XM Radio 2008 Annual Report Download - page 26

Related Party Transactions
For a discussion of related party transactions, see Note 10 to the consolidated financial statements included
elsewhere in this Annual Report and Proxy Statement.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting
principles, which require management to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
periods. We have disclosed all significant accounting policies in Note 2 to our consolidated financial statements
included elsewhere in this Annual Report and Proxy Statement. We have identified the following policies, which
were discussed with the audit committee of our board of directors, as critical to our business and understanding our
results of operations.
Fair Value of XM Assets Acquired and Liabilities Assumed. On July 28, 2008, our wholly owned subsidiary
Vernon Merger Corporation merged (the “Merger”) with and into XM Satellite Radio Holdings Inc., with XM
Holdings becoming our wholly-owned subsidiary. The application of purchase accounting under SFAS No. 141,
Business Combinations, resulted in the transaction being valued at $5,836,363 and our recording of goodwill
acquired totaling $6,601,046.
Long-Lived Assets. We carry our long-lived assets at cost less accumulated depreciation. In accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not
recoverable. At the time an impairment in value of a long-lived asset is identified, the impairment is measured as the
amount by which the carrying amount of a long-lived asset exceeds its fair value. To determine fair value, we
employ an expected present value technique, which utilizes multiple cash flow scenarios that reflect the range of
possible outcomes and an appropriate discount rate.
In June 2006 we wrote-off $10,917 for the net book value of certain satellite long-lead time parts purchased in
1999 that we will no longer need.
We evaluate our indefinite life intangible assets for impairment on an annual basis in accordance with FASB
Statement No. 142, Goodwill and Other Intangible Assets. During the year ended December 31, 2008, we recorded
$4,766,190 of goodwill impairment. At December 31, 2008, our intangible assets with indefinite lives total
$2,333,654, and remaining unamortized total basis of our intangible assets with definite lives was $438,671.
Useful Life of Broadcast/Transmission System. Our satellite system includes the costs of our satellite
construction, launch vehicles, launch insurance, capitalized interest, spare satellite, terrestrial repeater network and
satellite uplink facility. In accordance with SFAS No. 144, we monitor our satellites for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset is not recoverable. The expected
useful lives of our three in-orbit SIRIUS satellites were originally 15 years from the date they were placed into orbit.
In June 2006, we adjusted the useful lives of two of our in-orbit SIRIUS satellites to 13 years to reflect the
unanticipated loss of power from the solar array and the way we intend to operate the constellation. We continue to
expect our spare SIRIUS satellite to operate effectively for 15 years from the date of launch. XM Holdings operates
four in-orbit satellites, two of which function as in-orbit spares. The two in-orbit spare satellites were launched in
2001 while the other two satellites were launched one in each of 2005 and 2006. We estimate that the XM-3 and
XM-4 satellites will meet their fifteen year predicted useful lives, and that XM-1 and XM-2 satellite’s useful lives
will end in 2010. XM Holdings is constructing an additional XM satellite which is in storage awaiting its launch.
Our in-orbit satellites have experienced circuit failures on their solar arrays. We continue to monitor the
operating condition of our in-orbit satellites. If events or circumstances indicate that the useful lives of our in-orbit
satellites have changed, we will modify the depreciable life accordingly. If we were to revise our estimates, our
depreciation expense would change, for example, a 10% decrease in the expected useful lives of satellites and
spacecraft control facilities during 2008 would result in approximately $12,662 of additional depreciation expense.
Revenue Recognition. Revenue from subscribers consists of subscription fees; revenue derived from our
agreement with Hertz and Avis; non-refundable activation fees; and the effects of rebates.
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