XM Radio 2010 Annual Report Download

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PROXY STATEMENT
AND
2010 ANNUAL REPORT
TABLE OF CONTENTS
Letter to Stockholders
Notice of Annual Meeting of Stockholders
Proxy Statement .............................................. 1
Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of Cumulative Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Quantitative and Qualitative Disclosure About Market Risks . . . . . . . . . . . . . . . . . . 32
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . F-1
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Table of contents

  • Page 1
    PROXY 2010 S TATE M EN T AND REPORT ANNUAL TA B L E O F C O N T E N T S Letter to Stockholders Notice of Annual Meeting of Stockholders Proxy Statement ...Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations ...Market for Registrant's Common Equity, ...

  • Page 2

  • Page 3
    ... for SiriusXM. We have the best radio on radio and the quality of our programming keeps getting better, with over 135 channels of commercial-free music, premier sports, news, talk, entertainment, traffic, weather, and data services. We have set a new standard in programming with special events...

  • Page 4
    ... about our satellite radio services in Canada. We own a minority stake in both SIRIUS Canada and Canadian Satellite Radio Holdings, also known as XM Canada. Both companies offer over 120 channels of music, news, sports, talk and entertainment programming, and have over 1.7 million subscribers on...

  • Page 5
    ... by improving the subscriber experience - whether through new programming, expanded access or improved customer service. The media industry is rife with competition, but we are confident in our services. We will continue to push ourselves to offer listeners the best radio on radio everywhere and...

  • Page 6
    (This page intentionally left blank)

  • Page 7
    ...: 9:00 a.m., New York City time, on Wednesday, May 25, 2011 The Auditorium The Equitable Center 787 Seventh Avenue New York, New York 10019 1. To elect the eight directors listed herein; 2. To ratify the appointment of KPMG LLP as our independent registered public accountants for 2011; 3. To approve...

  • Page 8

  • Page 9
    ...the board of directors? ...Director Compensation Table for 2010 ...STOCK OWNERSHIP ...Who are the principal owners of SIRIUS XM's stock? ...How much stock do the directors and executive officers of SIRIUS XM own? ...Section 16(a) Beneficial Ownership Reporting Compliance ...GOVERNANCE OF THE COMPANY...

  • Page 10
    ...PUBLIC ACCOUNTANTS ...Principal Accountant Fees and Services...Pre-Approval Policy for Services of Independent Auditor...Who is the Audit Committee's financial expert? ...Report of the Audit Committee ...ITEM 3 - ADVISORY VOTE ON EXECUTIVE COMPENSATION ...What is the advisory vote on the "say-on-pay...

  • Page 11
    ... This proxy statement contains information related to the annual meeting of stockholders of Sirius XM Radio Inc. to be held on Wednesday, May 25, 2011, beginning at 9:00 a.m., New York City time, in The Auditorium at The Equitable Center, 787 Seventh Avenue, New York, New York 10019, and at any...

  • Page 12
    ...holders of a plurality of the voting power of our common stock present in person or represented by proxy and entitled to vote. This means that the eight Common Stock Director Nominees who receive the most votes cast by the holders of shares of our common stock will be elected. Abstentions and broker...

  • Page 13
    ... at the annual meeting. It is therefore important that you provide instructions to your broker if your shares are held by a broker so that your vote with respect to Item 1 (election of the eight directors listed herein) and Items 3 and 4 (relating to advisory votes on executive compensation) are...

  • Page 14
    ... annual report to any stockholder residing at an address to which only one copy was mailed. Requests for additional copies for this year's or future years' proxy materials should be directed to: Sirius XM Radio Inc., Attention: Corporate Secretary, 1221 Avenue of the Americas, 36th Floor, New York...

  • Page 15
    ..., New York, New York 10020, to the attention of the Corporate Secretary, no later than the close of business on December 30, 2011. Our By-laws provide for advance notice provisions. The By-laws require the timely notice of certain information to be provided by any stockholder who proposes director...

