XM Radio 1999 Annual Report Download

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1999 ANNUAL REPORT
XM SATELLiTE RADiO HOLDiNGS iNC.
iT’S HAPPENiNG

Table of contents

  • Page 1
    iT'S HAPPENiNG X M S A T E L L i T E R A D i O 1 9 9 9 A N N U A L H O L D i N G S R E P O R T i N C .

  • Page 2
    C O N T E N T S Shareholders' Letter XM Is Happening 2 6 8 XM Is Programming XM Is Selling 10 12 14 XM Is Tuning In XM Is Driving Ahead XM Is Counting Down 16 18 XM Financials

  • Page 3
    ... by purposeful stride, XM Satellite Radio is leading the world into the next generation of radio - with commercial service barely 12 months away. During the last year, XM has developed a balanced ownership structure of public and strategic investors and attracted the funding, programming, talent and...

  • Page 4
    XM SATELLiTE RADiO iS LEADiNG THE WORLD iNTO WAVE OF RADiO. 2 X M R A D i O

  • Page 5
    ... radio and satellite television companies, are also deeply involved as operational partners, bringing additional value to our business. GM, Clear Channel, DIRECTV and American Mobile are among the major investors who are contributing their expertise in strategy, technology, programming and marketing...

  • Page 6
    ... year we opened a new XM office in Detroit to complement our existing presence in Tokyo, Japan and our Technology and Innovation Center in Deerfield Beach, FL. The new Detroit location allows us to build and enhance our cooperative activities with important OEM, manufacturing and technology partners...

  • Page 7
    ... either company's broadcasts. XM and Sirius will cross-license technology to bring dual-mode receivers to the marketplace as soon as possible. The bottom line is that we are executing our business plan milestones. We are making XM Satellite Radio happen. As we implement our winning business strategy...

  • Page 8
    XM iS HAPPENiNG DiRECT 6 X M R A D i O

  • Page 9
    ... and customer service expertise to helping XM commercialize our business. General Motors, the largest U.S. auto and truck manufacturer; DIRECTV, the nation's largest distributor of multi-channel digital video programming; Clear Channel, the largest radio station operator; and American Mobile...

  • Page 10
    ...cable MUSiC • NEWS • SPORTS Island to Long receive not just quality In addition to our XM Originals, we will offer a host of nationally branded USA TODAY, BET, Radio One, One-On-One Sports, the CNN News Group, Bloomberg, Hispanic Broadcast Corporation, PBS's NewsHour with Jim channels featuring...

  • Page 11
    CHANNELS iS PROGRAMMiNG 9 1 9 9 9 A N N U A L R E P O R T

  • Page 12
    "XM will provide a new national radio platform for advertisers. We want to be a part of that." Matthew G. Feinberg Vice President/Manager, Radio National Broadcast, Saatchi & Saatchi's Zenith Media Services, Inc. COAST THE NATiONAL PLATFORM ADVERTiSERS XM iS SELLiNG 1 0 X M R A D i O

  • Page 13
    ... passengers to XM programming and stimulate subscriber uptake on the ground. We have also established a marketing agreement with NASCAR - the name in auto racing - which will give XM a brand presence at events reaching more than 11 million people live and a TV audience of 252 million each year...

  • Page 14
    WHO'S XM iS TUNiNG iN MANUFACTURiNG PARTNERS 1 2 X M R A D i O

  • Page 15
    ... consumer electronics. • Home and Portable: home and portable receivers. P A R T N E R S XM has assembled a virtual "who's who" of household names in original equipment (OEM), aftermarket, home and portable radio products in order to ensure delivery of our dynamic, digital-quality audio service...

  • Page 16
    XM iS DRiViNG AHEAD 1 4 X M R A D i O

  • Page 17
    ... calls for the world's largest car company to market and distribute XM-Ready radios, starting in 2001. The agreement also provides for important product installation and marketing incentives. GM took an important step in this direction late last year when it placed the first-ever order for satellite...

  • Page 18
    ...the most powerful, state-of-the-art satellite system as the foundation of our innovative radio service. Our technology partners, each a leader in its industry, include Hughes Space & Communications. The world's leading satellite company is building XM's two operational satellites and a ground spare...

  • Page 19
    ... powerful commercial satellites in the world - twice the power of satellites used in the DBS business. Combined with a system of approximately 1,500 terrestrial repeaters installed in up to 70 of the nation's ! GO largest urban markets, we will provide seamless, nationwide digital-quality sound...

