Attached files
file | filename |
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EX-31.3 - EXHIBIT 31.3 - XM SATELLITE RADIO INC | c92017exv31w3.htm |
EX-32.2 - EXHIBIT 32.2 - XM SATELLITE RADIO INC | c92017exv32w2.htm |
EX-31.4 - EXHIBIT 31.4 - XM SATELLITE RADIO INC | c92017exv31w4.htm |
EX-31.1 - EXHIBIT 31.1 - XM SATELLITE RADIO INC | c92017exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - XM SATELLITE RADIO INC | c92017exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - XM SATELLITE RADIO INC | c92017exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission | I.R.S. Employer | |||
File | Identification | |||
Number | Exact name of registrant as specified in its charter | Number | ||
000-27441 | XM SATELLITE RADIO HOLDINGS INC. | 54-1878819 | ||
333-39178 | XM SATELLITE RADIO INC. | 52-1805102 |
Delaware
(State or other jurisdiction of incorporation or organization of both registrants)
(State or other jurisdiction of incorporation or organization of both registrants)
1500 Eckington Place, NE Washington, DC (Address of principal executive offices) |
20002-2194 (Zip Code) |
Registrants telephone number, including area code: (202) 380-4000
Indicate by check mark whether each 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
XM Satellite Radio Holdings Inc.
|
Large Accelerated Filer þ | Accelerated Filer o | ||
Non-Accelerated Filer o | Smaller Reporting Company o | |||
XM Satellite Radio Inc.
|
Large Accelerated Filer o | Accelerated Filer o | ||
Non-Accelerated Filer þ | Smaller Reporting Company o |
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
(Class) | (Outstanding as of October 31, 2009) | |
XM SATELLITE RADIO HOLDINGS INC. | ||
COMMON STOCK, $0.01 PAR VALUE | ||
(all shares are issued to Sirius XM Radio Inc.) | 100 SHARES | |
XM SATELLITE RADIO INC. | ||
COMMON STOCK, $0.10 PAR VALUE | ||
(all shares are issued to XM Satellite Radio Holdings Inc.) | 125 SHARES |
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Item No. | Description | |||||||
Item 1. | 1 | |||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
Item 2. | 32 | |||||||
Item 3. | 60 | |||||||
Item 4. | 60 | |||||||
Item 1. | 61 | |||||||
Item 1A. | 61 | |||||||
Item 2. | 61 | |||||||
Item 3. | 61 | |||||||
Item 4. | 61 | |||||||
Item 5. | 61 | |||||||
Item 6. | 62 | |||||||
69 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 31.3 | ||||||||
Exhibit 31.4 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
PART I: FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Successor Entity | Predecessor Entity | ||||||||||||||||||||
Three Months | Nine Months | August 1, 2008 | July 1, 2008 | January 1, 2008 | |||||||||||||||||
Ended | Ended | Through | Through | Through | |||||||||||||||||
(in thousands) | September 30, 2009 | September 30, 2009 | September 30, 2008 | July 31, 2008 | July 31, 2008 | ||||||||||||||||
Revenue: |
|||||||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 304,714 | $ | 884,038 | $ | 183,033 | $ | 95,684 | $ | 670,870 | |||||||||||
Advertising revenue, net of agency fees |
4,147 | 13,475 | 5,165 | 3,193 | 22,743 | ||||||||||||||||
Equipment revenue |
5,657 | 17,681 | 3,351 | 1,585 | 13,397 | ||||||||||||||||
Other revenue |
10,955 | 19,344 | 4,054 | 4,242 | 24,184 | ||||||||||||||||
Total revenue |
325,473 | 934,538 | 195,603 | 104,704 | 731,194 | ||||||||||||||||
Operating expenses (depreciation and amortization
shown separately below) (1): |
|||||||||||||||||||||
Cost of services: |
|||||||||||||||||||||
Satellite and transmission |
11,484 | 36,952 | 12,458 | 6,644 | 46,566 | ||||||||||||||||
Programming and content |
27,811 | 84,353 | 18,046 | 15,991 | 117,156 | ||||||||||||||||
Revenue share and royalties |
46,976 | 142,997 | 38,539 | 24,198 | 166,606 | ||||||||||||||||
Customer service and billing |
31,064 | 96,168 | 23,819 | 12,249 | 82,947 | ||||||||||||||||
Cost of equipment |
5,142 | 12,049 | 5,020 | 2,406 | 20,013 | ||||||||||||||||
Sales and marketing |
26,055 | 84,565 | 28,951 | 17,268 | 126,054 | ||||||||||||||||
Subscriber acquisition costs |
35,049 | 83,524 | 27,482 | 33,366 | 174,083 | ||||||||||||||||
General and administrative |
25,216 | 91,689 | 19,215 | 33,209 | 116,444 | ||||||||||||||||
Engineering, design and development |
5,413 | 16,798 | 5,191 | 2,611 | 23,045 | ||||||||||||||||
Impairment of goodwill |
| | 5,026,838 | | | ||||||||||||||||
Depreciation and amortization |
41,587 | 146,462 | 34,620 | 10,828 | 88,749 | ||||||||||||||||
Restructuring, impairments and related costs |
3,029 | 29,614 | | | | ||||||||||||||||
Total operating expenses |
258,826 | 825,171 | 5,240,179 | 158,770 | 961,663 | ||||||||||||||||
Income (loss) from operations |
66,647 | 109,367 | (5,044,576 | ) | (54,066 | ) | (230,469 | ) | |||||||||||||
Other income (expense): |
|||||||||||||||||||||
Interest and investment income |
729 | 1,848 | 3,963 | 594 | 3,013 | ||||||||||||||||
Interest expense, net of amounts capitalized |
(70,616 | ) | (226,935 | ) | (47,798 | ) | (14,130 | ) | (73,937 | ) | |||||||||||
Gain (loss) on change in value of embedded derivatives |
(33,700 | ) | (111,703 | ) | 242,223 | | | ||||||||||||||
Loss on extinguishment of debt and credit facilities, net |
(3,787 | ) | (111,863 | ) | | | | ||||||||||||||
Loss on investments |
(2,870 | ) | (6,660 | ) | (3,089 | ) | (4,460 | ) | (13,010 | ) | |||||||||||
Other income (expense) |
1,324 | 2,548 | (4,074 | ) | 5 | 900 | |||||||||||||||
Total other income (expense) |
(108,920 | ) | (452,765 | ) | 191,225 | (17,991 | ) | (83,034 | ) | ||||||||||||
Loss before income taxes |
(42,273 | ) | (343,398 | ) | (4,853,351 | ) | (72,057 | ) | (313,503 | ) | |||||||||||
Income tax expense |
(578 | ) | (1,733 | ) | (672 | ) | (508 | ) | (1,512 | ) | |||||||||||
Net loss |
(42,851 | ) | (345,131 | ) | (4,854,023 | ) | (72,565 | ) | (315,015 | ) | |||||||||||
Add: net loss attributable to noncontrolling interests |
| | | (1,053 | ) | (7,443 | ) | ||||||||||||||
Net loss XM Satellite Radio Holdings Inc
Inc and Subsidiaries |
$ | (42,851 | ) | $ | (345,131 | ) | $ | (4,854,023 | ) | $ | (73,618 | ) | $ | (322,458 | ) | ||||||
(1) | Amounts related to share-based payment expense included in operating expenses were as follows: |
Satellite and transmission |
$ | 273 | $ | 1,073 | $ | 570 | $ | 305 | $ | 2,745 | |||||||||||
Programming and content |
859 | 3,368 | 961 | 586 | 4,949 | ||||||||||||||||
Customer service and billing |
345 | 1,077 | 332 | 228 | 1,869 | ||||||||||||||||
Sales and marketing |
1,261 | 3,862 | 1,038 | 770 | 7,047 | ||||||||||||||||
General and administrative |
4,355 | 21,122 | 2,000 | 1,634 | 13,200 | ||||||||||||||||
Engineering, design and development |
514 | 2,037 | 710 | 510 | 4,675 | ||||||||||||||||
Total share-based payment expense |
$ | 7,607 | $ | 32,539 | $ | 5,611 | $ | 4,033 | $ | 34,485 | |||||||||||
See accompanying Notes to the unaudited consolidated financial statements.
1
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 326,022 | $ | 206,740 | ||||
Accounts receivable, net of allowance for doubtful accounts of $6,577 and $6,199, respectively |
45,243 | 52,727 | ||||||
Inventory, net |
2,923 | 4,489 | ||||||
Prepaid expenses |
79,235 | 37,351 | ||||||
Related party current assets |
105,674 | 112,363 | ||||||
Other current assets |
57,320 | 50,412 | ||||||
Total current assets |
616,417 | 464,082 | ||||||
Property and equipment, net |
798,247 | 874,588 | ||||||
FCC license |
2,000,000 | 2,000,000 | ||||||
Restricted investments |
250 | 120,250 | ||||||
Deferred financing fees, net |
27,309 | 30,303 | ||||||
Intangible assets, net |
629,288 | 688,671 | ||||||
Related party long-term assets |
114,073 | 124,607 | ||||||
Other long-term assets |
41,560 | 34,284 | ||||||
Total assets |
$ | 4,227,144 | $ | 4,336,785 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 196,612 | $ | 237,299 | ||||
Accrued interest |
52,258 | 50,543 | ||||||
Current portion of deferred revenue |
472,723 | 419,707 | ||||||
Current portion of deferred credit on executory contracts |
247,566 | 234,774 | ||||||
Current maturities of long-term debt |
101,300 | 355,739 | ||||||
Related party current liabilities |
187,101 | 83,930 | ||||||
Total current liabilities |
1,257,560 | 1,381,992 | ||||||
Deferred revenue |
165,901 | 131,255 | ||||||
Deferred credit on executory contracts |
851,955 | 1,037,190 | ||||||
Long-term debt |
1,636,868 | 1,439,102 | ||||||
Long-term related party debt |
159,275 | | ||||||
Deferred tax liability |
899,889 | 886,475 | ||||||
Related party long-term liabilities |
21,928 | | ||||||
Other long-term liabilities |
33,982 | 36,325 | ||||||
Total liabilities |
5,027,358 | 4,912,339 | ||||||
Commitments and contingencies (Note 14) |
||||||||
Stockholders deficit: |
||||||||
Common stock, par value $0 01; 1,000 shares authorized; 100 shares
issued and outstanding as of September 30, 2009 and December 31, 2008 |
| | ||||||
Accumulated other comprehensive loss, net of tax |
(6,598 | ) | (7,871 | ) | ||||
Additional paid-in capital |
5,989,700 | 5,870,502 | ||||||
Accumulated deficit |
(6,783,316 | ) | (6,438,185 | ) | ||||
Total stockholders deficit |
(800,214 | ) | (575,554 | ) | ||||
Total liabilities and stockholders deficit |
$ | 4,227,144 | $ | 4,336,785 | ||||
See accompanying Notes to the unaudited consolidated financial statements.
2
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE LOSS
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders | ||||||||||||||||||||
(in thousands, except share data) | Shares | Amount | Capital | Deficit | Loss | Deficit | ||||||||||||||||||
Balance at December 31, 2008 |
100 | $ | | $ | 5,870,502 | $ | (6,438,185 | ) | $ | (7,871 | ) | $ | (575,554 | ) | ||||||||||
Net loss XM Satellite Radio Holdings Inc and Subsidiaries |
| | | (345,131 | ) | | (345,131 | ) | ||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Unrealized gain on available-for-sale securities, net of tax |
| | | | 579 | 579 | ||||||||||||||||||
Foreign currency translation adjustment, net of tax |
| | | | 694 | 694 | ||||||||||||||||||
Total comprehensive loss |
(343,858 | ) | ||||||||||||||||||||||
Non-cash capital contributions from SIRIUS XM |
| | 119,198 | | | 119,198 | ||||||||||||||||||
Balance at September 30, 2009 |
100 | $ | | $ | 5,989,700 | $ | (6,783,316 | ) | $ | (6,598 | ) | $ | (800,214 | ) | ||||||||||
See accompanying Notes to the unaudited consolidated financial statements.
