XM Radio 2008 Annual Report Download - page 27

We recognize subscription fees as our service is provided to a subscriber. We record deferred revenue for
prepaid subscription fees and amortize these prepayments to revenue ratably over the term of the respective
subscription plan.
At the time of sale, vehicle owners purchasing or leasing a vehicle typically receive a three to twelve month
prepaid subscription. We receive payment from certain automakers for these subscriptions in advance of our service
being activated. Such prepayments are recorded to deferred revenue and amortized ratably over the service period
upon activation and sale to a customer. We also reimburse certain automakers for certain costs associated with the
installation of certain satellite radios at the time the vehicle is manufactured. The associated payments to the
automakers are included in subscriber acquisition costs. We believe this is the appropriate characterization of our
relationship since we are responsible for providing service to our customers including being obligated to the
customer if there was interruption of service.
Activation fees are recognized ratably over the estimated term of a subscriber relationship, currently estimated
to be 3.5 years. The estimated term of a subscriber relationship is based on market research and management’s
judgment and, if necessary, will be refined in the future. If we were to revise our estimate our recognition of
activation fees would change, for example, a 10% decrease to the estimated term of a subscriber relationship during
2008 would result in approximately $7,675 of additional activation fees.
As required by Emerging Issues Task Force (“EITF”) No. 01-09, Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor’s Products), an estimate of rebates that are paid to
subscribers is recorded as a reduction to revenue in the period the subscriber activates our service. For certain rebate
promotions, a subscriber must remain active for a specified period of time to be considered eligible. In those
instances, such estimate is recorded as a reduction to revenue over the required activation period. We estimate the
effects of rebates based on actual take-rates for rebate incentives offered in prior periods, adjusted as deemed
necessary based on currently available take-rate data. In subsequent periods, estimates are adjusted when necessary.
For certain instant rebate promotions, we have recorded the consideration paid by us to the consumer as a reduction
to revenue in the period the customer participated in the promotion.
In September 2006, the FASB issued EITF No. 06-01, Accounting for Consideration Given by a Service
Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the
Service Provider. The Task Force concluded that if consideration given by a service provider to a third-party
manufacturer or reseller that is not the service provider’s customer can be linked contractually to the benefit
received by the service provider’s customer, a service provider should account for the consideration in accordance
with EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer. EITF No. 06-01 is effective
for annual reporting periods beginning after June 15, 2007. We adopted EITF No. 06-01 for the year ended
December 31, 2007, which did not have a material impact on our consolidated results of operations or financial
position.
We recognize revenues from the sale of advertising on some of our non-music channels as the advertising is
broadcast. 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. We pay certain third parties a
percentage of advertising revenue. Advertising revenue is recorded gross of such revenue share payments in
accordance with EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, as we are the
primary obligor in the transaction. Advertising revenue share payments are recorded to programming and content
expense during the period in which the advertising is broadcast.
Equipment revenue from the direct sale of SIRIUS and XM radios and accessories is recognized upon
shipment, net of discounts and rebates. Shipping and handling costs billed to customers are recorded as revenue.
Shipping and handling costs associated with shipping goods to customers are recorded to cost of equipment.
EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, provides guidance on how
and when to recognize revenues for arrangements that may involve the delivery or performance of multiple
products, services and/or rights to use assets. Revenue arrangements with multiple deliverables are required to be
divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Arrangement
consideration must be allocated among the separate units of accounting based on their relative fair values.
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