of previously owned vehicles with factory-installed satellite radios.  We have entered into agreements with many automakers to market subscriptions to purchasers and lessees of vehicles which include satellite radios sold through their certified pre-owned programs.  We also work directly with franchise and independent dealers on programs for non-certified vehicles.
We have developed systems and methods to identify purchasers and lessees of previously owned vehicles which include satellite radios and have established marketing plans to promote our services to these potential subscribers.

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Retail
We sell satellite radios directly to consumers through our website.  Satellite radios are also marketed and distributed through national and regional retailers.
Our Satellite Radio Systems
Our satellite radio systems are designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions.  We continually monitor our infrastructure and regularly evaluate improvements in technology.
Our satellite radio systems have three principal components:
satellites, terrestrial repeaters and other satellite facilities;
studios; and
radios.
Satellites, Terrestrial Repeaters and Other Satellite Facilities
Satellites.  We provide our service through a fleet of five orbiting satellites, two in the Sirius system, FM-5 and FM-6, and three in the XM system, XM-3, XM-4 and XM-5.  Our XM-5 satellite serves as a spare for both the XM and Sirius systems.
Our satellite constellation operates in geostationary orbits. During 2016, we transitioned the Sirius network to a geostationary orbit system using our FM-5 and FM-6 satellites. As part of this service transition, in 2016, our FM-1, FM-2 and FM-3 satellites, which had operated in highly inclined elliptical orbits, were moved into disposal orbits. In 2016, we also entered into an agreement for the design and construction of two new satellites, SXM-7 and SXM-8, which we plan to launch into geostationary orbits in 2019 and 2020, respectively, as replacements for XM-3 and XM-4.
Satellite Insurance.  We do not have in-orbit insurance policies covering our satellites, as we consider the premium costs to be uneconomical relative to the risk of satellite failure.
Terrestrial Repeaters.  In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception of satellite signals can be adversely affected.  In other areas with a high density of next generation wireless systems our service may experience interference. In many of these areas, we have deployed terrestrial repeaters to supplement and enhance our signal coverage.  We operate over 1,000 terrestrial repeaters across the United States as part of our systems.
Other Satellite Facilities.  We control and communicate with our satellites from facilities in North America. During 2016, we maintained earth stations in Panama and Ecuador to control and communicate with three of our Sirius satellites, FM-1, FM-2 and FM-3. We plan to end operations in Panama and Ecuador in 2017. Our satellites are monitored, tracked and controlled by a third party satellite operator.
Studios
Our programming originates from studios in New York City and Washington D.C. and, to a lesser extent, from smaller studios in Los Angeles, Nashville and a variety of smaller venues across the country.  Our corporate headquarters is based in New York City.  Both our New York City and Washington D.C. offices house facilities for programming origination, programming personnel and facilities to transmit programming.
Radios
We do not manufacture radios.  We have authorized manufacturers and distributors to produce and distribute radios, and have licensed our technology to various electronics manufacturers to develop, manufacture and distribute radios under certain brands.  We do manage various aspects of the production of satellite radios.  To facilitate the sale of radios, we may subsidize a portion of the radio manufacturing costs to reduce the hardware price to consumers.

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Connected Vehicle Services
We are a leader in providing 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 offer a portfolio of location-based services through two-way wireless connectivity, including safety, security, convenience, maintenance and data services, remote vehicles diagnostics, and stolen or parked vehicle locator services.  Our connected vehicle business provides services to several automakers, including Acura, Audi, Fiat Chrysler, Honda, Hyundai, Jaguar Land Rover, Nissan, Subaru and Toyota.
Subscribers to our connected vehicle services are not included in our subscriber count or subscriber-based operating metrics.
Canada
We own approximately 37% of the equity of Sirius XM Canada Holdings Inc. (“Sirius XM Canada”), the satellite radio provider in Canada.  Subscribers to the services offered by Sirius XM Canada are not included in our subscriber count or subscriber-based operating metrics.
On May 12, 2016, our subsidiary, Sirius XM, entered into an arrangement agreement (the “Arrangement Agreement”) with Sirius XM Canada. Pursuant to the Arrangement Agreement, Sirius XM and certain Canadian shareholders will form a new company to acquire shares of Sirius XM Canada not already owned by them pursuant to a plan of arrangement (the “Transaction”). In connection with the Transaction, Sirius XM Canada’s shareholders will be entitled to elect to receive, for each share of Sirius XM Canada held, C$4.50 (U.S. $3.50 as of May 12, 2016) in (i) cash, (ii) shares of our common stock, (iii) a security exchangeable for shares of our common stock, or (iv) a combination thereof; provided that no more than 50% of the total consideration in the Transaction (or up to 35 million shares) will be issued in our common stock and exchangeable shares. All of the obligations of Sirius XM under the Arrangement Agreement are guaranteed by Holdings.
Following the Transaction, Sirius XM is expected to hold a 70% economic interest and 33% voting interest in Sirius XM Canada, with the remainder of the voting power and economic interest held by Slaight Communications and Obelysk Media, two of Sirius XM Canada’s current Canadian shareholders. Sirius XM expects to contribute to Sirius XM Canada approximately U.S. $275 million in connection with the Transaction (assuming that all shareholders elect to receive cash in connection with the Transaction), which amount is expected to be used to pay the cash consideration to Sirius XM Canada’s shareholders and will be decreased proportionately if shareholders elect to receive consideration in shares of our common stock or securities exchangeable for our common stock.
The Transaction has been approved by the stockholders of Sirius XM Canada and has received the required court approval. The Transaction remains subject to receipt of Canadian Radio-Television and Telecommunications Commission approval. Pending receipt of this approval, the Transaction is expected to close early in the the second quarter of 2017.
Other Services
Commercial Accounts.  Our programming is available for commercial establishments.  Commercial subscription accounts are available through providers of in-store entertainment solutions and directly from us. Certain commercial subscribers are included in our subscriber count.
Satellite Television Service.  Certain of our music channels are offered as part of certain programming packages on the DISH Network satellite television service.  Subscribers to the DISH Network satellite television service are not included in our subscriber count.
Subscribers to the following services are not included in our subscriber count, unless the applicable service is purchased by the subscriber separately and not as part of a radio subscription to our services:
Travel Link.  We offer Travel Link, a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings.
Real-Time Traffic Services.  We offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems.

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Real-Time Weather Services.  We offer several real-time weather services designed for improving situational awareness in vehicle, marine and/or aviation use.
Competition
Satellite Radio
We face significant competition for both listeners and advertisers in our satellite radio business, including from providers of radio or other audio services.  Our digital competitors are making in-roads into vehicles, where we are currently the leading alternative to traditional AM/FM radio.
Traditional AM/FM Radio.  Our services compete with traditional AM/FM radio.  Several traditional radio companies are substantial entities owning large numbers of radio stations or other media properties.  The radio broadcasting industry is highly competitive.  Traditional AM/FM broadcasters are also aggressively pursuing Internet radio, wireless Internet-based distribution arrangements and data services.
Traditional AM/FM radio has a well-established demand for its services and offers free broadcasts paid for by commercial advertising rather than by subscription fees.  Many radio stations offer information programming of a local nature, such as local news and sports.  The availability of traditional free AM/FM radio reduces the likelihood that customers would be willing to pay for our subscription services and, by offering free broadcasts, it may impose limits on what we can charge for our services.
Internet-Based Competitors.  Internet radio services often have no geographic limitations and provide listeners with radio programming from across the country and around the world.  Major online providers, including Amazon, Apple, Google Play, Pandora, Spotify and iHeartRadio, make high fidelity digital streams available through the Internet for free or, in some cases, for less than the cost of a satellite radio subscription.  Certain of these services include advanced functionality, such as personalization, and allow the user to access large libraries of content.  These services compete directly with our services, at home, in vehicles, and wherever audio entertainment is consumed.
Advanced In-Dash Infotainment Systems.  Nearly all automakers have deployed or are planning to deploy integrated multimedia systems in dashboards, including in many cases Apple CarPlay and Android Auto and products from Apple and Google.  These systems combine control of audio entertainment from a variety of sources, including AM/FM/HD radio broadcasts, satellite radio, Internet radio, smartphone applications and stored audio, with navigation and other advanced applications such as restaurant bookings, movie show times and financial information.  Internet radio and other data are typically connected to the system through an Internet-enabled smartphone or wireless modem installed in the vehicle, and the entire system may be controlled by touchscreen or voice recognition.  These systems enhance the attractiveness of Internet-based competitors by making such applications more prominent, easier to access, and safer to use in the car.
Direct Broadcast Satellite and Cable Audio.  A number of providers offer specialized audio services through either direct broadcast satellite or cable audio systems.  These services are targeted to fixed locations, mostly in-home.  The radio service offered by direct broadcast satellite and cable audio is often included as part of a package of digital services with video service, and video customers generally do not pay an additional monthly charge for the audio service.
Other Digital Media Services.  The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms that compete with our services now or that could compete with those services in the future.
Traffic Services
A number of providers compete with our traffic services.  In-dash navigation is threatened by smartphones that provide data services through a direct vehicle interface.  Most of these smartphones offer GPS mapping with sophisticated data-based turn-by-turn navigation.
Connected Vehicle Services
Our connected vehicle services business operates in a highly competitive environment and competes with several providers, including Verizon Telematics.  OnStar, a division of General Motors, also offers connected vehicle services in GM vehicles.  We also compete with wireless devices such as mobile phones and, to a lesser extent, with systems developed internally by automakers.  We compete against other connected vehicle service providers for automaker arrangements on the

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basis of innovation, service quality and reliability, technical capabilities and systems customization, scope of service, industry experience, past performance and price.
Government Regulation
As operators of a privately-owned satellite system, we are regulated by the FCC under the Communications Act of 1934, principally with respect to:
the licensing of our satellite systems;
preventing interference with or to other users of radio frequencies; and
compliance with FCC rules established specifically for U.S. satellites and satellite radio services.
Any assignment or transfer of control of our FCC licenses must be approved by the FCC.  The FCC's order approving the merger of our wholly-owned subsidiary, Vernon Merger Corporation, with and into XM Satellite Radio Holdings Inc. in July 2008 (the “Merger”) requires us to comply with certain voluntary commitments we made as part of the FCC Merger proceeding.  We believe we comply with those commitments.
In 1997, we were the winning bidders for FCC licenses to operate a satellite digital audio radio service and provide other ancillary services.  Our FCC licenses for our Sirius satellites expire in 2022 and 2025.  Our FCC licenses for our XM satellites expire in 2018, 2021 and 2022.  We anticipate that, absent significant misconduct on our part, the FCC will renew our licenses to permit operation of our satellites for their useful lives, and grant licenses for any replacement satellites.
In some areas, we have installed terrestrial repeaters to supplement our satellite signal coverage.  The FCC has established rules governing terrestrial repeaters and has granted us a license through 2027 to operate our repeater network.
In certain cases, we obtain FCC certifications for satellite radios, including satellite radios that include FM modulators.  We believe our radios that are in production comply with all applicable FCC rules.
We are required to obtain export licenses or other approvals from the United States government to export certain equipment, services and technical data related to our satellites and their operations.  The transfer of such equipment, services and technical data outside the United States or to foreign persons is subject to strict export control and prior approval requirements from the United States government (including prohibitions on the sharing of certain satellite-related goods and services with China).
Changes in law or regulations relating to communications policy or to matters affecting our services could adversely affect our ability to retain our FCC licenses or the manner in which we operate.
Copyrights to Programming
In connection with our satellite radio music programming, we must negotiate and enter into royalty arrangements with two sets of rights holders:  Holders of copyrights in musical works (that is, the music and lyrics) and holders of copyrights in sound recordings (that is, the actual recording of a work).
Musical works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”) and SESAC, Inc. (“SESAC”).  The market for rights relating to musical works is changing rapidly. Songwriters and music publishers have withdrawn from the traditional performing rights organizations, particularly ASCAP and BMI, and new entities, such as Global Music Rights LLC (“GMR”), have been formed to represent rights holders. These organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders.  We have arrangements with all of these organizations.  The changing market for musical works may have an adverse effect on us, including increasing our costs or limiting the musical works available to us.
Sound recording rights holders, typically large record companies, are primarily represented by SoundExchange, an organization which negotiates licenses, and collects and distributes royalties on behalf of record companies and performing artists.  Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we may negotiate royalty arrangements with the owners of sound recordings fixed after February 15, 1972, or if negotiation is unsuccessful, the royalty rate is established by the Copyright Royalty Board (the “CRB”) of the Library of Congress.

