UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM __________ TO ________

COMMISSION FILE NUMBER 001-34295

SIRIUS XM HOLDINGS INC.

(Exact name of registrant as specified in its charter)



Delaware		38-3916511
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1290 Avenue of the Americas, 11th Floor
New York, New York		10104
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 584-5100

Former name, former address and former fiscal year, if changed since last report: Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



Large accelerated filer þ	Accelerated filer o		Non-accelerated filer o
		(Do not check if a smaller reporting company)
Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.



(Class)	(Outstanding as of ~~October~~July 23, ~~2017)~~2018)
COMMON STOCK, $0.001 PAR VALUE	~~4,595,820,002~~4,488,104,672	SHARES

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q



Item No.	Description

	PART I - Financial Information

Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	2
	Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	3
	Consolidated Statement of Stockholders' (Deficit) Equity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018	4
	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	5
	Notes to the Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2627
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	43
Item 4.	Controls and Procedures	43

	PART II - Other Information

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4645
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
	Signatures	48

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands, except per share data)	2017			2016			2017			2016			2018			2017			2018			2017
Revenue:
Subscriber revenue	$	1,136,027		$	1,069,746		$	3,325,295		$	3,112,712		$	1,138,962		$	1,111,011		$	2,256,046		$	2,189,268
Advertising revenue	41,462			34,268			117,656			99,330			47,242			40,178			89,290			76,194
Equipment revenue	32,337			31,306			91,669			86,285			36,840			29,674			71,929			59,332
Other revenue	169,770			142,326			486,611			415,895
Music royalty fee and other revenue													209,255			166,706			390,136			316,841
Total revenue	1,379,596			1,277,646			4,021,231			3,714,222			1,432,299			1,347,569			2,807,401			2,641,635
Operating expenses:
Cost of services:
Revenue share and royalties	296,498			272,823			866,691			788,952			404,284			292,893			714,416			570,193
Programming and content	98,239			89,015			290,038			257,760			105,650			96,255			206,486			191,799
Customer service and billing	94,655			94,923			286,754			285,502			95,582			95,324			189,447			192,099
Satellite and transmission	21,378			22,224			61,557			80,609			23,478			19,603			46,200			40,179
Cost of equipment	8,254			9,674			24,537			29,181			7,674			9,371			14,771			16,283
Subscriber acquisition costs	119,555			120,111			372,197			381,516			119,778			125,154			242,471			252,642
Sales and marketing	114,519			99,194			318,135			279,278			119,435			106,707			226,146			203,616
Engineering, design and development	29,433			19,254			81,033			57,588			27,485			27,783			58,122			51,600
General and administrative	83,187			90,369			245,995			249,052			92,683			84,607			177,289			162,808
Depreciation and amortization	79,913			67,880			230,136			202,215			74,623			73,519			146,835			150,223
Total operating expenses	945,631			885,467			2,777,073			2,611,653			1,070,672			931,216			2,022,183			1,831,442
Income from operations	433,965			392,179			1,244,158			1,102,569			361,627			416,353			785,218			810,193
Other income (expense):
Interest expense	(92,634		)	(89,092		)	(257,085		)	(250,888		)	(86,917		)	(82,794		)	(176,706		)	(164,451		)
Loss on extinguishment of debt	(43,679		)	—			(43,679		)	—
Other income	86,971			2,370			83,897			15,733
Total other expense	(49,342		)	(86,722		)	(216,867		)	(235,155		)
Other income (expense)													88,212			(11,937		)	124,100			(3,074		)
Total other income (expense)													1,295			(94,731		)	(52,606		)	(167,525		)
Income before income taxes	384,623			305,457			1,027,291			867,414			362,922			321,622			732,612			642,668
Income tax expense	(108,901		)	(111,556		)	(342,387		)	(326,108		)	(70,570		)	(119,513		)	(150,819		)	(233,486		)
Net income	$	275,722		$	193,901		$	684,904		$	541,306		$	292,352		$	202,109		$	581,793		$	409,182
Foreign currency translation adjustment, net of tax	3,680			(14		)	6,426			420			(8,242		)	2,763			(17,826		)	2,746
Total comprehensive income	$	279,402		$	193,887		$	691,330		$	541,726		$	284,110		$	204,872		$	563,967		$	411,928
Net income per common share:
Basic	$	0.06		$	0.04		$	0.15		$	0.11		$	0.07		$	0.04		$	0.13		$	0.09
Diluted	$	0.06		$	0.04		$	0.14		$	0.11		$	0.06		$	0.04		$	0.13		$	0.09
Weighted average common shares outstanding:
Basic	4,618,368			4,870,281			4,660,041			4,957,820			4,481,930			4,652,426			4,486,620			4,681,223
Diluted	4,704,571			4,919,829			4,734,841			5,005,133			4,589,095			4,735,592			4,588,986			4,759,741
Dividends declared per common share	$	0.010		$	—		$	0.030		$	—		$	0.011		$	0.010		$	0.022		$	0.020

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(in thousands, except per share data)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
ASSETS	(unaudited)						(unaudited)
Current assets:
Cash and cash equivalents	$	73,553		$	213,939		$	63,516		$	69,022
Receivables, net	225,001			223,029			247,148			241,727
Inventory, net	22,469			20,363			18,967			20,199
Related party current assets	12,375			6,170			13,692			10,284
Prepaid expenses and other current assets	163,164			179,148			138,015			129,669
Total current assets	496,562			642,649			481,338			470,901
Property and equipment, net	1,427,614			1,398,693			1,468,930			1,462,766
Intangible assets, net	2,528,709			2,544,801			2,511,121			2,522,846
Goodwill	2,286,559			2,205,107			2,286,582			2,286,582
Related party long-term assets	1,017,350			8,918			1,051,337			962,080
Deferred tax assets	777,002			1,084,330			371,303			505,528
Other long-term assets	118,620			119,097			128,543			118,671
Total assets	$	8,652,416		$	8,003,595		$	8,299,154		$	8,329,374
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	736,782		$	713,034		$	871,373		$	794,341
Accrued interest	92,539			114,633			128,029			137,428
Current portion of deferred revenue	1,846,285			1,832,609			1,935,326			1,881,825
Current maturities of long-term debt	4,220			5,485			4,660			5,105
Related party current liabilities	3,018			2,840			4,103			2,839
Total current liabilities	2,682,844			2,668,601			2,943,491			2,821,538
Deferred revenue	178,180			176,319			160,286			174,579
Long-term debt	6,728,349			5,842,764			6,443,289			6,741,243
Related party long-term liabilities	6,778			7,955			6,269			7,364
Deferred tax liabilities	6,418			6,418			8,169			8,169
Other long-term liabilities	99,948			93,553			108,218			100,355
Total liabilities	9,702,517			8,795,610			9,669,722			9,853,248
Commitments and contingencies (Note 14)
Stockholders’ (deficit) equity:
Common stock, par value $0.001; 9,000,000 shares authorized; 4,604,441 and 4,746,047 shares issued; 4,601,941 and 4,740,947 outstanding at September 30, 2017 and December 31, 2016, respectively	4,604			4,745
Accumulated other comprehensive income (loss), net of tax	6,287			(139		)
Common stock, par value $0.001; 9,000,000 shares authorized; 4,485,774 and 4,530,928 shares issued; 4,485,774 and 4,527,742 outstanding at June 30, 2018 and December 31, 2017, respectively							4,485			4,530
Accumulated other comprehensive income, net of tax							4,594			18,407
Additional paid-in capital	2,159,239			3,117,666			1,267,630			1,713,816
Treasury stock, at cost; 2,500 and 5,100 shares of common stock at September 30, 2017 and December 31, 2016, respectively	(13,754		)	(22,906		)
Treasury stock, at cost; zero and 3,186 shares of common stock at June 30, 2018 and December 31, 2017, respectively							—			(17,154		)
Accumulated deficit	(3,206,477		)	(3,891,381		)	(2,647,277		)	(3,243,473		)
Total stockholders’ (deficit) equity	(1,050,101		)	(792,015		)	(1,370,568		)	(1,523,874		)
Total liabilities and stockholders’ (deficit) equity	$	8,652,416		$	8,003,595		$	8,299,154		$	8,329,374

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT) EQUITY

(UNAUDITED)


	Common Stock					Accumulated Other Comprehensive (Loss) Income				Additional Paid-in Capital				Treasury Stock						Accumulated Deficit			Total Stockholders’ (Deficit) Equity				Common Stock						Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital				Treasury Stock					Accumulated Deficit			Total Stockholders’ (Deficit) Equity
(in thousands)	Shares		Amount						Shares					Amount					Shares				Total Stockholders’ (Deficit) Equity			Amount						Shares	Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Amount						Accumulated Deficit			Total Stockholders’ (Deficit) Equity
Balance at December 31, 2016	4,746,047		$	4,745		Accumulated Other Comprehensive (Loss) Income		$	(139	Additional Paid-in Capital	)		$	3,117,666		5,100			$	Accumulated Deficit	(22,906	)	$	(3,891,381	)		$	(792,015	)
Balance at December 31, 2017																											4,530,928			$	4,530		$	18,407		$	1,713,816			3,186		$	(17,154	)	$	(3,243,473	)	$	(1,523,874	)
Cumulative effect of change in accounting principles																											—			—			4,013			—				—		—			14,403			18,416
Comprehensive income, net of tax	—		—			6,426				—				—		—				684,904			691,330				—			—			(17,826		)	—				—		—			581,793			563,967
Issuance of common stock as part of investment in Sirius XM Canada	35,000		35			—				178,815				—		—				—			178,850
Share-based payment expense	—		—			—				82,485				—		—				—			82,485				—			—			—			58,208				—		—			—			58,208
Exercise of options and vesting of restricted stock units	20,318		21			—				753				—		—				—			774				13,875			14			—			(14		)		—		—			—			—
Minimum withholding taxes on net share settlement of stock-based compensation	—		—			—				(84,560		)		—		—				—			(84,560		)		—			—			—			(71,540		)		—		—			—			(71,540		)
Cash dividends paid on common stock	—		—			—				(139,854		)		—		—				—			(139,854		)		—			—			—			(98,684		)		—		—			—			(98,684		)
Common stock repurchased	—		—			—				—				194,324		(987,111		)		—			(987,111		)		—			—			—			—				55,843		(317,061		)	—			(317,061		)
Common stock retired	(196,924	)	(197		)	—				(996,066		)		(196,924	)	996,263				—			—				(59,029	)		(59		)	—			(334,156		)		(59,029	)	334,215			—			—
Balance at September 30, 2017	4,604,441		$	4,604		$	6,287			$	2,159,239			2,500		$	(13,754	)		$	(3,206,477	)	$	(1,050,101	)
Balance at June 30, 2018																											4,485,774			$	4,485		$	4,594		$	1,267,630			—		$	—		$	(2,647,277	)	$	(1,370,568	)

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
(in thousands)	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	684,904		$	541,306		$	581,793		$	409,182
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	230,136			202,215			146,835			150,223
Non-cash interest expense, net of amortization of premium	6,731			6,571			4,713			4,231
Provision for doubtful accounts	42,329			39,629			23,944			27,377
Amortization of deferred income related to equity method investment	(2,082		)	(2,082		)	(1,388		)	(1,388		)
Loss on extinguishment of debt	43,679			—
Gain on unconsolidated entity investments, net	(7,541		)	(9,725		)
Loss on unconsolidated entity investments, net							64			2,183
Gain on fair value instrument							(117,449		)	—
Dividend received from unconsolidated entity investment	3,606			7,160			1,366			3,606
Loss on disposal of assets	—			12,912
Share-based payment expense	94,588			77,890			70,448			59,697
Deferred income taxes	318,190			308,613			134,044			220,415
Changes in operating assets and liabilities:
Receivables	(43,665		)	(38,266		)	(29,364		)	(38,063		)
Inventory	(396		)	(5,735		)	1,232			2,492
Related party, net	(77,179		)	(2,373		)	(1,722		)	(5,756		)
Prepaid expenses and other current assets	16,698			(15,985		)	(177		)	(6,617		)
Other long-term assets	7,559			26,668			8,356			5,937
Accounts payable and accrued expenses	1,951			(1,841		)	87,857			(69,078		)
Accrued interest	(22,094		)	16,715			(9,399		)	(7,042		)
Deferred revenue	9,955			52,421			85,100			30,779
Other long-term liabilities	6,395			11			7,863			4,358
Net cash provided by operating activities	1,313,764			1,216,104			994,116			792,536
Cash flows from investing activities:
Additions to property and equipment	(206,717		)	(132,246		)	(174,273		)	(119,517		)
Purchases of restricted and other investments	(7,595		)	(4,168		)
Purchases of other investments							(7,138		)	(7,355		)
Acquisition of business, net of cash acquired	(107,736		)	—			—			(107,056		)
Investment in convertible preferred stock of related party	(480,000		)	—
Loan to related party	(130,794		)	—
Payments to acquire additional ownership in related party	(132,205		)	—
Investments in related parties and other equity investees							(6,138		)	(302,526		)
Repayment from (loan to) related party							3,242			(130,794		)
Net cash used in investing activities	(1,065,047		)	(136,414		)	(184,307		)	(667,248		)
Cash flows from financing activities:
Proceeds from exercise of stock options	774			348
Taxes paid in lieu of shares issued for stock-based compensation	(84,291		)	(32,603		)	(71,501		)	(22,595		)
Net repayments related to revolving credit facility	(100,000		)	(340,000		)
Proceeds from long-term borrowings, net of costs	2,473,506			987,257
Revolving credit facility, net of deferred financing costs							(302,611		)	610,000
Principal payments of long-term borrowings	(1,509,910		)	(8,864		)	(7,717		)	(6,000		)
Payment of premiums on redemption of debt	(33,065		)	—
Common stock repurchased and retired	(996,263		)	(1,225,284		)	(334,215		)	(783,824		)
Dividends paid	(139,854		)	—			(98,684		)	(93,638		)
Net cash used in financing activities	(389,103		)	(619,146		)	(814,728		)	(296,057		)
Net (decrease) increase in cash and cash equivalents	(140,386		)	460,544
Cash and cash equivalents at beginning of period	213,939			111,838
Cash and cash equivalents at end of period	$	73,553		$	572,382
Net decrease in cash, cash equivalents and restricted cash							(4,919		)	(170,769		)
Cash, cash equivalents and restricted cash at beginning of period							79,374			223,828
Cash, cash equivalents and restricted cash at end of period⁽¹⁾							$	74,455		$	53,059


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



	June 30, 2018		December 31, 2017		June 30, 2017		December 31, 2016
Cash and cash equivalents	$	63,516	$	69,022	$	42,738	$	213,939
Restricted cash included in Prepaid expenses and other current assets	150		244		432		—
Restricted cash included in Other long-term assets	10,789		10,108		9,889		9,889
Total cash, cash equivalents and restricted cash at end of period	$	74,455	$	79,374	$	53,059	$	223,828

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(UNAUDITED)


	For the Nine Months Ended September 30,				For the Six Months Ended June 30,
(in thousands)	2017		2016		2018		2017
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized	$	270,365	$	222,110	$	178,850	$	164,147
Income taxes paid	$	16,647	$	15,857	$	5,625	$	12,264
Non-cash investing and financing activities:
Capital lease obligations incurred to acquire assets	$	—	$	6,647	$	499	$	—
Treasury stock not yet settled	$	13,754	$	12,526
Issuance of common stock as part of investment in Sirius XM Canada	$	178,850	$	—
Accumulated other comprehensive income, net of tax benefit for loan to related party	$	6,426	$	—
Change in treasury stock not yet settled					$	17,154	$	8,123
Other comprehensive loss (income), net of tax benefit					$	17,826	$	(2,746	)
Issuance of common stock as part of recapitalization of Sirius XM Canada					$	—	$	178,850

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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


(1)	Business & Basis of Presentation

This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“Holdings”). The terms “Holdings,” “we,” “us,” “our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries, and “Sirius XM” refers to our wholly-owned subsidiary Sirius XM Radio Inc. Holdings has no operations independent of its wholly-owned subsidiary, Sirius XM.

Business

We transmit music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive music and other channels, plus features such as SiriusXM On Demand, ~~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~~provide connected vehicle services. Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle operators while providing marketing and operational benefits to automakers and their dealers.

We have agreements with every major automaker (“OEMs”) to offer satellite radio in their ~~vehicles.~~vehicles, through which we acquire the majority of our subscribers. We also acquire subscribers through marketing to owners and lessees of previously owned vehicles that include factory-installed satellite radios that are not currently subscribing to our services. Our satellite radios are primarily distributed through automakers, ~~retail stores nationwide,~~retailers, and ~~through~~ our website. Satellite radio services are also offered to customers of certain rental car companies.

Our primary source of revenue is subscription fees, with most of our customers subscribing to annual, semi-annual, quarterly or monthly plans. We offer discounts for prepaid, longer-term subscription plans, as well as a multiple subscription discount. We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic and data services.

In ~~certain~~many cases, a subscription to our radio services is included inwith the ~~sale or lease price~~purchase of new or previously owned vehicles. The length of these subscriptions varies but is typically three to twelve months. We receive payments for these subscriptions from certain automakers. We also reimburse various automakers for certain costs associated with satellite radios installed in new ~~vehicles.~~

~~During the nine months ended September 30, 2017, we entered into several strategic transactions:~~

~~On April 18, 2017, Sirius XM acquired Automatic Labs Inc. (“Automatic”). Refer~~vehicles and pay revenue share to ~~Note 2 for information on this transaction.~~

~~On May 25, 2017, Sirius XM completed a recapitalization of Sirius XM Canada Holdings Inc. (“Sirius XM Canada”). Refer to Note 10 for information on this transaction.~~

~~On September 22, 2017, Sirius XM completed a $480,000 investment in Pandora Media, Inc. (“Pandora”). Refer to Note 10 for information on this transaction.~~various automakers.

As of ~~September~~June 30, ~~2017,~~2018, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly, approximately ~~69%~~70% of the outstanding shares of our common stock. As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.

Basis of Presentation

The accompanying unaudited consolidated financial statements of Holdings and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)~~, the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting.~~. Certain ~~information and footnote disclosures normally included~~numbers in ~~the~~our prior period consolidated financial statements ~~presented in accordance with GAAP~~and footnotes have been ~~condensed~~reclassified or ~~omitted pursuant~~consolidated to ~~such rules and regulations.~~

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

conform to our current period presentation.

All significant intercompany transactions have been eliminated in consolidation. In the opinion of our management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of ~~September~~June 30, ~~2017~~2018 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 have been made.

Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, which was filed with the SEC on ~~February 2, 2017.~~January 31, 2018.

Public companies are required to disclose certain information about their reportable operating segments. Operating segments are defined as significant components of an enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision ~~makers~~maker in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We have determined that we have one reportable segment as our chief

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

operating decision maker, our Chief Executive Officer, assesses performance and allocates resources based on the consolidated results of operations of our business.

We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events that do not require adjustment to our unaudited consolidated financial statements refer to Note 16.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense, and income taxes.


(2)	~~Acquisition~~

On April 18, 2017, Sirius XM acquired Automatic, a connected vehicle device and mobile application company, for an aggregate purchase price of $107,736, net of cash and restricted cash acquired of $819. Automatic has created and operates a data-driven platform that enables vehicle owners to be safer and drive smarter. The company's proprietary Automatic Pro and Automatic Lite connected car adapters provide, among other things, vehicle diagnostic alerts, emergency crash assistance, fuel monitoring, access to parking information and live vehicle location tracking.

During the three months ended September 30, 2017, we recorded an increase of $3,929 to the Deferred income tax asset, net, related to the acquired assets, which resulted in a decrease to Goodwill. During the three months ended September 30, 2017, the working capital calculation associated with this acquisition was finalized, resulting in an increase of $248 to the original purchase price and Goodwill. As of September 30, 2017, our Goodwill balance associated with the acquisition was $81,452. No other assets or liabilities have been adjusted.

