XM Radio 2011 Annual Report Download

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PROXY STATEMENT
AND
2011 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
Comparison of Cumulative Total Returns ...................... 29
Selected Financial Data .................................... 30
Quantitative and Qualitative Disclosure About Market Risks ....... 31
Reports of Independent Registered Public Accounting Firm ....... F-1
Consolidated Financial Statements ........................... F-3
Notes to Consolidated Financial Statements .................... F-8

Table of contents

  • Page 1
    ... ...Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations ...Comparison of Cumulative Total Returns ...Selected Financial Data ...Quantitative and Qualitative Disclosure About Market Risks ...Reports of Independent Registered Public Accounting Firm...

  • Page 2

  • Page 3
    ..., Metallica, Wilco, Randy Travis, and Lady Antebellum, among other music stars and icons. In addition to 85 channels of commercial-free music available online and as part of our satellite service, we are the Official Satellite Radio Partner of the National Football League, Major League Baseball...

  • Page 4
    ... our non-music online offerings. We also expect to debut personalized radio on these same Internet-based platforms, which will enable subscribers to tailor music to their own preferences. Similarly, our additional SiriusXM 2.0 channels, including the suite of Hispanic channels, will be available at...

  • Page 5
    ... the first automaker to provide the expanded SiriusXM channel lineup as well as SiriusXM Latino in select 2013 model year vehicles. Adding this functionality on the Internet and increasing our content lineup on the satellites are two ways we are adding value to our service and keeping it attractive...

  • Page 6
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 7
    ... costs. If you received a paper copy of the proxy materials, please do not return the enclosed paper ballot if you are voting over the Internet or by telephone. By Order of the Board of Directors, PATRICK L. DONNELLY Executive Vice President, General Counsel and Secretary New York, New York...

  • Page 8

  • Page 9
    ... Table for 2011 ...STOCK OWNERSHIP ...Who are the principal owners of our stock? ...How much stock do our directors and executive officers own? ...Section 16(a) Beneficial Ownership Reporting Compliance ...GOVERNANCE OF THE COMPANY ...How does the board of directors oversee our risk management...

  • Page 10
    Page ITEM 2 - RATIFICATION OF INDEPENDENT REGISTERED 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 ...OTHER MATTERS ... 41 41 41 42 42 43 ii

  • Page 11
    ... This proxy statement contains information related to the annual meeting of stockholders of Sirius XM Radio Inc. to be held on Tuesday, May 22, 2012, 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
    ...at 8:30 a.m., New York City time. What constitutes a quorum? The presence, in person or by proxy, of the holders of a majority of the aggregate voting power of the issued and outstanding shares of our common stock and our Series B-1 Preferred Stock entitled to vote at the annual meeting is necessary...

  • Page 13
    ... you will be able to do this over the Internet, by telephone or by mail. Please refer to information from your bank, broker or other nominee on how to submit voting instructions. The deadline for voting by telephone or electronically is 11:59 p.m., New York City time, on Monday, May 21, 2012. Mailed...

  • Page 14
    ... in writing at Sirius XM Radio Inc., 1221 Avenue of the Americas, 36th Floor, New York, New York 10020 that you are revoking your proxy; • Executing and delivering a later dated proxy card or submitting a later dated vote by telephone or the Internet; or • Attending the annual meeting, revoking...

  • Page 15
    ... nomination or any other business for consideration at a stockholders' meeting must be received by our Corporate Secretary at our principal executive offices not less than 70 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting. Therefore, to be presented...

  • Page 16
    ...been elected as Preferred Stock Directors. The Nominating and Corporate Governance Committee of our board of directors has nominated the eight Common Stock Director Nominees listed below after consideration of such individual's qualifications, contributions to the company and other reasons discussed...

  • Page 17
    .... He is also a member of The Council on Foreign Relations and The Partnership for New York City. Mr. Black is also a member of the boards of FasterCures and the Port Authority Task Force. During the last five years, Mr. Black served as a director of United Rentals and was a member of the National...

  • Page 18
    ... also served as a director at Thomson Multimedia during the last five years. Key Attributes, Experience and Skills: As the former Chief Executive Officer of DIRECTV, Mr. Hartenstein has extensive experience in building, managing, marketing and operating a satellite service. He brings direct and...

  • 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
    ... with his general management expertise, assists the board in evaluating satellite procurement programs, satellite insurance and redundancy proposals, and long-term network planning projects. Position, Principal Occupation, Business Experience and Directorships Preferred Stock Directors Name Age...