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The CRB has issued its determination regarding the royalty rate payable by us under the statutory license covering the performance of sound recordings fixed after February 15, 1972 over our satellite digital audio radio service, and the making of ephemeral (server) copies in support of such performances, for the five-year period ending on December 31, 2017.  Under the terms of the CRB's existing decision, we will pay a royalty based on gross revenues, subject to certain exclusions, of 11% for 2017.  The rate for 2016 was 10.5%. A proceeding is underway before the CRB to determine the royalty rate payable by us under the statutory license covering the performance of sound recordings fixed after February 15, 1972 over our satellite digital audio radio service, and the making of ephemeral (server) copies in support of such performances, for the five-year period ending on December 31, 2022.
The revenue currently subject to royalty includes subscription revenue from our U.S. satellite digital audio radio subscribers and advertising revenue from channels, other than those channels that make only incidental performances of sound recordings.  Exclusions from revenue subject to the statutory license fee include, among other things, revenue from channels, programming and products or other services offered for a separate charge where such channels make only incidental performances of sound recordings; revenue from equipment sales; revenue from current and future data services (including video and connected vehicle services) offered for a separate charge; intellectual property royalties received by us; credit card, invoice and fulfillment service fees; and bad debt expense.  The regulations also allow us to further reduce our monthly royalty fee in proportion to the percentage of our performances that feature pre-1972 recordings (which are not subject to federal copyright protection) as well as those that are licensed directly from the copyright holder, rather than through the statutory license.
To secure the rights to stream music content over the Internet, including to mobile devices, we also must obtain licenses from, and pay royalties to, copyright owners of musical compositions and sound recordings.  We have arrangements with ASCAP, SESAC, BMI and GMR to license the musical compositions we stream over the Internet.  The licensing of certain sound recordings fixed after February 15, 1972 for use on the Internet is also subject to the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 on terms established by the CRB.  In 2016, we paid a per performance rate for the streaming of certain sound recordings on the Internet of $0.0022.  In accordance with the CRB's 2016 decision, this royalty rate is expected to increase during the period 2018 through 2020 based on the consumer price index.
Our rights to perform certain copyrighted sound recordings (that is, the actual recording of a work) that were fixed after February 15, 1972 are governed by United States federal law, the Copyright Act.  In contrast, our rights to perform certain sound recordings that were fixed before February 15, 1972 are governed by state law.
Trademarks
We have registered, and intend to maintain, the trademarks “Sirius”, “XM”, “SiriusXM” and “SXM” with the United States Patent and Trademark Office in connection with the services we offer. We are not aware of any material claims of infringement or other challenges to our right to use the “Sirius”, “XM”, “SiriusXM” or “SXM” trademarks in the United States.  We also have registered, and intend to maintain, trademarks for the names of certain of our channels.  We have also registered the trademarks “Sirius”, “XM” and “SiriusXM” in Canada. We have granted a license to use certain of our trademarks in Canada to Sirius XM Canada.
Personnel
As of December 31, 2016, we had 2,402 full-time employees.  In addition, we rely upon a number of part-time employees, consultants, other advisors and outsourced relationships. None of our employees are represented by a labor union, and we believe that our employee relations are good.
Corporate Information and Available Information
Our executive offices are located at 1290 Avenue of the Americas, 11th floor, New York, New York 10104 and our telephone number is (212) 584-5100.  Our internet address is www.siriusxm.com. Our annual, quarterly and current reports, and any amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may be accessed free of charge through our website after we have electronically filed or furnished such material with the SEC.  Siriusxm.com (including any other reference to such address in this Annual Report) is an inactive textual reference only, meaning that the information contained on or accessible from the website is not part of this Annual Report on Form 10-K and is not incorporated in this report by reference.

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Executive Officers of the Registrant
Certain information regarding our executive officers as of January 31, 2017 is provided below:
Name
Age
Position
James E. Meyer
62
Chief Executive Officer
Scott A. Greenstein
57
President and Chief Content Officer
David J. Frear
60
Senior Executive Vice President and Chief Financial Officer
Dara F. Altman
58
Executive Vice President and Chief Administrative Officer
James A. Cady
56
Executive Vice President, Operations, Products and Connected Vehicle
Stephen Cook
61
Executive Vice President, Sales and Automotive
Patrick L. Donnelly
55
Executive Vice President, General Counsel and Secretary
Katherine Kohler Thomson
50
Executive Vice President, Chief Marketing Officer
Joseph A. Verbrugge
47
Executive Vice President, Sales and Development
James E. Meyer has served as our Chief Executive Officer since December 2012.  From May 2004 to December 2012, Mr. Meyer was our President, Operations and Sales.  Prior to May 2004, Mr. Meyer was President of Aegis Ventures Incorporated, a consulting firm that provides general management services.  From December 2001 until 2002, Mr. Meyer served as special advisor to the Chairman of Thomson S.A., a leading consumer electronics company. From January 1997 until December 2001, Mr. Meyer served as the Senior Executive Vice President for Thomson as well as a member of the executive committee.  From 1992 until 1996, Mr. Meyer served as Thomson's Senior Vice President of Product Management.  Mr. Meyer is Chairman of the Board of Directors and a director of Tivo Corporation.
Scott A. Greenstein has served as our President and Chief Content Officer since May 2004.  Prior to May 2004, Mr. Greenstein was Chief Executive Officer of The Greenstein Group, a media and entertainment consulting firm.  From 1999 until 2002, he was Chairman of USA Films, a motion picture production, marketing and distribution company.  From 1997 until 1999, Mr. Greenstein was Co-President of October Films, a motion picture production, marketing and distribution company.  Prior to joining October Films, Mr. Greenstein was Senior Vice President of Motion Pictures, Music, New Media and Publishing at Miramax Films, and held senior positions at Viacom Inc.
David J. Frear has served as our Senior Executive Vice President and Chief Financial Officer since June 2015. From June 2003 to June 2015, he served as our Executive Vice President and Chief Financial Officer.  From 1999 to 2003, Mr. Frear was Executive Vice President and Chief Financial Officer of Savvis Communications Corporation, a global managed service provider, delivering internet protocol applications for business customers. Mr. Frear also served as a director of Savvis.  From 1993 to 1998, Mr. Frear was Senior Vice President and Chief Financial Officer of Orion Network Systems Inc., an international satellite communications company that was acquired by Loral Space & Communications Ltd. in 1998.  From 1990 to 1993, Mr. Frear was Chief Financial Officer of Millicom Incorporated, a cellular, paging and cable television company.  Prior to joining Millicom, he was an investment banker at Bear, Stearns & Co., Inc. and Credit Suisse. Mr. Frear is a member of the board of directors of The NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ BX, Inc., subsidiaries of Nasdaq, Inc., a leading provider of trading, clearing, exchange technology, listing, information and public company services.
Dara F. Altman has served as our Executive Vice President and Chief Administrative Officer since September 2008.  From January 2006 until September 2008, Ms. Altman served as Executive Vice President, Business and Legal Affairs, of XM.  Ms. Altman was Executive Vice President of Business Affairs for Discovery Communications from 1997 to 2005.  From 1993 to 1997, Ms. Altman served as Senior Vice President and General Counsel of Reiss Media Enterprises, which owned Request TV, a national pay-per-view service. Before Request TV, Ms. Altman served as counsel for Home Box Office.  Ms. Altman started her career as an attorney at the law firm of Willkie Farr & Gallagher LLP.
James A. Cady has served as our Executive Vice President, Operations, Products and Connected Vehicle, since July 2015 and, prior to July 2015, served as Senior Vice President and General Manager of our Connected Services Platform since February 2014. Mr. Cady served as the Chief Executive Officer and President of Slacker, Inc., an internet music service provider, from August 2009 until February 2014. He was the President and Chief Operating Officer of Slacker, Inc. from May 2006 until August 2009. From September 2004 until May 2006, he served as the Chief Executive Officer and President of LightPointe Communications, Inc., a manufacturer of wireless data transmission equipment. Prior to that time, Mr. Cady served in a variety of roles at an assortment of technology companies, including WatchGuard Technologies Inc., a manufacturer of computer security solutions; Rio, a division of SONICblue, Incorporated; Diamond Multimedia Systems, a manufacturer of

9


various multimedia components; Supra Corp., a producer of hardware for computers; Moore Company, a wholesale distributor of consumer electronics; and Atari Corp., a manufacturer of computer and video games.
Stephen Cook has served as our Executive Vice President, Sales and Automotive, since January 2013.  Mr. Cook served as our Group Vice President and General Manager, Automotive Division, from July 2008 until January 2013.  Mr. Cook served as Executive Vice President, Automotive, of XM from July 2006 to July 2008.  He also served as XM's Executive Vice President, Sales and Marketing, from January 2002 until July 2006, and as XM's Senior Vice President, Sales and Marketing, from February 1999 until January 2002.  Prior to joining XM, Mr. Cook was Chief Operating Officer for Conxus Communications.  From 1990 to 1997, Mr. Cook held management positions with GTE's cellular operations.  Prior to that time, Mr. Cook worked in brand management for Procter & Gamble.
Patrick L. Donnelly has served as our Executive Vice President, General Counsel and Secretary, since May 1998.  From June 1997 to May 1998, he was Vice President and Deputy General Counsel of ITT Corporation, a hotel, gaming and entertainment company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in February 1998.  From October 1995 to June 1997, he was assistant general counsel of ITT Corporation. Prior to October 1995, Mr. Donnelly was an attorney at the law firm of Simpson Thacher & Bartlett LLP.
Katherine Kohler Thomson has served as our Executive Vice President, Chief Marketing Officer, since December 2013.  Ms. Thomson was the President and Chief Operating Officer of the Los Angeles Times Media Group from May 2011 until November 2013.  She was also the Chief Operating Officer of Tribune Publishing Company, Inc. from April 2013 until November 2013.  Ms. Thomson served as Vice President, Business Operations of FLO TV, a division of Qualcomm Incorporated that delivered live television to mobile devices, from September 2009 until May 2011.  From September 2008 through September 2009, she was Executive Vice President and Chief of Staff at the Los Angeles Times Media Group.  She joined the Los Angeles Times Media Group from Energy Innovations, an affordable solar energy provider, where she was Chief Operating Officer from August 2007 until September 2008.  Prior to that time, she spent fourteen years in a variety of positions at DIRECTV, culminating in the role of Senior Vice President, Sales and Marketing Operations.
Joseph A. Verbrugge has served as our Executive Vice President, Sales and Development, since December 2015.  Mr. Verbrugge previously served as our Senior Vice President and General Manager, Automotive Remarketing and Retail Sales, from April 2012 until December 2015; as our Senior Vice President, Automotive Remarketing, from February 2010 until April 2012; and as our Senior Vice President, Automotive Partnerships, from September 2008 until February 2010.  From January 2007 through September 2008, he was Senior Vice President, Automotive Accounts/Partnerships and International Operations, of XM; from May 2006 until January 2007, Mr. Verbrugge served as Senior Vice President, Administration and International Operations of XM; from January 2005 until May 2006, he was Vice President, International Operations, of XM; and from September 2004 until January 2005 he served as Vice President, Special Projects, of XM.  Prior to joining XM, Mr. Verbrugge was a consultant with The Dealy Strategy Group LLC, a management consulting firm specializing in international satellite communications and information services companies, from 1999 until 2004.  From 1992 until 1995, Mr. Verbrugge was a bond representative with Aetna Life and Casualty Company, an insurance company.
ITEM 1A.
RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K, including the information under the caption Item 1. Business “Competition,” the following risk factors should be considered carefully in evaluating us and our business.  This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report on Form 10-K.  See “Special Note About Forward-Looking Statements” following this Item 1A. Risk Factors.
We face substantial competition and that competition is likely to increase over time.
We face substantial competition from other providers of radio and audio services.  Our ability to attract and retain subscribers depends on our success in creating and providing popular or unique music, entertainment, news and sports programming.  Our subscribers can obtain certain similar content for free through terrestrial radio stations, Internet radio services and Internet streaming services.  Audio content delivered via the Internet, including through mobile devices that are easily integrated in vehicles, is increasingly competitive with our services.  A summary of various services that compete with us is contained in the section entitled “Item 1. Business - Competition” of this Annual Report on Form 10-K.
Competition could result in lower subscription, advertising or other revenue and an increase in our marketing, promotion or other expenses and, consequently, lower our earnings and free cash flow.  We cannot assure you we will be able to compete

10


successfully with our existing or future competitors or that competition will not have a material adverse impact on our operations and financial condition.
Our ability to attract and retain subscribers in the future is uncertain.
Our ability to retain our subscribers, or increase the number of subscribers to our service, is uncertain and subject to many factors, including:
the production and sale or lease of new vehicles in the United States;
the price of our service;
the health of the economy;
the rate at which existing self-pay subscribers buy and sell new and used vehicles in the United States;
our ability to convince owners and lessees of new and previously owned vehicles that include satellite radios to purchase subscriptions to our service;
the effectiveness of our marketing programs;
the entertainment value of our programming;
our ability to respond to evolving consumer tastes; and
actions by our competitors, such as terrestrial radio and other audio entertainment and information providers.
As part of our business, we experience, and expect to experience in the future, subscriber turnover (i.e., churn).  Some elements of our business strategy may result in churn increasing.  For example, our work to acquire subscribers purchasing or leasing pre-owned vehicles may attract subscribers of more limited economic means; our product and marketing efforts may attract more price sensitive subscribers; and our efforts to increase the penetration of satellite radios in new, lower priced vehicle lines may result in the growth of more economy-minded subscribers.
If we are unable to retain current subscribers at expected rates, or the costs of retaining subscribers are higher than expected, our financial performance and operating results could be adversely affected.  We cannot predict how successful we will be at retaining customers who purchase or lease vehicles that include a subscription to our satellite radio service.  A substantial portion of our subscribers are on discounted pricing plans and our ability to retain these subscribers or migrate them to higher priced plans is uncertain. We spend substantial amounts on advertising and marketing and in transactions with automakers, retailers and others to obtain and attract subscribers.
Our profitability could be adversely affected if we are unable to consistently attract new subscribers and retain our current subscribers at prices and margins consistent with our past performance.
Our service may experience harmful interference from new wireless operations.
The development of new applications and services in spectrum adjacent to the frequencies licensed to us for satellite radio and ancillary services, as well as the combination of signals in other frequencies, may cause harmful interference to our satellite radio service in certain areas of the United States.  Certain operations or combination of operations permitted by the FCC in spectrum, other than our licensed frequencies, results in the loss of signal to our service, and the reception of our satellite radio service can be adversely affected in certain areas.  Elimination of this interference may not be possible in all cases. In other cases, our efforts to reduce this interference may require extensive engineering efforts and additions to our terrestrial infrastructure. These mitigation efforts may be costly and take several years to implement and may not be entirely effective. In certain cases, we are dependent on the FCC to assist us in preventing harmful interference to our service.
Consumer protection laws and their enforcement could damage our business.
We engage in extensive marketing efforts to attract and retain subscribers to our services. We employ a wide variety of communications tools as part of our marketing campaigns, including telemarketing efforts and email solicitations.  Consumer protection laws cover nearly all aspects of our marketing efforts, including the content of our advertising, the terms of consumer offers and the manner in which we communicate with subscribers and prospective subscribers.  The nature of our business requires us to expend significant resources to try to ensure that our marketing activities comply with federal and state laws, rules and regulations relating to consumer protection, including laws relating to telemarketing activities and privacy.  There can

