XM Radio 2015 Annual Report Download - page 70

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Satellite and Transmission consists of costs associated with the operation and maintenance of
our terrestrial repeater networks; satellites; satellite telemetry, tracking and control systems; satellite
uplink facilities; studios; and delivery of our Internet streaming service.
•2015 vs. 2014: For the years ended December 31, 2015 and 2014, satellite and transmission
expenses were $94,609 and $86,013, respectively, an increase of 10%, or $8,596, and
remained flat as a percentage of total revenue. The increase was primarily due to the loss on
disposal of certain obsolete terrestrial repeaters and related parts of $7,384, and higher costs
associated with our Internet streaming operations, partially offset by lower satellite insurance
costs.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, satellite and transmission
expenses were $86,013 and $79,292, respectively, an increase of 8%, or $6,721, and
remained flat as a percentage of total revenue. The increase was primarily due to increased
personnel costs, costs associated with our Internet streaming operations, satellite insurance
expense, and terrestrial repeater network costs.
We expect satellite and transmission expenses, excluding losses from disposal of assets, to
remain relatively unchanged as decreases in Internet streaming costs are offset by increases in
terrestrial repeater network costs.
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.
•2015 vs. 2014: For the years ended December 31, 2015 and 2014, cost of equipment was
$42,724 and $44,397, respectively, a decrease of 4%, or $1,673, and decreased as a
percentage of equipment revenue. The decrease was primarily due to lower direct to
consumer sales, partially offset by higher sales to distributors.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, cost of equipment was
$44,397 and $26,478, respectively, an increase of 68%, or $17,919, and increased as a
percentage of equipment revenue. The increase was primarily due to higher sales to
distributors, partially offset by lower costs per unit on direct to consumer sales.
We expect cost of equipment to fluctuate with changes in sales and inventory valuations.
Subscriber Acquisition Costs include hardware subsidies paid to radio manufacturers,
distributors and automakers; subsidies paid for chipsets and certain other components used in
manufacturing radios; device royalties for certain radios and chipsets; commissions paid to
automakers and retailers; product warranty obligations; freight; and provisions for inventory
allowances attributable to inventory consumed in our OEM and retail distribution channels. The
majority of subscriber acquisition costs are incurred and expensed in advance of, or concurrent
with, acquiring a subscriber. Subscriber acquisition costs do not include advertising costs,
marketing, loyalty payments to distributors and dealers of satellite radios or revenue share
payments to automakers and retailers of satellite radios.
•2015 vs. 2014: For the years ended December 31, 2015 and 2014, subscriber acquisition
costs were $532,599 and $493,464, respectively, an increase of 8%, or $39,135, and
remained flat as a percentage of total revenue. Increased costs related to a larger number of
satellite radio installations in new vehicles were partially offset by improved OEM and chipset
subsidy rates per vehicle.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, subscriber acquisition
costs were $493,464 and $495,610, respectively, a decrease of less than 1%, or $2,146, and
decreased as a percentage of total revenue. Improved OEM subsidy rates per vehicle and a
change in a contract with an automaker decreased subscriber acquisition costs. The
decrease was partially offset by the elimination of the benefit to earnings in 2014 from the
amortization of deferred credits on executory contracts initially recognized in purchase price
accounting associated with the Merger and increased subsidy costs related to a larger
number of satellite radio installations in new vehicles. For the year ended December 31,
2013, the benefit to earnings from amortization of deferred credits was $64,365.
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