SIRIUS XM RADIO INC.
FORM
10-K
(Annual Report)
Filed 02/09/12 for the Period Ending 12/31/11
Address
Telephone
CIK
Symbol
SIC Code
Industry
Sector
Fiscal Year
1221 AVENUE OF THE AMERICAS
36TH FLOOR
NEW YORK, NY 10020
212-584-5100
0000908937
SIRI
4832 - Radio Broadcasting Stations
Broadcasting & Cable TV
Services
12/31
http://www.edgar-online.com
© Copyright 2012, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
!
#
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From
to
COMMISSION FILE NUMBER 001-34295
SIRIUS XM RADIO INC.
(Exact name of registrant as specified in its charter)
Delaware
(or other jurisdiction of
incorporation of organization)
52-1700207
(I.R.S. Employer
Identification Number)
1221 Avenue of the Americas, 36th Floor
New York, New York
(Address of principal executive offices)
10020
(Zip Code)
Registrant’s telephone number, including area code:
(212) 584-5100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, par value $0.001 per share
Name of Each Exchange on Which Registered:
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes !
Yes #
No #
No !
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes !
No #
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes !
No #
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. #
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer !
Accelerated filer #
Non-accelerated filer #
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes #
Smaller Reporting company #
No !
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2011 was $8,614,271,427. All executive officers and directors of the
registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
The number of shares of the registrant’s common stock outstanding as of February 7, 2012 was 3,755,256,475.
DOCUMENTS INCORPORATED BY REFERENCE
Information included in our definitive proxy statement for our 2012 annual meeting of stockholders scheduled to be held on Tuesday, May 22, 2012 is incorporated by reference in
Items 10, 11, 12, 13 and 14 of Part III of this report.
SIRIUS XM RADIO INC.
2011 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item No
Description
Page
PART I
Item 1
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
1
11
19
19
20
21
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
22
24
25
51
51
52
52
52
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
53
53
53
53
53
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
54
55
ITEM 1.
BUSINESS
We broadcast our music, sports, entertainment, comedy, talk, news, traffic and weather channels in the United States on a subscription fee
basis through our two proprietary satellite radio systems. Subscribers can also receive certain of our music and other channels over the Internet,
including through applications for mobile devices.
As of December 31, 2011, we had 21,892,824 subscribers. Our subscribers include:
• subscribers under our regular and discounted pricing plans;
• subscribers that have prepaid, including payments made or due from automakers for subscriptions included in the sale or lease price of
a vehicle;
• certain radios activated for daily rental fleet programs;
• subscribers to our Internet services who do not also have satellite radio subscriptions; and
• certain subscribers to our weather, traffic, data and Backseat TV services.
Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or
monthly basis. We offer discounts for prepaid and long-term subscription plans as well as discounts for multiple subscriptions on each
platform. We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite
radios and accessories, and other ancillary services, such as our weather, traffic, data and Backseat TV services.
Our satellite radios are primarily distributed through automakers (“OEMs”); retail locations nationwide; and through our website. We
have agreements with every major automaker to offer satellite radios in their vehicles. Satellite radio services are also offered to customers of
certain rental car companies.
Certain important dates in our corporate history are listed below:
• Satellite CD Radio, Inc. was incorporated in the State of Delaware on May 17, 1990.
• On December 7, 1992, Satellite CD Radio, Inc. changed its name to CD Radio Inc., and Satellite CD Radio, Inc. was formed as a
wholly owned subsidiary.
• On November 18, 1999, CD Radio Inc. changed its name to Sirius Satellite Radio Inc.
• In July 2008, our wholly owned subsidiary, Vernon Merger Corporation, merged (the “Merger”) with and into XM Satellite Radio
Holdings Inc.
• On August 5, 2008, we changed our name from Sirius Satellite Radio Inc. to Sirius XM Radio Inc.
• In April 2010, XM Satellite Radio Holdings Inc. merged with and into XM Satellite Radio Inc.; and in January 2011, XM Satellite
Radio Inc., our wholly-owned subsidiary, merged with and into Sirius XM Radio Inc.
Programming
We offer a dynamic programming lineup of commercial-free music, sports, entertainment, talk, news, traffic and weather. The channel
line-ups for our services vary in certain respects and are available at siriusxm.com.
Our subscription packages allow most listeners to enhance our standard programming lineup. Our “XM Premier” package offers
subscribers the Howard Stern channels, Martha Stewart Living Radio, SiriusXM NFL Radio, SiriusXM NASCAR Radio, Playboy Radio, Spice
Radio and play-by-play NFL games and college sports programming. Our “Sirius Premier” package offers subscribers Oprah Radio, Opie and
Anthony, SiriusXM Public Radio, MLB Network Radio, NHL Home Ice, SiriusXM PGA Radio, Sirius XM Fantasy Sports Radio and select
play-by-play of NBA and NHL games and college sports programming. Subscribers with a la carte-capable radios may customize the
programming they receive through our a la carte subscription packages. We also offer family friendly, “mostly music” and “mostly sports,
news and talk” packages.
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In October 2011, we launched an expanded channel lineup, including new music, sports and comedy channels as well as SiriusXM
Latino, a suite of Latin channels. These channels, available online and over certain new radios, are the first phase of SiriusXM 2.0, an upgrade
and evolution of our satellite and Internet delivered service that will ultimately span hardware, software, audio, and data services.
We make changes to our programming lineup from time to time as we strive to attract new subscribers and offer content which appeals to
a broad range of audiences and to our existing subscribers.
Music Programming
We offer an extensive selection of music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin and classical. Within
each genre we offer a range of formats, styles and recordings.
All of our original music channels are broadcast commercial free. Certain of our music channels are programmed by third parties and air
commercials. Our channels are produced, programmed and hosted by a team of experts in their fields, and each channel is operated as an
individual radio station, with a distinct format and branding. We also provide special features, such as our Artist Confidential series which
provides interviews and performances from some of the biggest names in music, and an array of “pop up” channels featuring the music of
particular artists.
Sports Programming
Live play-by-play sports is an important part of our programming strategy. We are the Official Satellite Radio Partner of the National
Football League (“NFL”), Major League Baseball (“MLB”), NASCAR, National Basketball Association (“NBA”), National Hockey League
(“NHL”) and PGA TOUR, and broadcast most major college sports, including NCAA Division I football and basketball games. Soccer
coverage includes matches from the Barclays Premier League. We also air FIS Alpine Skiing, FIFA World Cup events and horse racing.
We offer many exclusive talk channels and programs such as MLB Network Radio, SiriusXM NASCAR Radio, SiriusXM NFL Radio
and Chris “Mad Dog” Russo’s Mad Dog Unleashed on Mad Dog Radio, as well as two ESPN channels, ESPN Radio and ESPN Xtra.
Simulcasts of select ESPN television shows, including SportsCenter , can be found on ESPN Xtra.
Talk and Entertainment Programming
We offer a multitude of talk and entertainment channels for a variety of audiences. Our diverse spectrum of talk programming is a
significant differentiator from terrestrial radio and other audio entertainment providers.
Our talk radio offerings feature dozens of popular talk personalities, many creating radio shows that air exclusively on our services,
including Howard Stern, Oprah Winfrey, Martha Stewart, Dr. Laura Schlessinger, Opie and Anthony, Bob Edwards, Senator Bill Bradley and
doctors from the NYU Langone Medical Center.
Our comedy channels present a range of humor such as Jamie Foxx’s The Foxxhole, Laugh USA, Blue Collar Comedy and Raw Dog
Comedy. Other talk and entertainment channels include SiriusXM Book Radio, Kids Place Live and Radio Disney, as well as OutQ, Road Dog
Trucking and Playboy Radio.
Our religious programming includes The Catholic Channel, which is programmed with the Archdiocese of New York, EWTN, a Global
Catholic Radio Network, and Family Talk.
News and Information Programming
We offer a wide range of national, international and financial news, including news from BBC World Service News, Bloomberg Radio,
CNBC, CNN, FOX News, HLN, MSNBC, NPR and World Radio Network. We also air a range of political call-in talk shows on a variety of
channels including our exclusive channel, POTUS.
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We offer continuous, local traffic reports for 22 metropolitan markets throughout the United States.
Distribution of Radios
Automakers
Our primary means of distributing satellite radios is through the sale and lease of new vehicles. We have agreements with every major
automaker to offer satellite radios in their vehicles and satellite radios are available as a factory or dealer-installed option in substantially all
vehicle makes sold in the United States.
Many automakers include a subscription to our radio service in the sale or lease price of their vehicles. In many cases, we receive
subscription payments from automakers in advance of the activation of our service. We share with certain automakers a portion of the revenues
we derive from subscribers using vehicles equipped to receive our service. We also reimburse various automakers for certain costs associated
with the satellite radios installed in their vehicles, including in certain cases hardware costs, tooling expenses and promotional and advertising
expenses.
Previously Owned Vehicles
We expect to acquire an increasing number of subscribers through the sale and lease of previously owned vehicles with factory-installed
satellite radios. We have entered into agreements with many automakers to market subscriptions to purchasers and lessees of vehicles which
include satellite radios sold through their certified pre-owned programs. In addition, we work directly with many franchise and independent
dealers on similar programs for non-certified vehicles.
We have developed systems and methods to identify purchasers and lessees of previously owned vehicles which include satellite radios
and have established marketing plans to promote our services to these potential subscribers.
