XM Radio 2009 Annual Report Download - page 108

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All dollar amounts referenced in this Section are in thousands, unless otherwise stated)
Executive Summary
We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the United States on
a subscription fee basis through our proprietary satellite radio systems — the SIRIUS system and the XM system.
On July 28, 2008, our wholly owned subsidiary, Vernon Merger Corporation, merged (the “Merger”) with and into
XM Satellite Radio Holdings Inc. and, as a result, XM Satellite Radio Holdings Inc. is now our wholly owned
subsidiary. The SIRIUS system consists of four in-orbit satellites, over 125 terrestrial repeaters that receive and
retransmit signals, satellite uplink facilities and studios. The XM system consists of four in-orbit satellites, over 650
terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios. Subscribers can also
receive certain of our music and other channels over the Internet, including through an application on the Apple
iPhone.
Our satellite radios are primarily distributed through automakers (“OEMs”); nationwide through retail
locations; and through our websites. We have agreements with every major automaker to offer SIRIUS or XM
satellite radios as factory or dealer-installed equipment in their vehicles. SIRIUS and XM radios are also offered to
customers of rental car companies.
As of December 31, 2009, we had 18,772,758 subscribers. Our subscriber totals include subscribers under our
regular pricing plans; discounted pricing plans; subscribers that have prepaid, including payments either made or
due from automakers and dealers for prepaid subscriptions included in the sale or lease price of a vehicle; certain
radios activated for daily rental fleet programs; certain subscribers to SIRIUS Internet Radio and XM Radio Online,
our Internet services; and certain subscribers to our weather, traffic, data and video services.
Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-
annual, quarterly or monthly basis. We offer discounts for pre-paid and long-term subscriptions as well as discounts
for multiple subscriptions on each platform. We also derive revenue from activation and other fees, the sale of
advertising on select non-music channels, the direct sale of satellite radios, components and accessories, and other
ancillary services, such as our Backseat TV, data and weather services.
In certain cases, automakers include a subscription to our radio services in the sale or lease price of vehicles.
The length of these prepaid subscriptions varies, but is typically three to twelve months. In many cases, we receive
subscription payments from automakers in advance of the activation of our service. We also reimburse various
automakers for certain costs associated with satellite radios installed in their vehicles.
We also have an interest in the satellite radio services offered in Canada. Subscribers to the SIRIUS Canada
service and the XM Canada service are not included in our subscriber count.
On August 5, 2008, Sirius Satellite Radio Inc. changed its name to Sirius XM Radio Inc. XM Satellite Radio
Holdings Inc., together with its subsidiaries, is operated as an unrestricted subsidiary under the agreements
governing our existing indebtedness. As an unrestricted subsidiary, transactions between the companies are
required to comply with various contractual provisions in our respective debt instruments.
Unaudited Pro Forma and Actual Information
Our discussion of our unaudited pro forma information includes non-GAAP financial results that assume the
Merger occurred on January 1, 2007. These financial results exclude the impact of purchase price accounting
adjustments and refinancing transactions related to the Merger. The discussion also includes the following non-
GAAP financial measures: average self-pay monthly churn; conversion rate; average monthly revenue per
subscriber, or ARPU; subscriber acquisition cost, or SAC, as adjusted, per gross subscriber addition; customer
service and billing expenses, as adjusted, per average subscriber; free cash flow; and adjusted income (loss) from
operations. We believe this non-GAAP financial information provides meaningful supplemental information
regarding our operating performance and is used for internal management purposes, when publicly providing the
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