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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
Commission file number 0-24710
SIRIUS SATELLITE RADIO INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1700207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 AVENUE OF THE AMERICAS, 36TH FLOOR
NEW YORK, NEW YORK 10020
(Address of principal executive offices)
(Zip code)
212-584-5100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK, $.001 PAR VALUE 76,830,004 SHARES
(Class) (Outstanding as of August 9, 2002)
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SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART I -- FINANCIAL INFORMATION
Consolidated Statements of Operations for the three and six month periods ended June 30,
2002 and 2001 (Unaudited) ............................................................. 1
Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001 ...... 2
Consolidated Statement of Stockholders' Equity for the six month period ended
June 30, 2002 (Unaudited) ............................................................. 3
Consolidated Statements of Cash Flows for the six month periods ended June 30, 2002 and
2001 (Unaudited) ...................................................................... 4
Notes to Consolidated Financial Statements (Unaudited) ................................. 5
Management's Discussion and Analysis of Financial Condition and Results of Operations .. 11
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............................ 20
Item 6. Exhibits and Reports on Form 8-K ............................................... 20
Signatures ............................................................................. 21
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- ------------------------------
2002 2001 2002 2001
-------------- ------------ ------------- --------------
Revenue:
Subscriber revenue ....................................... $ 50 $ -- $ 54 $ --
Advertising revenue, net of agency fees .................. 20 -- 49 --
---------- --------- ---------- ----------
Total revenue ............................................. 70 -- 103 --
---------- --------- ---------- ----------
Operating expenses:
Cost of services (exclusive of depreciation expense
shown separately below):
Satellite and transmission ............................. 8,450 7,418 17,207 14,423
Programming and content ................................ 4,125 1,906 7,908 3,920
Customer service center and billing .................... 1,882 1,506 3,724 3,132
Sales and marketing ...................................... 30,901 4,704 46,560 9,678
General and administrative ............................... 8,588 5,980 16,128 11,853
Research and development ................................. 13,425 11,264 21,138 26,078
Depreciation expense ..................................... 22,099 2,227 36,580 4,295
Non-cash stock compensation expense (benefit) (1) 491 11,647 (8,533) 12,589
---------- --------- ---------- ----------
Total operating expenses .................................. 89,961 46,652 140,712 85,968
---------- --------- ---------- ----------
Loss from operations .................................. (89,891) (46,652) (140,609) (85,968)
Other income (expense):
Interest and investment income ........................... 1,517 5,769 3,517 9,376
Interest expense, net of amounts capitalized ............. (24,893) (21,185) (55,086) (39,565)
---------- --------- ---------- ----------
Total other expense ....................................... (23,376) (15,416) (51,569) (30,189)
---------- --------- ---------- ----------
Net loss .............................................. (113,267) (62,068) (192,178) (116,157)
Preferred stock dividends ................................. (11,165) (10,223) (22,207) (20,388)
Preferred stock deemed dividends .......................... (171) (170) (342) (339)
---------- --------- ---------- ----------
Net loss applicable to common stockholders ............ $ (124,603) $ (72,461) $ (214,727) $ (136,884)
========== ========= ========== ==========
Net loss per share applicable to common stockholders
(basic and diluted) ...................................... $ (1.62) $ (1.35) $ (2.85) $ (2.71)
========== ========= ========== ==========
Weighted average common shares outstanding (basic
and diluted) ............................................. 76,715 53,861 75,296 50,498
========== ========= ========== ==========
(1) Allocation of non-cash stock compensation expense
(benefit) to other operating expenses:
Satellite and transmission ............................ $ 84 $ 1,697 $ (1,512) $ 1,685
Programming and content ............................... 59 2,040 (1,862) 1,985
Customer service center and billing ................... 3 205 (182) 211
Sales and marketing ................................... 202 2,015 (1,170) 2,100
General and administrative ............................ 85 2,584 (1,771) 3,035
Research and development .............................. 58 3,106 (2,036) 3,573
---------- --------- ---------- ----------
Non-cash stock compensation expense (benefit) ......... $ 491 $ 11,647 $ (8,533) $ 12,589
========== ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
1
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2002 2001
-------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 24,965 $ 4,726
Marketable securities ............................................... 294,781 304,218
Restricted investments .............................................. -- 14,798
Prepaid expenses .................................................... 20,238 12,161
Other current assets ................................................ 666 142
---------- ----------
Total current assets .............................................. 340,650 336,045
Property and equipment, net .......................................... 1,076,743 1,082,915
FCC license .......................................................... 83,654 83,654
Restricted investments, net of current portion ....................... 7,200 7,200
Other long-term assets ............................................... 15,153 17,791
---------- ----------
Total assets ...................................................... $1,523,400 $1,527,605
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................... $ 48,767 $ 39,836
Accrued interest .................................................... 4,665 5,477
Satellite construction payable ...................................... 1,475 --
Current portion of long-term debt ................................... 30,000 15,000
---------- ----------
Total current liabilities ......................................... 84,907 60,313
Long-term debt, net of current portion ............................... 568,654 589,990
Deferred satellite payments and accrued interest ..................... 70,576 67,201
Other long-term liabilities .......................................... 2,267 2,284
---------- ----------
Total liabilities ................................................. 726,404 719,788
---------- ----------
Commitments and contingencies
9.2% Series A Junior Cumulative Convertible Preferred Stock,
$.001 par value: 4,300,000 shares authorized, 1,742,512 shares
issued and outstanding at June 30, 2002 and December 31, 2001
(liquidation preference of $174,251), at net carrying value
including accrued dividends ....................................... 185,016 177,120
9.2% Series B Junior Cumulative Convertible Preferred Stock, $.001
par value: 2,100,000 shares authorized, 781,548 shares issued and
outstanding at June 30, 2002 and December 31, 2001 (liquidation
preference of $78,155), at net carrying value including accrued
dividends ......................................................... 80,988 77,338
9.2% Series D Junior Cumulative Convertible Preferred Stock,
$.001 par value: 10,700,000 shares authorized, 2,343,091 shares
issued and outstanding at June 30, 2002 and December 31, 2001
(liquidation preference of $234,309), at net carrying value
including accrued dividends ....................................... 241,713 230,710
Stockholders' equity:
Common stock, $.001 par value: 500,000,000 shares authorized,
76,769,223 and 57,455,931 shares issued and outstanding at
June 30, 2002 and December 31, 2001, respectively ................. 77 57
Additional paid-in capital .......................................... 985,978 827,590
Accumulated other comprehensive income .............................. 400 --
Accumulated deficit ................................................. (697,176) (504,998)
---------- ----------
Total stockholders' equity ........................................ 289,279 322,649
---------- ----------
Total liabilities and stockholders' equity ........................ $1,523,400 $1,527,605
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
ACCUMULATED
COMMON STOCK OTHER
--------------------- ADDITIONAL COMPREHENSIVE ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL INCOME DEFICIT TOTAL
------------ -------- ----------------- --------------- -------------- -------------
Balance, December 31, 2001 ............. 57,455,931 $57 $ 827,590 $ -- $(504,998) $322,649
Net loss ............................... -- -- -- -- (192,178) (192,178)
Unrealized gain on
available-for-sale securities ......... -- -- -- 400 -- 400
Sale of $.001 par value common
stock, $9.85 per share, net of
expenses .............................. 16,000,000 16 147,484 -- -- 147,500
Conversion of 8 3/4% Convertible
Subordinated Notes due 2009,
including accrued interest ............ 2,913,483 3 39,298 -- -- 39,301
Compensation in connection
with the issuance of common
stock options ......................... -- -- (9,317) -- -- (9,317)
Issuance of common stock to
employees and employee
benefit plans ......................... 396,809 1 2,504 -- -- 2,505
Exercise of stock options, $7.50
per share ............................. 3,000 -- 22 -- -- 22
Warrant expense associated
with acquisition of
programming ........................... -- -- 20 -- -- 20
Reduction of warrant exercise
price in connection with the
amendment to the Term Loan
Facility .............................. -- -- 926 -- -- 926
Preferred stock dividends .............. -- -- (22,207) -- -- (22,207)
Preferred stock deemed
dividends ............................. -- -- (342) -- -- (342)
---------- --- --------- ----- --------- --------
Balance, June 30, 2002 ................. 76,769,223 $77 $ 985,978 $ 400 $(697,176) $289,279
========== === ========= ===== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------------
2002 2001
-------------- --------------
Cash flows from operating activities:
Net loss .............................................................. $ (192,178) $ (116,157)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation expense ................................................ 36,580 4,295
Accretion of debt ................................................... 24,065 21,124
Expense incurred in connection with the conversion of debt .......... 9,650 --
Non-cash stock compensation (benefit) expense ....................... (8,533) 12,589
Write-off of fixed assets ........................................... 2,742 --