Retail
We sell satellite and Internet radios directly to consumers through our website. Satellite and Internet radios are also marketed and
distributed through major national and regional retailers. We develop in-store merchandising materials and provide sales force training for
several retailers.
Our Satellite Radio Systems
Our satellite radio systems are designed to provide clear reception in most areas despite variations in terrain, buildings and other
obstructions. Subscribers can receive our transmissions in all outdoor locations in the continental U.S. where the satellite radio has an
unobstructed line-of-sight with one of our satellites or is within range of one of our terrestrial repeaters. We continually monitor our
infrastructure and regularly evaluate improvements in technology.
The Federal Communications Commission (the “FCC”) has allocated the portion of the S-band located between 2320 MHz and
2345 MHz exclusively for satellite radio. Each of our services uses 12.5 MHz of this bandwidth to transmit its respective signals. Uplink
transmissions (from the ground to our satellites) use 12.5 MHz of bandwidth in the 7060-7072.5 MHz band.
Our satellite radio systems have three principal components:
• satellites, terrestrial repeaters and other satellite facilities;
• studios; and
• radios.
3
Satellites, Terrestrial Repeaters and Other Satellite Facilities
Satellites. We currently own a fleet of nine orbiting satellites. We have invested in more technologically advanced satellites and
satellite deployment to provide for improved coverage, increased redundancy and more efficient use of our spectrum.
Space Systems/Loral has constructed another satellite, FM-6, for use in our system. We expect to launch this satellite on a Proton rocket
in the first half of 2012.
We use four of our orbiting satellites in the Sirius system. These satellites, FM-1, FM-2, FM-3 and FM-5, are of the Loral FS-1300 model
series. Our FM-1, FM-2 and FM-3 satellites travel in a geosynchronous orbit. Our FM-5 satellite is deployed in a geostationary orbit.
We own five orbiting satellites for use in the XM system which operate in a geostationary orbit. Four of these satellites were
manufactured by Boeing Satellite Systems International and one was manufactured by Space Systems/Loral.
Satellite Insurance. We hold in-orbit insurance for our FM-5 and XM-5 satellites. These policies provide coverage for a total,
constructive total or partial loss of the satellites that occurs during the first five in-orbit years. We also have negotiated launch and in-orbit
insurance for our FM-6 satellite. This insurance provides coverage for a total, constructive total or partial loss of the FM-6 that occurs from
launch through the end of the first annual in-orbit period. The insurance does not cover the full cost of constructing, launching and insuring
new satellites, nor will it protect us from the adverse effect on business operations due to the loss of a satellite. The policies contain standard
commercial satellite insurance provisions, including coverage exclusions. We use launch and in-orbit insurance to mitigate the potential
financial impact of satellite fleet launch and in-orbit failures unless the premium costs are considered to be uneconomical relative to the risk of
satellite failure.
Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may
be blocked and reception of satellite signals can be adversely affected. In many of these areas, we have deployed terrestrial repeaters to
supplement satellite coverage. We operate over 140 terrestrial repeaters in the Sirius system and over 560 terrestrial repeaters in the XM
system.
Other Satellite Facilities. We control and communicate with our satellites from facilities in North America and maintain earth stations
in Panama and Ecuador to control and communicate with several of our Sirius satellites. Our satellites are monitored, tracked and controlled by
a third party satellite operator.
Studios
Our programming originates principally from studios in New York City and Washington D.C., and, to a lesser extent, from smaller studio
facilities in Cleveland, Los Angeles, Memphis, Nashville and Orlando. Our New York City offices house our corporate headquarters. Both our
New York City and Washington D.C. offices house facilities for programming origination, programming personnel and facilities to transmit
programming.
Radios
We design, establish specifications for, source or specify parts and components for, and manage various aspects of the logistics and
production of satellite and Internet radios. We do not manufacture radios. We have authorized manufacturers and distributors to produce and
distribute radios, and have licensed our technology to various electronics manufacturers to develop, manufacture and distribute radios under
certain brands. We purchase radios from independent manufacturers, that are distributed through our website. To facilitate the sale of radios,
we may subsidize a portion of the radio manufacturing costs to reduce the hardware price to consumers.
4
Radios are manufactured in four principal configurations — as in-dash radios, Dock & Play radios, home or commercial units and
portable or wearable radios.
• In-dash satellite radios are integrated into vehicles and allow the user to listen to satellite radio with the push of a button. Aftermarket
in-dash radios are available at retailers nationally, and to automakers for factory or dealer installation.
• Dock & Play satellite radios enable subscribers to transport their radios easily to and from their cars, trucks, homes, offices, boats or
other locations with available adapter kits. Dock & Play radios adapt to existing audio systems through FM modulation or direct audio
connection and can be easily installed. Audio systems and boom boxes, which enable subscribers to use their radios virtually
anywhere, are available for various models. The Stratus 6, Starmate 5 and Starmate 8 Dock & Play radios also support a la carte
channel selection.
• Radios that provide our satellite or Internet service to home and commercial audio systems.
• Portable or wearable radios offer live satellite or Internet radio and recorded satellite, MP3 or WMA content “on the go”.
We have introduced an interoperable radio called MiRGE. This radio has a unified control interface allowing for easy switching between
our two satellite radio networks. We also offer the XM SkyDock, which connects to an Apple iPhone and iPod touch and provides live XM
satellite radio using the control capability of the iPhone or iPod touch.
In 2011, we introduced Edge, a Dock & Play radio capable of receiving our SiriusXM 2.0 expanded channel lineup, including SiriusXM
Latino, and Lynx, a portable radio with SiriusXM 2.0 satellite and Internet radio capability and features.
Internet Radio
We stream music channels and select non-music channels over the Internet. Our Internet service also includes channels and features that
are not available on our satellite service. Access to certain Internet services is offered to subscribers for a fee. We have available products that
provide access to our Internet services without the need for a personal computer. We also offer applications to allow consumers to access our
Internet services on certain smartphones and tablet computers. Subscribers to our Internet services are not included in our subscriber count,
unless the service is purchased separately and not as part of a satellite radio subscription.
Canada
We also have an equity interest in the satellite radio services offered in Canada through Sirius XM Canada. In June 2011, Canadian
Satellite Radio Holdings Inc. (“CSR”), the parent company of XM Canada, and Sirius Canada completed a transaction to combine their
operations. Following this merger, we own approximately 38.0% of the equity of CSR, which operates as Sirius XM Canada.
Other Services
Commercial Accounts. Our music services are also available for commercial establishments. Commercial accounts are available
through providers of in-store entertainment solutions and directly from us. Certain commercial subscribers are included in our subscriber count.
Satellite Television Service. Certain of our music channels are offered as part of certain programming packages on the DISH Network
satellite television service. Subscribers to the DISH Network satellite television service are not included in our subscriber count.
Subscribers to the following services are not included in our subscriber count, unless the applicable service is purchased by the subscriber
separately and not as part of a radio subscription to our services:
5
Backseat TV. We offer Backseat TV, a service offering television content designed primarily for children in the backseat of vehicles.
Backseat TV is available as a factory-installed option in select Chrysler, Dodge and Jeep models, and at retail for aftermarket installation.
Travel Link.
movie listings.
We offer Travel Link, a suite of data services that includes graphical weather, fuel prices, sports schedules and scores, and
Real-Time Traffic Services. We also offer services that provide graphic information as to road closings, traffic flow and incident data to
consumers with compatible in-vehicle navigation systems.
Real-Time Weather Services.
marine and/or aviation use.
We offer several real-time weather services designed for improving situational awareness in vehicle,
FCC Conditions
In order to demonstrate to the FCC that the Merger was in the public interest, we agreed to implement a number of voluntary
commitments. These commitments include certain voluntary assurances regarding our programming and programming packages; the creation
of public interest channels; and equipment manufacturing, all of which we have complied with.
Qualified Entity Channels
In April 2011, we entered into long-term leases or other agreements to provide rights to four percent of the full-time audio channels on
our platforms to a Qualified Entity or Entities. A Qualified Entity is defined as an entity or entities that: (1) are not directly or indirectly owned,
in whole or in part, by us or one of our affiliates; (2) do not share any common officers, directors or employees with us or any affiliate of us;
and (3) did not have any existing relationships with us for the supply of programming during the two years prior to October 19, 2010.
As digital compression technology enables us to broadcast additional full-time audio channels, we will ensure that four percent of the
full-time audio channels on our platforms are reserved for Qualified Entities. The Qualified Entities are not required to make any lease
payments for such channels. We may not alter, censor, or otherwise exercise any control over the leased programming but we may remove
programming that violates the law.
Subscription Rates
In connection with the Merger, we had agreed with the FCC not to raise the retail price for, or reduce the number of channels in, our basic
$12.95 per month subscription package, our a la carte programming packages or certain other programming packages until July 28, 2011. In
July 2011, the FCC issued an order confirming that the price cap was no longer necessary. On January 1, 2012, we increased the base price of
our basic subscription packages from $12.95 to $14.49 per month.
Competition
We face significant competition for both listeners and advertisers. In addition to pre-recorded entertainment purchased or playing in cars,
homes and using portable players, we compete with numerous other providers of radio or other audio services. Some of our new, digital
competitors are making in-roads into automobiles, where we are currently the prominent alternative to traditional AM/FM radio. Our existing
and emerging competition includes:
Traditional AM/FM Radio
Our services compete with traditional AM/FM radio. Many traditional radio companies are substantial entities owning large numbers of
radio stations or other media properties. The radio broadcasting industry is highly competitive.
