XM Radio 2000 Annual Report Download - page 35

RADiO TO THE POWER OF X
XM SATELLiTE RADiO 2000 Annual Report
(d) Short-term Investments
At December 31, 1999, the Company held commercial paper with maturity dates of less than one year that
were stated at amortized cost, which approximated fair value.
(e) Restricted Investments
Restricted investments consist of fixed income securities and are stated at amortized cost plus accrued interest
income. The securities included in restricted investments are $106.3 million of US Treasury strips restricted to
provide for the remaining five scheduled interest payments on the Company’s 14 percent Senior Secured Notes
due 2010, which are classified as held-to-maturity securities under the provision of SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, $49.6 million in money market funds for scheduled milestone
payments under the Hughes Electronics Corporation contract and $5.1 million in certificates of deposit to
collateralize letters of credit required by facility leases and other secured credits. The carrying value and fair
value of the held-to-maturity securities at December 31, 2000 were (in thousands):
Carrying Unrealized
Value Gain Fair Value
Held-to-Maturity securities.............................. $ 106,338 $ 1,060 $ 107,398
(f) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the following estimated useful lives:
Computer equipment ........................ 3–5 years
Computer software ............................ 3–5 years
Furniture and fixtures ........................ 3–7 years
Machinery and equipment .................. 3–7 years
Leasehold improvements.................... Remaining lease term
(g) System Under Construction
The Company is currently developing its satellite system. Costs related to the project are being capitalized to the
extent that they have future benefits. As of December 31, 2000, amounts recorded as system under construction
relate to costs incurred in obtaining a Federal Communications Commission (‘‘FCC’’) license and approval as well
as the system development. The FCC license will be amortized using the straight line method over an estimated
useful life of fifteen years. Amortization of the license will begin on commercial launch. Depreciation of the Company’s
satellites will commence upon in-orbit delivery. Depreciation of the Company’s ground stations will commence upon
commercial launch. The satellites and the ground stations will be depreciated over their estimated useful lives.
On October 16, 1997, the FCC granted XMSR a license to launch and operate two geostationary satellites for
the purpose of providing DARS in the United States in the 2332.5–2345 Mhz (space-to-earth) frequency band,
subject to achieving certain technical milestones and international regulatory requirements. The license is valid
for eight years upon successful launch and orbital insertion of the satellites and can be extended by the
Company. The Company’s license requires that it comply with a construction and launch schedule specified by
the FCC for each of the two authorized satellites. The FCC has the authority to revoke the authorizations and in
connection with such revocation could exercise its authority to rescind the Company’s license. The Company
believes that the exercise of such authority to rescind the license is unlikely.
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