  • Page 16
    .... From December 2006 until the closing of our merger with XM Satellite Radio Holdings Inc. ("XM") in July 2008, Ms. Amble served as a director of XM. Ms. Amble is the Executive Vice President and Corporate Comptroller for American Express Company and has served in that position since December 2003...

  • Page 17
    ...growth oriented companies. From 1977 to 1990, Mr. Black worked at Drexel Burnham Lambert Incorporated, where he served as Managing Director, head of the Mergers & Acquisitions Group and co-head of the Corporate Finance Department. He serves on the boards of directors of Apollo Global Management, LLC...

  • Page 18
    ... Officer of DIRECTV, Mr. Hartenstein has extensive experience in building, managing, marketing and operating a satellite service. He brings direct and highly relevant expertise to the board in such areas as: the construction and procurement of satellites, managing a large consumer subscriber base...

  • Page 19
    ... areas of revenue maximization, cost control, music and talk programming as well as government, public and investor relations position him uniquely to serve as a director. As our Chief Executive Officer, Mr. Karmazin provides the board not only with knowledge of our daily workings, but also with the...

  • Page 20
    .... This experience, together with his general management expertise, assists the board in evaluating satellite procurement programs, satellite insurance and redundancy proposals, and long-term network planning projects. Preferred Stock Director Designees Name Age Position, Principal Occupation...

  • Page 21
    ... and enhanced information services. Ms. Wittman also served on the board of directors of Infospace, an internet search services company, from January 2003 to January 2008. Key Attributes, Experience and Skills: Ms Wittman has been the Chief Financial Officer of various public companies since 1997...

  • Page 22
    ..., for possible Common Stock Directors. Such suggestions, together with appropriate biographical and other information required pursuant to our By-laws, should be submitted to our Corporate Secretary, Sirius XM Radio Inc., 1221 Avenue of the Americas, 36th Floor, New York, New York 10020. Candidates...

  • Page 23
    ... Executive Officer. The board of directors has determined that it is currently in our best interests to separate the chairman of the board position and the Chief Executive Officer position because it allows the Chief Executive Officer to focus on our day-to-day business, including risk management...

  • Page 24
    ...the board of directors • Reviews background information on potential candidates for Common Stock Directors and makes recommendations to the board of directors • Makes recommendations to the board of directors with respect to committee assignments * Chair How often did the board meet during 2010...

  • Page 25
    ...information for the year ended December 31, 2010 for each of our non-employee directors. Directors who are our employees do not receive compensation for their services as directors. Change in Pension Value of Non-Qualified Deferred Non-Equity All Other Incentive Plan Compensation Fee Earned or Stock...

  • Page 26
    ... in Note 13 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010. (4) In 2010, non-employee directors were each awarded 102,015 options at an exercise price of $0.9994 per share with a grant date fair value of $70,000. At December 31...

  • Page 27
    How much stock do the directors and executive officers of SIRIUS XM own? The following table shows the number of shares of common stock beneficially owned by each of our directors, each of our named executive officers and all of our directors and executive officers as a group as of February 28, 2011...

  • Page 28
    ... year on calls to our compliance hotline and any changes or developments in compliance matters. Each quarter, our Chief Financial Officer reports to the board of directors on our performance and discusses how actual performance compares to our business plan and budget. Our executive officers report...

  • Page 29
    ... Secretary of State of the State of Delaware. The holder of our preferred stock is entitled to appoint a proportionate number of our board of directors based on its ownership levels from time to time. The Certificate of Designations also provides that so long as at least 6,250,000 shares of Series...

  • Page 30
    ... and selection of new members of our board of directors. Our board of directors has also adopted a Code of Ethics, which is applicable to all our directors and employees, including our chief executive officer, principal financial officer and principal accounting officer. Our Guidelines and...

  • Page 31
    ... 2009; • increasing our conversion rate, the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after an initial promotional period, to 46.2% as compared to 45.4% in 2009; • negotiating new long-term programming agreements with...