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Traditional AM/FM radio has had a well-established demand for its services and offers free broadcasts paid for by commercial
advertising rather than by a subscription fee like satellite radio. Many radio stations offer information programming of a local nature, such as
local news and sports. Traditional free AM/FM radio reduces the likelihood that customers would be willing to pay for our subscription
services and, by offering free broadcasts, it imposes limits on what we can charge for our services. Some AM/FM radio stations have reduced
the number of commercials per hour, expanded the range of music played on the air and experimented with new formats in order to lure
customers away from satellite radio.
HD Radio
Many radio stations now broadcast digital signals, which have clarity similar to our signals. These stations do not charge a subscription
fee for their digital signals but do generally carry advertising. A group of major broadcast radio networks have created a coalition to jointly
market digital radio services. According to this coalition, over 2,100 radio stations are currently broadcasting primary signals with HD Radio
technology and broadcasting more than 1,300 additional FM multicast channels (HD2/HD3), and manufacturers are marketing and distributing
digital receivers. To the extent that traditional AM/FM radio stations adopt digital transmission technology and listeners adopt digital receivers,
any competitive advantage that we enjoy over traditional radio because of our clearer digital signal would be lessened. Traditional AM/FM
broadcasters are also complementing their HD Radio efforts by aggressively pursuing Internet radio and wireless Internet-based distribution
arrangements. Several automakers install or plan to install HD Radio equipment as factory standard equipment in select models, including
Cadillac, Mazda, Lexus, Ford, Volkswagen, BMW, Mercedes-Benz, Scion, Kia and Hyundai.
Internet Radio and Internet-Enabled Smartphones
Internet radio broadcasts often have no geographic limitations and can provide listeners with radio programming from across the country
and around the world. Major media companies and online-only providers, including Clear Channel, CBS and Pandora, make high fidelity
digital streams available through the Internet for free or, in some cases, for a fraction of the cost of a satellite radio subscription. These services
compete directly with our services, at home, in the automobile, and wherever audio entertainment is consumed.
Internet-enabled smartphones, most of which have the capability of interfacing with vehicles, have become popular. These smartphones
can typically play recorded or cached content and access Internet radio via dedicated applications or browsers. These applications are often free
to the user and offer music and talk content as long as the user is subscribed to a sufficiently large mobile data plan. Leading audio smartphone
radio applications include Pandora, last.FM, Slacker, iheartradio and Stitcher. Certain of these applications also include advanced functionality,
such as personalization and song skipping, and allow the user to access large libraries of content and podcasts on demand.
In 2011, Spotify launched its music streaming service in the United States, which allows its users unlimited, on-demand access to a large
library of song tracks, allowing the sharing of playlists with other listeners through the Facebook platform. Other similar services have
launched Facebook integration, including MOG and Rdio. These services, which usually require a monthly subscription fee, are currently
available on smartphones but may become integrated into connected cars in the future.
Third and fourth generation mobile networks have enabled a steady increase in the audio quality and reliability of mobile Internet radio
streaming, and this is expected to further increase as fourth generation networks become the standard. We expect that improvements from
higher bandwidths, wider programming selection, and advancements in functionality are likely to continue making Internet radio and
smartphone applications an increasingly significant competitor, particularly in vehicles.
Advanced In-Dash Infotainment Systems
Nearly all automakers have deployed or are planning to deploy integrated multimedia systems in dash boards, such as Ford’s SYNC,
Toyota’s Entune, and BMW/Mini’s Connected. These systems can combine
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control of audio entertainment from a variety of sources, including AM/FM/HD radio broadcasts, satellite radio, Internet radio, smartphone
applications and stored audio, with navigation and other advanced applications such as restaurant bookings, movie show times and financial
information. Internet radio and other data is typically connected to the system via a bluetooth link to an Internet-enabled smartphone, and the
entire system may be controlled by touchscreen or voice recognition. These systems enhance the attractiveness of our Internet-based
competition by making such applications more prominent, easier to access, and safer to use in the car. Similar systems are also available in the
aftermarket and sold through retailers.
Direct Broadcast Satellite and Cable Audio
A number of providers offer specialized audio services through either direct broadcast satellite or cable audio systems. These services are
targeted to fixed locations, mostly in-home. The radio service offered by direct broadcast satellite and cable audio is often included as part of a
package of digital services with video service, and video customers generally do not pay an additional monthly charge for the audio service.
Other Digital Media Services
The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms and portable devices
that compete with our services now or that could compete with those services in the future.
Traffic News Services
A number of providers also compete with our traffic services. Clear Channel and Tele Atlas deliver nationwide traffic information for the
top 50 markets to in-vehicle navigation systems using RDS/TMC, the radio broadcast standard technology for delivering traffic and travel
information to drivers. The in-dash navigation market is also being threatened by increasingly capable smartphones that provide advanced
navigation functionality, including live traffic. Android, Palm, Blackberry, and Apple iOS-based smartphones all include GPS mapping and
navigation functionality, often with turn-by-turn navigation.
Government Regulation
As operators of a privately owned satellite system, we are regulated by the FCC under the Communications Act of 1934, principally with
respect to:
• the licensing of our satellite systems;
• preventing interference with or to other users of radio frequencies; and
• compliance with FCC rules established specifically for U.S. satellites and satellite radio services.
Any assignment or transfer of control of our FCC licenses must be approved by the FCC. The FCC’s order approving the Merger requires
us to comply with certain voluntary commitments we made as part of the FCC merger proceeding. We believe we comply with those
commitments.
In 1997, we were the winning bidders for an FCC license to operate a satellite digital audio radio service and provide other ancillary
services. Our FCC licenses for our Sirius satellites expire in 2017. Our FCC licenses for our XM satellites expire in 2013, 2014 and 2018. We
anticipate that, absent significant misconduct on our part, the FCC will renew our licenses to permit operation of our satellites for their useful
lives, and grant a license for any replacement satellites.
In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception
can be adversely affected. In many of these areas, we have installed terrestrial repeaters to supplement our satellite signal coverage. In 2010,
the FCC established rules governing terrestrial repeaters which are also intended to protect adjacent wireless services from interference. Under
those rules, we filed an application in November 2011 for a single license to authorize operation of our repeater network.
8
We design, establish specifications for, source or specify parts and components for, manage various aspects of the logistics and
production of, and, in most cases, obtain FCC certifications for, satellite radios, including satellite radios that include FM modulators. We
believe our radios that are in production comply with all applicable FCC rules.
We are required to obtain export licenses from the United States government to export certain ground control equipment, satellite
communications/control services and technical data related to our satellites and their operations. The delivery of such equipment, services and
technical data to destinations outside the United States and to foreign persons is subject to strict export control and prior approval requirements
from the United States government (including prohibitions on the sharing of certain satellite-related goods and services with China).
Changes in law or regulations relating to communications policy or to matters affecting our services could adversely affect our ability to
retain our FCC licenses or the manner in which we operate.
Copyrights to Programming
In connection with our music programming, we must negotiate and enter into royalty arrangements with two sets of rights holders:
holders of copyrights in musical works (that is, the music and lyrics) and holders of copyrights in sound recordings (that is, the actual recording
of a work).
Musical works rights holders, generally songwriters and music publishers, are represented by performing rights organizations such as the
American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”), and SESAC, Inc. (“SESAC”). These
organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders. We have arrangements with all of
these organizations.
Sound recording rights holders, typically large record companies, are primarily represented by SoundExchange, an organization which
negotiates licenses, and collects and distributes royalties on behalf of record companies and performing artists. Under the Digital Performance
Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we may negotiate royalty arrangements with the
sound recording copyright owners, or if negotiation is unsuccessful, the royalty rate is established by the Copyright Royalty Board (the “CRB”)
of the Library of Congress. In January 2008, the CRB issued a decision regarding the royalty rate payable by us under the statutory license
covering the performance of sound recordings over our satellite radio services for the six-year period starting January 1, 2007 and ending
December 31, 2012. Under the terms of the CRB’s decision, we paid, or will pay, a royalty of 6.0%, 6.0%, 6.5%, 7.0%, 7.5% and 8.0% of
gross revenues, subject to certain exclusions, for 2007, 2008, 2009, 2010, 2011 and 2012, respectively.
The rate setting proceeding covering the period from 2013 through 2017 before the CRB commenced in January 2011. In November
2011, we filed our direct case in that proceeding and requested the CRB to set a royalty rate payable by us under the statutory license covering
the performance of sound recordings over our satellite radio services at less than 7% of our gross revenues, subject to certain exclusions. In
November 2011, SoundExchange also filed its direct case in the proceeding and requested the CRB to set a royalty rate under the statutory
license of initially 12%, increasing by 2% each year during the term and up to a maximum of 20%, of our gross revenues. A hearing before the
CRB in this proceeding is scheduled to commence in 2012.
Trademarks
We have registered, and intend to maintain, the trademark “Sirius”, “XM”, “SiriusXM” and the “Dog design” logo with the United States
Patent and Trademark Office in connection with the services we offer. We are not aware of any material claims of infringement or other
challenges to our right to use the “Sirius”, “XM” or “SiriusXM” trademark or the “Dog design” logo in the United States. We also have
registered, and intend to maintain, trademarks for the names of certain of our channels. We have also registered the trademarks “Sirius”, “XM”,
and the “Dog design” logo in Canada. We have granted a license to use certain of our trademarks in Canada to Sirius XM Canada.
