XM Radio 2010 Annual Report Download - page 105

We use independent appraisals to assist in determining the fair value of our FCC licenses. The income
approach, which is commonly called the “Jefferson Pilot Method” or the “Greenfield Method”, has been
consistently used to estimate the fair value. This method attempts to isolate the income that is properly attributable
to the license alone (that is, apart from tangible and intangible assets and goodwill). It is based upon modeling a
hypothetical “Greenfield” build-up to a normalized enterprise that, by design, lacks inherent goodwill and has
essentially purchased (or added) all other assets as part of the build-up process. The methodology assumes that,
rather than acquiring such an operation as a going concern, the buyer would hypothetically obtain a license at
nominal cost and build a new operation with similar attributes from inception. The significant assumption was that
the hypothetical start up entity would begin its network build out phase at the impairment testing date and revenues
and variable costs would not be generated until the satellite network was operational, approximately five years from
inception.
Other intangible assets with finite lives are amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment under the provisions of ASC 360-10-35, Property, Plant
and Equipment/Overall/Subsequent Measurement. We review intangible assets subject to amortization for impair-
ment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an
impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly
transaction between market participants to sell the asset or transfer the liability. As of December 31, 2010 and 2009,
the carrying amounts of cash and cash equivalents, accounts and other receivables, and accounts payable
approximated fair value due to the short-term nature of these instruments.
The fair value for publicly traded instruments is determined using quoted market prices while the fair value for
non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. As of
December 31, 2010 and 2009, the carrying value of our debt was $3,217,578 and $3,077,163, respectively;
and the fair value approximated $3,722,905 and $3,195,375, respectively.
(4) Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and
identifiable intangible assets acquired in business combinations. Our annual impairment assessment is performed as
of October 1st of each year, and an assessment is performed at other times if events or circumstances indicate it is
more likely than not that the asset is impaired. At October 1, 2010 and December 31, 2010, the fair value of our
single reporting unit substantially exceeded its carrying value and therefore was not at risk of failing step one of
ASC 350-20, Goodwill (“ASC 350-20”). As a result, there were no changes in the carrying value of our goodwill
during the years ended December 31, 2010 and 2009. During 2008, we recorded goodwill in the amount of
$6,601,046 and we recorded an impairment charge of $4,766,190.
F-17
SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)