XM Radio 2010 Annual Report Download - page 128

We have an agreement with Space Systems/Loral to design and construct a sixth satellite, FM-6, for use in the
SIRIUS system. In January 2008, we entered into an agreement with International Launch Services (ILS) to secure a
satellite launch on a Proton rocket for this satellite.
Programming and content. We have entered into various programming agreements. Under the terms of these
agreements, we are obligated to provide payments to other entities that may include fixed payments, advertising
commitments and revenue sharing arrangements.
Marketing and distribution. We have entered into various marketing, sponsorship and distribution agree-
ments to promote our brand and are obligated to make payments to sponsors, retailers, automakers and radio
manufacturers under these agreements. Certain programming and content agreements also require us to purchase
advertising on properties owned or controlled by the licensors. We also reimburse automakers for certain
engineering and development costs associated with the incorporation of satellite radios into vehicles they
manufacture. In addition, in the event certain new products are not shipped by a distributor to its customers
within 90 days of the distributor’s receipt of goods, we have agreed to purchase and take title to the product.
Satellite incentive payments. Boeing Satellite Systems International, Inc., the manufacturer of four of XM’s
in-orbit satellites, may be entitled to future in-orbit performance payments with respect to two of XM’s satellites. As
of December 31, 2010, we have accrued $28,605 related to contingent in-orbit performance payments for XM-3 and
XM-4 based on expected operating performance over their fifteen year design life. Boeing may also be entitled to an
additional $10,000 if XM-4 continues to operate above baseline specifications during the five years beyond the
satellite’s fifteen-year design life.
Space Systems/Loral, may be entitled to future in-orbit performance payments. As of December 31, 2010, we
have accrued $12,565 and $21,450 related to contingent performance payments for FM-5 and XM-5, respectively,
based on expected operating performance over their fifteen-year design life.
Operating lease obligations. We have entered into cancelable and non-cancelable operating leases for office
space, equipment and terrestrial repeaters. These leases provide for minimum lease payments, additional operating
expense charges, leasehold improvements and rent escalations that have initial terms ranging from one to fifteen
years, and certain leases that have options to renew. The effect of the rent holidays and rent concessions are
recognized on a straight-line basis over the lease term, including reasonably assured renewal periods. Total rent
recognized in connection with leases for the years ended December 31, 2010, 2009 and 2008 was $36,652, $44,374
and $40,378, respectively.
Other. We have entered into various agreements with third parties for general operating purposes. In addition
to the minimum contractual cash commitments described above, we have entered into agreements with other
variable cost arrangements. These future costs are dependent upon many factors, including subscriber growth, and
are difficult to anticipate; however, these costs may be substantial. We may enter into additional programming,
distribution, marketing and other agreements that contain similar variable cost provisions.
We do not have any other significant off-balance sheet arrangements that are reasonably likely to have a
material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Legal Proceedings
State Consumer Investigations. A Multistate Working Group of 28 State Attorneys General, led by the
Attorney General of the State of Ohio, is investigating certain of our consumer practices. The investigation focuses
on practices relating to the cancellation of subscriptions; automatic renewal of subscriptions; charging, billing,
collecting, and refunding or crediting of payments from consumers; and soliciting customers.
A separate investigation into our consumer practices is being conducted by the Attorney General of the State of
Florida. In addition, in September 2010, the Attorney General of the State of Missouri commenced an action against
us in Missouri Circuit Court, Twenty-Second Judicial Circuit, St. Louis, Missouri, alleging violations of the
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SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)