9
Personnel
As of December 31, 2011, we had 1,526 full-time employees. In addition, we rely upon a number of part-time employees, consultants,
other advisors and outsourced relationships. None of our employees are represented by a labor union, and we believe that our employee
relations are good.
Corporate Information
Our executive offices are located at 1221 Avenue of the Americas, 36th floor, New York, New York 10020 and our telephone number is
(212) 584-5100. Our internet address is www.siriusxm.com. Our annual, quarterly and current reports, and any amendments to those reports,
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 may be accessed free of charge through our
website after we have electronically filed or furnished such material with the SEC. Siriusxm.com (including any other reference to such address
in this Annual Report) is an inactive textual reference only, meaning that the information contained on or accessible from the website is not part
of this Annual Report on Form 10-K and is not incorporated in this report by reference.
Executive Officers of the Registrant
Certain information regarding our executive officers is provided below:
Name
Age
Mel Karmazin
Scott A. Greenstein
James E. Meyer
Dara F. Altman
Patrick L. Donnelly
David J. Frear
68
52
57
53
50
55
Position
Chief Executive Officer
President and Chief Content Officer
President, Operations and Sales
Executive Vice President and Chief Administrative Officer
Executive Vice President, General Counsel and Secretary
Executive Vice President and Chief Financial Officer
Mel Karmazin has served as our Chief Executive Officer and a member of our board of directors since November 2004. Prior to joining
us, Mr. Karmazin was President and Chief Operating Officer and a member of the board of directors of Viacom Inc. from May 2000 until June
2004. Prior to joining Viacom, Mr. Karmazin was President and Chief Executive Officer of CBS Corporation from January 1999 and a director
of CBS Corporation from 1997 until its merger with Viacom in May 2000. He was President and Chief Operating Officer of CBS Corporation
from April 1998 through December 1998. Mr. Karmazin joined CBS Corporation in December 1996 as Chairman and Chief Executive Officer
of CBS Radio and served as Chairman and Chief Executive Officer of the CBS Station Group (Radio and Television) from May 1997 to April
1998. Prior to joining CBS Corporation, Mr. Karmazin served as President and Chief Executive Officer of Infinity Broadcasting Corporation.
Scott A. Greenstein has served as our President and Chief Content Officer since May 2004. Prior to May 2004, Mr. Greenstein was Chief
Executive Officer of The Greenstein Group, a media and entertainment consulting firm. From 1999 until 2002, he was Chairman of USA
Films, a motion picture production, marketing and distribution company. From 1997 until 1999, Mr. Greenstein was Co-President of October
Films, a motion picture production, marketing and distribution company. Prior to joining October Films, Mr. Greenstein was Senior Vice
President of Motion Pictures, Music, New Media and Publishing at Miramax Films, and held senior positions at Viacom Inc.
James E. Meyer has served as our President, Operations and Sales, since May 2004. Prior to May 2004, Mr. Meyer was President of
Aegis Ventures Incorporated, a consulting firm that provides general management services. From December 2001 until 2002, Mr. Meyer
served as special advisor to the Chairman of Thomson S.A., a leading consumer electronics company. From January 1997 until December
2001, Mr. Meyer served as the Senior Executive Vice President for Thomson as well as the Chief Operating Officer for Thomson Consumer
Electronics. From 1992 until 1996, Mr. Meyer served as Thomson’s Senior Vice President of Product Management. Mr. Meyer is a director of
ROVI Corporation.
10
Dara F. Altman has served as our Executive Vice President and Chief Administrative Officer since September 2008. From January 2006
until September 2008, Ms. Altman served as Executive Vice President, Business and Legal Affairs, of XM. Ms. Altman was Executive Vice
President of Business Affairs for Discovery Communications from 1997 to 2005. From 1993 to 1997, Ms. Altman served as Senior Vice
President and General Counsel of Reiss Media Enterprises, which owned Request TV, a national pay-per-view service. Before Request TV,
Ms. Altman served as counsel for Home Box Office. Ms. Altman started her career as an attorney at the law firm of Willkie Farr & Gallagher
LLP.
Patrick L. Donnelly has served as our Executive Vice President, General Counsel and Secretary since May 1998. From June 1997 to May
1998, he was Vice President and deputy general counsel of ITT Corporation, a hotel, gaming and entertainment company that was acquired by
Starwood Hotels & Resorts Worldwide, Inc. in February 1998. From October 1995 to June 1997, he was assistant general counsel of ITT
Corporation. Prior to October 1995, Mr. Donnelly was an attorney at the law firm of Simpson Thacher & Bartlett LLP.
David J. Frear has served as our Executive Vice President and Chief Financial Officer since June 2003. From 1999 to 2003, Mr. Frear
was Executive Vice President and Chief Financial Officer of Savvis Communications Corporation, a global managed service provider,
delivering internet protocol applications for business customers. Mr. Frear also served as a director of Savvis. From 1993 to 1998, Mr. Frear
was Senior Vice President and Chief Financial Officer of Orion Network Systems Inc., an international satellite communications company that
was acquired by Loral Space & Communications Ltd. in 1998. From 1990 to 1993, Mr. Frear was Chief Financial Officer of Millicom
Incorporated, a cellular, paging and cable television company. Prior to joining Millicom, he was an investment banker at Bear, Stearns & Co.,
Inc. and Credit Suisse.
ITEM 1A.
RISK
FACTORS
In addition to the other information in this Annual Report on Form 10-K, including the information under the caption Item 1. Business
“Competition,” the following risk factors should be considered carefully in evaluating us and our business. This Annual Report on Form 10-K
contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and the timing
of events could differ materially from those projected in forward-looking statements due to a number of factors, including those set forth below
and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements” following this Item 1A. Risk
Factors.
We face substantial competition and that competition is likely to increase over time.
We face substantial competition from other providers of radio and other audio services. Our ability to retain and attract subscribers
depends on our success in creating and providing popular or unique music, entertainment, news and sports programming. Our subscribers can
obtain certain similar content for free through terrestrial radio stations or Internet radio services. Audio content delivered via the Internet,
including through mobile devices, is increasingly competitive with our services. A number of automakers and aftermarket manufacturers have
introduced, or will shortly introduce, factory-installed radios capable of accessing Internet-delivered audio entertainment. A summary of
various services that compete with us is contained in the section entitled “Item 1. Business — Competition.”
Competition could result in lower subscription, advertising or other revenue or increase our marketing, promotion or other expenses and,
consequently, lower our earnings and free cash flow. We cannot assure you we will be able to compete successfully with our existing or future
competitors or that competition will not have a material adverse effect on our business, financial condition or results of operations.
Our business depends in large part upon automakers.
Most of our new subscription growth has come from purchasers and lessees of new and previously owned automobiles. As a result, the
sale and lease of vehicles with satellite radios is an important source of subscribers
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for our satellite radio service. We have agreements with every major automaker to include satellite radios in new vehicles, although these
agreements do not require automakers to install specific or minimum quantities of radios in any given period.
Automotive production and sales are dependent on many factors, including the availability of consumer credit, general economic
conditions, consumer confidence and fuel costs. To the extent vehicle sales by automakers decline, or the penetration of factory-installed
satellite radios in those vehicles is reduced, subscriber growth for our satellite radio services may be adversely impacted.
General economic conditions can affect our business.
The purchase of a satellite radio subscription is discretionary, and our business and our financial condition can be negatively affected by
general economic conditions. Poor general economic conditions can adversely affect subscriber churn, conversion rates and vehicle sales, as
evidenced by the dramatic slowdown in auto sales that negatively impacted our subscriber growth in 2008 and 2009.
Failure of our satellites would significantly damage our business.
The lives of our satellites will vary and depend on a number of factors, including:
• degradation and durability of solar panels;
• quality of construction;
• random failure of satellite components, which could result in significant damage to or loss of a satellite;
• amount of fuel the satellite consumes; and
• damage or destruction by electrostatic storms, collisions with other objects in space or other events, such as nuclear detonations,
occurring in space.
In the ordinary course of operation, satellites experience failures of component parts and operational and performance anomalies.
Components on our in-orbit satellites have failed; and from time to time we have experienced anomalies in the operation and performance of
these satellites. These failures and anomalies are expected to continue in the ordinary course, and we cannot predict if any of these possible
future events will have a material adverse effect on our operations or the life of our existing in-orbit satellites.
Three of the Sirius in-orbit satellites have experienced degradation on their solar arrays. The degradation these satellites have experienced
does not affect current operations. Additional degradation on the three Sirius satellites could reduce the estimated lives of those satellites.
Space Systems/Loral has constructed a new satellite for the Sirius system that is expected to be launched in the first half of 2012. Satellite
launches have significant risks, including launch failure, damage or destruction of the satellite during launch and failure to achieve a proper
orbit or operate as planned. Our agreement with Space Systems/Loral does not protect us against the risks inherent in a satellite launch or inorbit operations.
