XM Radio 2015 Annual Report Download - page 81

asset is impaired. Accounting Standards Update 2012-02, Testing Indefinite-Lived Intangible Assets
for Impairment, establishes an option to first perform a qualitative assessment to determine whether
it is more likely than not that an asset is impaired. If the qualitative assessment supports that it is
more likely than not that the fair value of the asset exceeds its carrying value, a company is not
required to perform a quantitative impairment test. If the qualitative assessment does not support
the fair value of the asset, then a quantitative assessment is performed. During the fourth quarter of
2015, a qualitative impairment analysis was performed and we determined that the fair value of our
FCC licenses and trademark substantially exceeded the carrying value and therefore was not at risk
of impairment. Our qualitative assessment includes the consideration of our long-term financial
projections, current and historical weighted average cost of capital and liquidity factors, legal and
regulatory issues and industry and market pressures. Subsequent to our annual evaluation of the
carrying value of our long-lived assets, there were no events or circumstances that triggered the
need for an impairment evaluation.
There were no changes in the carrying value of our indefinite life intangible assets during the
years ended December 31, 2015 or 2014.
Useful Life of Broadcast/Transmission System. Our satellite system includes the costs of our
satellite construction, launch vehicles, launch insurance, capitalized interest, spare satellites,
terrestrial repeater network and satellite uplink facilities. We monitor our satellites for impairment
whenever events or changes in circumstances indicate that the carrying amount of the asset is not
recoverable.
We operate five in-orbit Sirius satellites, FM-1, FM-2, FM-3, FM-5 and FM-6. Our FM-1, FM-2
and FM-3 satellites were launched in 2000 and reached the end of their depreciable lives in 2013
and 2015 but are still in operation. We estimate that our FM-5 satellite launched in 2009 will
operate effectively through the end of its depreciable life in 2024. Our FM-6 satellite that was
launched in 2013, is currently used as an in-orbit spare that is planned to start full-time operation in
2016 and is expected to operate effectively through the end of its depreciable life in 2028.
We operate three in-orbit XM satellites, XM-3, XM-4 and XM-5. We estimate that our XM-3 and
XM-4 satellites launched in 2005 and 2006, respectively, will reach the end of their depreciable lives
in 2020 and 2021, respectively. Our XM-5 satellite was launched in 2010, is used as an in-orbit
spare and is expected to reach the end of its depreciable life in 2025.
Our satellites have been designed to last fifteen-years. Our in-orbit satellites may experience
component failures which could adversely affect their useful life. We monitor the operating condition
of our in-orbit satellites and if events or circumstances indicate that the depreciable 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.
Income Taxes. Deferred income taxes are recognized for the tax consequences related to
temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect taxable income. In
determining the period in which related tax benefits are realized for book purposes, excess share-
based compensation deductions included in net operating losses are realized after regular net
operating losses are exhausted; excess tax compensation benefits are recorded off-balance sheet
as a memo entry until the period the excess tax benefit is realized through a reduction of taxes
payable. Income tax expense is the sum of current income tax plus the change in deferred tax
assets and liabilities.
We assess the recoverability of deferred tax assets at each reporting date and, where
applicable, a valuation allowance is recognized when, based on the weight of all available evidence,
it is considered more likely than not that all, or some portion, of the deferred tax assets will not be
realized. Our assessment includes an analysis of whether deferred tax assets will be realized in the
ordinary course of operations based on the available positive and negative evidence, including the
scheduling of deferred tax liabilities and forecasted income from operations. The underlying
assumptions we use in forecasting future taxable income require significant judgment. In the event
that actual income from operations differs from forecasted amounts, or if we change our estimates
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