Amortization of in-orbit satellite insurance ........................ 5,513 5,513
Amortization of debt issuance costs ................................. 1,807 1,600
Change in unrealized gain on marketable securities .................. 2,187 (2,682)
Other ............................................................... 21 --
Increase (decrease) in cash and cash equivalents resulting from
changes in assets and liabilities:
Marketable securities ............................................... (76,280) (273,023)
Restricted investments .............................................. (202) (524)
Prepaid expenses .................................................... (13,590) (482)
Other current assets ................................................ (524) (33)
Other long-term assets .............................................. (111) 2,062
Accounts payable and accrued expenses ............................... 10,651 (4,632)
Accrued interest .................................................... 3,680 3,846
Satellite construction payable ...................................... 1,475 (9,310)
---------- ----------
Net cash used in operating activities .............................. (193,047) (355,814)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment ................................. (33,150) (35,492)
Maturities of restricted investments, net ........................... 14,500 14,250
Sales and maturities of marketable securities, net .................. 84,430 --
---------- ----------
Net cash provided by (used in) investing activities ................ 65,780 (21,242)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net ....................... -- 145,000
Proceeds from issuance of common stock, net ......................... 147,500 229,503
Other ............................................................... 6 296
---------- ----------
Net cash provided by financing activities .......................... 147,506 374,799
---------- ----------
Net increase (decrease) in cash and cash equivalents ................... 20,239 (2,257)
Cash and cash equivalents at the beginning of period ................... 4,726 14,397
---------- ----------
Cash and cash equivalents at the end of period ......................... $ 24,965 $ 12,140
========== ==========
Supplemental disclosure of cash flows from operating activities:
Cash paid during the period for interest .............................. $ 21,310 $ 22,035
Common stock issued in satisfaction of accrued compensation ........... 1,720 2,649
Supplemental disclosure of non-cash investing and financing activities:
Conversion of 8 3/4% Convertible Subordinated Notes due 2009,
including accrued interest .......................................... $ 30,592 $ --
Capitalized interest .................................................. 5,426 9,073
The accompanying notes are an integral part of these consolidated financial
statements.
4
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
(UNAUDITED)
1. BUSINESS
Sirius Satellite Radio Inc., a Delaware corporation, broadcasts
digital-quality radio programming via satellites to subscribers. From our three
orbiting satellites, we directly broadcast digital-quality radio to motorists
throughout the continental United States for a monthly subscription fee of
$12.95. We deliver 60 channels of commercial-free music in virtually every
genre, and 40 channels of news, sports and entertainment programming.
Our primary sources of revenue will be subscription fees and a one-time
activation fee per subscriber. In addition, we derive revenues from selling
limited advertising on our non-music channels. As of June 30, 2002, we had
3,347 subscribers.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
including the accounts of Sirius Satellite Radio Inc. and our wholly owned
subsidiary, have been prepared in accordance with accounting principles
generally accepted in the United States and the instructions to Form 10-Q and
Article 10 of Regulation S-X for interim financial reporting. Accordingly,
these statements do not include all of the information and footnotes
disclosures required by generally accepted accounting principles in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal, recurring adjustments) considered
necessary for fair presentation have been included. All intercompany
transactions have been eliminated in consolidation. Our condensed consolidated
financial statements should be read in connection with our consolidated
financial statements and the notes thereto contained in our Annual Report on
Form 10-K for the year ended December 31, 2001.
We emerged from development stage and entered commercial operations on
February 14, 2002; as such, we revised our Consolidated Statements of
Operations to reflect our operational status. Operating results for the six
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002.
Risks and Uncertainties
Our future operations are subject to the risks and uncertainties
frequently encountered by companies in new and rapidly evolving markets. Among
the key factors that have a direct bearing on our results of operations are our
need for substantial additional financing by early 2003; our dependence upon
third parties to manufacture, distribute, market and sell Sirius radios and
components for those radios; the unproven market for our service; our
competitive position; and the useful life of our satellites.
Revenue Recognition
Revenue from subscribers consists of our monthly service fee, recognized
as service is provided, and a non-refundable activation fee, recognized on a
pro rata basis over the term of the subscriber relationship. We assume the
average life of a subscriber to be 3.5 years for amortization purposes. The
assumed term of a subscriber relationship is based on market research and
management's judgment and, if necessary, will be refined in the future as
historical data becomes available.
We recognize advertising revenue from the sale of spot announcements to
advertisers as the announcements are broadcast. Agency fees are calculated
based on a stated percentage applied to gross billing revenue for our
advertising inventory and are reported as a reduction of advertising revenue on
our Consolidated Statements of Operations.
5
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
(UNAUDITED)
Net Loss Per Share
Basic net loss per share is based on the weighted average number of
outstanding shares of our common stock during each reporting period. Diluted
net loss per share adjusts the weighted average for the potential dilution that
could occur if common stock equivalents (convertible preferred stock,
convertible debt, warrants and stock options) were exercised or converted into
common stock. Approximately 16,152,000 and 19,026,000 common stock equivalents
were outstanding as of June 30, 2002 and 2001, respectively, and were excluded
from the calculation of diluted net loss per share, as they were anti-dilutive.
Property and Equipment
All costs incurred to prepare our satellite radio system for use were
capitalized. Such costs consist of satellite and launch vehicle construction,
broadcast studio equipment, terrestrial repeater equipment and interest. The
estimated useful lives of our property and equipment are as follows:
Leasehold improvements ................................ 15 years
Satellite system ...................................... 15 years
Broadcast studio equipment ............................ 3-8 years
Terrestrial repeater equipment ........................ 5-15 years
Satellite telemetry, tracking and control ............. 3-15 years
Customer care, billing and conditional access ......... 3-7 years
Furniture, fixtures, equipment and other .............. 3-7 years
The estimated useful lives of our satellites are fifteen years from the
date that they were placed into orbit. We depreciate our satellite system on a
straight-line basis over the respective remaining useful lives of our
satellites from the date we launched our service in February 2002 or, in the
case of our spare satellite, from the date it was delivered into ground storage
in April 2002. All other property and equipment is depreciated over the
estimated useful lives stated above.
We review our long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset is not
recoverable. At such time as an impairment in value is identified, the
impairment will be measured in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," as the amount by which the carrying amount of a
long-lived asset exceeds its fair value. To determine fair value we will employ
an expected present value technique, in which multiple cash flow scenarios that
reflect the range of possible outcomes and a risk-free rate are employed.
FCC License
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires,
for all fiscal years beginning after December 15, 2001, that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually. In accordance with SFAS No.
142, we determined that our Federal Communications Commission ("FCC") license
has an indefinite life and we will evaluate it for impairment on an annual
basis. We completed an impairment analysis of our FCC license as of January 1,
2002 and there were no indicators of impairment. To date, we have not recorded
any amortization expense related to our FCC license, and therefore are not
required to include the transitional disclosures contained in SFAS No. 142.
6
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
(UNAUDITED)
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires the fair value for an asset retirement
obligation to be recorded in the period in which it is incurred. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002, with earlier
adoption encouraged. The adoption of SFAS No. 143 had no impact on our
financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4,
44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections," which
requires gains and losses from extinguishments of debt to be classified as
extraordinary items only if they meet the criteria in Accounting Principles
Board ("APB") Opinion No. 30, "Reporting the Results of Operations, Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." Applying the provisions of
APB Opinion No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual or infrequent or that meet the
criteria for classification as an extraordinary item. SFAS No. 145 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. SFAS No. 145 is effective for all fiscal years beginning after May
15, 2002, with early adoption encouraged. Our adoption of SFAS No. 145,
effective May 15, 2002, will require us to reclassify the extraordinary gain we
recognized on the extinguishment of a portion of our 15% Senior Secured
Discount Notes due 2007 in December 2001.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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
revenue and expenses during the reported period. These estimates involve
judgments with respect to, among other things, various future factors which are
difficult to predict and are beyond our control. Actual amounts could differ
from these estimates.
Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current presentation.
3. INVESTMENTS
Marketable Securities
Marketable securities consist of U.S. government agency obligations.
Effective April 1, 2002, we began classifying marketable securities as
available-for-sale securities rather than trading securities because management
no longer intends to buy and sell marketable securities with the objective of
generating profits. Available-for-sale securities are carried at fair market
value and unrealized gains and losses are included as a component of
stockholders' equity. In prior periods, marketable securities were classified
as trading securities and unrealized holding gains and losses were recognized
in earnings. We had an unrealized holding gain on these marketable securities
of $1,600 and $3,387 at June 30, 2002 and December 31, 2001, respectively.
Restricted Investments
Restricted investments consist of fixed income securities, which are
stated at amortized cost plus accrued interest. Included in restricted
investments are short-term and long-term certificates of deposit of
7
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
(UNAUDITED)
$7,200 and $7,789 as of June 30, 2002 and December 31, 2001, respectively,
which are pledged to secure our reimbursement obligations under letters of
credit required primarily by lessors of our headquarters. Also included in
restricted investments as of December 31, 2001 were U.S. Treasury Notes of
$14,209, which were used to pay interest on our 14 1/2% Senior Secured Notes due
2009 on May 15, 2002. These U.S. Treasury Notes were classified as
held-to-maturity securities and unrealized holding gains and losses were not
reflected in earnings. As of December 31, 2001, we had an unrealized holding
gain of $196 related to these held-to-maturity securities.
4. DEFERRED SATELLITE PAYMENTS
Space Systems/Loral, Inc. ("Loral") has deferred $50,000 due under our
amended and restated satellite contract (the "Loral Satellite Contract"). The
amount deferred, which approximates fair value, bears interest at 10% per year
and was originally due in quarterly installments beginning in June 2002. Our
fourth, spare, satellite was delivered to ground storage on April 19, 2002 and
was originally expected to be delivered to ground storage in October 2000.
Loral's delay in delivering this satellite resulted in a revision to the
deferred satellite payment schedule as follows: $8,333 due in 2003, $25,001 due
in 2004 and $16,666 due in 2005. We have the right to prepay any deferred
payments together with accrued interest, without penalty. As collateral
security for this deferred amount, we have granted Loral a security interest in
our terrestrial repeater network.
5. LONG-TERM DEBT
Long-term debt consists of the following:
MATURITY JUNE 30, DECEMBER 31,
DATE 2002 2001
---------- ------------ -------------
15% Senior Secured Discount Notes due 2007 ................. 12/01/07 $ 262,399 $ 242,286
14 1/2% Senior Secured Notes due 2009 ...................... 5/15/09 177,857 176,346
8 3/4% Convertible Subordinated Notes due 2009 ............. 9/29/09 16,461 45,936
Term Loan Facility (current interest rate of 7.1%) ......... Various 141,937 140,422
--------- ---------
Total debt ................................................ $ 598,654 $ 604,990
Less: current portion ...................................... (30,000) (15,000)
--------- ---------
Total long-term debt .................................... $ 568,654 $ 589,990
========= =========
Our obligations under the 15% Senior Secured Discount Notes due 2007,
14 1/2% Senior Secured Notes due 2009 and term loan facility are secured by a
lien on the stock of Satellite CD Radio, Inc., the holder of our FCC license,
and our fourth, spare satellite.
Acquisitions of 8 3/4% Convertible Subordinated Notes due 2009
During the six months ended June 30, 2002, we acquired $29,475 in
aggregate principal amount of our 8 3/4% Convertible Subordinated Notes due 2009
in exchange for 2,913,483 shares of our common stock.
Amendment of Term Loan Facility
On March 26, 2002, we entered into an amendment to our term loan agreement
with Lehman Brothers which adjusted the financial covenants, accelerated the
payment schedule of the term loan and reduced the exercise price of the
warrants that had been issued in connection with the term loan from $29.00 to
$15.00 per share. In connection with this exercise price reduction, we adjusted
the book value of our term loan and future amortization schedule.
8
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
(UNAUDITED)
As amended, the term loan matures in installments as set forth below:
INSTALLMENT AMOUNT
- ------------------------------------ ---------
June 30, 2002 ............... $ 7,500
September 30, 2002 .......... 7,500
December 31, 2002 ........... 7,500
March 31, 2003 .............. 7,500
June 30, 2003 ............... 11,500
March 31, 2004 .............. 3,375
June 30, 2004 ............... 3,375
September 30, 2004 .......... 3,375
December 31, 2004 ........... 3,375
March 31, 2005 .............. 23,750
June 30, 2005 ............... 23,750
September 30, 2005 .......... 23,750
December 31, 2005 ........... 23,750
At our option, we may defer the payments due on June 30, 2002, September
30, 2002, December 31, 2002, March 31, 2003 and June 30, 2003 for a period of
ninety days. We elected to defer the June 30, 2002 installment for ninety days.
6. COMMITMENTS AND CONTINGENCIES
We have entered into agreements with providers of non-music programming.
We are obligated, in certain instances, to pay license fees, to share
advertising revenue from this programming or to purchase advertising on
properties owned or controlled by these providers. These obligations aggregate
$5,856, $15,964, $28,919, $23,297 and $714 for the remainder of 2002, and for
the years ending December 31, 2003, 2004, 2005 and 2006, respectively.
We have entered into sponsorship agreements to promote our brand. Our
obligations under these agreements aggregate $4,816, $16,470 and $4,335 for the
remainder of 2002, and for the years ending December 31, 2003 and 2004,
respectively.
In June 2002, we amended our agreement with Panasonic to release us from
our purchase commitment and reduce the factory price of Sirius radios. We made
a payment of $8,134 to Panasonic in connection with this amendment.
7. COMMON STOCK ISSUANCE
In January 2002, we sold 16,000,000 shares of our common stock in an
underwritten public offering, resulting in net proceeds of approximately
$147,500.
8. INTEREST EXPENSE
Interest expense, net of amounts capitalized, incurred for the six months
ended June 30, 2002 and 2001 was $55,086 and $39,565, respectively. Included in
interest cost for the six months ended June 30, 2002 was a non-cash expense
associated with the induced conversion of our 8 3/4% Convertible Subordinated
Notes due 2009 of $9,650. There were no induced conversions of our 83/4%
Convertible Subordinated Notes due 2009 during the six months ended June 30,
2001.
9
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
(UNAUDITED)
9. NON-CASH STOCK COMPENSATION
In connection with the grant of certain stock options, the issuance of
common stock to employees and the issuance of common stock to an employee
benefit plan, we record non-cash stock compensation benefits or expenses. In
accordance with FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation," we recognized a non-cash stock
compensation benefit of $9,717 for the six month period ended June 30, 2002,
related to certain repriced stock options. We may record future non-cash stock
compensation benefits or expenses associated with these repriced stock options
based on the market value of our common stock at the end of each reporting
period.
10
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following cautionary statements identify important factors that could
cause our actual results to differ materially from those projected in
forward-looking statements made in this Quarterly Report on Form 10-Q and in
other reports and documents published by us from time to time. Any statements
about our beliefs, plans, objectives, expectations, assumptions, future events
or performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or phrases
such as "will likely result," "are expected to," "will continue," "is
anticipated," "estimated," "intends," "plans," "projection" and "outlook." Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout our Annual Report on Form 10-K for the year ended
December 31, 2001 (the "Form 10-K") and in other reports and documents
published by us from time to time, particularly the risk factors described
under "Business--Risk Factors" in Part I of the Form 10-K. Among the
significant factors that could cause our actual results to differ materially
from those expressed in the forward-looking statements are:
o our need for substantial additional financing by early 2003;
o our dependence upon third parties to manufacture, distribute, market and
sell Sirius radios and components for those radios;
o the unproven market for our service;
o our competitive position; XM Satellite Radio, the other satellite
radio provider in the United States, began offering its service
nationally during the fourth quarter of 2001, has a substantial number
of subscribers and may have certain competitive advantages; and
o the useful life of our satellites, which have experienced circuit
failures on their solar arrays, including failures during the recent
quarter. The circuit failures our satellites have experienced are not
expected to limit the power of our broadcast signal, reduce the expected
useful life of our satellites or otherwise affect our operations.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue reliance on
any such forward-looking statements. In addition, any forward-looking
statements speak only as of the date on which such statement is made, and we
undertake no obligation to update any forward-looking statement or statements
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events or otherwise. New
factors emerge from time to time, and it is not possible for us to predict
which will arise or to assess with any precision the impact of each factor on
our business or the extent to which any factor, or combination of factors, may
cause results to differ materially from those contained in any forward-looking
statements.