Our XM-1 and XM-2 satellites have experienced progressive degradation problems common to early Boeing 702 class satellites and now
serve as in-orbit spares. Our XM-2, XM-3, and XM-4 in-orbit satellites have experienced circuit failures on their solar arrays which do not
affect current operations. Additional circuit failures on the satellites could reduce the estimated lives of those satellites. We estimate that our
XM-3, XM-4 and XM-5 satellites will meet their 15-year predicted depreciable lives, and that the XM-1 and XM-2 satellites’ depreciable lives
will end no earlier than 2013.
Our XM-5 satellite serves as an in-orbit spare for both of our services. In the event of a failure of XM-3, XM-4 or any of the Sirius
satellites, service would be maintained through XM-5.
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In addition, our Sirius network of terrestrial repeaters communicates with a single third-party satellite. Our XM network of terrestrial
repeaters communicates with a single XM satellite. If the satellites communicating with the applicable repeater network fail unexpectedly, the
services would be disrupted for several hours or longer.
We maintain in-orbit insurance policies covering only our XM-5 and FM-5 satellites. We may not renew these in-orbit insurance policies
when they expire. Any insurance proceeds will not fully cover our losses in the event of a satellite failure or significant degradation. For
example, the policies covering the insured satellites do not cover the full cost of constructing, launching and insuring new satellites, nor will
they cover, and we do not have protection against, business interruption, loss of business or similar losses. Our insurance contains customary
exclusions, material change and other conditions that could limit recovery under those policies. Further, any insurance proceeds may not be
received on a timely basis in order to launch a spare satellite or construct and launch a replacement satellite or take other remedial measures. In
addition, the policies are subject to limitations involving uninsured losses, large satellite performance deductibles and policy limits.
Our ability to attract and retain subscribers at a profitable level in the future is uncertain.
We spend substantial amounts on advertising and marketing and in transactions with automakers, retailers and others to obtain and attract
subscribers. During 2011, we added 1,701,860 net subscribers to our satellite radio service. Our ability to retain our subscribers, or increase the
number of subscribers to our service, in any given period is subject to many factors, including:
• the price of our service, which we increased on January 1, 2012;
• the health of the economy;
• the production and sale of new vehicles in the United States;
• our ability to convince owners and lessees of new and previously owned vehicles that include satellite radios to purchase subscriptions
to our service;
• the effectiveness of our marketing programs;
• the entertainment value of our programming; and
• actions by our competitors, such as terrestrial radio and other audio entertainment providers.
As part of our business, we experience, and expect to experience in the future, subscriber turnover (i.e., churn). If we are unable to retain
current subscribers at expected rates, or the costs of retaining subscribers are higher than expected, our financial performance and operating
results could be adversely affected. We cannot predict how successful we will be at retaining customers who purchase or lease vehicles that
include a prepaid promotional subscription to our satellite radio service. During 2011, we converted 45% of the customers who received a
promotional subscription as part of the purchase or lease of a new vehicle to a self-paying subscription. Over the same period, we have
experienced churn of our self-pay subscribers of 1.9% per month.
Average monthly revenue per subscriber, which we refer to as ARPU, is another key metric we use to analyze our business. Over the past
several years, we have focused substantial attention and efforts on balancing ARPU and subscriber additions. Our ability to maintain ARPU
over time is uncertain and depends upon various factors, including:
• the value consumers perceive in our service;
• our ability to add and retain compelling programming;
• the increasing competition we experience from terrestrial and Internet radio; and
• pricing and other offers we may make to attract new subscribers and retain existing subscribers.
13
If we are unable to consistently attract new subscribers, and retain our current subscribers, at a sufficient level of revenues to be
profitable, the value of our common stock could decline, and without sufficient cash flow we may not be able to make the required payments
on our indebtedness and could ultimately default on our commitments.
Royalties for music rights may increase.
We must maintain music programming royalty arrangements with, and pay license fees to, BMI, ASCAP and SESAC. These
organizations negotiate with copyright users, collect royalties and distribute them to songwriters and music publishers. We have agreements
with ASCAP and SESAC through 2016. We do not have a definitive agreement with BMI and continue to operate under an interim agreement.
There can be no assurance that the royalties we pay to ASCAP, SESAC and BMI will not increase upon expiration of these arrangements.
Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we pay
royalties to copyright owners of sound recordings. Those royalty rates may be established through negotiation or, if negotiation is unsuccessful,
by the CRB. Owners of copyrights in sound recordings have created SoundExchange, a collective organization, to collect and distribute
royalties. SoundExchange is exempt by statute from U.S. antitrust laws and exercises significant market power in the licensing of sound
recordings.
A rate setting proceeding commenced in January 2011, and, if negotiations with SoundExchange prove unsuccessful, new royalty rates
will be determined by the CRB and will be effective for the five-year period beginning in 2013. In November 2011, we filed our direct case in
that proceeding and requested the CRB to set a royalty rate payable by us under the statutory license covering the performance of sound
recordings over our satellite radio services at less than 7% of our gross revenues, subject to certain exclusions. In November 2011,
SoundExchange also filed a direct case in the proceeding and requested the CRB to set a royalty rate under the statutory license of initially
12%, increasing by 2% each year during the term and up to a maximum of 20%, of our gross revenues. A hearing before the CRB in this
proceeding is scheduled to commence in 2012.
Failure to comply with FCC requirements could damage our business.
We hold FCC licenses and authorizations to operate commercial satellite radio services in the United States, including authorizations for
satellites and terrestrial repeaters, and related authorizations. The FCC generally grants licenses and authorizations for a fixed term. Although
we expect our licenses and authorizations to be renewed in the ordinary course upon their expiration, there can be no assurance that this will be
the case. Any assignment or transfer of control of any of our FCC licenses or authorizations must be approved in advance by the FCC.
The operation of our satellite radio systems is subject to significant regulation by the FCC under authority granted through the
Communications Act and related federal law. We are required, among other things, to operate only within specified frequencies; to meet certain
conditions regarding the interoperability of our satellite radios with those of other licensed satellite radio systems; to coordinate our satellite
radio services with radio systems operating in the same range of frequencies in neighboring countries; and to coordinate our communications
links to our satellites with other systems that operate in the same frequency band. Non-compliance by us with these requirements or other
conditions or with other applicable FCC rules and regulations could result in fines, additional license conditions, license revocation or other
detrimental FCC actions. There is no guarantee that Congress will not modify the statutory framework governing our services, or that the FCC
will not modify its rules and regulations in a manner that would have a material impact on our operations.
The terms of our licenses, the order of the FCC approving the Merger, and the consent decrees we entered into with the FCC require us to
meet certain conditions. Non-compliance with these conditions could result in fines, additional license conditions, license revocation or other
detrimental FCC actions.
14
The unfavorable outcome of pending or future litigation could have a material adverse effect.
We are parties to several legal proceedings arising out of various aspects of our business, including class action lawsuits alleging
violations of state consumer protection statutes. We are defending all claims against us. The outcome of these proceedings may not be
favorable, and an unfavorable outcome may have a material adverse effect on our business or financial results.
Rapid technological and industry changes could adversely impact our services.
The audio entertainment industry is characterized by rapid technological change, frequent product innovations, changes in customer
requirements and expectations, and evolving standards. If we are unable to keep pace with these changes, our business may not succeed.
Products using new technologies, or emerging industry standards, could make our technologies less competitive in the marketplace.
Failure of other third parties to perform could adversely affect our business.
Our business depends, in part, on various other third parties, including:
• manufacturers that build and distribute satellite radios;
• companies that manufacture and sell integrated circuits for satellite radios;
• programming providers and on-air talent;
• retailers that market and sell satellite radios and promote subscriptions to our services; and
• vendors that have designed or built and vendors that support or operate important elements of our systems, such as our satellites and
customer service facilities.
If one or more of these third parties do not perform in a satisfactory or timely manner, our business could be adversely affected. In
addition, a number of third parties on which we depend have experienced, and may in the future experience, financial difficulties or file for
bankruptcy protection. Such third parties may not be able to perform their obligations to us in a timely manner, if at all, as a result of their
financial condition or may be relieved of their obligations to us as part of seeking bankruptcy protection.
We design, establish specifications, source or specify parts and components, and manage various aspects of the logistics and production
of radios. As a result of these activities, we may be exposed to liabilities associated with the design, manufacture and distribution of radios that
the providers of an entertainment service would not customarily be subject to, such as liabilities for design defects, patent infringement and
compliance with applicable laws, as well as the costs of returned product.
Changes in consumer protection laws and their enforcement could damage our business.
We engage in extensive marketing efforts to attract and retain subscribers to our services. We employ a wide variety of communications
tools as part of our marketing campaigns, including telemarketing efforts; print, television, radio and online advertising; and email solicitations.
Consumer protection laws, rules and regulations are extensive and have developed rapidly, particularly at the State level. Consumer
protection laws in certain jurisdictions cover nearly all aspects of our marketing efforts, including the content of our advertising, the terms of
consumer offers and the manner in which we communicate with subscribers and prospective subscribers. We are engaged in considerable
efforts to ensure that all our activities comply with federal and state laws, rules and regulations relating to consumer protection, including laws
relating to privacy. Modifications to federal and state laws, rules and regulations concerning consumer protection, including decisions by
federal and state courts and agencies interpreting these laws, could have an adverse impact on our ability to attract and retain subscribers to our
services. While we monitor the
15
changes in and interpretations of these laws in consumer-related settlements and decisions, and while we believe that we are in material
compliance with applicable laws, there can be no assurances that new laws or regulations will not be enacted or adopted, preexisting laws or
regulations will not be more strictly enforced or that our varied operations will continue to comply with all applicable laws, which might
adversely affect our operations.
