XM Radio 2001 Annual Report Download - page 43

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XM SATELLiTE RADiO 2 001 Annual Report
(m) Comprehensive Income
The Company has engaged in no transactions during the years ended December 31, 19 99, 2000 and 2001 that
would be classified as other comprehensive income.
(n) Accounting Estimates
The preparation of the Company’s financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of expenses during the reporting period. The
estimates involve judgments with respect to, among other things, various future factors which are difficult to
predict and are beyond the control of the Company. Significant estimates include valuation of the Company’s
investment in the DARS license, the allowance for doubtful accounts, the valuation of goodwill and intangible
assets, the recoverability of the XM Radio System assets, the costs to terminate certain terrestrial repeater site
leases, the allocation of purchase price of assets acquired, the estimated life of a subscriber’s subscription, the
payments to be made to distributors and manufacturers for radios sold or activated, the amount of stock-based
compensation arrangements and the valuation allowances against deferred tax assets. Accordingly, actual
amounts could differ from these estimates.
(o) Reclassifications
Certain fiscal year 1999 and 200 0 amounts have been reclassified to conform to the current presentation.
(p) Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In
June 200 0 the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an amendment of SFAS 133 . SFAS No. 133 and SFAS No. 138 require that all derivative instruments
be recorded on the balance sheet at their respective fair values. SFAS No. 13 3 and SFAS No. 138 are effective
for all fiscal quarters of all fiscal years beginning after June 30, 2000. The Company adopted SFAS No. 133 and
SFAS No. 138 on January 1, 2001. The Company has reviewed its contracts and has determined that it has no
stand alone derivative instruments and does not engage in hedging activities.
(2) Accumulated Deficit
The Company is devoting its efforts to market its digital audio radio service and to increase its subscriber base.
This effort involves substantial risk and future operating results will be subject to significant business, economic,
regulatory, technical, and competitive uncertainties and contingencies. These factors individually, or in the
aggregate, could have an adverse effect on the Company’s financial condition and future operating results and
create an uncertainty as to the Company’s ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might be necessary should the Company be unable to continue
as a going concern.
At the Company’s current stage of operations, economic uncertainties exist regarding the successful acquisition
of additional debt or equity financings and the attainment of positive cash flows from the XM Radio Service.
The Company has commenced commercial operations and will require substantial additional financing to market
and distribute the XM Radio Service. Failure to obtain the required long-term financing may prevent the Company
from continuing to provide its service. Management’s plan to fund operations and capital expansion includes
the sale of additional debt and equity securities through public and private sources. There are no assurances,
however, that such financing will be obtained.
FiNANCiALS 2001
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