  • Page 32
    ... Long-Term Equity Grants. We made a broad-based grant of stock options to our employees in 2010, including Ms. Altman and Mr. Frear, who received options to purchase 1,052,300 shares and 2,244,800 shares, respectively. The specific number of options granted to each of these named executive officers...

  • Page 33
    ...proportion of pay that is "at risk" - namely, the discretionary annual bonus and the value of equity-based awards. This "at risk" compensation is used to motivate executives to achieve goals and objectives that support our business plan and align executives with the short- and long-term interests of...

  • Page 34
    ... to provide the correct incentives and are properly sized given the scope and complexity of our business and the competition we face. We have adopted a 2011 bonus program for our named executive officers (other than our Chief Financial Officer) under our 2009 Long-Term Stock Incentive Plan. The...

  • Page 35
    ... each executive officer's compensation to performance in the form of the discretionary annual bonus as well as long-term stock-based compensation, which is tied to our stock price performance. 2010 Base Salary Decisions. During 2010, our Compensation Committee approved an increase in the base salary...

  • Page 36
    ... per user; increasing our self-pay conversion rate; reducing subscriber acquisition costs; introducing and marketing new data services; overseeing the development of our transmission and radio technology; building our business in pre-owned vehicles, including establishing agreements with automakers...

  • Page 37
    ... stock options granted to our named executive officers in 2010 vest in equal installments over four years, generally subject to the officer's continued employment through the vesting period, which enhances the retention value of the award and incentivizes the officers to create and sustain long-term...

  • Page 38
    ...New York City. We also pay Mr. Meyer an additional amount to hold him harmless as a result of any federal, state or New York City income taxes imputed in respect of the expenses we reimburse him for. Payments to Named Executive Officers Upon Termination or Change-in-Control The employment agreements...

  • Page 39
    ... to our services while reducing programming expenses; and • establishing Sirius XM as the second largest subscription-based media company in the United States. Policy with Respect to Internal Revenue Code Section 162(m) In developing the compensation packages for the named executive officers, the...

  • Page 40
    ... The assumptions used in the valuation are discussed in Note 13 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010. Mr. Karmazin did not receive equity-based awards in 2008 or 2010. (4) For each named executive officer in 2010, the...

  • Page 41
    ... were made under the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan. The stock option awards granted on August 9, 2010 vest in equal annual installments over four years from the date of grant and have a term of ten years. The option award granted on January 14, 2010 to Mr. Donnelly in...

  • Page 42
    ... Awards at Fiscal Year-End 2010 The following table provides information with respect to the status at December 31, 2010 of all unexercised options and unvested restricted stock and restricted stock units awarded to each of the named executive officers. Option Awards Number of Number of Securities...

  • Page 43
    ... Select Market of our common stock of $1.63 on December 31, 2010. Option Exercises and Stock Vested in 2010 The following table provides information with respect to option exercises and restricted stock and restricted stock units that vested during 2010. Option Awards Number of Shares Acquired Value...

  • Page 44
    ... extend the term of his employment agreement through December 31, 2012, (ii) increase his base salary from $1,250,000 per year to $1,500,000 per year beginning on January 1, 2010, and (iii) provide for a grant of an option to purchase 120,000,000 shares of our common stock, at an exercise price of...

  • Page 45
    ... execution of the employment agreement, we granted Mr. Meyer an option to purchase 25,184,984 shares of our common stock at an exercise price of $0.5752 per share (the closing price of our common stock on date of the employment agreement). The options generally vest in four equal annual installments...

  • Page 46
    ...the increase in his base salary that he would have been entitled to in 2011 under his employment agreement. In connection with the execution of the employment agreement, we granted Mr. Donnelly an option to purchase 13,163,495 shares of our common stock at an exercise price of $0.6669 per share (the...

  • Page 47
    ...Stock Incentive Plan. Under the 2003 Long-Term Stock Incentive Plan, the outstanding equity awards granted to these named executive officers are subject to potential accelerated vesting upon a change of control. In addition, Mr. Frear's award agreements relating to options and restricted stock units...