A Multistate Working Group of 30 State Attorneys General, led by the Attorney General of the State of Ohio, is investigating certain of
our consumer practices. The investigation focuses on practices relating to the cancellation of subscriptions; automatic renewal of subscriptions;
charging, billing, collecting, and refunding or crediting of payments from consumers; and soliciting customers. A separate investigation into
our consumer practices is being conducted by the Attorneys General of the State of Florida and New York. In addition, the Attorney General of
the State of Missouri has commenced an action against us regarding our telemarketing practices to residents of the State of Missouri.
Interruption or failure of our information technology and communications systems could negatively impact our results and our brand.
We operate a complex and growing business. We offer a wide variety of subscription packages at different price points. Our business is
dependent on the operation and availability of our information technology and communication systems and those of third party service
providers. Any degradation in the quality, or any failure, of our systems could reduce our revenues, cause us to lose customers and damage our
brand. Although we have implemented practices designed to maintain the availability of our information technology systems and mitigate the
harm of any unplanned interruptions, we do not have complete redundancy for all of our information technology systems, and our disaster
recovery planning cannot anticipate all eventualities. We occasionally experience unplanned outages or technical difficulties. We could also
experience loss of data or processing capabilities, which could cause us to lose customers and could materially harm our reputation and our
operating results.
We are involved in continuing efforts to upgrade and maintain our information technology systems. These maintenance and upgrade
activities are costly, and problems with the design or implementation of system enhancements could harm our business and our results of
operations.
Our data centers and our information technology and communications systems are vulnerable to damage or interruption from natural
disasters, malicious attacks, fire, power loss, telecommunications failures, computer viruses or other attempts to harm our systems.
If hackers were able to circumvent our security measures, we could lose proprietary information or personal information or experience
significant disruptions. If our systems become unavailable or suffer a security breach, we may be required to expend significant resources to
address these problems, including notification under various federal and state data privacy regulations, and our reputation and operating results
could suffer.
We rely on internal systems and external systems maintained by manufacturers, distributors and service providers to take, fulfill and
handle customer service requests and host certain online activities. Any interruption or failure of our internal or external systems could prevent
us from servicing customers or cause data to be unintentionally disclosed.
If we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement
actions or private litigation and our reputation could suffer.
The nature of our business involves the receipt and storage of personal information about our subscribers. If we experience a data security
breach, we could be exposed to government enforcement actions and private litigation. In addition, our subscribers and potential customers
could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our services. Such
events could lead to lost future sales and adversely affect our results of operations.
16
We may from time to time modify our business plan, and these changes could adversely affect us and our financial condition.
We regularly evaluate our plans and strategy. These evaluations often result in changes to our plans and strategy, some of which may be
material. These changes in our plans or strategy may include: the acquisition or termination of unique or compelling programming; the
introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites,
equipment or radio spectrum; and acquisitions of other businesses, including acquisitions that are not directly related to our satellite radio
business.
Our substantial indebtedness could adversely affect our operations and could limit our ability to react to changes in the economy or our
industry.
As of December 31, 2011, we had an aggregate principal amount of approximately $3.1 billion of indebtedness. Our substantial
indebtedness has important consequences. For example, it:
• increases our vulnerability to general adverse economic and industry conditions;
• requires us to dedicate a portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow
to fund capital expenditures, marketing and other general corporate activities;
• limits our ability to borrow additional funds or make capital expenditures;
• limits our flexibility in planning for, or reacting to, changes in our business and the audio entertainment industry; and
• may place us at a competitive disadvantage compared to other competitors.
The instruments governing our indebtedness contain covenants that, among other things, place certain limitations on our ability to incur
more debt, pay dividends, make distributions, make investments, repurchase stock, create liens, enter into transactions with affiliates, enter into
sale lease-back transactions, merge or consolidate, and transfer or sell assets. Failure to comply with the covenants associated with this debt
could result in an event of default, which, if not cured or waived, could cause us to seek the protection of the bankruptcy laws, discontinue
operations or seek a purchaser for our business or assets.
Our broadcast studios, terrestrial repeater networks, satellite uplink facilities or other ground facilities could be damaged by natural
catastrophes or terrorist activities.
An earthquake, tornado, flood, terrorist attack or other catastrophic event could damage our broadcast studios, terrestrial repeater
networks or satellite uplink facilities, interrupt our service and harm our business.
Any damage to the satellites that transmit to our terrestrial repeater networks would likely result in degradation of the affected service for
some subscribers and could result in complete loss of service in certain or all areas. Damage to our satellite uplink facilities could result in a
complete loss of either of our services until we could transfer operations to suitable back-up facilities.
Electromagnetic interference from others could damage our business.
Our satellite radio service may be subject to interference caused by other users of radio frequencies, such as RF lighting, ultra-wideband
technology and Wireless Communications Service (“WCS”) users. The FCC has approved modifications to the rules governing the operations
of WCS devices in the spectrum adjacent to satellite radio, including rule changes that facilitate mobile broadband services in the WCS
frequencies. We have opposed certain of the changes out of a concern for their impact on the reception of satellite radio service; and have filed
a petition with the FCC asking the Commission to reconsider certain of the changes. We cannot predict the outcome of our petition for
reconsideration. The ultimate impact of certain of these rules changes on satellite
17
radio reception is impossible to predict and dependent on numerous factors outside of our control, such as the design and implementation of
WCS systems and devices, the applications deployed through WCS devices, and the number of WCS devices ultimately adopted by consumers.
Our business may be impaired by third-party intellectual property rights.
Development of our systems has depended upon the intellectual property that we have developed, as well as intellectual property licensed
from third parties. If the intellectual property that we have developed or use is not adequately protected, others will be permitted to and may
duplicate portions of our systems or services without liability. In addition, others may challenge, invalidate, render unenforceable or circumvent
our intellectual property rights, patents or existing licenses or we may face significant legal costs in connection with defending and enforcing
those intellectual property rights. Some of the know-how and technology we have developed, and plan to develop, is not now, nor will it be,
covered by U.S. patents or trade secret protections. Trade secret protection and contractual agreements may not provide adequate protection if
there is any unauthorized use or disclosure. The loss of necessary technologies could require us to substitute technologies of lower quality
performance standards, at greater cost or on a delayed basis, which could harm us.
Other parties may have patents or pending patent applications, which will later mature into patents or inventions that may block our
ability to operate our system or license technologies. We may have to resort to litigation to enforce our rights under license agreements or to
determine the scope and validity of other parties’ proprietary rights in the subject matter of those licenses. This may be expensive and we may
not succeed in any such litigation.
Third parties may assert claims or bring suit against us for patent, trademark or copyright infringement, or for other infringement or
misappropriation of intellectual property rights. Any such litigation could result in substantial cost, and diversion of effort and adverse findings
in any proceeding could subject us to significant liabilities to third parties; require us to seek licenses from third parties; block our ability to
operate our systems or license our technology; or otherwise adversely affect our ability to successfully develop and market our satellite radio
systems.
Liberty Media Corporation has significant influence over our business and affairs and its interests may differ from ours.
Liberty Media Corporation holds preferred stock that is convertible into 2,586,976,000 shares of common stock. Pursuant to the terms of
the preferred stock held by Liberty Media, we cannot take certain actions, such as certain issuances of equity or debt securities, without the
consent of Liberty Media. Additionally, Liberty Media has the right to designate a percentage of our board of directors proportional to its
interest. As a result, Liberty Media has significant influence over our business and affairs. The interests of Liberty Media may differ from our
interests. The extent of Liberty Media’s stock ownership in us also may have the effect of discouraging offers to acquire control of us. Under
its investment agreement, Liberty Media is subject to certain standstill provisions which expire in March 2012.
Our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal
Revenue Code.
We have generated a federal net operating loss carryforward of approximately $7.8 billion through the year ended December 31, 2011,
and we may generate net operating loss carryforwards in future years.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), contains rules that limit the ability of a company that
undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize
its net operating loss carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by
focusing on ownership changes among stockholders owning directly or indirectly 5% or more of the stock of a company and any change in
ownership arising from a new issuance of stock by the company.
18
If we undergo an ownership change for purposes of Section 382 as a result of future transactions involving our common stock, including
purchases or sales of stock between 5% stockholders, our ability to use our net operating loss carryforwards and to recognize certain built-in
losses would be subject to the limitations of Section 382. The limitation on our ability to utilize tax losses and credit carryforwards arising from
an ownership change under Section 382 would depend upon the value of our equity at the time of any ownership change. Given our current
market capitalization, any future ownership change will not negatively impact our ability to fully utilize our existing net operating losses within
the carryforward period. If we were to experience a significant decrease in equity value it is possible that a portion of our tax losses and credit
carryforwards could expire before we would be able to use them to offset future taxable income.
