XM Radio 2009 Annual Report Download - page 135

Contractual Cash Commitments
For a discussion of our “Contractual Cash Commitments” refer to Note 15 to our consolidated financial
statements in this Annual Report.
Related Party Transactions
For a discussion of “Related Party Transactions” refer to Note 9 to our consolidated financial statements in this
Annual Report.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP, 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. Accounting estimates
require the use of significant management assumptions and judgments as to future events, and the effect of those
events cannot be predicted with certainty. The accounting estimates will change as new events occur, more
experience is acquired and more information is obtained. We evaluate and update our assumptions and estimates on
an ongoing basis and use outside experts to assist in that evaluation when we deem necessary. We have disclosed all
significant accounting policies in Note 3 to our consolidated financial statements. 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 with and into XM Satellite Radio Holdings Inc., with XM Holdings becoming
our wholly-owned subsidiary. The application of purchase accounting 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. 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.
We evaluate our indefinite life intangible assets for impairment on an annual basis. During the year ended
December 31, 2008, we recorded $4,766,190 of goodwill impairment. At December 31, 2009, our intangible assets
with indefinite lives totaled $2,333,654, and the remaining unamortized total basis of our intangible assets with
definite lives was $361,461.
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. 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 four 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 operate the constellation. We currently expect our first three in-orbit SIRIUS satellites to
operate effectively through 2015 and are evaluating the impact of current satellite operational data on the expected
useful lives. 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 in 2005 and 2006. We estimate
that the XM-3 and XM-4 satellites will meet their 15 year predicted useful lives, and that XM-1 and XM-2 satellite’s
useful lives will end in 2011. XM Holdings is constructing an additional XM satellite which is in storage awaiting its
launch.
Certain of 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
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