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

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~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

~~The condensed table below summarizes the fair value of the assets acquired and liabilities assumed:~~

Acquired Assets:
Intangible assets subject to amortization $ 14,700
Goodwill 81,452
Deferred income tax asset, net 14,783
Other assets 4,019
Trademark 800
Total Assets $ 115,754

Assumed Liabilities:
Deferred revenue (5,582 )
Other liabilities (1,617 )
Total Liabilities $ (7,199 )
Total Consideration $ 108,555

The transaction was accounted for using the acquisition method of accounting. The initial purchase price allocation is subject to change upon receipt of the final valuation analysis for Automatic. The fair value assessed for the majority of the assets acquired and liabilities assumed equaled their carrying value. The excess purchase price over identifiable net assets of $81,452 has been recorded to Goodwill in our unaudited consolidated balance sheets as of September 30, 2017. A total of $14,700 has been allocated to identifiable intangible assets subject to amortization and relates to the assessed fair value of software and technology and a total of $800 has been allocated to the Automatic trademark.

We recognized acquisition related costs of $913 that were expensed in General and administrative expenses in our unaudited consolidated statements of comprehensive income during the nine months ended September 30, 2017. Pro forma financial information related to this acquisition has not been provided as it is not material to our consolidated results of operations.


~~(3)~~	Summary of Significant Accounting Policies

Fair Value Measurements

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are based on unadjusted quoted prices in active markets for identical instruments. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the carrying amounts of cash and cash equivalents, receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.

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

September 30, 2017 December 31, 2016
Level 1 Level 2 Level 3 Total Fair
Value Level 1 Level 2 Level 3 Total Fair
Value
Assets:

Pandora - investment ^(a)
—
$ 552,245
—
$ 552,245
—
—
—
$ —
Sirius XM Canada - investment ^(b)
—
—
—
N/A $ 178,696
—
—
$ 178,696
Liabilities:

Debt ^(c)
—
$ 7,081,843
—
$ 7,081,843
—
$ 6,008,205
—
$ 6,008,205



	June 30, 2018						December 31, 2017
	Level 1	Level 2		Level 3	Total Fair Value		Level 1	Level 2		Level 3	Total Fair Value
Assets:
Pandora Media, Inc. (“Pandora”) - investment ^(a)	—	$	597,921	—	$	597,921	—	$	480,472	—	$	480,472
Liabilities:
Debt ^(b)	—	$	6,342,699	—	$	6,342,699	—	$	6,987,473	—	$	6,987,473


(a)	During the ~~nine months~~year ended ~~September 30,~~December 31, 2017, Sirius XM completed a $480,000 investment in Pandora. We have elected the fair value option to account for this investment. Refer to Note 10 for information on this transaction.


(b)	The fair value for non-publicly traded debt is based upon estimates from a market maker and brokerage firm. Refer to Note 11 for information related to the carrying value of our debt as of June 30, 2018 and December 31, 2017.

Accumulated Other Comprehensive Income (Loss)

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

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

~~(b)~~

During the nine months ended September 30, 2017, Sirius XM completed a recapitalization of Sirius XM Canada. Following this recapitalization, Sirius XM Canada ceased to be a publicly traded company. Refer to Note 10 for information on this transaction. The amount as of December 31, 2016 approximated fair value. The carrying value of our investment in Sirius XM Canada was $323,593 and $8,615 as of September 30, 2017 and December 31, 2016, respectively. Additionally, as part of this transaction we loaned Sirius XM Canada $130,794. The carrying value of the loan as of September 30, 2017 was $141,189 and approximated its fair value.


~~(c)~~	The fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. Refer to Note 11 for information related to the carrying value of our debt as of September 30, 2017 and December 31, 2016.

~~Accumulated Other Comprehensive Income (Loss)~~

Accumulated other comprehensive income of $6,287 was primarily comprised of the cumulative foreign currency translation adjustments related to the loan to Sirius XM Canada (refer to Note 10 for additional information related to this loan). During the three and nine months ended September 30, 2017, we recorded a foreign currency translation adjustment gain of $3,680 and $6,426, respectively, which is recorded net of a tax benefit of $2,176 and $3,921, respectively.

Recent Accounting Pronouncements

In ~~January 2017,~~June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU ~~2017-04,~~2018-07, ~~Intangibles - Goodwill~~Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and ~~Other (Topic 350)~~.awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, entities should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, this ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU areis effective for fiscal years beginning after December 15, ~~2019,~~2018, including interim periods within those fiscal years, and ~~is applied on a prospective basis. Early~~early adoption is ~~permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.~~permitted. We are ~~currently~~in the process of evaluating the impact of ~~the~~ adoption of this ~~ASU. We do not believe that the adoption of this guidance will have a material impact~~ASU on our consolidated financial statements.

In February 2016, ~~the~~ FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a company to recognize lease assets and liabilities arising from operating leases in the statement of financial position. This ASU does not significantly change the previous lease guidance for how a lessee should recognize the recognition, measurement, and presentation of expenses and cash flows arising from a lease. Additionally, the criteria for classifying a finance lease versus an operating lease are substantially the same as the previous guidance. ~~The amendments in this~~This ASU ~~are~~is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. ~~This ASU must be adopted using a modified retrospective approach.~~The FASB recently issued an exposure draft amending certain aspects of the new leasing standard. The proposed amendment allows adoption of the standard as of the effective date without restating prior periods. We plan to adopt this ASU on January 1, 2019. We ~~are in~~expect the ~~process of evaluating the impact of~~ adoption of ~~the~~ ASU ~~on our consolidated financial statements. We currently believe the most significant changes~~2016-02 will ~~be related to~~result in the recognition of right-of-use assets and lease ~~liability~~liabilities on our consolidated balance ~~sheet~~sheets for operating leases.

Recently Adopted Accounting Policies

ASU 2014-09, Revenue - Revenue from Contracts with Customers. In May 2014, the FASB issued ASU 2014-09 ~~Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that~~which requires ~~a company~~entities to recognize ~~revenue to depict~~revenues when control of the ~~transfer of~~promised goods or services is transferred to ~~a customer~~customers at an amount that reflects the consideration itto which the entity expects to ~~receive~~be entitled to in exchange for those goods or services. ~~This ASU also~~In addition, the standard requires ~~additional~~ disclosure ~~about~~of the nature, amount, timing and uncertainty of revenue and cash flows arising from ~~customer~~ contracts ~~including significant judgments~~with customers. We adopted ASU 2014-09, and ~~changes~~all related amendments, which established ASC Topic 606 (the "new revenue standard"), effective as of January 1, 2018. We adopted the new revenue standard using the modified retrospective method by recognizing the cumulative effect of initially applying the new revenue standard to all non-completed contracts as of January 1, 2018 as an adjustment to opening Accumulated deficit in ~~judgments~~the period of adoption. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

The new revenue standard primarily impacts how we account for revenue share payments and also has other immaterial impacts.

Revenue Share - Paid Trials

We previously recorded revenue share related to paid trials as Revenue share and royalties expense. Under the new revenue standard, we have recorded these revenue share payments as a reduction to revenue as the payments do not transfer a distinct good or service to us. Prior to the adoption, we recognized revenue share related to paid trial subscriptions as the Current portion of deferred revenue. Under the new revenue standard, we reclassified the revenue share related to paid trial subscriptions existing as of the date of adoption from Current portion of deferred revenue to Accounts payable and accrued expenses. For new paid trial subscriptions, the net amount of the paid trial subscription will be recorded as deferred revenue and the portion of revenue share will be recorded to Accounts payable and accrued expenses.

Other Impacts

Other impacts of the new revenue standard include:

Activation fees were previously recognized over the expected subscriber life using the straight-line method. Under the new revenue standard, the activation fees have been recognized over a one month period from activation as the

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

activation fees are non-refundable and they do not convey a material right. As of January 1, 2018, we reduced deferred revenue related to activation fees of $8,260, net of tax, to Accumulated deficit.

Loyalty payments to OEMs were previously expensed when incurred as Subscriber acquisition costs. Under the new revenue standard, these costs have been capitalized in Prepaid expenses and other current assets ~~recognized from~~as costs ~~incurred~~ to obtain ~~or fulfill~~ a ~~contract.~~contract and these costs will be amortized to Subscriber acquisition costs over an average self-pay subscriber life of that OEM. As of January 1, 2018, we capitalized previously expensed loyalty payments of $10,156, net of tax, to Prepaid expenses and other current assets by reducing Accumulated deficit.

These changes do not have a material impact to our financial statements.

ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In ~~August 2015,~~February 2018, the FASB issued ASU ~~2015-14~~2018-02 to amend its standard on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) that was passed in December 2017 from accumulated other comprehensive income (“AOCI”) directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which ~~amended~~were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The guidance is effective ~~date of this ASU to~~for interim and fiscal years beginning after December 15, ~~2017, and~~2018, with early adoption ~~is permitted only for fiscal years beginning after December 15, 2016. In 2016,~~permitted. We elected to adopt ASU 2018-02 effective January 1, 2018 and reclassified the ~~FASB issued additional guidance which clarified principal versus agent considerations, identification~~stranded tax effects due to the Tax Act of ~~performance obligations and the implementation guidance for licensing. In addition, the FASB issued guidance regarding practical expedients~~$4,013 related to ~~disclosures of remaining performance obligations, as well as other amendments~~the currency translation adjustment from our investment balance and note receivable with Sirius XM Canada from AOCI to ~~the guidance on transition, collectibility, non-cash consideration and the presentation of sales and other similar taxes.~~ Accumulated deficit.

The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of ~~applying~~ the ~~standard would be recognized at~~changes made to our consolidated balance sheet as of January 1, 2018 for the ~~date~~adoption of ~~initial application. We currently plan to adopt this~~ ASU ~~under~~2014-09 and ASU 2018-02 are included in the ~~modified retrospective method.~~table below.



	Balance at December 31, 2017			Adjustments Due to ASU 2014-09			Adjustments Due to ASU 2018-02			Balance at January 1, 2018
Balance Sheet
Assets
Prepaid expenses and other current assets	$	129,669		$	8,262		$	—		$	137,931
Other long-term assets	118,671			2,576			—			121,247
Deferred tax assets	505,528			(5,915		)	—			499,613

Liabilities:
Accounts payable and accrued expenses	794,341			32,399			—			826,740
Current portion of deferred revenue	1,881,825			(41,902		)	—			1,839,923
Deferred revenue	174,579			(3,990		)	—			170,589

Equity:
Accumulated deficit	(3,243,473		)	18,416			(4,013		)	(3,229,070		)
AOCI, net of tax	18,407			—			4,013			22,420

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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

~~We have completed our evaluation~~



	For the Three Months Ended June 30, 2018									For the Six Months Ended June 30, 2018
	As Reported			Impact of Adopting ASU 2014-09			Balances Without Adoption of ASU 2014-09			As Reported			Impact of Adopting ASU 2014-09			Balances Without Adoption of ASU 2014-09
Income Statement
Revenues
Subscriber revenue	$	1,138,962		$	23,787		$	1,162,749		$	2,256,046		$	48,179		$	2,304,225

Expenses
Revenue share and royalties	404,284			22,235			426,519			714,416			44,304			758,720
Subscriber acquisition costs	119,778			800			120,578			242,471			1,845			244,316
Income tax expense	(70,570		)	(146		)	(70,716		)	(150,819		)	(418		)	(151,237		)

Net Income	$	292,352		$	606		$	292,958		$	581,793		$	1,612		$	583,405

The adoption of the new revenue standard did not have a material impact on our unaudited consolidated balance sheet as of June 30, 2018.

ASU 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU updates the guidance related to the statement of cash flows and requires that the statement include restricted cash with cash and cash equivalents when reconciling beginning and ending cash. The guidance was effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. We adopted this ASU ~~will have on our primary revenue streams. Based on our assessment~~effective January 1, 2018. As a result of the ~~impact~~adoption, we have added restricted cash to the reconciliation of ~~implementing this ASU on January 1, 2018 under~~beginning and ending cash and cash equivalents and included a reconciliation of total cash, cash equivalents and restricted cash to the balance sheet for each period presented in the unaudited consolidated statements of cash flows.


(3)	Revenues

Adoption of the new revenue standard

We adopted the new revenue standard using the modified retrospective method by recognizing the ~~most significant impact~~cumulative effect of initially applying the ~~ASU relates~~new revenue standard to all non-completed contracts as of January 1, 2018 as an adjustment to opening Accumulated deficit in the period of adoption. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605.

Disaggregation of Revenue

We disaggregate our revenues as shown in the unaudited consolidated statements of comprehensive income.

Nature of goods and services

The following is a description of principal activities from which we generate our revenue, including from subscribers, advertising, and sales of equipment.

Subscription Revenue

Subscription revenue consists primarily of subscription fees and other ancillary subscription based revenues. Revenue is recognized on a straight line basis when the performance obligations to provide each service for the period are satisfied, which is over time as our subscription services are continuously transmitted and can be consumed by customers at any time. Consumers purchasing or leasing a vehicle with a factory-installed satellite radio typically receive between a three and twelve month subscription to our service. In certain cases, the subscription fees for these consumers are prepaid by the applicable

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

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

automaker. Prepaid subscription fees received from certain automakers or directly from consumers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon sale and activation. Activation fees are recognized over one month as the activation fees are non-refundable and do not provide for a material right to the ~~classification~~customer. There is no revenue recognized for unpaid trial subscriptions. In some cases we pay a loyalty fee to the OEM when we receive a certain amount of payments from self-pay customers acquired from that OEM. These fees are considered incremental costs to obtain a contract and are, therefore, recognized as an asset and amortized to Subscriber acquisition costs over an average subscriber life of that OEM. Revenue share and ~~certain subsidy payments made~~loyalty fees paid to ~~automakers associated with~~the OEM offering a paid ~~promotional subscription. Under the new standard, these payments associated with a paid promotional subscription will be treated~~trial are accounted for as a reduction of revenue as the payment does not provide a distinct good or service.

Advertising Revenue

We recognize revenue from the sale of advertising as performance obligations are satisfied upon airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is transmitted. Agency fees are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. Additionally, we pay certain third parties a percentage of advertising revenue. Advertising revenue is recorded gross of such revenue share payments as we control the ~~transaction price rather than as an expense as classified under ASC 605. We expect this change~~advertising service, including the ability to ~~reduce Subscription~~establish pricing, and we are primarily responsible for providing the service. Advertising revenue ~~by less than 3% upon adoption along with a corresponding reduction~~share payments are recorded to Revenue share and royalties during the period in which the advertising is transmitted.

Equipment Revenue

Equipment revenue and ~~Subscriber acquisition~~royalties from the sale of satellite radios, components and accessories are recognized when the performance obligation is satisfied and control is transferred, which is generally upon shipment. Revenue is recognized net of discounts and rebates.

Music Royalty Fee and Other Revenue

Music Royalty Fee and Other Revenue primarily consists of U.S. music royalty fees ("MRF"). The related costs we incur for the right to broadcast music and other programming are recorded as ~~a result, we do not expect this change~~Revenue share and royalties expense. Fees received from subscribers for the MRF are recorded as deferred revenue and amortized to ~~have an impact~~revenue ratably over the service period as the royalties relate to the subscription services which are continuously delivered to our ~~Net income. Additionally, within~~customers.

Deferred Revenue

Customers generally pay for the services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in our unaudited consolidated statement of comprehensive income as the services are provided. Changes in the liability balance ~~sheets, upon adoption,~~during the ~~amount~~period ended June 30, 2018 was not materially impacted by other factors.

Transaction Price Allocated to the Remaining Performance Obligations

As the majority of our contracts are one year or less, we have utilized the optional exemption under ASC 606-10-50-14 and will not disclose information about the remaining performance obligations for contracts which have original expected durations of one year or less. As of June 30, 2018, less than ten percent of our total deferred revenue ~~share and certain subsidy payments made~~balance related to ~~automakers associated with a paid promotional subscription~~contracts that extended beyond one year. These contracts primarily include prepaid data trials which are typically provided for three to five years as well as for self-pay customers who prepay for their audio subscriptions for up to three years in advance. These amounts will be ~~classified~~recognized on a straight-line basis as ~~a liability separate from deferred revenue.~~

~~The adoption of this ASU will also have an impact to the timing of recognition of certain other ancillary revenue and expense streams, which we do not expect to have a material impact to~~ our ~~consolidated financial statements.~~

We expect to complete our implementation process, which includes the necessary changes to our business processes, systems and controls to support recognition and disclosure, prior to the adoption of this ASU on January 1, 2018.services are provided.


(4)	Earnings per Share

Basic net income per common share is calculated by dividing the income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average number of common shares outstanding for the potential dilution that could occur if common stock equivalents (stock options and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method. We had no participating securities during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

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

Common stock equivalents of ~~54,555~~24,191 and ~~192,134~~35,468 for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~42,481~~45,032 and ~~239,205~~35,447 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Numerator:
Net income available to common stockholders for basic and diluted net income per common share	$	275,722	$	193,901	$	684,904	$	541,306	$	292,352	$	202,109	$	581,793	$	409,182
Denominator:
Weighted average common shares outstanding for basic net income per common share	4,618,368		4,870,281		4,660,041		4,957,820		4,481,930		4,652,426		4,486,620		4,681,223
Weighted average impact of dilutive equity instruments	86,203		49,548		74,800		47,313		107,165		83,166		102,366		78,518
Weighted average shares for diluted net income per common share	4,704,571		4,919,829		4,734,841		5,005,133		4,589,095		4,735,592		4,588,986		4,759,741
Net income per common share:
Basic	$	0.06	$	0.04	$	0.15	$	0.11	$	0.07	$	0.04	$	0.13	$	0.09
Diluted	$	0.06	$	0.04	$	0.14	$	0.11	$	0.06	$	0.04	$	0.13	$	0.09


(5)	Receivables, net

Receivables, net, includes customer accounts receivable, receivables from distributors and other receivables.

Customer accounts receivable, net, includes receivables from our subscribers and other customers, including advertising, and is stated at amounts due, net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors. We consider historical experience, the age of the receivable balances, current economic conditions and other factors that may affect the counterparty’s ability to pay. Bad debt expense is included in Customer service and billing expense in our unaudited consolidated statements of comprehensive income.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

Receivables from distributors primarily include billed and unbilled amounts due from OEMs for services included in the sale or lease price of vehicles, as well as billed amounts due from wholesale distributors of our satellite radios. Other receivables primarily include amounts due from manufacturers of our radios, modules and chipsets where we are entitled to subsidies and royalties based on the number of units produced. We have not established an allowance for doubtful accounts for our receivables from distributors or other receivables as we have historically not experienced any significant collection issues with OEMs or other third parties.

Receivables, net, consists of the following:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Gross customer accounts receivable	$	105,875		$	105,737		$	105,764		$	100,342
Allowance for doubtful accounts	(9,967		)	(8,658		)	(8,302		)	(9,500		)
Customer accounts receivable, net	$	95,908		$	97,079		$	97,462		$	90,842
Receivables from distributors	102,523			98,498			121,407			121,410
Other receivables	26,570			27,452			28,279			29,475
Total receivables, net	$	225,001		$	223,029		$	247,148		$	241,727


(6)	Inventory, net

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

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

held for resale by us is reported as a component of Cost of equipment in our unaudited consolidated statements of comprehensive income. The provision related to inventory consumed in our OEM channel is reported as a component of Subscriber acquisition costs in our unaudited consolidated statements of comprehensive income.

