XM Radio 2008 Annual Report Download - page 19

expense decreased $16,533 from $184,139 to $167,606. This decrease of $16,533 was primarily due to lower
consumer marketing and advertising and reduced cooperative marketing spend with our distributors offset
by higher compensation related costs. Sales and marketing expenses, excluding share-based payment
expense, decreased 9% compared with a 45% increase in total revenue from $637,235 for the year ended
December 31, 2006 to $922,066 for the year ended December 31, 2007.
We expect sales and marketing expenses, excluding share-based payment expense, to decrease as we
consolidate our advertising and promotional activities, gain efficiencies in marketing management and eliminate
overlapping distribution support costs, however such expenses are expected to increase in the aggregate due to the
inclusion of the full period results of XM.
Subscriber Acquisition Costs. Subscriber acquisition costs include hardware subsidies paid to radio man-
ufacturers, distributors and automakers, including subsidies paid to automakers who include a SIRIUS or XM radio
and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chip sets and
certain other components used in manufacturing radios; commissions paid to retailers and automakers as incentives
to purchase, install and activate SIRIUS and XM radios; product warranty obligations; provisions for inventory
allowance; and compensation costs associated with stock-based awards granted in connection with certain
distribution agreements. The majority of subscriber acquisition costs are incurred and expensed in advance or
concurrent with acquiring a subscriber. Subscriber acquisition costs do not include advertising, loyalty payments to
distributors and dealers of SIRIUS and XM radios and revenue share payments to automakers and retailers of
SIRIUS and XM radios.
•2008 vs. 2007: For the years ended December 31, 2008 and 2007, subscriber acquisition costs were
$371,343 and $407,642, respectively, which represents a decrease of $36,299. This decrease was primarily
due to lower retail and OEM subsidies due to better product economics, offset partially by the impact of the
Merger. XM’s subscriber acquisition costs accounted for $64,825 during the year ended December 31, 2008.
•2007 vs. 2006: For the years ended December 31, 2007 and 2006, subscriber acquisition costs were
$407,642 and $451,614, respectively, a decrease of 10% or $43,972. Excluding share-based payment
expense of $2,843 and $31,898 for the years ended December 31, 2007 and 2006, respectively, subscriber
acquisition costs decreased $14,917, from $419,716 to $404,799. This decrease was primarily attributable to
lower chipset subsidies and commission costs offset by higher OEM hardware subsidies. Share-based
payment expense decreased $29,055 primarily due to the timing of third parties achieving milestones and
changes in the fair market value of such awards.
We expect total subscriber acquisition costs to fluctuate as increases or decreases in our gross subscriber
additions are accompanied by continuing declines in the costs of subsidized components of SIRIUS and XM radios,
but increase overall as a result of the inclusion of the full period results of XM. We intend to continue to offer
subsidies, commissions and other incentives to acquire subscribers.
General and Administrative. General and administrative expenses include rent and occupancy, finance,
legal, human resources, information technology and investor relations costs.
•2008 vs. 2007: For the years ended December 31, 2008 and 2007, general and administrative expenses
were $213,142 and $155,863, respectively, which represents an increase of $57,279. Excluding share-based
payment expense of $49,354 and $44,317 for the years ended December 31, 2008 and 2007, respectively,
general and administrative expenses increased $52,242 from $111,546 to $163,788, primarily due to the
impact of the Merger. XM’s general and administrative expense accounted for $43,222 during the year ended
December 31, 2008. The remaining increase was primarily attributable to higher compensation-related costs
to support the growth of our business.
•2007 vs. 2006: For the years ended December 31, 2007 and 2006, general and administrative expenses
were $155,863 and $129,953, respectively, an increase of $25,910. Excluding share-based payment expense
of $44,317 and $49,928 for the years ended December 31, 2007 and 2006, respectively, general and
administrative expenses increased $31,521 from $80,025 to $111,546. This increase of $31,521 was
primarily a result of legal fees associated with increased litigation, including the CRB proceeding, and
employment-related costs to support the growth of our business.
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