Special Note About Forward-Looking Statements
We have made various statements in this Annual Report on Form 10-K that may constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be made in our other reports filed with
or furnished to the SEC, in our press releases and in other documents. In addition, from time to time, we, through our management, may make
oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified above, which
could cause actual results to differ materially from such statements. The words “will likely result,” “are expected to,” “will continue,” “is
anticipated,” “estimated,” “believe,” “intend,” “plan,” “may,” “should,” “could,” “would,” “likely,” “projection,” “outlook” and similar
expressions are intended to identify forward-looking statements. We caution you that the risk factors described above are not exclusive. There
may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward-looking
statements. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the
impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forwardlooking statements.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Below is a list of the principal properties that we own or lease:
Location
New York, NY
New York, NY
Washington, DC
Washington, DC
Lawrenceville, NJ
Deerfield Beach, FL
Farmington Hills, MI
Nashville, TN
Vernon, NJ
Ellenwood, GA
Purpose
Corporate headquarters and
studio/production facilities
Office facilities
Office and studio/production facilities
Office facilities and data center
Office and technical/engineering facilities
Office and technical/engineering facilities
Office and technical/engineering facilities
Studio/production facilities
Technical/engineering facilities
Technical/engineering facilities
19
Own/Lease
Lease
Lease
Own
Own
Lease
Lease
Lease
Lease
Own
Lease
We also own or lease other small facilities that we use as offices for our advertising sales personnel, studios and warehouse and
maintenance space. These facilities are not material to our business or operations. We also lease properties in Panama and Ecuador that we use
as earth stations to command and control satellites.
In addition, we lease or license space at over 650 locations for use in connection with the terrestrial repeater networks that support our
satellite radio services. In general, these leases and licenses are for space on building rooftops and communications towers. None of these
individual arrangements is material to our business or operations.
ITEM 3.
LEGAL PROCEEDINGS
State Consumer Investigations . A Multistate Working Group of 30 State Attorneys General, led by the Attorney General of the State
of Ohio, is investigating certain of our consumer practices. The investigation focuses on practices relating to the cancellation of subscriptions;
automatic renewal of subscriptions; charging, billing, collecting, and refunding or crediting of payments from consumers; and soliciting
customers.
A separate investigation into our consumer practices is being conducted by the Attorneys General of the State of Florida and the State of
New York. In addition, in September 2010, the Attorney General of the State of Missouri commenced an action against us in Missouri Circuit
Court, Twenty-Second Judicial Circuit, St. Louis, Missouri, alleging violations of various consumer protection statutes, including the Missouri
Telemarketing No-Call List Act. The suit seeks, among other things, a permanent injunction prohibiting us from making, or causing to be
made, telephone solicitations to our subscribers in the State of Missouri who are on Missouri’s no-call list, statutory penalties and
reimbursement of costs.
We are cooperating with these investigations and believe our consumer practices comply with all applicable federal and state laws and
regulations.
Carl Blessing et al. v. Sirius XM Radio Inc . We have settled the case titled Carl Blessing et al. v. Sirius XM Radio Inc. and the
settlement has been approved by the United States District Court for the Southern District of New York. Notices of appeal have been filed by
11 individuals seeking to overturn the settlement.
In December 2009, Carl Blessing, a subscriber, filed a lawsuit against us in the United States District Court for the Southern District of
New York. Mr. Blessing and several other plaintiffs purported to represent all subscribers who were subject to: an increase in the price for
additional-radio subscriptions from $6.99 to $8.99; the imposition of the US Music Royalty Fee; and the elimination of our free Internet
service. The suit claimed that the pricing changes showed that our merger with XM lessened competition or led to a monopoly in violation of
the Clayton Act and that the merger led to monopolization in violation of the Sherman Act. Earlier the Court dismissed the plaintiffs’ claims
for breach of contract and granted our motion for summary judgment as to various state law claims.
As part of the settlement, we agreed to: not raise the price of our basic satellite radio service or other programming packages or our
Internet services; not increase our US Music Royalty Fee; or not decrease our multi-radio discount prior to January 1, 2012. Existing
subscribers were also permitted to renew their current subscription plans at current rates prior to December 31, 2011. Former subscribers who
terminated their subscriptions after July 29, 2009 are entitled to receive, at their election, either: one month of our basic satellite radio service or
one month of our Internet service, at no charge. We also paid the costs of providing notice to the plaintiff class and reimbursed counsel for the
plaintiffs for $13 million of their fees and expenses.
One Twelve, Inc. and Don Buchwald v. Sirius XM Radio Inc . In March 2011, One Twelve, Inc., Howard Stern’s production company,
and Don Buchwald, Stern’s agent, commenced an action against us in the Supreme Court of the State of New York, County of New York. The
action alleges that, upon the Merger, we failed to honor our obligations under the performance-based compensation provisions of our prior
agreement dated
20
October 2004 with One Twelve and Buchwald, as agent; One Twelve and Buchwald each assert a claim of breach of contract. More
specifically, the complaint alleges that subscribers to the XM Satellite Radio service should have been counted as “Sirius subscribers”
following the Merger for purposes of provisions entitling One Twelve and Buchwald to compensation in the event that the number of “Sirius
subscribers” exceeded the projected growth amounts of Sirius subscribers by certain magnitudes specified in the 2004 agreement for each year
of that agreement. The suit seeks damages, plus interest and costs, in an amount to be determined. We believe that the claims are without merit
and intend to vigorously defend this action.
We filed a motion for summary judgment on the basis that the 2004 agreement is unambiguous; specifically, that the term “Sirius
subscribers,” as used in the 2004 agreement, does not include subscribers to XM Satellite Radio following the Merger and, as a result, One
Twelve and Buchwald were not entitled to additional compensation for exceeding projected growth amounts of Sirius subscribers. The Court
heard oral argument on our motion for summary judgment in September 2011.
Other Matters . In the ordinary course of business, we are a defendant in various lawsuits and arbitration proceedings, including
derivative actions; actions filed by subscribers, both on behalf of themselves and on a class action basis; former employees; parties to contracts
or leases; and owners of patents, trademarks, copyrights or other intellectual property. None of these other actions are, in our opinion, likely to
have a material adverse effect on our business, financial condition or results of operations.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Select Market under the symbol “SIRI.” The following table sets forth the high and
low sales price for our common stock, as reported by Nasdaq, for the periods indicated below:
Year ended December 31, 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$1.18
1.25
1.20
1.69
$0.61
0.84
0.90
1.18
$1.88
2.44
2.35
1.92
$1.49
1.62
1.44
1.27
On February 7, 2012, the closing sales price of our common stock on the Nasdaq Global Select Market was $2.12 per share. On February
7, 2012, there were approximately 11,459 record holders of our common stock.
We have never paid cash dividends on our common stock. Our ability to pay dividends on our common stock is currently limited by
covenants under our debt agreements. It is currently our intention to retain earnings, if any, for use in our business. Our board of directors
discusses alternative uses of cash based on a variety of factors such as working capital levels, our debt repayment obligations or repurchase of
our debt, our cash requirements for acquisitions, and our return of capital to shareholders. See Note 13 to our consolidated financial statements
included in this Annual Report on Form 10-K.
22
COMPARISON OF CUMULATIVE TOTAL RETURNS
Set forth below is a graph comparing the cumulative performance of our common stock with the Standard & Poor’s Composite-500 Stock
Index, or the S&P 500, and the NASDAQ Telecommunications Index from December 31, 2006 to December 31, 2011. The graph assumes that
$100 was invested on December 31, 2006 in each of our common stock, the S&P 500 and the NASDAQ Telecommunications Index. There
were no dividends declared during these periods.
Stockholder Return Performance Table
Nasdaq
Telecommunications
Index
December 31, 2006
December 31, 2007
December 31, 2008
December 31, 2009
December 31, 2010
December 31, 2011
$
$
$
$
$
$
100.00
109.17
62.25
92.27
95.89
83.79
23
S&P 500 Index
Sirius XM Radio Inc.
$
$
$
$
$
$
$
$
$
$
$
$
100.00
103.53
63.69
78.62
88.67
88.67
100.00
85.59
3.39
16.95
46.05
51.41
Equity Compensation Plan Information
Plan category
(shares in thousands)
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
ITEM 6.
Number of
Securities
Remaining Available
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options, Warrants
Exercise Price of
Outstanding
Options, Warrants
and Rights
(a)
and Rights
(b)
462,086
—
462,086
Weighted-Average
for Future Issuance
under Equity
Compensation
Plans (excluding
Securities Reflected
in Column (a))
(c)
$
1.32
197,606
$
—
1.32
—
197,606
SELECTED FINANCIAL DATA
Our selected financial data set forth below with respect to the consolidated statements of operations for the years ended December 31,
2011, 2010 and 2009, and with respect to the consolidated balance sheets at December 31, 2011 and 2010, are derived from our audited
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Our selected financial data set forth below with
respect to the consolidated statements of operations for the years ended December 31, 2008 and 2007, and with respect to the consolidated
balance sheets at December 31, 2009, 2008 and 2007 are derived from our audited consolidated financial statements, which are not included in
this Annual Report on Form 10-K. This selected financial data should be read in conjunction with the Consolidated Financial Statements and
related notes thereto included in Item 8 of this Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K.