Inventory, net, consists of the following:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Raw materials	$	6,649		$	10,219		$	5,615		$	6,489
Finished goods	23,962			19,581			18,915			21,225
Allowance for obsolescence	(8,142		)	(9,437		)	(5,563		)	(7,515		)
Total inventory, net	$	22,469		$	20,363		$	18,967		$	20,199


(7)	Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our single reporting unit is performed as of the fourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. IfASC 350, Intangibles - Goodwill and Other, states that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASC 350 also states that a reporting unit with a zero or negative carrying amount is not required to perform a qualitative assessment. The carrying amount recorded for our one reporting unit and goodwill was $(1,370,568) and $2,286,582, respectively, as of ~~goodwill exceeds its fair value, an impairment loss is recognized. As a result of the acquisition of Automatic, we recorded additional goodwill of $81,452 during the nine months ended September~~June 30, ~~2017.~~2018.

As of ~~September~~June 30, ~~2017,~~2018, there were no indicators of impairment, and no impairment ~~loss was~~losses were recorded for goodwill during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. As of ~~September~~June 30, ~~2017,~~2018, the cumulative balance of goodwill impairments recorded since the July 2008 merger (the “Merger”) between our wholly owned subsidiary, Vernon Merger Corporation, and XM Satellite Radio Holdings Inc. (“XM”), was $4,766,190, which was recognized during the year ended December 31, 2008.


(8)	Intangible Assets

Our intangible assets include the following:



		June 30, 2018							December 31, 2017
	Weighted Average Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Indefinite life intangible assets:
FCC licenses	Indefinite	$	2,083,654	$	—		$	2,083,654	$	2,083,654	$	—		$	2,083,654
Trademarks	Indefinite	250,800		—			250,800		250,800		—			250,800
Definite life intangible assets:
Subscriber relationships	9 years	—		—			—		380,000		(380,000		)	—
OEM relationships	15 years	220,000		(68,444		)	151,556		220,000		(61,111		)	158,889
Licensing agreements	12 years	45,289		(36,193		)	9,096		45,289		(34,350		)	10,939
Software and technology	7 years	33,872		(17,857		)	16,015		43,915		(25,351		)	18,564
Total intangible assets		$	2,633,615	$	(122,494	)	$	2,511,121	$	3,023,658	$	(500,812	)	$	2,522,846

Indefinite Life Intangible Assets

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

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~~(8)~~	~~Intangible Assets~~

~~Our intangible assets include the following:~~

September 30, 2017 December 31, 2016
Weighted
Average
Useful Lives Gross
Carrying
Value Accumulated Amortization Net Carrying
Value Gross
Carrying
Value Accumulated Amortization Net Carrying
Value
Indefinite life intangible assets:

FCC licenses Indefinite $ 2,083,654
$ —
$ 2,083,654
$ 2,083,654
$ —
$ 2,083,654
Trademark Indefinite 250,800
—
250,800
250,000
—
250,000
Definite life intangible assets:

Subscriber relationships 9 years 380,000
(380,000 ) —
380,000
(364,893 ) 15,107
OEM relationships 15 years 220,000
(57,444 ) 162,556
220,000
(46,444 ) 173,556
Licensing agreements 12 years 45,289
(33,428 ) 11,861
45,289
(30,664 ) 14,625
Software and technology 7 years 43,915
(24,077 ) 19,838
29,215
(21,356 ) 7,859
Total intangible assets $ 3,023,658
$ (494,949 ) $ 2,528,709
$ 3,008,158
$ (463,357 ) $ 2,544,801

~~Indefinite Life Intangible Assets~~

We have identified our FCC licenses and the XM trademark as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use. As part of the Automatic acquisition in April 2017, we have also identified $800 related to its trademark.

We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our satellite licenses expires:



FCC satellite licenses		Expiration year
SIRIUS FM-5		2025
SIRIUS FM-6		2022
XM-3		2021
XM-4		2022
XM-5		2018

Prior to expiration, we are required to apply for a renewal of our FCC licenses. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred. Each of the FCC licenses authorizes us to use the radio spectrum, which is a renewable, reusable resource that does not deplete or exhaust over time.

Our annual impairment assessment of our identifiable indefinite life intangible assets is performed as of the fourth quarter of each year. An assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets exceeds its fair value, an impairment loss is recognized. As of ~~September~~June 30, ~~2017,~~2018, there were no indicators of impairment, and no impairment loss was ~~recorded,~~recognized for intangible assets with indefinite lives during the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017.

Definite Life Intangible Assets

Amortization expense for all definite life intangible assets was $5,863 and $12,098 for the three months ended June 30, 2018 and 2017, respectively, and ~~2016.~~$11,725 and $23,626 for the six months ended June 30, 2018 and 2017, respectively. We retired definite lived intangible assets of $390,043 during the six months ended June 30, 2018 primarily related to fully amortized subscriber relationships. There were no retirements of definite lived intangible assets during the six months ended June 30, 2017. The expected amortization expense for the remaining period in 2018, each of the fiscal years 2019 through 2022 and for periods thereafter is as follows:



Years ending December 31,	Amount
2018 (remaining)	$	11,413
2019	22,701
2020	22,121
2021	16,678
2022	15,542
Thereafter	88,212
Total definite life intangible assets, net	$	176,667

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(UNAUDITED)

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


(9)	Property and Equipment

Property and equipment, net, consists of the following:



	June 30, 2018			December 31, 2017
Satellite system	$	1,586,794		$	1,586,794
Terrestrial repeater network	124,904			123,254
Leasehold improvements	59,477			57,635
Broadcast studio equipment	101,338			96,582
Capitalized software and hardware	719,433			639,516
Satellite telemetry, tracking and control facilities	74,201			69,147
Furniture, fixtures, equipment and other	98,849			96,965
Land	38,411			38,411
Building	61,844			61,824
Construction in progress	347,196			301,153
Total property and equipment	3,212,447			3,071,281
Accumulated depreciation and amortization	(1,743,517		)	(1,608,515		)
Property and equipment, net	$	1,468,930		$	1,462,766

Construction in progress consists of the following:



	June 30, 2018		December 31, 2017
Satellite system	$	231,047	$	183,243
Terrestrial repeater network	2,972		2,515
Capitalized software and hardware	95,555		94,456
Other	17,622		20,939
Construction in progress	$	347,196	$	301,153

Depreciation and amortization expense on property and equipment was $68,760 and $61,421 for the three months ended June 30, 2018 and 2017, respectively, and $135,110 and $126,597 for the six months ended June 30, 2018 and 2017, respectively. We retired property and equipment of $14,760 during the six months ended June 30, 2017. There were no retirements of property and equipment during the six months ended June 30, 2018.

We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites. Capitalized interest is recorded as part of the asset’s cost and depreciated over the satellite’s useful life. Capitalized interest costs were $2,901 and $1,005 for the three months ended June 30, 2018 and 2017, respectively, and $5,155 and $1,723 for the six months ended June 30, 2018 and 2017, respectively, which related to the construction of our SXM-7 and SXM-8 satellites.

Satellites

As of June 30, 2018, we owned a fleet of five satellites. The chart below provides certain information on our satellites as of June 30, 2018:



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

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(UNAUDITED)

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

~~Definite Life Intangible Assets~~

As part of the Automatic acquisition in April 2017, $14,700 was allocated to identifiable intangible assets subject to amortization and relates to the assessed fair value of software and technology. Amortization expense for all definite life intangible assets was $7,966 and $12,080 for the three months ended September 30, 2017 and 2016, respectively, and $31,592 and $36,778 for the nine months ended September 30, 2017 and 2016, respectively. Expected amortization expense for the remaining period in 2017, each of the fiscal years 2018 through 2021 and for periods thereafter is as follows:

Years ending December 31, Amount
2017 (remaining) $ 5,863
2018 23,138
2019 22,701
2020 22,121
2021 16,678
Thereafter 103,754
Total definite life intangible assets, net $ 194,255


~~(9)~~	~~Property and Equipment~~

~~Property and equipment, net, consists of the following:~~

September 30, 2017 December 31, 2016
Satellite system $ 1,586,794
$ 1,586,794
Terrestrial repeater network 123,584
127,854
Leasehold improvements 55,090
53,898
Broadcast studio equipment 91,181
84,697
Capitalized software and hardware 579,075
558,101
Satellite telemetry, tracking and control facilities 67,492
77,290
Furniture, fixtures, equipment and other 90,817
90,214
Land 38,411
38,411
Building 61,810
61,597
Construction in progress 280,614
144,954
Total property and equipment 2,974,868
2,823,810
Accumulated depreciation and amortization (1,547,254 ) (1,425,117 )
Property and equipment, net $ 1,427,614
$ 1,398,693

~~Construction in progress consists of the following:~~

September 30, 2017 December 31, 2016
Satellite system $ 141,707
$ 43,977
Terrestrial repeater network 2,215
1,139
Capitalized software 112,561
82,204
Other 24,131
17,634
Construction in progress $ 280,614
$ 144,954

Depreciation and amortization expense on property and equipment was $71,947 and $55,800 for the three months ended September 30, 2017 and 2016, respectively, and $198,544 and $165,437 for the nine months ended September 30, 2017 and 2016, respectively. We retired property and equipment of $77,040 and $583,562 during the nine months ended September 30, 2017 and 2016, respectively. We recognized a loss on disposal of assets of $12,912, which was recorded in Satellite and

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

transmission expense in our unaudited consolidated statements of comprehensive income, during the nine months ended September 30, 2016, which related to the disposal of certain obsolete spare parts for a future satellite.

We capitalize a portion of the interest on funds borrowed to finance the construction and launch of our satellites and launch vehicles. Capitalized interest is recorded as part of the asset’s cost and depreciated over the satellite’s useful life. Capitalized interest costs was $1,324 and $3,047 for the three and nine months ended September 30, 2017, respectively, and $107 for the three and nine months ended September 30, 2016, which related to the construction of our SXM-7 and SXM-8 satellites.

~~Satellites~~

~~As of September 30, 2017, we owned a fleet of five satellites. The chart below provides certain information on our satellites as of September 30, 2017:~~

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


(10)	Related Party Transactions

In the normal course of business, we enter into transactions with related ~~parties.~~parties such as Liberty Media, Sirius XM Canada and Pandora.

Liberty Media

As of ~~September~~June 30, ~~2017,~~2018, Liberty Media beneficially owned, directly and indirectly, approximately ~~69%~~70% of the outstanding shares of our common ~~stock and~~stock. Liberty Media has two executives and one of its directors on our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Sirius XM Canada

On May 25, 2017, Sirius XM completed a recapitalization of Sirius XM Canada (the “Transaction”), which is now a privately held corporation.

Following the Transaction, Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, with the remainder of the voting power and equity ~~interest~~interests held by two of Sirius XM Canada’s previous shareholders. The total consideration from Sirius XM to Sirius XM Canada, excluding transaction costs, during the ~~nine months~~year ended ~~September 30,~~December 31, 2017 was $308,526, which included $129,676 in cash and we issued 35,000 shares of our common stock with an aggregate value of $178,850 to the holders of the shares of Sirius XM Canada acquired in the Transaction. Sirius XM received common stock, non-voting common stock and preferred stock of Sirius XM Canada. ~~Sirius XM now owns~~We own 590,950 shares of preferred stock of Sirius XM Canada, which has a liquidation preference of one Canadian dollar per share.

In connection with the Transaction, Sirius XM also made a contribution in the form of a loan to Sirius XM Canada in the aggregate amount of ~~$130,794 on May 25, 2017.~~$130,794. The loan is denominated in Canadian dollars and is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. ~~Such~~The loan has a term of fifteen years, bears interest at a rate of 7.62% per annum and includes customary covenants and events of default, including an event of default relating to Sirius XM Canada’s failure to maintain specified leverage ratios. ~~In addition, the~~The terms of the loan require Sirius XM Canada to prepay a portion of the outstanding principal amount of the loan within sixty days of the end of each fiscal year in an amount equal to any cash on hand in excess of C$10,000 at the last day of the financial year if all target dividends have been paid in full. During the six months ended June 30, 2018, Sirius XM Canada repaid $3,242 of the principal amount of the loan.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

Canada ~~will pay~~pays Sirius XM 25% of its gross revenues on a monthly basis through December 31, 2021 and 30% of its gross revenues on a monthly basis thereafter. Pursuant to the Advisory Services Agreement, Sirius XM Canada ~~will pay~~pays Sirius XM 5% of its gross revenues on a monthly basis. These agreements ~~supersede~~superseded and ~~replace~~replaced the ~~existing~~former agreements between Sirius XM Canada and its predecessors and Sirius XM.

Sirius XM Canada is accounted for as an equity method investment, and its results are not consolidated in our unaudited consolidated financial statements. ~~We do~~Sirius XM Canada does not meet the requirements for consolidation as we do not have the ability to direct the most significant activities that impact Sirius XM Canada's economic performance.

We had the following related party balances associated with Sirius XM Canada:


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Related party current assets	$	12,375	$	6,170	$	13,692	$	10,284
Related party long-term assets	$	465,105	$	8,918	$	453,416	$	481,608
Related party current liabilities	$	3,018	$	2,840	$	4,103	$	2,839
Related party long-term liabilities	$	6,778	$	7,955	$	6,269	$	7,364

~~Under the legacy agreement with Sirius XM Canada, as~~As of June 30, 2018 and December 31, ~~2016, our related party current assets balance primarily consisted of activation fees and streaming and chipset costs for which we were reimbursed. As of September 30,~~ 2017, our related party current asset balance included amounts due under the ~~new services arrangements~~Services Agreement and Advisory Services Agreement and certain amounts related to transactions outside the scope of the new services arrangements. Our related party long-term assets balance as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 included the

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

carrying value of our investment balance in Sirius XM Canada of ~~$323,593~~$323,226 and ~~$8,615,~~$341,214, respectively, and, as of ~~September~~June 30, 2018 and December 31, 2017, also included ~~$141,189~~$130,190 and $140,073, respectively, for the ~~current~~long-term value of the outstanding loan to Sirius XM Canada. Our related party liabilities as of each of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 included $2,776 for the current portion of deferred revenue and ~~$5,782~~$3,700 and ~~$7,867,~~$5,088, respectively, for the long-term portion of deferred revenue recorded as of the Merger date related to agreements with legacy XM Canada, now Sirius XM Canada. These costs are being amortized on a straight line basis through 2020.

Sirius XM Canada paid gross dividends to us of $408 during the three months ended June 30, 2018 and $1,439 and $3,796 during the six months ended June 30, 2018 and 2017, respectively. Sirius XM Canada did not pay any dividends to us during the three months ended June 30, 2017. Dividends are first recorded as a reduction to our investment balance in Sirius XM Canada to the extent a balance exists and then as Other income for any remaining portion.

We recorded the following revenue and other income associated with Sirius XM Canada in our unaudited consolidated statements of comprehensive income:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017		2016		2017		2016		2018			2017			2018		2017
Revenue ^(a)(b)	$	23,141	$	11,551	$	63,486	$	32,129	$	23,273		$	28,129		$	47,370	$	40,345
Other income
Share of net earnings ^(b)	$	9,725	$	1,274	$	7,542	$	9,725	$	(896	)	$	(5,197	)	$	85	$	(2,183	)
Dividends ^(c)	$	—	$	—	$	—	$	3,575
Interest income ^(d)	$	2,718	$	—	$	3,521	$	—
Interest income ^(c)									$	2,557		$	803		$	5,204	$	803

(a)

Prior to the Transaction, under our ~~legacy~~former agreements with Sirius XM Canada, we received a percentage-based fee of 10% and 15% for certain types of subscription revenue earned by Sirius XM Canada for the use of the Sirius and XM platforms, respectively, and additional fees for premium services and fees for activation fees and reimbursements for other charges. We record revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income.

(b)

Prior to the Transaction, we recognized our proportionate share of revenue and earnings or losses attributable to Sirius XM Canada ~~as they occurred as Other revenue and as a component of Other income, respectively, in our unaudited consolidated statements of comprehensive income~~ on a one month lag. As a result of the Transaction, there is no longer a one-month lag ~~for recognizing our proportionate share of revenue~~ and ~~earnings or losses attributable to~~ Sirius XM ~~Canada.~~Canada changed its fiscal year-end to December 31 to align with us. For the three and six months ended June 30, 2018, Share of net earnings included $611 and $1,234, respectively, of amortization related to equity method intangible assets.

(c)

~~Sirius XM Canada did not pay any dividends to us during the three months ended September 30, 2017 and 2016. Sirius XM Canada paid gross dividends to us of $3,796~~ ~~and~~ $7,548 during the nine months ended September 30, 2017 and 2016, respectively. These dividends were first recorded as a reduction to our investment balance in Sirius XM Canada to the extent a balance existed and then as Other income for the remaining portion.


~~(d)~~	This interest income relates to the loan to Sirius XM Canada and is recorded as Other income in our unaudited consolidated statements of comprehensive income.

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

Pandora

On September 22, 2017, Sirius XM completed a $480,000 investment in Pandora. Pursuant to an Investment Agreement with Pandora, Sirius XM purchased 480 shares of Pandora’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $480,000. ~~The~~As of June 30, 2018, the Series A ~~preferred stock~~Preferred Stock, including accrued but unpaid dividends, represents a stake of approximately ~~19%~~18% of Pandora's ~~currently outstanding~~ common stock outstanding and approximately a ~~16%~~15% interest on an as-converted basis. Pandora operates an internet-based music discovery platform, offering a personalized experience for listeners.

The Series A Preferred Stock is convertible at the option of the holders at any time into shares of common stock of Pandora (“Pandora Common Stock”) at an initial conversion price of $10.50 per share of Pandora Common Stock and an initial conversion rate of 95.2381 shares of Pandora Common Stock per share of Series A Preferred Stock, subject to ~~adjustments for accrued but unpaid dividends and~~ certain customary anti-dilution adjustments. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable quarterly in arrears, if and when declared. ~~During~~Pandora has the ~~three~~option to pay dividends in cash when authorized by their Board and ~~nine months ended September 30, 2017, we recognized $2,991 and $3,595, respectively, related to the dividend~~ declared by Pandora ~~which was recorded to Other income~~or accumulate dividends in ~~our unaudited consolidated statements~~lieu of ~~comprehensive income and Long-term investment within our unaudited consolidated balance sheets.~~paying cash. Any conversion of Series A Preferred Stock may be settled by Pandora, at its option, in shares of Pandora Common Stock, cash or any combination thereof. However, unless and until Pandora’s stockholders have approved the issuance of greater than 19.99% of the outstanding Pandora Common Stock, the Series A Preferred Stock may not be converted into more than 19.99% of Pandora’s outstanding Pandora Common Stock as of June 9, 2017. The liquidation preference of the ~~Initial Closing.~~Series A Preferred Stock, including accrued dividends of $25,684, was $505,684 as of June 30, 2018.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

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

preference plus accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, and as such the investment qualifies as a debt security under ASC ~~320.~~320, Investments-Debt and Equity Securities. As the investment includes a conversion option, we have elected to account for this investment under the fair value option to reduce the accounting asymmetry that would otherwise arise when recognizing the changes in the fair value of available-for-sale investments. Under the fair value option, any gains (losses) associated with the change in fair value will be recognized in Other income within our unaudited consolidated statements of comprehensive income. ~~A $68,650~~An $86,074 and $117,449 unrealized gain associated with this investment was recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, respectively, as Other income in our unaudited consolidated statements of comprehensive ~~income associated with this investment.~~income. The fair value of our investment, including accrued dividends, as of ~~September~~June 30, 2018 and December 31, 2017 was ~~$552,245~~$597,921 and $480,472, respectively, and is recorded as a related party long-term asset within our unaudited consolidated balance sheets. This investment does not meet the requirements for the equity method of accounting as it does not qualify as in-substance common stock.

