XM Radio 2012 Annual Report Download - page 94

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SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise stated)
(1) Business & Basis of Presentation
Business
We broadcast our music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as
infotainment services in the United States on a subscription fee basis through our two proprietary satellite radio
systems. Subscribers can also receive music and other channels, plus new features such as SiriusXM On
Demand, 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
from which we acquire the majority of our subscribers. We also acquire subscribers through the sale or lease of
previously owned vehicles with factory-installed satellite radios. Additionally, we 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.
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. We also derive revenue from 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 Internet radio, Backseat TV, data, traffic, and weather services.
In certain cases, automakers include a subscription to our radio services in the sale or lease price of new and
previously 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.
Basis of Presentation
Our financial statements include the consolidated accounts for Sirius XM Radio Inc. and subsidiaries and
have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and footnotes. Estimates, by their
nature, are based on judgment and available information. Actual results could differ materially from those
estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial
statements include asset impairment, depreciable lives of our satellites, share-based payment expense, and
valuation allowances against deferred tax assets.
(2) Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds, in-transit credit card receipts and
highly liquid investments purchased with an original maturity of three months or less.
Equity Method Investments
We hold an equity method investment in Sirius XM Canada. Investments in which we have the ability to
exercise significant influence but not control are accounted for pursuant to the equity method of accounting. We
recognize our proportionate share of earnings or losses of our affiliates as they occur as a component of Other
income (expense) in our consolidated statements of comprehensive income.
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