3
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Entity | Predecessor Entity | ||||||||||||
Nine Months | August 1, 2008 | January 1, 2008 | |||||||||||
Ended | Through | Through | |||||||||||
(in thousands) | September 30, 2009 | September 30, 2008 | July 31, 2008 | ||||||||||
Cash flows from operating activities: |
|||||||||||||
Net loss XM Satellite Radio Holdings Inc and Subsidiaries |
$ | (345,131 | ) | $ | (4,854,023 | ) | $ | (322,458 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|||||||||||||
Depreciation and amortization |
146,462 | 34,620 | 88,749 | ||||||||||
Impairment of goodwill |
| 5,026,838 | | ||||||||||
Non-cash interest expense |
68,379 | 10,023 | 7,023 | ||||||||||
Provision for doubtful accounts |
12,642 | 3,028 | 8,523 | ||||||||||
Amortization of deferred income related to equity method investment |
(2,082 | ) | (471 | ) | (5,829 | ) | |||||||
Loss on investments |
6,660 | 3,089 | 13,010 | ||||||||||
Loss on extinguishment of debt and credit facilities, net |
111,863 | | | ||||||||||
Restructuring, impairments and related costs |
26,401 | | | ||||||||||
Share-based payment expense |
32,539 | 5,611 | 34,485 | ||||||||||
(Gain) loss on change in value of embedded derivatives |
111,703 | (242,223 | ) | | |||||||||
Deferred income taxes |
1,733 | 672 | 1,512 | ||||||||||
Other non-cash purchase price adjustments |
(142,487 | ) | (23,770 | ) | | ||||||||
Other |
| 1,644 | 7,412 | ||||||||||
Changes in operating assets and liabilities: |
|||||||||||||
Accounts receivable |
(5,158 | ) | (6,044 | ) | 7,597 | ||||||||
Inventory |
1,566 | (206 | ) | 5,558 | |||||||||
Related party assets |
17,223 | (1,357 | ) | 2,050 | |||||||||
Prepaid expenses and other current assets |
9,278 | (11,945 | ) | (20,599 | ) | ||||||||
Restricted investments |
| | (120,000 | ) | |||||||||
Other long-term assets |
47,465 | 29,590 | 378 | ||||||||||
Accounts payable and accrued expenses |
(38,868 | ) | 17,776 | (30,477 | ) | ||||||||
Accrued interest |
5,870 | 7,003 | 12,558 | ||||||||||
Deferred revenue |
59,635 | 2,616 | 47,599 | ||||||||||
Related party liabilities |
93,715 | 3,315 | 6,557 | ||||||||||
Other long-term liabilities |
9,210 | (183 | ) | 5,266 | |||||||||
Net cash provided by (used in) operating activities |
228,618 | 5,603 | (251,086 | ) | |||||||||
Cash flows from investing activities: |
|||||||||||||
Additions to property and equipment |
(38,811 | ) | (7,893 | ) | (30,843 | ) | |||||||
Purchase of restricted and other investments |
| | (34,825 | ) | |||||||||
Sale of restricted and other investments |
| 25,400 | | ||||||||||
Net cash (used in) provided by investing activities |
(38,811 | ) | 17,507 | (65,668 | ) | ||||||||
Cash flows from financing activities: |
|||||||||||||
Proceeds from exercise of warrants and stock options |
| | 964 | ||||||||||
Long-term borrowings, net of costs |
387,184 | 533,941 | 1,023,190 | ||||||||||
Related party long-term borrowings, net of costs |
95,093 | | | ||||||||||
Payment of premiums on redemption of debt |
(17,075 | ) | (18,693 | ) | | ||||||||
Payments to minority interest holder |
| (61,880 | ) | (6,897 | ) | ||||||||
Repayment of long-term borrowings |
(435,727 | ) | (1,080,553 | ) | (35,210 | ) | |||||||
Repayment of long-term related party borrowings |
(100,000 | ) | | | |||||||||
Other, net |
| (98 | ) | (2,458 | ) | ||||||||
Net cash (used in) provided by financing activities |
(70,525 | ) | (627,283 | ) | 979,589 | ||||||||
Net increase in cash and cash equivalents |
119,282 | (604,173 | ) | 662,835 | |||||||||
Cash and cash equivalents at beginning of period |
206,740 | 819,521 | 156,686 | ||||||||||
Cash and cash equivalents at end of period |
$ | 326,022 | $ | 215,348 | $ | 819,521 | |||||||
Supplemental Disclosure of Cash and Non-Cash Flow Information |
|||||||||||||
Cash paid during the period for: |
|||||||||||||
Interest, net of amounts capitalized |
$ | 148,106 | $ | 37,704 | $ | 54,626 | |||||||
Non-cash investing and financing activities: |
|||||||||||||
Non-cash capital contributions from SIRIUS XM |
119,198 | | | ||||||||||
Property acquired through capital leases |
1,337 | | 4,465 | ||||||||||
Release of restricted investments |
120,000 | | |
See accompanying Notes to the unaudited consolidated financial statements.
4
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise stated)
(1) Business
We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the
United States on a subscription fee basis through our proprietary satellite radio system. Our
system consists of four in-orbit satellites, over 650 terrestrial repeaters that receive and
retransmit signals, satellite uplink facilities and studios. Subscribers can also receive certain
of our music and other channels over the Internet.
On July 28, 2008 XM Satellite Radio Holdings Inc. (XM Holdings) merged with and into Vernon
Merger Corporation, a wholly owned subsidiary of Sirius Satellite Radio Inc. (the Merger) and, as
a result, XM Holdings is now a wholly owned subsidiary of SIRIUS. Sirius Satellite Radio Inc. was
later renamed Sirius XM Radio Inc. (SIRIUS). The accounting for the Merger has been pushed-down
in the accompanying unaudited consolidated financial statements. XM, together with its
subsidiaries, is operated as an unrestricted subsidiary under SIRIUS existing indebtedness. As an
unrestricted subsidiary, transactions between the companies are required to comply with various
contractual provisions in our debt instruments. For purposes of these Notes to unaudited
consolidated financial statements, we, us, our, the company, and similar terms refer to XM
Satellite Radio Holdings Inc. and its consolidated subsidiaries.
Our satellite radios are primarily distributed through automakers (OEMs), retailers and our
website. We have agreements with major automakers to offer our satellite radios as factory or
dealer-installed equipment in their vehicles. Our radios are also offered to customers of rental
car companies.
Our subscriber totals include subscribers under our regular pricing plans; discounted pricing
plans; subscribers that have prepaid, including payments either made or due from automakers and
dealers for prepaid subscriptions included in the sale or lease price of a vehicle; certain radios
activated for daily rental fleet programs; subscribers to XM Radio Online, our Internet service;
and certain subscribers to our weather, traffic and data services.
Our primary source of revenue is subscription fees, with most of our customers subscribing on
an annual, semi-annual, quarterly or monthly basis. We offer discounts for prepaid and long-term
subscriptions as well as discounts for multiple subscriptions. We also derive revenue from
activation fees, the sale of advertising on select non-music channels, the direct sale of satellite
radios, components and accessories, and other ancillary services, such as our data and weather
services. In August 2009, we began charging our subscribers a U.S. Music Royalty Fee (the MRF).
In certain cases, automakers include a subscription to our radio services in the sale or lease
price of vehicles. The length of these prepaid subscriptions varies, but is typically three months.
We also reimburse various automakers for certain costs associated with satellite radios installed
in their vehicles.
We also have an interest in a satellite radio service offered in Canada through our affiliate,
Canadian Satellite Radio Holdings Inc. (XM Canada). Subscribers to the XM Canada service are not
included in our subscriber count.
XM Satellite Radio Inc. (XM) was incorporated on December 15, 1992 in the State of Delaware.
XM Satellite Radio Holdings Inc. was formed as a holding company for XM on May 16, 1997.
As of September 30, 2009, the principal differences between the financial conditions of XM
Holdings and XM were:
| the ownership by XM Holdings of the corporate headquarters and data center buildings and the lease of these buildings to XM; |
| XM-1, XM-2, and the transponders of XM-3 and XM-4 are owned by XM; and XM-5 and the bus portions of XM-3 and XM-4 are owned by XM Holdings; |
| the presence at XM Holdings of additional indebtedness, primarily the 10% Convertible Senior Notes due 2009 and 10% Senior PIK Secured Notes due 2011, both of which are not guaranteed by XM; |
| the investment by XM Holdings in XM Canada (including related revenue and deferred income); and |
| the existence of additional cash balances at XM Holdings. |
5
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
Accordingly, the results of operations for XM and its subsidiaries are substantially the same
as the results of operations for XM Holdings and its subsidiaries except that XM has:
| additional rent, less depreciation and amortization expense and less other income, in each case principally related to XMs rental of its corporate headquarters and data center buildings from XM Holdings, which are intercompany transactions that have been eliminated in XM Holdings consolidated financial statements; |
| less interest expense, principally related to the additional indebtedness at XM Holdings, and gains and losses on embedded derivatives; |
| less revenue associated with the amortization of deferred income and equity in losses from XM Holdings investment in XM Canada; |
| no gains or losses on XM Holdings investment in XM Canada; and |
| less interest income because of additional cash balances at XM Holdings. |
(2) Principles of Consolidation and Basis of Presentation
Principles of Consolidation
The accompanying unaudited consolidated financial statements of XM Satellite Radio Holdings
Inc. and subsidiaries have been prepared in accordance with U.S. generally accepted accounting
principles, the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States
Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, they do
not include all of the information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. All intercompany transactions have been eliminated in
consolidation.
Basis of Presentation
In presenting unaudited consolidated financial statements, management makes estimates and
assumptions that affect the amounts reported and related disclosures. Additionally, estimates were
used when recording the fair values of our assets acquired and liabilities assumed in the Merger.
Estimates, by their nature, are based on judgment and available information. Actual results could
differ from those estimates. In the opinion of management, all normal recurring adjustments
necessary for a fair presentation of our unaudited consolidated financial statements as of
September 30, 2009, the successor periods of the three and nine months ended September 30, 2009 and
August 1, 2008 through September 30, 2008 and the predecessor periods of July 1, 2008 through July
31, 2008 and January 1, 2008 through July 31, 2008, have been made.
XM Holdings operates as an unrestricted subsidiary of SIRIUS under its existing indebtedness.
As an unrestricted subsidiary, transactions between the companies are required to comply with
various contractual restrictions in our existing debt instruments. SIRIUS allocates certain
expenses to us based on the estimated costs incurred by SIRIUS that pertain to us. Additionally,
certain costs incurred by us benefit SIRIUS and are allocated to SIRIUS based on estimated costs
incurred by us pertaining to SIRIUS. We settle amounts due between the parties on a semi-monthly
and monthly basis, except for share-based payment arrangements which are settled at times agreed to
between us and SIRIUS. Our financial position, results of operations and cash flows could differ
from those that might have resulted had we operated autonomously. As a result of the Merger,
certain of our predecessor accounting policies were changed to conform with SIRIUS current
accounting policies. These changes have not had, and are not expected to have, a significant impact
on our unaudited consolidated financial statements.
Interim results are not necessarily indicative of the results that may be expected for a full
year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form
10-K for the year ended December 31, 2008, filed with the SEC on March 13, 2009.
In connection with the Merger, our assets and liabilities were adjusted to fair value at the
acquisition date by application of push-down accounting. Accordingly, our financial position and
results of operations may not be comparable between the accompanying Successor and Predecessor
periods.
We have evaluated events subsequent to the balance sheet date and prior to filing of this
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 through November 5, 2009 and
determined there have not been any events that have occurred that would require adjustment to our
unaudited consolidated financial statements.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
(3) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
and related disclosures.
Significant estimates inherent in the preparation of the accompanying unaudited consolidated
financial statements include revenue recognition, asset impairment, useful lives of our satellites
and valuation allowances against deferred tax assets. The financial market volatility and economic
conditions in the United States have impacted our business and may
continue to impact our business. Such conditions could have a material
impact to our significant accounting estimates.
Inventory
Inventory consists of finished goods, refurbished goods, and other raw material components
used in manufacturing radios. Inventory is stated at the lower of cost or market. We record an
estimated allowance for inventory that is considered slow moving and obsolete or whose carrying
value is in excess of net realizable value. The provision related to products purchased for our
direct to consumer distribution channel is reported as a component of Cost of equipment in our
unaudited consolidated statements of operations. The remaining provision is reported as a component
of Subscriber acquisition costs in our unaudited consolidated statements of operations.
Inventory, net, consists of the following:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Raw materials |
$ | 6,303 | $ | 5,781 | ||||
Finished goods |
4,987 | 6,898 | ||||||
Allowance for obsolescence |
(8,367 | ) | (8,190 | ) | ||||
Total inventory, net |
$ | 2,923 | $ | 4,489 | ||||
Reclassifications
Certain amounts in our prior period unaudited consolidated financial statements have been
reclassified to conform to our current period presentation.
Recent Accounting Pronouncements
In September 2009, Accounting Standards Codification (ASC) became the source of
authoritative U.S. GAAP recognized by the Financial Accounting Standards Board (FASB) for
nongovernmental entities, except for certain FASB Statements not yet incorporated into ASC. Rules
and interpretive releases of the SEC under federal securities laws are also sources of
authoritative U.S. GAAP for registrants. The discussion below includes the applicable ASC
reference.
We adopted ASC 810-10-65, Transition and Open Effective Date Information, which
requires a parent with one or more less-than-wholly-owned subsidiaries to disclose, on the face of
the consolidated financial statements, the amount of consolidated net income attributable to the
parent and noncontrolling interest. We adopted this guidance effective January 1, 2009, with no
impact on our consolidated results of operations and financial position.
We adopted ASC 855, Subsequent Events, which requires disclosure of events occurring
after the balance sheet date but before financial statements are issued or are available to be
issued. We adopted this guidance effective April 1, 2009, with no impact on our consolidated
results of operations or financial position.
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R),
to require an analysis to determine whether our variable interest(s) give us a controlling
financial interest in a variable interest entity. Statement 167 has not been incorporated
into ASC and is effective for fiscal years beginning after November 15, 2009. We are currently
evaluating the impact, if any, the adoption of this guidance will have on our consolidated results
of operations and financial position.
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, which integrated existing accounting
standards with other authoritative guidance to provide a single source of authoritative U.S. GAAP
for nongovernmental entities. Statement 168 has not been incorporated into ASC and is effective for
interim and annual periods ending after September 15, 2009. We adopted this guidance effective July
1, 2009, with no impact on our consolidated results of operations or financial position.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
(4) Intangible Assets
Intangible assets consisted of the following:
September 30, 2009 | December 31, 2008 | |||||||||||||||||||||||||||
Weighted Average | Gross Carrying | Accumulated | Net Carrying | Gross Carrying | Accumulated | Net Carrying | ||||||||||||||||||||||
Useful Lives | Value | Amortization | Value | Value | Amortization | Value | ||||||||||||||||||||||
Indefinite life intangible assets |
||||||||||||||||||||||||||||
FCC licenses |
Indefinite | $ | 2,000,000 | $ | | $ | 2,000,000 | $ | 2,000,000 | $ | | $ | 2,000,000 | |||||||||||||||
Trademark |
Indefinite | 250,000 | | 250,000 | 250,000 | | 250,000 | |||||||||||||||||||||
Definite life intangible assets |
||||||||||||||||||||||||||||
Subscriber relationships |
9 years | $ | 380,000 | $ | (76,670 | ) | $ | 303,330 | $ | 380,000 | $ | (29,226 | ) | $ | 350,774 | |||||||||||||
Proprietary software |
6 years | 16,552 | (6,020 | ) | 10,532 | 16,552 | (2,285 | ) | 14,267 | |||||||||||||||||||
Developed technology |
10 years | 2,000 | (233 | ) | 1,767 | 2,000 | (83 | ) | 1,917 | |||||||||||||||||||
Licensing agreements |
9.1 years | 75,000 | (11,452 | ) | 63,548 | 75,000 | (4,090 | ) | 70,910 | |||||||||||||||||||
Leasehold interests |
7.4 years | 132 | (21 | ) | 111 | 908 | (105 | ) | 803 | |||||||||||||||||||
Total intangible assets |
$ | 2,723,684 | $ | (94,396 | ) | $ | 2,629,288 | $ | 2,724,460 | $ | (35,789 | ) | $ | 2,688,671 | ||||||||||||||
Indefinite Life Intangible Assets
We have identified our FCC licenses and our trademark as indefinite life intangibles after
considering the expected use of the assets, the regulatory and economic environment within which
they are being used, and the effects of obsolescence on their use.