  • Page 21
    ...to October 2000. Mr. Flowers has served as a director of Interval Leisure Group, Inc. since August 2008. Key Attributes, Experience and Skills: Mr. Flowers brings to the board significant financial, investment and public company experience as a senior finance executive of a large public company. 11

  • Page 22
    ... worked as an executive officer in various capacities for companies affiliated with Liberty Media. Mr. Vogel is a member of the boards of directors and audit committees of Shaw Communications, Inc., a diversified communications company providing broadband cable and direct-to-home satellite services...

  • Page 23
    ..., Sirius XM Radio Inc., 1221 Avenue of the Americas, 36th Floor, New York, New York 10020. Candidates who are suggested by our stockholders are evaluated by the Nominating and Corporate Governance Committee in the same manner as are other possible candidates to be Common Stock Directors. During 2011...

  • Page 24
    ... Our board reviews the independence of our directors annually. The provisions of our Guidelines regarding director independence meet, and in some areas exceed, the listing standards of The NASDAQ Global Select Market ("NASDAQ"). A copy of the Guidelines is available on our website at http://investor...

  • Page 25
    ... Shaw Carl E. Vogel • Selects our independent registered public accounting firm • Reviews reports of our independent registered public accounting firm • Reviews and approves the scope and cost of all services, including all nonaudit services, provided by the firm selected to conduct the audit...

  • Page 26
    ... table provides compensation information for the year ended December 31, 2011 for each of our non-employee directors. Mr. Karmazin is an employee and does not receive compensation for his service as a director. Change in Pension Value of Non-Qualified Non-Equity Deferred Fee Earned or Stock Option...

  • Page 27
    ...and corporate governance chairman receives $10,000. In addition, each member receives $70,000 in the form of options to purchase our common stock which are granted annually on the next business day following that year's annual meeting of stockholders. All options to purchase our common stock awarded...

  • Page 28
    ...by clients of Wellington Management. Wellington Management has shared investment and voting power with respect to 206,920,324 and 163,596,847 shares of our common stock, respectively. How much stock do our directors and executive officers own? The following table shows the number of shares of common...

  • Page 29
    ... 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 regularly to the board about the risks and exposures related to our business. • The other committees of the board of directors...

  • Page 30
    ... 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 B-1 Preferred Stock are outstanding, we need the consent of the holder of the...

  • Page 31
    ... directors and employees, including our chief executive officer, principal financial officer and principal accounting officer. Our Guidelines and the Code of Ethics are available on our website at http://investor.siriusxm.com under "Corporate Governance" and in print to any stockholder who provides...

  • Page 32
    ... did not make changes to the core elements of our compensation programs, except for the addition of a Section 162(m)-compliant bonus plan. We intend to include an advisory "say on pay" vote on the compensation of our named executive officers every three years. Accordingly, the next such vote will be...

  • Page 33
    ..., annual bonuses and long-term incentive awards. The Compensation Committee does not attempt to set compensation levels for each named executive officer within a particular range related to levels provided by peers. Instead, the Compensation Committee occasionally uses informal market comparisons...

  • Page 34
    ...salary, annual bonus, long-term incentives, perquisites and other benefits. In addition, the Compensation Committee considers the other benefits to which the officer is entitled under his or her employment agreement, including compensation payable upon termination of employment. (The named executive...

  • Page 35
    ... above-described compensation program. Stock options have an exercise price equal to the market price on the date of grant, and therefore provide value to the executives if the executives create value for our stockholders. In addition, stock options generally vest over a period of four years and are...

  • Page 36
    ... or New York City income taxes imputed in respect of the expenses for which he receives reimbursement. The costs of these benefits for Mr. Meyer constitute less than 10% of his total compensation. Payments to Named Executive Officers Upon Termination or Change-in-Control The employment agreements...

  • Page 37
    ... a signal to our employees that any current increase in his compensation would be based on our performance in the form of bonuses and increases in the value of his stock options. There was no base salary increase for Mr. Karmazin in 2011. Payment of Performance-Based Discretionary Annual Bonuses for...

  • Page 38
    ... net subscribers in 2011; analyzing, evaluating and managing our subscriber churn and new vehicle conversion rate; reducing subscriber acquisition costs; overseeing the development of our transmission and radio technology; introducing and marketing the first phase of our Sirius XM 2.0 functionality...