11


be no assurance that these efforts will be successful or that we will not have to expend even greater resources towards compliance efforts.
Modifications to federal and state laws, rules and regulations concerning consumer protection, including decisions by federal and state courts and agencies interpreting these laws, could have an adverse impact on our ability to attract and retain subscribers to our services.  There can be no assurance that new laws or regulations will not be enacted or adopted, preexisting laws or regulations will not be more strictly enforced or that our varied operations will comply with all applicable laws, which could have a material adverse impact on our operations and financial condition.
The unfavorable outcome of pending or future litigation could have a material adverse impact on our operations and financial condition.
We are parties to several legal proceedings arising out of various aspects of our business, including class actions arising out of our marketing practices and subscription plans. The outcome of these proceedings may not be favorable, and one or more unfavorable outcomes could have a material adverse impact on our financial condition.  See “Item 3. Legal Proceedings” below.
The market for music rights is changing and is subject to significant uncertainties.
We must maintain music programming royalty arrangements with, and pay license fees to, owners of rights in musical works.  Traditionally, BMI, ASCAP and SESAC have negotiated for these copyright users, collected royalties and distributed them to songwriters and music publishers.  These traditional arrangements are changing rapidly.  Owners of rights in musical works have withdrawn from BMI, ASCAP and SESAC and new entities, such as GMR, have been formed to represent owners of musical works. In addition, Committees of Congress have held hearings on substantial revisions of the Copyright Act.  The fracturing of the traditional system for licensing rights in musical works may have significant consequences to our business, including increasing licensing costs and reducing the availability of certain pieces for use on our services.
Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we also must pay royalties to copyright owners of sound recordings fixed after February 15, 1972.  Those royalty rates may be established through negotiation or, if negotiation is unsuccessful, by the CRB. Owners of copyrights in sound recordings have created SoundExchange, a collective organization, to collect and distribute royalties.  SoundExchange is exempt by statute from certain U.S. antitrust laws and exercises significant market power in the licensing of sound recordings.  Under the terms of the CRB's existing decision governing sound recording royalties for the five-year period ending on December 31, 2017, we will be required to pay a royalty based on our gross revenues, subject to certain exclusions, of 11% for 2017.  The CRB proceeding to set royalty rates for the five-year period beginning 2018 is underway.  
In addition, SoundExchange alleges that we underpaid royalties for statutory licenses related to sound recording royalties for the period from 2007-2012.  See “Item 3. Legal Proceedings” below.
The right to perform certain copyrighted sound recordings that were fixed before February 15, 1972 is governed by state common law principles and, in certain instances, may be subject to state statutes.  We are a defendant in litigation in several States, regarding the alleged distribution, duplication and performance of certain copyrighted sound recordings that were fixed before February 15, 1972.  During 2015 and 2016, we settled suits with copyright owners for almost all of the pre-1972 works we use. If other state courts or appellate courts in certain states ultimately hold that a performance right exists under various state copyright laws, we may be required to pay additional royalties to perform copyrighted sound recordings that were fixed before February 15, 1972.
Our business depends in large part upon the auto industry.
A substantial portion of our subscription growth has come from purchasers and lessees of new and previously owned automobiles in the United States.  The sale and lease of vehicles with satellite radios is an important source of subscribers for our satellite radio service. We have agreements with every major automaker to include satellite radios in new vehicles, although these agreements do not require automakers to install specific or minimum quantities of radios in any given period.
Automotive production and sales are dependent on many factors, including the availability of consumer credit, general economic conditions, consumer confidence and fuel costs.  To the extent vehicle sales by automakers decline, or the penetration of factory-installed satellite radios in those vehicles is reduced, subscriber growth for our satellite radio services may be adversely impacted.

12


Sales of previously owned vehicles represent a significant source of new subscribers for us. We have agreements with auto dealers and companies operating in the used vehicle market to provide us with data on sales of previously owned satellite radio enabled vehicles. The continuing availability of this information is important to our future growth.
General economic conditions can affect our business.
The purchase of a satellite radio subscription is discretionary, and our business and our financial condition can be negatively affected by general economic conditions. Poor general economic conditions could adversely affect subscriber churn, conversion rates and vehicle sales.
If we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions and private litigation and our reputation could suffer.
The nature of our business involves the receipt and storage of personal information about our subscribers including, in many cases, credit and debit card information.  If we fail to protect the security of personal information about our customers or if we experience a significant data security breach, we could be exposed to costly government enforcement actions and private litigation and our reputation could suffer.  In addition, our subscribers and potential customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our services.  Such events could lead to lost future sales and adversely affect our results of operations.
We have a program in place to detect and respond to data security incidents.  However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures.  In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security.  Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other forms of deceiving our employees, contractors or other agents.
If hackers were able to circumvent our security measures, a release of proprietary information or personal information could occur or we could experience significant disruptions. If our systems become unavailable or suffer a security breach, we may be required to expend significant resources to address these problems, including notification under various federal and state data privacy regulations, and our reputation and operating results could suffer.
Existing or future government laws and regulations could harm our business.
We are subject to many laws, including federal, state, local and foreign laws.  These laws and regulations cover issues such as user privacy, behavioral advertising, automatic renewal of agreements, pricing, fraud, electronic waste, mobile and electronic device communications, quality of products and services, taxation, advertising, intellectual property rights and information security.  The expansion of these laws, both in terms of their number and their applicability, could harm our business.  
Failure of our satellites would significantly damage our business.
The lives of our satellites vary depending on a number of factors, including:
degradation and durability of solar panels;
quality of construction;
random failure of satellite components, which could result in significant damage to or loss of a satellite;
amount of fuel the satellite consumes; and
damage or destruction as a result of electrostatic storms, terrorist attacks, collisions with other objects in space or other events, such as nuclear detonations, occurring in space.
In the ordinary course of operation, satellites experience failures of component parts and operational and performance anomalies. Components on our in-orbit satellites have failed; and from time to time we have experienced anomalies in the operation and performance of these satellites. These failures and anomalies are expected to continue in the ordinary course, and we cannot predict if any of these possible future events will have a material adverse effect on our operations or the life of our existing in-orbit satellites. Any material failure of our satellites could cause us to lose customers and could materially harm our

13


reputation and our operating results. We hold no in-orbit insurance for our satellites.  Additional information regarding our fleet of satellites is contained in the section entitled “Item 1. Business - Satellites, Terrestrial Repeaters and Other Satellite Facilities” of this Annual Report on Form 10-K.
In addition, our Sirius network of terrestrial repeaters communicates with a single third-party satellite. Our XM network of terrestrial repeaters communicates with a single XM satellite. If the satellites communicating with the applicable repeater network fail unexpectedly, the services would be disrupted for several hours or longer.
Interruption or failure of our information technology and communications systems could negatively impact our results and our brand.
We operate a complex and growing business.  We offer a wide variety of subscription packages at different price points.  Our business is dependent on the operation and availability of our information technology and communication systems and those of certain third party service providers.  Any degradation in the quality, or any failure, of our systems could reduce our revenues, cause us to lose customers and damage our brand.  Although we have implemented practices designed to maintain the availability of our information technology systems and mitigate the harm of any unplanned interruptions, we cannot anticipate all eventualities. We occasionally experience unplanned outages or technical difficulties. We could also experience loss of data or processing capabilities, which could cause us to lose customers and could materially harm our reputation and our operating results.
We rely on internal systems and external systems maintained by manufacturers, distributors and service providers to take, fulfill and handle customer service requests and host certain online activities.  Any interruption or failure of our internal or external systems could prevent us from servicing customers or cause data to be unintentionally disclosed.
Our data centers and our information technology and communications systems are vulnerable to damage or interruption from natural disasters, malicious attacks, fire, power loss, telecommunications failures, computer viruses or other attempts to harm our systems.
We may not realize the benefits of acquisitions or other strategic investments and initiatives.
Our business strategy may include selective acquisitions or other strategic investments and initiatives that allow us to expand our business. The success of any acquisition depends upon effective integration of acquired businesses and assets into our operations, which is subject to risks and uncertainties, including realization of any anticipated synergies and cost savings, the ability to retain and attract personnel, the diversion of management’s attention for other business concerns, and undisclosed or potential legal liabilities of the acquired business or assets.
Rapid technological and industry changes could adversely impact our services.
The audio entertainment industry is characterized by rapid technological change, frequent product innovations, changes in customer requirements and expectations, and evolving standards. If we are unable to keep pace with these changes, our business may not succeed. Products using new technologies, or emerging industry standards, could make our technologies less competitive in the marketplace.
Failure of third parties to perform could adversely affect our business.
Our business depends, in part, on various third parties, including:
manufacturers that build and distribute satellite radios;
companies that manufacture and sell integrated circuits for satellite radios;
programming providers and on-air talent;
vendors that operate our call centers; and
vendors that have designed or built, and vendors that support or operate, other important elements of our systems, including our satellites.
If one or more of these third parties do not perform in a satisfactory or timely manner, our business could be adversely affected. In addition, a number of third parties on which we depend have experienced, and may in the future experience, financial difficulties or file for bankruptcy protection. Such third parties may not be able to perform their obligations to us in a

14


timely manner, if at all, as a result of their financial condition or may be relieved of their obligations to us as part of seeking bankruptcy protection.
We design, establish specifications, source or specify parts and components, and manage various aspects of the logistics of the production of satellite radios. As a result of these activities, we may be exposed to liabilities associated with the design, manufacture and distribution of radios that the providers of an entertainment service would not customarily be subject to, such as liabilities for design defects, patent infringement and compliance with applicable laws, as well as the costs of returned product.
Failure to comply with FCC requirements could damage our business.
We hold FCC licenses and authorizations to operate commercial satellite radio services in the United States, including authorizations for satellites and terrestrial repeaters, and related authorizations. The FCC generally grants licenses and authorizations for a fixed term. Although we expect our licenses and authorizations to be renewed in the ordinary course upon their expiration, there can be no assurance that this will be the case. Any assignment or transfer of control of any of our FCC licenses or authorizations must be approved in advance by the FCC.
The operation of our satellite radio systems is subject to significant regulation by the FCC under authority granted through the Communications Act of 1934 and related federal law. We are required, among other things, to operate only within specified frequencies; to meet certain conditions regarding the interoperability of our satellite radios with those of other licensed satellite radio systems; to coordinate our satellite radio services with radio systems operating in the same range of frequencies in neighboring countries; and to coordinate our communications links to our satellites with other systems that operate in the same frequency band. Noncompliance by us with these requirements or other conditions or with other applicable FCC rules and regulations could result in fines, additional license conditions, license revocation or other detrimental FCC actions. There is no guarantee that Congress will not modify the statutory framework governing our services, or that the FCC will not modify its rules and regulations in a manner that would have a material impact on our operations.
We may from time to time modify our business plan, and these changes could adversely affect us and our financial condition.
We regularly evaluate our plans and strategy. These evaluations often result in changes to our plans and strategy, some of which may be material. These changes in our plans or strategy may include: the acquisition or termination of unique or compelling programming; the introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites, equipment or radio spectrum; and investments in, and/or acquisitions of, other businesses, including acquisitions that are not directly related to our satellite radio business.
We have a significant amount of indebtedness, and our debt contains certain covenants that restrict our operations.
As of December 31, 2016, we had an aggregate principal amount of approximately $5.9 billion of indebtedness outstanding, $390.0 million of which was outstanding under a $1.75 billion Senior Secured Revolving Credit Facility.
Our indebtedness increases our vulnerability to general adverse economic and industry conditions; requires us to dedicate a portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund capital expenditures, marketing and other general corporate activities; limits our ability to borrow additional funds; and may limit our flexibility in planning for, or reacting to, changes in our business and the audio entertainment industry.
Our studios, terrestrial repeater networks, satellite uplink facilities or other ground facilities could be damaged by natural catastrophes or terrorist activities.
An earthquake, hurricane, tornado, flood, terrorist attack or other catastrophic event could damage our studios, terrestrial repeater networks or satellite uplink facilities, interrupt our service and harm our business.
Any damage to the satellites that transmit to our terrestrial repeater networks would likely result in degradation of the affected service for some subscribers and could result in complete loss of service in certain or all areas.  Damage to our satellite uplink facilities could result in a complete loss of our services until we could transfer operations to suitable back-up facilities.

