Pandora 2016 Annual Report Download - page 89

Sales and marketing consists primarily of employee-related and facilities and equipment costs, including salaries,
commissions and benefits related to employees in sales, sales support, marketing, advertising and music maker group
departments. In addition, sales and marketing expenses include transaction processing commissions on subscription purchases
through mobile app stores, external sales and marketing expenses such as brand marketing, advertising, direct response and
search engine marketing costs, public relations expenses, costs related to music events, agency platform and media
measurement expenses, infrastructure costs and amortization expense related to acquired intangible assets.
We expense the costs of producing advertisements as they are incurred and expense the cost of communicating
advertisements at the time the advertisement airs or the event occurs, in each case as sales and marketing expense within the
accompanying consolidated statements of operations. During the€eleven months ended December 31, 2013 and the twelve
months ended December 31, 2014 and 2015, we recorded advertising expenses of€$4.2 million,€$10.4 million€and€$35.1
million, respectively.
General and Administrative
General and administrative consists primarily of employee-related and facilities and equipment costs, including salaries
and benefits for finance, accounting, legal, internal information technology and other administrative personnel. In addition,
general and administrative expenses include professional services costs for outside legal and accounting services, infrastructure
costs and credit card fees.
Provision for (Benefit from) Income Taxes
Our provision for (benefit from) income taxes is computed using the asset and liability method, under which deferred tax
assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities using enacted statutory income tax rates in effect for the year in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be
realized.
We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in
the financial statements from such positions are then measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon settlement. We will recognize interest and penalties related to unrecognized tax benefits in the
provision for (benefit from) income taxes in the accompanying statement of operations.
We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from
the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are
recorded when identified. The amount of income taxes paid is subject to examination by U.S. federal, state and international tax
authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management's assessment of relevant
risks, facts and circumstances existing at that time. To the extent that the assessment of such tax positions change, the change in
estimate is recorded in the period in which the determination is made.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock,
including stock options, restricted stock units and market stock units, to the extent dilutive. Basic and diluted net loss per share
were the same for each period presented as the inclusion of all potential common shares outstanding would have been anti-
dilutive.
Recently Issued Accounting Standards
In November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.
2015-17, Income Taxes (Subtopic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17
requires all deferred tax assets and liabilities, and any related valuation allowance, to be classified as non-current on the balance
sheet. The classification change for all deferred taxes as non-current simplifies entities’ processes as it eliminates the need to
separately identify the net current and net non-current deferred tax asset or liability in each jurisdiction and allocate valuation
allowances. The guidance is effective for fiscal years beginning after December 15, 2016, although early adoption is permitted.
We have elected to early adopt this standard prospectively in the year ended December 31, 2015. The adoption of this guidance
did not have a material effect on our consolidated financial statements. Prior periods in our Consolidated Financial Statements
were not retrospectively adjusted.
Table of Contents
Pandora Media,€Inc.
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