We hold FCC licenses to operate our satellite digital audio radio service and provide
ancillary services. Our FCC licenses for our satellites expire in 2013 and 2014. Prior to the
expirations, we will be required to apply for a renewal of our FCC licenses. The renewal and
extension of our licenses is reasonably certain at minimal cost which is expensed as incurred. The
FCC licenses authorize us to use the broadcast spectrum, which is a renewable, reusable resource
that does not deplete or exhaust over time.
In connection with the Merger, $250,000 of the purchase price was allocated to our trademark.
As of September 30, 2009 there are no legal, regulatory or contractual limitations associated with
our trademark.
We evaluate our indefinite life intangible assets for impairment on an annual basis. During
the three and nine months ended September 30, 2009, no impairment loss was recorded for intangible
assets with indefinite lives.
Definite Life Intangible Assets
Definite life intangible assets consist primarily of subscriber relationships of $380,000 that
were fair valued as a result of the Merger. Subscriber relationships are amortized on an
accelerated basis over 9 years, which reflects the estimated pattern in which the economic benefits
will be consumed. Other definite life intangibles include certain licensing agreements of $75,000,
which are being amortized over a weighted average useful life of 9.1 years on a straight-line
basis.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
Amortization expense was $18,648 and $58,759 for the three and nine months ended September 30,
2009, respectively, and $9,232 for the period August 1, 2008 through September 30, 2008. Expected
amortization expense for each of the fiscal years through December 31, 2013 and for periods
thereafter is as follows:
Year ending December 31, | Amount | |||
Remaining 2009 |
$ | 17,827 | ||
2010 |
65,916 | |||
2011 |
58,850 | |||
2012 |
53,420 | |||
2013 |
47,097 | |||
Thereafter |
136,178 | |||
Total intangibles, net |
$ | 379,288 | ||
(5) Subscriber Revenue
Subscriber revenue consists of subscription fees, non-refundable activation fees and the
effects of rebates. Revenues received from automakers for prepaid subscriptions included in the
sale or lease price of vehicles are also included in subscriber revenue over the service period
upon activation and sale to the customer.
Subscriber revenue consists of the following:
Successor Entity | Predecessor Entity | ||||||||||||||||||||
Three Months | Nine Months | August 1, 2008 | July 1, 2008 | January 1, 2008 | |||||||||||||||||
Ended | Ended | Through | Through | Through | |||||||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | July 31, 2008 | July 31, 2008 | |||||||||||||||||
Subscription fees |
$ | 303,785 | $ | 881,860 | $ | 183,144 | $ | 94,074 | $ | 659,775 | |||||||||||
Activation fees |
963 | 2,351 | 48 | 1,667 | 11,855 | ||||||||||||||||
Effect of rebates |
(34 | ) | (173 | ) | (159 | ) | (57 | ) | (760 | ) | |||||||||||
Total subscriber revenue |
$ | 304,714 | $ | 884,038 | $ | 183,033 | $ | 95,684 | $ | 670,870 | |||||||||||
(6) Interest Costs
We capitalize a portion of the interest on funds borrowed to finance the construction costs of
our satellites. The following is a summary of our interest costs:
Successor Entity | Predecessor Entity | ||||||||||||||||||||
Three Months | Nine Months | August 1, 2008 | July 1, 2008 | January 1, 2008 | |||||||||||||||||
Ended | Ended | Through | Through | Through | |||||||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | July 31, 2008 | July 31, 2008 | |||||||||||||||||
Interest costs charged to expense |
$ | 70,616 | $ | 226,935 | $ | 47,798 | $ | 14,130 | $ | 73,937 | |||||||||||
Interest costs capitalized |
7,495 | 25,053 | 3,927 | 1,009 | 6,852 | ||||||||||||||||
Total interest costs incurred |
$ | 78,111 | $ | 251,988 | $ | 51,725 | $ | 15,139 | $ | 80,789 | |||||||||||
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
(7) Property and Equipment
Property and equipment, net, consists of the following:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Satellite system |
$ | 490,126 | $ | 490,126 | ||||
Terrestrial repeater network |
41,603 | 41,850 | ||||||
Leasehold improvements |
6,852 | 6,762 | ||||||
Broadcast studio equipment |
7,934 | 7,804 | ||||||
Capitalized software and hardware |
53,768 | 53,986 | ||||||
Satellite telemetry, tracking and control facilities |
32,958 | 33,542 | ||||||
Furniture, fixtures, equipment and other |
27,269 | 26,076 | ||||||
Land |
38,100 | 38,100 | ||||||
Building |
53,803 | 53,887 | ||||||
Construction in progress satellite system |
194,980 | 181,856 | ||||||
Total property and equipment |
947,393 | 933,989 | ||||||
Accumulated depreciation and amortization |
(149,146 | ) | (59,401 | ) | ||||
Property and equipment, net |
$ | 798,247 | $ | 874,588 | ||||
Depreciation and amortization expense on property and equipment was $22,939 and $87,703 for
the three and nine months ended September 30, 2009, respectively, and $25,388, $10,828 and $88,749
for the periods August 1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and
January 1, 2008 through July 31, 2008, respectively.
Satellites
We own four orbiting satellites; two of which, XM-3 and XM-4, currently transmit our signal
and two of which, XM-1 and XM-2, serve as in-orbit spares. Our satellites were launched in March
2001, May 2001, February 2005 and October 2006.
Space Systems/Loral has constructed our fifth satellite, XM-5, for use in our system. In 2006,
we entered into an agreement with Sea Launch to secure a launch for XM-5. In June 2009, Sea Launch
filed for bankruptcy protection under Title 11 of the United States Code and as a result, we
recorded a charge of $24,196 to Restructuring, impairments and related costs in our unaudited
consolidated statements of operations for amounts previously paid, including capitalized interest.
In October 2009, XM Holdings terminated its satellite launch agreement with Sea Launch with the
consent of the Bankruptcy Court. In October 2009, SIRIUS entered into an agreement with International
Launch Services (ILS) to secure a satellite launch for XM-5 on a Proton rocket. We currently
expect to launch XM-5 in the second or third quarter of 2010.
(8) Related Party Transactions
Liberty Media
Liberty Media Corporation and its affiliate, Liberty Media, LLC (collectively, Liberty
Media) is the holder of SIRIUS Convertible Perpetual Preferred Stock, Series B (the Series B
Preferred Stock), has representatives on SIRIUS board of directors and is considered a related
party. See Note 11, Debt, to our unaudited consolidated financial statements for further
information regarding indebtedness previously owed to Liberty Media.
Investment Agreement
On February 17, 2009, SIRIUS entered into an Investment Agreement (the Investment Agreement)
with Liberty Media. Pursuant to the Investment Agreement, SIRIUS agreed to issue to Liberty Radio,
LLC 12,500,000 shares of Series B Preferred Stock with a liquidation preference of $0.001 per share
in partial consideration for certain loan investments. The Series B Preferred Stock was issued on
March 6, 2009.
As a result of SIRIUS issuance of Series B Preferred Stock to Liberty Radio, LLC, we recorded
a $113,280 increase to additional paid-in capital.
Loan Investments
On February 17, 2009, XM entered into a Credit Agreement with Liberty Media Corporation, as
administrative agent and collateral agent, and Liberty Media, LLC, as lender. On March 6, 2009, XM
amended and restated that credit agreement (the Second-Lien Credit Agreement) with Liberty Media
Corporation. In June 2009, XM repaid all amounts due and terminated the Second-Lien Credit
Agreement in connection with the issue and sale of our 11.25% Senior Secured Notes due 2013.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
On March 6, 2009, XM amended and restated the $100,000 Term Loan, dated as of June 26, 2008
and the $250,000 Credit Agreement, dated as of May 5, 2006. These facilities were combined as term
loans into the Amended and Restated Credit Agreement, dated as of March 6, 2009. Liberty Media,
LLC, purchased $100,000 aggregate principal amount of such loans from the existing lenders. In June
2009, XM used a portion of the net proceeds from the sale of our 11.25% Senior Secured Notes due
2013 to extinguish the Amended and Restated Credit Agreement.
In June 2009, Liberty Media Corporation purchased $100,000 aggregate principal amount of our
11.25% Senior Secured Notes due 2013 as part of the offering of such notes. As of September 30,
2009, we recorded $159,275 as Long-term related party debt related to the 11.25% Notes. This amount
included the following principal amounts; $87,000 of our 11.25% Senior Secured Notes due 2013,
$76,000 of our 13% Senior Notes due 2013 and $11,000 of our 7% Exchangeable Senior Subordinated
Notes due 2014. As of September 30, 2009, we recorded $4,350 related to accrued interest with
Liberty Media to Related party current liabilities.
We recognized Interest expense related to Liberty Media of $6,609 and $33,651 for the three
and nine months ended September 30, 2009, respectively.
XM Canada
In 2005, we entered into agreements to provide XM Canada with the right to offer XM satellite
radio service in Canada. The agreements have an initial term of ten years and XM Canada has the
unilateral option to extend the term of the agreements for an additional five years at no
additional cost beyond the current financial arrangements. XM Canada has expressed its intent to
exercise this option at the end of the initial term of the agreements. We have the right to receive
a 15% royalty for all subscriber fees earned by XM Canada each month for its basic service and a
nominal activation fee for each gross activation of an XM Canada subscriber on XMs system. XM
Canada is obligated to pay us a total of $71,800 for the rights to broadcast and market National
Hockey League (NHL) games for the 10-year term of our contract with the NHL. We recognize these
payments on a gross basis as a principal obligor pursuant to the provisions of ASC 605, Revenue
Recognition.
The estimated fair value of deferred revenue from XM Canada as of the Merger date was
approximately $34,000, and is being amortized on a straight-line basis over the remaining expected
term of the agreements. Subsequent to the Merger date, we began to record additional deferred
revenue on our agreements with XM Canada involving royalties on subscriber and activation fees. As
of September 30, 2009 and December 31, 2008, the carrying value of Deferred revenue related to XM
Canada was $39,566 and $36,002, respectively.
We have extended a Cdn$45,000 standby credit facility to XM Canada which can be utilized to
purchase terrestrial repeaters or finance the payment of subscription fees. The facility matures on
December 31, 2012 and bears interest at a rate of 17.75% per annum. We have the right to convert
unpaid principal amounts into Class A subordinate voting shares of XM Canada at the price of
Cdn$16.00 per share. As of September 30, 2009 and December 31, 2008, amounts drawn by XM Canada on
this facility in lieu of payment of subscription fees recorded in Related party long-term assets
were $15,522 and $8,311, respectively.
In connection with the deferred income related to XM Canada, we recorded amortization of $694
and $2,082 for the three and nine months ended September 30, 2009, respectively, and $1,665, $833
and $5,829 for the periods August 1, 2008 through September 30, 2008, July 1, 2008 through July 31,
2008 and January 1, 2008 through July 31, 2008, respectively. The royalty fees we earn related to
subscriber and activation fees are reported as a component of Other revenue in our unaudited
consolidated statements of operations. We recorded royalty fees of $225 and $499 for the three and
nine months ended September 30, 2009, respectively, and $146, $76 and $523 for the periods August
1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and January 1, 2008 through
July 31, 2008, respectively. XM Canada pays us a licensing fee and reimburses us for advertising,
both of which are reported as a component of Other revenue in our unaudited consolidated statements
of operations. We recognized licensing fee revenue of $1,500 and $4,500 for the three and nine
months ended September 30, 2009, respectively, and $1,000, $500 and $3,500 for the periods August
1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and January 1, 2008 through
July 31, 2008, respectively. We recognized advertising reimbursements of $0 and $733 for the three
and nine months ended September 30, 2009, respectively, and $0, $0 and $833 for the periods August
1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and January 1, 2008 through
July 31, 2008, respectively. As of September 30, 2009 and December 31, 2008, amounts due from XM
Canada recorded in Related party current assets were $3,408 and $5,594, respectively. As of
September 30, 2009 and December 31, 2008, amounts due from XM Canada (in addition to the amounts
drawn on the standby credit facility) recorded in Related party long-term assets were $6,000 and
$0, respectively.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
General Motors
We have a long-term distribution agreement with General Motors Company (GM). GM has a
representative on SIRIUS board of directors and is considered a related party. During the term of
the agreement, GM has agreed to distribute the XM service. We subsidize a portion of the cost of XM
radios and make incentive payments to GM when the owners of GM vehicles with installed XM radios
become subscribers to XMs service. We also share with GM a percentage of the subscriber revenue
attributable to GM vehicles with installed XM radios. As part of the agreement, GM provides certain
call-center related services directly to XM subscribers who are also GM customers for which we
reimburse GM.
XM makes bandwidth available to OnStar Corporation for audio and data transmissions to owners
of XM-enabled GM vehicles, regardless of whether the owner is an XM subscriber. OnStars use of our
bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with
our business, and must meet our quality standards. We also granted to OnStar a certain amount of
time to use our studios on an annual basis and agreed to provide certain audio content for
distribution on OnStars services.
We recorded total revenue from GM, primarily consisting of subscriber revenue, of $8,831 and
$22,087 for the three and nine months ended September 30, 2009, respectively, and $6,733, $4,041
and $25,394 for the periods August 1, 2008 through September 30, 2008, July 1, 2008 through July
31, 2008 and January 1, 2008 through July 31, 2008, respectively.