  • Page 39
    ... necessary to achieve our key business objectives and increase stockholder value. Related Policies and Considerations Compensation of our Chief Executive Officer In November 2004, our board of directors negotiated, and we entered into, a five-year employment agreement with Mel Karmazin to serve...

  • Page 40
    ... launching Sirius XM Latino, the most comprehensive radio channel offering in the United States for Spanish-speaking listeners; • managing and implementing, including all communications and marketing efforts, a price increase to certain of our subscription services; • improving our customer care...

  • Page 41
    ... The following table provides information concerning total compensation earned or paid to our Chief Executive Officer, our Chief Financial Officer and our four other most highly compensated executive officers who served in such capacities as of December 31, 2011 for services rendered to us during...

  • Page 42
    ... Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan. The stock option awards granted to Ms. Altman and Mr. Frear vest in equal annual installments over four years from the date of grant and have a term of ten years. (2) The exercise price of the options granted to Ms. Altman on August 23, 2011...

  • Page 43
    ... Awards at Fiscal Year-End 2011 The following table provides information with respect to the status at December 31, 2011 of all unexercised options awarded to each of the named executive officers. Number of Securities Underlying Unexercised Options (#) Exercisable Option Awards Number of Securities...

  • Page 44
    ... annual installments from the date of grant on July 21, 2011. Option Exercises and Stock Vested in 2011 The following table provides information with respect to option exercises and restricted stock and restricted stock units that vested during 2011. Option Awards Number of Shares Acquired Value...

  • Page 45
    ... 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 $0.430 per share (the closing price...

  • Page 46
    ...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 on each of October 14, 2010, October 14, 2011, October...

  • Page 47
    ... an option to purchase 7,500,000 shares of our common stock at an exercise price of $1.69 per share (the last sale price of our common stock on The NASDAQ Global Select Market on the date of execution of the employment agreement). The option will generally vest in four equal annual installments on...

  • Page 48
    ... an option to purchase 16,000,000 shares of our common stock at an exercise price of $2.18 per share (the last sale price of our common stock on The NASDAQ Global Select Market on the date of execution of the employment agreement). The option will generally vest in four equal annual installments on...

  • Page 49
    ... Payments and Benefits The following table describes the potential payments and benefits under the 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 30, 2011...

  • Page 50
    ... price and the exercise price of the options multiplied by (b) the number of shares of common stock underlying the options. (2) Assumes that medical and dental benefits would be continued under COBRA for up to 18 months at current rates; thereafter assumes rate of two times current employer costs...

  • Page 51
    ...expected to be available to respond to appropriate questions. The board of directors unanimously recommends a vote "FOR" the ratification of KPMG LLP as our independent registered public accountants for 2012. Principal Accountant Fees and Services The following table sets forth the fees billed to us...

  • Page 52
    ... control over financial reporting in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). In the performance of its oversight function, the Audit Committee reviewed and discussed our audited financial statements with management and with our independent...

  • Page 53
    ... our annual report for the year ended December 31, 2011 are available for you to view online at http://www.proxyvoting.com/siri. By Order of the Board of Directors, Patrick L. Donnelly Executive Vice President, General Counsel and Secretary New York, New York April 12, 2012 We make available, free...

  • Page 54

  • Page 55
    2011 ANNUAL REPORT

  • Page 56

  • Page 57
    ...semi-annual, 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 subscription-related fees, the sale of advertising on select non-music channels...

  • Page 58
    ...344,354 14% Operating expenses: Revenue share and royalties ...471,149 435,410 397,210 35,739 8% 38,200 10% Programming and content ...281,234 305,914 308,121 (24,680) (8%) (2,207) (1%) Customer service and billing ...259,719 241,680 234,456 18,039 7% 7,224 3% Satellite and transmission ...75,902 80...

  • Page 59
    ... take-rates, plan mix, subscription prices and identification of additional revenue streams from subscribers. We increased certain of our subscription rates beginning January 2012. Advertising Revenue includes the sale of advertising on our non-music channels, net of agency fees. Agency fees are...

  • Page 60
    ...Share and Royalties include distribution and content provider revenue share, advertising revenue share, residuals and broadcast and web streaming royalties. Residuals are monthly fees paid based upon the number of subscribers using satellite radios purchased from retailers. Advertising revenue share...

  • Page 61
    ... of reported programming and content costs, through 2013. Customer Service and Billing includes costs associated with the operation and management of third party customer service centers, and our subscriber management systems as well as billing and collection costs, transaction fees and bad...

  • Page 62
    ... a satellite radio and 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...