~~Pursuant to~~Sirius XM has appointed James E. Meyer, our Chief Executive Officer, David J. Frear, our Senior Executive Vice President and Chief Financial Officer, and Gregory B. Maffei, the ~~Investment Agreement, we have appointed three of our senior executives or members~~Chairman of our Board of Directors, to ~~Pandora’s~~Pandora's Board of Directors ~~one of whom~~pursuant to our designation rights under the Investment Agreement. Mr. Maffei also serves as the Chairman of Pandora's Board of Directors.

~~Our~~Sirius XM's right to designate directors will fall away once weSirius XM and ~~our~~its affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock issued upon conversion thereof equal to (on an as-converted basis) at least 50% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement. Following the earlier to occur of (i) September 22, 2019 and (ii) the date on which weSirius XM and ~~our~~its affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock that were issued upon conversion ~~of Series A Preferred Stock~~thereof equal to (on an as-converted basis) at least 75% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement, ~~we have~~Sirius XM has the right to designate only two directors.

We are subject to certain standstill restrictions, including, among other things, that we are restricted from acquiring additional securities of Pandora until December 9, 2018.

Except as to matters that may be voted upon separately by holders of the Series A Preferred Stock, ~~we are~~Sirius XM is entitled to vote as a single class with the holders of Pandora Common Stock on an as-converted basis (up to a maximum of 19.99% of the Pandora Common Stock outstanding on June 9, 2017, unless stockholder approval has been received). ~~We are~~Sirius XM is also entitled to a separate class vote with respect to certain amendments to Pandora’s organizational documents, issuances by Pandora of securities that are senior to, or equal in priority with, the Series A Preferred Stock and the incurrence of certain indebtedness by Pandora.

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

Upon certain change of control events involving Pandora, Pandora is required to repurchase all of the Series A Preferred Stock at a price equal to the greater of (1) an amount in cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends through June 9, 2022 (assuming such shares of Series A Preferred Stock remain outstanding through such date) and (2) the consideration the holders would have received if they had converted their shares of Series A Preferred Stock into Pandora Common Stock immediately prior to the change of control event (disregarding the 19.99% cap).

Beginning on September 22, 2020, if the volume weighted average price per share of Pandora Common Stock exceeds $18.375, as may be adjusted, for at least 20 trading days in any period of 30 consecutive trading days, Pandora may redeem all of the outstanding Series A Preferred Stock at a price equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, provided that, unless stockholder approval has been received, Pandora may not settle the redemption for shares of Pandora Common Stock to the extent the 19.99% cap would be exceeded.

Pursuant to a registration rights agreement entered into with Pandora, ~~we have~~Sirius XM has certain customary registration rights with respect to the Series A Preferred Stock and Pandora Common Stock issued upon conversion thereof.

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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES

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(UNAUDITED)

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


(11)	Debt

Our debt as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 consisted of the following:


								Carrying value^(a) at											Carrying value^(a) at
Issuer / Borrower		Issued	Debt	Maturity Date	Interest Payable	Principal Amount at September 30, 2017		September 30, 2017		December 31, 2016			Issued	Debt	Maturity Date	Interest Payable	Principal Amount at June 30, 2018		June 30, 2018		December 31, 2017
Sirius XM (b)(e)		May 2013	4.25% Senior Notes (the "4.25% Notes")	May 15, 2020	semi-annually on May 15 and November 15	$	—	$	—	$	497,069
Sirius XM (b)(f)		August 2013	5.75% Senior Notes (the "5.75% Notes")	August 1, 2021	semi-annually on February 1 and August 1	—		—		596,386
Sirius XM (b)(h)		July 2017	3.875% Senior Notes (the "3.875% Notes")	August 1, 2022	semi-annually on February 1 and August 1	1,000,000		991,617		—
Sirius XM (b)		May 2013	4.625% Senior Notes (the "4.625% Notes")	May 15, 2023	semi-annually on May 15 and November 15	500,000		496,510		496,111			July 2017	3.875% Senior Notes	August 1, 2022	semi-annually on February 1 and August 1	$	1,000,000	$	992,811	$	992,011
Sirius XM (b)		May 2014	6.00% Senior Notes (the "6.00% Notes")	July 15, 2024	semi-annually on January 15 and July 15	1,500,000		1,487,632		1,486,556			May 2013	4.625% Senior Notes	May 15, 2023	semi-annually on May 15 and November 15	500,000		496,923		496,646
Sirius XM (b)		March 2015	5.375% Senior Notes (the "5.375% Notes due 2025")	April 15, 2025	semi-annually on April 15 and October 15	1,000,000		991,044		990,340			May 2014	6.00% Senior Notes	July 15, 2024	semi-annually on January 15 and July 15	1,500,000		1,488,758		1,488,002
Sirius XM (b)		May 2016	5.375% Senior Notes (the "5.375% Notes due 2026")	July 15, 2026	semi-annually on January 15 and July 15	1,000,000		989,914		989,259			March 2015	5.375% Senior Notes	April 15, 2025	semi-annually on April 15 and October 15	1,000,000		991,777		991,285
Sirius XM (b)													May 2016	5.375% Senior Notes	July 15, 2026	semi-annually on January 15 and July 15	1,000,000		990,597		990,138
Sirius XM (b)													July 2017	5.00% Senior Notes	August 1, 2027	semi-annually on February 1 and August 1	1,500,000		1,486,728		1,486,162
Sirius XM (c)													December 2012	Senior Secured Revolving Credit Facility (the "Credit Facility")	June 29, 2023	variable fee paid quarterly	1,750,000		—		300,000
Sirius XM ~~(h)~~		July 2017	5.00% Senior Notes (the "5.00% Notes")	August 1, 2027	semi-annually on February 1 and August 1	1,500,000		1,485,884		—			Various	Capital leases	Various	n/a	n/a		8,324		10,597
Sirius XM (b)(c)(g)		August 2012	5.25% Senior Secured Notes (the "5.25% Notes")	August 15, 2022	semi-annually on February 15 and August 15	—		—		396,232
Sirius XM (d)		December 2012	Senior Secured Revolving Credit Facility (the "Credit Facility")	June 16, 2020	variable fee paid quarterly	1,750,000		290,000		390,000
Sirius XM		Various	Capital leases	Various	n/a	n/a		8,718		13,559
Total Debt	Total Debt							6,741,319		5,855,512		Total Debt							6,455,918		6,754,841
Less: total current maturities	Less: total current maturities							4,220		5,485		Less: total current maturities							4,660		5,105
Less: total deferred financing costs for Notes	Less: total deferred financing costs for Notes							8,750		7,263		Less: total deferred financing costs for Notes							7,969		8,493
Total long-term debt	Total long-term debt							$	6,728,349	$	5,842,764	Total long-term debt							$	6,443,289	$	6,741,243


(a)	The carrying value of the obligations is net of any remaining unamortized original issue discount.


(b)	Substantially all of our domestic wholly-owned subsidiaries have guaranteed these notes.

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~


(c)	~~The liens that secured~~In June 2018, Sirius XM entered into an amendment to extend the ~~5.25% Notes were equal and ratable to the liens granted to secure~~maturity of the Credit ~~Facility.~~

~~(d)~~

Facility to June 2023. Sirius XM's obligations under the Credit Facility are guaranteed by certain of its material domestic subsidiaries and are secured by a lien on substantially all of Sirius XM's assets and the assets of its material domestic subsidiaries. Interest on borrowings is payable on a monthly basis and accrues at a rate based on LIBOR plus an applicable rate. Sirius XM is also required to pay a variable fee on the average daily unused portion of the Credit Facility which is payable on a quarterly basis. The variable rate for the unused portion of the Credit Facility was ~~0.30%~~0.25% per annum as of ~~September~~June 30, ~~2017.~~2018. All of Sirius XM's outstanding borrowings under the Credit Facility are classified as Long-term debt within our unaudited consolidated balance sheets due to the long-term maturity of this debt.


~~(e)~~	On July 27, 2017, Sirius XM redeemed $500,000 in outstanding principal amount of the 4.25% Notes for an aggregate purchase price, including premium and interest, of $509,565. We recognized $8,393 to Loss on extinguishment of debt, consisting primarily of unamortized discount, deferred financing fees and repayment premium, as a result of this redemption.


~~(f)~~	On August 4, 2017, Sirius XM redeemed $600,000 in outstanding principal amount of the 5.75% Notes for an aggregate purchase price, including premium and interest, of $617,538. We recognized $20,964 to Loss on extinguishment of debt, consisting primarily of unamortized discount, deferred financing fees and repayment premium, as a result of this redemption.

~~(g)~~

On September 1, 2017, Sirius XM redeemed $400,000 in outstanding principal amount of the 5.25% Notes for an aggregate purchase price, including premium and interest, of $411,433. We recognized $14,322 to Loss on extinguishment of debt, consisting primarily of unamortized discount, deferred financing fees and repayment premium, as a result of this redemption. In addition, all security interests and other liens securing the 5.25% Notes were released.


~~(h)~~	In July 2017, Sirius XM issued $1,000,000 aggregate principal amount of the 3.875% Notes and $1,500,000 aggregate principal amount of the 5.00% Notes with a net original issuance discount and deferred financing costs in the aggregate of $10,291 and $16,638, respectively.

Covenants and Restrictions

Under the Credit Facility, Sirius XM, our wholly-owned subsidiary, must comply with a debt maintenance covenant that it cannot exceed a total leverage ratio, calculated as consolidated total debt to consolidated operating cash flow, of 5.0 to 1.0. The Credit Facility generally requires compliance with certain covenants that restrict Sirius XM's ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of Sirius XM's assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.

The indentures governing Sirius XM's notes restrict Sirius XM's non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiary guaranteeing each such series of notes on a pari passu basis. The indentures governing the notes also contain covenants that, among other things, limit Sirius XM's ability and the ability of its subsidiaries to create certain liens; enter into sale/leaseback transactions; and merge or consolidate.

Under Sirius XM's debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness

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(UNAUDITED)

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

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

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we were in compliance with our debt covenants.


(12)	Stockholders’ Equity

Common Stock, par value $0.001 per share

We are authorized to issue up to 9,000,000 shares of common stock. There were ~~4,604,441~~4,485,774 and ~~4,746,047~~4,530,928 shares of common stock issued and ~~4,601,941~~4,485,774 and ~~4,740,947~~4,527,742 shares outstanding on ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. ~~As part of the recapitalization of Sirius XM Canada, we issued 35,000 shares of our common stock to the holders of the shares of Sirius XM Canada.~~

As of ~~September~~June 30, ~~2017,~~2018, there were ~~321,868~~281,863 shares of common stock reserved for issuance in connection with outstanding stock based awards ~~and common stock~~ to be granted to members of our board of directors, employees and third parties.

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

Quarterly Dividends ~~$0.010 per share~~

~~On July 11, 2017,~~During the six months ended June 30, 2018, our board of directors declared ~~a dividend on our common stock in~~ the amount of $0.010 per share of common stock to stockholders of record as of the close of business on August 8, 2017. The dividend was paid in cash on August 31, 2017 in the aggregate amount of $46,216. We also paid a dividend in cash on February 28, 2017 and April 25, 2017 in the aggregate amount of $47,137 and $46,501, respectively. For a discussion of subsequent events refer to Note 16.following dividends:



Declaration Date	Dividend Per Share		Record Date	Total Amount		Payment Date
January 23, 2018	$	0.011	February 7, 2018	$	49,397	February 28, 2018
April 26, 2018	$	0.011	May 10, 2018	$	49,287	May 31, 2018

Stock Repurchase Program

As of ~~September~~June 30, ~~2017,~~2018, our board of directors had approved for repurchase an aggregate of ~~$10,000,000~~$12,000,000 of our common stock. Our board of directors did not establish an end date for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, including transactions with Liberty Media and its affiliates, or otherwise. As of ~~September~~June 30, ~~2017,~~2018, our cumulative repurchases since December 2012 under our stock repurchase program totaled ~~2,397,932~~2,529,978 shares for ~~$8,960,948,~~$9,694,181, and ~~$1,039,052~~$2,305,819 remained available under our stock repurchase program.

The following table summarizes our total share repurchase activity for the ~~nine~~six months ended:


	September 30, 2017			September 30, 2016			June 30, 2018			June 30, 2017
Share Repurchase Type	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Open Market ^(a)	194,324	$	987,111	315,051	$	1,214,083	55,843	$	317,061	155,711	$	775,701


~~(a)~~	As of September 30, 2017, $13,754 of common stock repurchases had not settled, nor been retired, and were recorded as Treasury stock within our unaudited consolidated balance sheets and unaudited consolidated statements of stockholders’ (deficit) equity. For a discussion of subsequent events refer to Note 16.

Preferred Stock, par value $0.001 per share

We are authorized to issue up to 50,000 shares of undesignated preferred stock with a liquidation preference of $0.001 per share. There were no shares of preferred stock issued or outstanding as of ~~September~~June 30, ~~2017~~2018 and ~~December 31, 2016.~~2017.


(13)	Benefit Plans

We recognized share-based payment expense of ~~$34,891~~$36,215 and ~~$30,020~~$30,251 for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016, respectively,~~$70,448 and ~~$94,588 and $77,890~~$59,697 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

2015 Long-Term Stock Incentive Plan

In May 2015, our stockholders approved the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”). Employees, consultants and members of our board of directors are eligible to receive awards under the 2015 Plan. The 2015 Plan provides for the grant of stock options, restricted stock awards, restricted stock units and other stock-based awards that the compensation committee of our board of directors ~~deem~~deems appropriate. Stock-based awards granted under the 2015 Plan

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

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

are generally subject to a graded vesting requirement, which is generally three to four years from the grant date. Stock options generally expire ten years from the date of grant. Restricted stock units include performance-based restricted stock units (“PRSUs”), the vesting of which are subject to the achievement of performance goals and the employee's continued employment and generally cliff vest on the ~~three-year~~third anniversary of the grant date. Each restricted stock unit entitles the holder to receive one share of common stock upon vesting. As of ~~September~~June 30, ~~2017, 167,055~~2018, 171,619 shares of common stock were available for future grants under the 2015 Plan.

Other Plans

We maintain three other share-based benefit plans — the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan, the XM 2007 Stock Incentive Plan and the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan. Excluding dividend equivalent units granted as a result of a declared dividend, no further awards may be made under these plans.

The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2018	2017	2018	2017
Risk-free interest rate	2.6%	1.6%	2.5%	1.6%
Expected life of options — years	3.48	4.35	3.54	4.07
Expected stock price volatility	22%	26%	22%	26%
Expected dividend yield	0.6%	0.8%	0.7%	0.8%

There were no options granted to third parties during the three and six months ended June 30, 2018 and 2017.

The following table summarizes stock option activity under our share-based plans for the six months ended June 30, 2018:



	Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2017	280,457		$	3.76
Granted	10,617		$	6.44
Exercised	(41,644	)	$	3.18
Forfeited, cancelled or expired	(1,926	)	$	4.48
Outstanding as of June 30, 2018	247,504		$	3.96	6.40	$	695,499
Exercisable as of June 30, 2018	115,544		$	3.40	5.30	$	389,015

The weighted average grant date fair value per share of stock options granted during the six months ended June 30, 2018 was $1.19. The total intrinsic value of stock options exercised during the six months ended June 30, 2018 and 2017 was $139,812 and $47,572, respectively. During the six months ended June 30, 2018 the number of net settled shares which were issued as a result of stock option exercises was 12,054.

We recognized share-based payment expense associated with stock options of $20,776 and $20,125 for the three months ended June 30, 2018 and 2017, respectively, and $40,435 and $39,637 for the six months ended June 30, 2018 and 2017, respectively.

2022

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(UNAUDITED)

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

The following table summarizes the ~~weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Risk-free interest rate 1.8% 1.1% 1.8% 1.1%
Expected life of options — years 4.66 4.48 4.60 4.27
Expected stock price volatility 24% 22% 24% 22%
Expected dividend yield 0.7% 0.0% 0.7% 0.0%

~~There were no options granted to third parties during the three and nine months ended September 30, 2017 and 2016. Since we did not historically pay dividends on our common~~restricted stock ~~prior to the fourth quarter of 2016, the expected dividend yield used in the Black-Scholes option pricing model was zero for the three and nine months ended September 30, 2016.~~

~~The following table summarizes stock option~~unit, including PRSU, activity under our share-based plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:

Options Weighted-
Average
Exercise
Price Per Share Weighted-
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic
Value
Outstanding as of December 31, 2016 332,648
$ 3.50

Granted 27,218
$ 5.49

Exercised (65,413 ) $ 3.20

Forfeited, cancelled or expired (4,551 ) $ 3.90

Outstanding as of September 30, 2017 289,902
$ 3.75
6.87 $ 513,625
Exercisable as of September 30, 2017 128,288
$ 3.16
5.67 $ 302,230

The weighted average grant date fair value per share of options granted during the nine months ended September 30, 2017 was $1.17. The total intrinsic value of stock options exercised during the nine months ended September 30, 2017 and 2016 was $148,133 and $59,531, respectively. During the nine months ended September 30, 2017, the number of net settled shares which were issued as a result of stock option exercises was 15,092.

We recognized share-based payment expense associated with stock options of $21,454 and $21,484 for the three months ended September 30, 2017 and 2016, respectively, and $61,091 and $59,510 for the nine months ended September 30, 2017 and 2016, respectively.

~~The following table summarizes the restricted stock unit, including PRSUs, activity under our share-based plans for the nine months ended September 30, 2017:~~


	Shares		Grant Date Fair Value Per Share		Shares		Grant Date Fair Value Per Share
Nonvested as of December 31, 2016	29,893		$	4.03
Nonvested as of December 31, 2017					31,323		$	4.54
Granted	11,618		$	5.38	7,123		$	6.27
Vested	(8,561	)	$	3.91	(3,518	)	$	3.92
Forfeited	(984	)	$	4.23	(569	)	$	4.80
Nonvested as of September 30, 2017	31,966		$	4.55
Nonvested as of June 30, 2018					34,359		$	4.93

The total intrinsic value of restricted stock units, including PRSUs, vesting during the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was $22,656 and ~~2016 was $46,920 and $16,890,~~$4,802, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, the number of net settled shares which were issued as a result of restricted stock units vesting totaled ~~5,226.~~1,821. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we

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~~SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES~~

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~~(UNAUDITED)~~

~~(Dollars and shares in thousands, except per share amounts)~~

granted ~~929~~3,768 PRSUs to certain employees. We believe it is probable that the performance target applicable to these ~~and previously granted~~ PRSUs will be achieved.

In connection with the cash dividends paid during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we granted ~~162~~126 restricted stock units, including PRSUs, in accordance with the terms of existing award agreements. ~~This grant~~These grants did not result in any additional incremental share-based payment expense being recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

We recognized share-based payment expense associated with restricted stock units, including PRSUs, of ~~$13,437~~$15,439 and ~~$8,536~~$10,126 for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$33,497~~$30,013 and ~~$18,380~~$20,060 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units, including PRSUs, granted to employees, members of our board of directors and third parties at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016 were $281,311~~2017 was $251,588 and ~~$266,045,~~$241,521, respectively. The total unrecognized compensation costs at ~~September~~June 30, ~~2017~~2018 are expected to be recognized over a weighted-average period of ~~2.5~~1.72 years.

401(k) Savings Plan

Sirius XM sponsors the Sirius XM Radio Inc. 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees. The Sirius XM Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions per pay period on the first 6% of an employee’s pre-tax salary up to a maximum of 3% of eligible compensation. We may also make additional discretionary matching, true-up matching and non-elective contributions to the Sirius XM Plan. Employer matching contributions under the Sirius XM Plan vest at a rate of 33.33% for each year of employment and are fully vested after three years of employment for all current and future contributions. Our cash employer matching contributions are not used to purchase shares of our common stock on the open market, unless the employee elects our common stock as their investment option for this contribution. We recognized ~~$1,775~~$2,159 and ~~$1,640~~$1,835 in expense during three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$5,292~~$4,028 and ~~$4,857~~$3,517 in expense during ~~nine~~the six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, in connection with the Sirius XM Plan.