We recognized Sales and marketing expense with GM of $7,720 and $23,387 for the three and nine
months ended September 30, 2009, respectively, and $8,539, $4,220 and $28,377 for the periods
August 1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and January 1, 2008
through July 31, 2008, respectively. We recognized Revenue share and royalties expense with GM of
$15,008 and $46,664
for the three and nine months ended September 30, 2009, respectively, and $26,021, $12,172 and
$79,869 for the periods August 1, 2008 through September 30, 2008, July 1, 2008 through July 31,
2008 and January 1, 2008 through July 31, 2008, respectively. We recognized Subscriber acquisition
costs with GM of $9,035 and $25,066 for the three and nine months ended September 30, 2009,
respectively, and $29,530, $11,692 and $88,300 for the periods August 1, 2008 through September 30,
2008, July 1, 2008 through July 31, 2008 and January 1, 2008 through July 31, 2008, respectively.
As of September 30, 2009, amounts due from GM and prepaid expenses with GM recorded in Related
party current assets were $8,089 and $91,902, respectively. As of September 30, 2009, prepaid
expenses with GM recorded in Related party long-term assets were $92,551. As of December 31, 2008,
amounts due from GM and prepaid expenses with GM recorded in Related party current assets were
$10,132 and $94,444, respectively. As of December 31, 2008, prepaid expenses with GM recorded in
Related party long-term assets were $116,296. As of September 30, 2009 and December 31, 2008,
amounts due to GM recorded in Related party current liabilities were $79,813 and $63,023,
respectively.
As of September 30, 2009 and December 31, 2008, amounts due to GM recorded in Related party
long-term liabilities were $21,928 and $0, respectively.
American Honda
We have an agreement to make a certain amount of our bandwidth available to American Honda.
American Honda has a representative on SIRIUS board of directors and is considered a related
party. American Hondas use of our bandwidth must be in compliance with applicable laws, must not
compete or adversely interfere with our business, and must meet our quality standards. This
agreement remains in effect so long as American Honda holds a certain amount of its investment in
SIRIUS. We make incentive payments to American Honda for each purchaser of a Honda or Acura vehicle
that becomes a self-paying XM subscriber and shares with American Honda a portion of the subscriber
revenue attributable to Honda and Acura vehicles with installed XM radios.
We recorded total revenue from American Honda, primarily consisting of subscriber revenue, of
$3,374 and $9,201 for the three and nine months ended September 30, 2009, respectively, and $3,321,
$1,738 and $10,599 for the periods August 1, 2008 through September 30, 2008, July 1, 2008 through
July 31, 2008 and January 1, 2008 through July 31, 2008, respectively.
We recognized Sales and marketing expense with American Honda of $1,647 and $4,391 for the
three and nine months ended September 30, 2009, respectively, and $1,848, $1,046 and $5,330 for the
periods August 1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and January
1, 2008 through July 31, 2008, respectively. We recognized Revenue share and royalties expense with
American Honda of $1,636 and $4,601 for the three and nine months ended September 30, 2009,
respectively, and $747, $376 and $1,901 for the periods August 1, 2008 through September 30, 2008,
July 1, 2008 through July 31, 2008 and January 1, 2008 through July 31, 2008, respectively.
As of September 30, 2009 and December 31, 2008, amounts due from American Honda recorded in
Related party current assets were $2,274 and $2,194, respectively.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
As of September 30, 2009 and December 31, 2008, amounts due to American Honda recorded in
Related party current liabilities were $4,014 and $4,190, respectively.
SIRIUS
SIRIUS allocates certain expenses to us based on the estimated costs incurred by SIRIUS that
pertain to us. Additionally, certain costs incurred by us benefit SIRIUS and are allocated to
SIRIUS based on estimated costs incurred by us pertaining to SIRIUS. We settle amounts due between
the parties on a semi-monthly and monthly basis, except for share-based payment arrangements which
are settled at times agreed to between us and SIRIUS. Our financial position, results of operations
and cash flows could differ from those that might have resulted had we operated autonomously.
We recorded total advertising revenue allocated from SIRIUS of $2,473 and $7,321 for the three
and nine months ended September 30, 2009, respectively, and $0 for the period August 1, 2008
through September 30, 2008.
We recognized total allocated net operating expenses with SIRIUS of $39,532 and $129,502 for
the three and nine months ended September 30, 2009, respectively, and $773 for the period August 1,
2008 through September 30, 2008.
As of September 30, 2009 and December 31, 2008, net costs attributable to these costs (in
addition to direct payments made by SIRIUS on our behalf) recorded in Related party current
liabilities were $98,924 and $16,717, respectively.
(9) Investments
Investments consist of the following:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Marketable securities |
$ | 11,555 | $ | 10,525 | ||||
Restricted investments |
250 | 120,250 | ||||||
Embedded derivative accounted for separately from the host contract |
26 | 2 | ||||||
Equity method investments |
2,679 | 8,873 | ||||||
Total investments |
$ | 14,510 | $ | 139,650 | ||||
XM Canada
We have a 23.33% economic interest in XM Canada. The amount of the Merger purchase price
allocated to the fair value of our investment in XM Canada was $41,188. Our investment in XM Canada
is recorded using the equity method (on a one-month lag) since we have significant influence, but
less than a controlling voting interest in XM Canada. Under this method, our investment in XM
Canada is adjusted quarterly to recognize our share of net earnings or losses as they occur, rather
than at the time dividends or other distributions are received, limited to the extent of our
investment in, advances to, and commitments to fund XM Canada. Our share of net earnings or losses
of XM Canada is recorded to Loss on investments in our unaudited consolidated statements of
operations. We recorded $2,870 and $1,926 for the three and nine months ended September 30, 2009,
respectively, for our share of XM Canadas net loss and $3,089, $1,835 and $10,385 for the periods
August 1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and January 1, 2008
through July 31, 2008, respectively, for our share of XM Canadas net loss. During the three and
nine months ended September 30, 2009, we reduced the carrying value of our investment in XM Canada
due to decreases in fair value that were considered to be other than temporary and recorded
impairment charges of $0 and $4,734, respectively. In addition, during the three and nine months
ended September 30, 2009, we recorded ($35) and $466, respectively, as a foreign exchange gain
(loss) to Accumulated other comprehensive loss, net of tax.
We hold an investment in Cdn$4,000 face value of 8% convertible unsecured subordinated
debentures issued by XM Canada for which the embedded conversion feature is bifurcated from the
host contract. The host contract is accounted for as an available-for-sale security at fair value
with changes in fair value recorded to Accumulated other comprehensive loss, net of tax. The
embedded conversion feature is accounted for as a derivative at fair value with changes in fair
value recorded in earnings as Interest and investment income. As of September 30, 2009, the
carrying value of our equity method investment in XM Canada was $2,679, while the carrying values
of the host contract and embedded derivative related to our investment in the debentures was $2,967
and $26, respectively. As of December 31, 2008, the carrying value of our equity method investment
in XM Canada was $8,873, while the carrying values of the host contract and embedded derivative
related to our investment in the debentures was $2,540 and $2, respectively.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
Auction Rate Certificates
Auction rate certificates are long-term securities structured to reset their coupon rates by
means of an auction. We account for our investment in auction rate certificates as
available-for-sale securities. As of September 30, 2009 and December 31, 2008, the carrying value
of these securities was $8,588 and $7,985, respectively.
Restricted Investments
Restricted investments relate to deposits placed into escrow for the benefit of third parties
pursuant to programming agreements. As of September 30, 2009 and December 31, 2008, the carrying
value of our long-term restricted investments was $250 and $120,250, respectively.
(10) Fair Value
The following table summarizes the fair value of our financial instruments at September 30,
2009:
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in Active | Significant | |||||||||||||||
Markets for Identical | Significant Other | Unobservable | ||||||||||||||
(in thousands) | Assets (Level 1) | Observable Inputs (Level 2) | Inputs (Level 3) | Carrying Value | ||||||||||||
Assets: |
||||||||||||||||
Auction rate securities |
N/A | N/A | $ | 8,588 | $ | 8,588 | ||||||||||
Debentures and embedded derivatives |
N/A | N/A | 2,993 | 2,993 | ||||||||||||
Total assets |
$ | 11,581 | $ | 11,581 | ||||||||||||
Liabilities: |
||||||||||||||||
Debt-related embedded derivatives |
$ | | $ | | $ | 134,361 | $ | 134,361 | ||||||||
Total liabilities |
$ | | $ | | $ | 134,361 | $ | 134,361 | ||||||||
The following table presents the changes in the Level 3 fair-value category for the nine
months ended September 30, 2009. We classify financial instruments in Level 3 of the fair-value
hierarchy when there is reliance on at least one significant unobservable input to the valuation
model. In addition to these unobservable inputs, the valuation models for Level 3 financial
instruments typically also rely on a number of inputs that are readily observable either directly
or indirectly. Thus, the gains and losses presented below include changes in the fair value related
to both observable and unobservable inputs. Fair values are determined using lattice models or
market quotes. We recognized net unrealized (losses) gains in earnings of ($33,666) and ($111,609)
for the three and nine months ended September 30, 2009, respectively, and $241,847, $14 and ($551)
for the periods August 1, 2008 through September 30, 2008, July 1, 2008 through July 31, 2008 and
January 1, 2008 through July 31, 2008, respectively.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||
Debentures and | Debt-Related | |||||||||||
Auction Rate Securities | Embedded Derivatives | Embedded Derivatives | ||||||||||
Balance at December 31, 2008 |
$ | 7,985 | $ | 2,542 | $ | 22,658 | ||||||
Total gains and losses (realized /unrealized) |
| 118 | 111,703 | |||||||||
Included in other comprehensive income |
603 | 333 | | |||||||||
Balance at September 30, 2009 |
$ | 8,588 | $ | 2,993 | $ | 134,361 | ||||||
As of September 30, 2009 and December 31, 2008, the aggregate carrying value of our long-term
debt was $1,763,082 and $1,772,183 (excludes embedded derivatives), respectively; while the
aggregate fair value approximated $1,993,820 and $760,897, respectively.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
(11) Debt
Our debt consists of the following:
Conversion | Long-term debt | |||||||||||
Price (per | September 30, | December 31, | ||||||||||
(SIRIUS share) | 2009 | 2008 | ||||||||||
10% Convertible Senior Notes due 2009 |
$ | 10.87 | 48,450 | 400,000 | ||||||||
Less: discount |
(404 | ) | (17,367 | ) | ||||||||
10% Senior Secured Discount Convertible Notes due 2009 |
$ | 0.69 | 33,249 | 33,249 | ||||||||
Less: discount |
(1,519 | ) | (5,471 | ) | ||||||||
10% Senior PIK Secured Notes due 2011 |
N/A | 172,485 | | |||||||||
Less: discount |
(13,460 | ) | | |||||||||
11.25% Senior Secured Notes due 2013 |
N/A | 525,750 | | |||||||||
Less: discount |
(34,525 | ) | | |||||||||
13% Senior Notes due 2013 |
N/A | 778,500 | 778,500 | |||||||||
Less: discount |
(66,538 | ) | (74,986 | ) | ||||||||
9.75% Senior Notes due 2014 |
N/A | 5,260 | 5,260 | |||||||||
7% Exchangeable Senior Subordinated Notes due 2014 |
$ | 1.875 | 550,000 | 550,000 | ||||||||
Less: discount |
(252,056 | ) | (270,368 | ) | ||||||||
Senior Secured Term Loan due 2009 |
N/A | | 100,000 | |||||||||
Senior Secured Revolving Credit Facility due 2009 |
N/A | | 250,000 | |||||||||
Add: premium |
| 151 | ||||||||||
Other debt: |
||||||||||||
Capital leases |
N/A | 17,890 | 23,215 | |||||||||
Embedded derivatives |
134,361 | 22,658 | ||||||||||
Total debt |
1,897,443 | 1,794,841 | ||||||||||
Less: current maturities |
101,300 | 355,739 | ||||||||||
Total long-term |
1,796,143 | 1,439,102 | ||||||||||
Less: related party |
159,275 | | ||||||||||
Total long-term, excluding related party |
$ | 1,636,868 | $ | 1,439,102 | ||||||||
10% Convertible Senior Notes due 2009
We have issued $400,000 aggregate principal amount of 10% Convertible Senior Notes due 2009
(the 10% Convertible Notes). Interest is payable semi-annually at a rate of 10% per annum. The
10% Convertible Notes mature on December 1, 2009. The 10% Convertible Notes may be converted by the
holder, at its option, into shares of SIRIUS common stock at a conversion rate of 92.0 shares of
SIRIUS common stock per $1,000 principal amount, which is equivalent to a conversion price of
$10.87 per share of SIRIUS common stock (subject to adjustment in certain events). As a result of
the fair valuation at the acquisition date, we recognized an initial discount of $23,700.
In February 2009, we exchanged $172,485 aggregate principal amount of the outstanding 10%
Convertible Notes for a like principal amount of XM Holdings 10% Senior PIK Secured Notes due
2011. We accounted for the exchange as a modification of debt and recorded $2,008 to General and
administrative expense in our unaudited consolidated statements of operations and $10,990 of
additional debt discount in our unaudited consolidated balance sheets.
In July 2009, we used a portion of the net proceeds received from the issuance of our 11.25%
Senior Secured Notes due 2013 plus cash on hand to purchase at par $179,065 aggregate principal
amount of the 10% Convertible Notes. We recorded a loss of $3,285 related to the unamortized
discount to Loss on extinguishment of debt and credit facilities in our unaudited consolidated
statements of operations as a result of this transaction.
10% Senior Secured Discount Convertible Notes due 2009
XM Holdings (with XM as co-obligors) have outstanding $33,249 aggregate principal amount of
10% Senior Secured Discount Convertible Notes due 2009 (the 10% Discount Convertible Notes).
