XM Radio 1999 Annual Report Download - page 24

22 XM RADiO
Interest Expense. As of December 31, 1998 and 1997, we owed $140.2 million and $82.5 million,
respectively, including accrued interest, under various debt agreements which we entered into for the purpose of
financing the XM Radio system. We capitalized interest costs of $11.8 million and $1.9 million associated with
our FCC license and the XM Radio system during the year ended December 31, 1998 and 1997, respectively.
We expensed interest costs of $0.5 million during the year ended December 31, 1997.
Net Loss. The net loss for the years ended December 31, 1998 and 1997 was $16.2 million and $1.7 million,
respectively, primarily reflecting research and development activities, professional fees and general and
administrative expenses.
Liquidity and Capital Resources
At December 31, 1999, we had a total of cash, cash equivalents and short-term investments of $120.2 million and
working capital of $94.7 million, compared with cash and cash equivalents of $0.3 million and working capital of
$(130.3) million at December 31, 1998. The increases in the respective balances are due primarily to the proceeds
from the issuance of Series A subordinated convertible notes in July 1999 (see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Funds Required for XM Radio Through Commencement
of Commercial Operations – Sources of Funds”) exceeding capital expenditures and operating expenses for 1999,
which was off-set by a $75.0 million payment to retire loans payable, and the conversion of current loans payable to
a former shareholder into the non-current American Mobile new convertible note. In October 1999, we successfully
completed an initial public offering, which raised $114.1 million in net proceeds, and converted the Series A
subordinated convertible notes into Series A convertible preferred stock and Class A common stock.
Funds Required for XM Radio Through Commencement of Commercial Operations
We estimate that we will require approximately $1.1 billion to develop and implement the XM Radio system from
our inception through the commencement of commercial operations, which we are targeting for the second
quarter of 2001. We have raised an aggregate of $865.0 million since our inception net of expenses, interest
reserve and repayment of debt. We will 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 to cover our funding needs into the third quarter of 2000.
We currently expect to satisfy our funding requirements by selling debt or equity securities and by obtaining
loans or other credit lines from banks or other financial institutions. In addition, we plan to raise funds through
vendor financing arrangements associated with our terrestrial repeater project. If we are successful in raising
additional financing, we anticipate that a significant portion of future financing will consist of debt. We are
actively considering possible financings, and because of our substantial capital needs we may consummate one
or more financings at any time. Often, high yield debt securities are issued as part of units with warrants to
purchase common stock. If warrants were issued in any debt placement by us, the amount of common stock
that may be purchased and the price at which stock would be purchased under the warrants would depend upon
market conditions at that time.
American Mobile is our controlling stockholder. American Mobile has certain rights regarding the election of
persons to serve on our board of directors and as of the date of this report, holds 61.0% of the voting power of
Holdings, or 50.5% giving effect to the conversion of all of Holdings’ outstanding common stock equivalents.
American Mobile cannot relinquish its position as our controlling shareholder without obtaining the prior approval
of the FCC. Accordingly, prior to our obtaining FCC approval of the transfer of control from American Mobile, we
will only be able to issue a limited amount of voting securities or securities convertible into voting securities
unless certain of our stockholders holding nonvoting convertible securities agree not to convert them into voting
securities or we take other steps to permit voting securities on a basis consistent with FCC rules. Certain
holders of our nonvoting securities have agreed not to convert their securities if it would cause American Mobile
not to hold a majority of our voting stock or a lesser percentage approved by the FCC, until we obtain approval