Sirius XM Holdings Inc. Deferred Compensation Plan

In 2015, we adopted the Sirius XM Holdings Inc. Deferred Compensation Plan (the “DCP”). The DCP allows members of our board of directors and certain eligible employees to defer all or a portion of their base salary, cash incentive compensation and/or board of directors’ cash compensation, as applicable. Pursuant to the terms of the DCP, we may elect to make additional contributions beyond amounts deferred by participants, but we are under no obligation to do so. We have established a grantor (or “rabbi”) trust to facilitate the payment of our obligations under the DCP.

Contributions to the DCP, net of withdrawals, for the three months ended ~~September~~June 30, 2018 and 2017 were $307 and ~~2016, were $240 and $215,~~$334, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 were $7,138 and ~~2016, were $7,595 and $4,169,~~$7,355, respectively. As of ~~September~~June 30, 2018 and December 31, 2017, the fair value of the investments held in the trust ~~was $13,890,~~were $22,375 and $14,641, respectively, which is

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included in Other long-term assets in our unaudited consolidated balance sheets and isare classified as trading securities. Trading gains and losses associated with these investments are recorded in Other income within our unaudited consolidated statements of comprehensive income. The associated liability is recorded within Other long-term liabilities in our unaudited consolidated balance sheets, and any increase or decrease in the liability is recorded in General and administration expense within our unaudited consolidated statements of comprehensive income. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we recorded an immaterial amount of unrealized gains on investments held in the trust.

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~~(Dollars and shares in thousands, except per share amounts)~~


(14)	Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of ~~September~~June 30, ~~2017:~~2018:


	2017		2018		2019		2020		2021		Thereafter		Total		2018		2019		2020		2021		2022		Thereafter		Total
Debt obligations	$	647	$	4,477	$	3,169	$	290,425	$	—	$	6,500,000	$	6,798,718	$	2,455	$	3,935	$	1,207	$	727	$	1,000,000	$	5,500,000	$	6,508,324
Cash interest payments	42,020		356,691		348,377		342,211		334,375		1,250,313		2,673,987		168,407		338,887		338,844		338,817		338,811		919,243		2,443,009
Satellite and transmission	23,358		133,938		86,810		43,699		4,296		6,667		298,768		59,557		94,922		51,056		4,347		2,428		4,288		216,598
Programming and content	74,742		323,499		298,920		252,648		173,689		214,037		1,337,535		136,122		251,953		207,728		118,706		52,475		162,938		929,922
Marketing and distribution	7,166		17,436		12,813		8,620		7,801		1,608		55,444
Sales and marketing															9,990		12,817		7,701		7,446		1,644		203		39,801
Satellite incentive payments	3,415		14,302		10,652		10,197		8,574		70,324		117,464		8,001		10,652		10,197		8,574		8,558		61,767		107,749
Operating lease obligations	7,604		43,266		39,639		37,391		31,560		153,449		312,909		19,499		44,983		42,779		37,416		34,096		143,628		322,401
Other	24,362		30,429		16,421		2,672		527		30		74,441
Royalties and other															230,132		139,285		103,414		86,253		23,199		33		582,316
Total ⁽¹⁾	$	183,314	$	924,038	$	816,801	$	987,863	$	560,822	$	8,196,428	$	11,669,266	$	634,163	$	897,434	$	762,926	$	602,286	$	1,461,211	$	6,792,100	$	11,150,120


(1)	The table does not include our reserve for uncertain tax positions, which at ~~September~~June 30, ~~2017~~2018 totaled ~~$9,730, as the specific timing of any cash payments cannot be projected with reasonable certainty.~~$15,344.

Debt obligations. Debt obligations include principal payments on outstanding debt and capital lease obligations.

Cash interest payments. Cash interest payments include interest due on outstanding debt and capital lease payments through maturity.

Satellite and transmission. ~~During the year ended December 31, 2016, we~~We have entered into ~~an agreement~~agreements with ~~Space Systems/Loral~~several third parties to design, build, launch and ~~build~~insure two satellites, SXM-7 and ~~SXM-8, for our service.~~SXM-8. We also have entered into agreements with third parties to operate and maintain satellite telemetry, tracking and control facilities and certain components of our terrestrial repeater networks.

Programming and content. We have entered into various programming and content agreements. Under the terms of these agreements, our obligations include fixed payments, advertising commitments and revenue sharing arrangements. ~~Our~~In certain of these agreements, the future revenue sharing costs are dependent upon many factors and are difficult to estimate; therefore, they are not included in our minimum contractual cash commitments.

~~Marketing~~Sales and ~~distribution.~~marketing. We have entered into various marketing, sponsorship and distribution agreements to promote our brand and are obligated to make payments to sponsors, retailers, automakers and radio manufacturers under these agreements. Certain programming and content agreements also require us to purchase advertising on properties owned or controlled by the licensors. ~~We also reimburse automakers for certain costs associated with the incorporation of satellite radios into new vehicles they manufacture.~~

Satellite incentive payments. Boeing Satellite Systems International, Inc., the manufacturer of certain of our in-orbit satellites, may be entitled to future in-orbit performance payments with respect to XM-3 and XM-4 meeting their fifteen-year design life, which we expect to occur. Boeing may also be entitled to up to $10,000 of additional incentive payments if our XM-4 satellite continues to operate above baseline specifications during the five years beyond the satellite’s fifteen-year design ~~life.~~life, which is currently not expected to occur.

Space Systems/Loral, the manufacturer of certain of our in-orbit satellites, may be entitled to future in-orbit performance payments with respect to XM-5, SIRIUS FM-5 and SIRIUS FM-6 meeting their fifteen-year design life, which we expect to occur.

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Operating lease obligations. We have entered into both cancelable and non-cancelable operating leases for office space, equipment and terrestrial repeaters. These leases provide for minimum lease payments, additional operating expense charges, leasehold improvements and rent escalations that have initial terms ranging from one to fifteen years, and certain leases have options to renew. The effect of the rent holidays and rent concessions are recognized on a straight-line basis over the lease term, including reasonably assured renewal periods.

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~~(Dollars~~Royalties and ~~shares in thousands, except per share amounts)~~

~~Other.~~other. We have entered into certain music royalty arrangements that include fixed payments. We have also entered into various agreements with third parties for general operating purposes.

In addition to the minimum contractual cash commitments described above, we have entered into ~~agreements with~~ other variable cost arrangements. These future costs are dependent upon many factors and are difficult to anticipate; however, these costs may be substantial. We may enter into additional programming, distribution, marketing and other agreements that contain similar variable cost provisions. ~~The cost~~We also have a surety bond of ~~our common stock acquired~~approximately $45,000 primarily used as security against non-performance in ~~our capital return program but not paid for as~~the normal course of~~September 30, 2017 was also included in this category.~~

business. We do not have any other significant off-balance sheet financing arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Legal Proceedings

In the ordinary course of business, we are a defendant or party to various claims and lawsuits, including those discussed below.

We record a liability when we believe that it is both probable that a liability will be incurred, and the amount of loss can be reasonably estimated. We evaluate developments in legal matters that could affect the amount of liability that has been previously accrued and make adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount of a loss or potential loss. We may be unable to reasonably estimate the reasonably possible loss or range of loss for a particular legal contingency for various reasons, including, among others, because: (i) the damages sought are indeterminate; (ii) the proceedings are in the relative early stages; (iii) there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) there is uncertainty as to the likelihood of settlement and the outcome of any negotiations with respect thereto; (v) there remain significant factual issues to be determined or resolved; (vi) the relevant law is unsettled; or (vii) the proceedings involve novel or untested legal theories. In such instances, there may be considerable uncertainty regarding the ultimate resolution of such matters, including the likelihood or magnitude of a possible eventual loss, if any.

SoundExchange Royalty Claims. ~~In August 2013,~~On June 7, 2018, Sirius XM entered into an agreement with SoundExchange, Inc., the organization that collects and distributes sound recording royalties pursuant to our statutory license, to settle the cases titled SoundExchange, Inc. v. Sirius XM Radio, Inc., No.13-cv-1290-RJL (D.D.C.), and SoundExchange, Inc. v. Sirius XM Radio, Inc., No.17-cv-02666-RJL (D.D.C.). A description of these actions is contained in our prior public filings. In connection with the settlement, we made a one-time lump sum payment of $150,000 to SoundExchange on July 6, 2018. The settlement resolved all outstanding claims, including ongoing audits, under our statutory license for sound recordings for the period January 1, 2007 through December 31, 2017.

Telephone Consumer Protection Act Suits. On March 13, 2017, Thomas Buchanan, individually and on behalf of all others similarly situated, filed a class action complaint against us in the United States District Court for the Northern District of ~~Columbia alleging~~Texas, Dallas Division. The plaintiff in this action alleges that we ~~underpaid royalties for statutory licenses~~violated the Telephone Consumer Protection Act of 1991 (the “TCPA”) by, among other things, making telephone solicitations to persons on the National Do-Not-Call registry, a database established to allow consumers to exclude themselves from telemarketing calls unless they consent to receive the calls in a signed, written agreement, and making calls to consumers in violation of our internal Do-Not-Call registry. The plaintiff is seeking various forms of relief, including statutory damages of five hundred dollars for each 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 containedTCPA or, in the ~~regulations established by the Copyright Royalty Board. SoundExchange is seeking compensatory~~alternative, treble damages of ~~not less than $50,000 and~~ up to ~~$100,000~~fifteen hundred dollars for each knowing and willful violation of the TCPA and a permanent injunction prohibiting us from making, or ~~more, payment of late fees and interest, and attorneys’ fees and costs.~~

~~In August 2014, the United States District Court for the District of Columbia, in response~~having made, any calls to ~~our motion to dismiss the complaint, stayed the case~~land lines that are listed 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 whetherNational Do-Not-Call registry or 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 September 11, 2017, the Copyright Royalty Board issued a ruling concluding that we correctly interpreted the revenue exclusions applicable to pre-1972 recordings. Given the limitations on its jurisdiction, the Copyright Royalty Board deferred to further proceedings in the District Court the question of whether we properly applied those pre-1972 revenue exclusions. The Judges also concluded 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.”

Rulings by the Copyright Royalty Board, including its September 11, 2017 ruling, are subject to limited legal review by the Register of Copyrights. Following a review by the Register of Copyrights and publication in the Federal Register, we expect that the ultimate ruling by the Copyright Royalty Board in this matter will be transmitted back to the District Court for further proceedings, such as adjudication claims relating to damages and defenses.internal Do-Not-Call registry. We believe we have substantial defenses to ~~SoundExchange~~the claims ~~that can be~~ asserted ~~including~~ in ~~proceedings in the District Court,~~this action, and ~~will continue~~we intend to defend this action vigorously.

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~~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, was reasonably possible in connection with the SoundExchange royalty claims. At September 30, 2017, the estimable portion of such possible loss ranged from $0 to $85,000, 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. 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.

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.


(15)	Income Taxes

We file a consolidated federal income tax return for all of our wholly-owned subsidiaries, including Sirius XM. For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, income tax expense was ~~$108,901~~$70,570 and ~~$111,556,~~$119,513, respectively, and ~~$342,387~~$150,819 and ~~$326,108~~$233,486 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Our effective tax rate for the three months ended ~~September~~June 30, 2018 and 2017 was 19.4% and ~~2016 was 28.3% and 36.5%~~37.2%, respectively. Our effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was 20.6% and ~~2016 was 33.3% and 37.6%~~36.3%, respectively. The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, 2018 was primarily impacted by the reduced federal income tax rate as a result of the Tax Act and the recognition of excess tax benefits related to share based compensation. The effective tax rate for the three and six months ended June 30, 2017 was impacted by the recognition of excess tax benefits related to stock compensation and a benefit related to a federal tax credit under the Protecting Americans from Tax Hikes Act of 2015 for research and development activities. The effective tax rate for the three and nine months ended September 30, 2016 was impacted by the recognition of tax shortfalls related to stockshare based compensation. ~~Our adjusted~~We estimate our effective tax rate for the year ending December 31, ~~2017 is anticipated to~~2018 will be approximately ~~34%~~22%.

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we had a valuation allowance related to deferred tax assets of ~~$44,828~~$52,405 and ~~$47,682,~~$52,883, respectively, that were not likely to be realized due to certain net operating loss limitations and acquired net operating losses that were not more likely than not going to be utilized.


(16)	Subsequent Events

~~Capital Return Program~~

~~For the period from October 1, 2017 to October 23, 2017, we repurchased 6,452 shares of our common stock on the open market for an aggregate purchase price of $36,388, including fees and commissions.~~


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All amounts referenced in this Item 2 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 unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

This Quarterly Report on Form 10-Q presents information for Sirius XM Holdings Inc. (“Holdings”). The terms “Holdings,” “we,” “us,” “our,” and “our company” as used herein, and unless otherwise stated or indicated by context, refer to Sirius XM Holdings Inc. and its subsidiaries, and "Sirius XM" refers to, our wholly-owned subsidiary Sirius XM Radio Inc. Holdings has no operations independent of its wholly-owned subsidiary, Sirius XM.

Special Note Regarding Forward-Looking Statements

The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intend,” “plan,” “projection” and “outlook.” Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time, particularly the risk factors described under “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

Among the significant factors that could cause our actual results to differ materially from those expressed in the forward-looking statements are:

we face substantial competition and that competition is likely to increase over time;

our ability to retain subscribers or increase the number of subscribers is uncertain;

our ability to profitably attract and retain subscribers inas our marketing efforts reach more price-sensitive consumers is uncertain;

if we fail to protect the ~~future is uncertain;~~security of personal information about our customers, we could be subject to costly government enforcement actions and private litigation and our reputation could suffer;

our service may experience harmful interference from new wireless operations;

we engage in extensive marketing efforts and the continued effectiveness of those efforts are an important part of our business;

consumer protection laws and their enforcement could damage our business;

we may not realize the benefits of acquisitions or other strategic investments and initiatives;

the unfavorable outcome of pending or future litigation could have a material adverse impact on our operations and financial condition;

the market for music rights is changing and is subject to significant uncertainties;

our business depends in large part upon the auto industry;

general economic conditions can affect our business;

~~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;~~

existing or future ~~government~~ laws and regulations could harm our business;

failure of our satellites would significantly damage our business;

interruption or failure of our information technology and communications systems could negatively impact our results and our brand;

~~we may not realize the benefits of acquisitions or other strategic investments and initiatives;~~

rapid technological and industry changes and new entrants could adversely impact our services;

failure of third parties to perform could adversely affect our business;

failure to comply with FCC requirements could damage our business;

we may from time to time modify our business plan, and these changes could adversely affect us and our financial condition;

we have a significant amount of indebtedness, and our debt contains certain covenants that restrict our operations;

our studios, terrestrial repeater networks, satellite uplink facilities or other ground facilities could be damaged by natural catastrophes or terrorist activities;

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;

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;

our business may be impaired by third-party intellectual property rights; and

while we currently pay a quarterly cash dividend to holders of our common stock, we may change our dividend policy at any time.

Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law. 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.

Executive Summary

We have agreements with every major automaker (“OEMs”) to offer satellite radio in their ~~vehicles.~~vehicles, through which we acquire the majority of our subscribers. We also acquire subscribers through marketing to owners and lessees of previously owned vehicles that include factory-installed satellite radios that are not currently subscribing to our services. Our satellite radios are primarily distributed through automakers; ~~retail stores nationwide;~~retailers; and ~~through~~ our website. Satellite radio services are also offered to customers of certain rental car companies.

As of ~~September~~June 30, ~~2017,~~2018, we had approximately ~~32.2~~33.5 million subscribers of which approximately ~~27.0~~28.2 million were self-pay subscribers and approximately ~~5.2~~5.3 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, which had approximately 2.6 million subscribers as of June 30, 2018, and connected vehicle services 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. We provide traffic services to approximately 8.1 million vehicles.

In ~~certain~~many cases, a subscription to our radio ~~services~~service is included inwith the ~~sale or lease price~~purchase 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.~~vehicles and pay revenue share to various automakers.

As of ~~September~~June 30, ~~2017,~~2018, Liberty Media beneficially owned, directly and indirectly, approximately ~~69%~~70% of the outstanding shares of our common stock. As a result, we are a “controlled company” for the purposes of the NASDAQ corporate governance requirements.

~~Recent Transactions~~

~~During the nine months ended September 30, 2017, we entered into several strategic transactions.~~

~~Acquisition of Automatic Labs.~~ ~~On April 18, 2017,~~ Sirius XM ~~acquired Automatic Labs Inc. (“Automatic”), a connected vehicle device and mobile application company, for~~holds an ~~aggregate purchase price of $107,736, net of cash and restricted cash acquired.~~

~~Recapitalization of Sirius XM Canada. On May 25, 2017, Sirius XM completed a recapitalization (the “Transaction”) of~~equity method investment in Sirius XM Canada Holdings Inc. (“Sirius XM Canada”), which ~~is now a privately held corporation.~~

~~Following the Transaction,~~offers satellite radio services in Canada. As of June 30, 2018, Sirius XM ~~holds a~~owned an approximate 70% equity interest and 33% voting interest in Sirius XM Canada, with the remainder of the voting power and equity interest held by two of Sirius XM Canada’s previous shareholders. The total consideration from Sirius XM to Sirius XM Canada, excluding transaction costs, during the nine months ended September 30, 2017 was $308,526, which included $129,676 in cash and we issued 35,000 shares of our common stock with an aggregate value of $178,850 to the holders of the shares of Sirius XM Canada acquired in the Transaction. Sirius XM received common stock, non-voting common stock and preferred stock of Sirius XM Canada. Sirius XM now owns 590,950 shares of preferred stock of Sirius XM Canada, which has a liquidation preference of one Canadian dollar per share. Future dividends on the common stock of Sirius XM Canada are expected to be declared on a 6.0% annual basis.

In connection with the Transaction, Sirius XM also made a contribution in the form of a loan to Sirius XM Canada in the aggregate amount of $130,794 on May 25, 2017. The loan is denominated in Canadian dollars and is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. Such loan has a term of fifteen years, bears interest at a rate of 7.62% per annum and includes customary covenants and events of default, including an event of default relating to Sirius XM Canada’s failure to maintain specified leverage ratios. In addition, the terms of the loan require Sirius XM Canada to prepay a portion of the outstanding principal amount of the loan within sixty days of the end of each fiscal year in an amount equal to any cash on hand in excess of C$10,000 at the last day of the financial year if all target dividends have been paid in full.

In connection with the Transaction, Sirius XM also entered into a Services Agreement and an Advisory Services Agreement with Sirius XM Canada. Each agreement has a thirty year term. Pursuant to the Services Agreement, Sirius XM Canada will pay Sirius XM 25% of its gross revenues on a monthly basis through December 31, 2021 and 30% of its gross revenues on a monthly basis thereafter. Pursuant to the Advisory Services Agreement, Sirius XM Canada will pay Sirius XM 5% of its gross revenues on a monthly basis. These agreements supersede and replace the existing agreements between Sirius XM Canada and its predecessors and Sirius XM.

Sirius XM ~~Canada is accounted for as~~holds an equity method investment, and its results are not consolidated in our consolidated financial statements. We do not meet the requirements for consolidation as we do not have the ability to direct the most significant activities that impact Sirius XM Canada's economic performance.

~~Investment in Pandora Media, Inc.~~ ~~On September 22, 2017, Sirius XM completed a $480,000~~ investment in ~~Pandora. Pursuant to an Investment Agreement with~~ Pandora Media, Inc. (“Pandora”), Sirius XM purchased 480 shares of Pandora’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $480,000. The Series A preferred stock represents a stake of approximately 19% of Pandora's currently outstanding common stock, and approximately a 16% interest on an as-converted basis. Pandorawhich operates an internet-based music discovery platform, offering a personalized experience for listeners.