  • Page 48
    ... named executive officers' agreements and our stock incentive plans to which they would have been entitled if a termination of employment or change-in-control had occurred as of December 31, 2010: Lump Sum Severance Payment ($) Accelerated Equity Vesting(1) ($) Continuation of Insurance Excise Tax...

  • Page 49
    ... would be continued at rate of two times current employer cost. For Ms. Altman, also includes the present value of up to two years of outplacement services upon termination without cause or for good reason pursuant to the terms of her employment agreement. (3) Refers to scheduled retirement in May...

  • Page 50
    .... The board of directors unanimously recommends a vote "FOR" the ratification of KPMG LLP as our independent registered public accountants for 2011. Principal Accountant Fees and Services The following table sets forth the fees billed to us by KPMG as of and for the years ended December 31, 2010 and...

  • Page 51
    ... public accounting firm their independence. Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the board of directors that our audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2010...

  • Page 52
    ...equity-based incentives, we also align the interests of our named executive officers with those of our stockholders and the long-term interests of SIRIUS XM. Our executive compensation policies have enabled us to attract and retain talented and experienced senior executives. We believe that the 2010...

  • Page 53
    ... regarding their views on executive compensation. In addition, because our executive compensation program has not typically changed materially year-to-year and is designed to operate over the long-term and to enhance long-term performance, an annual advisory vote on executive compensation could lead...

  • Page 54
    ...our Annual Report on Form 10-K for the year ended December 31, 2010, including financial statements and schedules thereto, are also available without charge to stockholders upon written request addressed to: Investor Relations Sirius XM Radio Inc. 1221 Avenue of the Americas 36th Floor New York, New...

  • Page 55
    2010 ANNUAL REPORT

  • Page 56

  • Page 57
    ... 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 two proprietary satellite radio systems. Subscribers can also receive certain of our music and other channels over the Internet...

  • Page 58
    ... 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...

  • Page 59
    ... of reported total subscriber revenues through 2013 as balances are earned over the acquired subscription period. Advertising Revenue includes the sale of advertising on our non-music channels, net of agency fees. Agency fees are based on a contractual percentage of the gross advertising billing...

  • Page 60
    ... monthly fees paid based upon the number of subscribers using satellite radios purchased from retailers. Advertising revenue share is recognized as a component of revenue share and royalties in the period in which the advertising is broadcast. • 2010 vs. 2009: For the years ended December 31, 2010...

  • Page 61
    ... expense as a result of the Merger and increased bad debt expense due to the economic environment during 2009. We expect our customer care and billing expenses to increase as our subscriber base grows due to increased call center operating costs, transaction fees and bad debt expense. Satellite...

  • Page 62
    ... increases or decreases in OEM installations, which are driven by OEM manufacturing and penetration rates, and changes in our gross subscriber additions. Declines in the cost of subsidized radio components will also impact total subscriber acquisition costs. The impact of purchase price accounting...

  • Page 63
    ... costs and third party distribution support expenses, partially offset by the inclusion of XM's sales and marketing expense. We expect sales and marketing expenses to increase as we increase advertising and promotional initiatives to attract new subscribers in existing and new distribution channels...

  • Page 64
    ... 94%, or $30,993. The increase was primarily due to the impairment of our FM-4 satellite, due to the launch of XM-5 in the fourth quarter of 2010, and contract termination costs in the year ended December 31, 2010 compared to losses incurred on capitalized installment payments which were expected to...

  • Page 65
    ... higher net losses at XM Canada and SIRIUS Canada and a decrease in payments received from SIRIUS Canada in excess of the carrying value of our investments, partially offset by the gain on sale of auction rate securities during the year ended December 31, 2010. In addition, we recorded an impairment...

  • Page 66
    ... improvement was due to the 25% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration and returning activations. • 2009 vs. 2008: For the years ended December 31, 2009 and 2008, net additions were (231,098) and 1,655,234...

  • Page 67
    ... accounting principles in the United States of America ("Non-GAAP"). These Non-GAAP financial measures include: average monthly revenue per subscriber, or ARPU; subscriber acquisition cost, or SAC, per gross subscriber addition; customer service and billing expenses, per average subscriber; free...