OVERVIEW
From our three orbiting satellites, we directly broadcast digital-quality
radio to motorists throughout the continental United States for a monthly
subscription fee of $12.95. We deliver 60 channels of commercial-free music in
virtually every genre, and 40 channels of news, sports, and entertainment
programming. We hold one of only two licenses issued by the FCC to operate a
national satellite radio system.
We emerged from the development stage in the first quarter of 2002
following the launch of our service on February 14, 2002 in Denver, Colorado;
Houston, Texas; Phoenix, Arizona; and Jackson, Mississippi. We continued to
expand our commercial service throughout the United States during the first and
second quarters of 2002 and completed our national roll out on July 1, 2002.
11
We had 3,347 subscribers as of June 30, 2002, and 6.510 subscribers as of
August 11, 2002. We believe the number of subscribers has been constrained by a
shortage of competitive radios at retail outlets and lack of national
advertising and promotional efforts. Kenwood introduced an FM-modulated Sirius
radio in August 2002, and Panasonic and Audiovox are expected to introduce
FM-modulated Sirius radios in the third quarter of 2002. These products are
expected to reduce any perceived competitive disadvantage that Sirius radios
have experienced at retail.
Our primary sources of revenue will be a $12.95 per month subscription fee
and a one-time activation fee per subscriber. We also derive revenues from
directly selling limited advertising on our non-music channels.
Our operating expenses consist primarily of:
o marketing costs, including marketing and sales personnel, advertising,
promotions, equipment subsidies, and payments to retailers, dealers,
distributors and automakers;
o programming costs, including royalties to copyright holders, license
fees to programming providers, and advertising revenue sharing
arrangements;
o costs of operating and maintaining our broadcast system, including costs
of tracking and controlling our satellites, operating our terrestrial
repeater network, and maintaining our national broadcast studio;
o costs associated with the continuing development of our radio
technology, including the costs of designing and developing future
integrated circuits ("chip sets");
o general and administrative costs, including salary and employment
related expenses, rent and occupancy costs, insurance expenses and other
miscellaneous costs, such as legal and consulting fees; and
o depreciation associated with our satellite system, broadcast studio
equipment, terrestrial repeater network and other systems and facilities.
We are actively seeking to reduce our operating expenses, including the
costs of sales and marketing, research and development, programming and
content, customer service and billing and general and administrative, and to
conserve our available cash.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30,
2001
We had net losses of $113,267 and $62,068 for the three months ended June
30, 2002 and 2001, respectively. Operating expenses increased to $89,961 for
the three months ended June 30, 2002 from $46,652 for the three months ended
June 30, 2001. The increase in operating expenses was attributable to the
implementation of our sales and marketing campaign at the launch of our
service, depreciation of our satellite system and terrestrial repeater network,
amounts paid to radio manufacturers to reimburse them for the costs of
developing Sirius radios and subsidize a portion of the costs of these radios
and the increase in our workforce. We expect operating expenses to continue to
increase as we build our subscriber base, and expand our workforce and
operations.
Revenue from subscriptions was $50 for the three months ended June 30,
2002. Revenue from subscribers consists of our monthly subscription fee,
recognized as service is provided, and a non-refundable activation fee,
recognized on a pro rata basis over the term of the subscriber relationship. We
assume the average life of a subscriber to be 3.5 years for amortization
purposes. Retail sales incentives, consisting of discounts and rebates to
subscribers, offset earned revenue.
Advertising revenue, net of agency fees of $3, was $20 for the three
months ended June 30, 2002. We recognize advertising revenue from sales of spot
announcements to advertisers as the announcements are broadcast.
12
Satellite and transmission costs increased to $8,450 for the three months
ended June 30, 2002 from $7,418 for the three months ended June 30, 2001.
Satellite and transmission costs consist primarily of personnel costs and
expenses associated with the operation and maintenance of our satellite
tracking, telemetry and control system, terrestrial repeater network and
national broadcast studio. The increase in costs related primarily to the
expanded operation of our terrestrial repeater network during the 2002 period
as we prepared for our national launch. We expect that a significant portion of
our satellite and transmission costs will remain relatively constant, and that
increases or decreases in satellite and transmission costs will be due, in
large part, to increased or decreased costs of insuring our in-orbit
satellites.
Programming and content expenses increased to $4,125 for the three months
ended June 30, 2002 from $1,906 for the three months ended June 30, 2001.
Programming and content expenses include license fees to third parties that
provide non-music content, costs associated with the production of our music
and non-music programming, costs of our on-air talent, royalties for music
broadcast on our service and programming personnel costs. The increase in costs
during the 2002 period was primarily attributable to costs of on-air talent and
license fees paid to acquire programming. We anticipate that our programming
costs will increase over time as we continue to develop our channel line-up and
incur additional royalties as a result of increased subscriber revenue.
Customer service center and billing costs increased to $1,882 for the
three months ended June 30, 2002 from $1,506 for the three months ended June
30, 2001. Customer service center and billing costs include costs associated
with the full time operation of our customer service center and subscriber
management system. We expect that our customer service center and billing costs
will increase as we acquire subscribers. Customer service and billing costs on
a per subscriber basis will be significantly reduced as our fixed operating
costs are spread over a larger subscriber base.
Sales and marketing expenses increased to $30,901 for the three months
ended June 30, 2002 from $4,704 for the three months ended June 30, 2001. Sales
and marketing expenses include costs related to sales and marketing personnel,
advertising, consumer promotions, brand building activities, subsidies paid to
radio manufacturers, commission payments to distributors and retailers and
other payments to distributors and retailers to reimburse them for marketing
and promotional activities. Sales and marketing expenses increased during the
2002 period due to the launch of our service, marketing and promotional
activities by distributors and retailers, expenses related to our marketing and
promotional efforts and the costs associated with subsidies paid to radio
manufacturers in advance of acquiring subcribers. In addition, during the 2002
period we incurred a one-time charge of $2,742 related to the disposal of
certain elements of our website. Sales and marketing expenses may increase in
the future as we build brand awareness through national advertising, offer
hardware subsidies and other incentives to acquire subscribers and pay
commissions to retailers and other distributors.
General and administrative expenses increased to $8,588 for the three
months ended June 30, 2002 from $5,980 for the three months ended June 30,
2001. General and administrative expenses include rent and occupancy costs,
corporate overhead and general and administrative personnel. The increase in
the 2002 period related to the costs associated with the expansion of our
workforce and other general corporate expenses.
Research and development costs increased to $13,425 for the three months
ended June 30, 2002 from $11,264 for the three months ended June 30, 2001.
Research and development includes costs associated with our agreements with
Agere Systems, Inc. (the successor to the micro-electronics group of Lucent
Technologies, Inc.) to develop and manufacture chip sets for use in Sirius
radios. In addition, we have agreements with Alpine Electronics Inc., Audiovox
Corporation, Clarion Co., Ltd., Delphi Corporation, Kenwood Corporation,
Panasonic, Recoton Corporation, Sony Electronics Inc., Visteon Automotive
Systems and others to design, develop and produce Sirius radios and have agreed
to pay certain costs associated with these radios. We record expenses under
these agreements as work is performed. Expenses related to our agreements with
Agere and radio manufacturers aggregated $11,089 during the 2002 period, which
included a payment of $8,134 to Panasonic to release us from our purchase
commitment and reduce the factory price of Sirius radios. The overall increase
was offset by a reduction in expenses as we
13
completed our first generation of chip sets and Sirius radios. We expect that
research and development costs will decline since our radio manufacturers have
substantially completed the development of first generation Sirius radios and
future chip set development is expected to consist of modifications to existing
technology. We expect Agere to release our second generation chip set to our
radio manufacturers in the fourth quarter of 2002. We anticipate that this
second generation chip set will allow us to decrease significantly the cost of
Sirius radios.
