XM Radio 2008 Annual Report Download - page 30

(5) Customer service and billing expenses, as adjusted, per average subscriber is derived from total customer
service and billing expenses, excluding share-based payment expense, divided by the number of months in the
period, divided by the daily weighted average number of subscribers for the period. Customer service and
billing expenses, as adjusted, per average subscriber is calculated as follows (in thousands, except for per
subscriber amounts):
2008 2007 2006
Unaudited Pro Forma
For the Years Ended December 31,
Customer service and billing expenses ............ $ 248,176 $ 220,593 $ 181,333
Less: share-based payment expense ............... (3,981) (3,191) (2,150)
Customer service and billing expenses, as adjusted . . . $ 244,195 $ 217,402 $ 179,183
Daily weighted average number of subscribers ...... 18,373,274 15,342,041 11,428,642
Customer service and billing expenses, as adjusted,
per average subscriber....................... $ 1.11 $ 1.18 $ 1.31
(6) Free cash flow is calculated as follows:
2008 2007 2006
Unaudited Pro Forma
For the Years Ended December 31,
Net cash used in operating activities .................. $(403,883) $(303,496) $ (883,793)
Additions to property and equipment ................. (161,394) (198,602) (367,693)
Merger related costs.............................. (23,519) (29,444) —
Restricted and other investment activity ............... 37,025 26,673 17,051
Free cash flow .................................. $(551,771) $(504,869) $(1,234,435)
(7) Average self-pay monthly churn; conversion rate; ARPU; SAC, as adjusted, per gross subscriber addition;
customer service and billing expenses, as adjusted, per average subscriber; and free cash flow are not measures
of financial performance under U.S. generally accepted accounting principles (“GAAP”). We believe these
non-GAAP financial measures provide meaningful supplemental information regarding our operating perfor-
mance and are used by us for budgetary and planning purposes; when publicly providing our business outlook;
as a means to evaluate period-to-period comparisons; and to compare our performance to that of our
competitors. We also believe that investors also use our current and projected metrics to monitor the
performance of our business and to make investment decisions.
We believe the exclusion of share-based payment expense in our calculations of SAC, as adjusted, per gross
subscriber addition and customer service and billing expenses, as adjusted, per average subscriber is useful
given the significant variation in expense that can result from changes in the fair market value of our common
stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components
of our subscriber acquisition costs and customer service and billing expenses. Specifically, the exclusion of
share-based payment expense in our calculation of SAC, as adjusted, per gross subscriber addition is critical in
being able to understand the economic impact of the direct costs incurred to acquire a subscriber and the effect
over time as economies of scale are reached.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in
accordance with GAAP. These non-GAAP financial measures may be susceptible to varying calculations; may
not be comparable to other similarly titled measures of other companies; and should not be considered in
isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with
GAAP.
(8) We refer to net loss before taxes, interest and investment income, interest expense, net of amounts capitalized,
loss from redemption of debt, loss on investments, other expense (income), impairment of parts, restructuring
and related costs; depreciation and amortization, and share-based payment expense as adjusted income (loss)
from operations. Adjusted income (loss) from operations is not a measure of financial performance under U.S.
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