2011
As of and for the Years Ended December 31,
2010
2009(1)
2008(1)(2)
2007
(in thousands, except per share data)
Statements of Operations Data:
Total revenue
Net income (loss) attributable to common stockholders
Net income (loss) per share — basic
Net income (loss) per share — diluted
Weighted average common shares outstanding — basic
Weighted average common shares outstanding — diluted
Balance Sheet Data:
Cash and cash equivalents
Restricted investments
Total assets
Long-term debt, net of current portion
Stockholders’ equity (deficit)(3)
$3,014,524
$ 426,961
$
0.11
$
0.07
3,744,606
6,500,822
$2,816,992
$ 43,055
$
0.01
$
0.01
3,693,259
6,391,071
$2,472,638
$ (538,226)
$
(0.15)
$
(0.15)
3,585,864
3,585,864
$ 1,663,992
$(5,316,910)
$
(2.45)
$
(2.45)
2,169,489
2,169,489
$ 922,066
$ (565,252)
$
(0.39)
$
(0.39)
1,462,967
1,462,967
$ 773,990
$
3,973
$7,495,996
$3,012,351
$ 704,145
$ 586,691
$
3,396
$7,383,086
$3,021,763
$ 207,636
$ 383,489
$
3,400
$7,322,206
$3,063,281
$ 95,522
$ 380,446
$ 141,250
$ 7,527,075
$ 2,820,781
$
75,875
$ 438,820
$ 53,000
$1,687,231
$1,271,699
$ (792,737)
(1) The 2009 and 2008 results and balances reflect the adoption of ASU 2009-15, Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other Financing .
(2) The 2008 results and balances reflect the results and balances of XM Satellite Radio Holdings Inc. from the date of the Merger and a
$4,766,190 goodwill impairment charge.
(3) No cash dividends were declared or paid in any of the periods presented.
24
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number
of factors, including those described under “Item 1A — Risk Factors” and elsewhere in this Annual Report. See “Special Note Regarding
Forward-Looking Statements.”
(All dollar amounts referenced in this Item 7 are in thousands, unless otherwise stated)
Executive Summary
We broadcast our music, sports, entertainment, comedy, talk, news, traffic and weather channels in the United States on a subscription fee
basis through two proprietary satellite radio systems. Subscribers can also receive certain of our music and other channels over the Internet,
including through applications for mobile devices.
We have agreements with every major automaker (“OEMs”) to offer satellite radios as factory- or dealer-installed equipment in their
vehicles. We also distribute our satellite radios through retail locations nationwide and through our website. Satellite radio services are also
offered to customers of certain daily rental car companies.
As of December 31, 2011, we had 21,892,824 subscribers. Our subscriber totals include subscribers under our regular pricing plans;
discounted pricing plans; subscribers that have prepaid, including payments either made or due from automakers for subscriptions included in
the sale or lease price of a vehicle; activated radios in daily rental fleet vehicles; certain subscribers to our Internet services; and certain
subscribers to our weather, traffic, data and video services.
Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or
monthly basis. We offer discounts for prepaid and long-term subscription plans, as well as discounts for multiple subscriptions on each
platform. We also derive revenue from activation and other subscription-related fees, the sale of advertising on select non-music channels, the
direct sale of satellite radios, components and accessories, and other ancillary services, such as our Backseat TV, data and weather services.
In certain cases, automakers include a subscription to our radio services in the sale or lease price of new and pre-owned vehicles. The
length of these prepaid subscriptions varies, but is typically three to twelve months. In many cases, we receive subscription payments from
automakers in advance of the activation of our service. We also reimburse various automakers for certain costs associated with satellite radios
installed in their vehicles.
We also have an equity interest in the satellite radio services offered in Canada. Subscribers to the Sirius XM Canada service are not
included in our subscriber count. In June 2011, Canadian Satellite Radio Holdings Inc. (“CSR”), the parent company of XM Canada, and Sirius
Canada completed a transaction to combine their operations (“the Canada Merger”).
25
Actual Results of Operations
Set forth below are our results of operations for the year ended December 31, 2011 compared with the year ended December 31, 2010 and
the year ended December 31, 2010 compared with the year ended December 31, 2009.
For the Years Ended December 31,
2011
2010
2009
Revenue:
Subscriber revenue
$2,595,414
Advertising revenue, net of agency fees
73,672
Equipment revenue
71,051
Other revenue
274,387
Total revenue
3,014,524
Operating expenses:
Revenue share and royalties
471,149
Programming and content
281,234
Customer service and billing
259,719
Satellite and transmission
75,902
Cost of equipment
33,095
Subscriber acquisition costs
434,482
Sales and marketing
222,773
Engineering, design and development
53,435
General and administrative
238,738
Depreciation and amortization
267,880
Restructuring, impairments and related
costs
—
Total operating expenses
2,338,407
Income from operations
676,117
Other income (expense):
Interest expense, net of amounts capitalized
(304,938)
Loss on extinguishment of debt and credit
facilities, net
(7,206)
Interest and investment income (loss)
73,970
Other income
3,252
Total other expense
(234,922)
Income (loss) before income taxes
441,195
Income tax expense
(14,234)
Net income (loss)
426,961
Preferred stock beneficial conversion feature
—
Net income (loss) attributable to common
stockholders
$ 426,961
2011 vs 2010
Change
Amount
%
$2,414,174
64,517
71,355
266,946
2,816,992
$2,287,503
51,754
50,352
83,029
2,472,638
$181,240
9,155
(304)
7,441
197,532
8%
14%
(0%)
3%
7%
435,410
305,914
241,680
80,947
35,281
413,041
215,454
45,390
240,970
273,691
397,210
308,121
234,456
84,033
40,188
340,506
228,956
41,031
227,554
309,450
35,739
(24,680)
18,039
(5,045)
(2,186)
21,441
7,319
8,045
(2,232)
(5,811)
8%
(8%)
7%
(6%)
(6%)
5%
3%
18%
(1%)
(2%)
63,800
2,351,578
465,414
32,807
2,244,312
228,326
(63,800)
(13,171)
210,703
$
(100%)
(1%)
45%
30,993
107,266
237,088
94%
5%
104%
20,025
6%
(9,295)
(3%)
(120,120)
(5,375)
3,399
(417,739)
47,675
(4,620)
43,055
—
(267,646)
5,576
3,355
(574,383)
(346,057)
(5,981)
(352,038)
(186,188)
112,914
79,345
(147)
182,817
393,520
(9,614)
383,906
—
94%
nm
(4%)
44%
825%
(208%)
892%
—%
nm — not meaningful
26
$383,906
6%
25%
42%
222%
14%
10%
(1%)
3%
(4%)
(12%)
21%
(6%)
11%
6%
(12%)
(315,668)
$ (538,226)
$126,671
12,763
21,003
183,917
344,354
38,200
(2,207)
7,224
(3,086)
(4,907)
72,535
(13,502)
4,359
13,416
(35,759)
(295,643)
43,055
2010 vs 2009
Change
Amount
%
892%
147,526
(10,951)
44
156,644
393,732
1,361
395,093
186,188
$581,281
55%
(196%)
1%
27%
114%
23%
112%
nm
108%
Total Revenue
Subscriber Revenue includes subscription fees, activation and other fees.
• 2011 vs. 2010 : For the years ended December 31, 2011 and 2010, subscriber revenue was $2,595,414 and $2,414,174, respectively,
an increase of 8%, or $181,240. The increase was primarily attributable to an increase of 8% in daily weighted average subscribers and
an increase in sales of premium services, including Premier packages, data services and Internet subscriptions, partially offset by the
impact of subscription discounts offered through customer acquisition and retention programs.
• 2010 vs. 2009 : For the years ended December 31, 2010 and 2009, subscriber revenue was $2,414,174 and $2,287,503, respectively,
an increase of 6%, or $126,671. The increase was primarily attributable to a 5% increase in daily weighted average subscribers; an
increase in the sales of premium services, including Premier packages, data services and Internet subscriptions; decreases in discounts
on multi-subscription and Internet packages and a $32,159 decrease in the impact of purchase price accounting adjustments
attributable to acquired deferred subscriber revenues, partially offset by an increase in the number of subscribers on promotional plans.
The future growth of subscriber revenue will be dependent upon the growth of our subscriber base, conversion and churn rates,
promotions, rebates offered to subscribers and corresponding take-rates, plan mix, subscription prices and identification of additional revenue
streams from subscribers. We increased certain of our subscription rates beginning January 2012.
Advertising Revenue includes the sale of advertising on our non-music channels, net of agency fees. Agency fees are based on a
contractual percentage of the gross advertising billing revenue.
• 2011 vs. 2010 : For the years ended December 31, 2011 and 2010, advertising revenue was $73,672 and $64,517, respectively, an
increase of 14%, or $9,155. The increase was primarily due to greater demand for audio advertising resulting in increases in the
number of advertising spots sold as well as the rate charged per spot.
• 2010 vs. 2009 : For the years ended December 31, 2010 and 2009, advertising revenue was $64,517 and $51,754, respectively, an
increase of 25%, or $12,763. The increase was primarily due to more effective sales efforts and improvements in the national market
for advertising.
Our advertising revenue is subject to fluctuation based on the effectiveness of our sales efforts and the national economic environment.
We expect advertising revenue to increase as advertisers are attracted by the growth in our subscriber base.
Equipment Revenue includes revenue and royalties from the sale of satellite radios, components and accessories.
• 2011 vs. 2010 : For the years ended December 31, 2011 and 2010, equipment revenue was $71,051 and $71,355, respectively, a
decrease of $304. The decrease was driven by a reduction in aftermarket hardware subsidies earned, partially offset by increased
royalties from higher OEM production.
• 2010 vs. 2009 : For the years ended December 31, 2010 and 2009, equipment revenue was $71,355 and $50,352, respectively, an
increase of 42%, or $21,003. The increase was driven by royalties from increased OEM production and subsidies earned on
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