  • Page 68
    ... and internet packages, partially offset by lower advertising revenue. SAC, Per Gross Subscriber Addition is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments...

  • Page 69
    Customer Service and Billing Expenses, Per Average Subscriber is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of ...

  • Page 70
    ...,355 Other revenue ...266,946 Predecessor financial information: Subscriber revenue, including effects of rebates ...- Advertising revenue, net of agency fees ...- Equipment revenue ...- Other revenue ...- Purchase price accounting adjustments: Subscriber revenue, including effects of rebates ...14...

  • Page 71
    ... other charges, such as, goodwill impairment; restructuring, impairments and related costs; certain purchase price accounting adjustments and share-based payment expense. (See the accompanying footnotes on pages 22 through 29 for more details): Unaudited For the Years Ended December 31, 2010 2009...

  • Page 72
    ... 31, 2010 2009 2008 Depreciation and amortization ...$ 273,691 Impairment of goodwill ...- Restructuring, impairments and related costs ...66,731 Loss on extinguishment of debt and credit facilities, net ...120,120 Share-based payment expense ...60,437 Other non-cash purchase price adjustments...

  • Page 73
    ... as we grant equity awards to our employees and directors. Compensation expense for share-based awards is recorded in the financial statements based on the fair value. The fair value of stock option awards are determined using the Black-Scholes-Merton option-pricing model which is subject to various...

  • Page 74
    ... approved the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (the "2009 Plan"). Employees, consultants and members of our board of directors are eligible to receive awards under the 2009 Plan, which provides for the grant of stock options, restricted stock, restricted stock units and other...

  • Page 75
    ... 28, 2008, our wholly-owned subsidiary, Vernon Merger Corporation, merged with and into XM Satellite Radio Holdings Inc., with XM Holdings becoming our wholly-owned subsidiary. The application of purchase accounting resulted in the transaction being valued at $5,836,363 and our recording of goodwill...

  • Page 76
    ... are provided. Prepaid subscription fees are recorded as deferred revenue and amortized to revenue ratably over the term of the applicable subscription plan. At the time of sale, vehicle owners purchasing or leasing a vehicle with a subscription to our service typically receive between a three-month...

  • Page 77
    ... to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable...

  • Page 78
    ... payments. We measure conversion rate three months after the period in which the trial service ends. (3) ARPU is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months...

  • Page 79
    ... per subscriber amounts): Unaudited For the Years Ended December 31, 2010 2009 2008 Customer service and billing expenses: GAAP ...Predecessor financial information ...Less: share-based payment expense, net of purchase price accounting adjustments: GAAP ...Predecessor financial information ...Add...

  • Page 80
    ... costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price...

  • Page 81
    ...261,832) Share-based payment expense, net of purchase price accounting adjustments: GAAP ...63,309 Predecessor financial information (see page 28)...- Depreciation and amortization: GAAP ...273,691 Predecessor financial information (see page 28)...- Restructuring, impairments and related costs (GAAP...

  • Page 82
    ...for the Year Ended December 31, 2010 Allocation of Purchase Price Accounting Share-Based As Reported Adjustments Payment Expense Adjusted (In thousands) Revenue: Subscriber revenue, including effects of rebates ...$2,414,174 Advertising revenue, net of agency fees ...64,517 Equipment revenue ...71...

  • Page 83
    ... Unaudited for the Year Ended December 31, 2009 Purchase Price Allocation of Accounting Share-Based As Reported Adjustments Payment Expense Adjusted Revenue: Subscriber revenue, including effects of rebates ...$2,287,503 Advertising revenue, net of agency fees ...51,754 Equipment revenue ...50,352...

  • Page 84
    ... for the Year Ended December 31, 2008 Predecessor Purchase Price Allocation of Financial Accounting Share-Based As Reported Information Adjustments Payment Expense Adjusted Revenue: Subscriber revenue, including effects of rebates ...Advertising revenue, net of agency fees ...Equipment revenue...