~~The Series A Preferred Stock is convertible at the option~~ As of ~~the holders at any time into shares of~~June 30, 2018, Sirius XM's interest in Pandora represented an approximately 18% interest in Pandora's outstanding common stock, ~~of Pandora (“Pandora Common Stock”) at an initial conversion price of $10.50 per share of Pandora Common Stock~~ and an initial conversion rate of 95.2381 shares of Pandora Common Stock per share of Series A Preferred Stock, subject to adjustments for accrued but unpaid dividends and certain customary anti-dilution adjustments. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable quarterly in arrears, if and when declared. During the

three and nine months ended September 30, 2017, we recognized $2,991 and $3,595, respectively, related to the dividend declared by Pandora, which was recorded to Other income in our unaudited consolidated statements of comprehensive income and Long-term investment within our unaudited consolidated balance sheets. Any conversion of Series A Preferred Stock may be settled by Pandora, at its option, in shares of Pandora Common Stock, cash or any combination thereof. However, unless and until Pandora’s stockholders have approved the issuance of greater than 19.99% of the outstanding Pandora Common Stock, the Series A Preferred Stock may not be converted into more than 19.99% of Pandora’s outstanding Pandora Common Stock as of the Initial Closing.

The investment includes a mandatory redemption feature on any date from and after September 22, 2022 whereby Sirius XM, at its option, may require Pandora to purchase the Series A Preferred Stock at a price equal to 100% of the liquidation preference plus accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, and as such the investment qualifies as a debt security under ASC 320. As the investment includes a conversion option, we have elected to account for this investment under the fair value option to reduce the accounting asymmetry that would otherwise arise when recognizing the changes in the fair value of available-for-sale investments. Under the fair value option, any gains (losses) associated with the change in fair value will be recognized in Other income within our unaudited consolidated statements of comprehensive income. A $68,650 unrealized gain was recognized during the three and nine months ended September 30, 2017 as Other income in our unaudited consolidated statements of comprehensive income associated with this investment. The fair value of our investment as of September 30, 2017 was $552,245 and is recorded as a related party long-term asset within our unaudited consolidated balance sheets. This investment does not meet the requirements for the equity method of accounting as it does not qualify as in-substance common stock.

~~We have appointed three of our senior executives or members of our Board of Directors to Pandora’s Board of Directors, one of whom serves as the Chairman of Pandora's Board of Directors.~~

Our right to designate directors will fall away once we and our affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock issued upon conversion thereof equal to (on an as-converted basis) at least 50% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement. Following the earlier to occur of (i) September 22, 2019 and (ii) the date on which we and our affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock that were issued upon conversion of Series A Preferred Stock equal to (on an as-converted basis) at least 75% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement, we have the right to designate only two directors.

~~We are subject to certain standstill restrictions, including, among other things, that we are restricted from acquiring additional securities of Pandora until December 9, 2018.~~

~~Except as to matters that may be voted upon separately by holders of the Series A Preferred Stock, we are entitled to vote as a single class with the holders of Pandora Common Stock~~approximately 15% interest on an as-converted basis (up to a maximum of 19.99% of the Pandora Common Stock outstanding on June 9, 2017, unless stockholder approval has been received). We are also entitled to a separate class vote with respect to certain amendments to Pandora’s organizational documents, issuances by Pandora of securities that are senior to, or equal in priority with, the Series A Preferred Stock and the incurrence of certain indebtedness by Pandora.

Pursuant to a registration rights agreement entered into with Pandora, we have certain customary registration rights with respect to the Series A Preferred Stock and Pandora Common Stock issued upon conversion thereof.

basis.

Results of Operations

Set forth below are our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.


													2017 vs 2016 Change																						2018 vs 2017 Change
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						Three Months					Nine Months					For the Three Months Ended June 30,						For the Six Months Ended June 30,						Three Months					Six Months
	2017			2016			2017			2016			Amount			%		Amount			%		2018			2017			2018			2017			Amount			%		Amount			%
Revenue:
Subscriber revenue	$	1,136,027		$	1,069,746		$	3,325,295		$	3,112,712		$	66,281		6	%	$	212,583		7	%	$	1,138,962		$	1,111,011		$	2,256,046		$	2,189,268		$	27,951		3	%	$	66,778		3	%
Advertising revenue	41,462			34,268			117,656			99,330			7,194			21	%	18,326			18	%	47,242			40,178			89,290			76,194			7,064			18	%	13,096			17	%
Equipment revenue	32,337			31,306			91,669			86,285			1,031			3	%	5,384			6	%	36,840			29,674			71,929			59,332			7,166			24	%	12,597			21	%
Other revenue	169,770			142,326			486,611			415,895			27,444			19	%	70,716			17	%
Music royalty fee and other revenue																							209,255			166,706			390,136			316,841			42,549			26	%	73,295			23	%
Total revenue	1,379,596			1,277,646			4,021,231			3,714,222			101,950			8	%	307,009			8	%	1,432,299			1,347,569			2,807,401			2,641,635			84,730			6	%	165,766			6	%
Operating expenses:
Cost of services:
Revenue share and royalties	296,498			272,823			866,691			788,952			23,675			9	%	77,739			10	%	404,284			292,893			714,416			570,193			111,391			38	%	144,223			25	%
Programming and content	98,239			89,015			290,038			257,760			9,224			10	%	32,278			13	%	105,650			96,255			206,486			191,799			9,395			10	%	14,687			8	%
Customer service and billing	94,655			94,923			286,754			285,502			(268		)	—	%	1,252			—	%	95,582			95,324			189,447			192,099			258			—	%	(2,652		)	(1	)%
Satellite and transmission	21,378			22,224			61,557			80,609			(846		)	(4	)%	(19,052		)	(24	)%	23,478			19,603			46,200			40,179			3,875			20	%	6,021			15	%
Cost of equipment	8,254			9,674			24,537			29,181			(1,420		)	(15	)%	(4,644		)	(16	)%	7,674			9,371			14,771			16,283			(1,697		)	(18	)%	(1,512		)	(9	)%
Subscriber acquisition costs	119,555			120,111			372,197			381,516			(556		)	—	%	(9,319		)	(2	)%	119,778			125,154			242,471			252,642			(5,376		)	(4	)%	(10,171		)	(4	)%
Sales and marketing	114,519			99,194			318,135			279,278			15,325			15	%	38,857			14	%	119,435			106,707			226,146			203,616			12,728			12	%	22,530			11	%
Engineering, design and development	29,433			19,254			81,033			57,588			10,179			53	%	23,445			41	%	27,485			27,783			58,122			51,600			(298		)	(1	)%	6,522			13	%
General and administrative	83,187			90,369			245,995			249,052			(7,182		)	(8	)%	(3,057		)	(1	)%	92,683			84,607			177,289			162,808			8,076			10	%	14,481			9	%
Depreciation and amortization	79,913			67,880			230,136			202,215			12,033			18	%	27,921			14	%	74,623			73,519			146,835			150,223			1,104			2	%	(3,388		)	(2	)%
Total operating expenses	945,631			885,467			2,777,073			2,611,653			60,164			7	%	165,420			6	%	1,070,672			931,216			2,022,183			1,831,442			139,456			15	%	190,741			10	%
Income from operations	433,965			392,179			1,244,158			1,102,569			41,786			11	%	141,589			13	%	361,627			416,353			785,218			810,193			(54,726		)	(13	)%	(24,975		)	(3	)%
Other income (expense):
Interest expense	(92,634		)	(89,092		)	(257,085		)	(250,888		)	(3,542		)	(4	)%	(6,197		)	(2	)%	(86,917		)	(82,794		)	(176,706		)	(164,451		)	(4,123		)	(5	)%	(12,255		)	(7	)%
Loss on extinguishment of debt	(43,679		)	—			(43,679		)	—			(43,679		)	—	%	(43,679		)	—	%
Other income	86,971			2,370			83,897			15,733			84,601			nm		68,164			nm
Total other expense	(49,342		)	(86,722		)	(216,867		)	(235,155		)	37,380			43	%	18,288			8	%
Other income (expense)																							88,212			(11,937		)	124,100			(3,074		)	100,149			nm		127,174			nm
Total other income (expense)																							1,295			(94,731		)	(52,606		)	(167,525		)	96,026			101	%	114,919			69	%
Income before income taxes	384,623			305,457			1,027,291			867,414			79,166			26	%	159,877			18	%	362,922			321,622			732,612			642,668			41,300			13	%	89,944			14	%
Income tax expense	(108,901		)	(111,556		)	(342,387		)	(326,108		)	2,655			2	%	(16,279		)	(5	)%	(70,570		)	(119,513		)	(150,819		)	(233,486		)	48,943			41	%	82,667			35	%
Net income	$	275,722		$	193,901		$	684,904		$	541,306		$	81,821		42	%	$	143,598		27	%	$	292,352		$	202,109		$	581,793		$	409,182		$	90,243		45	%	$	172,611		42	%

nm - not meaningful

Total Revenue

Subscriber Revenue includes subscription, activation and other fees.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, subscriber revenue was ~~$1,136,027~~$1,138,962 and ~~$1,069,746,~~$1,111,011, respectively, an increase of 6%3%, or ~~$66,281.~~$27,951. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, subscriber revenue was ~~$3,325,295~~$2,256,046 and ~~$3,112,712,~~

$2,189,268, respectively, an increase of 7%3%, or ~~$212,583.~~$66,778. The increases were primarily attributable to a ~~4% and~~ 5% ~~increases~~increase in the daily weighted average number of ~~subscribers~~subscribers. Subscriber revenue was negatively impacted by $23,787 and $48,179, for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, from the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue - Revenue from Contracts with Customers, and all related amendments, which established Accounting Standards Codification ("ASC") Topic 606 (the "new revenue standard"), effective as ~~well as a 3% increase in average monthly revenue per subscriber that resulted from certain rate increases implemented in 2016.~~of January 1, 2018.

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

Advertising Revenue includes the sale of advertising on certain non-music channels.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, advertising revenue was ~~$41,462~~$47,242 and ~~$34,268, respectively, an increase of 21%, or $7,194. For the nine months ended September 30, 2017 and 2016, advertising revenue was $117,656 and $99,330,~~$40,178, respectively, an increase of 18%, or ~~$18,326.~~$7,064. For the six months ended June 30, 2018 and 2017, advertising revenue was $89,290 and $76,194, respectively, an increase of 17%, or $13,096. The increases were 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 from the sale of satellite radios, components and accessories as well as the sale of connected vehicle devices and royalty revenue on chipset modules.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, equipment revenue was ~~$32,337~~$36,840 and ~~$31,306,~~$29,674, respectively, an increase of 3%24%, or ~~$1,031.~~$7,166. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, equipment revenue was ~~$91,669~~$71,929 and ~~$86,285,~~$59,332, respectively, an increase of 6%21%, or ~~$5,384.~~$12,597. The ~~increase for the three and nine month period was~~increases were driven by ~~an increase in~~additional royalty revenue ~~on certain modules starting in the second quarter of 2016~~ due to our transition to a new generation of chipsets and revenue from the sales of connected vehicle devices, ~~since the acquisition of Automatic,~~ partially offset by lower satellite radio sales to ~~distributors and~~ consumers.

We expect equipment revenue to increase ~~due to the increases in~~as royalty revenues associated with certain ~~modules related to our transition to a~~ new ~~generation of chipsets.~~chipsets increases.

Music Royalty Fee and Other Revenue includes amounts earned from subscribers for the U.S. Music Royalty Fee, and service and advisory revenue from our Canadian affiliate, our connected vehicle services, and ancillary revenues.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, other revenue was ~~$169,770~~$209,255 and ~~$142,326,~~$166,706, respectively, an increase of ~~19%~~26%, or ~~$27,444.~~$42,549. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, other revenue was ~~$486,611~~$390,136 and ~~$415,895,~~$316,841, respectively, an increase of ~~17%~~23%, or ~~$70,716.~~$73,295. The increases were primarily driven by ~~higher revenue from the new Sirius XM Canada service and advisory agreements, additional revenues from the~~ U.S. Music Royalty Fee revenue due to subscribers paying at a higher rate and an increase in the number of subscribers, ~~and subscribers paying at a higher rate of 13.9% and~~ higher revenue generated from our connected vehicle ~~services.~~services, and revenue from Sirius XM Canada, which was mitigated by a one-time activation revenue resolution with Sirius XM Canada recorded in the second quarter of 2017.

Other revenue is expected to increase due to an increase in U.S. Music Royalty Fees as subscribers migrate to the new rate and as our subscriber base ~~continues to grow and an increase in revenue from Sirius XM Canada due to the new service and advisory agreements.~~grows.

Operating Expenses

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

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, revenue share and royalties were ~~$296,498~~$404,284 and ~~$272,823,~~$292,893, respectively, an increase of 9%38%, or ~~$23,675,~~$111,391, and increased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, revenue share and royalties were ~~$866,691~~$714,416 and ~~$788,952,~~$570,193, respectively, an increase of ~~10%~~25%, or ~~$77,739,~~$144,223, and increased as a percentage of total revenue. The increases were primarily due to ~~overall greater revenues subject~~a $69,144 charge related to ~~royalties~~the legal settlement that resolved all outstanding claims, including ongoing audits, under our statutory license for ~~transmitting content and revenue share to automakers and a 5%~~sound recordings for the period January 1, 2007 through December 31, 2017, an increase in the statutory royalty rate applicable to our use of post-1972 recordings, which increased from ~~10.5% in 2016 to~~ 11% in ~~2017.~~2017 to 15.5% in 2018 and overall greater revenues subject to revenue share with the automakers. The increase was partially offset by approximately $22,235 and $44,304, for the three and six months ended June 30, 2018, respectively, related to the adoption of the new revenue standard effective as of January 1, 2018.

We expect our revenue share and royalty costs to increase as our revenues ~~grow. Our revenue share~~grow and ~~royalty costs may also increase~~ as a result of ~~a rate setting proceeding currently pending before~~ the ~~Copyright Royalty Board (“CRB”). The CRB initiated a proceeding~~increase in ~~January 2016 to set~~ the rates and terms by which our satellite radio service may perform sound recordings by digital transmission and make ephemeral reproductions during the 2018-2022 period. As part of this proceeding, SoundExchange, on behalf of the recording industry, proposed a new rate structure and a number of material changes to the governing regulations, including relating to the applicable revenue base for the percent-of-revenue royalty calculations and fees for trial subscriptions. If the CRB adopts the proposals made by SoundExchange, the ruling would further increase, possibly in a material manner, the sound recording royalties payable by us. The CRB is expected to issue its final ruling in this proceeding no later than December 15, 2017.rate.

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.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, programming and content expenses were ~~$98,239~~$105,650 and ~~$89,015,~~$96,255, respectively, an increase of 10%, or ~~$9,224,~~$9,395, and increased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, programming and content expenses were ~~$290,038~~$206,486 and ~~$257,760,~~$191,799, respectively, an increase of ~~13%~~8%, or ~~$32,278,~~$14,687, and increased as a percentage of total revenue. The increases were primarily due to ~~the addition of video content rights, payment for which started during the third quarter of 2016, as well as~~ increased ~~talent~~personnel-related costs, programming operations costs related to subscriber events, and ~~personnel-related costs.~~higher music license fees.

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, bad debt expense, and transaction fees.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, customer service and billing expenses were ~~$94,655~~$95,582 and ~~$94,923,~~$95,324, respectively, a ~~decrease~~slight increase of ~~less than 1%, or $268, and~~$258, but decreased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, customer service and billing expenses were ~~$286,754~~$189,447 and ~~$285,502,~~$192,099, respectively, ~~an increase~~a decrease of ~~less than~~ 1%, or ~~$1,252, but~~$2,652, and decreased as a percentage of total revenue. ~~For both~~The increased expenses for the three month period was driven primarily by increased transaction fees from a larger subscriber base and ~~nine month periods, customer service and billing expense reflected~~overhead costs, offset by lower call center costs due to lower agent and contact rates, and bad debt expense. The decreased expenses for the six month period was driven by lower call center costs due to lower agent and contact rates, and bad debt expense, partially offset by increased transaction fees ~~and bad debt expense~~ from a ~~higher~~larger subscriber ~~base.~~base and overhead costs.

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 and connected vehicle services.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, satellite and transmission expenses were ~~$21,378~~$23,478 and ~~$22,224,~~$19,603, respectively, ~~a decrease~~an increase of 4%20%, or ~~$846,~~$3,875, and ~~decreased~~increased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, satellite and transmission expenses were ~~$61,557~~$46,200 and ~~$80,609,~~$40,179, respectively, ~~a decrease~~an increase of ~~24%~~15%, or ~~$19,052,~~$6,021, and ~~decreased~~increased as a percentage of total revenue. The ~~decreases for the three and nine month periods~~increases were primarily driven by ~~lower~~higher wireless costs associated with our connected vehicle services and ~~lower terrestrial repeater costs as a result of the elimination of duplicative repeater sites; partially offset by increased~~higher Internet streaming costs. ~~In addition, the nine month period ended September 30, 2016 included a loss on disposal of certain obsolete satellite parts of $12,912, recorded in the three months ended June 30, 2016.~~

We expect satellite and transmission expenses to increase as costs associated with our investment in Internet streaming ~~services~~ increase.

Cost of Equipment includes costs from the sale of satellite radios, components and accessories as well as connected vehicle ~~and~~ devices, and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, cost of equipment was ~~$8,254~~$7,674 and ~~$9,674,~~$9,371, respectively, a decrease of ~~15%~~18%, or ~~$1,420,~~$1,697, and decreased as a percentage of equipment revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, cost of equipment was ~~$24,537~~$14,771 and ~~$29,181,~~$16,283, respectively, a decrease of ~~16%~~9%, or ~~$4,644,~~

$1,512, and decreased as a percentage of equipment revenue. The decreases were primarily due to lower satellite radio sales to ~~distributors and consumers, partially offset by the incremental costs associated with the sale of connected vehicle devices since the acquisition of Automatic.~~consumers.

We expect cost of equipment to fluctuate with changes in ~~sales.~~sales of aftermarket radios.

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; product warranty obligations; and freight. 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.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, subscriber acquisition costs were ~~$119,555~~$119,778 and ~~$120,111,~~$125,154, respectively, a decrease of ~~less than 1%~~4%, or ~~$556,~~$5,376, and decreased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, subscriber acquisition costs were ~~$372,197~~$242,471 and ~~$381,516,~~$252,642, respectively, a decrease of 2%4%, or ~~$9,319,~~$10,171, and decreased as a percentage of total revenue. The decreases were driven by reductions to OEM hardware subsidy rates, lower subsidized costs related to the transition of chipsets, and a decrease in the volume of installations. ~~The three month period ended September 30, 2016 benefited from a one-time true-up from a contractual reduction to a subsidy rate.~~

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

Sales and Marketing includes costs for marketing, advertising, media and production, including promotional events and sponsorships; cooperative marketing; and personnel. Marketing costs include expenses related to direct mail, outbound telemarketing and email communications.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, sales and marketing expenses were ~~$114,519~~$119,435 and ~~$99,194,~~$106,707, respectively, an increase of ~~15%~~12%, or ~~$15,325,~~$12,728, and increased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, sales and marketing expenses were ~~$318,135~~$226,146 and ~~$279,278,~~$203,616, respectively, an increase of ~~14%~~11%, or ~~$38,857,~~$22,530, and increased as a percentage of total revenue. The increases were primarily due to additional subscriber communications, retention programs and acquisition campaigns, as well as higher personnel-related ~~costs; partially offset by the timing of OEM marketing campaigns.~~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.