  • Page 20
    XM FiNANCiALS 1 8 X M R A D i O

  • Page 21
    ...N T E N T S Management's Discussion and Analysis of Financial Condition and Results of Operation 20 27 28 Consolidated Statements of Operations 30 Consolidated Statements of Cash Flows 34 Independent Auditor's Report 50 51 52 32 29 Selected Consolidated Financial Data Consolidated Balance Sheets...

  • Page 22
    ... from the FCC to provide satellite radio service. Our principal activities to date have included designing and developing the XM Radio system; negotiating contracts with satellite and launch vehicle operators, specialty programmers, radio manufacturers and car manufacturers; developing technical...

  • Page 23
    ... with our FCC license and the XM Radio system during 1999 and 1998, respectively. We expensed interest costs of $9.1 million and $0 during 1999 and 1998, respectively. We incurred a one-time $5.5 million charge to interest due to the beneficial conversion feature of the new American Mobile note. We...

  • Page 24
    ... require substantial additional funding, approximately $235.0 million, to finish building the XM Radio system, to provide working capital and fund operating losses until we commence commercial operations. The funds raised to date are expected to be sufficient in the absence of additional financing...

  • Page 25
    ...000 shares of Class A common stock (except upon conversion or exercise of existing securities or under our employee stock plans), if it would make these holders unable to convert any of their non-voting securities. We have filed an application with the FCC to permit American Mobile's voting power of...

  • Page 26
    ... from the sale of stock under the employee stock purchase plan and the exercise of stock options. The use of funds for satellites and launch in the chart above includes $472.6 million for satellites, launch and long-lead items, including certain financing costs associated with the satellites, and...

  • Page 27
    ... Agreement Funding Requirements. In addition to the above capital needs, we may require funds to pay license fees or make contributions towards the development of the technologies used to develop a unified standard for satellite radios under our joint development agreement with Sirius Radio...

  • Page 28
    ... cost of XM radios and to make incentive payments to General Motors when the owners of General Motors vehicles with installed XM radios become subscribers for the XM Radio service. We must also share with General Motors a percentage of the subscription revenue attributable to General Motors vehicles...

  • Page 29
    ...cash in short-term commercial paper and investment-grade corporate and government obligations and money market funds. All of our indebtedness was automatically converted into equity upon completion of our initial public offering. As a result, we believe that our exposure to interest rate risk is not...

  • Page 30
    ...E E T S 1998 1999 (in thousands, except share data) ASSETS Current assets: Cash and cash equivalents...$ 310 Short-term investments...- Prepaid and other current assets...172 Total current assets ...482 Other assets: System under construction ...169,029 Property and equipment, net of accumulated...

  • Page 31
    ...R AT i O N S 1997 1998 December 15, 1992 (date of inception) to December 31, 1999 1999 (in thousands, except share data) Revenue...$ - Operating expenses: ...Research and development ...- Professional fees...1,090 General and administrative ...20 Total operating expenses ...1,110 Operating loss...

  • Page 32
    ...to key executive...- Issuance of shares through exercise of stock options ...- Issuance of shares through the employee stock purchase plan ...- Increase in FCC license, goodwill and intangibles from WorldSpace Transaction...- Charge for beneficial conversion feature of note issued to Parent ...- Non...

  • Page 33
    Class B Common Stock Shares Amount (in thousands, except share data) Class C Common Stock Shares Amount Additional Paid-in Capital Deficit Accumulated During Development Stage Total Stockholders' Equity (Deficit) 100 100 - 100 - 100 - 100 - 100 - 25 - - 125 - 125 6,689,125 - - 11,182,...

  • Page 34
    ... of options ...Proceeds from issuance of subordinated convertible notes to related parties...Proceeds from issuance of convertible notes ...Repayment of loan payable...Payments for deferred financing costs ...Other investing activities ...Net cash provided by financing activities...Net increase in...

  • Page 35
    ...O W S (continued) 1997 1998 1999 December 15, 1992 (date of inception) to December 31, 1999 (in thousands) Supplemental cash flow disclosure: Increase in FCC license, goodwill and intangibles from WorldSpace Transaction ...$ Liabilities exchanged for new convertible note to Parent ...Non-cash...

  • Page 36
    ... of American Mobile Satellite Corporation ("AMSC" or "Parent") for the purpose of procuring a digital audio radio service ("DARS") license. Business activity for the period from December 15, 1992 through December 31, 1996 was insignificant. Pursuant to various financing agreements entered into...

  • Page 37
    ... using the straight-line method over the following estimated useful lives: Furniture, fixtures and computer equipment ...3 years Machinery and equipment...7 years Leasehold improvements...Remaining lease (f) System Under Construction The Company is currently developing its satellite system. Costs...

  • Page 38
    ... discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. (h) Stock-Based Compensation The Company accounts for stock...

