XM Radio 2009 Annual Report Download - page 130

•2008 vs. 2007: For the years ended December 31, 2008 and 2007, sales and marketing expenses were
$231,937 and $183,213, respectively, which represents an increase of 27%, or $48,724. The Merger
increased sales and marketing expense by $76,104, which was partially offset by a reduction in consumer
advertising.
We expect sales and marketing expenses, excluding share-based payment expense, to increase as we increase
our advertising, retention and promotional activities over a larger subscriber base.
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; device royalties for certain radios; commissions paid to
retailers and automakers as incentives to purchase, install and activate SIRIUS and XM radios; product warranty
obligations; and provisions for inventory allowance. The majority of subscriber acquisition costs are incurred and
expensed in advance of, 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.
•2009 vs. 2008: For the years ended December 31, 2009 and 2008, subscriber acquisition costs were
$340,506 and $371,343, respectively, which represents a decrease of 8%, or $30,837. This decrease was
primarily a result of lower OEM subsidies and chip set costs, decreases in production of certain radios and
lower aftermarket inventory charges in the year ended December 31, 2009 compared to 2008, partially offset
by the inclusion of XM’s subscriber acquisition costs as a result of the Merger.
•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 9%, or $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 $64,865 during the year ended
December 31, 2008.
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.
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.
•2009 vs. 2008: For the years ended December 31, 2009 and 2008, general and administrative expenses
were $227,554 and $213,142, respectively, which represents an increase of 7%, or $14,412, primarily due to
the impact of the Merger, offset by lower costs for certain merger, litigation and regulatory matters.
•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 37%, or $57,279, primarily due
to the impact of the Merger. XM’s general and administrative expense accounted for $47,322 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.
We expect total general and administrative expenses, excluding share-based payment expense, to decrease in
future periods as we gain efficiencies in staff, facilities and information technology costs.
Engineering, Design and Development. Engineering, design and development expenses include costs to
develop chip sets and new products, research and development for broadcast information systems and costs
associated with the incorporation of our radios into vehicles manufactured by automakers.
•2009 vs. 2008: For the years ended December 31, 2009 and 2008, engineering, design and development
expenses were $41,031 and $40,496, respectively, which represents an increase of 1%, or $535. This
increase was primarily due to the inclusion of XM’s engineering, design and development expenses, partially
25