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Our principal stockholder has significant influence, including over actions requiring stockholder approval, and its interests may differ from the interests of other holders of our common stock.
As of December 31, 2016, Liberty Media beneficially owned approximately 67% of Holdings’ common stock and has the ability to influence our affairs, policies and operations.  Two Liberty Media executives and one other member of the board of directors of Liberty Media are members of our board of directors.  Our board of directors currently has twelve members.  Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of Holdings’ board of directors.  Our board of directors is responsible for, among other things, the appointment of management, future issuances of common stock or other securities, the payment of dividends, if any, the incurrence of debt, and the approval of various transactions.  
Liberty Media can also determine the outcome of all matters requiring general stockholder approval, including the election of the board of directors and changes to our certificate of incorporation or by-laws.  Liberty Media can also cause or prevent a change of control of Holdings and could preclude any unsolicited acquisition of our company.  The concentration of ownership could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.  In certain cases, the interests of Liberty Media may not be aligned with the interests of other stockholders of Holdings.
We are a “controlled company” within the meaning of the NASDAQ listing rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements.
We are a “controlled company” for the purposes of the NASDAQ Stock Market listing rules. As such, we have elected not to comply with certain NASDAQ corporate governance requirements. Although a majority of our board of directors consists of independent directors, we do not have a compensation committee and nominating and corporate governance committee that consist entirely of independent directors.
Our business may be impaired by third-party intellectual property rights.
Development of our systems has depended upon the intellectual property that we have developed, as well as intellectual property licensed from third parties. If the intellectual property that we have developed or use is not adequately protected, others will be permitted to and may duplicate portions of our systems or services without liability. In addition, others may challenge, invalidate, render unenforceable or circumvent our intellectual property rights, patents or existing licenses or we may face significant legal costs in connection with defending and enforcing those intellectual property rights. Some of the know-how and technology we have developed, and plan to develop, is not now, nor will it be, covered by U.S. patents or trade secret protections. Trade secret protection and contractual agreements may not provide adequate protection if there is any unauthorized use or disclosure. The loss of necessary technologies could require us to substitute technologies of lower quality performance standards, at greater cost or on a delayed basis, which could harm us.
Other parties may have patents or pending patent applications, which will later mature into patents or inventions that may block or put limits on our ability to operate our system or license technologies. We may have to resort to litigation to enforce our rights under license agreements or to determine the scope and validity of other parties’ proprietary rights in the subject matter of those licenses. This may be expensive and we may not succeed in any such litigation.
Third parties may assert claims or bring suit against us for patent, trademark or copyright infringement, or for other infringement or misappropriation of intellectual property rights. Any such litigation could result in substantial cost, and diversion of effort and adverse findings in any proceeding could subject us to significant liabilities to third parties; require us to seek licenses from third parties; block our ability to operate our systems or license our technology; or otherwise adversely affect our ability to successfully develop and market our satellite radio systems.
While we currently pay a quarterly cash dividend to holders of our common stock, we may change our dividend policy at any time.
Our board of directors declared our first quarterly dividend in October 2016. Although we currently pay a quarterly cash dividend to holders of our common stock, we have no obligation to do so, and our dividend policy may change at any time without notice to our stockholders. The declaration and payment of dividends is at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, limitations imposed by our indebtedness, legal requirements and other factors that our board of directors deems relevant.

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Special Note About Forward-Looking Statements
We have made various statements in this Annual Report on Form 10-K that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be made in our other reports filed with or furnished to the SEC, in our press releases and in other documents. In addition, from time to time, we, through our management, may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified above, which could cause actual results to differ materially from such statements. The words “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “may,” “should,” “could,” “would,” “likely,” “projection,” “outlook” and similar expressions are intended to identify forward-looking statements. We caution you that the risk factors described above are not exclusive. There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statements, except as required by law.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Below is a list of the principal properties that we own or lease:
Location
 
Purpose
 
Own/Lease
New York, NY
 
Corporate headquarters, office facilities and studio/production facilities
 
Lease
Washington, DC
 
Office, studio/production facilities and data center
 
Own
Lawrenceville, NJ
 
Office and technical/engineering facilities
 
Lease
Deerfield Beach, FL
 
Office and technical/engineering facilities
 
Lease
Farmington Hills, MI
 
Office and technical/engineering facilities
 
Lease
Nashville, TN
 
Studio/production facilities
 
Lease
Vernon, NJ
 
Technical/engineering facilities
 
Own
Ellenwood, GA
 
Technical/engineering facilities
 
Lease
Los Angeles, CA
 
Studio/production facilities
 
Lease
Irving, TX
 
Office and engineering facilities/call center
 
Lease
We also own or lease other small facilities that we use as offices for our advertising sales personnel, studios and warehouse and maintenance space.  These facilities are not material to our business or operations.
In addition, we lease or license space at approximately 610 locations for use in connection with the terrestrial repeater networks that support our satellite radio services.  In general, these leases and licenses are for space on building rooftops and communications towers.  None of these individual locations are material to our business or operations.
ITEM 3.
LEGAL PROCEEDINGS
In the ordinary course of business, we are a defendant or party to various claims and lawsuits, including the following discussed below.

SoundExchange Royalty Claims. In August 2013, SoundExchange, Inc. filed a complaint in the United States District Court for the District of Columbia alleging that we underpaid royalties for statutory licenses in violation of the regulations established by the Copyright Royalty Board for the 2007-2012 period. SoundExchange principally alleges that we improperly reduced our gross revenues applicable to royalties by improperly deducting revenue attributable to pre-1972 recordings and Premier package revenue that is not “separately charged” as required by the regulations. We believe that we properly applied the gross revenue exclusions contained in the regulations established by the Copyright Royalty Board. SoundExchange is seeking compensatory damages of not less than $50 million and up to $100 million or more, payment of late fees and interest, and attorneys’ fees and costs.

17



In August 2014, the United States District Court for the District of Columbia, in response to our motion to dismiss the complaint, stayed the case on the grounds that it properly should be pursued in the first instance before the Copyright Royalty Board rather than the District Court.  In its opinion, the District Court concluded that the gross revenue exclusions in the regulations established by the Copyright Royalty Board for the 2007-2012 period were ambiguous and did not, on their face, make clear whether our royalty calculation approaches were permissible under the regulations. In December 2014, SoundExchange filed a petition with the Copyright Royalty Board requesting an order interpreting the applicable regulations.

On January 10, 2017, the Copyright Royalty Board issued a ruling concluding that we correctly interpreted the revenue exclusions applicable to pre-1972 recordings, but in certain cases did not apply those exclusions properly. The ruling further indicated that we improperly claimed a revenue exclusion based on our Premier package upcharge, because, in the Judges’ view, the portion of the package that contained programming that did not include sound recordings was not offered for a “separate charge” in accordance with the regulations. The ruling is subject to legal review by the Register of Copyrights, and will be transmitted back to the District Court for further proceedings, such as adjudication claims relating to damages and defenses. We intend to exhaust all available options for review and/or appeal of adverse aspects of the Copyright Royalty Board’s ruling, including portions of the ruling which we believe are unclear or inconsistent with the governing law. In addition, we believe we have substantial defenses to those SoundExchange claims that can be asserted before the District Court, and will continue to defend this action vigorously.

This matter is titled SoundExchange, Inc. v. Sirius XM Radio, Inc., No.13-cv-1290-RJL (D.D.C.), and Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services, United States Copyright Royalty Board, No. 2006-1 CRB DSTRA.  Information concerning the action is publicly available in filings under the docket numbers. This matter is not related to certain claims under state law brought by owners of pre-1972 recording copyrights arising out of our use and performance of those recordings.

At December 31, 2016, we concluded that a loss, in excess of our recorded liabilities, is reasonably possible in connection with the SoundExchange royalty claims. The estimable portion of such possible loss ranges from $0 to $70 million, plus any related interest or late fees. Based on our defenses, such a loss is not considered probable at this time and no liability for such additional loss has been recorded at December 31, 2016. The matters underlying this estimated range and the estimable portion of reasonably possible losses may change from time to time and the actual possible loss may vary from this estimate.

Telephone Consumer Protection Act Suits. We were a defendant in several purported class action suits that alleged that we, or call center vendors acting on our behalf, made calls which violate provisions of the Telephone Consumer Protection Act of 1991 (the “TCPA”). These purported class action cases were titled Erik Knutson v. Sirius XM Radio Inc., No. 12-cv-0418-AJB-NLS (S.D. Cal.), Francis W. Hooker v. Sirius XM Radio Inc., No. 4:13-cv-3 (E.D. Va.), Yefim Elikman v. Sirius XM Radio Inc. and Career Horizons, Inc., No. 1:15-cv-02093 (N.D. Ill.), and Anthony Parker v. Sirius XM Radio Inc., No. 8:15-cv-01710-JSM-EAJ (M.D. Fla).

We have entered into an agreement to settle these purported class action suits. The settlement was approved by the United States District Court for the Eastern District of Virginia in December 2016. The settlement resolves the claims of consumers beginning in February 2008 relating to telemarketing calls to their mobile telephones. Approximately 200 consumers, or less than 0.002% of the consumers who received notice of the settlement, opted-out of this class action settlement. As part of this settlement, we made a $35 million payment to a settlement fund (from which notice, administration and other costs and attorneys’ fees are being paid), and are offering participating class members the option of receiving three months of our Select service for no charge.

Other Matters.  In the ordinary course of business, we are a defendant in various other lawsuits and arbitration proceedings, including derivative actions; actions filed by subscribers, both on behalf of themselves and on a class action basis; former employees; parties to contracts or leases; and owners of patents, trademarks, copyrights or other intellectual property.  None of these other matters, in our opinion, is likely to have a material adverse effect on our business, financial condition or results of operations.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.



18


PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SIRI.”  The following table sets forth the high and low per share sales price for our common stock, as reported by NASDAQ, for the periods indicated below:
 
High
 
Low
Year Ended December 31, 2015
 
 
 
First Quarter
$
4.04

 
$
3.33

Second Quarter
$
4.00

 
$
3.70

Third Quarter
$
4.01

 
$
3.31

Fourth Quarter
$
4.20

 
$
3.69

Year Ended December 31, 2016
 

 
 

First Quarter
$
4.04

 
$
3.29

Second Quarter
$
4.05

 
$
3.74

Third Quarter
$
4.44

 
$
3.92

Fourth Quarter
$
4.65

 
$
4.05

On January 31, 2017, the closing sales price of our common stock on the NASDAQ Global Select Market was $4.72 per share.  On January 31, 2017, there were approximately 8,816 record holders of our common stock.
Dividend
On November 30, 2016, we paid a cash dividend of $0.01 per share of common stock. The total amount of this dividend was approximately $48.1 million.
Our board of directors expects that this dividend will be the first of regular quarterly dividends, in an aggregate annual amount of $0.04 per share of common stock.
On January 24, 2017, our board of directors also declared a quarterly dividend on our common stock in the amount of $0.01 per share of common stock payable on February 28, 2017 to stockholders of record as of the close of business on February 7, 2017.
Issuer Purchases of Equity Securities
As of December 31, 2016, our board of directors had approved for repurchase an aggregate of $10.0 billion 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 December 31, 2016, our cumulative repurchases since December 2012 under our stock repurchase program totaled 2.2 billion shares for approximately $8.0 billion, and approximately $2.0 billion remained available under our stock repurchase program.  The size and timing of our repurchases will be based on a number of factors, including price and business and market conditions.

19


The following table provides information about our purchases of equity securities registered pursuant to Section 12 of the Exchange Act during the quarter ended December 31, 2016:
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share (a)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)
October 1, 2016 - October 31, 2016
 
24,797,800

 
$
4.14

 
24,797,800

 
$
2,382,068,418

November 1, 2016 - November 30, 2016
 
42,526,500

 
$
4.38

 
42,526,500

 
$
2,195,781,619

December 1, 2016 - December 31, 2016
 
37,735,900

 
$
4.49

 
37,735,900

 
$
2,026,163,058

Total
 
105,060,200

 
$
4.37

 
105,060,200

 
 
(a)
These amounts include fees and commissions associated with the shares repurchased.  All of these repurchases were made pursuant to our share repurchase program.  
COMPARISON OF CUMULATIVE TOTAL RETURNS
Set forth below is a graph comparing the cumulative performance of our common stock with the Standard & Poor's Composite-500 Stock Index, or the S&P 500, and the NASDAQ Telecommunications Index from December 31, 2011 to December 31, 2016. The graph assumes that $100 was invested on December 31, 2011 in each of our common stock, the S&P 500 and the NASDAQ Telecommunications Index. A special dividend with respect to our common stock was declared in 2012 and, in November 2016, we paid a $0.01 per share cash dividend, which our board of directors expects will be the first of regular quarterly dividends.
siri-201603_chartx15285a03.jpg

20


Stockholder Return Performance Table
 
NASDAQ
Telecommunications Index
 
S&P 500 Index
 
Sirius XM Holdings Inc.
December 31, 2011
$
100.00

 
$
100.00

 
$
100.00

December 31, 2012
$
102.00

 
$
113.41

 
$
158.79

December 31, 2013
$
126.50

 
$
146.98

 
$
191.76

December 31, 2014
$
137.77

 
$
163.72

 
$
192.31

December 31, 2015
$
127.44

 
$
162.53

 
$
223.63

December 31, 2016
$
146.39

 
$
178.02

 
$
244.51

Equity Compensation Plan Information
Plan Category (shares in thousands)
 
Column (a) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights
 
Column (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights(1)
 
Column (c) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities Reflected in Column (a))
Equity compensation plans approved by security holders
 
362,541

 
$
3.50

 
181,148

Equity compensation plans not approved by security holders
 

 

 

Total
 
362,541

 
$
3.50

 
181,148

__________
(1)
Excludes approximately 29,893 shares underlying restricted stock units, including performance-based restricted stock units (“PRSUs”), from the calculation of the weighted average exercise price. The number of shares to be issued in respect of PRSUs has been calculated based on the assumption that the maximum levels of performance applicable to the PRSUs will be achieved.

21


ITEM 6.    SELECTED FINANCIAL DATA
The operating and balance sheet data included in the following selected financial data for 2016 and 2015 have been derived from our audited consolidated financial statements.  Historical operating and balance sheet data included within the following selected financial data from 2012 through 2014 is derived from the audited Consolidated Financial Statements of Sirius XM and Holdings.  This selected financial data should be read in conjunction with the audited Consolidated Financial Statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K.
 