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

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, engineering, design and development expenses were ~~$29,433~~$27,485 and ~~$19,254,~~$27,783, respectively, ~~an increase~~a decrease of ~~53%~~1%, or ~~$10,179,~~$298, and ~~increased~~decreased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, engineering, design and development expenses were ~~$81,033~~$58,122 and ~~$57,588,~~$51,600, respectively, an increase of ~~41%~~13%, or ~~$23,445,~~$6,522, and increased as a percentage of total revenue. The ~~increases were~~decrease for the three month period was driven by ~~additional~~lower costs associated with the development of video streaming and our connected vehicle services, partially offset by higher costs associated with the development of our audio streaming product. The increase for the six month period was driven by the additional costs associated with our connected vehicle services and ~~video streaming products and increased~~the development of our ~~connected vehicle services.~~audio streaming product; partially offset by lower costs associated with the development of our video streaming product.

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

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

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, general and administrative expenses were ~~$83,187~~$92,683 and ~~$90,369,~~$84,607, respectively, ~~a decrease~~an increase of 8%10%, or ~~$7,182,~~$8,076, and ~~decreased~~increased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, general and administrative expenses were ~~$245,995~~$177,289 and ~~$249,052,~~$162,808, respectively, a

~~decrease~~an increase of 1%9%, or ~~$3,057,~~$14,481, and ~~decreased~~increased as a percentage of total revenue. The ~~decreases~~increases were primarily driven by higher personnel-related costs and a one-time sales and use tax, partially offset by lower legal ~~costs due to insurance recoveries recorded during the three months ended September 30, 2017, lower consulting costs, and lower rent expense.~~costs.

We expect our general and administrative expenses to increase to support the growth of our business.

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

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, depreciation and amortization expense was ~~$79,913~~$74,623 and ~~$67,880,~~$73,519, respectively, an increase of ~~18%~~2%, or ~~$12,033, and increased~~$1,104, but decreased as a percentage of total revenue. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, depreciation and amortization expense was ~~$230,136~~$146,835 and ~~$202,215,~~$150,223, respectively, ~~an increase~~a decrease of ~~14%~~2%, or ~~$27,921,~~$3,388, and ~~increased~~decreased as a percentage of total revenue. The ~~increases were~~increase for the three month period was driven by ~~acceleration of amortization related to a shorter useful life of certain software as well as~~ additional assets placed in-service, partially offset by lower amortization expense due to our subscriber relationships and

certain software assets being fully amortized during 2017. The decrease for the six month period was driven by lower amortization expense due to our subscriber relationships and certain software assets being fully amortized during 2017, partially offset by additional assets placed in-service.

Other Income (Expense)

Interest Expense includes interest on outstanding debt.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, interest expense was ~~$92,634~~$86,917 and ~~$89,092,~~$82,794, respectively, an increase of 4%5%, or ~~$3,542.~~$4,123. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, interest expense was ~~$257,085~~$176,706 and ~~$250,888,~~$164,451, respectively, an increase of 2%7%, or ~~$6,197. The~~$12,255.The increases were primarily due to higher average ~~debt during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016.~~

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

For the three and nine months ended September 30, 2017 and 2016, loss on extinguishment of debt, net, was $43,679 and $0, respectively. We recorded losses on extinguishment of debt during the three and nine months ended September 30, 2017 due to the redemption of our 4.25% Senior Notes due 2020, 5.75% Senior Notes due 2021, and 5.25% Senior Secured Notes due 2022. There was no loss on extinguishment of debt during the three and nine months ended September 30, 2016.

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

For the three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, other income (expense) was ~~$86,971~~$88,212 and ~~$83,897,~~$(11,937), respectively. For the six months ended June 30, 2018 and 2017, other income (expense) was $124,100 and $(3,074), respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, we recorded an~~2018, other income was driven by unrealized ~~gain~~gains of ~~$68,650~~$86,074 and $117,449 from a fair value adjustment of our investment in Pandora, respectively, and interest earned on our loan to Sirius XM ~~Canada, dividends accrued from~~Canada. For the three and six months ended June 30, 2017, other loss was driven by transaction costs associated with our investment in Pandora and our share of Sirius XM Canada's net income or loss, partially offset by transaction costs associated with our investment in Pandora. For the three months ended September 30, 2016, other income was $2,370 driven by our share of Sirius XM Canada's net income. For the nine months ended September 30, 2016, other income was $15,733 driven by our share of Sirius XM Canada’s net income and the dividends received from Sirius XM Canada in excess of our investment.loss.

Income Taxes

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

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, income tax expense was ~~$108,901~~$70,570 and ~~$111,556,~~$119,513, respectively, and ~~$342,387~~$150,819 and ~~$326,108~~$233,486 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Key Financial and Operating Performance Metrics

In this section, we present certain financial performance measures ~~that~~some of which 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~~metric excludes the effect of significant items that do not relate to the on-going performance of our business. We use these Non-GAAP financial and operating performance measures to manage our business, to set operational goals and as a basis for determining performance-based compensation for our employees. See the accompanying glossary on pages 4039 through 43 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~~acquisitions 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 4039 through 43) 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.

Set forth below are our subscriber balances as of ~~September~~June 30, ~~2017~~2018 compared to ~~September~~June 30, ~~2016:~~2017.


	As of September 30,		2017 vs 2016 Change				As of June 30,		2018 vs 2017 Change
	2017	2016	Amount		%		2018	2017	Amount		%
Self-pay subscribers	26,986	25,528	1,458		6	%	28,203	26,675	1,528		6	%
Paid promotional subscribers	5,181	5,463	(282	)	(5	)%	5,292	5,372	(80	)	(1	)%
Ending subscribers(a)	32,167	30,991	1,176		4	%	33,495	32,048	1,447		5	%


(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 three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~ 2017. The ARPU and SAC, per installation, metrics for the three months ended June 30, 2018 have been reduced due to the adoption of the new revenue standard as of January 1, 2018 by $0.24 and $0.24, respectively. The ARPU and SAC, per installation, metrics for the six months ended June 30, 2018 have been reduced due to the adoption of the new revenue standard as of January 1, 2018 by $0.24 and $0.28, respectively. For more information regarding the impact on these metrics, refer to the glossary (pages 39 through 43). For more information regarding the adoption of the new revenue standard, refer to Note 2 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.


													2017 vs 2016 Change																						2018 vs 2017 Change
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						Three Months					Nine Months					For the Three Months Ended June 30,						For the Six Months Ended June 30,						Three Months					Six Months
	2017			2016			2017			2016			Amount			%		Amount			%		2018			2017			2018			2017			Amount			%		Amount			%
Self-pay subscribers	311			385			1,035			1,240			(74		)	(19	)%	(205		)	(17	)%	483			466			690			725			17			4	%	(35		)	(5	)%
Paid promotional subscribers	(191		)	(39		)	(214		)	157			(152		)	(390	)%	(371		)	(236	)%	(54		)	(20		)	69			(23		)	(34		)	(170	)%	92			400	%
Net additions ^(a)	119			345			821			1,397			(226		)	(66	)%	(576		)	(41	)%	429			445			759			702			(16		)	(4	)%	57			8	%
Daily weighted average number of subscribers	32,029			30,776			31,717			30,290			1,253			4	%	1,427			5	%	33,197			31,746			33,013			31,559			1,451			5	%	1,454			5	%
Average self-pay monthly churn	1.9		%	1.9		%	1.8		%	1.8		%	0		%	0	%	0		%	0	%	1.6		%	1.7		%	1.7		%	1.8		%	(0.1		)%	(6	)%	(0.1		)%	(6	)%
New vehicle consumer conversion rate	40		%	40		%	40		%	39		%	0		%	0	%	1		%	3	%	39		%	40		%	39		%	40		%	(1		)%	(3	)%	(1		)%	(3	)%

ARPU	$	13.41		$	13.04		$	13.19		$	12.83		$	0.37		3	%	$	0.36		3	%	$	13.30		$	13.22		$	13.13		$	13.08		$	0.08		1	%	$	0.05		—	%
SAC, per installation	$	30		$	28		$	30		$	31		$	2		7	%	$	(1	)	(3	)%	$	27.54		$	31.19		$	27.86		$	30.18		$	(3.65	)	(12	)%	$	(2.32	)	(8	)%
Customer service and billing expenses, per average subscriber	$	0.92		$	0.97		$	0.94		$	0.98		$	(0.05	)	(5	)%	$	(0.04	)	(4	)%	$	0.89		$	0.94		$	0.88		$	0.95		$	(0.05	)	(5	)%	$	(0.07	)	(7	)%
Adjusted EBITDA	$	550,582		$	491,892		$	1,574,320		$	1,401,024		$	58,690		12	%	$	173,296		12	%	$	543,422		$	521,936		$	1,075,271		$	1,023,739		$	21,486		4	%	$	51,532		5	%
Free cash flow	$	433,788		$	356,527		$	1,099,452		$	1,079,690		$	77,261		22	%	$	19,762		2	%	$	486,243		$	416,725		$	812,705		$	665,664		$	69,518		17	%	$	147,041		22	%
Diluted weighted average common shares outstanding (GAAP)	4,704,571			4,919,829			4,734,841			5,005,133			(215,258		)	(4	)%	(270,292		)	(5	)%	4,589,095			4,735,592			4,588,986			4,759,741			(146,497		)	(3	)%	(170,755		)	(4	)%


(a)	Amounts may not sum as a result of rounding.

Subscribers. At ~~September~~June 30, ~~2017,~~2018, we had approximately ~~32.2~~33.5 million subscribers, an increase of ~~1.2~~1.4 million subscribers, or 4%5%, from the approximately ~~31.0~~32.0 million subscribers as of ~~September~~June 30, ~~2016.~~2017. The increase in total subscribers was primarily due to growth in our self-pay subscriber base, which increased 1.5 million, partially offset by ~~a 282~~an 80 thousand decrease in paid promotional subscribers. The increase in self-pay subscribers iswas primarily from original and subsequent owner trial conversions and subscriber win back programs, partially offset by deactivations.

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, net additions were ~~119~~429 thousand and ~~345~~445 thousand, respectively, a decrease of ~~66%~~4%. Paid promotional net additions declined due to paid promotional ends out-pacing paid-promotional starts during the three months ended June 30, 2018. Self-pay net additions increased due to growth in trial conversions and subscriber win backs and improvements in our non-pay churn. For the six months ended June 30, 2018 and 2017, net additions were 759 thousand and 702 thousand, respectively, an increase of 8%. For the ~~nine months ended September 30, 2017 and 2016, net additions were 821 thousand and 1,397 thousand, respectively, a decrease of 41%. The decline~~six month period, growth in paid promotional net additions was due to paid promotional subscription ~~ends~~starts out-pacing paid promotional subscription ~~starts~~ends as a result of ~~lower~~higher shipments from automakers offering paid promotional ~~subscriptions. Self-pay~~subscriptions while self-pay net additions ~~declined~~decreased due to ~~higher~~growth in vehicle turnover ~~of our subscriber base mitigated by~~out-pacing growth in ~~gross additions.~~trial conversions and subscriber win backs.

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 4039 through 43 for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, our average self-pay monthly churn rate was ~~1.9%.~~1.6% and 1.7%, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, our average self-pay monthly churn rate was 1.7% and 1.8%.

, respectively. The decreases in churn were primarily driven by improvements in non-pay and voluntary churn.

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 4039 through 43 for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, our new vehicle consumer conversion rate was 39% and 40%., respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, our new vehicle consumer conversion rate was ~~40%~~39% and ~~39%~~40%, respectively. The ~~increase~~decrease in new vehicle consumer conversion rate ~~for the nine month period~~ was driven primarily by ~~improvements~~a decline in conversion of ~~paid promotional subscribers who are also existing self-pay~~first time trial subscribers.

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 4039 through 43 for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, ARPU was ~~$13.41~~$13.30 and ~~$13.04,~~$13.22, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, ARPU was ~~$13.19~~$13.13 and ~~$12.83,~~$13.08, respectively. The ~~increases were driven primarily by increases~~increase in certain of our subscription rates, ~~in 2016, partially~~including the U. S. Music Royalty Fee, and higher advertising revenue was offset by the impact of the adoption of the new revenue standard, effective as of January 1, 2018 of $0.24 for both the three and six month periods, and the growth in subscription discounts offered through customer acquisition and retention programs.

SAC, Per Installation, is derived from subscriber acquisition costs and margins from the sale of radios, components and accessories (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. (See the accompanying glossary on pages 4039 through 43 for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, SAC, per installation, was ~~$30~~$27.54 and ~~$28,~~$31.19, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, SAC, per installation, was ~~$30~~$27.86 and ~~$31,~~$30.18, respectively. The ~~three and nine month periods ended September 30, 2016 benefited from a contractual reduction~~decreases were driven by reductions to aOEM hardware subsidy ~~rate. Adjusted for this one-time benefit, the three and nine months ended September 30, 2017 decreased primarily driven by~~rates, our transition to a new generation of ~~chipsets.~~chipsets as well as the impact of the adoption of the new revenue standard, effective as of January 1, 2018 of $0.24 and $0.28 for the three and six months ended June 30, 2018, respectively.

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 4039 through 43 for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, customer service and billing expenses, per average subscriber, was ~~$0.92~~$0.89 and ~~$0.97,~~$0.94, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, customer service and billing expenses, per average subscriber, was ~~$0.94~~$0.88 and ~~$0.98,~~$0.95, respectively. The decreases were primarily related to lower call center costs due to lower contact rates, ~~and lower~~ agent rates, ~~partially offset by higher transaction fees.~~and bad debt expense.

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, other non-cash charges, such as certain purchase price accounting adjustments, share-based payment expense, ~~and~~ loss on disposal of ~~assets.~~assets, and legal

settlements and reserves related to the historical use of sound recordings. (See the accompanying glossary on pages 4039 through 43 for a reconciliation to GAAP and for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, adjusted EBITDA was ~~$550,582~~$543,422 and ~~$491,892,~~$521,936, respectively, an increase of ~~12%~~4%, or ~~$58,690.~~$21,486. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, adjusted EBITDA was ~~$1,574,320~~$1,075,271 and ~~$1,401,024,~~$1,023,739, respectively, an increase of ~~12%~~5%, or ~~$173,296.~~$51,532. The increases were due to growth of 6% in ~~revenues~~total revenue which was primarily as a result of the increase in our subscriber base and certain of our subscription rates, additional revenues from the U.S. Music Royalty Fee, and an increase in other ~~revenue from higher~~ revenue from the new Sirius XM Canada service and advisory agreements ~~and additional revenues from the U.S. Music Royalty Fee,~~ as well as lower ~~general and administrative~~subscriber acquisition costs. ~~These~~The increases were partially offset by higher revenue share and royalty, ~~costs due to growth in our revenues and royalty rates,~~ programming and content, sales and marketing, ~~and~~ engineering, design and development, and general and administrative costs.

Free Cash Flow includes cash provided by operations, net of additions to property and equipment, and restricted and other investment activity. (See the accompanying glossary on pages 4039 through 43 for a reconciliation to GAAP and for more details.)

For the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, free cash flow was ~~$433,788~~$486,243 and ~~$356,527,~~$416,725, respectively, an increase of ~~$77,261,~~$69,518, or 17%. For the six months ended June 30, 2018 and 2017, free cash flow was $812,705 and $665,664, respectively, an increase of $147,041, or 22%. For the ~~nine months ended September 30, 2017 and 2016, free cash flow was $1,099,452 and $1,079,690, respectively, an increase of $19,762, or 2%. The increase for the~~ three month ~~period~~periods, the increase was driven by higher net cash provided by operating activities resulting from improved operating performance, the timing of payments to vendors, and the timing of interest payments, partially offset by an increase in additions to property and equipment resulting from new satellite ~~construction, and timing of interest~~

~~payments. The~~construction. For the six month periods, the increase ~~for the nine month period~~ was driven by higher net cash provided by operating activities resulting from improved operating ~~performance;~~performance, the timing of payments to vendors, and the payment of a legal settlement during the first quarter of 2017, partially offset by an increase in additions to property and equipment resulting from new satellite ~~construction and a payment of a legal settlement during the first quarter of 2017 and timing of interest payments.~~construction.

Liquidity and Capital Resources

Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017

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


	For the Nine Months Ended September 30,									For the Six Months Ended June 30,
	2017			2016			2017 vs 2016			2018			2017			2018 vs 2017
Net cash provided by operating activities	$	1,313,764		$	1,216,104		$	97,660		$	994,116		$	792,536		$	201,580
Net cash used in investing activities	(1,065,047		)	(136,414		)	(928,633		)	(184,307		)	(667,248		)	482,941
Net cash used in financing activities	(389,103		)	(619,146		)	230,043			(814,728		)	(296,057		)	(518,671		)
Net (decrease) increase in cash and cash equivalents	(140,386		)	460,544			(600,930		)
Cash and cash equivalents at beginning of period	213,939			111,838			102,101
Cash and cash equivalents at end of period	$	73,553		$	572,382		$	(498,829	)
Net decrease in cash, cash equivalents and restricted cash										(4,919		)	(170,769		)	165,850
Cash, cash equivalents and restricted cash at beginning of period										79,374			223,828			(144,454		)
Cash, cash equivalents and restricted cash at end of period										$	74,455		$	53,059		$	21,396

Cash Flows Provided by Operating Activities

Cash flows provided by operating activities increased by ~~$97,660~~$201,580 to ~~$1,313,764~~$994,116 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$1,216,104~~$792,536 for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The increase was driven by improved operating performance, partially offset by the timing of interest payments and a payment for a legal settlement.~~2017.

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 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 in the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 were primarily due to additional spending to construct replacement satellites, improve our terrestrial repeater network, for capitalized software, and deferred compensation. We spent $79,962 and $35,494 to construct replacement satellites during the six months ended June 30, 2018 and 2017, respectively. In addition, cash flows used in investing activities in the first half of 2017 were primarily due to our investment in Pandora of ~~$480,000,~~$172,500, loans to related parties of $130,794, payments to acquire additional ownership in related

parties ~~(inclusive~~(net of transaction costs) of ~~$132,205,~~$129,676, and the acquisition of Automatic Labs Inc. for ~~$107,736~~$107,056 (net of cash and restricted cash acquired), and additional spending of $78,852 to construct replacement satellites, improve our terrestrial repeater network, and for capitalized software. In 2016, our cash flows used in investing activities were primarily due to additional spending to improve our terrestrial repeater network and for capitalized software..

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 cash ~~dividends.~~dividends and taxes paid in lieu of shares issued for stock-based compensation. Proceeds from long-term debt have been used to fund our operations, construct and launch new satellites, invest in other infrastructure improvements and purchase shares of our common stock.

Cash flows used in financing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were primarily due to the ~~redemption of $1,500,000 aggregate principal amount of then-outstanding notes, the~~ purchase and retirement ~~for $996,263~~ of shares of our common stock under our repurchase program for $334,215, the payment of cash dividends of ~~$139,854, and net repayments of $100,000~~$98,684, repayment under the Credit ~~Facility. Cash flows provided by financing activities~~Facility of $302,611 and payment of $71,501 for taxes paid in ~~the nine months ended September 30, 2017 were primarily due to the issuance~~lieu of ~~$2,500,000 aggregate principal amount of notes.~~shares issued for share-based compensation. Cash flows used in financing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 were primarily due to the purchase and retirement for ~~$1,225,284~~$783,824 of shares of our common stock under our repurchase program, payment of cash dividends of $93,638 and payment of $22,595 for taxes paid in lieu of shares issued for share-based compensation, partially offset by net borrowings of ~~$638,393.~~

$610,000 under the Credit Facility.

