XM Radio 2010 Annual Report Download - page 111

for the production and distribution of radios, as well as information technology support costs. In consideration for
the rights granted pursuant to this license and services agreement, we have the right to receive a royalty equal to a
percentage of SIRIUS Canada’s gross revenues based on subscriber levels (ranging between 5% to 15%) and the
number of Canadian-specific channels made available to SIRIUS Canada. Our investment in SIRIUS Canada is
primarily non-voting shares which carry an 8% cumulative dividend.
We recorded the following revenue from SIRIUS Canada. Royalty income is included in other revenue and
dividend income is included in Interest and investment income (loss) in our consolidated statements of operations:
2010 2009 2008
For the Years Ended December 31,
Royalty income ......................................... $10,684 $5,797 $1,309
Dividend income ........................................ 926 839 199
Total revenue from SIRIUS Canada ........................ $11,610 $6,636 $1,508
Receivables from royalty and dividend income were utilized to absorb a portion of our share of net losses
generated by SIRIUS Canada during the years ended December 31, 2010 and 2009. Total costs that have been or
will be reimbursed by SIRIUS Canada for the years ended December 31, 2010, 2009 and 2008 were $12,185,
$11,031 and $14,973, respectively.
XM Canada
In 2005, XM entered into agreements to provide XM Canada with the right to offer XM satellite radio service
in Canada. The agreements have an initial ten year term and XM Canada has the unilateral option to extend the
agreements for an additional five years. We receive a 15% royalty for all subscriber fees earned by XM Canada each
month for its basic service and an activation fee for each gross activation of an XM Canada subscriber on XM’s
system. XM Canada is obligated to pay us a total of $70,300 for the rights to broadcast and market National Hockey
League (“NHL”) games for a 10-year term. We recognize these payments on a gross basis as a principal obligor
pursuant to the provisions of ASC 605, Revenue Recognition. The estimated fair value of deferred revenue from XM
Canada as of the Merger date was approximately $34,000, which is amortized on a straight-line basis through 2020,
the expected term of the agreements. As of December 31, 2010 and 2009, the carrying value of deferred revenue
related to XM Canada was $28,792 and $31,568, respectively.
We have extended a Cdn$45,000 standby credit facility to XM Canada, which can be utilized to purchase
terrestrial repeaters or finance royalty and activation fees payable to us. The facility matures on December 31, 2012
and bears interest at 17.75% per annum. We have the right to convert unpaid principal amounts into Class A
subordinate voting shares of XM Canada at the price of Cdn$16.00 per share. As of December 31, 2010 and 2009,
amounts drawn by XM Canada on this facility in lieu of payment of fees recorded in Related party long-term assets
were $21,390, net of a $9,607 valuation allowance, and $18,429, respectively. The December 31, 2010 valuation
allowance of $9,607 related to the absorption of our share of the net loss from our investment in XM Canada shares.
As of December 31, 2010 and 2009, amounts due from XM Canada also included $7,201 and $6,000,
respectively, attributable to deferred programming costs and accrued interest (in addition to the amounts drawn on
the standby credit facility), all of which is reported as Related party long-term assets.
F-23
SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)