  • Page 85
    ...table reconciles our GAAP Net cash provided by operating activities to our Net income plus non-cash operating activities (in thousands): For the Years Ended December 31, 2010 2009 2008 Net cash provided by operating activities: GAAP ...Predecessor financial information ...Less: Changes in operating...

  • Page 86
    ... 2005 in each of our common stock, the S&P 500 and the NASDAQ Telecommunications Index. There were no dividends declared during these periods. 250 225 200 175 DOLLARS 150 125 100 75 50 25 0 Dec-05 Dec-06 Dec-07 YEAR Nasdaq Telecommunications Index S&P 500 Index Sirius XM Radio Inc. Dec-08 Dec-09 Dec...

  • Page 87
    ...-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. (2) The 2008 results and balances reflect the results and balances of XM Satellite Radio Holdings Inc. from the date of the Merger and a $4,766,190 goodwill impairment charge. (3) No...

  • Page 88
    ... the fair market value of our debt is sensitive to changes in interest rates. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate fluctuations. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None...

  • Page 89
    ... material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sirius XM Radio Inc. and subsidiaries' internal control over financial reporting as of December 31, 2010, based on criteria...

  • Page 90
    ... of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Sirius XM Radio Inc. and subsidiaries: We have audited Sirius XM Radio Inc. and subsidiaries' internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control...

  • Page 91
    ...agency fees ...Equipment revenue ...Other revenue ...Total revenue ...Operating expenses: Cost of services: Revenue share and royalties ...Programming and content ...Customer service and billing ...Satellite and transmission ...Cost of equipment ...Subscriber acquisition costs ...Sales and marketing...

  • Page 92
    ... ...Accounts receivable, net...Receivables from distributors . Inventory, net ...Prepaid expenses ...Related party current assets . . Deferred tax asset ...Other current assets...Total current assets ...Property and equipment, net ...Long-term restricted investments . Deferred financing fees...

  • Page 93
    ...net of issuance costs ...- Issuance of common stock to employees and employee benefit plans, net of forfeitures ...- Structuring fee on 10% Senior PIK - Secured Notes due 2011 ...Share-based payment expense ...- Returned shares under share borrow agreements ...- Issuance of restricted stock units in...

  • Page 94
    ... comprehensive income ...Issuance of common stock to employees and employee benefit plans, net of forfeitures ...Share-based payment expense ...Exercise of options and vesting of restricted stock units ...Conversion of preferred stock to common stock ... ... - - - - - - (25) $- - - - - 12,500,000...

  • Page 95
    ... long-term assets ...Accounts payable and accrued expenses ...Accrued interest ...Deferred revenue ...Related party liabilities ...Other long-term liabilities ...Net cash provided by (used in) operating activities ...Cash flows from investing activities: Additions to property and equipment ...Sales...

  • Page 96
    ... - (Continued) For the Years Ended December 31, 2010 2009 2008 (In thousands) Supplemental Disclosure of Cash and Non-Cash Flow Information Cash paid during the period for: Interest, net of amounts capitalized ...Non-cash investing and financing activities: Share-based payments in satisfaction of...

  • Page 97
    ... our customers subscribing on an annual, semiannual, quarterly or monthly basis. We offer discounts for prepaid and long-term subscription plans 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...

  • Page 98
    ..., useful lives of our satellites, share-based payment expense, and valuation allowances against deferred tax assets. Economic conditions in the United States could have a material impact on our accounting estimates. Recent Accounting Pronouncements The Financial Accounting Standards Board ("FASB...

  • Page 99
    ... subscription fees received from certain automakers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon retail sale and activation. We reimburse automakers for certain costs associated with the satellite radio installed in the applicable...

  • Page 100
    ... to employees, non-employees and members of our board of directors include warrants, stock options, restricted stock and restricted stock units. Subscriber Acquisition Costs Subscriber acquisition costs consist of costs incurred to acquire new subscribers and include hardware subsidies paid to radio...

  • Page 101
    ... to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable...