  • Page 63
    ... to increase in future periods as we develop our next generation chip sets and products. General and Administrative includes executive management, rent and occupancy, finance, legal, human resources, information technology, insurance and investor relations costs. • 2011 vs. 2010: For the years...

  • Page 64
    ...,993. The increase was primarily due to the impairment of our FM-4 satellite as a result of the launch of XM-5 in 2010, and contract termination costs in the year ended December 31, 2010 compared to losses incurred on capitalized installment payments which were expected to provide no future benefit...

  • 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
    ...additions ...Deactivated subscribers ...Net additions ...Ending subscribers ...Self-pay ...Paid promotional ...Ending subscribers ...Self-pay ...Paid promotional ...Net additions ...Daily weighted average number of subscribers ...Average self-pay monthly churn ...New vehicle consumer conversion rate...

  • Page 67
    ... in Sirius XM Canada, the recognition of subscriber revenues not recognized in purchase price accounting and the elimination of the earnings benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. 11

  • Page 68
    ...not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities. We believe free cash flow provides useful supplemental information to investors regarding our current and projected cash flow, along...

  • Page 69
    ... OEM installations of factory-installed satellite radios. 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...

  • Page 70
    ... in the Merger. (See the accompanying glossary on pages 21 through 27 for more details.) Unaudited For the Years Ended December 31, 2011 2010 2009 (in thousands) Revenue: Subscriber revenue ...Advertising revenue, net of agency fees ...Equipment revenue ...Other revenue ...Purchase price accounting...

  • Page 71
    ... the U.S. Music Royalty Fee in the third quarter of 2009, as well as increased advertising and equipment revenue, decreases in discounts on multi-subscription and Internet packages, and an increase in the sale of "Best of" programming, partially offset by an increase in the number of subscribers on...

  • Page 72
    ... fair value of restricted shares and restricted stock units is based on the market price of our common stock at date of grant. Other non-cash purchase price adjustments include liabilities recorded as a result of the Merger related to executory contracts with an OEM and certain programming providers...

  • Page 73
    ... stock options. Proceeds from long-term debt, related party debt and equity issuances have been used to fund our operations, construct and launch new satellites and invest in other infrastructure improvements. • The increase in cash flows used in financing activities was primarily due to the 2011...

  • Page 74
    ... annual report. Goodwill. 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 year...

  • Page 75
    ... no changes in the carrying value of our indefinite life intangible assets during the years ended December 31, 2011 and 2010. Useful Life of Broadcast/Transmission System. Our satellite system includes the costs of our satellite construction, launch vehicles, launch insurance, capitalized interest...

  • Page 76
    ... In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) - Fair Value Measurement ("ASU 2011-04"), to provide a consistent definition...

  • Page 77
    ... in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We...

  • Page 78
    ...pages 47-49) ...Share-based payment expense, net of purchase price accounting adjustments ...Depreciation and amortization (GAAP) ...Restructuring, impairments and related costs (GAAP) ...Interest expense, net of amounts capitalized (GAAP) ...Loss on extinguishment of debt and credit facilities, net...

  • Page 79
    ...) As Reported Adjusted Revenue: Subscriber revenue ...Advertising revenue, net of 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...

  • Page 80
    ... Reported Adjustments Payment Expense Adjusted Revenue: Subscriber revenue ...Advertising revenue, net of agency fees ...Equipment revenue ...Other revenue ...Total revenue ...Operating expenses Cost of services: Revenue share and royalties ...Programming and content ...Customer service and billing...

  • Page 81
    ... Reported Adjustments Payment Expense Adjusted Revenue: Subscriber revenue ...Advertising revenue, net of agency fees ...Equipment revenue ...Other revenue ...Total revenue ...Operating expenses Cost of services: Revenue share and royalties ...Programming and content ...Customer service and billing...

  • Page 82
    ... advertising revenue and other subscriptionrelated revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee...

  • Page 83
    ... cash flow is calculated as follows (in thousands): Unaudited For the Years Ended December 31, 2011 2010 2009 Net cash provided by operating activities ...Additions to property and equipment ...Restricted and other investment activity ...Free cash flow ... $ 543,630 (137,429) 9,541 $ 415,742 $ 512...

  • Page 84
    ...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, divided by the number of gross subscriber additions for the period. Purchase price accounting...

