XM Radio 2011 Annual Report Download - page 101

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
granted using the hybrid approach for volatility, which weights observable historical volatility and implied
volatility of qualifying actively traded options on our common stock. In 2010 and 2009, due to the lack of
qualifying actively traded options on our common stock, we utilized a 100% weighting to observable historical
volatility. The expected life assumption represents the weighted-average period stock-based awards are expected
to remain outstanding. These expected life assumptions are established through a review of historical exercise
behavior of stock-based award grants with similar vesting periods. Where historical patterns do not exist,
contractual terms are used. The risk-free interest rate represents the daily treasury yield curve rate at the grant
date based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter
market for the expected term. Our assumptions may change in future periods.
Equity instruments granted to non-employees are accounted for in accordance with ASC 505, Equity. The
final measurement date for the fair value of equity instruments with performance criteria is the date that each
performance commitment for such equity instrument is satisfied or there is a significant disincentive for
non-performance.
Stock-based awards granted to employees, non-employees and members of our board of directors include
warrants, stock options, restricted stock and restricted stock units.
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 at
each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. 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. Income tax expense is the sum of current income tax plus the change in deferred tax assets and
liabilities.
ASC 740, Income Taxes, requires a company to first determine whether it is more-likely-than-not that a tax
position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities
will examine the position and have full knowledge of all relevant information. A tax position that meets this
more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater
than fifty percent likely to be realized upon effective settlement with a taxing authority. Changes in recognition
or measurement are reflected in the period in which the change in judgment occurs. We record interest and
penalties related to uncertain tax positions in income tax expense in our consolidated statement of operations.
We report revenues net of any tax assessed by a governmental authority that is both imposed on, and
concurrent with, a specific revenue-producing transaction between a seller and a customer in our consolidated
statements of operations.
As of December 31, 2011 and 2010, we maintained a full valuation allowance against our deferred tax assets
due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable
income in the future and our assessment that the realization of the deferred tax assets did meet the “more likely
than not” criterion under ASC 740.
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, 2011
and 2010, 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.
F-13