Depreciation expense increased to $22,099 for the three months ended June
30, 2002 from $2,227 for the three months ended June 30, 2001. The increase
principally relates to the depreciation of our satellite system and terrestrial
repeater network which began upon commencement of our commercial operations in
February 2002. During the 2002 period we began depreciating our spare satellite
from the date it was accepted into ground storage in April 2002.
We recognized non-cash stock compensation expense of $491 and $11,647 for
the three months ended June 30, 2002 and 2001, respectively. Non-cash stock
compensation for the 2001 period included a charge associated with the
repricing of certain employee stock options. We expect to record future
non-cash stock compensation benefits or expense related to the repriced stock
options based on the market value of our common stock at the end of each
reporting period.
Interest and investment income decreased to $1,517 for the three months
ended June 30, 2002 from $5,769 for the three months ended June 30, 2001. This
decrease was principally attributable to lower returns on our investments in
U.S. government securities during the 2002 period.
Interest expense was $24,893 for the three months ended June 30, 2002 and
$21,185 for the three months ended June 30, 2001, net of amounts capitalized of
$1,025 and $4,711, respectively. Gross interest expense for the 2002 period
increased by $22 and capitalized interest decreased by $3,686, compared to the
2001 period. Included in interest expense for the three months ended June 30,
2002 is $336 of non-cash expense related to the induced conversion of $1,000 in
aggregate principal amount of our 8 3/4% Convertible Subordinated Notes due
2009.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001
We had net losses of $192,178 and $116,157 for the six months ended June
30, 2002 and 2001, respectively. Operating expenses increased to $140,712 for
the six months ended June 30, 2002 from $85,968 for the six months ended June
30, 2001. The increase in operating expenses was attributable to the
implementation of our sales and marketing campaign for the launch of our
service, depreciation of our satellite system and terrestrial repeater network,
amounts paid to radio manufacturers to reimburse them for the costs of
developing Sirius radios and subsidize a portion of the costs of these radios
and the increase in our workforce. We expect operating expenses to continue to
increase as we build our subscriber base, and expand our workforce and
operations.
Revenue from subscriptions was $54 for the six months ended June 30, 2002.
Revenue from subscribers consists of our monthly subscription fee, recognized
as service is provided, and a non-refundable activation fee, recognized on a
pro rata basis over the term of the subscriber relationship. Retail sales
incentives, consisting of discounts and rebates to subscribers, offset earned
revenue.
Advertising revenue, net of agency fees of $9, was $49 for the six months
ended June 30, 2002. We recognize advertising revenue from sales of spot
announcements to advertisers as the announcements are broadcast.
Satellite and transmission costs increased to $17,207 for the six months
ended June 30, 2002 from $14,423 for the six months ended June 30, 2001.
Satellite and transmission costs consist primarily of personnel costs and
expenses associated with the operation and maintenance of our satellite
tracking, telemetry and control system, terrestrial repeater network and
national broadcast studio. The increase in costs related primarily to the
expanded operation of our terrestrial repeater network during the 2002 period
as we prepared for our national launch. We expect that a significant portion of
our satellite and transmission costs will remain relatively constant, and that
increases or decreases in satellite and transmission costs will be due, in
large part, to increased or decreased costs of insuring our in-orbit
satellites.
14
Programming and content expenses increased to $7,908 for the six months
ended June 30, 2002 from $3,920 for the six months ended June 30, 2001.
Programming and content expenses include license fees to third parties that
provide non-music content, costs associated with the production of our music
and non-music programming, costs of our on-air talent, royalties for music
broadcast on our service and programming personnel costs. The increase in costs
during the 2002 period was primarily attributable to costs of on-air talent and
license fees paid to acquire programming. We anticipate that our programming
costs will increase over time as we continue to develop our channel line-up and
incur additional royalties as a result of increased subscriber revenue.
Customer service center and billing costs increased to $3,724 for the six
months ended June 30, 2002 from $3,132 for the six months ended June 30, 2001.
Customer service center and billing costs include costs associated with the
full time operation of our customer service center and subscriber management
system. We expect that our customer service center and billing costs will
increase as we acquire subscribers. Customer service and billing costs on a per
subscriber basis will be significantly reduced as our fixed operating costs are
spread over a larger subscriber base.
Sales and marketing expenses increased to $46,560 for the six months ended
June 30, 2002 from $9,678 for the six months ended June 30, 2001. Sales and
marketing expenses include costs related to sales and marketing personnel,
advertising, consumer promotions, brand building activities, subsidies paid to
radio manufacturers, commission payments to distributors and retailers and
other payments to distributors and retailers to reimburse them for marketing
and promotional activities. Sales and marketing expenses increased during the
2002 period due to the launch of our service, marketing and promotional
activities by distributors and retailers, expenses related to our marketing and
promotional efforts and the costs associated with subsidies paid to radio
manufacturers in advance of acquiring subscribers. In addition, during the 2002
period we incurred a one-time charge of $2,742 related to the disposal of
certain elements of our website. Sales and marketing expenses may increase in
the future as we build brand awareness through national advertising, offer
hardware subsidies and other incentives to acquire subscribers and pay
commissions to retailers and other distributors.
General and administrative expenses increased to $16,128 for the six
months ended June 30, 2002 from $11,853 for the six months ended June 30, 2001.
General and administrative expenses include rent and occupancy costs, corporate
overhead and general and administrative personnel. The increase related to the
costs associated with the expansion of our workforce and other general
corporate expenses.
Research and development costs decreased to $21,138 for the six months
ended June 30, 2002 from $26,078 for the six months ended June 30, 2001.
Research and development includes costs associated with our agreements with
Agere to develop and manufacture chip sets and our agreements with radio
manufacturers to design, develop and produce Sirius radios. Research and
development costs decreased during the 2002 period as we completed our first
generation chip set and our radio manufacturers substantially completed
development of our first generation radios. The overall decrease was offset by
expenses of $16,363 related to our agreements with Agere and radio
manufacturers, which included a payment of $8,134 to Panasonic to release us
from our purchase commitment and reduce the factory price of Sirius radios. We
expect that research and development costs will decline since our radio
manufacturers have substantially completed the development from Sirius radios
and future chip set development is expected to consist of modifications to
existing technology. We expect Agere to release our second generation chip set
to our radio manufacturers in the fourth quarter of 2002. We anticipate that
this second generation chip set will allow us to decrease significantly the
cost of Sirius radios.
Depreciation expense increased to $36,580 for the six months ended June
30, 2002 from $4,295 for the six months ended June 30, 2001. The increase
principally relates to the depreciation of our satellite system and terrestrial
repeater network which began upon commencement of our commercial operations in
February 2002. During the 2002 period we began depreciating our spare satellite
from the date it was accepted into ground storage in April 2002.
We recognized a non-cash stock compensation benefit of $8,533 and non-cash
stock compensation expense of $12,589 for the six months ended June 30, 2002 and
2001, respectively. The benefit in the 2002
15
period and the charge in the 2001 period were principally due to the repricing
of certain employee stock options. We expect to record future non-cash stock
compensation benefits or expenses related to the repriced stock options based on
the market value of our common stock at the end of each reporting period.
Interest and investment income decreased to $3,517 for the six months
ended June 30, 2002, from $9,376 for the six months ended June 30, 2001. This
decrease was principally attributable to lower returns on our investments in
U.S. government securities during the 2002 period.
