XM Radio 1999 Annual Report Download - page 27

25 1999 ANNUAL REPORT
Satellite Contract. Under our satellite contract, Hughes will deliver two satellites in orbit and if we exercise our
option, complete construction of a ground spare satellite. Hughes will also provide ground equipment and
software to be used in the XM Radio system and certain launch and operations support services. We expect that
by commencement of commercial operations in the second quarter of 2001, we will have had to pay an
aggregate amount of approximately $472.6 million for these items and for Hughes to complete the optional
ground spare satellite. This amount does not include incentive payments, which will depend in part on projected
satellite performance at the acceptance date. Such payments could total up to an additional $68.7 million over
the useful lives of the satellites. As of December 31, 1999, we had paid approximately $183.9 million under our
satellite contract and recognized an additional $15.5 million in accrued milestone payments which were paid
subsequently.
Launch Insurance. Based on current industry estimates, we expect that launch insurance for both satellites will
cost an aggregate of approximately $50.0 million. As of December 31, 1999, we had not incurred any costs
with respect to launch insurance.
Terrestrial Repeater System. Based on the current design of the XM Radio system and preliminary bids, we
estimate that through our expected commencement of operations in the second quarter of 2001 we will incur
aggregate costs of approximately $263.3 million for a terrestrial repeater system. We expect these costs to
cover the capital cost of the design, development and installation of a system of terrestrial repeaters to cover
approximately 70 cities and metropolitan areas. As of December 31, 1999, we had incurred costs with respect
to the terrestrial repeater buildout of $10.1 million which we paid. In August 1999, we signed a contract calling
for payments of approximately $115.0 million for engineering and site preparation. We entered into a contract
effective October 22, 1999, with Hughes Electronics Corporation for the design, development and manufacture
of the terrestrial repeaters. Payments under this contract are expected to be approximately $128.0 million. As
of December 31, 1999, we have paid $3.5 million under this contract.
Ground Segment. Based on the design of the XM Radio system, available research, preliminary bids and actual
contract costs, we expect to incur aggregate ground segment costs through the expected commencement of
operations in the second quarter of 2001 of approximately $65.9 million. We expect these costs will cover the
satellite control facilities, programming production studios and various other equipment and facilities. As of
December 31, 1999, we had incurred $5.6 million in costs with respect to the ground segment.
FCC License. In October 1997, we received one of two satellite radio licenses issued by the FCC. We have
paid approximately $90.0 million for this license, including the initial bid right. No additional payments have been
made relating to the license.
Operating Expenses and Working Capital Requirements. In addition to the above capital needs, we will require
funds for working capital, operating expenses and royalty payments currently estimated to be approximately
$158.2 million through our targeted commercial launch in the second quarter of 2001. From our inception
through December 31, 1999, we have incurred total expenses of $36.9 million. Total cash used in operating
activities was $18.8 million. The difference between the loss incurred to date and cash used in operations is
principally due to a $5.5 million beneficial conversion charge, $12.5 million in amounts due to related parties
and $3.6 million in accrued interest.
Joint Development Agreement Funding Requirements. In addition to the above capital needs, we may require
funds to pay license fees or make contributions towards 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 such technologies. Each party will be entitled to license
fees or a credit towards its one half of the cost based upon the validity, value, use, importance and available
alternatives of the technology it contributes. The amounts of these fees or credits will be determined over time
by agreement of the parties or by arbitration. We cannot predict at this time the amount of license fees or
contributions payable by XM or Sirius Radio or the size of the credits to XM and Sirius Radio from the use of
their technology. This may require significant additional capital.