XM Radio 2012 Annual Report Download - page 63

revenue. The increase was primarily due to increased subscriber communications and retention programs
associated with a greater number of subscribers and promotional trials, partially offset by reductions in
consumer advertising and event marketing.
We anticipate that sales and marketing expenses will increase as we launch seasonal advertising and
promotional initiatives to attract new subscribers, and launch and expand programs to retain our existing
subscribers and win-back former subscribers. The impact of purchase price accounting adjustments associated
with the Merger attributable to the amortization of the deferred credit on acquired sales and marketing contracts
will continue to decline, in absolute amount and as a percentage of reported sales and marketing costs, through
2013.
Engineering, Design and Development includes costs to develop chip sets and new products and services,
research and development for broadcast information systems and costs associated with the incorporation of our
radios into vehicles manufactured by automakers.
•2012 vs. 2011: For the years ended December 31, 2012 and 2011, engineering, design and development
expenses were $48,843 and $53,435, respectively, a decrease of 9%, or $4,592, and decreased as a
percentage of total revenue. The decrease was driven primarily by a reversal of certain non-recurring
engineering charges, partially offset by higher product development costs, costs related to the
development of enhanced subscriber features and functionality for our service and higher personnel costs.
•2011 vs. 2010: For the years ended December 31, 2011 and 2010, engineering, design and development
expenses were $53,435 and $45,390, respectively, an increase of 18%, or $8,045, and remained flat as a
percentage of total revenue. The increase was primarily due to higher product development costs and
costs related to enhanced subscriber features and functionality, partially offset by lower share-based
payment expenses.
We expect engineering, design and development expenses 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, and insurance costs.
•2012 vs. 2011: For the years ended December 31, 2012 and 2011, general and administrative expenses
were $261,905 and $238,738, respectively, an increase of 10%, or $23,167, but remained flat as a
percentage of total revenue. The increase was primarily due to higher personnel costs, including share-
based payment expenses, office rent expenses and professional fees, partially offset by lower litigation
settlement charges.
•2011 vs. 2010: For the years ended December 31, 2011 and 2010, general and administrative expenses
were $238,738 and $240,970, respectively, a decrease of 1%, or $2,232, and decreased as a percentage of
total revenue. The decrease was primarily due to lower share-based payment expense, as well as lower
general operating expenses, including rent, insurance and information technology costs.
We expect our general and administrative expenses to increase in future periods as a result of, among other
things, enhanced information technology and personnel costs to support the growth of our business.
Depreciation and Amortization represents the systematic recognition in earnings of the acquisition cost of
assets used in operations, including our satellite constellations, property, equipment and intangible assets, over
their estimated service lives.
•2012 vs. 2011: For the years ended December 31, 2012 and 2011, depreciation and amortization
expense was $266,295 and $267,880, respectively, a decrease of 1%, or $1,585, and decreased as a
percentage of total revenue. The decrease was driven by reductions in the amortization of subscriber
relationships and depreciation recognized on assets placed in-service as certain assets reached the end of
their estimated service lives.
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