Interest expense was $55,086 for the six months ended June 30, 2002 and
$39,565 for the six months ended June 30, 2001, net of amounts capitalized of
$5,426 and $9,073, respectively. Gross interest expense for the 2002 period
increased by $11,874 and capitalized interest decreased by $3,647, compared to
the 2001 period. Included in interest expense for the six months ended June 30,
2002 is $9,650 of non-cash expense related to the induced conversion of $29,475
in aggregate principal amount of our 8 3/4% Convertible Subordinated Notes due
2009.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, we had cash, cash equivalents and marketable securities
totaling $319,746 and working capital of $255,743 compared with cash, cash
equivalents, marketable securities and short-term restricted investments
totaling $323,742 and working capital of $275,732 at December 31, 2001. As of
August 12, 2002, we had cash, cash equivalents and marketable securities of
$295,231.
CASH FLOWS
Net cash used in operating activities was $193,047 for the six months
ended June 30, 2002, as compared to $355,814 for the six months ended June 30,
2001. The decrease in cash used in operations was primarily attributable to
less cash used to purchase marketable securities during the 2002 period. This
decrease was offset by an increase in sales and marketing costs, satellite and
transmission costs and programming costs in connection with the launch of our
service in February 2002.
Net cash provided by investing activities for the six months ended June
30, 2002 was $65,780 as compared to net cash used in investing activities of
$21,242 for the six months ended June 30, 2001. The change from the prior
period was principally due to a change in the classification of our marketable
securities from trading to available-for-sale securities during the second
quarter of 2002. Transactions relating to trading securities are considered
operating activities; transactions relating to available-for-sale securities
are classified as financing activities. During the second quarter of 2002, we
had cash provided from the sale of marketable securities of $84,430.
Net cash provided by financing activities for the six months ended June
30, 2002 was $147,506 as compared to $374,799 for the six months ended June 30,
2001. In January 2002, we issued 16,000,000 shares of common stock resulting in
net proceeds of $147,500. During 2001, we completed an equity offering
resulting in net proceeds of $229,300 and had net borrowings under our term
loan facility of $145,000.
FUNDS RAISED TO DATE
Since inception, we have funded the development of our system and the
introduction of our service through the issuance of debt and equity securities.
As of June 30, 2002, we had raised approximately $1,250,800 in equity capital
from the sale of our common stock and convertible preferred stock. In addition,
we have received approximately $638,000 in net proceeds from public debt
offerings and private credit arrangements.
ADDITIONAL FUNDING REQUIREMENTS
We have cash and cash equivalents to cover our estimated funding needs
only into the second quarter of 2003. We anticipate that our additional funding
needs through the end of 2003 will total approximately $300,000. After 2003, we
may need as much as $300,000 of additional funds until our operations become
16
self-sustaining, which we currently anticipate will not occur for several years,
when we have approximately three million subscribers. However, if the growth
rate of the number of subscribers is slower than expected or the cost of
obtaining these subscribers is higher than forecast, our operations may become
self-sustaining at a later date or may never become self-sustaining. The amount
and timing of our cash requirements also depends upon other factors, including
the rate of growth of our business, subscriber acquisition costs and costs of
financing.
We have engaged UBS Warburg LLC, an investment bank, to assist us in
arranging one or more transactions to raise additional equity capital and
reduce our indebtedness. In that connection, we are in discussions with key
holders of our debt regarding exchanging all or a significant portion of such
debt for equity, although we have not yet reached any agreement with debt
holders regarding the terms of such an exchange.
We are also in discussions with affiliates of Apollo Management, L.P. and
The Blackstone Group L.P. regarding a substantial additional investment in our
common stock. The terms of any transaction with Apollo and Blackstone will
require the approval of a recently-appointed special committee of our board of
directors, consisting solely of independent directors. The special committee
has engaged the investment banking firm Miller Buckfire Lewis & Co., LLC, as
well as separate counsel, to advise it.
We cannot assure you that we will be able to arrange for additional equity
capital, consummate a transaction to exchange debt for equity or consummate any
transaction with Apollo and Blackstone. Given the current price of our common
stock on the Nasdaq National Market, consummation of any of these transactions
will dramatically reduce the percentage ownership interest of the current
holders of our common stock. If we fail to timely raise additional funds, we
will be forced to seek protection under the United States bankruptcy code,
materially reduce our operations, significantly alter our business plan and/or
seek the sale of our company.
TERM LOAN FACILITY
On March 7, 2001, we borrowed $150,000 under a term loan agreement with
Lehman Brothers. In connection with this term loan, we granted Lehman Brothers
Commercial Paper Inc. 2,100,000 warrants, each to purchase one share of our
common stock, at an exercise price of $29.00 per share. The term loan bears
interest at an annual rate equal to the eurodollar rate plus 4% or a base rate,
typically the prime rate, plus 5%. On March 26, 2002, we entered into an
amendment to this term loan agreement which adjusted the financial covenants,
accelerated the payment schedule of the term loan and reduced the exercise
price of the warrants from $29.00 to $15.00 per share.
17
As amended, the term loan matures in installments as set forth below:
INSTALLMENT AMOUNT
- ------------------------------- ---------
June 30, 2002 ............... $ 7,500
September 30, 2002 .......... 7,500
December 31, 2002 ........... 7,500
March 31, 2003 .............. 7,500
June 30, 2003 ............... 11,500
March 31, 2004 .............. 3,375
June 30, 2004 ............... 3,375
September 30, 2004 .......... 3,375
December 31, 2004 ........... 3,375
March 31, 2005 .............. 23,750
June 30, 2005 ............... 23,750
September 30, 2005 .......... 23,750
December 31, 2005 ........... 23,750
At our option, we may defer the payments due on June 30, 2002, September
30, 2002, December 31, 2002, March 31, 2003 and June 30, 2003 for a period of
ninety days. We elected to defer the June 30, 2002 installment for ninety days.
Our term loan agreement with Lehman Brothers contains financial and
operating covenants. These covenants include requirements that we:
o achieve at least $2,300 in revenues from subscribers for the quarter
ending March 31, 2003, and achieve increasing revenues from subscribers
each quarter thereafter through the maturity of the term loan on December
31, 2005;
o achieve a minimum negative cash flow, before subscriber acquisition
costs, of $65,000 for the quarter ending March 31, 2003, and have
improving cash flow, before subscriber acquisition costs, each quarter
thereafter through the maturity of the term loan;
o achieve a minimum negative cash flow, before subscriber acquisition
costs and adjusted to give effect to subscribers who cancel or fail to
renew their subscriptions, of $58,400 for the quarter ending September
30, 2003, and have improving adjusted cash flow, each quarter thereafter
through the maturity of the term loan; and
o not permit our capital expenditures, other than the costs of
constructing, launching and insuring replacement satellites and
installing terrestrial repeaters, to exceed $100,000 during the period
from June 1, 2001 through the period in which the term loan is
outstanding.
Our failure to comply with these covenants could result in an event of
default which, if not cured or waived, would have a material adverse effect on
us.
CONTRACTUAL COMMITMENTS
We have entered into agreements with providers of non-music programming
and, in certain instances, are obligated to pay license fees, to share
advertising revenues from this programming or to purchase advertising on
properties owned or controlled by these providers. These obligations aggregate
$5,856, $15,964, $28,919, $23,297 and $714 for the remainder of 2002, and for
the years ending December 31, 2003, 2004, 2005 and 2006, respectively.
We have entered into sponsorship agreements to promote our brand. Our
obligations under these agreements aggregate $4,816, $16,470 and $4,335 for the
remainder of 2002, and for the years ending 2003 and 2004, respectively.
We have also entered into other agreements with automakers, radio
manufacturers and others that include fixed payments, per-radio and
per-subscriber required co-payments and revenue sharing arrangements. These
future costs are dependent upon many factors and are not possible to estimate;
however, these costs may be substantial.
18
We may enter into additional programming, sponsorship, manufacturing and
distribution agreements that contain provisions similar to our current
agreements.
In June 2002, we amended of our agreement with Panasonic to release us
from our purchase commitment and reduce the factory price of Sirius radios. We
made a payment of $8,134 to Panasonic in connection with this amendment.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require
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 revenues and expenses during the periods. Our significant
accounting policies are described in Note 2 to our consolidated financial
statements in Item 14 of our Annual Report on Form 10-K for the year ended
December 31, 2001. We have identified the following policies as critical to our
business and understanding of our results of operations.