Interest is payable semi-annually at a rate of 10% per annum. The 10% Discount Convertible Notes
mature on December 31, 2009. At any time, a holder of the notes may convert all or part of the
accreted value of the notes at a conversion price of $0.69 per share of SIRIUS common stock. As a
result of the fair valuation at the acquisition date, we recognized an initial discount of $7,324.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
10% Senior PIK Secured Notes due 2011
In February 2009, we exchanged $172,485 aggregate principal amount of outstanding 10%
Convertible Notes for a like principal amount of XM Holdings 10% Senior PIK Secured Notes due 2011
(the PIK Notes). Interest is payable on the PIK Notes semiannually in arrears on June 1 and
December 1 of each year at a rate of 10% per annum paid in cash from December 1, 2008 to
December 1, 2009; at a rate of 10% per annum paid in cash and 2% per annum paid in kind from
December 1, 2009 to December 1, 2010; and at a rate of 10% per annum paid in cash and 4% per annum
paid in kind from December 1, 2010 to the maturity date.
The PIK Notes are fully and unconditionally guaranteed by XM 1500 Eckington LLC and XM
Investment LLC (together, the Subsidiary Guarantors) and are secured by a first-priority lien on
substantially all of the property of the Subsidiary Guarantors. XM Holdings may, at its option,
redeem some or all of the PIK Notes at any time at 100% of the principal amount prepaid, together
with accrued and unpaid interest, if any.
We paid a fee equal to, at each exchanging noteholders election, either (i) 833 shares of
SIRIUS common stock (the Structuring Fee Shares) for every $1 principal amount of 10%
Convertible Notes exchanged or (ii) an amount in cash equal to $0.05 for every $1 principal amount
of 10% Convertible Notes exchanged. The total number of Structuring Fee Shares delivered was
59,178,819, and the aggregate cash delivered was approximately $5,100.
In October 2009, we purchased $58,800 aggregate principal amount of the PIK Notes at a price
of $60,499, which included accrued interest of $2,287. We will record a net loss of $3,869, related
to the unamortized discount and the discount on the purchase, to Loss on extinguishment of debt and
credit facilities in our unaudited consolidated statements of operations as a result of this
transaction.
Amended and Restated Credit Agreement due 2011
In March 2009, we amended and restated the $100,000 Senior Secured Term Loan due 2009, dated
as of June 26, 2008 and the $250,000 Senior Secured Revolving Credit Facility due 2009, dated as of
May 5, 2006. These facilities were combined as term loans into the Amended and Restated Credit
Agreement, dated as of March 6, 2009. Liberty Media LLC (Liberty) purchased $100,000 aggregate
principal amount of such loans from the lenders.
In June 2009, we used net proceeds from the sale of our 11.25% Senior Secured Notes due 2013
to repay amounts due under and extinguish the Amended and Restated Credit Agreement. We paid a repayment premium of $6,500. We
recorded an aggregate loss on extinguishment of the Amended and Restated Credit Agreement of
$49,786 consisting primarily of the unamortized discount, deferred financing fees and unaccreted
portion of the repayment premium to Loss on extinguishment of debt and credit facilities in our
unaudited consolidated statements of operations.
11.25% Senior Secured Notes due 2013
In June 2009, XM issued $525,750 aggregate principal amount of 11.25% Senior Secured Notes due
2013 (the 11.25% Notes). Interest is payable semi-annually in arrears on June 15 and December 15
of each year at a rate of 11.25% per annum. The 11.25% Notes mature on June 15, 2013. The 11.25%
Notes were issued for $489,952, resulting in an aggregate original issuance discount, including
fees, of $35,798.
XM Holdings and the domestic subsidiaries of XM that guarantee certain of the indebtedness of
XM and its restricted subsidiaries guarantee XMs obligations under the 11.25% Notes. The 11.25%
Notes and related guarantees are secured by first-priority liens on substantially all of the assets
of XM Holdings, XM and the guarantors.
In June 2009, XM used a portion of the net proceeds from the sale of the 11.25% Notes to repay
in full $325,000 principal amount outstanding under the Amended and Restated Credit Agreement. In
connection with the sale of the 11.25% Notes, XM terminated the Second-Lien Credit Agreement and
repaid all amounts due thereunder.
13% Senior Notes due 2013
In July 2008, XM issued $778,500 aggregate principal amount of 13% Senior Notes due 2013 (the
13% Notes). Interest is payable semi-annually in arrears on February 1 and August 1 of each year
at a rate of 13% per annum. The 13% Notes were issued for $700,105, resulting in an original
issuance discount of $78,395. The 13% Notes are unsecured and mature on August 1, 2013.
16
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
9.75% Senior Notes due 2014
XM has outstanding $5,260 aggregate principal amount of 9.75% Senior Notes due 2014 (the
9.75% Notes). Interest on the 9.75% Notes is payable semi-annually on May 1 and November 1 at a
rate of 9.75% per annum. The 9.75% Notes are unsecured and mature on May 1, 2014. XM, at its
option, may redeem the 9.75% Notes at declining redemption prices at any time on or after May 1,
2010, subject to certain restrictions. Prior to May 1, 2010, XM may redeem the 9.75% Notes, in
whole or in part, at a price equal to 100% of the principal amount thereof, plus a make-whole
premium and accrued and unpaid interest to the date of redemption.
In March 2009, XM executed and delivered a Third Supplemental Indenture (the 9.75% Notes
Supplemental Indenture). The 9.75% Notes Supplemental Indenture amended the indenture to eliminate
substantially all of the restrictive covenants, eliminated certain events of default and modified
or eliminated certain other provisions contained in the indenture and the 9.75% Notes.
7% Exchangeable Senior Subordinated Notes due 2014
In August 2008, XM issued $550,000 aggregate principal amount of 7% Exchangeable Senior
Subordinated Notes due 2014 (the Exchangeable Notes). The Exchangeable Notes are senior
subordinated obligations of XM and rank junior in right of payment to its existing and future
senior debt and equally in right of payment with its existing and future senior subordinated debt.
XM Holdings, XM Equipment Leasing LLC and XM Radio Inc. have guaranteed the Exchangeable Notes on a
senior subordinated basis. Interest is payable semi-annually in arrears on June 1 and December 1 of
each year at a rate of 7% per annum. The Exchangeable Notes mature on December 1, 2014. The
Exchangeable Notes are exchangeable at any time at the option of the holder into shares of SIRIUS
common stock at an initial exchange rate of 533.3333 shares of SIRIUS common stock per $1,000
principal amount of Exchangeable Notes, which is equivalent to an approximate exchange price of
$1.875 per share of SIRIUS common stock.
Second-Lien Credit Agreement
In February 2009, we entered into a Credit Agreement (the Credit Agreement) with Liberty
Media Corporation, as administrative agent and collateral agent. The Credit Agreement provided for
a $150,000 term loan. On March 6, 2009, we amended and restated the Credit Agreement (the
Second-Lien Credit Agreement) with Liberty Media.
In June 2009, we terminated the Second-Lien Credit Agreement in connection with the sale of
the 11.25% Notes and repaid all amounts due thereunder. We recorded a loss on termination of the
Second-Lien Credit Agreement of $57,663 related to deferred financing fees to Loss on
extinguishment of debt and credit facilities in our unaudited consolidated statements of
operations.
Embedded Derivatives
We issued convertible debt securities, including the 10% Convertible Senior Notes due 2009,
the 10% Senior Secured Discount Convertible Notes due 2009 and 7% Exchangeable Senior Subordinated
Notes due 2014 containing non-detachable conversion or exchange features. Upon completion of the
Merger, these debt agreements were amended such that the settlement of conversion features is into
shares of SIRIUS common stock.
The convertible and exchangeable features are embedded derivatives, and subsequent to the
Merger are required to be separated from the host contract for accounting purposes in accordance
with SFAS No. 133, Accounting for Hedging and Derivative Instruments . The embedded derivatives are
recorded as derivative liabilities and included in our debt balances in our statement of financial
position and the changes in fair value of those derivatives are reported as a realized investment
gain or loss in the period in which the fair value changes.
Due to the change in fair value of these embedded derivatives, we recognized $33,700 and
$111,703 of Loss on change in value of embedded derivatives during the three and nine months ended
September 30, 2009, respectively, and $242,223 of Gain on change in value of embedded derivatives
for the period August 1, 2008 through September 30, 2008. The balance of derivative liabilities was
$134,361 and $22,658 as of September 30, 2009 and December 31, 2008, respectively.
Covenants and Restrictions
Our non-convertible debt generally requires compliance with certain covenants that restrict
our ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay
dividends or make certain other restricted payments, investments or acquisitions, (iv) enter
into certain transactions with affiliates, (v) merge or consolidate with another person,
(vi) sell, assign, lease or otherwise dispose of all or substantially all of our assets, and
(vii) make voluntary prepayments of certain debt, in each case subject to exceptions. XM Holdings
operates as an unrestricted subsidiary of SIRIUS for purposes of compliance with the covenants
contained in our debt instruments. If we fail to comply with these covenants, our debt could become
immediately payable.
At September 30, 2009, we were in compliance with all financial covenants.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
(12) Benefit Plans
During the second quarter of 2009, we merged the XM Satellite Radio 401(k) Savings Plan (the
Savings Plan) into the Sirius Satellite Radio 401(k) Savings Plan (the Sirius Plan), which is
sponsored by SIRIUS. Eligible employees under the Savings Plan became subject to the contribution,
matching and vesting rules of the Sirius Plan.
The Sirius Plan allows eligible employees to voluntarily contribute from 1% to 50% of their
pre-tax salary subject to certain defined limits. SIRIUS matches 50% of an employees voluntary
contributions, up to 6% of an employees pre-tax salary, in the form of shares of SIRIUS common
stock. Matching contributions under the Sirius Plan vest at a rate of 331/3% for each year of
employment and are fully vested after three years of employment.
(13) Income Taxes
We recorded income tax expense of $578 and $1,733 for the three and nine months ended
September 30, 2009, respectively, and $672, $508 and $1,512 for the periods August 1, 2008 through
September 30, 2008, July 1, 2008 through July 31, 2008 and January 1, 2008 through July 31, 2008,
respectively. Such expense primarily represents the recognition of a deferred tax liability related
to the difference in accounting for the FCC license intangible asset, which is amortized over 15
years for tax purposes but is not amortized for book purposes.
(14) Commitments and Contingencies
The following table summarizes our expected contractual cash commitments as of September 30,
2009:
Remaining | ||||||||||||||||||||||||||||
(in thousands) | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | |||||||||||||||||||||
Long-term debt obligations |
$ | 85,121 | $ | 11,242 | $ | 175,389 | $ | 166 | $ | 1,304,406 | $ | 555,260 | $ | 2,131,584 | ||||||||||||||
Cash interest payments |
59,707 | 217,466 | 208,148 | 199,403 | 169,811 | 38,756 | 893,291 | |||||||||||||||||||||
Lease obligations |
8,268 | 18,109 | 7,247 | 4,033 | 1,680 | 2,069 | 41,406 | |||||||||||||||||||||
Satellite and transmission |
12,087 | 29,609 | | | | 8,635 | 50,331 | |||||||||||||||||||||
Programming and content |
30,249 | 56,470 | 110,021 | 100,326 | 20,683 | 14,350 | 332,099 | |||||||||||||||||||||
Satellite performance incentive payments |
1,051 | 4,384 | 4,695 | 5,030 | 5,392 | 42,831 | 63,383 | |||||||||||||||||||||
Marketing and distribution |
15,574 | 10,198 | 9,272 | 9,033 | 3,000 | 4,500 | 51,577 | |||||||||||||||||||||
Other |
568 | 883 | 337 | 45 | | | 1,833 | |||||||||||||||||||||
Total |
$ | 212,625 | $ | 348,361 | $ | 515,109 | $ | 318,036 | $ | 1,504,972 | $ | 666,401 | $ | 3,565,504 | ||||||||||||||
Long-term debt obligations. Long-term debt obligations include principal payments on
outstanding debt.
Cash interest payments. Cash interest payments include interest due on outstanding debt
through maturity.
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 network. We have also entered into various agreements to design and
construct satellites for use in our systems and to launch those satellites.
Space Systems/Loral has constructed a fifth satellite, XM-5, for use in our system. In 2006,
we entered into an agreement with Sea Launch to secure a launch for XM-5. In June 2009, Sea Launch
filed for bankruptcy protection under Title 11 of the United States Code. In October 2009, XM
Holdings terminated its satellite launch agreement with Sea Launch with the consent of the
Bankruptcy Court. In October 2009, SIRIUS entered into an agreement with International Launch Services
(ILS) to secure a satellite launch for XM-5 on a Proton rocket. We currently expect to launch
XM-5 in the second or third quarter of 2010.
Programming and content. We have entered into various programming agreements. Under the terms
of these agreements, we are obligated to provide payments to other entities that may include fixed
payments, advertising commitments and revenue sharing arrangements.
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 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 distributors receipt of goods, we have agreed to purchase and take title to the product.
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
Satellite incentive payments. Boeing Satellite Systems International, Inc., the manufacturer
of our four in-orbit satellites, may be entitled to future in-orbit performance payments with
respect to two of our four satellites. As of September 30, 2009, we have accrued $28,655 related to
contingent in-orbit performance payments for XM-3 and XM-4 based on expected operating performance
over their fifteen year design life. Boeing may also be entitled to an additional $10,000 if XM-4
continues to operate above baseline specifications during the five years beyond the satellites
fifteen year design life.
Operating lease obligations. We have entered into 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 that have options to
renew. The effect of the rent holidays and rent concessions are recognized on a straight-line basis
over the lease term.
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 provisions.
We are required under the terms of certain agreements to deposit monies in escrow, which place
restrictions on cash and cash equivalents. As of September 30, 2009 and December 31, 2008, $250 and
$120,250, respectively, were classified as Restricted investments as a result of obligations under
these escrow deposits.
We do not have any other significant off-balance sheet 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
FCC Merger Order. On July 25, 2008, the FCC adopted an order approving the Merger. The order
became effective immediately upon adoption. In September 2008, Mt. Wilson FM Broadcasters, Inc.
filed a Petition for Reconsideration of this order. This Petition for Reconsideration remains
pending.