As of and for the Years Ended December 31,
(in thousands, except per share data)
2016 (1)
 
2015
 
2014
 
2013 (2)
 
2012 (3)
Statements of Comprehensive Income Data:
 
 
 
 
 
 
 
 
 
Total revenue
$
5,017,220

 
$
4,570,058

 
$
4,181,095

 
$
3,799,095

 
$
3,402,040

Net income
$
745,933

 
$
509,724

 
$
493,241

 
$
377,215

 
$
3,472,702

Net income per share - basic
$
0.15

 
$
0.09

 
$
0.09

 
$
0.06

 
$
0.55

Net income per share - diluted
$
0.15

 
$
0.09

 
$
0.08

 
$
0.06

 
$
0.51

Weighted average common shares outstanding - basic
4,917,050

 
5,375,707

 
5,788,944

 
6,227,646

 
4,209,073

Weighted average common shares outstanding - diluted
4,964,728

 
5,435,166

 
5,862,020

 
6,384,791

 
6,873,786

Cash dividends declared per share
$
0.01

 
$

 
$

 
$

 
$
0.05

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
213,939

 
$
111,838

 
$
147,724

 
$
134,805

 
$
520,945

Restricted investments
$
9,888

 
$
9,888

 
$
5,922

 
$
5,718

 
$
3,999

Total assets (4)
$
8,003,595

 
$
8,046,662

 
$
8,369,065

 
$
8,826,959

 
$
9,024,800

Long-term debt, net of current portion (4)
$
5,842,764

 
$
5,443,614

 
$
4,487,419

 
$
3,088,701

 
$
2,400,943

Stockholders' (deficit) equity
$
(792,015
)
 
$
(166,491
)
 
$
1,309,837

 
$
2,745,742

 
$
4,039,565

_______________________
(1)
For the year ended December 31, 2016, we recorded $293,896 as an increase to our Deferred tax assets and decrease to our Accumulated deficit as a result of the adoption of Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718).
(2)
The selected financial data for 2013 includes the balances and approximately two months of activity related to the acquisition of the connected vehicle business of Agero, Inc. in November 2013.
(3)
For the year ended December 31, 2012, we had an income tax benefit of $2,998,234 due to the release of our valuation allowance.  A special cash dividend was paid during 2012.
(4)
The 2012 – 2015 balances reflect the adoption of Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, and Accounting Standards Update 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Agreements.  As a result of our adoption of these ASUs, Total Assets was reduced by $7,155, $6,444, $17,821 and $30,043 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively, and Long-term debt, net of current portion, was reduced by $7,155, $6,444, $5,120 and $30,043 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively.

22


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those described under “Item 1A - Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Special Note About Forward-Looking Statements.”
(All amounts referenced in this Item 7 are in thousands, except per subscriber and per installation amounts, unless otherwise stated.)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Executive Summary
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 and MySXM, over our Internet radio service, including through applications for mobile devices, home devices and other consumer electronic equipment.  We are also a leader in providing 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.  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; retail stores nationwide; and through our website. Satellite radio services are also offered to customers of certain rental car companies.
As of December 31, 2016, we had approximately 31.3 million subscribers of which approximately 26.0 million were self-pay subscribers and approximately 5.4 million were paid promotional subscribers. Our subscriber totals include subscribers under our regular pricing plans; discounted pricing plans; subscribers that have prepaid, including payments either made or due from automakers for subscriptions included in the sale or lease price of a vehicle; subscribers to our Internet services who do not also have satellite radio subscriptions; and certain subscribers to our weather, traffic, and data services who do not also have satellite radio subscriptions.  Subscribers and subscription related revenues and expenses associated with our connected vehicle services and the Sirius XM Canada service are not included in our subscriber count or subscriber-based operating metrics.
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 certain cases, a subscription to our radio services is included in the sale or lease price of new vehicles 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.
As of December 31, 2016, Liberty Media beneficially owned, directly and indirectly, approximately 67% 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.  Liberty Media owns interests in a range of media, communications and entertainment businesses.
We hold an equity method investment in Sirius XM Canada which offers satellite radio services in Canada. As of December 31, 2016, we owned an approximate 37% equity interest in Sirius XM Canada.


23


Results of Operations
Set forth below are our results of operations for the year ended December 31, 2016 compared with the year ended December 31, 2015 and the year ended December 31, 2015 compared with the year ended December 31, 2014.
 
For the Years Ended December 31,
 
2016 vs 2015 Change
 
2015 vs 2014 Change
 
2016
 
2015
 
2014
 
Amount
 
%
 
Amount
 
%
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
Subscriber revenue
$
4,196,852


$
3,824,793

 
$
3,554,302

 
$
372,059

 
10
 %
 
$
270,491

 
8
 %
Advertising revenue
138,231


122,292

 
100,982

 
15,939

 
13
 %
 
21,310

 
21
 %
Equipment revenue
118,947


110,923

 
104,661

 
8,024

 
7
 %
 
6,262

 
6
 %
Other revenue
563,190


512,050

 
421,150

 
51,140

 
10
 %
 
90,900

 
22
 %
Total revenue
5,017,220


4,570,058

 
4,181,095

 
447,162

 
10
 %
 
388,963

 
9
 %
Operating expenses:



 
 
 
 
 
 
 
 
 
 
Cost of services:



 
 
 
 
 
 
 
 
 
 
Revenue share and royalties
1,108,515


1,034,832

 
810,028

 
73,683

 
7
 %
 
224,804

 
28
 %
Programming and content
353,779


293,091

 
297,313

 
60,688

 
21
 %
 
(4,222
)
 
(1
)%
Customer service and billing
387,131


377,908

 
370,585

 
9,223

 
2
 %
 
7,323

 
2
 %
Satellite and transmission
103,020


94,609

 
86,013

 
8,411

 
9
 %
 
8,596

 
10
 %
Cost of equipment
40,882


42,724

 
44,397

 
(1,842
)
 
(4
)%
 
(1,673
)
 
(4
)%
Subscriber acquisition costs
512,809


532,599

 
493,464

 
(19,790
)
 
(4
)%
 
39,135

 
8
 %
Sales and marketing
386,724


354,189

 
336,480

 
32,535

 
9
 %
 
17,709

 
5
 %
Engineering, design and development
82,146


64,403

 
62,784

 
17,743

 
28
 %
 
1,619

 
3
 %
General and administrative
341,106


324,801

 
293,938

 
16,305

 
5
 %
 
30,863

 
10
 %
Depreciation and amortization
268,979


272,214

 
266,423

 
(3,235
)
 
(1
)%
 
5,791

 
2
 %
Total operating expenses
3,585,091


3,391,370

 
3,061,425

 
193,721

 
6
 %
 
329,945

 
11
 %
Income from operations
1,432,129


1,178,688

 
1,119,670

 
253,441

 
22
 %
 
59,018

 
5
 %
Other income (expense):



 
 
 
 
 
 
 
 
 
 
Interest expense
(331,225
)

(299,103
)
 
(269,010
)
 
(32,122
)
 
(11
)%
 
(30,093
)
 
(11
)%
Loss on extinguishment of debt and credit facilities, net
(24,229
)
 

 

 
(24,229
)
 
 %
 

 
 %
Loss on change in value of derivatives

 

 
(34,485
)
 

 
 %
 
34,485

 
100
 %
Other income
14,985


12,379

 
14,611

 
2,606

 
21
 %
 
(2,232
)
 
(15
)%
Total other expense
(340,469
)

(286,724
)
 
(288,884
)
 
(53,745
)
 
(19
)%
 
2,160

 
1
 %
Income before income taxes
1,091,660


891,964

 
830,786

 
199,696

 
22
 %
 
61,178

 
7
 %
Income tax expense
(345,727
)

(382,240
)
 
(337,545
)
 
36,513

 
10
 %
 
(44,695
)
 
(13
)%
Net income
$
745,933


$
509,724

 
$
493,241

 
$
236,209

 
46
 %
 
$
16,483

 
3
 %
Total Revenue
Subscriber Revenue includes subscription, activation and other fees.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, subscriber revenue was $4,196,852 and $3,824,793, respectively, an increase of 10%, or $372,059.  The period over period increase was primarily attributable to an 8% increase in the daily weighted average number of subscribers as well as a 3% increase in average monthly revenue per subscriber resulting from certain rate increases.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, subscriber revenue was $3,824,793 and $3,554,302, respectively, an increase of 8%, or $270,491.  The period over period increase was primarily attributable to an 8% increase in the daily weighted average number of subscribers as well as a 1% increase in average monthly revenue per subscriber resulting from certain rate increases. 

24


We expect subscriber revenues to increase based on the growth of our subscriber base, including the increases in certain of our subscription rates and the sale of additional services to subscribers.
Advertising Revenue includes the sale of advertising on certain non-music channels.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, advertising revenue was $138,231 and $122,292, respectively, an increase of 13%, or $15,939.  The increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, advertising revenue was $122,292 and $100,982, respectively, an increase of 21%, or $21,310.  The increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot.
We expect our advertising revenue to continue to grow as more advertisers are attracted to our national platform and growing subscriber base and as we launch additional non-music channels.
Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, equipment revenue was $118,947 and $110,923, respectively, an increase of 7%, or $8,024.  The increase was driven by an increase in OEM production and an increase in royalty revenue on certain modules starting in the second quarter of 2016, partially offset by lower revenue generated through our distributors and direct to consumer business.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, equipment revenue was $110,923 and $104,661, respectively, an increase of 6%, or $6,262.  The increase was driven by royalties from higher OEM production and sales to distributors, partially offset by lower direct to consumer sales.
We expect equipment revenue to increase due to the increase in royalty revenues associated with the transition of our chipsets.
Other Revenue includes amounts earned from subscribers for the U.S. Music Royalty Fee, revenue from our connected vehicle business and our Canadian affiliate and ancillary revenues.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, other revenue was $563,190 and $512,050, respectively, an increase of 10%, or $51,140.  The period over period increase was primarily driven by additional revenues from the U.S. Music Royalty Fee due to an increase in the number of subscribers and subscribers paying at a higher rate of 13.9%. These increases were offset by lower non-recurring engineering fees associated with our connected vehicle services, lower activation revenues from our Canadian affiliate and a change in accounting for a programming contract in the third quarter of 2015.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, other revenue was $512,050 and $421,150, respectively, an increase of 22%, or $90,900.  The increase was driven by revenues from the U.S. Music Royalty Fee as the number of subscribers subject to the 13.9% rate increased along with an overall increase in subscribers, higher revenue generated from our connected vehicle services, and increased revenue from our Canadian affiliate.
Other revenue is expected to increase due to an increase in U.S. Music Royalty fees as our subscriber base continues to grow and an increase in revenue from Sirius XM Canada related to service agreements following the closing of the expected Transaction.
Operating Expenses
Revenue Share and Royalties include distribution and content provider revenue share, royalties for transmitting content and web streaming, and advertising revenue share.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, revenue share and royalties were $1,108,515 and $1,034,832, respectively, an increase of 7%, or $73,683, but decreased as a percentage of total revenue.  The increase was due to overall greater revenues subject to royalty and revenue sharing arrangements, a 5% increase in the statutory royalty rate applicable to our use of post-1972 recordings, and $45,900 related to music royalty legal settlements and reserves recorded in the fourth quarter of 2016. The increase was mitigated by $128,256 in expense recorded during the twelve months ended December 31, 2015 for the portion of the settlement of the Capitol Records LLC et al. v. Sirius XM Radio Inc. lawsuit

25


related to our use of pre-1972 sound recordings. We recorded $39,808 in expense related to this settlement through the twelve months ended December 31, 2016.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, revenue share and royalties were $1,034,832 and $810,028, respectively, an increase of 28%, or $224,804, and increased as a percentage of total revenue.  The increase was primarily due to $128,256 in expense recorded during the year ended December 31, 2015 for the portion of the settlement of the Capitol Records LLC et al. v. Sirius XM Radio Inc. lawsuit related to our use of pre-1972 sound recordings. Revenue share and royalties also increased due to greater revenues subject to royalty and revenue sharing arrangements and a 5.3% increase in the statutory royalty rate for the performance of post-1972 sound recordings. 
We expect our revenue share and royalty costs to increase as our revenues grow.  As determined by the Copyright Royalty Board, we have paid or will pay royalties for the use of certain post-1972 sound recordings on our satellite radio service of 9.5%, 10.0%, 10.5% and 11% in 2014, 2015, 2016 and 2017, respectively.
Programming and Content includes costs to acquire, create, promote and produce content. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees and other amounts.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, programming and content expenses were $353,779 and $293,091, respectively, an increase of 21%, or $60,688, and increased as a percentage of total revenue.  The increase was primarily due to renewed programming licenses as well as increased talent and personnel-related costs.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, programming and content expenses were $293,091 and $297,313, respectively, a decrease of 1%, or $4,222, and decreased as a percentage of total revenue.  The decrease was primarily due to the termination of certain programming agreements, partially offset by the addition of new programming arrangements and personnel-related costs.
We expect our programming and content expenses to increase as we offer additional programming, and renew or replace expiring agreements.
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, transaction fees and bad debt expense.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, customer service and billing expenses were $387,131 and $377,908, respectively, an increase of 2%, or $9,223, but decreased as a percentage of total revenue.  The increase was primarily due to costs associated with a higher subscriber base driving increased bad debt expenses, transaction fees, and call center costs, partially offset by lower personnel-related costs and the classification of wireless transmission costs related to our connected vehicle services to Satellite and transmission expense in 2016.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, customer service and billing expenses were $377,908 and $370,585, respectively, an increase of 2%, or $7,323, but decreased as a percentage of total revenue.  The increase was primarily due to a higher subscriber base driving increased transaction fees, bad debt expense and personnel-related costs, partially offset by efficiencies achieved from management initiatives implemented at call centers operated by our vendors.
We expect our customer service and billing expenses to increase as our subscriber base grows.
Satellite and Transmission consists of costs associated with the operation and maintenance of our terrestrial repeater networks; satellites; satellite telemetry, tracking and control systems; satellite uplink facilities; studios; and delivery of our Internet streaming service.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, satellite and transmission expenses were $103,020 and $94,609, respectively, an increase of 9%, or $8,411, but decreased as a percentage of total revenue.  We recorded a loss on disposal of certain obsolete satellite parts of $12,912 in the second quarter of 2016 and a loss on disposal of certain obsolete terrestrial repeaters and related parts of $7,384 in the fourth quarter of 2015. Excluding the losses on disposal of these assets, the increase was driven by inclusion of wireless transmission costs related to our connected vehicle services that were previously recorded to Customer service and billing expense in 2015, partially offset by lower web streaming costs from in-sourcing certain activities.