  • Page 102
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) exercised or converted into common stock, calculated using the treasury stock method. For the year ended December 31, 2010, common stock equivalents of approximately 689,922,000 were excluded from the ...

  • Page 103
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Inventory Inventory consists of finished goods, refurbished goods, chip sets and other raw material components used in manufacturing radios. Inventory is stated at the lower of cost, determined on a first-...

  • Page 104
    ... and Other Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our single reporting unit is performed as of October 1st of each...

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    ... equivalents, accounts and other receivables, and accounts payable approximated fair value due to the short-term nature of these instruments. The fair value for publicly traded instruments is determined using quoted market prices while the fair value for non-publicly traded instruments is based upon...

  • Page 106
    ... use. We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our licenses expires: FCC License Expiration Year SIRIUS FM-1 satellite ...SIRIUS FM-2 satellite ...SIRIUS FM-3 satellite ...SIRIUS...

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    ... received from OEMs for subscriptions included in the sale or lease price of vehicles are also included in subscriber revenue over the service period. Subscriber revenue consists of the following: For the Years Ended December 31, 2010 2009 2008 Subscription fees ...$2,398,790 Activation fees...

  • Page 108
    ... launch vehicles for our FM-6 and XM-5 satellites. We also incur interest costs on all of our debt instruments and on our satellite incentive agreements. The following is a summary of our interest costs: For the Years Ended December 31, 2010 2009 2008 Interest costs charged to expense ...$295...

  • Page 109
    ...to the launch of XM-5 in the fourth quarter of 2010 and our business plan. We own five orbiting satellites for use in the XM system. Four of these satellites were manufactured by Boeing Satellite Systems International and one was manufactured by Space Systems/Loral. During the year ended December 31...

  • Page 110
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) We accounted for the Series B Preferred Stock by recording a $227,716 increase to additional paid-in capital, excluding issuance costs, for the amount of allocated proceeds received and an additional $186,...

  • Page 111
    ... provide XM Canada with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year term and XM Canada has the unilateral option to extend the agreements for an additional five years. We receive a 15% royalty for all subscriber fees earned by XM Canada each month...

  • Page 112
    ... May 27, 2010. During the term of the agreement, GM has agreed to distribute the XM service. We subsidize a portion of the cost of satellite radios and makes incentive payments to GM when the owners of GM vehicles with factory- or dealer- installed satellite radios become self-paying subscribers. We...

  • Page 113
    ...GM and American Honda: For the Years Ended December 31, 2010* 2009 American American GM Honda GM Honda GM 2008 American Honda Sales and marketing ...Revenue share and royalties ...Subscriber acquisition costs ...Customer service and billing ...Interest expense, net of amounts capitalized ... ...$13...

  • Page 114
    ... the Years Ended December 31, 2010 2009 2008 Share of SIRIUS Canada net loss...$(10,257) Payments received from SIRIUS Canada in excess of carrying value ...10,281 Release of liability with SIRIUS Canada ...- Share of XM Canada net loss ...(12,147) Impairment of XM Canada ...- Realized gain on sale...

  • Page 115
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (11) Debt Our debt consists of the following: Conversion Price (per Share) December 31, 2010 December 31, 2009 3.25% Convertible Notes due 2011(a) ...Less: discount ...Senior Secured Term Loan due 2012(b)...

  • Page 116
    ... 2012 In June 2007, we entered into a term credit agreement with a syndicate of financial institutions. The term credit agreement provided for a senior secured term loan (the "Senior Secured Term Loan") of $250,000, which was fully drawn. On March 16, 2010, we used net proceeds of $244,714 from the...

  • Page 117
    ...XM issued $700,000 aggregate principal amount of 7.625% Senior Notes due 2018 (the "7.625% Senior Notes"). Interest is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2011, at a rate of 7.625% per annum. A majority of the net proceeds were used to purchase...