Atlantic Recording Corporation, BMG Music, Capital Records, Inc., Elektra Entertainment Group
Inc., Interscope Records, Motown Record Company, L.P., Sony BMG Music Entertainment, UMG
Recordings, Inc., Virgin Records, Inc. and Warner Bros. Records Inc. v. XM Satellite Radio Inc. In
May 2006, the plaintiffs filed this action in the United States District Court for the Southern
District of New York. The complaint seeks monetary damages and equitable relief, and alleges that
XM radios that include advanced recording functionality infringe upon plaintiffs copyrighted sound
recordings. XM filed a motion to dismiss this matter, and that motion was denied in January 2007.
XM has resolved the lawsuit with respect to Universal Music Group, Warner Music Group, Sony BMG
Music Entertainment and EMI Group, and each of these parties has withdrawn as a party to the
lawsuit, and this lawsuit has been dismissed with respect to such parties.
Music publishing companies and certain other record companies also have filed lawsuits,
purportedly on a class basis, with similar allegations. We believe these allegations are without
merit and that our products comply with applicable copyright law, including the Audio Home
Recording Act. We intend to vigorously defend this matter. There can be no assurance regarding the
ultimate outcome of these matters, or the significance, if any, to our business, consolidated
results of operations or financial position.
Other Matters. In the ordinary course of business, we are a defendant in various lawsuits and
arbitration proceedings, including actions filed by former employees, parties to contracts or
leases and owners of patents, trademarks, copyrights or other intellectual property. None of these
actions are, in our opinion, likely to have a material adverse effect on our cash flows, financial
position or results of operations.
(15) Condensed Consolidating Financial Information
XM 1500 Eckington LLC, XM Investment LLC, XM Satellite Radio Inc. and its wholly owned
subsidiaries, XM Radio Inc. and XM Equipment Leasing LLC (collectively, the XM Holdings Guarantor
Subsidiaries) are wholly owned subsidiaries of XM Holdings. The XM Holdings Guarantor Subsidiaries
have fully and unconditionally, jointly and severally, directly or indirectly, guaranteed, on an
unsecured basis, certain of the debt issued by XM Holdings.
XM Radio Inc. and XM Equipment Leasing LLC (collectively, the XM Guarantor Subsidiaries) are
wholly owned subsidiaries of XM. The XM Guarantor Subsidiaries have fully and unconditionally,
jointly and severally, directly or indirectly, guaranteed, on an unsecured basis, the debt issued
by XM in connection with certain of XMs financings.
19
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
These condensed consolidating financial statements should be read in conjunction with the
consolidated financial statements of XM Satellite Radio Holdings Inc. and Subsidiaries.
Basis of Presentation
In presenting our condensed consolidating financial statements of XM Holdings and XM, the
equity method of accounting has been applied to (i) XM Holdings interests in the XM Holdings
Guarantor Subsidiaries, (ii) XMs interests in the XM Guarantor Subsidiaries and (iii) XMs
interests in the XM Non-Guarantor Subsidiaries, where applicable, even though all such subsidiaries
meet the requirements to be consolidated under U.S. generally accepted accounting principles. All
intercompany balances and transactions between XM Holdings, the XM Holdings Guarantor Subsidiaries,
XM Guarantor Subsidiaries and the Non-Guarantor Subsidiaries have been eliminated, as shown in the
column Eliminations.
Our accounting bases in all subsidiaries, including goodwill and identified intangible assets,
have been pushed down to the applicable subsidiaries.
20
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2009
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2009
XM | Consolidated | |||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated | XM Satellite | XM 1500 | XM | XM Satellite | ||||||||||||||||||||||||||||||||||||||
XM Satellite | Leasing | Guarantor | XM Satellite | Radio | Eckington | Investment | Radio Holdings | |||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | XM Radio Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Holdings Inc. | LLC | LLC | Eliminations | Inc. | |||||||||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 497,692 | $ | | $ | 10 | $ | | $ | | $ | 497,702 | $ | 2,873 | $ | 3,848 | $ | 664 | $ | (179,065 | ) | $ | 326,022 | |||||||||||||||||||||
Accounts receivable, net |
45,243 | | | | | 45,243 | | | | | 45,243 | |||||||||||||||||||||||||||||||||
Due from subsidiaries/affiliates |
4,820 | 737,886 | 61,062 | 759,655 | (1,563,480 | ) | (57 | ) | | 46,669 | 5,994 | (52,606 | ) | | ||||||||||||||||||||||||||||||
Inventory, net |
2,923 | | | | | 2,923 | | | | | 2,923 | |||||||||||||||||||||||||||||||||
Prepaid expenses |
79,235 | | | | | 79,235 | | | | | 79,235 | |||||||||||||||||||||||||||||||||
Related party current assets |
132,169 | | (105 | ) | | | 132,064 | | (1,317 | ) | (221 | ) | (24,852 | ) | 105,674 | |||||||||||||||||||||||||||||
Other current assets |
56,972 | | 64 | | | 57,036 | | 395 | (111 | ) | | 57,320 | ||||||||||||||||||||||||||||||||
Total current assets |
819,054 | 737,886 | 61,031 | 759,655 | (1,563,480 | ) | 814,146 | 2,873 | 49,595 | 6,326 | (256,523 | ) | 616,417 | |||||||||||||||||||||||||||||||
Property and equipment, net |
487,633 | | (51 | ) | | | 487,582 | 240,127 | 58,038 | 12,500 | | 798,247 | ||||||||||||||||||||||||||||||||
Investment in subsidiaries/affiliates |
2,804,547 | | | | (2,804,547 | ) | | (530,523 | ) | | | 530,523 | | |||||||||||||||||||||||||||||||
FCC license |
| 2,000,000 | | | | 2,000,000 | | | | | 2,000,000 | |||||||||||||||||||||||||||||||||
Restricted investments |
250 | | | | | 250 | | | | | 250 | |||||||||||||||||||||||||||||||||
Deferred financing fees, net |
27,309 | | | | | 27,309 | | | | | 27,309 | |||||||||||||||||||||||||||||||||
Intangible assets, net |
629,288 | | | | | 629,288 | | | | | 629,288 | |||||||||||||||||||||||||||||||||
Related party long-term assets |
114,073 | | | | | 114,073 | | | | | 114,073 | |||||||||||||||||||||||||||||||||
Other long-term assets |
25,250 | | | | | 25,250 | 14,260 | 2,050 | | | 41,560 | |||||||||||||||||||||||||||||||||
Total assets |
$ | 4,907,404 | $ | 2,737,886 | $ | 60,980 | $ | 759,655 | $ | (4,368,027 | ) | $ | 4,097,898 | $ | (273,263 | ) | $ | 109,683 | $ | 18,826 | $ | 274,000 | $ | 4,227,144 | ||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 226,264 | $ | | $ | 104 | $ | | $ | (40,946 | ) | $ | 185,422 | $ | 11,596 | $ | (3 | ) | $ | 168 | $ | (571 | ) | $ | 196,612 | |||||||||||||||||||
Accrued interest |
43,249 | | | | | 43,249 | 9,009 | | | | 52,258 | |||||||||||||||||||||||||||||||||
Due to subsidiaries/affiliates |
1,528,898 | | | | (1,522,534 | ) | 6,364 | 44,808 | 3,493 | 491 | (55,156 | ) | | |||||||||||||||||||||||||||||||
Current portion of deferred revenue |
469,947 | | | | | 469,947 | 2,776 | | | | 472,723 | |||||||||||||||||||||||||||||||||
Current portion of deferred credit |
||||||||||||||||||||||||||||||||||||||||||||
on executory contracts |
247,566 | | | | | 247,566 | | | | | 247,566 | |||||||||||||||||||||||||||||||||
Current maturities of long-term debt |
46,247 | | | | | 46,247 | 55,053 | | | | 101,300 | |||||||||||||||||||||||||||||||||
Current
maturities of long-term related party debt |
| | | | | | 177,572 | | | (177,572 | ) | | ||||||||||||||||||||||||||||||||
Related party current liabilities |
168,081 | | | | | 168,081 | 38,961 | 4 | 5 | (19,950 | ) | 187,101 | ||||||||||||||||||||||||||||||||
Total current liabilities |
2,730,252 | | 104 | | (1,563,480 | ) | 1,166,876 | 339,775 | 3,494 | 664 | (253,249 | ) | 1,257,560 | |||||||||||||||||||||||||||||||
Deferred revenue |
137,915 | | | | | 137,915 | 27,986 | | | | 165,901 | |||||||||||||||||||||||||||||||||
Deferred credit on executory contracts |
851,955 | | | | | 851,955 | | | | | 851,955 | |||||||||||||||||||||||||||||||||
Long-term debt |
1,477,843 | | | | | 1,477,843 | 159,025 | | | | 1,636,868 | |||||||||||||||||||||||||||||||||
Long-term related party debt |
159,275 | | | | | 159,275 | | | | | 159,275 | |||||||||||||||||||||||||||||||||
Deferred tax liability |
145,854 | 753,870 | | | | 899,724 | 165 | | | | 899,889 | |||||||||||||||||||||||||||||||||
Related party long-term liability |
21,928 | | | | | 21,928 | | | | | 21,928 | |||||||||||||||||||||||||||||||||
Other long-term liabilities |
38,571 | | | | | 38,571 | | (1,315 | ) | | (3,274 | ) | 33,982 | |||||||||||||||||||||||||||||||
Total liabilities |
5,563,593 | 753,870 | 104 | | (1,563,480 | ) | 4,754,087 | 526,951 | 2,179 | 664 | (256,523 | ) | 5,027,358 | |||||||||||||||||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||||||||||||||||||||||
Stockholders equity (deficit): |
||||||||||||||||||||||||||||||||||||||||||||
Capital stock |
| | | | | | | | | | | |||||||||||||||||||||||||||||||||
Accumulated other comprehensive loss |
| | | | | | (6,598 | ) | | | | (6,598 | ) | |||||||||||||||||||||||||||||||
Additional paid-in-capital |
(563,335 | ) | 1,781,641 | 57,853 | 691,811 | (2,531,305 | ) | (563,335 | ) | 5,989,700 | 99,348 | 17,615 | 446,372 | 5,989,700 | ||||||||||||||||||||||||||||||
Retained earnings (deficit) |
(92,854 | ) | 202,375 | 3,023 | 67,844 | (273,242 | ) | (92,854 | ) | (6,783,316 | ) | 8,156 | 547 | 84,151 | (6,783,316 | ) | ||||||||||||||||||||||||||||
Total stockholders equity (deficit) |
(656,189 | ) | 1,984,016 | 60,876 | 759,655 | (2,804,547 | ) | (656,189 | ) | (800,214 | ) | 107,504 | 18,162 | 530,523 | (800,214 | ) | ||||||||||||||||||||||||||||
Total liabilities and stockholders
equity (deficit) |
$ | 4,907,404 | $ | 2,737,886 | $ | 60,980 | $ | 759,655 | $ | (4,368,027 | ) | $ | 4,097,898 | $ | (273,263 | ) | $ | 109,683 | $ | 18,826 | $ | 274,000 | $ | 4,227,144 | ||||||||||||||||||||
21
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2008
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2008
Consolidated | ||||||||||||||||||||||||||||||||||||||||||||
XM | XM Non- | Consolidated | XM Satellite | XM 1500 | XM | XM Satellite | ||||||||||||||||||||||||||||||||||||||
XM Satellite | Equipment | Guarantor | XM Satellite | Radio | Eckington | Investment | Radio Holdings | |||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | XM Radio Inc. | Leasing LLC | Subsidiaries | Eliminations | Radio Inc. | Holdings Inc. | LLC | LLC | Eliminations | Inc. | |||||||||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 199,938 | $ | | $ | 15 | $ | | $ | | $ | 199,953 | $ | 5,923 | $ | 760 | $ | 104 | $ | | $ | 206,740 | ||||||||||||||||||||||
Accounts receivable, net |
52,727 | | | | | 52,727 | | | | | 52,727 | |||||||||||||||||||||||||||||||||
Due from subsidiaries/affiliates |
554,882 | 605,231 | 55,425 | 742,499 | (1,957,994 | ) | 43 | | 42,213 | 5,337 | (47,593 | ) | | |||||||||||||||||||||||||||||||
Inventory, net |
4,489 | | | | | 4,489 | | | | | 4,489 | |||||||||||||||||||||||||||||||||
Prepaid expenses |
37,351 | | | | | 37,351 | | | | | 37,351 | |||||||||||||||||||||||||||||||||
Related party current assets |
112,232 | | | | | 112,232 | 131 | | | | 112,363 | |||||||||||||||||||||||||||||||||
Other current assets |
50,090 | | 64 | | | 50,154 | 155 | 258 | | (155 | ) | 50,412 | ||||||||||||||||||||||||||||||||
Total current assets |
1,011,709 | 605,231 | 55,504 | 742,499 | (1,957,994 | ) | 456,949 | 6,209 | 43,231 | 5,441 | (47,748 | ) | 464,082 | |||||||||||||||||||||||||||||||
Property and equipment, net |