26


2015 vs. 2014:  For the years ended December 31, 2015 and 2014, satellite and transmission expenses were $94,609 and $86,013, respectively, an increase of 10%, or $8,596, and increased as a percentage of total revenue.  The increase was primarily due to the loss on disposal of certain obsolete terrestrial repeaters and related parts of $7,384, and higher costs associated with our Internet streaming operations, partially offset by lower satellite insurance costs.
We expect satellite and transmission expenses, excluding losses from disposal of assets, to remain relatively unchanged.
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.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, cost of equipment was $40,882 and $42,724, respectively, a decrease of 4%, or $1,842, and decreased as a percentage of equipment revenue.  The decrease was primarily due to lower aftermarket and direct to consumer sales, partially offset by higher inventory reserves.  
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, cost of equipment was $42,724 and $44,397, respectively, a decrease of 4%, or $1,673, and decreased as a percentage of equipment revenue.  The decrease was primarily due to lower direct to consumer sales, partially offset by higher sales to distributors.
We expect cost of equipment to fluctuate with changes in sales and inventory valuations.
Subscriber Acquisition Costs 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; commissions paid to automakers and retailers; product warranty obligations; freight; and provisions for inventory allowances attributable to inventory consumed in our OEM and retail distribution channels. The majority of subscriber acquisition costs are incurred and expensed in advance of, or concurrent with, 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.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, subscriber acquisition costs were $512,809 and $532,599, respectively, a decrease of 4%, or $19,790, and decreased as a percentage of total revenue.  The decrease was driven by lower subsidized costs related to the transition of chipsets and reductions to OEM hardware subsidy rates, partially offset by higher radio installations.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, subscriber acquisition costs were $532,599 and $493,464, respectively, an increase of 8%, or $39,135, but decreased as a percentage of total revenue.  Increased costs related to a larger number of satellite radio installations in new vehicles which were partially offset by improved OEM and chipset subsidy rates per vehicle.
We expect subscriber acquisition costs to fluctuate with OEM installations and aftermarket volume; however, the cost of subsidized radio components is expected to decline.  We intend to continue to offer subsidies, commissions and other incentives to acquire subscribers.
Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative marketing; and personnel. Marketing costs include expenses related to direct mail, outbound telemarketing and email communications.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, sales and marketing expenses were $386,724 and $354,189, respectively, an increase of 9%, or $32,535, but decreased as a percentage of total revenue.  The increase was primarily due to additional subscriber communications, retention programs and acquisition campaigns as well as higher personnel-related costs.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, sales and marketing expenses were $354,189 and $336,480, respectively, an increase of 5%, or $17,709, but decreased as a percentage of total revenue. The increase was primarily due to additional subscriber communications, retention programs and acquisition campaigns as well as higher personnel-related costs.
We anticipate that sales and marketing expenses will increase as we expand programs to retain our existing subscribers, win back former subscribers, and attract new subscribers.

27


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.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, engineering, design and development expenses were $82,146 and $64,403, respectively, an increase of 28%, or $17,743, and increased as a percentage of total revenue.  The increase was primarily driven by the inclusion of personnel-related costs from our connected vehicle services that were previously recorded in Sales and marketing and General and administrative expense in 2015, partially offset by lower research and development costs.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, engineering, design and development expenses were $64,403 and $62,784, respectively, an increase of 3%, or $1,619, and decreased as a percentage of total revenue.  The increase was driven primarily by additional costs associated with streaming development, partially offset by lower personnel costs.
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.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, general and administrative expenses were $341,106 and $324,801, respectively, an increase of 5%, or $16,305, but decreased as a percentage of total revenue.  The increase was primarily driven by consulting and legal costs.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, general and administrative expenses were $324,801 and $293,938, respectively, an increase of 10%, or $30,863, and increased as a percentage of total revenue.  The increase was driven primarily by higher personnel costs, reserves for consumer legal settlements and facilities costs, partially offset by insurance recoveries and lower professional fees related to the proposal made in January 2014 by Liberty Media to acquire the balance of our common stock not already owned by it.
We expect our general and administrative expenses to remain flat as we expect increased costs to support the growth of our business to be offset by lower legal and consulting costs.
Depreciation and Amortization represents the recognition in earnings of the acquisition cost of assets used in operations, including our satellite constellations, property, equipment and intangible assets, over their estimated service lives.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, depreciation and amortization expense was $268,979 and $272,214, respectively, a decrease of 1%, or $3,235, and decreased as a percentage of total revenue.  Depreciation decreased as certain satellites reached the end of their estimated service lives offset by additional assets placed in-service.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, depreciation and amortization expense was $272,214 and $266,423, respectively, an increase of 2%, or $5,791, but decreased as a percentage of total revenue. The increase was driven by additional software placed in-service, partially offset by a reduction of amortization associated with the stepped-up basis in assets acquired in the Merger (including intangible assets, property and equipment) through the end of their estimated service lives and certain satellites reaching the end of their estimated service lives.
Other Income (Expense)
Interest Expense, Net of Amounts Capitalized, includes interest on outstanding debt.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, interest expense was $331,225 and $299,103, respectively, an increase of 11%, or $32,122.  The increase was primarily due to higher average debt during the year ended December 31, 2016 compared to the year ended December 31, 2015.    
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, interest expense was $299,103 and $269,010, respectively, an increase of 11%, or $30,093. The increase was primarily due to higher average debt during the year ended December 31, 2015 compared to the year ended December 31, 2014. The increase was partially offset by lower average interest rates resulting from the redemption and conversion of higher interest rate debt during 2014. 

28


We expect interest expense to increase in future periods to the extent the amount of our total debt outstanding increases.
Loss on Extinguishment of Debt and Credit Facilities, Net, includes losses incurred as a result of the conversion and retirement of certain debt.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, loss on extinguishment of debt and credit facilities, net, was $24,229 and $0, respectively.  During the year ended December 31, 2016, a loss was recorded on the redemption of our then outstanding 5.875% Senior Notes due 2020.
2015 vs. 2014:  There was no loss on extinguishment of debt and credit facilities for the years ended December 31, 2015 and 2014.
Loss on Change in Value of Derivatives represents the change in fair value of the commitments under the share repurchase agreement with Liberty Media, which were are accounted for as a derivative.
2016 vs. 2015:  There was no loss on change in value of derivatives for the years ended December 31, 2016 and 2015.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, the loss on change in value of derivatives was $0 and $34,485, respectively.  The loss in 2014 resulted from a change in the market value of our common stock to be purchased under the share repurchase agreement with Liberty Media. On April 25, 2014, we completed the final purchase installment under this share repurchase agreement and repurchased $340,000 of our shares of common stock from Liberty Media at a price of $3.66 per share.
Other Income primarily includes realized gains and losses, interest income, and our share of the income or loss of Sirius XM Canada.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, other income was $14,985 and $12,379, respectively.  Other income for the year ended December 31, 2016 was primarily driven by our share of Sirius XM Canada’s net income and dividends received from Sirius XM Canada in excess of our investment. Other income for the year ended December 31, 2015 was driven by dividends received from Sirius XM Canada in excess of our investment.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, other income was $12,379 and $14,611, respectively.  Other income for the year ended December 31, 2015 was driven by dividends received from Sirius XM Canada in excess of our investment. Other income for the year ended December 31, 2014 was driven by our share of Sirius XM Canada’s net income and a gain from the conversion of certain debentures into shares of Sirius XM Canada, partially offset by the amortization expense related to our equity method intangible assets.  
Income Taxes
Income Tax Expense includes the change in our deferred tax assets, foreign withholding taxes and current federal and state tax expenses.
2016 vs. 2015:  For the years ended December 31, 2016 and 2015, income tax expense was $345,727 and $382,240, respectively.  Our annual effective tax rate for the year ended December 31, 2016 was 31.7%. In the fourth quarter of 2016, we recognized a $66,326 Federal tax credit under the Protecting Americans from Tax Hikes Act of 2015 related to research and development activities, which reduced our effective tax rate by 6.1%.
2015 vs. 2014:  For the years ended December 31, 2015 and 2014, income tax expense was $382,240 and $337,545, respectively. Our annual effective tax rate for the year ended December 31, 2015 was 42.9%, which was impacted by tax law changes in the District of Columbia and New York City.  The tax law change in the District of Columbia will reduce our future taxes and use less of certain net operating losses in the future. The District of Columbia tax law change resulted in a $44,392 increase in our valuation allowance during the year ended December 31, 2015.  The tax law change in New York City will increase certain net operating losses to be utilized in the future. The New York City tax law change resulted in a $14,831 increase in our deferred tax asset during the year ended December 31, 2015.  Our effective tax rate for the year ended December 31, 2014 was 40.6% primarily due to the impact of the loss on change in fair value of the derivative related to the share repurchase agreement with Liberty Media. 


29


Key Financial and Operating Performance Metrics
In this section, we present certain financial performance measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States (“Non-GAAP”), which include free cash flow and adjusted EBITDA. We also present certain operating performance measures, which include average monthly revenue per subscriber, or ARPU; customer service and billing expenses, per average subscriber; and subscriber acquisition cost, or SAC, per installation. 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 (the “Merger”).  Additionally, when applicable, our adjusted EBITDA and free cash flow metrics exclude 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 accompanying glossary on pages 38 through 40 for more details and for the reconciliation to the most directly comparable GAAP measure (where applicable).
We believe these Non-GAAP financial and operating performance measures provide useful information to investors regarding our financial condition and results of operations. We believe investors find these Non-GAAP financial and operating performance measures useful in evaluating our core trends because they provide a direct view of our underlying contractual costs. We believe investors use our adjusted EBITDA to estimate our current enterprise value and to make investment decisions. We believe free cash flow provides useful supplemental information to investors regarding our cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders. By providing these Non-GAAP financial and operating performance measures, together with the reconciliations to the most directly comparable GAAP measure (where applicable), we believe we are enhancing investors' understanding of our business and our results of operations.
Our Non-GAAP financial measures should be viewed in addition to, and not as an alternative for or superior to, our reported results prepared in accordance with GAAP.  In addition, our Non-GAAP financial measures may not be comparable to similarly-titled measures by other companies.  Please refer to the glossary (pages 38 through 40) 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 our subscriber count or subscriber-based operating metrics.

30


Set forth below are our subscriber balances as of December 31, 2016 compared to December 31, 2015 and as of December 31, 2015 compared to December 31, 2014:

As of December 31,
 
2016 vs 2015 Change
 
2015 vs 2014 Change

2016

2015

2014
 
Amount

%
 
Amount (a)

%
Self-pay subscribers
25,951


24,288


22,523

 
1,663


7
%
 
1,765

 
8
%
Paid promotional subscribers
5,395


5,306


4,788

 
89


2
%
 
517

 
11
%
Ending subscribers
31,346


29,594


27,311

 
1,752


6
%
 
2,283

 
8
%
(a)
Amounts may not sum as a result of rounding.
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, 2016, 2015 and 2014:
 
For the Years Ended December 31,
 
2016 vs 2015 Change

2015 vs 2014 Change
 
2016

2015
 
2014
 
Amount
 
%
 
Amount

%
Self-pay subscribers
1,663


1,765

 
1,441

 
(102
)
 
(6
)%
 
324

 
22
 %
Paid promotional subscribers
89


517

 
311

 
(428
)
 
(83
)%
 
206

 
66
 %
Net additions (a)
1,752


2,283

 
1,752

 
(531
)
 
(23
)%
 
531

 
30
 %
Daily weighted average number of subscribers
30,494


28,337

 
26,284

 
2,157

 
8
 %
 
2,053

 
8
 %
Average self-pay monthly churn
1.9
%

1.8
%
 
1.9
%
 
0.1
 %
 
6
 %
 
(0.1
)%
 
(5
)%
New vehicle consumer conversion rate
39
%

40
%
 
41
%
 
(1
)%
 
(3
)%
 
(1
)%
 
(2
)%
 



 
 
 
 
 
 
 

 

ARPU
$
12.91


$
12.53

 
$
12.38

 
$
0.38

 
3
 %
 
$
0.15

 
1
 %
SAC, per installation
$
31


$
33

 
$
34

 
$
(2
)
 
(6
)%
 
$
(1
)
 
(3
)%
Customer service and billing expenses, per average subscriber
$
1.00


$
1.01

 
$
1.07

 
$
(0.01
)
 
(1
)%
 
$
(0.06
)
 
(6
)%
Adjusted EBITDA
$
1,875,775


$
1,657,617

 
$
1,467,775

 
$
218,158

 
13
 %
 
$
189,842

 
13
 %
Free cash flow
$
1,509,113


$
1,315,193

 
$
1,155,776

 
$
193,920

 
15
 %
 
$
159,417

 
14
 %
Diluted weighted average common shares outstanding (GAAP)
4,964,728

 
5,435,166

 
5,862,020

 
(470,438
)
 
(9
)%
 
(426,854
)
 
(7
)%
(a)
Amounts may not sum as a result of rounding.
Subscribers. At December 31, 2016, we had approximately 31.3 million subscribers, an increase of approximately 1.8 million subscribers, or 6%, from the approximately 29.6 million subscribers as of December 31, 2015. The increase in total subscribers was primarily due to growth in our self-pay subscriber base, which increased by approximately 1.7 million. The increase in self-pay subscribers was primarily driven by original and subsequent owner trial conversions and subscriber win back programs, partially offset by deactivations.
2016 vs. 2015: For the years ended December 31, 2016 and 2015, net additions were 1,752 thousand and 2,283 thousand, respectively, a decrease of 23%, or 531 thousand. The period over period decrease was due to a decrease in net additions of paid promotional subscribers as a result of slower growth in vehicle sales. The decrease in self-pay net additions was due to increases in deactivations from our larger subscriber base which were largely offset by trial conversions and subscriber win back programs.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, net additions were 2,283 thousand and 1,752 thousand, respectively, an increase of 30%, or 531 thousand. The increase in subscribers was primarily due to increases in original and subsequent owner trial conversions, as well as increases in shipments by OEMs offering paid trials and activations of inactive radios, partially offset by higher deactivations related to vehicle turnover and non-pay churn resulting from changes in telemarketing practices following the Federal Communications Commission’s July 10, 2015 order relating to the Telephone Consumer Protection Act of 1991.
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 38 through 40 for more details.)

