XM Radio 2001 Annual Report Download

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Product of the Year
81690_XM2001_AR_Covers 4/9/02 2:28 PM Page 1

Table of contents

  • Page 1
    81690_XM2001_AR_Covers 4/9/02 2:28 PM Page 1 Product of the Year

  • Page 2
    81690_XM2001_AR_Covers 4/9/02 12:02 PM Page 6 C ON TEN TS 1 Letter to Shareholders 4 Recognition 7 Technology 9 Programming 12 Partners 15 Marketing 16 Listeners 19 Financials

  • Page 3
    ... Signed key programming partners including MTV , VH1, FOX News, CNN Headline News, ABC News & Talk, ESPN, FOX Sports, Radio Disney, E!, CNET and CNBC. • Announced a joint marketing agreement with DIRECTV designed to drive XM subscriber growth. • Opened studios in Nashville at the Country Music...

  • Page 4
    ... about XM, using our multi-media marketing effort, to increase our subscriber base and make XM a true mass-market product. • Extending our presence among car companies. GM's announcement that it will expand the availability of XM radios as a factory-installed option to 25 model year 2003 cars is...

  • Page 5
    AR 2001 TEXTPGONLYFINAL 4/9/02 12:06 PM Page 3

  • Page 6
    ... "With 100 channels of music, news and talk, it offers far more variety than any one city's set of FM outlets ..." - Washington Post AMI Auto World One of the Best New Car Options On our technology: "XM's signal was consistent, even under the freeway overpasses and near tall buildings ..." - San...

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    AR 2001 TEXTPGONLYFINAL 4/9/02 12:06 PM Page 5

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    AR 2001 TEXTPGONLYFINAL 4/9/02 12:07 PM Page 6

  • Page 9
    ... and Play" radio that works in the car, home or office. Alpine recently introduced an XM universal receiver and Sony will soon offer XM in its Xplod line of in-dash radios. All XM radios offer digital-quality XM sound along with a display of the artist name and song title, and of course access to...

  • Page 10
    AR 2001 TEXTPGONLYFINAL 4/9/02 12:07 PM Page 8 XM Channel Lineup 100 Channels. 100 New Choices.

  • Page 11
    ... also tune in to 29 channels featuring news, sports, talk and entertainment including the only nationwide 24-hour radio broadcasts of MTV , VH1, BET , NASCAR and USA Today. Other key partners include CNBC, CNN Headline News, CNNfn, FOX News, FOX Sports, BBC World Service, ABC News & Talk, Bloomberg...

  • Page 12
    AR 2001 TEXTPGONLYFINAL 4/9/02 12:08 PM Page 10 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 13
    ... - not just listeners: Our world-class programming team and programming partners are indeed all about treating music listeners like music lovers ...because loving the music is what satellite radio is all about. Willie Nelson " Quincy Jones Wynton Marsalis XM SATELLiTE RADiO 2 0 0 1 Annual Report 11...

  • Page 14
    ... strategic XM investor and automotive partner and became the first auto manufacturer in the world to offer XM as a factory-installed option on 2002 Cadillac DeVille and Seville models. GM will dramatically expand availability of XM radios as a factory-installed option across 25 popular car and truck...

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    AR 2001 TEXTPGONLYFINAL 4/9/02 12:09 PM Page 13

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    AR 2001 TEXTPGONLYFINAL 4/9/02 12:09 PM Page 14

  • Page 17
    ... Commercial Our number one marketing goal has been to cost-effectively grow our subscriber base and build the XM brand. Our national multi-media campaign defined the service as the ultimate radio experience - "Radio to the Power of X." Premiering on more than 19,000 movie screens and the MTV Music...

  • Page 18
    ... includes weekly programming highlights, on-line request voting and the ability to contact and interact with each of XM's original programming channels. XM is already acting on subscriber suggestions to take the listener experience to the next level. " 16 XM SATELLiTE RADiO 2 0 0 1 Annual Report...

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    AR 2001 TEXTPGONLYFINAL 4/9/02 12:09 PM Page 17

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    AR 2001 TEXTPGONLYFINAL 4/9/02 2:41 PM Page 18

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    81690_XM2001_AR_Financials 4/9/02 12:32 PM Page 1 FiN AN CiALS 2 0 0 1 2001 F i N A N C i A L i N F O R M AT i O N FiN AN CiALS 2 0 0 1 XM SATELLiTE RADiO 2 0 0 1 Annual Report 19

  • Page 22
    ... E 2001 F i N A N C i A L i N F O R M AT i O N CON TEN TS 21 Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Selected Consolidated Financial Data 32 ...Report 60 Stockholder Information, Corporate Information 20 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 23
    ... as the service is provided, and a non-refundable activation fee, which is recognized on a pro-rata basis over an estimated term for the subscriber relationship (which estimate we expect to be further refined over the next few years as additional XM SATELLiTE RADiO 2 0 0 1 Annual Report 21

  • Page 24
    ... of commercial operations and includes expenses related to our distribution partners, subscriber acquisition costs, personnel, advertising creation and media costs and significant pre-operations costs. We expect sales and marketing expense to increase during 2002 as we add subscribers. General and...

