XM Radio 2012 Annual Report Download - page 61

partially offset by increases in personnel costs and an $8,394 reduction in the benefit to earnings from
purchase price accounting adjustments associated with the Merger attributable to the amortization of the
deferred credit on acquired programming executory contracts.
Excluding the impact from purchase accounting adjustments, based on our current programming offerings,
we expect our programming and content expenses to decrease as agreements expire and are renewed or replaced
on more cost effective terms. The impact of purchase price accounting adjustments associated with the Merger
attributable to the amortization of the deferred credit on acquired programming executory contracts will continue
to decline, in absolute amount and as a percentage of reported programming and content costs, through 2015.
Substantially all of the deferred credits on executory contracts will be amortized by the end of 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 debt expense.
•2012 vs. 2011: For the years ended December 31, 2012 and 2011, customer service and billing expenses
were $294,980 and $259,719, respectively, an increase of 14%, or $35,261, but remained flat as a
percentage of total revenue. The increase was primarily due to longer average handle time per call and
higher subscriber volume driving increased subscriber contacts and higher technology costs.
•2011 vs. 2010: For the years ended December 31, 2011 and 2010, customer service and billing expenses
were $259,719 and $241,680, respectively, an increase of 7%, or $18,039, but remained flat as a
percentage of total revenue. The increase was primarily attributable to an 8% increase in daily weighted
average number of subscribers which drove higher call volume, billing and collection costs, transaction
fees, as well as increased handle time per call and personnel costs. This increase was partially offset by
lower agent rates, fewer contacts per subscriber and lower general operating costs.
We expect our customer service and billing expenses to increase as our subscriber base grows.
Satellite and Transmission consists of costs associated with the operation and maintenance of our satellites;
satellite telemetry, tracking and control systems; terrestrial repeater networks; satellite uplink facilities; broadcast
studios; and delivery of our Internet streaming service.
•2012 vs. 2011: For the years ended December 31, 2012 and 2011, satellite and transmission expenses
were $72,615 and $75,902, respectively, a decrease of 4%, or $3,287, and decreased as a percentage of
total revenue. The decrease was primarily due to a reduction of satellite in-orbit insurance expense as we
elected not to renew insurance policies on certain older satellites.
•2011 vs. 2010: For the years ended December 31, 2011 and 2010, satellite and transmission expenses
were $75,902 and $80,947, respectively, a decrease of 6%, or $5,045, and decreased as a percentage of
total revenue. The decrease was due to savings in repeater expenses from network optimization along
with favorable lease renewals, a reduction of satellite in-orbit insurance expense, and a transition to more
cost-effective approaches to satellite and broadcast operations.
We expect overall satellite and transmission expenses to increase as we enhance our Internet-based service
and add functionality, launch our FM-6 satellite and incur in-orbit insurance costs, and extend our terrestrial
repeater network.
Cost of Equipment includes costs from the sale of satellite radios, components and accessories and
provisions for inventory allowance attributable to products purchased for resale in our direct to consumer
distribution channels.
•2012 vs. 2011: For the years ended December 31, 2012 and 2011, cost of equipment was $31,766 and
$33,095, respectively, a decrease of 4%, or $1,329, and decreased as a percentage of equipment revenue.
The decrease was primarily due to lower direct to consumer sales, partially offset by higher inventory
reserves.
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