Subscription Revenue Recognition. Revenue from subscribers consists of our
monthly subscription fee, recognized as the service is provided, and a
non-refundable activation fee, recognized on a pro rata basis over the term of
the subscriber relationship, currently estimated to be 3.5 years. The estimated
term of a subscriber relationship is based on market research and management's
judgment and, if necessary, will be refined in the future as historical data
becomes available. Sales discounts and promotions reduce the amount of revenue
recognized.
Useful Lives of Satellites. We consider our satellite system to include
the cost of satellite construction, launch vehicles, launch insurance and
capitalized interest, including the cost of our spare satellite. The expected
useful lives of our in-orbit satellites are fifteen years from the date they
were placed into orbit. We are depreciating our three in-orbit satellites over
their respective remaining useful lives beginning February 14, 2002 or, in the
case of our spare satellite, from the date it was delivered into ground storage
on April 19, 2002. If placed into orbit, our spare satellite is expected to
operate effectively for fifteen years; however, the spare satellite may be
replaced at the time we launch a new satellite system.
Marketable Securities. Marketable securities consist of U.S. government
agency obligations. Effective April 1, 2002, marketable securities are
classified as available for sale securities because management no longer
intends to buy and sell marketable securities with the objective of generating
profits. Available-for-sale securities are carried at fair market value and
unrealized gains and losses are included as a component of stockholders'
equity. In prior periods, marketable securities were classified as trading
securities and unrealized holding gains and losses were recognized in earnings.
19
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting of stockholders held on June 21, 2002, the persons
whose names are set forth below were elected as directors. The relevant voting
information for each person is set forth opposite such person's name:
VOTES CAST
---------------------------
FOR AGAINST
------------ ------------
Leon D. Black ................ 77,587,872 393,888
Joseph P. Clayton ............ 76,584,168 1,397,592
Lawrence F. Gilberti ......... 76,847,681 1,134,079
James P. Holden .............. 77,599,342 382,418
David Margolese .............. 75,463,701 2,518,059
Peter G. Peterson ............ 77,585,457 396,303
Joseph V. Vittoria ........... 77,578,517 403,243
At our annual meeting, stockholders also approved an amendment to our
certificate of incorporation to increase our authorized common stock from
200,000,000 shares to 500,000,000 shares by a vote of 65,317,945 shares in
favor, 12,430,574 shares against and 233,241 shares abstaining.
In addition to the election of directors and the amendment to our
certificate of incorporation, the appointment of Ernst & Young LLP as our
independent auditors for the fiscal year ending December 31, 2002 was ratified
by a vote of 76,841,996 shares in favor, 957,791 shares against and 181,973
shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index attached hereto.
(b) Reports on Form 8-K.
On April 18, 2002, we filed a Current Report on Form 8-K to report that we
had dismissed Arthur Andersen LLP as our independent accounts and engaged Ernst
& Young LLP to serve as our independent accountants for the year ending
December 31, 2002.
20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIRIUS SATELLITE RADIO INC.
By: /s/ John J. Scelfo
----------------------------------
John J. Scelfo
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 13, 2002
21
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------------
3.1.1 Certificate of Amendment, dated June 16, 1997, to the Company's Certificate of Incorporation and
the Company's Amended and Restated Certificate of Incorporation, dated January 31, 1994
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
3.1.2 Certificate of Ownership and Merger merging Sirius Satellite Radio Inc. into CD Radio Inc. dated
November 18, 1999 (incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (File No. 333-31362)).
3.2 Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
3.3 Certificate of Designations of 5% Delayed Convertible Preferred Stock (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K/A for the year ended December 31,
1996 (the "1996 Form 10-K")).
3.4 Form of Certificate of Designations of Series B Preferred Stock (incorporated by reference to Exhibit
A to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on October 30, 1997 (the
"Form 8-A")).
3.5.1 Form of Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of 101/2% Series C Convertible Preferred Stock (the "Series C Certificate of
Designations") (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (File No. 333-34761)).
3.5. Certificate of Correction to Series C Certificate of Designations (incorporated by reference to Exhibit
3.5.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"1997 Form 10-K")).
3.5.3 Certificate of Increase of 101/2% Series C Convertible Preferred Stock (incorporated by reference to
Exhibit 3.5.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998).
3.6 Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special
Rights of the Company's 9.2% Series A Junior Cumulative Convertible Preferred Stock (incorporated
by reference to Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
3.7 Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special
Rights of the Company's 9.2% Series B Junior Cumulative Convertible Preferred Stock (incorporated
by reference to Exhibit 3.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
3.8 Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special
Rights of the Company's 9.2% Series D Junior Cumulative Convertible Preferred Stock (incorporated
by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated December 29,
1999).
4.1 Form of certificate for shares of Common Stock (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (File No. 33-74782) (the "S-1 Registration
Statement")).
4.2 Form of certificate for shares of 101/2% Series C Convertible Preferred Stock (incorporated by
reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4 (File No. 333-34761)).
4.3 Form of certificate for shares of 9.2% Series A Junior Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4.10.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "1998 Form 10-K")).
EXHIBIT DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
4.4 Form of certificate for shares of 9.2% Series B Junior Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4.10.2 to the 1998 Form 10-K).
4.5 Form of certificate for shares of 9.2% Series D Junior Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (the "1999 Form 10-K")).
4.6.1 Rights Agreement, dated as of October 22, 1997 (the "Rights Agreement"), between the Company
and Continental Stock Transfer & Trust Company, as rights agent (incorporated by reference to
Exhibit 1 to the Form 8-A).
4.6.2 Form of Right Certificate (incorporated by reference to Exhibit B to Exhibit 1 to the Form 8-A).
4.6.3 Amendment to the Rights Agreement dated as of October 13, 1998 (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-K dated October 13, 1998).
4.6.4 Amendment to the Rights Agreement dated as of November 13, 1998 (incorporated by reference to
Exhibit 99.7 to the Company's Current Report on Form 8-K dated November 17, 1998).
4.6.5 Amended and Restated Amendment to the Rights Agreement dated as of December 22, 1998
(incorporated by reference to Exhibit 6 to Amendment No. 1 to the Form 8-A filed on January 6,
1999).
4.6.6 Amendment to the Rights Agreement dated as of June 11, 1999 (incorporated by reference to
Exhibit 4.1.8 to the Company's Registration Statement on Form S-4 (File No. 333-82303) (the "1999
Units Registration Statement")).
4.6.7 Amendment to the Rights Agreement dated as of September 29, 1999 (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 13, 1999).
4.6.8 Amendment to the Rights Agreement dated as of December 23, 1999 (incorporated by reference to
Exhibit 99.4 to the Company's Current Report on Form 8-K filed on December 29, 1999).
4.6.9 Amendment to the Rights Agreement dated as of January 28, 2000 (incorporated by reference to
Exhibit 4.6.9 to the 1999 Form 10-K).
4.6.10 Amendment to the Rights Agreement dated as of August 7, 2000 (incorporated by reference to
Exhibit 4.6.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 2000).
4.6.11 Amendment to the Rights Agreement dated as of January 8, 2002 (incorporated by reference to
Exhibit 4.6.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001
(the "2001 Form 10-K")).
4.7 Indenture, dated as of November 26, 1997, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, relating to the Company's 15% Senior Secured Discount Notes due 2007
(incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (File
No. 333-34769) (the "1997 Units Registration Statement")).
4.8 Form of 15% Senior Secured Discount Note due 2007 (incorporated by reference to Exhibit 4.2 to
the 1997 Units Registration Statement).
4.9 Warrant Agreement, dated as of November 26, 1997, between the Company and IBJ Schroder Bank
& Trust Company, as warrant agent (incorporated by reference to Exhibit 4.3 to the 1997 Units
Registration Statement).
4.10 Form of Warrant (incorporated by reference to Exhibit 4.4 to the 1997 Units Registration
Statement).
4.11 Form of Preferred Stock Warrant Agreement, dated as of April 9, 1997, between the Company and
each warrantholder thereof (incorporated by reference to Exhibit 4.12 to the 1997 Form 10-K).
