XM Radio 2000 Annual Report Download - page 44

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XM SATELLiTE RADiO 2000 Annual Report
(6) WSI Options
In 1997, the Company issued WSI three options in accordance with the terms of loans issued to WSI. Under the
first option, WSI could have purchased 5,202,748 shares of common stock at $4.52 per share to acquire common
stock. The option could have been exercised in whole or in incremental amounts between April 16, 1998 and
October 16, 2002. Under certain circumstances, Motient could have required WSI to exercise the option in
whole. The Company allocated $1,250,000 to the option. Under the second option, WSI could have purchased
6,897,291 shares at $8.91 per share. The option could have been exercised between October 16, 1997 and
October 16, 2003. The Company allocated $170,000 to the option. Under the third option, WSI could have purchased
187,893 shares of common stock at $5.32 per share. The option could have been exercised between October
16, 1997 and October 17, 2002. The Company allocated $80,000 to the option.
The options were acquired by Motient and exchanged for the $81,676,000 note to Motient as part of the
WorldSpace Transaction (see note 3(a)).
(7) Profit Sharing and Employee Savings Plan
On July 1, 1998, the Company adopted a profit sharing and employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan allows eligible employees to defer up to 15 percent of their compensation on a
pre-tax basis through contributions to the savings plan. The Company contributed $0.50 in 1998, 1999 and
2000 for every dollar the employees contributed up to 6 percent of compensation, which amounted to $14,000,
$164,000 and $229,000, respectively.
(8) Interest Cost
The Company capitalizes a portion of interest cost as a component of the cost of the FCC license and satellite
system under construction. The following is a summary of interest cost incurred during December 31, 1998,
1999 and 2000, and for the period from December 15, 1992 (date of inception) to December 31, 1999 (in
thousands):
December 15, 1992
(date of inception)
to December 31,
1998 1999 2000 2000
Interest cost capitalized................................ $ 11,824 $ 15,343 $ 39,052 $ 68,120
Interest cost charged to expense.................. —9,120 —9,669
Total interest cost incurred ...................... $ 11,824 $ 24,463 $ 39,052 $ 77,789
Interest costs incurred prior to the award of the license were expensed in 1998. 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 a related party note.
(9) Income Taxes
For the period from December 15, 1992 (date of inception) to October 8, 1999, the Company filed consolidated
federal and state tax returns with its majority stockholder Motient. The Company generated net operating losses
and other deferred tax benefits that were not utilized by Motient. As no formal tax sharing agreement has been
finalized, the Company was not compensated for the net operating losses. Had the Company filed on a stand-
alone basis for the three-year period ending December 31, 2000, the Company’s tax provision would be as follows:
FiNANCiALS 2000
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