  • Page 25
    ...increases in research and development and additional general and administrative expense, primarily due to increased expense for headcount, facilities and services in preparation for commercial operations and the amortization of goodwill and intangibles. XM SATELLiTE RADiO 2 0 0 1 Annual Report 23

  • Page 26
    ... of obligations to Boeing, our satellite manufacturer; • We entered into a loan and security agreement with a lender that provided $29.0 million to purchase our corporate headquarters and incurred $0.5 million in financing costs; Sources of Funds. 24 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 27
    .... We may require additional funds to pay license fees or make contributions toward 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...

  • Page 28
    ... be needed to cover broadcasting operations, sales and marketing, general corporate purposes and further development of the XM Radio system. Sales and marketing expenses are expected to include joint advertising and joint development with, and manufacturing subsidies of certain costs of, some of our...

  • Page 29
    ... is payable semi-annually. In August 2001, we borrowed $29.0 million to finance the purchase of our headquarters facility. This loan is for a term of five years and bears interest at a rate based on the London Interbank Offer Rate plus an indicated spread. We make monthly payments of principal...

  • Page 30
    ...engineering and manufacture ...1999 2000 2001 Terrestrial repeater site leases...1999 2000 2001 Customer care and billing operations ...1999 2000 2001 Sales and marketing...1999 2000 2001 General and administrative ...1999 2000 2001 28 XM SATELLiTE RADiO 2 0 0 1 Annual Report GM - - - - - - Hughes...

  • Page 31
    ...pro-rata basis over an estimated term of the subscriber relationship, which was based upon market studies and management 's judgment. We expect to refine this estimate as more data becomes available. Payments from customers receiving our service under promotional offers are not recognized as revenue...

  • Page 32
    ... intend to use derivatives. We do not hold or issue any free-standing derivatives. We invest our cash in short-term commercial paper, investment-grade corporate and government obligations and money market funds. Our long-term debt includes fixed interest rates and the fair market value of the debt...

  • Page 33
    ... of Operations Data: Subscriber revenue ...$ Ad sales revenue ...Less: Agency commissions ...Other revenue ...Total revenue...$ Operating expenses: Broadcasting operations: Content/ programming ...System operations...Customer care and billing operations ...Sales and marketing ...General and...

  • Page 34
    ...Total current liabilities ...Long-term debt, net of current portion ...Royalty payable, net of current portion ...Other non-current liabilities ...Total liabilities ...Stockholders ' equity: Series A convertible preferred stock, par value $0.01 (liquidation preference of $102,688); 15,000,000 shares...

  • Page 35
    ... share data) 2001 Revenue: Subscriber revenue ...Ad sales revenue ...Less: Agency commissions ...Other revenue ...Total revenue ...Operating expenses: Broadcasting operations: Content/ programming ...System operations ...Customer care and billing operations...Sales and marketing ...General and...

  • Page 36
    ... ...Charge for beneficial conversion feature of note issued to Parent ...Issuance of shares to employees through stock option and purchase plans ...Non-cash stock compensation ...Net loss ...Secondary public offering ...Sale of Series B convertible redeemable preferred stock ...Sale of Series...

  • Page 37
    ...Stock Class B Common Stock Class C Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity (Deficit) Shares Amount Shares Amount Shares Amount (In thousands, except share data...,761 - - $ (390,974 ) $ 926,651 XM SATELLiTE RADiO 2 0 0 1 Annual Report 35

  • Page 38
    ...net cash used in operating activities: Bad debt expense ...Depreciation and amortization ...Loss on disposal computer equipment ...Amortization of deferred financing fees ...Non-cash stock-based compensation ...Non-cash charge for beneficial conversion feature of note issued to investor.. Changes in...

  • Page 39
    ... (" FCC" ). XM Satellite Radio Holdings Inc. (the " Company" ) was formed as a holding company for XMSR on May 16, 1997. The Company became the first digital satellite radio service in the United States of America on September 25, 2001 when it commenced commercial operations in the lead markets of...

  • Page 40
    ... facilities and related computer systems commenced on September 25, 2001, which was the date the service was launched in the Company's lead markets. Depreciation of the broadcast facilities and the terrestrial repeaters commenced when they were placed in service. The Company accounts for long-lived...

  • Page 41
    ..., which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 15 years. Other intangible assets are amortized over 10 years. The Company assesses the recoverability of its intangible...

  • Page 42
    ... The Company derives revenue from subscriber subscription and activation fees as well as advertising. Subscriber revenue, which is generally billed in advance, consists of fixed charges for service, which are recognized as the service is provided and through non-refundable activation fees that...

  • Page 43
    ...the XM Radio Service. The Company has commenced commercial operations and will require substantial additional financing to market and distribute the XM Radio Service. Failure to obtain the required long-term financing may prevent the Company from continuing to provide its service. Management 's plan...

