XM Radio 2001 Annual Report Download - page 23

XM SATELLiTE RADiO 2 001 Annual Report
The following discussion and analysis provides information that we believe is relevant to an assessment and
understanding of our financial condition and consolidated results of operations. This discussion should be read
together with our consolidated financial statements and related notes.
Introduction
Overview
XM Satellite Radio Inc. was incorporated in Delaware in 1992 as a wholly-owned subsidiary of Motient Corporation.
XM Satellite Radio Holdings Inc. became a holding company for XM Satellite Radio Inc. in early 1997.
We emerged from the development stage in the fourth quarter of 2001 following the commercial launch of our
service on a nationwide basis on November 12, 2001. We commenced commercial service of XM Radio in San
Diego and Dallas/ Ft. Worth on September 25 , 2001, expanded across the southern half of the United States in
mid-October and launched nationwide on November 12, 2001. As of December 31 , 2001, we had 27,733
subscribers. Accordingly, we revised the presentation of our Statements of Operations to reflect those of
a commercial enterprise. Prior to that point, we were a development stage company with no significant
revenue-generating operations.
Since our inception in December 1992, we have devoted our efforts to establishing and commercializing the XM
Radio system. Our activities were fairly limited until 1997, when we pursued and obtained regulatory approval
from the FCC to provide satellite radio service (which we refer to as the DARS license). Prior to our commercial
launch, our principal activities included:
• designing and developing the XM Radio system, including launching our satellites, “Rock” and “Roll,”
to complete our space constellation, completing our state-of-the-art broadcast studio facilities,
completing our ground segment, implementing our terrestrial network build-out, and validating
XM radios on the XM radio system;
• executing contracts with specialty programmers, retail distributors, radio manufacturers
and car manufacturers;
• receiving temporary FCC authority to operate our national repeater network; and
• securing financing for working capital and capital expenditures
To finance the establishment and commercialization of our system and fund the substantial losses incurred to
date, we have raised net proceeds of $ 1.5 billion through December 31 , 2001 from issuances of equity and
debt to investors and strategic partners, as further described under the heading “Liquidity and Capital Resources
— Funds Raised to Date.”
Although our system is substantially completed, we expect to incur significant operating losses for the next few
years as we seek to increase the number of subscribers and develop a stream of cash flow sufficient to cover
operating costs. We also have significant outstanding contracts and commercial commitments that need to be
paid over the next several years, including payments for work previously performed in constructing our system
and to fund marketing and distribution costs and repayment of long-term debt, as further described below under
the heading “Liquidity and Capital Resources—Contractual Obligations and Commercial Commitments.” Our ability
to become profitable ultimately depends upon our substantially increasing the number of our subscribers as well
as a number of other factors, as identified below under the heading “Liquidity and Capital Resources
— Funds Required in 2002 and Beyond.”
Results of Operations
Year Ended December 31, 2001 Compared With Year Ended December 31, 2000
Revenue. Our revenue consists primarily of customers’ subscription fees and advertising revenue. Revenue
from subscribers consists of our monthly $9.99 subscription fee, which is recognized 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
FiNANCiALS 2001
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MANAGEMENT’S DiSCUSSiON AND ANALYSiS
OF FiNANCiAL CONDiTiON AND RESULTS OF OPERATiONS
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