577,368 | | 3,912 | | | 581,280 | 221,011 | 59,454 | 12,843 | | 874,588 | |||||||||||||||||||||||||||||||||
Investment in subsidiaries/affiliates |
2,625,148 | | | | (2,625,148 | ) | | (351,193 | ) | | | 351,193 | | |||||||||||||||||||||||||||||||
FCC license |
| 2,000,000 | | | | 2,000,000 | | | | | 2,000,000 | |||||||||||||||||||||||||||||||||
Restricted investments |
120,250 | | | | | 120,250 | | | | | 120,250 | |||||||||||||||||||||||||||||||||
Deferred financing fees, net |
30,303 | | | | | 30,303 | | | | | 30,303 | |||||||||||||||||||||||||||||||||
Intangible assets, net |
688,671 | | | | | 688,671 | | | | | 688,671 | |||||||||||||||||||||||||||||||||
Related party long-term assets |
124,607 | | | | | 124,607 | | | | | 124,607 | |||||||||||||||||||||||||||||||||
Other long-term assets |
12,830 | | | | | 12,830 | 19,400 | 2,054 | | | 34,284 | |||||||||||||||||||||||||||||||||
Total assets |
$ | 5,190,886 | $ | 2,605,231 | $ | 59,416 | $ | 742,499 | $ | (4,583,142 | ) | $ | 4,014,890 | $ | (104,573 | ) | $ | 104,739 | $ | 18,284 | $ | 303,445 | $ | 4,336,785 | ||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 237,139 | $ | | $ | 97 | $ | | $ | | $ | 237,236 | $ | 153 | $ | 268 | $ | 84 | $ | (442 | ) | $ | 237,299 | |||||||||||||||||||||
Accrued interest |
47,118 | | | | | 47,118 | 3,425 | | | | 50,543 | |||||||||||||||||||||||||||||||||
Due to subsidiaries/affiliates |
1,929,803 | 271 | 3,121 | 26,373 | (1,957,994 | ) | 1,574 | | 3,669 | 493 | (5,736 | ) | | |||||||||||||||||||||||||||||||
Current portion of deferred revenue |
416,931 | | | | | 416,931 | 2,776 | | | | 419,707 | |||||||||||||||||||||||||||||||||
Current portion of deferred credit
on executory contracts |
234,774 | | | | | 234,774 | | | | | 234,774 | |||||||||||||||||||||||||||||||||
Current portion of long-term debt |
135,257 | | | | | 135,257 | 220,482 | | | | 355,739 | |||||||||||||||||||||||||||||||||
Related party current liabilities |
83,930 | | | | | 83,930 | 4,057 | | | (4,057 | ) | 83,930 | ||||||||||||||||||||||||||||||||
Total current liabilities |
3,084,952 | 271 | 3,218 | 26,373 | (1,957,994 | ) | 1,156,820 | 230,893 | 3,937 | 577 | (10,235 | ) | 1,381,992 | |||||||||||||||||||||||||||||||
Deferred revenue |
101,187 | | | | | 101,187 | 30,068 | | | | 131,255 | |||||||||||||||||||||||||||||||||
Deferred credit on executory contracts |
1,037,190 | | | | | 1,037,190 | | | | | 1,037,190 | |||||||||||||||||||||||||||||||||
Long-term debt |
1,274,149 | | | | | 1,274,149 | 164,953 | | | | 1,439,102 | |||||||||||||||||||||||||||||||||
Deferred tax liability |
134,301 | 752,174 | | | | 886,475 | | | | | 886,475 | |||||||||||||||||||||||||||||||||
Other long-term liabilities |
32,805 | (38 | ) | | | | 32,767 | 45,067 | (1,315 | ) | | (40,194 | ) | 36,325 | ||||||||||||||||||||||||||||||
Total liabilities |
5,664,584 | 752,407 | 3,218 | 26,373 | (1,957,994 | ) | 4,488,588 | 470,981 | 2,622 | 577 | (50,429 | ) | 4,912,339 | |||||||||||||||||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||||||||||||||||||||||
Stockholders equity (deficit): |
||||||||||||||||||||||||||||||||||||||||||||
Capital stock |
| | | | | | | | | | | |||||||||||||||||||||||||||||||||
Accumulated other comprehensive loss |
| | | | | | (7,871 | ) | | | | (7,871 | ) | |||||||||||||||||||||||||||||||
Additional paid-in-capital |
(673,156 | ) | 1,781,641 | 55,262 | 691,811 | (2,528,715 | ) | (673,157 | ) | 5,870,502 | 99,347 | 17,557 | 556,253 | 5,870,502 | ||||||||||||||||||||||||||||||
Retained earnings (deficit) |
199,458 | 71,183 | 936 | 24,315 | (96,433 | ) | 199,459 | (6,438,185 | ) | 2,770 | 150 | (202,379 | ) | (6,438,185 | ) | |||||||||||||||||||||||||||||
Total stockholders equity (deficit) |
(473,698 | ) | 1,852,824 | 56,198 | 716,126 | (2,625,148 | ) | (473,698 | ) | (575,554 | ) | 102,117 | 17,707 | 353,874 | (575,554 | ) | ||||||||||||||||||||||||||||
Total liabilities and stockholders
equity (deficit) |
$ | 5,190,886 | $ | 2,605,231 | $ | 59,416 | $ | 742,499 | $ | (4,583,142 | ) | $ | 4,014,890 | $ | (104,573 | ) | $ | 104,739 | $ | 18,284 | $ | 303,445 | $ | 4,336,785 | ||||||||||||||||||||
22
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 (SUCCESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 (SUCCESSOR ENTITY)
XM | Consolidated | |||||||||||||||||||||||||||||||||||||||||||
XM | Equipment | XM Non- | Consolidated | XM Satellite | XM 1500 | XM | XM Satellite | |||||||||||||||||||||||||||||||||||||
Satellite | XM Radio | Leasing | Guarantor | XM Satellite | Radio | Eckington | Investment | Radio | ||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Holdings Inc. | LLC | LLC | Eliminations | Holdings Inc. | |||||||||||||||||||||||||||||||||
Revenue |
$ | 324,779 | $ | | $ | | $ | | $ | | $ | 324,779 | $ | 694 | $ | 2,605 | $ | 333 | $ | (2,938 | ) | $ | 325,473 | |||||||||||||||||||||
Cost of services |
122,703 | | (12 | ) | | (214 | ) | 122,477 | | | | | 122,477 | |||||||||||||||||||||||||||||||
Sales and marketing |
26,055 | | | | | 26,055 | | | | | 26,055 | |||||||||||||||||||||||||||||||||
Subscriber acquisition costs |
35,049 | | | | | 35,049 | | | | | 35,049 | |||||||||||||||||||||||||||||||||
General and administrative |
26,668 | | 30 | | 320 | 27,018 | 128 | 292 | 87 | (2,309 | ) | 25,216 | ||||||||||||||||||||||||||||||||
Engineering, design and development |
5,413 | | | | | 5,413 | | | | | 5,413 | |||||||||||||||||||||||||||||||||
Depreciation and amortization |
38,769 | | 1,114 | | | 39,883 | 1,093 | 508 | 103 | | 41,587 | |||||||||||||||||||||||||||||||||
Restructuring, impairments and related costs |
3,029 | | | | | 3,029 | | | | | 3,029 | |||||||||||||||||||||||||||||||||
Total operating expenses |
257,686 | | 1,132 | | 106 | 258,924 | 1,221 | 800 | 190 | (2,309 | ) | 258,826 | ||||||||||||||||||||||||||||||||
Income (loss) from operations |
67,093 | | (1,132 | ) | | (106 | ) | 65,855 | (527 | ) | 1,805 | 143 | (629 | ) | 66,647 | |||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||||
Interest and investment income |
4,250 | | | | | 4,250 | 160 | | | (3,681 | ) | 729 | ||||||||||||||||||||||||||||||||
Interest expense, net of amounts
capitalized |
(68,476 | ) | | | | | (68,476 | ) | (7,612 | ) | | | 5,472 | (70,616 | ) | |||||||||||||||||||||||||||||
Gain (loss) on change in value of
embedded derivative |
(33,700 | ) | | | | | (33,700 | ) | | | | | (33,700 | ) | ||||||||||||||||||||||||||||||
Loss on extinguishment of debt and credit facilities, net |
(502 | ) | | | | | (502 | ) | | | | (3,285 | ) | (3,787 | ) | |||||||||||||||||||||||||||||
Gain (loss) on investments |
| | | | | | (2,870 | ) | | | | (2,870 | ) | |||||||||||||||||||||||||||||||
Other income (expense) |
(1,000 | ) | 46,185 | 2,872 | 14,637 | (61,878 | ) | 816 | (31,424 | ) | | | 31,932 | 1,324 | ||||||||||||||||||||||||||||||
Net income (loss) before
income taxes |
(32,335 | ) | 46,185 | 1,740 | 14,637 | (61,984 | ) | (31,757 | ) | (42,273 | ) | 1,805 | 143 | 29,809 | (42,273 | ) | ||||||||||||||||||||||||||||
Benefit from (provision for)
income taxes |
| (578 | ) | | | | (578 | ) | (578 | ) | | | 578 | (578 | ) | |||||||||||||||||||||||||||||
Net income (loss) |
(32,335 | ) | 45,607 | 1,740 | 14,637 | (61,984 | ) | (32,335 | ) | (42,851 | ) | 1,805 | 143 | 30,387 | (42,851 | ) | ||||||||||||||||||||||||||||
Add: net loss attributable to
noncontrolling interests |
| | | | | | | | | | | |||||||||||||||||||||||||||||||||
Net income (loss): XM Satellite
Radio Holdings and Subsidiaries |
$ | (32,335 | ) | $ | 45,607 | $ | 1,740 | $ | 14,637 | $ | (61,984 | ) | $ | (32,335 | ) | $ | (42,851 | ) | $ | 1,805 | $ | 143 | $ | 30,387 | $ | (42,851 | ) | |||||||||||||||||
23
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (SUCCESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (SUCCESSOR ENTITY)
XM | Consolidated | |||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated | XM Satellite | XM 1500 | XM | XM Satellite | ||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | XM Satellite | Radio | Eckington | Investment | Radio | ||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Holdings Inc. | LLC | LLC | Eliminations | Holdings Inc. | |||||||||||||||||||||||||||||||||
Revenue |
$ | 932,457 | $ | | $ | | $ | | $ | | $ | 932,457 | $ | 2,082 | $ | 7,740 | $ | 997 | $ | (8,738 | ) | $ | 934,538 | |||||||||||||||||||||
Cost of services |
372,513 | | 6 | | | 372,519 | | | | | 372,519 | |||||||||||||||||||||||||||||||||
Sales and marketing |
84,565 | | | | | 84,565 | | | | | 84,565 | |||||||||||||||||||||||||||||||||
Subscriber acquisition costs |
83,524 | | | | | 83,524 | | | | | 83,524 | |||||||||||||||||||||||||||||||||
General and administrative |
95,552 | | 30 | | 320 | 95,902 | 1,515 | 938 | 259 | (6,925 | ) | 91,689 | ||||||||||||||||||||||||||||||||
Engineering, design and development |
16,798 | | | | | 16,798 | | | | | 16,798 | |||||||||||||||||||||||||||||||||
Depreciation and amortization |
134,958 | | 6,554 | | | 141,512 | 3,192 | 1,416 | 342 | | 146,462 | |||||||||||||||||||||||||||||||||
Restructuring, impairments and related costs |
5,418 | | | | | 5,418 | 24,196 | | | | 29,614 | |||||||||||||||||||||||||||||||||
Total operating expenses |
793,328 | | 6,590 | | 320 | 800,238 | 28,903 | 2,354 | 601 | (6,925 | ) | 825,171 | ||||||||||||||||||||||||||||||||
Income (loss) from operations |
139,129 | | (6,590 | ) | | (320 | ) | 132,219 | (26,821 | ) | 5,386 | 396 | (1,813 | ) | 109,367 | |||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||||
Interest and investment income |
5,087 | | | | | 5,087 | 442 | | | (3,681 | ) | 1,848 | ||||||||||||||||||||||||||||||||
Interest expense, net of amounts
capitalized |
(212,907 | ) | | | | | (212,907 | ) | (19,500 | ) | | | 5,472 | (226,935 | ) | |||||||||||||||||||||||||||||
Gain (loss) on change in value of
embedded derivative |
(111,703 | ) | | | | | (111,703 | ) | | | | | (111,703 | ) | ||||||||||||||||||||||||||||||
Loss on extinguishment of debt and credit facilities, net |
(104,373 | ) | | | | | (104,373 | ) | (4,205 | ) | | | (3,285 | ) | (111,863 | ) | ||||||||||||||||||||||||||||
Gain (loss) on investments |
| | | | | | (6,660 | ) | | | | (6,660 | ) | |||||||||||||||||||||||||||||||
Other income (expense) |
(7,544 | ) | 132,925 | 8,676 | 43,530 | (176,488 | ) | 1,099 | (286,654 | ) | | | 288,103 | 2,548 | ||||||||||||||||||||||||||||||
Net income (loss) before
income taxes |
(292,311 | ) | 132,925 | 2,086 | 43,530 | (176,808 | ) | (290,578 | ) | (343,398 | ) | 5,386 | 396 | 284,796 | (343,398 | ) | ||||||||||||||||||||||||||||
Benefit from (provision for)
income taxes |
| (1,733 | ) | | | | (1,733 | ) | (1,733 | ) | | | 1,733 | (1,733 | ) | |||||||||||||||||||||||||||||
Net income (loss) |
(292,311 | ) | 131,192 | 2,086 | 43,530 | (176,808 | ) | (292,311 | ) | (345,131 | ) | 5,386 | 396 | 286,529 | (345,131 | ) | ||||||||||||||||||||||||||||
Add: net loss attributable to
noncontrolling interests |
| | | | | | | | | | | |||||||||||||||||||||||||||||||||
Net income (loss): XM Satellite
Radio Holdings and Subsidiaries |
$ | (292,311 | ) | $ | 131,192 | $ | 2,086 | $ | 43,530 | $ | (176,808 | ) | $ | (292,311 | ) | $ | (345,131 | ) | $ | 5,386 | $ | 396 | $ | 286,529 | $ | (345,131 | ) | |||||||||||||||||
24
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD JULY 1, 2008 THROUGH JULY 31, 2008 (PREDECESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD JULY 1, 2008 THROUGH JULY 31, 2008 (PREDECESSOR ENTITY)
XM | Satellite | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated | XM Satellite | Leasing | XM 1500 | XM | XM Satellite | |||||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | XM Satellite | Radio | (702-4), | Eckington | Investment | Radio | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Holdings Inc. | LLT | LLC | LLC | Eliminations | Holdings Inc. | ||||||||||||||||||||||||||||||||||||