  • Page 39
    ... $143,000 for the Company to establish the original application for the FCC license. On March 28, 1997, the Company received $1,500,000 as a capital contribution from AMSC. During 1998 and 1999, AMSC incurred general and administrative costs and professional fees for the Company and established an...

  • Page 40
    ... ...$ Professional fees...General and administrative ...Total ...$ 50 - - 50 $ - 219 5 224 $ 50 219 5 274 $ $ Additionally, during 1998 and 1999 the Company incurred $925,000 and $0, respectively, of WSI project management costs that were capitalized to the satellite system. With the...

  • Page 41
    ... of financing the activities of XMSR in connection with the establishment of a DARS satellite system in the United States. On May 16, 1997, certain portions of the Participation Agreement were subsequently ratified with substantially the same terms and conditions under the Bridge Loan, Additional...

  • Page 42
    ... beneficial conversion feature of the new AMSC note. These notes, along with $3,870,000 of accrued interest were converted into 11,182,926 shares of Class B common stock upon the initial public offering. (e) Issuance of Series A Subordinated Convertible Notes of the Company to New Investors At the...

  • Page 43
    ...shares of common stock under the Plan, which was increased to 2,675,700 in July 1999. The options are exercisable in installments determined by the compensation committee of the Company's board of directors. The options expire as determined by the committee, but no later than ten years from the date...

  • Page 44
    ... Company's total combined voting power immediately after an offering date under the plan is not eligible to participate. Eligible employees must authorize the Company to deduct an amount from their pay during offering periods established by the compensation committee. The purchase price for shares...

  • Page 45
    ... the grant date using the Black-Scholes Option Pricing Model with the following assumptions at December 31, 1999: Expected dividend yield ...0% Volatility ...63.92% Risk-free interest rate range ...4.73% Expected life...0.23 years The Company applies APB 25 in accounting for stock-based compensation...

  • Page 46
    ...of the license were expensed in 1997. During 1999, the Company exceeded its capitalization threshold by $3,600,000 and incurred a charge to interest of $5,520,000 for the beneficial conversion feature of the new AMSC note. (10) Income Taxes For the period from December 15, 1992 (date of inception...

  • Page 47
    ... to obtain the required long-term financing will prevent the Company from realizing its objective of providing satellite-delivered radio programming. Management's plan to fund operations and capital expansion includes the additional sale of debt and equity securities through public and private...

  • Page 48
    ...Company has signed a long-term distribution agreement with the OnStar division of General Motors providing for the installation of XM radios in General Motors vehicles. During the term of the agreement, which expires 12 years from the commencement date of the Company's commercial operations, General...

  • Page 49
    ... Satellite Radio's (formerly known as CD Radio) service. The agreement is subject to renegotiations if, four years after the commencement of XM Radio's commercial operations and at two-year intervals thereafter GM does not achieve and maintain specified installation levels of General Motors vehicles...

  • Page 50
    ... established a $3,400,000 letter of credit as a security deposit for one of its leases for office space. (l) Prior Litigation On January 12, 1999, Sirius Radio, the other holder of an FCC satellite radio license, commenced an action against the Company in the United States District Court for the...

  • Page 51
    ... shares of the Company's Class A common stock at a price of $49.50 per share. The Company realized net proceeds of $191.0 million, excluding $123.0 million used to acquire securities which will be used to pay interest payments due under the notes for the first three years. (15) Quarterly Data...

  • Page 52
    ...the three-year period ended December 31, 1999 and for the period from December 15, 1992 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue...

  • Page 53
    ... President, Enterprise Sector Hughes Electronics Corporation Dr. Rajendra Singh Chairman of the Members Committee Telcom Ventures Ronald L. Zarrella Executive Vice President, General Motors President, GM North America C O R P O R AT E i N F O R M AT i O N Corporate Officers Gary M. Parsons Chairman...

  • Page 54
    ...'s Annual Report on Form 10-K filed with the Securities and Exchange Commission will be sent, without charge, to any shareholder upon written request to Investor Relations, at XM Satellite Radio headquarters or via email to [email protected]. Dividend Policy XM Satellite Radio does not currently pay...

  • Page 55
    A L L B R A N D S , P R O D U C T S A N D S E R V i C E N A M E S M E N T i O N E D A R E T R A D E M A R K S O R R E G i S T E R E D S E R V i C E M A R K S O F T H E i R R E S P E C T i V E O W N E R S .

  • Page 56
    1250 23rd street, nw suite 57 washington, dc 20037 PH 202 969 7100 FAX 202 969 7050 www.xmradio.com 25K/4/2000