  • Page 85
    ... periods. 250 225 200 175 DOLLARS 150 125 100 75 50 25 0 Dec-06 Dec-07 Dec-08 YEAR Nasdaq Telecommunications Index S&P 500 Index Sirius XM Radio Inc. Dec-09 Dec-10 Dec-11 Stockholder Return Performance Table Nasdaq Telecommunications Index S&P 500 Index Sirius XM Radio Inc. December 31, 2006...

  • Page 86
    Equity Compensation Plan Information Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities Reflected in Column (a)) (c) Plan category (shares in thousands) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants ...

  • Page 87
    ... and 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...

  • Page 88
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  • Page 89
    ... 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, 2011, based on criteria established in Internal Control - Integrated Framework...

  • Page 90
    ... have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sirius XM Radio Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity and...

  • Page 91
    ... revenue ...Advertising revenue, net of 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...

  • Page 92
    ... XM RADIO INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2011 2010 (in thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents ...Accounts receivable, net ...Receivables from distributors ...Inventory, net ...Prepaid expenses ...Related...

  • Page 93
    ... to employees and employee benefit plans, net of forfeitures ...- Share-based payment expense ...- Exercise of options and vesting of restricted stock units ...- Issuance of common stock upon exercise of warrants ...- Return of shares under share borrow agreements ...- Balance at December 31, 2011...

  • Page 94
    ... of assets ...Share-based payment expense ...Deferred income taxes ...Other non-cash purchase price adjustments ...Distribution from investment in unconsolidated entity ...Changes in operating assets and liabilities: Accounts receivable ...Receivables from distributors ...Inventory ...Related party...

  • Page 95
    ... 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 accrued compensation ...Common stock issued in exchange of 2.5% Convertible Notes due 2009 including, accrued...

  • Page 96
    ...semi-annual, 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 subscription-related fees, the sale of advertising on select non-music channels...

  • Page 97
    ..., 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, money market funds, in-transit credit...

  • Page 98
    ... from subscribers, advertising and direct sales of merchandise. Revenue from subscribers consists of subscription fees; revenue derived from our agreements with daily rental fleet programs; and non-refundable activation and other fees. Revenue is recognized as it is realized or realizable and earned...

  • Page 99
    ... price of self-pay customers. Revenue Share We share a portion of the subscription revenues earned from subscribers with certain automakers. The terms of the revenue share agreements vary with each automaker, but are typically based upon the earned audio revenue as reported or gross billed audio...

  • Page 100
    ... 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 radios...

  • Page 101
    ... members of our board of directors include warrants, stock options, restricted stock and restricted stock units. Income Taxes Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting...

  • Page 102
    ... and iii) Level 3 input - unobservable inputs developed using management's assumptions about the inputs used for pricing the asset or liability. We use Level 3 inputs to fair value the 8% convertible unsecured subordinated debentures issued by Sirius XM Canada. This investment is not material to our...

  • Page 103
    ...Gross accounts receivable ...Allowance for doubtful accounts ...Total accounts receivable, net ... $111,637 (9,932) $101,705 $131,880 (10,222) $121,658 Receivables from distributors include billed and unbilled amounts due from OEMs for radio services included in the sale or lease price of vehicles...

  • Page 104
    ... moving, obsolete or whose carrying value is in excess of net realizable value. The provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of equipment in our consolidated statements of...

  • Page 105
    ... 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...

  • Page 106
    ... of subscription fees, revenue derived from agreements with certain daily rental fleet operators, non-refundable activation and other fees. Revenues received from OEMs for subscriptions included in the sale or lease price of vehicles are also included in subscriber revenue over the service period...

  • Page 107
    ... costs of our satellites and related launch vehicles for our FM-6 satellite for the year ended December 31, 2011 and for our FM-6 and XM-5 satellites for the years ended December 31, 2010 and 2009. We also incur interest costs on all of our debt instruments and on our satellite incentive agreements...

  • Page 108
    ... and equipment of $12,158 during the year ended December 31, 2011 and $155,000, which included our FM-4 satellite, during the year ended December 31, 2010. Satellites We currently own a fleet of nine orbiting satellites. The chart below provides certain information on these satellites: Satellite...

  • Page 109
    ... (a) the maturity date (2 years), (b) after Sirius XM Canada is "free cash flow" positive for a period of six consecutive months, or (c) a date determined by the Sirius XM Canada board of directors. As of December 31, 2011, $4,798 of these notes were reported as a Related Party current assets. F-21

  • Page 110
    ... assets. We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs. As of December 31, 2011, amounts due for these costs totaled $7,404 and is reported as Related party current assets. As of December 31, 2011, amounts due from Sirius XM Canada also included...