  • Page 44
    ... GM (see note 15 (f)). Under the terms of the agreement, GM distributes the XM Radio Service in various models of its vehicles. (b) Hughes In 1999, the Company entered into a terrestrial repeater manufacturing agreement with Hughes (see note 15 (e)). 42 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 45
    ... Services Contract (note 15 (e)) and LCCI also provides certain ongoing consulting engineering work for the Company relating to the terrestrial repeater network on a time and materials basis. (e) Clear Channel In 2 0 0 0 , the Company entered into an advertising sales agreement with Premiere Radio...

  • Page 46
    ...the site acquisition and build-out of the identified sites. These costs have been included within system operations at December 31, 2001. Included within the charge is $8,595,000 for costs to be incurred in 2002 related to these sites (see note 15 (h)). 44 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 47
    ...fair value of the related warrants. The Company had amortized $2,044,000 and $5,052,000 of the discount through December 31, 2000 and 2001, respectively. See note 10(f) for further discussion regarding adjustments that have occurred to the related warrants. XM SATELLiTE RADiO 2 0 0 1 Annual Report...

  • Page 48
    ... ...Accounts receivable...Letters of credit ...Financial liabilities: Accounts payable...Accrued expenses ...Accrued network optimization expenses ...Due to related parties ...Royalty payable...Long-term debt ...Other non-current liabilities ...31,793 3,474 - Fair Value $ 224,903 - 2001 Carrying...

  • Page 49
    ... value of the Company's long-term debt is determined by either estimation by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's bankers or by quoted market prices at the reporting date...

  • Page 50
    ...redeemable preferred stock in Class A common stock on February 1, 2012. At its option, the Company may redeem the Series C convertible redeemable preferred stock beginning on February 8, 2005 in cash or, at the holder 's option, in Class A common stock. 48 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 51
    ... voted to reduce the exercise price of the options outstanding in the shares award plan from $16.35 to $9.52 per share, which represented the fair value of the stock on the date of repricing. Transactions and other information relating to the Plan for the years ended December 31, 1999, 2000 and 2001...

  • Page 52
    ...the plan for future sale. The per share weighted-average fair value of purchase rights granted during the year was $3.30, $11.28, and $5.37 for the years ended December 31, 1999, 2000 and 2001, respectively. The estimates were calculated at the grant date using the Black-Scholes Option Pricing Model...

  • Page 53
    ... for its stock options and stock purchase plan in the financial statements other than for performance based stock options, for options granted with exercise prices below fair value on the date of grant and for repriced options under FIN No. 44. During 1999, 2000 and 2001, the Company incurred $4,070...

  • Page 54
    ... 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, 2001, the Company's tax provision would be as follows: Taxes on income included in...

  • Page 55
    ...during 1999, 2000, and 2001, respectively. Additionally, the Company incurred the following non-cash financing and investing activities (in thousands): 1999 Increase in DARS license, goodwill and intangibles ...$ 51,624 Liabilities exchanged for new convertible note to related parties ...81,676 Non...

  • Page 56
    ... licensed technology then under development to be used in the XM Radio System, XMSR will pay up to $14,300,000 to WorldSpace MC over a ten-year period. As of December 31, 2001, XMSR incurred costs of $6,696,000 payable to WorldSpace MC. Any additional amounts to be incurred under this agreement are...

  • Page 57
    ... based on the number of terrestrial repeaters that are required for the system. As of December 31, 2001, the Company had paid $95,788,000 and accrued an additional $7,685,000 under this contract. (f) GM Distribution Agreement The Company has signed a long-term distribution agreement with the OnStar...

  • Page 58
    ... terms of these agreements, the Company is obligated to provide payments and commissions to other entities that may include fixed payments, advertising commitments and revenue sharing arrangements. The amount of these costs related to these agreements 56 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 59
    ... future costs. During the years ended December 31, 1999, 2000, 2001, the Company incurred expenses of $0, $0 and $7,230,000, respectively, in relation to these agreements. The amount of these costs will vary in future years, but is expected to increase in the next year as the number of subscribers...

  • Page 60
    ... package with The Boeing Company (see notes 8(d) and 15(d)), including $35,000,000 in new debt financing. Further, the Company incurred a charge of $26,300,000 to system operations for terrestrial repeater sites no longer required (see note 15(h)). 58 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 61
    ...Satellite Radio Holdings Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America...

  • Page 62
    .... Copies of these filings are available upon request from XM Radio 's Investor Relations Department. All brands, products and service names mentioned are trademarks or registered service marks of their respective owners. © 2002 XM Satellite Radio Inc. 60 XM SATELLiTE RADiO 2 0 0 1 Annual Report

  • Page 63
    ... Hugh Panero President, Chief Executive Officer Stephen Cook Executive Vice President, Sales, Marketing and Customer Operations Hugh Panero President and Chief Executive Officer XM Satellite Radio Holdings Inc. Steven P. Gavenas Executive Vice President, Programming Nathaniel A. Davis President...

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