Pandora 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2
    200,000,000* Registered Users 1,000,000+ Songs in the Pandora® collection 25,000,000,000+ Thumbs U.S., Australia, & New Zealand *Announced April, 2013 | Source: Internal Data

  • Page 3
    PANDORA BUSINESS MODEL ® Music Genome Project • Comprehensive database of music analysis • Up to 450 attributes per song Collective Feedback • 25+ billion thumbs in aggregate • 4+ billion stations created Ongoing Personalization & Discovery Individual Engagement • Real-time adaptation...

  • Page 4
    Anytime. Anywhere.

  • Page 5
    ... 2012(the last business day of the registrant's most recently completed second quarter), based on the closing price of such stock on The New York Stock Exchange on such date was approximately $725 million. This calculation excludes the shares of common stock held by executive officers, directors and...

  • Page 6
    ...Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Item 10 Item 11 Item 12 Item 13 Item 14 - - - - - Directors, Executive Officers and Corporate...

  • Page 7
    ... companies. PART I. ITEM 1. Overview Pandora is the leader in internet radio in the United States, offering a personalized experience for each of our listeners. We have pioneered a new form of radio-one that uses intrinsic qualities of music to initially create stations and then adapts playlists...

  • Page 8
    ... other platforms had access to unlimited hours of free music and comedy. Starting in March 2013, we instituted a 40 hour per month listening cap on mobile and other connected devices. Listeners who reach this limit may continue to use our ad supported service on these devices by paying $0.99 for the...

  • Page 9
    ... play when a listener changes stations or skips a song and opt-in videos that pause the music and cover the tuner. Our advertising strategy focuses on developing our core suite of display, audio and video advertising products and marketing these products to advertisers for delivery across...

  • Page 10
    ...brand marketing. Our Technologies Music Genome Project The Music Genome Project is the foundation of our personalized playlist generating system and has been built by our music analysts to select songs tailored to an individual's music tastes. The Music Genome Project database was developed one song...

  • Page 11
    ...data centers across the country. This network has allowed us to deliver a high quality streaming experience to a broad collection of devices at significant cost savings relative to outsourced third-party solutions. Pandora Mobile Streaming. We have designed a sophisticated system for streaming music...

  • Page 12
    ...automobiles and homes, using portable players, mobile phones and other wireless devices. The audio entertainment marketplace continues to rapidly evolve, providing our listeners with a growing number of alternatives and new media platforms. Other Forms of Media. We compete for the time and attention...

  • Page 13
    ..., longer operating histories, greater brand recognition and a growing presence on the internet. Content, Copyrights and Royalties To secure the rights to stream music content over the internet, we must obtain licenses from, and pay royalties to, copyright owners of both sound recordings and musical...

  • Page 14
    ... currently pay per-performance rates for streaming of sound recordings via our Pandora One subscription service that are higher than the per-performance rates for our free, non-subscription service. As a result, we may incur higher royalty expenses to SoundExchange for a listener that subscribes to...

  • Page 15
    ... to laws and regulations relating to performance royalties applicable to commercial webcasters such as us. Musical Works We also incur royalty expenses from our use of musical works embodied in sound recordings, with respect to which we must obtain public performance licenses and pay performance...

  • Page 16
    ... license those musical works, and new media licensees, such as Pandora, who were previously able to secure licenses from ASCAP for those musical works, may now have to enter into direct licensing arrangements with EMI. In March 2012, we entered into a licensing agreement with EMI covering the public...

  • Page 17
    ... Concentration No single customer accounted for 10% or more of our total revenues in fiscal 2011, 2012 or 2013. Seasonality Our results may reflect the effects of some seasonal trends in listener behavior due to increased internet usage and sales of media-streaming devices during certain vacation...

  • Page 18
    ... and Exchange Commission (''SEC''), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any other filings required by the SEC. We make available on our Investor Relations website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on...

  • Page 19
    ...2013 for mobile and other connected devices, to date we have not been able to grow our total advertising revenue at a rate that exceeds the growth in our listener hours. Part of the challenge that we face in increasing sales to monetize inventory generated by mobile devices is that radio advertising...

  • Page 20
    ..., which currently includes delivery of display, audio and video advertising products through multiple delivery channels, including traditional computers, mobile and other connected devices, including automobiles; and • coping with ad blocking technologies that have been developed and are likely to...

  • Page 21
    ... or royalty fees for public performances is currently calculated on the same basis whether a listening hour is consumed on a traditional computer or a mobile device. To date, we have not been able to generate revenue from our advertising products delivered to mobile and other connected devices, such...

  • Page 22
    ... and increase the monetization of listener hours, particularly on mobile devices, by developing relationships with both national and local advertisers to convince them to migrate advertising spending to online and mobile digital advertising markets and utilize our advertising product solutions...

  • Page 23
    ... which are purchased or available for free and playable on mobile devices, automobiles and in the home. These forms of media may be purchased, downloaded and owned such as iTunes audio files, MP3s, CDs, or accessed from subscription or free online on-demand offerings by music providers such as RDIO...

  • Page 24
    ... for listeners from companies promoting their own digital music and content online or through application stores, including several large, well-funded and seasoned participants in the digital media market. Search engines, such as Google, and mobile device application stores, such as the iTunes Store...

  • Page 25
    ...ability to access our service through a variety of consumer electronics products used in the home and devices connected to or installed in automobiles. We intend to broaden our ability to reach additional listeners, and increase current listeners hours, through other platforms and partners over time...

  • Page 26
    ... advances in digital media delivery and predict the problems we may encounter in developing versions of our applications for these new devices and delivery channels. It may become increasingly challenging to do so in the future. In particular, the technology used for streaming the Pandora service in...

  • Page 27
    ... which is outside of our control. Any lack of growth in the market for online advertising could result in reduced revenue or increased marketing expenses, which would harm our operating results and financial condition. We operate under and pay royalties pursuant to statutory licensing structures for...

  • Page 28
    ...to retain and expand our listener base, and therefore could adversely affect our business. To secure the rights to stream musical works embodied in sound recordings over the internet, we obtain licenses from or for the benefit of copyright owners and pay royalties to copyright owners or their agents...

  • Page 29
    ... related content acquisition costs representing 4.3% of our total revenue for that period. We do not currently pay so-called ''mechanical royalties'' to music publishers for the reproduction and distribution of musical works embodied in transitory copies used to make streams audible to our listeners...

  • Page 30
    ..., increase listener hours and sell advertising. Loss of agreements with the makers of mobile devices, renegotiation of such agreements on less favorable terms or other actions these third parties may take could harm our business. Most of our agreements with makers of mobile operating systems and...

  • Page 31
    ... and enhancing our brand will depend largely on our ability to continue to develop and provide an innovative and high quality experience for our listeners and attract advertisers, content owners and automobile, mobile device, and other consumer electronic product manufacturers to work with us, which...

  • Page 32
    ...on our business reputation, customer relations and operating results. Upon expiration or termination of any of our agreements with third-party vendors, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are...

  • Page 33
    ... listener hours by increasing the sale of mobile advertising inventory as the number of listener hours on mobile devices grow; • our ability to attract and retain existing advertisers and prove that our advertising products are effective enough to justify a pricing structure that is profitable...

  • Page 34
    ...collect royalties or other payments. We have registered ''Pandora,'' ''Music Genome Project'' and other marks as trademarks in the United States. Nevertheless, competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in internet search...

  • Page 35
    ... or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results. Internet, technology and media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other...

  • Page 36
    ... able to service our existing listeners, acquire new listeners or attract or retain advertising customers, each of which could inhibit the implementation of our business plan and materially harm our operating results. We may acquire other companies or technologies, which could divert our management...

  • Page 37
    ... terms. Expanding our operations into international markets is an element of our long-term strategy. For example, we recently began streaming music to web-based devices and engaging with listeners in New Zealand, Australia and the associated territories. However, offering our service outside...

  • Page 38
    ... to generate sufficient revenue from advertising sales associated with comedy content to offset the costs of maintaining comedy stations. For example, many of the mainstream advertisers that choose to place ads on our music stations may choose not to advertise on our comedy stations because of the...

  • Page 39
    ..., to register for a Pandora account, our listeners must provide the following information: age, gender, zip code and e-mail address. Listeners must also provide their credit card or debit card numbers and other billing information in connection with additional service offerings. We also may collect...

  • Page 40
    ...to address related matters. Unauthorized access to music or playlists would potentially create additional royalty obligations with no corresponding revenue. We cannot control the actions of third parties who may have access to the listener data we collect. The integration of the Pandora service with...

  • Page 41
    ... credit card-related costs, each of which could adversely affect our business, financial condition and results of operations. If we are unable to maintain our chargeback rate or refund rates at acceptable levels, credit card and debit card companies may increase our transaction fees or terminate...

  • Page 42
    ... which is outside of our control. Any lack of growth in the market for online advertising could result in reduced revenue or increased marketing expenses, which would harm our operating results and financial condition. Some of our services and technologies may use ''open source'' software, which may...

  • Page 43
    ... our ability to increase listener hours and generate ad revenue, which would harm our operating results. In addition, concerns over driver distraction due to use of mobile and other electronic devices to access our service in motor vehicles could result in litigation and negative publicity. We rely...

  • Page 44
    ... of similar companies in the internet, radio or digital media spaces; • general economic conditions and their impact on advertising spending; • the overall performance of the equity markets; • the number of shares of our common stock publicly owned and available for trading; • threatened or...

  • Page 45
    ...affiliates may prevent new investors from influencing corporate decisions. Our officers, directors, greater than 5% stockholders and their affiliates beneficially own or control, directly or indirectly, a majority of our outstanding common stock. As a result, if some of these persons or entities act...

  • Page 46
    ...; and New York, New York and local sales offices at various locations within those regions. Our primary data centers are hosted by providers of hosting services, Equinix, in San Jose, California and Digital Realty Trust in Chicago, Illinois and are designed to be fault tolerant. Backup systems in...

  • Page 47
    ... OF EQUITY SECURITIES Market Information Our common stock is traded on The New York Stock Exchange (''NYSE'') under the symbol ''P.'' The following table sets forth the range of high and low intra-day sales prices per share of our common stock for the periods indicated, as reported by the NYSE...

  • Page 48
    ... of our common stock. Comparison of Cumulative Total Return Among Pandora Media, Inc., New York Stock Exchange Composite Index, Global X Social Media Index and SPDR Morgan Stanley Technology MTK Index $140.00 $120.00 $100.00 Pandora NYSE SOCL $60.00 MTK $80.00 $40.00 $20.00 $- 20 15...

  • Page 49
    ... & Company, L.L.C., Stifel, Nicolaus & Company, Incorporated and Wells Fargo Securities, LLC. Following the sale of the shares in connection with the closing of the IPO, the offering terminated. As a result of the offering, including the underwriters' over-allotment option, we received total net...

  • Page 50
    ... 2011 2012 (in thousands, except per share data) 2013 Statement of Operations Data: Revenue: Advertising ...Subscription services and other ...Total revenue ...Costs and expenses: Cost of revenue-content acquisition costs . Cost of revenue-other(1) ...Product development(1) ...Marketing and sales...

  • Page 51
    ... as the total number of accounts that have been created for our service at period end. As of January 31, 2013 approximately 140 million registered users have accessed Pandora through smartphones and tablets. For the fiscal year ended January 31, 2013, we streamed 14.01 billion hours of radio and as...

  • Page 52
    ... the substantial majority of our revenue from the sale of display, audio and video advertising for delivery across our traditional computer-based, mobile and other connected device platforms. We also offer a paid subscription service to listeners, which we call Pandora One. While historically our...

  • Page 53
    ...our total advertising revenue at a rate that exceeds the growth in our listener hours. As our mobile listenership increases, we face new challenges in optimizing our advertising products for delivery on mobile and other connected device platforms and monetizing inventory generated by listeners using...

  • Page 54
    ... number of active users may overstate the number of unique individuals who actively use our service within a month as one individual may register for, and use, multiple accounts. Ad RPMs. We track advertising revenue per thousand listener hours for our free, advertising supported service (''ad RPMs...

  • Page 55
    ... revenue due in part to the effective elimination of the 40 hour per month free listening cap which created increased listener hours not fully offset by increased advertising sales and to our sales force's increased focus on improving mobile advertising sales. Mobile and other connected device ad...

  • Page 56
    ... the sale and activation of access to a premium version of the Pandora service for annual or monthly subscription fees of $36 per year or approximately $4 per month, respectively, which currently includes an ad free environment and, on devices that support it, higher quality audio. We receive the...

  • Page 57
    ... to our website and the Pandora app, development of new advertising products and development and enhancement of our personalized station(s) generating system. We have generally expensed product development as incurred. Certain website development and internal use software development costs may be...

  • Page 58
    ...as we continue to invest in corporate infrastructure, including adding personnel and systems to our finance and administrative functions. Provision for Income Taxes. We have historically been subject to income taxes only in the United States. As we expand our operations outside the United States, we...

  • Page 59
    ... periods. Fiscal Year Ended January 31, 2011 2012 2013 (in thousands) Revenue: Advertising ...Subscription services and other ...Total revenue ...Costs and expenses: Cost of revenue-Content acquisition costs Cost of revenue-Other(1) ...Product development(1) ...Marketing and sales(1) ...General and...

  • Page 60
    Fiscal Year Ended January 31, 2011 2012 2013 Revenue: Advertising ...Subscription services and other ...Total revenue ...Costs and expenses: Cost of revenue-Content acquisition costs Cost of revenue-Other(1) ...Product and development(1) ...Marketing and sales(1) ...General and administrative(1) ...

  • Page 61
    ...increased the volume of advertising inventory, as well as an increase in our sales force by approximately 53% year-over-year to sell such advertising inventory. Subscription revenue increased $16.0 million due to an increase in the number of subscribers. Total ad RPMs 2012 Compared to 2013. Total ad...

  • Page 62
    ... monetize mobile and other connected device inventory driven in part by the introduction of new advertising products for these devices as well as the effect of direct advertising sales to one customer which accounted for 9% of revenue in the fiscal year ended January 31, 2012. Cost of Revenue-Other...

  • Page 63
    ... to 2012. Product development expenses increased $6.7 million primarily due to $6.0 million higher employee-related expenses driven by a 46% increase in headcount. Marketing and Sales FY 2011 to Fiscal Year Ended January 31, FY 2012 2011 2012 2013 $ Change (in thousands) FY 2012 to FY 2013 $ Change...

  • Page 64
    ... short-term investments totaling $89.0 million, which consisted of cash and money market funds held at major financial institutions, commercial paper and investment-grade corporate debt securities. Our principal uses of cash during the fiscal year ending January 31, 2013 were funding our operations...

  • Page 65
    ...in listening hours, an increase in deferred revenue of $10.0 million primarily due to an increase in customers purchasing subscriptions for Pandora One, an increase in accrued compensation of $9.6 million due to headcount increases and the timing of these payments and $5.0 million in higher accounts...

  • Page 66
    ... higher employee bonus compensation due to the timing of payments. Cash provided by operating activities also included $3.3 million higher deferred revenue primarily related to an increase in customers purchasing subscriptions for Pandora One, largely offset by an increase in accounts receivable of...

  • Page 67
    ... advertising-supported service on mobile devices, in March 2013 we instituted a 40 hour listening cap on these devices. Listeners who reach this limit may continue to use our ad supported service on these devices by paying $0.99 for the remainder of the month, may listen to our ad supported service...

  • Page 68
    ... in these reports. Subscription Services and Other Revenue Subscription revenue is generated through the sale of a premium version of the Pandora service which currently includes higher audio quality and advertisement-free access. Subscription revenue derived from direct sales to listeners is...

  • Page 69
    ... arrangements with customers to sell advertising packages that include different media placements or ad services that are delivered at the same time, or within close proximity of one another. Because we had not yet established the fair value for each element and our agreements contain mid-campaign...

  • Page 70
    ... ABOUT MARKET RISK We are exposed to market risks in the ordinary course of our business, including interest rate and inflation risks. Interest Rate Fluctuation Risk Our exposure to interest rates relates to the increase or decrease in the amount of interest we must pay on our outstanding debt...

  • Page 71
    ... have maturities of less than six months, but do carry some degree of interest rate risk and may have their fair market values adversely impacted by higher interest rates. We do not believe that a hypothetical 10% increase in interest rates as of January 31, 2013 would have had a material impact on...

  • Page 72
    ... STATEMENTS AND SUPPLEMENTARY DATA PANDORA MEDIA, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Consolidated Balance Sheets as of January 31, 2012 and 2013 ...Consolidated Statements of Operations for the fiscal years ended January 31, 2011, 2012 and 2013 ...Consolidated Statements...

  • Page 73
    ...13, Multiple-Deliverable Revenue Arrangements, effective February 1, 2011. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Pandora Media Inc.'s internal control over financial reporting as of January 31, 2013, based on criteria...

  • Page 74
    ... internal control over financial reporting as of January 31, 2013, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pandora Media, Inc. as of January 31, 2012...

  • Page 75
    Pandora Media, Inc. Consolidated Balance Sheets (In thousands, except share and per share amounts) As of January 31, 2012 As of January 31, 2013 Assets Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net of allowances of $590 and 2013, respectively ......

  • Page 76
    ... Year Ended January 31, 2011 2012 2013 Revenue: Advertising ...Subscription services and other ...Total revenue ...Costs and expenses: Cost of revenue-Content acquisition costs Cost of revenue-Other ...Product development ...Marketing and sales ...General and administrative ...Loss from operations...

  • Page 77
    Pandora Media, Inc. Consolidated Statements of Comprehensive Loss (In thousands) Year Ended January 31, 2011 2012 2013 Net loss ...Other comprehensive income (loss): Change in foreign currency translation adjustment ...Change in unrealized loss on marketable securities net of taxes ...Other ...

  • Page 78
    ...public offering ...Issuance of common stock in connection with preferred stock warrant exercise Net loss ...Other comprehensive loss ...Balances as of January 31, 2012 ...Issuance of common stock upon exercise of stock options ...Stock-based compensation ...Vesting of restricted stock units ...Share...

  • Page 79
    Pandora Media, Inc. Consolidated Statements of Cash Flows (In thousands) Fiscal Year Ended January 31, 2011 2012 2013 Operating Activities Net loss ...Adjustments to reconcile net loss to net cash provided by operating Depreciation and amortization ...(Gain) loss on disposition of assets ...Stock-...

  • Page 80
    ...or ''Pandora'') provides an internet radio service in the United States, Australia and New Zealand, offering a personalized experience for each of its listeners. The Company has developed a form of radio that uses intrinsic qualities of music to initially create stations that then adapt playlists in...

  • Page 81
    ...the Company's advertising, subscription services and other offerings, while all other financial information is reviewed on a consolidated basis. All of the Company's principal operations are located in the United States. Fiscal year All references herein to a fiscal year refer to the 12 months ended...

  • Page 82
    ... Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) revenue derived from direct sales to listeners is recognized on a straight-line basis over the duration of the subscription period. Subscription revenue derived from sales through some mobile operating...

  • Page 83
    ... subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company maintains cash and cash equivalents with domestic financial institutions of high credit quality. The Company performs periodic...

  • Page 84
    ... market value. Internal Use Software and Website Development Costs Costs incurred to develop software for internal use are required to be capitalized and amortized over the estimated useful life of the asset if certain criteria are met. Costs related to design or maintenance of internal-use software...

  • Page 85
    Pandora Media, Inc. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) incurred and capitalized approximately $100,000 and $1.1 million respectively, related to internal use software and website development costs which are being ...

  • Page 86
    ... of new advertising products and development and enhancement of the Music Genome Project and infrastructure costs such as facility and other overhead costs. The Company generally expenses product development costs as incurred, but has capitalized certain costs related to internal use software and...

  • Page 87
    ... expenses include professional services costs for outside legal and accounting services, and infrastructure costs for facility, supporting overhead costs and merchant and other transaction costs, such as credit card fees. Income Taxes The Company accounts for income taxes using the asset and...

  • Page 88
    ... valuation standards or affect valuation practices outside of financial reporting. The adoption of ASU 2011-04 did not have a significant impact on the Company's consolidated balance sheets or statements of operations. Effective February 1, 2012, the Company adopted ASU No. 2011-05, ''Presentation...

  • Page 89
    ... of Certain Financial Statement Captions (Continued) The Company's short-term investments have maturities of less than 12 months and are classified as available for sale. As of January 31, 2012 and 2013 the cost basis of the Company's cash and cash equivalents approximated their fair values and as...

  • Page 90
    ... for the fiscal year ended January 31, 2012. There were no material write-offs during the fiscal years ended January 31, 2011 and 2013. Software developed for internal use has an expected useful life of three years from the date placed in service. As of January 31, 2013 the net carrying amount...

  • Page 91
    ... Financial Statements (Continued) 3. Composition of Certain Financial Statement Captions (Continued) $144 thousand. The Company held no material software developed for internal use assets during the years ended January 31, 2011 or 2012. 4. Fair Value The Company records cash equivalents, short-term...

  • Page 92
    ... 31, 2012 and 2013: Fair Value Measurement Using Quoted Prices in Significant Active Markets Other for Identical Observable Instruments Inputs (Level 1) (Level 2) Total (in thousands) Fair values as of January 31, 2012 Assets: Money market funds ...Commercial paper ...Corporate debt securities...

  • Page 93
    Pandora Media, Inc. Notes to Consolidated Financial Statements (Continued) 5. Commitments and Contingencies Leases The Company conducts its operations using leased office facilities in various locations. The following is a schedule of future minimum lease payments under operating leases as of ...

  • Page 94
    ...action lawsuit was filed against Pandora in the United States District Court for the Northern District of California alleging that it unlawfully accessed and transmitted personally identifiable information of the plaintiffs in connection with their use of the Company's Android mobile application. In...

  • Page 95
    ... Company's business. 6. Income Taxes The provision for income tax expense consists of the following: Fiscal Year Ended January 31, 2011 2012 2013 (in thousands) Current Federal ...State and local ...International ...Total current income tax expense Deferred Federal ...State and local ...Valuation...

  • Page 96
    Pandora Media, Inc. Notes to Consolidated Financial Statements (Continued) 6. Income Taxes (Continued) The following table presents a reconciliation of the statutory federal rate and the Company's effective tax rate for the periods presented. Fiscal Year Ended January 31, 2011 2012 2013 (in ...

  • Page 97
    ... the fiscal year ended January 31, 2013. The Company files income tax returns in the United States, California, other states and international jurisdictions. Tax years 2000 to 2012 remain subject to examination for U.S. federal, state and international purposes. All net operating losses and tax...

  • Page 98
    ... assets on the Company's balance sheets. Total debt issuance costs associated with the credit facility were $1.0 million, which are being amortized as interest expense over the four-year term of the credit facility agreement. For the fiscal years ended January 31, 2011, 2012 and 2013, $0 million...

  • Page 99
    ...'s service with the Company for any reason. Valuation of Awards The per-share fair value of each stock option was determined on the date of grant using the BlackScholes option pricing model using the following assumptions: 2011 Fiscal Year Ended January 31, 2012 2013 Expected Risk-free Expected...

  • Page 100
    ...'s service to the Company at the original purchase price per share. During the fiscal years ended January 31, 2012 and 2013 there were no early exercises. During the fiscal year ended January 31, 2011, employees early exercised a total of 691,667 shares of common stock subject to these terms...

  • Page 101
    ... 31, 2013, $0.1 million compensation cost has been recognized related to these options due to the remeasured fair value at the reporting date. Stock Option Awards with Both a Service Period and a Market Condition On March 22, 2012, Mr. Joseph Kennedy, the Company's Chief Executive Officer, was...

  • Page 102
    ... cost related to stock options granted, but not yet recognized, was $31.35 million which the Company expects to recognize over a weighted-average period of approximately 2.4 years. The total grant date fair value of stock options vested during fiscal years ended January 31, 2011, 2012 and 2013...

  • Page 103
    ... expenses related to all employee and non-employee stock-based awards for fiscal 2011, 2012 and 2013 was as follows: Fiscal Year Ended January 31, 2011 2012 2013 (in thousands) Stock-based compensation expenses: Cost of revenue-other ...Product development ...Marketing and sales ...General...

  • Page 104
    ...) Fiscal Year Ended January 31, 2011 2012 2013 (in thousands) Denominator Weighted-average common shares outstanding used in computing basic and diluted net loss per share ...Net loss per share, basic and diluted ... 10,761 $ (1.03) $ 105,955 (0.19) $ 168,294 (0.23) Net loss is increased by the...

  • Page 105
    ... Months Ended Oct 31, Jan 31, April 30, July 31, 2011 2012 2012 2012 (in thousands, except per share data) Oct 31, 2012 Jan 31, 2013 Total revenue ...Costs and expenses: Cost of Revenue-Content acquisition costs ...Cost of revenue-Other ...Product development ...Marketing and sales ...General...

  • Page 106
    ... an independent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting during our most recent fiscal quarter that...

  • Page 107
    PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by this Item regarding our directors and executive officers is incorporated by reference to the sections of our proxy statement to be filed with the SEC in connection with our 2013 annual meeting of ...

  • Page 108
    ...included as part of this Annual Report on Form 10-K. 1. Index to Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of January 31, 2012 and 2013 Consolidated Statements of Operations for the fiscal years ended January 31, 2011, 2012, and 2013...

  • Page 109
    ...Employment Agreement with Tim Westergren, dated April 28, 2004 Offer Letter with Steven Cakebread, dated February 23, 2010 Offer Letter with Thomas Conrad, dated November 12, 2004 Offer Letter with John Trimble, dated February 18, 2009 Office Lease between CIM/Oakland Center 21, LP and Pandora Media...

  • Page 110
    ..., LP and Pandora Media, Inc., dated July 12, 2012 Web Site Performance Agreement by and between Broadcast Music, Inc. and Savage Beast Technologies, Inc., dated June 30, 2005 License Agreement by and between SESAC and Pandora Media, Inc., dated July 1, 2007 Credit Agreement among Pandora Media, Inc...

  • Page 111
    ... Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of January 31, 2013 and 2012, (ii) Consolidated Statements of Operations for the fiscal years ended January 31, 2013, 2012...

  • Page 112
    ... report to be signed on its behalf by the undersigned, thereunto duly authorized on March 18, 2013. PANDORA MEDIA, INC. By: /s/ JOSEPH KENNEDY Name: Joseph Kennedy Title: Chief Executive Officer, President and Chairman of the Board POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person...

  • Page 113
    ... Date /s/ PETER GOTCHER Peter Gotcher Director March 18, 2013 /s/ ROBERT KAVNER Robert Kavner Director March 18, 2013 /s/ BARRY MCCARTHY Barry McCarthy Director March 18, 2013 /s/ DAVID SZE David Sze Director March 18, 2013 /s/ TIM WESTERGREN Tim Westergren Director March 18, 2013...

  • Page 114
    ...Fifth Amended and Restated Investor Rights Agreement, by and among Pandora Media, Inc. and the investors listed on Exhibit A thereto, dated May 20, 2010, as amended 2011 Long Term Incentive Plan and Form of Stock Option Agreement under 2011 Long Term Incentive Plan 2011 Corporate Incentive Plan 2004...

  • Page 115
    ..., LP and Pandora Media, Inc., dated July 12, 2012 Web Site Performance Agreement by and between Broadcast Music, Inc. and Savage Beast Technologies, Inc., dated June 30, 2005 License Agreement by and between SESAC and Pandora Media, Inc., dated July 1, 2007 Credit Agreement among Pandora Media, Inc...

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    ... Unit Agreement under the 2011 Equity Incentive Plan Offer Letter with Michael Herring, dated December 21, 2012 Consent of Independent Registered Public Accounting Firm Power of Attorney (included on signature page of this Annual Report on Form 10-K) Certification of the Principal Executive Officer...

  • Page 117
    ... Description Form File No. Exhibit Filing Date Filed Herewith 101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of January 31, 2013 and 2012, (ii) Consolidated Statements of Operations for the fiscal years ended January 31, 2013, 2012 and 2011...

  • Page 118
    ... respect to the consolidated financial statements of Pandora Media, Inc. and the effectiveness of internal control over financial reporting of Pandora Media, Inc. included in this Annual Report (Form 10-K) for the year ended January 31, 2013. /s/ Ernst & Young LLP San Francisco, California March 18...

  • Page 119
    ...'s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process...

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    ...'s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process...

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    ...or 15(d) of the Exchange Act; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Pandora Media, Inc. March 18, 2013 /s/ JOSEPH KENNEDY Name: Joseph Kennedy Title: Chief Executive Officer, President and Chairman...

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