  • Page 111
    ... option to extend the agreements for an additional five year term. We receive a 15% royalty for all subscriber fees earned by XM Canada each month for its basic service and an activation fee for each gross activation of an XM Canada subscriber on XM's system. Sirius XM Canada is obligated to pay...

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    ... of the subscriber revenue attributable to GM vehicles with factory- or dealer- installed satellite radios. As part of the agreement, GM provides certain call-center related services directly to subscribers who are also GM customers for which we reimburse GM. We make bandwidth available to OnStar...

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    ... have incurred the following related party expenses with GM and American Honda: For the Years Ended December 31, 2010* American GM Honda 2009 GM American Honda Sales and marketing ...Revenue share and royalties ...Subscriber acquisition costs ...Customer service and billing ...Interest expense, net...

  • Page 114
    ...conversion rate of 188.6792 shares of common stock for each $1,000 principal amount, or $5.30 per share of common stock. Interest was payable semi-annually on April 15 and October 15 of each year. The obligations under the 3.25% Notes were not secured by any of our assets. In 2011, we purchased $168...

  • Page 115
    ...exchange price of $1.875 per share of common stock. (g) 7.625% Senior Notes due 2018 In October 2010, we 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 at a rate...

  • Page 116
    ... and removed from outstanding common stock. The share lending agreements have been terminated. The shares we loaned to the share borrowers were issued and outstanding for corporate law purposes through October 2011, and holders of borrowed shares (other than the share borrowers) had the same rights...

  • Page 117
    ...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 which expired in February 2011. Upon execution of this agreement, Sirius delivered 15,173,070 shares of common stock valued...

  • Page 118
    ...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 119
    ... 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, 2011 2010 2009 Risk-free interest rate ...Expected life of options - years ...Expected stock price volatility ...Expected dividend...

  • Page 120
    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, 2011, 2010 and 2009 (shares in thousands): WeightedAverage Exercise Price Weighted-...

  • Page 121
    ... for the years ended December 31, 2011, 2010 and 2009, respectively. Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units and shares granted to employees and members of our board of directors at December 31, 2011 and 2010...

  • Page 122
    ... of our board of directors. Employees are only eligible to receive profit-sharing contributions during any year in which they are employed on the last day of the year. We did not contribute to the profit sharing portion of the Sirius XM Plan in 2011, 2010 or 2009. (16) Income Taxes Our income...

  • Page 123
    ... operating losses and tax credits in the event of a corporation's ownership change. Currently, our ownership changes do not limit our ability to utilize future tax deductions and so no adjustments were made to gross deferred tax assets as a result of the Merger. As of December 31, 2011, we had NOL...

  • Page 124
    ...$942, respectively, in other long-term liabilities. No penalties have been accrued for. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2011 will significantly increase or decrease during the twelve-month period ending December 31, 2012...

  • Page 125
    ... a satellite and related launch vehicle for use in our systems. Programming and content. We have entered into various programming agreements. Under the terms of these agreements, our obligations may include fixed payments, advertising commitments and revenue sharing arrangements. Marketing and...

  • Page 126
    ... to two of XM's satellites. As of December 31, 2011, we have accrued $27,925 related to contingent in-orbit performance payments for XM-3 and XM-4 based on expected operating performance over their fifteen year design life. Boeing may also be entitled to an additional $10,000 if XM-4 continues to...

  • Page 127
    ... XM RADIO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (18) Quarterly Financial Data - Unaudited Our quarterly results of operations are summarized below: March 31 For the Three Months Ended June 30 September 30 December 31 2011: Total revenue ...Cost of services...

  • Page 128
    SIRIUS XM RADIO INC. AND SUBSIDIARIES Schedule II - Schedule of Valuation and Qualifying Accounts Balance January 1, Charged to Expenses (Benefit) Write-offs/ Payments/ Other Balance December 31, Description (in thousands) 2009 Allowance for doubtful accounts ...Deferred tax assets - valuation ...

  • Page 129
    ... 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 (Retired) American Express Company Leon D. Black Director Chairman and Chief Executive Officer Apollo Global Management, LLC Lawrence...

  • Page 130
    ...The annual meeting of Sirius XM stockholders is scheduled for 9:00 a.m., New York City time, on Tuesday, May 22, 2012, in The Auditorium at The Equitable Center, 787 Seventh Avenue, New York, New York 10019 Transfer Agent and Registrar The transfer agent and registrar for the Company's common stock...

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