XM Radio 2000 Annual Report Download - page 26

RADiO TO THE POWER OF X
XM SATELLiTE RADiO 2000 Annual Report
Following the end of the fiscal year ended December 31, 2000, in March 2001, we completed a follow-on offering
of 7,500,000 shares of Class A common stock, which yielded net proceeds of $72.0 million, and a concurrent
offering of 7.75% convertible subordinated notes due 2006, convertible into shares of our Class A common stock
at $12.23 per share, which yielded net proceeds of $120.7 million. These issuances caused the conversion price
of the Series C preferred stock to be adjusted from $26.50 to $22.93 and the exercise price of the warrants sold in
March 2000 to be adjusted to $45.27 and the number of warrant shares to be increased to 8.776003 per warrant.
Uses of Funds. Of the approximately $1.3 billion of funds raised to date, as of December 31, 2000, we have
paid $765.1 million in capital expenditures, including approximately $90.0 million for our FCC licence which has
been paid for in full, and incurred $127.5 million in operating expenses.
Satellite Contract. Under our satellite contract, Boeing Satellite Systems International, Inc. (formerly Hughes
Space and Communications, Inc.) will deliver two satellites in orbit and is to complete construction of a ground
spare satellite. Boeing will also provide ground equipment and software to be used in the XM Radio system and
certain launch and operations support services. We expect that by commencement of commercial operations in
the summer of 2001, we will have had to pay an aggregate amount of approximately $472.6 million for these
items. This amount does not include incentive payments, which will depend in part on projected satellite performance
at the acceptance date. Such payments could total up to an additional $68.7 million over the useful lives of the
satellites. As of December 31, 2000, we had paid approximately $466.0 million under our satellite contract and
have recognized an additional $1.6 million in accrued milestone payments.
Launch Insurance. We expect that launch insurance for both satellites will cost approximately $50.0 million. As
of December 31, 2000, we had paid $24.2 million with respect to launch insurance.
Terrestrial Repeater System. Based on the current design of the XM Radio system and existing contracts, we
estimate that through our expected commencement of operations in the summer of 2001 we will incur aggregate
costs of approximately $258.0 million for a terrestrial repeater system. We expect these costs to cover the capital
cost of the design, development and installation of a system of terrestrial repeaters to cover approximately 70
cities and metropolitan areas. As of December 31, 2000, we had incurred costs with respect to the terrestrial
repeater buildout of $84.7 million. In August 1999, we signed a contract with LCC International, Inc., a related
party, that presently calls for payments of approximately $107.5 million for engineering and site preparation. As
of December 31, 2000, we had paid $50.2 million under this contract and accrued an additional $15.1 million.
We have also engaged other companies to perform site preparation services. We also entered into a contract
effective October 22, 1999, with Hughes Electronics Corporation for the design, development and manufacture
of the terrestrial repeaters. Payments under this contract are expected to be approximately $128.0 million. As
of December 31, 2000, we had paid $15.4 million under this contract.
Ground Segment. Based on the design of the XM Radio system, available research and existing contracts, we
expect to incur aggregate ground segment costs through the expected commencement of operations in the
summer of 2001 of approximately $65.9 million. We expect these costs will cover the satellite control facilities,
programming production studios and various other equipment and facilities. As of December 31, 2000, we had
incurred $47.5 million with respect to the ground segment.
FCC License. In October 1997, we received one of two satellite radio licenses issued by the FCC. We have
paid approximately $90.0 million for this license, including the initial bid right. There are no further payments
required relating to the license.
Operating Expenses. From inception through December 31, 2000, we have incurred total operating expenses
of $127.5 million.
Joint Development Agreement Funding Requirements. We may require additional 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. Each party is obligated to fund one half of the
development cost for such technologies. Each party will be entitled to license fees or a credit towards its one
half of the cost based upon the validity, value, use, importance and available alternatives of the technology it
contributes. In our discussions we have yet to agree on the validity, value, use, importance and available alternatives
of our respective technologies. If we fail to reach agreement, the fees or credits may be determined through
binding arbitration. We cannot predict at this time the amount of license fees or contribution payable by us or
Sirius Radio or the size of the credits to us and Sirius Radio from the use of the other’s technology. This may
require significant additional capital.
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