XM Radio 1999 Annual Report Download - page 22

20 XM RADiO
MANAGEMENT’S DiSCUSSiON AND ANALYSiS OF
FiNANCiAL CONDiTiON AND RESULTS OF OPERATiONS
The following discussion and analysis provides information which we believe is relevant to an assessment and
understanding of our financial condition and consolidated results of operations. This discussion should be read
together with our consolidated financial statements and related notes.
Introduction
XM Satellite Radio Inc. was incorporated in Delaware in 1992 as a wholly-owned subsidiary of American Mobile
Satellite Corporation Inc. (American Mobile). XM Satellite Radio Holdings Inc. became a holding company for XM
Satellite Radio Inc. in connection with a strategic investment by a former shareholder in early 1997. In July
1999, following our repayment of $75.0 million in debt owed to the former shareholder, it conveyed all of its
interest in us to a trust. American Mobile then acquired all of that interest from the trust, making American
Mobile our only stockholder at that time. Also, in July, we issued $250.0 million of Series A subordinated
convertible notes. In October 1999, we completed an initial public offering and exercised an overallotment
option for a cumulative total of 10,241,000 shares of Class A common stock, yielding net proceeds of $114.1
million. Concurrent with the closing of our initial public offering, the $250.0 million of Series A subordinated
convertible notes, together with associated accrued interest of $6.8 million, converted into 10,786,504 shares
of Series A convertible preferred stock and 16,179,755 shares of Class A common stock. Additionally, the
$21.4 million and $81.7 million of convertible notes issued to American Mobile, together with associated
accrued interest of $3.8 million, converted into 11,182,926 shares of Class B common stock. In the first
quarter of 2000, we completed a follow-on offering of 4,370,000 shares of Class A common stock, yielding net
proceeds of $132.2 million, a concurrent offering of 2,000,000 shares of our Series B convertible redeemable
preferred stock, which yielded net proceeds of $96.3 million, and a private placement of 325,000 units, each
consisting of $1,000 principal amount of 14% senior secured notes due 2010 and one warrant to purchase
8.024815 shares of Class A common stock at $49.50 per share that provided net proceeds of $191.0 million
excluding $123.0 million for an interest reserve.
We are in the development stage. Since our inception in December 1992, we have devoted our efforts to
establishing and commercializing the XM Radio system. Our activities were fairly limited until 1997, when we
pursued and obtained regulatory approval 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 standards and specifications;
• conducting market research; and
• securing financing for working capital and capital expenditures.
We have incurred substantial losses to date and expect to continue to incur significant losses for the foreseeable
future as we continue to design, develop and deploy the XM Radio system and for some period following our
commencement of commercial operations.
We intend to capitalize all costs related to our satellite contract and our FCC license, including all applicable
interest. These capitalized costs will be depreciated over the estimated useful lives of the satellites and ground
control stations. Depreciation of our satellites will commence upon in-orbit delivery. Depreciation of our satellite
control facilities and terrestrial repeaters and the amortization of our FCC license will commence upon
commercial operations.
After we begin commercial operations, which we are targeting for the second quarter of 2001, we anticipate
that our revenues will consist primarily of customers’ subscription fees and advertising revenues.