XM Radio 2015 Annual Report Download - page 103

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, 2015, 2014 and 2013, we recorded advertising
costs of $228,676, $222,962 and $178,364, 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, 2015, 2014 and 2013, we recorded research and development costs of
$54,933, $54,109 and $50,564, respectively. These costs are reported as a component of
Engineering, design and development expense in our consolidated statements of comprehensive
income.
Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) 2015-17, Income Taxes—Balance Sheet Reclassification of Deferred
Taxes (Topic 740). This ASU requires that deferred tax liabilities and assets be classified as
noncurrent in a classified statement of financial position. The current requirement that deferred tax
liabilities and assets of a tax-paying component of an entity be offset and presented as a single
amount is not affected by the amendments in this update. The amendments in this update are
effective for financial statements issued for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. Early adoption is permitted and the amendments may
be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all
periods presented. We early adopted this ASU in the fourth quarter of 2015 on a prospective basis
and included the current portion of deferred tax assets within the non-current portion of deferred tax
assets within our consolidated balance sheets. We did not adjust our prior period consolidated
balance sheet as a result of the adoption of this ASU.
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SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars and shares in thousands, except per share amounts)