31


2016 vs. 2015: For the years ended December 31, 2016 and 2015, our average self-pay monthly churn rate was 1.9% and 1.8%, respectively. The increase was due to an increase in vehicle-related, non-pay, and to a lesser extent voluntary churn.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, our average self-pay monthly churn rate was 1.8% and 1.9%, respectively. The decrease in churn was due to a reduction in the total number of subscribers leaving for voluntary reasons.
New Vehicle Consumer Conversion Rate is the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after an initial promotional period. The metric excludes rental and fleet vehicles. (See accompanying glossary on pages 38 through 40 for more details).
2016 vs. 2015: For the years ended December 31, 2016 and 2015, our new vehicle consumer conversion rate was 39% and 40%, respectively. The decrease in conversion was primarily due to certain manual dialing inefficiencies introduced by our call center vendors as a precautionary response to the Federal Communications Commission’s July 10, 2015 order relating to the Telephone Consumer Protection Act of 1991, increased vehicle penetration rate, and lower conversion of first-time buyers and lessees of satellite radio enabled cars.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, our new vehicle consumer conversion rate was 40% and 41%, respectively. The decrease in conversion was primarily due to an increased vehicle penetration rate and the effect of the suspension of certain outbound calling efforts by our vendors as they evaluated the Federal Communications Commission’s July 10, 2015 order relating to the Telephone Consumer Protection Act of 1991, partially offset by improvements in converting previously active subscribers during a trial.
ARPU is derived from total earned subscriber revenue (excluding revenue derived from our connected vehicle services), net advertising revenue and other subscription-related 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 38 through 40 for more details.)
2016 vs. 2015: For the years ended December 31, 2016 and 2015, ARPU was $12.91 and $12.53, respectively. The increase was driven primarily by increases in certain of our subscription rates, partially offset by growth in subscription discounts offered through customer acquisition and retention programs.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, ARPU was $12.53 and $12.38, respectively. The increase was driven primarily by increases in certain of our subscription rates, partially offset by growth in subscription discounts and limited channel plans offered through customer acquisition and retention programs, and a shift to longer-term promotional data service plans with lower rates.
SAC, Per Installation, is derived from subscriber acquisition costs and margins from the sale of radios, components and accessories, 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 38 through 40 for more details.)
2016 vs. 2015: For the years ended December 31, 2016 and 2015, SAC, per installation, was $31 and $33, respectively. The decrease was driven by lower subsidized costs related to the transition of chipsets as well as lower OEM hardware subsidy rates.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, SAC, per installation, was $33 and $34, respectively. The decrease was primarily due to lower subsidies on chipsets and improvements in contractual OEM hardware subsidy rates.
Customer Service and Billing Expenses, Per Average Subscriber, is derived from total customer service and billing expenses, excluding connected vehicle customer service and billing expenses and share-based payment expense, 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 38 through 40 for more details.)
2016 vs. 2015: For the years ended December 31, 2016 and 2015, customer service and billing expenses, per average subscriber, were $1.00 and $1.01, respectively. The decrease was primarily related to efficiencies achieved from call center process enhancements, partially offset by increased bad debt expense.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, customer service and billing expenses, per average subscriber, were $1.01 and $1.07, respectively. The decrease was driven primarily by efficiencies achieved from management initiatives implemented at call centers operated by our vendors, as well as a decrease in the rate at which subscribers call to cancel service.

32


Adjusted EBITDA. EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization.  Adjusted EBITDA excludes the impact of other income, loss on extinguishment of debt, loss on change in value of derivatives, other non-cash charges, such as certain purchase price accounting adjustments, 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 38 through 40 for a reconciliation to GAAP and for more details.)
2016 vs. 2015: For the years ended December 31, 2016 and 2015, adjusted EBITDA was $1,875,775 and $1,657,617, respectively, an increase of 13%, or $218,158. The increase was due to growth in revenues primarily as a result of the increase in our subscriber base and certain of our subscription rates and lower subscriber acquisition costs, partially offset by higher revenue share and royalties costs due to growth in our revenues and royalty rates, programming and content, sales and marketing, and general and administrative costs.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, adjusted EBITDA was $1,657,617 and $1,467,775, respectively, an increase of 13%, or $189,842. The increase was due to growth in adjusted revenues primarily as a result of the increase in our subscriber base and certain of our subscription rates, partially offset by higher costs associated with the growth in our revenues and subscriber base.
Free Cash Flow includes cash provided by operations, net of additions to property and equipment, restricted and other investment activity, the return of capital from investment in unconsolidated entity and excluding the $210,000 pre-1972 sound recordings legal settlement payment made in 2015. (See the accompanying glossary on pages 38 through 40 for a reconciliation to GAAP and for more details.)
2016 vs. 2015: For the years ended December 31, 2016 and 2015, free cash flow was $1,509,113 and $1,315,193, respectively, an increase of $193,920, or 15%. The increase was primarily driven by higher net cash provided by operating activities resulting from improved operating performance; partially offset by an increase in additions to property and equipment resulting primarily from new satellite construction. The $210,000 pre-1972 sound recordings legal settlement payment made in 2015 was excluded from free cash flow.
2015 vs. 2014: For the years ended December 31, 2015 and 2014, free cash flow was $1,315,193 and $1,155,776, respectively, an increase of $159,417, or 14%. Excluding the $210,000 pre-1972 sound recordings legal settlement payment made in 2015, the increase was primarily driven by higher net cash provided by operating activities from improved operating performance, and higher collections from subscribers, partially offset by higher interest payments.

Liquidity and Capital Resources
Cash Flows for the year ended December 31, 2016 compared with the year ended December 31, 2015 and the year ended December 31, 2015 compared with the year ended December 31, 2014.
The following table presents a summary of our cash flow activity for the periods set forth below:
 
For the Years Ended December 31,
 

 
 
 
2016
 
2015
 
2014
 
2016 vs 2015
 
2015 vs 2014
Net cash provided by operating activities
$
1,719,237

 
$
1,244,051

 
$
1,253,244

 
$
475,186

 
$
(9,193
)
Net cash used in investing activities
(210,124
)
 
(138,858
)
 
(96,324
)
 
(71,266
)
 
(42,534
)
Net cash used in financing activities
(1,407,012
)
 
(1,141,079
)
 
(1,144,001
)
 
(265,933
)
 
2,922

Net increase (decrease) in cash and cash equivalents
102,101

 
(35,886
)
 
12,919

 
137,987

 
(48,805
)
Cash and cash equivalents at beginning of period
111,838

 
147,724

 
134,805

 
(35,886
)
 
12,919

Cash and cash equivalents at end of period
$
213,939

 
$
111,838

 
$
147,724

 
$
102,101

 
$
(35,886
)
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities increased by $475,186 to $1,719,237 for the year ended December 31, 2016 from $1,244,051 for the year ended December 31, 2015. Cash flows provided by operating activities decreased by $9,193 to $1,244,051 for the year ended December 31, 2015 from $1,253,244 for the year ended December 31, 2014.
Our largest source of cash provided by operating activities is generated by subscription and subscription-related revenues.  We also generate cash from the sale of advertising on certain non-music channels and the sale of satellite radios, components and accessories.  Our primary uses of cash from operating activities include revenue share and royalty payments to

33


distributors, programming and content providers, and payments to radio manufacturers, distributors and automakers. In addition, uses of cash from operating activities include payments to vendors to service, maintain and acquire subscribers, general corporate expenditures, and compensation and related costs.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were primarily due to additional spending of $43,300 to construct replacement satellites, improve our terrestrial repeater network and for capitalized software.  In 2015, our cash flows used in investing activities also included an increase to our letters of credit issued for the benefit of lessors of certain of our office space. In 2014, our cash flows used in investing activities were primarily due to additional spending to improve our terrestrial repeater network and for capitalized software, partially offset by a special one-time dividend received from our investment in Sirius XM Canada of $24,178. We expect to continue to incur significant costs to construct replacement satellites.
Cash Flows Used in Financing Activities
Cash flows used in financing activities consists of the issuance and repayment of long-term debt, the purchase of common stock under our share repurchase program and the payment of a cash dividend.  Proceeds from long-term debt, related party debt and equity issuances have been used to fund our operations, construct and launch new satellites and invest in other infrastructure improvements.
Cash flows provided by financing activities in 2016 were due to the issuance of $1,000,000 aggregate principal amount of 5.375% Senior Notes due 2026 and borrowings under the Credit Facility. Cash flows used in financing activities in 2016 were primarily due to the purchase and retirement of shares of our common stock under our repurchase program for $1,673,518, repayments of borrowings under the Credit Facility, the redemption of $650,000 of our then outstanding 5.875% Senior Notes due 2020 and the payment of a cash dividend. Cash flows provided by financing activities in 2015 were due to the issuance of $1,000,000 aggregate principal amount of 5.375% Senior Notes due 2025 and borrowings under the Credit Facility.  Cash flows used in financing activities in 2015 were primarily due to the purchase and retirement of shares of our common stock under our repurchase program for $2,018,254 and repayments of borrowings under the Credit Facility. Cash flows used in financing activities in 2014 were primarily due to the purchase of shares of our common stock under our repurchase program from $2,496,799 and repayments under the Credit Facility. In 2014, we issued $1,500,000 aggregate principal amount of 6.00% Senior Notes due 2024.
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, legal settlements, 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, 2016, $1,360,000 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, as well as fund stock repurchases, future dividend payments and strategic opportunities.
Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors. We continually review our operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained.
We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our business plans or strategy may include: the acquisition of unique or compelling programming; the development and introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites, equipment or radio spectrum; and acquisitions and investments, including acquisitions and investments that are not directly related to our satellite radio business.
Capital Return Program
As of December 31, 2016, our board of directors had approved for repurchase an aggregate of $10,000,000 of our common stock.  As of December 31, 2016, our cumulative repurchases since December 2012 under our stock repurchase program totaled 2,203,608 shares for $7,973,837, and $2,026,163 remained available under our stock repurchase program. 

34


On October 26, 2016, our board of directors also declared the first quarterly dividend on our common stock in the amount of $0.01 per share of common stock. That dividend was paid on November 30, 2016 to stockholders of record as of the close of business on November 9, 2016. The total amount of this dividend was approximately $48,079. Our board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of $0.04 per share of common stock.
On January 24, 2017, our board of directors also declared a quarterly dividend on our common stock in the amount of $0.01 per share of common stock payable on February 28, 2017 to stockholders of record as of the close of business on February 7, 2017.
Debt Covenants
The indentures governing Sirius XM's senior notes, and the agreement governing the Credit Facility include restrictive covenants.  As of December 31, 2016, we were in compliance with such covenants.  For a discussion of our “Debt Covenants,” refer to Note 11 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We do not have any significant off-balance sheet arrangements other than those disclosed in Note 14 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Cash Commitments
For a discussion of our “Contractual Cash Commitments,” refer to Note 14 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Related Party Transactions
For a discussion of “Related Party Transactions,” refer to Note 10 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Accounting estimates require the use of significant management assumptions and judgments as to future events, and the effect of those events cannot be predicted with certainty. The accounting estimates will change as new events occur, more experience is acquired and more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and use outside experts to assist in that evaluation when we deem necessary. We have identified all significant accounting policies in Note 2 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Goodwill.   Goodwill represents the excess of the purchase price over the estimated fair value of 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. Assessments are performed at other times if events or circumstances indicate it is more likely than not that the asset is impaired. Step one of the impairment assessment compares the fair value of the entity to its carrying value and if the fair value exceeds its carrying value, goodwill is not impaired. If the carrying value exceeds the fair value, the implied fair value of goodwill is compared to the carrying value of goodwill; an impairment loss will be recorded for the amount the carrying value exceeds the implied fair value. Accounting Standards Codification (“ASC”) 350-20-35, Goodwill, states that if the carrying amount of the reporting unit is zero or negative, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any, when it is more likely than not that a goodwill impairment exists based on adverse qualitative factors.  As the carrying amount of our one reporting unit was negative as of the date of our annual assessment for 2016, we performed a qualitative analysis to determine whether it was more likely than not that a goodwill impairment exists. We were not aware of any adverse qualitative factors that would indicate any impairment to our goodwill as of the date of our annual assessment for 2016 and as of December 31, 2016. No impairment losses were recorded for goodwill during the years ended December 31, 2016, 2015 and 2014.
Long-Lived and Indefinite-Lived Assets. We carry our long-lived assets at cost less accumulated amortization and depreciation. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the

35


carrying amount of an asset is not recoverable. At the time an impairment in the value of a long-lived asset is identified, the impairment is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
Our annual impairment assessment of indefinite-lived assets, our FCC licenses and XM trademark, is performed as of the fourth quarter of each year and an assessment is made at other times if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. ASC 350-30-35, Intangibles - Goodwill and Other, provides for an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a company is not required to perform a quantitative impairment test. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. We completed qualitative assessments of our FCC licenses and XM trademark during the fourth quarter of 2016, 2015 and 2014. As of the date of our annual assessment for 2016, 2015 and 2014, our qualitative impairment assessment of the fair value of our indefinite intangible assets indicated that such assets substantially exceeded their carrying value and therefore was not at risk of impairment. No impairments were recorded for intangible assets with indefinite lives during the years ended December 31, 2016, 2015 and 2014.
Useful Life of Broadcast/Transmission System.   Our satellite system includes the costs of our satellite construction, launch vehicles, launch insurance, capitalized interest, spare satellites, terrestrial repeater network and satellite uplink facilities. We monitor our satellites for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset is not recoverable.
We operate two in-orbit Sirius satellites, FM-5 and FM-6. We estimate that our FM-5 and FM-6 satellites launched in 2009 and 2013, respectively, will operate effectively through the end of their depreciable life in 2024 and 2028, respectively.
We operate three in-orbit XM satellites, XM-3, XM-4 and XM-5. We estimate that our XM-3 and XM-4 satellites launched in 2005 and 2006, respectively, will reach the end of their depreciable lives in 2020 and 2021, respectively. Our XM-5 satellite was launched in 2010, is used as an in-orbit spare for the Sirius and XM systems and is expected to reach the end of its depreciable life in 2025.
Our satellites have been designed to last fifteen-years. Our in-orbit satellites may experience component failures which could adversely affect their useful lives. We monitor the operating condition of our in-orbit satellites and if events or circumstances indicate that the depreciable lives of our in-orbit satellites have changed, we will modify the depreciable life accordingly. If we were to revise our estimates, our depreciation expense would change.
Income Taxes.   Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
We assess the recoverability of deferred tax assets at each reporting date and, where applicable, a valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Our assessment includes an analysis of whether deferred tax assets will be realized in the ordinary course of operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities and forecasted income from operations. The underlying assumptions we use in forecasting future taxable income require significant judgment. In the event that actual income from operations differs from forecasted amounts, or if we change our estimates of forecasted income from operations, we could record additional charges or reduce allowances in order to adjust the carrying value of deferred tax assets to their realizable amount. Such adjustments could be material to our consolidated financial statements.
As of December 31, 2016, we had a valuation allowance of $47,682 relating to deferred tax assets that are not more likely than not to be realized due to certain state net operating loss limitations and acquired net operating losses that we were not likely to be utilized.
ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax position will not be recorded in the financial statements but will be shown in tabular format within the uncertain income tax positions. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs due to the following conditions: (1) the tax position is “more likely than not” to be sustained, (2) the tax

36


position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired. A number of years may elapse before an uncertain tax position is effectively settled or until there is a lapse in the applicable statute of limitations. We record interest and penalties related to uncertain tax positions in Income tax expense in our consolidated statements of comprehensive income. As of December 31, 2016, the gross liability for income taxes associated with uncertain tax positions was $303,583.