2
EXHIBIT DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
4.12 Form of Common Stock Purchase Warrant granted by the Company to Everest Capital Master Fund,
L.P. and to The Ravich Revocable Trust of 1989 (incorporated by reference to Exhibit 4.11 to the
1997 Form 10-K).
4.13 Indenture, dated as of May 15, 1999, between the Company and United States Trust Company of
New York, as trustee, relating to the Company's 141/2% Senior Secured Notes due 2009 (incorporated
by reference to Exhibit 4.4.2 to the 1999 Units Registration Statement).
4.14 Form of 141/2% Senior Secured Note due 2009 (incorporated by reference to Exhibit 4.4.3 to the 1999
Units Registration Statement).
4.15 Warrant Agreement, dated as of May 15, 1999, between the Company and United States Trust
Company of New York, as warrant agent (incorporated by reference to Exhibit 4.4.4 to the 1999
Units Registration Statement).
4.16 Common Stock Purchase Warrant granted by the Company to Ford Motor Company, dated June 11,
1999 (incorporated by reference to Exhibit 4.5.1 to the 1999 Units Registration Statement).
4.17 Indenture, dated as of September 29, 1999, between the Company and United States Trust Company
of Texas, N.A., as trustee, relating to the Company's 83/4% Convertible Subordinated Notes due 2009
(incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on
October 13, 1999).
4.18 First Supplemental Indenture, dated as of September 29, 1999, between the Company and United
States Trust Company of Texas, N.A., as trustee, relating to the Company's 83/4% Convertible
Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.01 to the Company's Current
Report on Form 8-K filed on October 1, 1999).
4.19 Form of 83/4% Convertible Subordinated Note due 2009 (incorporated by reference to Article VII of
Exhibit 4.01 to the Company's Current Report on Form 8-K filed on October 1, 1999).
4.20 Common Stock Purchase Warrant granted by the Company to DaimlerChrysler Corporation dated
May 13, 2002 (filed herewith).
4.21 Term Loan Agreement, dated as of June 1, 2000 (the "Term Loan Agreement"), among the
Company, Lehman Brothers Inc., as arranger, and Lehman Commercial Paper Inc., as syndication
and administrative agent (incorporated by reference to Exhibit 4.22 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000).
4.22 First Amendment, dated as of October 20, 2000, to the Term Loan Agreement (incorporated by
reference to Exhibit 4.22 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).
4.23 Second Amendment, dated as of December 27, 2000, to the Term Loan Agreement (incorporated by
reference to Exhibit 4.23 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).
4.24 Third Amendment, dated as of March 26, 2002, to the Term Loan Agreement (incorporated by
reference to Exhibit 4.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002).
4.25 Amended and Restated Warrant Agreement, dated as of December 27, 2000, between the Company
and United States Trust Company of New York, as warrant agent and escrow agent (incorporated by
reference to Exhibit 4.27 to the Company's Registration Statement on Form S-3 (File No.
333-65602)).
3
EXHIBIT DESCRIPTION
- ---------------- --------------------------------------------------------------------------------------------------
4.26 Second Amended and Restated Pledge Agreement, dated as of March 7, 2001, among the Company,
as pledgor, The Bank of New York, as trustee and collateral agent, United States Trust Company of
New York, as trustee, and Lehman Commercial Paper Inc., as administrative agent (incorporated by
reference to Exhibit 4.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).
4.27 Collateral Agreement, dated as of March 7, 2001, between the Company, as borrower, and The Bank
of New York, as collateral agent (incorporated by reference to Exhibit 4.26 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
4.28 Amended and Restated Intercreditor Agreement, dated as of March 7, 2001, by and between The
Bank of New York, as trustee and collateral agent, United States Trust Company of New York, as
trustee, and Lehman Commercial Paper, as administrative agent (incorporated by reference to
Exhibit 4.27 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
9.1 Voting Trust Agreement, dated as of August 26, 1997, by and among Darlene Friedland, as Grantor,
David Margolese, as Trustee, and the Company (incorporated by reference to Exhibit (c) to the
Company's Issuer Tender Offer Statement on Form 13E-4 filed on October 16, 1997).
10.1.1 Lease Agreement, dated as of March 31, 1998, between Rock-McGraw, Inc. and the Company
(incorporated by reference to Exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998).
10.1.2 Supplemental Indenture, dated as of March 22, 2000, between Rock-McGraw, Inc. and the Company
(incorporated by reference to Exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000).
10.1.3 Supplemental Indenture, dated as of November 30, 2001, between Rock-McGraw, Inc. and the
Company (incorporated by reference to Exhibit 10.1.3 to the 2001 Form 10-K).
*10.2 Employment Agreement, dated as of March 28, 2000, between the Company and Joseph S.
Capobianco (incorporated by reference to Exhibit 10.5 to the 1999 Form 10-K).
*10.3 Employment Agreement, dated as of March 28, 2000, between the Company and Patrick L. Donnelly
(incorporated by reference to Exhibit 10.6 to the 1999 Form 10-K).
*10.4 Employment Agreement, dated as of March 7, 2001, between the Company and John J. Scelfo
(incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001).
*10.5 Employment Agreement, dated as of August 29, 2001, between the Company and Michael S.
Ledford (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001).
*10.6 Employment Agreement, dated as of November 26, 2002, between the Company and Joseph P.
Clayton (incorporated by reference to Exhibit 10.6 to the 2001 Form 10-K).
*10.7 Employment Agreement, dated as of January 7, 2002, between the Company and Guy Johnson
(incorporated by reference to Exhibit 10.7 to the 2001 Form 10-K).
*10.8 Employment Agreement, dated as of May 3, 2002, between the Company and Mary Patricia Ryan
(filed herewith).
*10.9 Agreement, dated as of October 16, 2001, between the Company and David Margolese (incorporated
by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).
*10.10 1994 Stock Option Plan (incorporated by reference to Exhibit 10.21 to the S-1 Registration
Statement).
4
EXHIBIT DESCRIPTION
- ------------------ -------------------------------------------------------------------------------------------------------
*10.11 Amended and Restated 1994 Directors' Nonqualified Stock Option Plan (incorporated by reference
to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
*10.12 CD Radio Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (File No. 333-65473)).
*10.13 Sirius Satellite Radio 1999 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 4.4
of the Company's Registration Statement on Form S-8 (File No. 333-31362)).
10.14 Form of Option Agreement, dated as of December 29, 1997, between the Company and each
Optionee (incorporated by reference to Exhibit 10.16.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
10.15.1 Stock Purchase Agreement, dated as of November 13, 1998 (the "Apollo Stock Purchase
Agreement"), by and among the Company, Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P. (incorporated by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K dated November 17, 1998).
10.15.2 First Amendment, dated as of December 23, 1998, to the Apollo Stock Purchase Agreement
(incorporated by reference to Exhibit 10.28.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
10.15.3 Second Amendment, dated as of December 23, 1999, to the Apollo Stock Purchase Agreement
(incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed on
December 29, 1999).
10.16 Stock Purchase Agreement, dated as of December 23, 1999, by and between the Company and
Blackstone Capital Partners III Merchant Banking Fund L.P. (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed on December 29, 1999).
10.17 Stock Purchase Agreement, dated as of January 28, 2000, among the Company, Mercedes-Benz USA,
Inc., Freightliner Corporation and DaimlerChrysler Corporation (incorporated by reference to
Exhibit 10.24 to the 1999 Form 10-K).
10.18 Tag-Along Agreement, dated as of November 13, 1998, by and among Apollo Investment Fund IV,
L.P., Apollo Overseas Partners IV, L.P., the Company and David Margolese (incorporated by
reference to Exhibit 99.6 to the Company's Current Report on Form 8-K dated November 17, 1998).
+10.19 Agreement, dated as of June 11, 1999, between the Company and Ford Motor Company
(incorporated by reference to Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
+10.20 Joint Development Agreement, dated as of February 16, 2000, between the Company and XM
Satellite Radio Inc. (incorporated by reference to Exhibit 10.28 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000).
99.1 Certificate of Joseph P. Clayton, President and Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.2 Certificate of John J. Scelfo, Executive Vice President and Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
- ----------
* This document has been identified as a management contract or
compensatory plan or arrangement.
+ Portions of these exhibits have been omitted pursuant to Applications for
Confidential treatment filed by the Company with the Securities and
Exchange Commission.
5