XM Radio 2014 Annual Report Download - page 118

Advertising Costs
Media is expensed when aired and advertising production costs are expensed as incurred.
Advertising production costs include expenses related to marketing and retention activities, including
expenses related to direct mail, outbound telemarketing and email communications. We also incur
advertising production costs related to cooperative marketing and promotional events and
sponsorships. During the years ended December 31, 2014, 2013 and 2012, we recorded advertising
costs of $222,962, $178,364 and $139,830, respectively. These costs are reflected in Sales and
marketing expense in our consolidated statements of comprehensive income.
Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs incurred to acquire new subscribers which include
hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies
paid to automakers who include a satellite radio and a prepaid subscription to our service in the
sale or lease price of a new vehicle; subsidies paid for chipsets and certain other components used
in manufacturing radios; device royalties for certain radios and chipsets; commissions paid to
retailers and automakers as incentives to purchase, install and activate radios; product warranty
obligations; freight; and provisions for inventory allowance attributable to inventory consumed in our
OEM and retail distribution channels. Subscriber acquisition costs do not include advertising costs,
loyalty payments to distributors and dealers of radios and revenue share payments to automakers
and retailers of radios.
Subsidies paid to radio manufacturers and automakers are expensed upon installation,
shipment, receipt of product or activation and are included in Subscriber acquisition costs because
we are responsible for providing the service to the customers. Commissions paid to retailers and
automakers are expensed upon either the sale or activation of radios. Chipsets that are shipped to
radio manufacturers and held on consignment are recorded as inventory and expensed as
Subscriber acquisition costs when placed into production by radio manufacturers. Costs for chipsets
not held on consignment are expensed as Subscriber acquisition costs when the automaker
confirms receipt.
Research & Development Costs
Research and development costs are expensed as incurred and primarily include the cost of
new product development, chipset design, software development and engineering. During the years
ended December 31, 2014, 2013 and 2012, we recorded research and development costs of
$54,109, $50,564 and $42,605, respectively. These costs are reported as a component of
Engineering, design and development expense in our consolidated statements of comprehensive
income.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss of $402 at December 31, 2014 was primarily comprised
of the cumulative foreign currency translation adjustments related to our interest in Sirius XM
Canada. During the years ended December 31, 2014, 2013 and 2012, we recorded other
comprehensive (loss) income related to foreign currency translation adjustments, of $(94), $(428)
and $49, respectively. In addition, during the year ended December 31, 2014, upon the redemption
and conversion of the 8% convertible unsecured subordinated debentures issued by Sirius XM
Canada, we reclassified $223, net of tax, of previously recognized foreign currency translation
losses out of Accumulated other comprehensive loss and into Interest and investment income.
F-12
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, unless otherwise stated)