XM Radio 1999 Annual Report Download - page 46

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44 XM RADiO
(9) 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, 1997, 1998
and 1999, and for the period from December 15, 1992 (date of inception) to December 31, 1999:
December 15, 1992
(date of inception) to
1997 1998 1999 December 31, 1999
(in thousands)
Interest cost capitalization.......................................... $1,901 $ 11,824 $ 15,343 $ 29,068
Interest cost charged to expense................................ 549 — 9,120 9,669
Total interest cost incurred ................................ $2,450 $ 11,824 $ 24,463 $ 38,737
Interest costs incurred prior to the award of the license were expensed in 1997. 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 the new AMSC note.
(10) 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 AMSC. The Company generated net operating losses and
other deferred tax benefits that were not utilized by AMSC. 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, 1999, the Company’s tax provision would be as follows:
Taxes on income included in the statements of operations consists of the following:
December 31,
1997 1998 1999
(in thousands)
Current taxes:
Federal................................................................. $ — $ — $ —
State . .................................................................. — — —
Total current taxes ........................................ — — —
Deferred taxes:
Federal................................................................. — — —
State . .................................................................. — — —
Total deferred taxes ...................................... — — —
Total tax expense (benefit) ............................. $ — $ — $ —
A reconciliation of the statutory tax expense, assuming all income is taxed at the statutory rate applicable to the
income and the actual tax expense is as follows:
December 31,
1997 1998 1999
(in thousands)
Income before taxes on income, as reported in the statements of income .. $ (1,659) $(16,167) $(36,896)
Theoretical tax on the above amount at 35%.............................................. (581) (5,658) (12,914)
State tax, net of federal benefit ................................................................. (165) (1,605) 701
Increase in taxes resulting from permanent differences, net ........................ — 31 2,120
Adjustments arising from differences in the basis of measurement for tax
purposes and financial reporting purposes and other ........................... — — 13,252
Change in valuation allowance ................................................................... 746 7,232 (3,159)
Taxes on income for the reported year ...................................................... $ — $ — $ —