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 ~~September~~June 30, ~~2017, $1,460,000~~2018, $1,750,000 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 of our satellite spend, 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 ~~September~~June 30, ~~2017,~~2018, our board of directors had authorized for repurchase an aggregate of ~~$10,000,000~~$12,000,000 of our common stock. As of ~~September~~June 30, ~~2017,~~2018, our cumulative repurchases since December 2012 under our stock repurchase program totaled ~~2,397,932~~2,529,978 shares for ~~$8,960,948,~~$9,694,181, and ~~$1,039,052~~$2,305,819 remained available for additional repurchases under our existing stock repurchase ~~program.~~program authorization.

Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in accelerated stock repurchase transactions and transactions with Liberty Media and its affiliates. We intend to fund the additional repurchases through a combination of cash on hand, cash generated by operations and future borrowings.

On ~~October 3, 2017,~~July 18, 2018, our board of directors declared a quarterly dividend on our common stock in the amount of $0.011 per share of common stock payable on ~~November 30, 2017~~August 31, 2018 to stockholders of record as of the close of business on ~~November 9, 2017.~~August 10, 2018. Our board of directors expects to declare regular quarterly dividends, in an aggregate annual amount of $0.044 per share of common stock.

Debt Covenants

The indentures governing Sirius XM's senior notes and the agreement governing the Credit Facility include restrictive covenants. As of ~~September~~June 30, ~~2017,~~2018, we were in compliance with such covenants. For a discussion of our “Debt Covenants,” refer to Note 11 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not have any significant off-balance sheet arrangements other than those disclosed in Note 14 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q 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 unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Related Party Transactions

For a discussion of “Related Party Transactions,” refer to Note 10 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

For a discussion of our “Critical Accounting Policies and Estimates,” refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. There have been no material changes to our critical accounting policies and estimates since December 31, ~~2016.~~2017.

~~Recent Accounting Pronouncements~~

~~In May 2014,~~We adopted the ~~Financial Accounting Standards Board (“FASB”) issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive~~ new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 which amended the effective date of this ASU to fiscal years beginning after December 15, 2017, and early adoption is permitted only for fiscal years beginning after December 15, 2016. In 2016, the FASB issued additional guidance which clarified principal versus agent considerations, identification of performance obligations and the implementation guidance for licensing. In addition, the FASB issued guidance regarding practical expedients related to disclosures of remaining performance obligations, as well as other amendments to the guidance on transition, collectibility, non-cash consideration and the presentation of sales and other similar taxes. The two permitted transition methods under the new standard ~~are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or~~using the modified retrospective method ~~in which case~~by recognizing the cumulative effect of initially applying the new revenue standard ~~would be recognized at the date~~to all non-completed contracts as of ~~initial application. We currently plan to adopt this ASU under the modified retrospective method.~~

~~We have completed our evaluation of the impact this ASU will have on our primary revenue streams. Based on our assessment of the impact of implementing this ASU on~~ January 1, 2018 ~~under~~as an adjustment to opening Accumulated deficit in the ~~modified retrospective method,~~period of adoption. For more information regarding the ~~most significant impact~~adoption of the ~~ASU relates~~new revenue standard, refer to the classification of Revenue share and certain subsidy payments made to automakers associated with a paid promotional subscription. Under the new standard, these payments associated with a paid promotional subscription will be treated as a reduction to the transaction price rather than as an expense as classified under ASC 605. We expect this change to reduce Subscription revenue by less than 3% upon adoption along with a corresponding reduction to Revenue share and royalties and Subscriber acquisition costs, and as a result, we do not expect this change to have an impactNote 2 to our Net income, or our key financial performance metrics, Adjusted EBITDA and Free Cash Flow. We expect this change will impact certain of our operating performance metrics, specifically a reduction in ARPU by less than 3% and to a lesser extent SAC, Per Installation. Additionally, within our consolidated balance sheets, upon adoption, the amount of revenue share and certain subsidy payments made to automakers associated with a paid promotional subscription will be classified as a liability separate from deferred revenue.

~~We expect to complete our implementation process, which includes the necessary changes to our business processes, systems and controls to support recognition and disclosure, prior to the adoption~~in Part I, Item 1 of this ~~ASU~~Quarterly Report on ~~January 1, 2018.~~Form 10-Q.

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~~As a result of large capital investments in our satellite radio system, our results of operations reflect significant charges for depreciation expense. We believe the exclusion of share-based payment expense is useful as it is not directly related to the operational conditions of our business. We also believe the exclusion of the legal settlements and reserves related to the historical use of sound recordings, loss on extinguishment of debt and loss on disposal of assets, to the extent they occur during the period, is useful as they are significant expenses not incurred as part of our normal operations for the period.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our 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 unaudited 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 Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017		2018			2017
Net income:	$	275,722		$	193,901		$	684,904		$	541,306		$	292,352		$	202,109	$	581,793		$	409,182
Add back items excluded from Adjusted EBITDA:
Purchase price accounting adjustments:
Revenues	1,813			1,813			5,438			5,438			1,813			1,813		3,626			3,626
Loss on disposal of assets	—			—			—			12,912
Sound recording legal settlements and reserves													69,144			—		69,144			—
Share-based payment expense	34,891			30,020			94,588			77,890			36,215			30,251		70,448			59,697
Depreciation and amortization	79,913			67,880			230,136			202,215			74,623			73,519		146,835			150,223
Interest expense	92,634			89,092			257,085			250,888			86,917			82,794		176,706			164,451
Loss on extinguishment of debt	43,679			—			43,679			—
Other income	(86,971		)	(2,370		)	(83,897		)	(15,733		)
Other (income) expense													(88,212		)	11,937		(124,100		)	3,074
Income tax expense	108,901			111,556			342,387			326,108			70,570			119,513		150,819			233,486
Adjusted EBITDA	$	550,582		$	491,892		$	1,574,320		$	1,401,024		$	543,422		$	521,936	$	1,075,271		$	1,023,739

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. The ARPU for the three and six months ended June 30, 2018 reflects adjustments as a result of adopting the new revenue standard as of January 1, 2018. ARPU is calculated as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018			2017
Subscriber revenue, excluding connected vehicle services	$	1,115,383	$	1,048,033	$	3,263,793	$	3,044,438	$	1,112,652	$	1,090,356	$	2,204,901		$	2,148,410
Add: advertising revenue	41,462		34,268		117,656		99,330		47,242		40,178		89,290			76,194
Add: other subscription-related revenue	131,831		122,013		384,478		353,606		165,058		128,179		305,874			252,647
	$	1,288,676	$	1,204,314	$	3,765,927	$	3,497,374	$	1,324,952	$	1,258,713	$	2,600,065		$	2,477,251
Daily weighted average number of subscribers	32,029		30,776		31,717		30,290		33,197		31,746		33,013			31,559
ARPU	$	13.41	$	13.04	$	13.19	$	12.83	$	13.30	$	13.22	$	13.13	��	$	13.08

The table below illustrates the impact that the adoption of the new revenue standard had on ARPU for the three and six months ended June 30, 2018.



	For the Three Months Ended June 30, 2018						For the Six Months Ended June 30, 2018
	As Reported		Impact of Adopting ASU 2014-09		Balances Without Adoption of ASU 2014-09		As Reported		Impact of Adopting ASU 2014-09		Balances Without Adoption of ASU 2014-09
Subscriber revenue, excluding connected vehicle services	$	1,112,652	$	23,787	$	1,136,439	$	2,204,901	$	48,179	$	2,253,080
Add: advertising revenue	47,242		—		47,242		89,290		—		89,290
Add: other subscription-related revenue	165,058		—		165,058		305,874		—		305,874
	$	1,324,952	$	23,787	$	1,348,739	$	2,600,065	$	48,179	$	2,648,244
Daily weighted average number of subscribers	33,197		33,197		33,197		33,013		33,013		33,013
ARPU	$	13.30	$	0.24	$	13.54	$	13.13	$	0.24	$	13.37

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 Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Customer service and billing expenses, excluding connected vehicle services	$	89,463		$	90,582		$	271,971		$	270,964		$	89,335		$	90,388		$	177,068		$	182,508
Less: share-based payment expense	(1,171		)	(1,069		)	(3,211		)	(2,694		)	(1,077		)	(1,029		)	(2,141		)	(2,040		)
	$	88,292		$	89,513		$	268,760		$	268,270		$	88,258		$	89,359		$	174,927		$	180,468
Daily weighted average number of subscribers	32,029			30,776			31,717			30,290			33,197			31,746			33,013			31,559
Customer service and billing expenses, per average subscriber	$	0.92		$	0.97		$	0.94		$	0.98		$	0.89		$	0.94		$	0.88		$	0.95

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Cash Flow information
Net cash provided by operating activities	$	521,228		$	421,816		$	1,313,764		$	1,216,104		$	579,418		$	483,211		$	994,116		$	792,536
Net cash used in investing activities	$	(397,367	)	$	(65,289	)	$	(1,065,047	)	$	(136,414	)	$	(99,313	)	$	(606,862	)	$	(184,307	)	$	(667,248	)
Net cash used in financing activities	$	(93,046	)	$	(260,598	)	$	(389,103	)	$	(619,146	)	$	(494,447	)	$	(63,667	)	$	(814,728	)	$	(296,057	)
Free Cash Flow
Net cash provided by operating activities	$	521,228		$	421,816		$	1,313,764		$	1,216,104		$	579,418		$	483,211		$	994,116		$	792,536
Additions to property and equipment	(87,200		)	(65,074		)	(206,717		)	(132,246		)	(92,868		)	(66,152		)	(174,273		)	(119,517		)
Purchases of restricted and other investments	(240		)	(215		)	(7,595		)	(4,168		)	(307		)	(334		)	(7,138		)	(7,355		)
Free cash flow	$	433,788		$	356,527		$	1,099,452		$	1,079,690		$	486,243		$	416,725		$	812,705		$	665,664

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~~promotional period 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 (excluding connected vehicle services), divided by the number of satellite radio installations in new vehicles and shipments of aftermarket radios for the period. The SAC, per installation, for the three and six months ended June 30, 2018 reflects adjustments as a result of adopting the new revenue standard as of January 1, 2018. SAC, per installation, is calculated as follows:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Subscriber acquisition costs, excluding connected vehicle services	$	119,544		$	120,111		$	372,186		$	381,516		$	119,778		$	125,154		$	242,471		$	252,642
Less: margin from sales of radios and accessories, excluding connected vehicle services	(23,862		)	(21,632		)	(66,893		)	(57,104		)	(28,542		)	(20,285		)	(56,000		)	(43,031		)
	$	95,682		$	98,479		$	305,293		$	324,412		$	91,236		$	104,869		$	186,471		$	209,611
Installations	3,221			3,498			10,167			10,404			3,313			3,362			6,693			6,946
SAC, per installation	$	30		$	28		$	30		$	31		$	27.54		$	31.19		$	27.86		$	30.18

The table below illustrates the impact that the adoption of the new revenue standard has had on SAC, per installation, for the three and six months ended June 30, 2018.



	For the Three Months Ended June 30, 2018								For the Six Months Ended June 30, 2018
	As Reported			Impact of Adopting ASU 2014-09		Balances Without Adoption of ASU 2014-09			As Reported			Impact of Adopting ASU 2014-09		Balances Without Adoption of ASU 2014-09
Subscriber acquisition costs, excluding connected vehicle services	$	119,778		$	800	$	120,578		$	242,471		$	1,845	$	244,316
Less: margin from sales of radios and accessories, excluding connected vehicle services	(28,542		)	—		(28,542		)	(56,000		)	—		(56,000		)
	$	91,236		$	800	$	92,036		$	186,471		$	1,845	$	188,316
Installations	3,313			3,313		3,313			6,693			6,693		6,693
SAC, per installation	$	27.54		$	0.24	$	27.78		$	27.86		$	0.28	$	28.14


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

As of ~~September~~June 30, ~~2017,~~2018, 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. As of ~~September~~June 30, ~~2017,~~2018, we also held the following material investments:

Pandora Media, Inc. ("Pandora") Series A Preferred Stock, which investment we have elected to account for ~~this investment~~ under the fair value option. As of ~~September~~June 30, ~~2017,~~2018, the fair value of this investment was ~~$552.2~~$597.9 million, which was based on a Black-Scholes option pricing model and an income approach - discounted cash flow analysis. Had the market price of Pandora's common stock been 10% lower as of ~~September~~June 30, ~~2017,~~2018, the value of ~~this~~our investment would have been approximately ~~$23.7~~$24.4 million lower.

In connection with the recapitalization of Sirius XM Canada Holdings Inc. ("Sirius XM Canada"), on May 25, 2017, we loaned Sirius XM Canada $130.8 million. The loan is denominated in Canadian dollars and is subject to changes in foreign currency. It is considered a long-term investment with any unrealized gains or losses reported within Accumulated other comprehensive (loss) income. Such loan has a term of fifteen years, bears interest at a rate of 7.62% per annum and includes customary covenants and events of default, including an event of default relating to Sirius XM Canada’s failure to maintain specified leverage ratios. The carrying value of the loan as of ~~September~~June 30, ~~2017~~2018 was ~~$141.2~~$130.2 million and approximates its fair ~~value. As the loan is denominated in Canadian dollars it is subject to changes in foreign currency.~~value as of such date. Had the Canadian to U.S. dollar exchange rate been 10% lower as of ~~September~~June 30, ~~2017,~~2018, the value of this loan would have been approximately ~~$14.1~~$13.0 million lower.

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 4.	CONTROLS AND PROCEDURES

Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in SEC 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. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all

potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

As of ~~September~~June 30, ~~2017,~~2018, 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 Securities Exchange Act of 1934). 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 ~~September~~June 30, ~~2017.~~2018.

There has been no significant change in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended ~~September~~June 30, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

In the ordinary course of business, we are a defendant or party to various claims and lawsuits, including those discussed below.

SoundExchange Royalty Claims. ~~In August 2013,~~On June 7, 2018, Sirius XM entered into an agreement with SoundExchange, Inc., the organization that collects and distributes sound recording royalties pursuant to our statutory license, to settle the cases titled SoundExchange, Inc. v. Sirius XM Radio, Inc., No.13-cv-1290-RJL (D.D.C.), and SoundExchange, Inc. v. Sirius XM Radio, Inc., No.17-cv-02666-RJL (D.D.C.). A description of these actions is contained in our prior public filings. In connection with the settlement, we made a one-time lump sum payment of $150 million to SoundExchange on July 6, 2018. The settlement resolved all outstanding claims, including ongoing audits, under our statutory license for sound recordings for the period January 1, 2007 through December 31, 2017.

Telephone Consumer Protection Act Suits. On March 13, 2017, Thomas Buchanan, individually and on behalf of all others similarly situated, filed a class action complaint against us in the United States District Court for the Northern District of ~~Columbia alleging~~Texas, Dallas Division. The plaintiff in this action alleges that we ~~underpaid royalties for statutory licenses~~violated the Telephone Consumer Protection Act of 1991 (the “TCPA”) by, among other things, making telephone solicitations to persons on the National Do-Not-Call registry, a database established to allow consumers to exclude themselves from telemarketing calls unless they consent to receive the calls in a signed, written agreement, and making calls to consumers in violation of our internal Do-Not-Call registry. The plaintiff is seeking various forms of relief, including statutory damages of $500 for each 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 containedTCPA or, in the ~~regulations established by the Copyright Royalty Board. SoundExchange is seeking compensatory~~alternative, treble damages of ~~not less than $50 million and~~ up to ~~$100 million~~$1,500 for each knowing and willful violation of the TCPA and a permanent injunction prohibiting us from making, or ~~more, payment of late fees and interest, and attorneys’ fees and costs.~~

At December 31, 2016, we concluded that a loss, in excess of our recorded liabilities, was reasonably possible in connection with the SoundExchange royalty claims. At September 30, 2017, the estimable portion of such possible loss ranged from $0 to $85 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. 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.


ITEM 1A.	RISK FACTORS

There have been no material changes to the risk factors previously disclosed in response to Part 1,I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As of ~~September~~June 30, ~~2017,~~2018, our board of directors had authorized for repurchase an aggregate of ~~$10.0~~$12.0 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 ~~September~~June 30, ~~2017,~~2018, our cumulative repurchases since December 2012 under our stock repurchase program totaled ~~2.4~~2.5 billion shares for ~~$9.0~~$9.7 billion, and ~~$1.0~~$2.3 billion remained available under our stock repurchase program. The size and timing of these purchases will be based on a number of factors, including price and business and market conditions.

The following table provides information about our purchases of equity securities registered pursuant to Section 12 of the Exchange Act, as amended, during the quarter ended ~~September~~June 30, ~~2017:~~2018:

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)
July 1, 2017 - July 31, 2017 14,252,939
$ 5.42
14,252,939
$ 1,173,207,778
August 1, 2017 - August 31, 2017 3,039,163
$ 5.55
3,039,163
$ 1,156,336,225
September 1, 2017 - September 30, 2017 21,321,097
$ 5.50
21,321,097
$ 1,039,052,453
Total 38,613,199
$ 5.48
38,613,199



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)
April 1, 2018 - April 30, 2018	2,299,086	$	6.17	2,299,086	$	2,313,968,439
May 1, 2018 - May 31, 2018	1,279,424	$	6.37	1,279,424	$	2,305,818,884
June 1, 2018 - June 30, 2018	—	$	—	—	$	2,305,818,884
Total	3,578,510	$	6.24	3,578,510


(a)	These amounts include fees and commissions associated with the shares repurchased.

~~Recent Sales of Unregistered Securities~~

On May 25, 2017, in connection with the recapitalization of Sirius XM Canada, we issued 35 million shares of our common stock to the holders of the shares of Sirius XM Canada acquired in the transaction. The issuance of such shares of common stock was not registered under the Securities Act, because the shares were offered and sold in an exchange of securities exempt from the registration under Section 3(a)(10) of the Securities Act.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

See Exhibit Index attached hereto, which is incorporated herein by reference.

EXHIBIT INDEX



Exhibit		Description

~~4.1~~ 31.1	Indenture, dated as of July 5, 2017, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as a trustee, relating to the 3.875% Senior Notes due 2022 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on July 5, 2017 (File No. 001-34295)).

~~4.2~~	Indenture, dated as of July 5, 2017, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as a trustee, relating to the 5.000% Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on July 5, 2017 (File No. 001-34295)).

~~31.1~~	Certificate of James E. Meyer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certificate of David J. Frear, Senior Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certificate of James E. Meyer, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certificate of David J. Frear, Senior Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

*10.1		Employment Agreement, dated as of May 31, 2018, between Sirius XM Radio Inc. and Dara F. Altman (incorporated by reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on June 5, 2018 (File No. 001-34295)).

*10.2		Employment Agreement, dated as of June 1, 2018, between Sirius XM Radio Inc. and David J. Frear (incorporated by reference to Exhibit 10.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on June 5, 2018 (File No. 001-34295)).

101.1		The following financial information from our Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2018 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Comprehensive Income (Unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; (ii) Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016;~~2017; (iii) Consolidated Statements of Stockholders’ (Deficit) Equity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 (Unaudited); (iv) Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016;~~2017; and (v) Notes to Consolidated Financial Statements (Unaudited).

____________________



*	This document has been identified as a management contract or compensatory plan or arrangement.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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 25th day of ~~October 2017.~~July 2018.



SIRIUS XM HOLDINGS INC.

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



Acquired Assets:
Intangible assets subject to amortization	$	14,700
Goodwill	81,452
Deferred income tax asset, net	14,783
Other assets	4,019
Trademark	800
Total Assets	$	115,754

Assumed Liabilities:
Deferred revenue	(5,582		)
Other liabilities	(1,617		)
Total Liabilities	$	(7,199	)
Total Consideration	$	108,555



Years ending December 31,	Amount
2017 (remaining)	$	5,863
2018	23,138
2019	22,701
2020	22,121
2021	16,678
Thereafter	103,754
Total definite life intangible assets, net	$	194,255