XM Radio 2001 Annual Report Download - page 46

44 XM SATELLiTE RADiO 2 0 0 1 Annual Report
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
December 3 1,
2000 20 01
DARS license ......................................... $ — $ 146,2 71
Satellite system ..................................... — 521,251
Terrestrial system ................................... — 243,755
Spacecraft control facilities ..................... — 24,353
Broadcast facilities ................................. 16,752 55,686
Land ...................................................... —7,156
Building and improvements ..................... —42,269
Computer systems, furniture and fixtures,
and equipment .................................... 2 1,063 68,834
Leasehold improvements ......................... 14,574 —
52,389 1,109,575
Accumulated depreciation and amortization .. (2 ,337) (43,384)
Net property and equipment, net.............. $ 50,052 $1 ,066,191
In July 2001, the Company received notification from BSS that the expected life of its satellites was extended
due to the accuracy of the respective launches, which used less fuel than anticipated. The Company, therefore,
changed the useful life estimate for the satellite system and the DARS license from 15 years to 17.5 years.
In September 2001, BSS advised the Company of a progressive degradation problem with the solar array output
power of 702 class satellites, including XM “Rock” and XM “Roll”. At the present time, the output power of the solar
arrays and the broadcast signal strength are above minimum acceptable levels and are expected to remain that
way at least through 2005, permitting full operation of the XM System (based on patterns projected by BSS). The
Company has advised its insurance carriers of the situation. Since the issue is common to 702 class satellites, the
manufacturer is closely watching the progression of the problem, including data from a satellite in orbit approximately
18 months’ longer than XM “Rock” and XM “Roll”. With this 18-month advance visibility of performance levels,
insurance arrangements in place, a spare satellite under construction that is being modified to address the solar array
anomaly and availability of additional satellites, the Company believes that it will be able to launch additional
satellites prior to the time the solar power problem might cause the broadcast signal strength to fall below acceptable
levels. The Company’s management will continue to monitor this situation carefully over the next few years.
In August 2001, the Company acquired its corporate headquarters, which was previously subject to a long-term lease.
The related leasehold improvements have been classified as buildings and improvements as of December 31, 2001.
In December 2001, the Company determined that the planned number of terrestrial repeater sites could be
reduced due to a network optimization study that was conducted. The Company established a formal plan and
recognized a charge of $26,300,000 with respect to the terrestrial repeater sites no longer required. The costs
are principally related to the site acquisition and build-out of the identified sites. These costs have been included
within system operations at December 31, 20 01. Included within the charge is $8,595,000 for costs to be
incurred in 2002 related to these sites (see note 15 (h)).
AMERiCA’S FiRST SATELLiTE RADiO SERViCE
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