XM Radio 2013 Annual Report Download - page 125

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollar amounts in thousands, unless otherwise stated)
Satellite and transmission. We have entered into agreements with third parties to operate and maintain the
off-site satellite telemetry, tracking and control facilities and certain components of our terrestrial repeater
networks.
Programming and content. We have entered into various programming agreements. Under the terms of
these agreements, our obligations include fixed payments, advertising commitments and revenue sharing
arrangements. Our future revenue sharing costs are dependent upon many factors and are difficult to estimate;
therefore, they are not included in our minimum contractual cash commitments.
Marketing and distribution. We have entered into various marketing, sponsorship and distribution
agreements 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 new 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 our
in-orbit satellites, may be entitled to future in-orbit performance payments with respect to two satellites used in
the XM system, XM-3 and XM-4, based on the expected operating performance exceeding their fifteen-year
design life. Boeing may also be entitled to an additional $10,000 if our XM-4 satellite continues to operate above
baseline specifications during the five years beyond the satellite’s fifteen-year design life.
Space Systems/Loral, the manufacturer of six of our in-orbit satellites, may be entitled to future in-orbit
performance payments with respect to three satellites, XM-5, FM-5 and FM-6, based on their expected operating
performance exceeding their fifteen-year design life.
Operating lease obligations. We have entered into both 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 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, 2013, 2012 and 2011 was $39,228,
$37,474 and $34,143, 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 financing 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 32 State Attorneys General, led by the
Attorney General of the State of Ohio, is investigating certain of our consumer practices. The investigation
F-43