37


Glossary
Adjusted EBITDA - EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization. We adjust EBITDA to exclude the impact of other income as well as certain other charges discussed below. Adjusted EBITDA is one of the primary Non-GAAP financial measures we use to (i) evaluate the performance of our on-going core operating results period over period, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial measure that excludes (if applicable):  (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) share-based payment expense and (iii) other significant operating expense (income) that do not relate to the on-going performance of our business. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our past operating performance with our current performance and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use adjusted EBITDA to estimate our current enterprise value and to make investment decisions. Because of large capital investments in our satellite radio system our results of operations reflect significant charges for depreciation expense. We believe the exclusion of share-based payment expense is useful as it is not directly related to the operational conditions of our business. We also believe the exclusion of the legal settlements and reserves related to the historical use of sound recordings and loss on disposal of assets 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 statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure.  Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income as disclosed in our consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows:

For the Years Ended December 31,

2016
 
2015
 
2014
Net income:
$
745,933


$
509,724

 
$
493,241

Add back items excluded from Adjusted EBITDA:





 
 
Purchase price accounting adjustments:





 


Revenues
7,251


7,251

 
7,251

Operating expenses


(1,394
)
 
(3,781
)
Sound recording legal settlements and reserves
45,900

 
109,164

 

Loss on disposal of assets
12,912

 
7,384

 

Loss on change in value of derivatives

 

 
34,485

Share-based payment expense
108,604


84,310

 
78,212

Depreciation and amortization
268,979


272,214

 
266,423

Interest expense
331,225


299,103

 
269,010

Loss on extinguishment of debt and credit facilities, net
24,229

 

 

Other income
(14,985
)

(12,379
)
 
(14,611
)
Income tax expense
345,727


382,240

 
337,545

Adjusted EBITDA
$
1,875,775


$
1,657,617

 
$
1,467,775


38


ARPU - is derived from total earned subscriber revenue, advertising revenue and other subscription-related revenue, excluding revenue associated with our connected vehicle services, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee.  ARPU is calculated as follows:
 
For the Years Ended December 31,
 
2016
 
2015
 
2014
Subscriber revenue, excluding connected vehicle services
$
4,108,547


$
3,726,340

 
$
3,466,050

Add: advertising revenue
138,231


122,292

 
100,982

Add: other subscription-related revenue
478,063


410,644

 
336,408

 
$
4,724,841

 
$
4,259,276

 
$
3,903,440

Daily weighted average number of subscribers
30,494


28,337

 
26,284

ARPU
$
12.91


$
12.53

 
$
12.38

Average self-pay monthly churn - is defined as the monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.
Customer service and billing expenses, per average subscriber - is derived from total customer service and billing expenses, excluding connected vehicle customer service and billing expenses and share-based payment expense, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful as share-based payment expense is not directly related to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Customer service and billing expenses, per average subscriber, is calculated as follows:
 
For the Years Ended December 31,
 
2016
 
2015
 
2014
Customer service and billing expenses, excluding connected vehicle services
$
367,978

 
$
346,789

 
$
340,094

Less: share-based payment expense
(3,735
)
 
(2,982
)
 
(2,780
)

$
364,243

 
$
343,807

 
$
337,314

Daily weighted average number of subscribers
30,494

 
28,337

 
26,284

Customer service and billing expenses, per average subscriber
$
1.00

 
$
1.01

 
$
1.07


39


Free cash flow - is derived from cash flow provided by operating activities, net of additions to property and equipment, restricted and other investment activity and the return of capital from investment in unconsolidated entity. 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 and significant items that do not relate to the on-going performance of our business.  In a capital intensive business, with significant investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders. We believe free cash flow is an indicator of the long-term financial stability of our business.  Free cash flow, which is reconciled to “Net cash provided by operating activities,” is a Non-GAAP financial measure.  This measure can be calculated by deducting amounts under the captions “Additions to property and equipment” and deducting or adding Restricted and other investment activity from “Net cash provided by operating activities” from the consolidated statements of cash flows, adjusted for any significant legal settlements. We have excluded the $210,000 payment related to the 2015 pre-1972 sound recordings legal settlement from our free cash flow calculation in the year ended December 31, 2015.  Free cash flow should be used in conjunction with other GAAP financial performance measures and may not be comparable to free cash flow measures presented by other companies.  Free cash flow should be viewed as a supplemental measure rather than an alternative measure of cash flows from operating activities, as determined in accordance with GAAP.  Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities. We believe free cash flow provides useful supplemental information to investors regarding our current cash flow, along with other GAAP measures (such as cash flows from operating and investing activities), to determine our financial condition, and to compare our operating performance to other communications, entertainment and media companies. Free cash flow is calculated as follows:

For the Years Ended December 31,

2016
 
2015
 
2014
Cash Flow information
 
 
 
 


Net cash provided by operating activities
$
1,719,237

 
$
1,244,051

 
$
1,253,244

Net cash used in investing activities
$
(210,124
)
 
$
(138,858
)
 
$
(96,324
)
Net cash used in financing activities
$
(1,407,012
)
 
$
(1,141,079
)
 
$
(1,144,001
)
Free Cash Flow
 
 
 
 


Net cash provided by operating activities
$
1,719,237

 
$
1,244,051

 
$
1,253,244

Additions to property and equipment
(205,829
)
 
(134,892
)
 
(121,646
)
Purchases of restricted and other investments
(4,295
)
 
(3,966
)
 

Return of capital from investment in unconsolidated entity

 

 
24,178

Pre-1972 sound recordings legal settlement

 
210,000

 

Free cash flow
$
1,509,113

 
$
1,315,193

 
$
1,155,776

New vehicle consumer conversion rate - is defined as the percentage of owners and lessees of new vehicles that receive our satellite radio service and convert to become self-paying subscribers after the initial promotion period. At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. We measure conversion rate three months after the period in which the trial service ends. The metric excludes rental and fleet vehicles.
Subscriber acquisition cost, per installation - or SAC, per installation, is derived from subscriber acquisition costs and margins from the sale of radios and accessories, divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period.  SAC, per installation, is calculated as follows:

For the Years Ended December 31,

2016
 
2015
 
2014
Subscriber acquisition costs
$
512,809

 
$
532,599

 
$
493,464

Less: margin from sales of radios and accessories
(78,065
)
 
(68,199
)
 
(60,264
)

$
434,744

 
$
464,400

 
$
433,200

Installations
14,203

 
14,041

 
12,788

SAC, per installation
$
31

 
$
33

 
$
34


40


ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of December 31, 2016, we did not hold or issue any free-standing derivatives. We hold investments in money market funds and certificates of deposit. These securities are consistent with the objectives contained within our investment policy. The basic objectives of our investment policy are the preservation of capital, maintaining sufficient liquidity to meet operating requirements and maximizing yield.
Our debt includes fixed rate instruments and the fair market value of our debt is sensitive to changes in interest rates. Sirius XM's borrowings under the Credit Facility carry a variable interest rate based on LIBOR plus an applicable rate based on its debt to operating cash flow ratio. We currently do not use interest rate derivative instruments to manage our exposure to interest rate fluctuations.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements and financial statements and financial statement schedule contained in Item 15 herein, which are incorporated herein by reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation was performed under the supervision and with the participation of our management, including James E. Meyer, our Chief Executive Officer, and David J. Frear, our Senior Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2016 at the reasonable assurance level. There has been no change in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our internal control over financial reporting. Our management used the updated Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to perform this evaluation. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was effective as of December 31, 2016.
KPMG LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Annual Report on Form 10-K, has issued its report on the effectiveness of our internal control over financial reporting which follows this report.
Audit Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their audit report appearing on page F-3 of this Annual Report on Form 10-K.

41



ITEM 9B.
OTHER INFORMATION
None.
PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our executive officers is contained in the discussion entitled “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K.
The additional information required by this Item 10 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2017 annual meeting of stockholders set forth under the captions Stock Ownership, Governance of the Company, Item 1. Election of Directors and Item 3. Ratification of Independent Registered Public Accountants, which we expect to file with the Securities and Exchange Commission prior to May 1, 2017.
Code of Ethics
We have adopted a code of ethics that applies to all employees, including executive officers, and to directors.  The Code of Ethics is available on the Corporate Governance page of our website at www.siriusxm.com.  If we ever were to amend or waive any provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our internet website set forth above rather than filing a Form 8-K.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2017 annual meeting of stockholders set forth under the captions Item 1. Election of Directors and, Executive Compensation, which we expect to file with the Securities and Exchange Commission prior to May 1, 2017.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain information required by this item is set forth under the heading “Equity Compensation Plan Information” in Part II, Item 5, of this report.
The additional information required by this Item 12 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2017 annual meeting of stockholders set forth under the caption Stock Ownership, which we expect to file with the Securities and Exchange Commission prior to May 1, 2017.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2017 annual meeting of stockholders set forth under the captions Governance of the Company and Item 1. Election of Directors, which we expect to file with the Securities and Exchange Commission prior to May 1, 2017.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the 2017 annual meeting of stockholders set forth under the caption Item 3. Ratification of Independent Registered Public Accountants - Principal Accountant Fees and Services, which we expect to file with the Securities and Exchange Commission prior to May 1, 2017.

42



PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this report:
(1)  Financial Statements. See Index to Consolidated Financial Statements appearing on page F-1.
(2)  Financial Statement Schedules. See Index to Consolidated Financial Statements appearing on page F-1.
(3)  Exhibits. See Exhibit Index following this report, which is incorporated herein by reference.
ITEM 16.
FORM 10-K SUMMARY
None.


43


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 2nd day of February 2017.

SIRIUS XM HOLDINGS INC.
 
 
 
By:
 
/s/     DAVID J. FREAR
 
 
David J. Frear
 
 
Senior Executive Vice President and
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)


44


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
Date
 
 
 
 
/s/    GREGORY B. MAFFEI
 
Chairman of the Board of Directors and Director
February 2, 2017
(Gregory B. Maffei)
 
/s/    JAMES E. MEYER
 
Chief Executive Officer and Director (Principal Executive Officer)
February 2, 2017
(James E. Meyer)
 
/s/    DAVID J. FREAR
 
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 2, 2017
(David J. Frear)
 
/s/    THOMAS D. BARRY
 
Senior Vice President and Controller
(Principal Accounting Officer)
February 2, 2017
(Thomas D. Barry)
 
/s/    JOAN L. AMBLE
 
Director
February 2, 2017
(Joan L. Amble)
 
/s/    GEORGE W. BODENHEIMER
 
Director
February 2, 2017
(George W. Bodenheimer)
 
/s/    MARK D. CARLETON
 
Director
February 2, 2017
(Mark D. Carleton)
 
/s/    EDDY W. HARTENSTEIN
 
Director
February 2, 2017
(Eddy W. Hartenstein)
 
/s/    JAMES P. HOLDEN
 
Director
February 2, 2017
(James P. Holden)
 
/s/    EVAN D. MALONE
 
Director
February 2, 2017
(Evan D. Malone)
 
/s/    JAMES F. MOONEY
 
Director
February 2, 2017
(James F. Mooney)
 
/s/    CARL E. VOGEL
 
Director
February 2, 2017
(Carl E. Vogel)
 
/s/    VANESSA A. WITTMAN
 
Director
February 2, 2017
(Vanessa A. Wittman)
 
/s/    DAVID M. ZASLAV
 
Director
February 2, 2017
(David M. Zaslav)
 

45


SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



F-1


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sirius XM Holdings Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Sirius XM Holdings Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 15(2).  These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sirius XM Holdings Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for share-based payments in 2016 due to the adoption of ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sirius XM Holdings Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 2, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
 
/s/ KPMG LLP
New York, New York
February 2, 2017

F-2


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sirius XM Holdings Inc. and subsidiaries:
We have audited Sirius XM Holdings Inc. and subsidiaries’  internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sirius XM Holdings Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Sirius XM Holdings Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sirius XM Holdings Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated February 2, 2017 expressed an unqualified opinion on those consolidated financial statements.
 
 
/s/ KPMG LLP
New York, New York
February 2, 2017


F-3



SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
For the Years Ended December 31,
(in thousands, except per share data)
 
2016
 
2015
 
2014
Revenue: