Pandora 2016 Annual Report Download - page 42

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If we or any of our processing vendors have problems with our billing software, or the billing software malfunctions, it
could have an adverse effect on our subscriber satisfaction and could cause one or more of the major credit card companies to
disallow our continued use of their payment products. In addition, if our billing software fails to work properly and, as a result,
we do not automatically charge our subscribers’ credit cards on a timely basis or at all, or there are issues with financial
insolvency of our third-party vendors or other unanticipated problems or events, we could lose subscription revenue, which
would harm our operating results.
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We are also subject to payment card association operating rules, certification requirements and rules€governing
electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We are currently
accredited against, and in compliance with, the Payment Card Industry Data Security Standard, or PCI DSS, the payment card
industry’s security standard for companies that collect, store or transmit certain data regarding credit and debit cards, credit and
debit card holders and credit and debit card transactions. Currently we comply with PCI DSS version 3.1 as a Level€2
merchant, and Ticketfly complies with PCI DSS version 3.0 as a Level 2 merchant. Although Pandora and Ticketfly are PCI
DSS compliant, there is no guarantee that we will maintain PCI DSS compliance. Our failure to comply fully with PCI DSS in
the future could violate payment card association operating rules, federal and state laws and regulations and the terms of our
contracts with payment processors and merchant banks. Such failure to comply fully also could subject us to fines, penalties,
damages and civil liability, and could result in the loss of our ability to accept credit and debit card payments. Further, there is
no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss, or misuse
of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.
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If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public
perception of our security measures and significantly higher 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 their relationships with
us. Any increases in our credit card and debit card fees could adversely affect our results of operations, particularly if we elect
not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major
credit or debit card would significantly impair our ability to operate our business.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
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At December€31, 2015, we had federal net operating loss carryforwards of approximately $613.0 million and tax credit
carryforwards of approximately $9.7 million. At December€31, 2015, we had state net operating loss carryforwards of
approximately $480.0 million and tax credit carryforwards of approximately of $15.6 million. Under Sections€382 and 383 of
the Internal Revenue Code of 1986, as amended, (“the Code”), if a corporation undergoes an “ownership change,” the
corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research
tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a
cumulative change in our ownership by “5-percent shareholders” that exceeds 50€percentage points over a rolling three-year
period. Similar rules€may apply under state tax laws. As a result of prior equity issuances and other transactions in our stock,
we have previously experienced “ownership changes” under section€382 of the Code and comparable state tax laws. We may
also experience ownership changes in the future as a result of this transaction or other future transactions in our stock. As a
result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards or other pre-change tax
attributes to offset United States federal and state taxable income may be subject to limitations.
We could be subject to additional income tax liabilities.
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We are subject to income taxes in the United States, Hong Kong, Australia and New Zealand. As we expand our
operations outside of these locations, we become subject to taxation based on the applicable foreign statutory rates and our
effective tax rate could fluctuate accordingly. Significant judgment is required in evaluating and estimating our worldwide
provision for income taxes and accruals for these taxes. For example, our effective tax rates could be adversely affected by
earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in
countries where we have higher statutory tax rates, by losses incurred in jurisdictions for which we are not able to realize the
related tax benefit, by changes in foreign currency exchange rates, by changes in the valuation of our deferred tax assets and
liabilities, or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. We are also
subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us.
€Our Ticketfly business and venue partners may be subject to sales tax and other taxes.
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