  • Page 118
    ... Agreement, SIRIUS borrowed $250,000 under the LM Term Loan. The proceeds of the LM Term Loan were used (i) to repay at maturity our outstanding 2.5% Convertible Notes due February 17, 2009 and (ii) for general corporate purposes, including related transaction costs. In August 2009, SIRIUS used...

  • Page 119
    ... Services Inc. ("MS") and UBS AG London Branch ("UBS") in July 2008, under which we loaned MS and UBS an aggregate of 262,400,000 shares of our common stock in exchange for a fee of $0.001 per share. The obligations of MS to us under its share lending agreement are guaranteed by its parent company...

  • Page 120
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In January 2004, SIRIUS signed a seven-year agreement with a sports programming provider. Upon execution of this agreement, SIRIUS delivered 15,173,070 shares of common stock valued at $40,967 to that ...

  • Page 121
    ...Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (the "2009 Plan"). Employees, consultants and members of our board of directors are eligible to receive awards under the 2009 Plan. The 2009 Plan provides for the grant of stock options, restricted stock, restricted stock units and other stock...

  • Page 122
    ...the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors: For the Years Ended December 31, 2010 2009 2008 Risk-free Expected Expected Expected interest rate ...life of options - years ...stock price volatility ...dividend...

  • Page 123
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes stock option activity under our share-based payment plans for the years ended December 31, 2010, 2009 and 2008 (shares in thousands): WeightedAverage Exercise Price Weighted-...

  • Page 124
    SIRIUS XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the nonvested restricted stock and restricted stock unit activity under our share-based payment plans for the years ended December 31, 2010, 2009 and 2008 (shares in ...

  • Page 125
    ... of the Sirius XM Plan based upon the total eligible compensation of eligible participants. These additional contributions in the form of shares of common stock are determined by the compensation committee of our board of directors. Employees are only eligible to receive profitsharing contributions...

  • Page 126
    ... $942 and $0, respectively, for uncertain state tax positions in other long term liabilities. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2010 will significantly increase or decrease during the twelve-month period ending F-38

  • Page 127
    ... of income tax expense. (15) Commitments and Contingencies The following table summarizes our expected contractual cash commitments as of December 31, 2010: 2011 2012 2013 2014 2015 Thereafter Total Long-term debt obligations(1) ...Cash interest payments...Satellite and transmission ...Programming...

  • Page 128
    ... require us to purchase advertising on properties owned or controlled by the licensors. We also reimburse automakers for certain engineering and development costs associated with the incorporation of satellite radios into vehicles they manufacture. In addition, in the event certain new products are...

  • Page 129
    ... purport to represent all subscribers who were subject to: an increase in the price for additional-radio subscriptions from $6.99 to $8.99; the imposition of the US Music Royalty Fee; and the elimination of our free streaming internet service. Based on these pricing changes, the suit raises...

  • Page 130
    ... Satellite Radio Holdings Inc. ("CSR"), parent company of XM Canada, and SIRIUS Canada announced in November 2010 that they have entered into a definitive agreement to combine the companies (the "Canada Merger"). Under the terms of the agreement, SIRIUS Canada shareholders will be issued shares...

  • Page 131
    SIRIUS XM RADIO INC. AND SUBSIDIARIES Schedule II - Schedule of Valuation and Qualifying Accounts Description Balance January 1, Write-offs/ Payments/ Charged to Expenses Other (In thousands) Balance December 31, 2008 Allowance for doubtful accounts ...Deferred tax assets - valuation allowance ......

  • Page 132
    ... Chief Financial Officer Board of Directors Common Stock Directors Eddy W. Hartenstein Chairman of the Board of Sirius XM Radio Inc. Publisher and CEO Los Angeles Times Joan L. Amble Director Executive Vice President and Corporate Comptroller American Express Company Leon D. Black Director Founding...

  • Page 133
    Stockholder Information Annual Stockholders Meeting The annual meeting of Sirius XM stockholders is scheduled for 9:00 a.m., New York City time, on Wednesday, May 25, 2011, in The Auditorium at The Equitable Center, 787 Seventh Avenue, New York, New York 10019 Transfer Agent and Registrar The ...

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