XM Radio 2012 Annual Report Download - page 109

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SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2005, XM entered into agreements to provide XM Canada, now Sirius XM Canada after the Canada
Merger, with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year term
and Sirius XM Canada has the unilateral option to extend the agreements for an additional five year term. 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. Sirius 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 ten 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 end
of the expected term of the agreements.
We recorded the following revenue from Sirius XM Canada as Other revenue in our consolidated statements
of comprehensive income:
For the Years Ended December 31,
2012 2011 *
Royalty income ............................................ $31,368 $13,735
Amortization of Sirius XM Canada deferred income ............... 2,776 1,388
Licensing fee revenue ....................................... 4,500 3,000
Advertising reimbursements .................................. 833 417
Total revenue from Sirius XM Canada ........................ $39,477 $18,540
* Sirius XM Canada commenced operations in June 2011.
Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income
(loss) in our consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM
Canada’s net income was $554 and $1,081 for the years ended December 31, 2012 and 2011, respectively. We
recorded amortization expense related to the equity method intangible assets of $974 and $1,556 for the years
ended December 31, 2012 and 2011, respectively.
Sirius Canada
We had an equity interest of 49% in Sirius Canada until June 21, 2011 when the Canada Merger closed.
In 2005, we entered into a license and services agreement with Sirius Canada. Pursuant to such agreement,
we are reimbursed for certain costs incurred to provide Sirius Canada service, including certain costs incurred 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 had the right to receive a royalty equal to a
percentage of Sirius Canada’s gross revenues based on subscriber levels (ranging between 5% and 15%) and the
number of Canadian-specific channels made available to Sirius Canada.
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