Revenue |
$ | 103,821 | $ | 17,031 | $ | 913 | $ | | $ | (17,944 | ) | $ | 103,821 | $ | 833 | $ | 2,976 | $ | 856 | $ | 109 | $ | (3,891 | ) | $ | 104,704 | ||||||||||||||||||||||
Cost of services |
61,453 | | | | 35 | 61,488 | | | | | | 61,488 | ||||||||||||||||||||||||||||||||||||
Sales and marketing |
17,268 | | | | | 17,268 | | | | | | 17,268 | ||||||||||||||||||||||||||||||||||||
Subscriber acquisition costs |
33,366 | | | | | 33,366 | | | | | | 33,366 | ||||||||||||||||||||||||||||||||||||
General and administrative |
33,647 | | | | | 33,647 | 149 | | 110 | 26 | (723 | ) | 33,209 | |||||||||||||||||||||||||||||||||||
Engineering, design and development |
2,611 | | | | | 2,611 | | | | | | 2,611 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
10,337 | | 997 | | | 11,334 | 16 | | 116 | 51 | (689 | ) | 10,828 | |||||||||||||||||||||||||||||||||||
Total operating expenses |
158,682 | | 997 | | 35 | 159,714 | 165 | | 226 | 77 | (1,412 | ) | 158,770 | |||||||||||||||||||||||||||||||||||
Income (loss) from operations |
(54,861 | ) | 17,031 | (84 | ) | | (17,979 | ) | (55,893 | ) | 668 | 2,976 | 630 | 32 | (2,479 | ) | (54,066 | ) | ||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||||||||
Interest and investment income |
506 | | 50 | 4,977 | (5,027 | ) | 506 | 88 | | | | | 594 | |||||||||||||||||||||||||||||||||||
Interest expense, net of amounts
capitalized |
(16,739 | ) | | | (50 | ) | 5,025 | (11,764 | ) | (2,924 | ) | (1,923 | ) | | | 2,481 | (14,130 | ) | ||||||||||||||||||||||||||||||
Loss on extinguishment of debt
and credit facilities, net |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Gain (loss) on investments |
| | | | | | (4,460 | ) | | | | | (4,460 | ) | ||||||||||||||||||||||||||||||||||
Other income (expense) |
3,615 | | 1 | | (3,752 | ) | (136 | ) | (66,482 | ) | | | | 66,623 | 5 | |||||||||||||||||||||||||||||||||
Net income (loss) before
income taxes |
(67,479 | ) | 17,031 | (33 | ) | 4,927 | (21,733 | ) | (67,287 | ) | (73,110 | ) | 1,053 | 630 | 32 | 66,625 | (72,057 | ) | ||||||||||||||||||||||||||||||
Benefit from (provision for)
income taxes |
| (192 | ) | | | | (192 | ) | (508 | ) | | | | 192 | (508 | ) | ||||||||||||||||||||||||||||||||
Net income (loss) |
(67,479 | ) | 16,839 | (33 | ) | 4,927 | (21,733 | ) | (67,479 | ) | (73,618 | ) | 1,053 | 630 | 32 | 66,817 | (72,565 | ) | ||||||||||||||||||||||||||||||
Add: net loss attributable to
noncontrolling interests |
| | | | | | | | | | (1,053 | ) | (1,053 | ) | ||||||||||||||||||||||||||||||||||
Net income (loss): XM Satellite
Radio Holdings and Subsidiaries |
$ | (67,479 | ) | $ | 16,839 | $ | (33 | ) | $ | 4,927 | $ | (21,733 | ) | $ | (67,479 | ) | $ | (73,618 | ) | $ | 1,053 | $ | 630 | $ | 32 | $ | 65,764 | $ | (73,618 | ) | ||||||||||||||||||
25
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 1, 2008 THROUGH JULY 31, 2008 (PREDECESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 1, 2008 THROUGH JULY 31, 2008 (PREDECESSOR ENTITY)
XM | Satellite | |||||||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated | XM Satellite | Leasing | XM 1500 | XM | Consolidated | |||||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | XM Satellite | Radio | (702-4), | Eckington | Investment | XM Satellite | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Holdings Inc. | LLT | LLC | LLC | Eliminations | Radio Holdings Inc. | ||||||||||||||||||||||||||||||||||||
Revenue |
$ | 725,314 | $ | 104,112 | $ | 6,394 | $ | | $ | (110,506 | ) | $ | 725,314 | $ | 5,829 | $ | 21,001 | $ | 7,676 | $ | 757 | $ | (29,383 | ) | $ | 731,194 | ||||||||||||||||||||||
Cost of services |
433,011 | | 21 | | 256 | 433,288 | | | | | | 433,288 | ||||||||||||||||||||||||||||||||||||
Sales and marketing |
126,054 | | | | | 126,054 | | | | | | 126,054 | ||||||||||||||||||||||||||||||||||||
Subscriber acquisition costs |
174,083 | | | | | 174,083 | | | | | | 174,083 | ||||||||||||||||||||||||||||||||||||
General and administrative |
120,349 | | | | | 120,349 | 287 | | 611 | 181 | (4,984 | ) | 116,444 | |||||||||||||||||||||||||||||||||||
Engineering, design and development |
23,045 | | | | | 23,045 | | | | | | 23,045 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
85,302 | | 6,990 | | | 92,292 | 112 | | 811 | 360 | (4,826 | ) | 88,749 | |||||||||||||||||||||||||||||||||||
Total operating expenses |
961,844 | | 7,011 | | 256 | 969,111 | 399 | | 1,422 | 541 | (9,810 | ) | 961,663 | |||||||||||||||||||||||||||||||||||
Income (loss) from operations |
(236,530 | ) | 104,112 | (617 | ) | | (110,762 | ) | (243,797 | ) | 5,430 | 21,001 | 6,254 | 216 | (19,573 | ) | (230,469 | ) | ||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||||||||
Interest and investment income |
2,618 | | 369 | 34,193 | (34,562 | ) | 2,618 | 395 | | | | | 3,013 | |||||||||||||||||||||||||||||||||||
Interest expense, net of amounts
capitalized |
(108,239 | ) | | | (369 | ) | 34,560 | (74,048 | ) | (3,950 | ) | (13,558 | ) | | | 17,619 | (73,937 | ) | ||||||||||||||||||||||||||||||
Loss on extinguishment of debt and credit facilities, net |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Gain (loss) on investments |
| | | | | | (13,010 | ) | | | | | (13,010 | ) | ||||||||||||||||||||||||||||||||||
Other income (expense) |
25,362 | | 152 | | (25,728 | ) | (214 | ) | (309,811 | ) | | | | 310,925 | 900 | |||||||||||||||||||||||||||||||||
Net income (loss) before
income taxes |
(316,789 | ) | 104,112 | (96 | ) | 33,824 | (136,492 | ) | (315,441 | ) | (320,946 | ) | 7,443 | 6,254 | 216 | 308,971 | (313,503 | ) | ||||||||||||||||||||||||||||||
Benefit from (provision for)
income taxes |
| (1,348 | ) | | | | (1,348 | ) | (1,512 | ) | | | | 1,348 | (1,512 | ) | ||||||||||||||||||||||||||||||||
Net income (loss) |
(316,789 | ) | 102,764 | (96 | ) | 33,824 | (136,492 | ) | (316,789 | ) | (322,458 | ) | 7,443 | 6,254 | 216 | 310,319 | (315,015 | ) | ||||||||||||||||||||||||||||||
Add: net loss attributable to
noncontrolling interests |
| | | | | | | | | | (7,443 | ) | (7,443 | ) | ||||||||||||||||||||||||||||||||||
Net income (loss): XM Satellite
Radio Holdings and Subsidiaries |
$ | (316,789 | ) | $ | 102,764 | $ | (96 | ) | $ | 33,824 | $ | (136,492 | ) | $ | (316,789 | ) | $ | (322,458 | ) | $ | 7,443 | $ | 6,254 | $ | 216 | $ | 302,876 | $ | (322,458 | ) | ||||||||||||||||||
26
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD AUGUST 1, 2008 THROUGH SEPTEMBER 30, 2008 (SUCCESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD AUGUST 1, 2008 THROUGH SEPTEMBER 30, 2008 (SUCCESSOR ENTITY)
XM | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated | XM Satellite | Satellite | XM 1500 | XM | XM Satellite | |||||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | XM Satellite | Radio Holdings | Leasing (702-4), | Eckington | Investment | Radio | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Inc. | LLT | LLC | LLC | Eliminations | Holdings Inc. | ||||||||||||||||||||||||||||||||||||
Revenue |
$ | 195,183 | $ | 31,095 | $ | 1,827 | $ | | $ | (32,923 | ) | $ | 195,182 | $ | 471 | $ | 4,409 | $ | 1,608 | $ | 219 | $ | (6,286 | ) | $ | 195,603 | ||||||||||||||||||||||
Cost of services |
97,804 | | 7 | | 71 | 97,882 | | | | | | 97,882 | ||||||||||||||||||||||||||||||||||||
Sales and marketing |
28,951 | | | | | 28,951 | | | | | | 28,951 | ||||||||||||||||||||||||||||||||||||
Subscriber acquisition costs |
27,482 | | | | | 27,482 | | | | | | 27,482 | ||||||||||||||||||||||||||||||||||||
General and administrative |
20,296 | | | | | 20,296 | 153 | | 166 | 52 | (1,452 | ) | 19,215 | |||||||||||||||||||||||||||||||||||
Engineering, design and development |
5,191 | | | | | 5,191 | | | | | | 5,191 | ||||||||||||||||||||||||||||||||||||
Impairment of goodwill |
| | | | | | 5,026,838 | | | | | 5,026,838 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
32,667 | | 1,957 | | | 34,624 | 194 | | 232 | 103 | (533 | ) | 34,620 | |||||||||||||||||||||||||||||||||||
Total operating expenses |
212,391 | | 1,964 | | 71 | 214,426 | 5,027,185 | | 398 | 155 | (1,985 | ) | 5,240,179 | |||||||||||||||||||||||||||||||||||
Income (loss) from operations |
(17,208 | ) | 31,095 | (137 | ) | | (32,994 | ) | (19,244 | ) | (5,026,714 | ) | 4,409 | 1,210 | 64 | (4,301 | ) | (5,044,576 | ) | |||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||||||||
Interest and investment income |
4,219 | | 99 | 9,792 | (9,891 | ) | 4,219 | (256 | ) | | | | | 3,963 | ||||||||||||||||||||||||||||||||||
Interest expense, net of amounts
capitalized |
(55,146 | ) | | | (99 | ) | 9,892 | (45,353 | ) | (6,115 | ) | | | | 3,670 | (47,798 | ) | |||||||||||||||||||||||||||||||
Gain (loss) on change in value of
embedded derivative |
241,431 | | | | | 241,431 | 792 | | | | | 242,223 | ||||||||||||||||||||||||||||||||||||
Loss on extinguishment of debt and credit facilities, net |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Gain (loss) on investments |
| | | | | | (3,089 | ) | | | | | (3,089 | ) | ||||||||||||||||||||||||||||||||||
Other income (expense) |
7,284 | | | | (7,372 | ) | (88 | ) | 182,031 | (2,821 | ) | | | (183,196 | ) | (4,074 | ) | |||||||||||||||||||||||||||||||
Net income (loss) before
income taxes |
180,580 | 31,095 | (38 | ) | 9,693 | (40,365 | ) | 180,965 | (4,853,351 | ) | 1,588 | 1,210 | 64 | (183,827 | ) | (4,853,351 | ) | |||||||||||||||||||||||||||||||
Benefit from (provision for)
income taxes |
| (385 | ) | | | | (385 | ) | (672 | ) | | | | 385 | (672 | ) | ||||||||||||||||||||||||||||||||
Net income (loss) |
180,580 | 30,710 | (38 | ) | 9,693 | (40,365 | ) | 180,580 | (4,854,023 | ) | 1,588 | 1,210 | 64 | (183,442 | ) | (4,854,023 | ) | |||||||||||||||||||||||||||||||
Add: net loss attributable to
noncontrolling interests |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Net income (loss): XM Satellite
Radio Holdings and Subsidiaries |
$ | 180,580 | $ | 30,710 | $ | (38 | ) | $ | 9,693 | $ | (40,365 | ) | $ | 180,580 | $ | (4,854,023 | ) | $ | 1,588 | $ | 1,210 | $ | 64 | $ | (183,442 | ) | $ | (4,854,023 | ) | |||||||||||||||||||
27
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
XM | XM Non- | Consolidated XM | Consolidated XM | |||||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Equipment | Guarantor | Satellite Radio | XM Satellite Radio | XM 1500 | XM Investment | Satellite Radio | ||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | Leasing LLC | Subsidiaries | Eliminations | Inc. | Holdings Inc. | Eckington LLC | LLC | Eliminations | Holdings Inc. | |||||||||||||||||||||||||||||||||
Balance at December 31, 2008 |
$ | (473,697 | ) | $ | 1,852,825 | $ | 56,198 | $ | 716,125 | $ | (2,625,148 | ) | $ | (473,697 | ) | $ | (575,554 | ) | $ | 102,117 | $ | 17,707 | $ | 353,873 | $ | (575,554 | ) | |||||||||||||||||
Net income (loss) |
(292,311 | ) | 131,192 | 2,086 | 43,530 | (176,808 | ) | (292,311 | ) | (345,131 | ) | 5,386 | 396 | 286,529 | (345,131 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss: |
||||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on available-for-sale
securities |
| | | | | | 579 | | | | 579 | |||||||||||||||||||||||||||||||||
Foreign currency translation
adjustment |
| | | | | | 694 | | | | 694 | |||||||||||||||||||||||||||||||||
Comprehensive loss |
(343,858 | ) | (343,858 | ) | ||||||||||||||||||||||||||||||||||||||||
Contributions (distributions)
to (from) paid-in capital |
109,819 | | 2,592 | | (2,591 | ) | 109,819 | 119,198 | | 59 | (109,878 | ) | 119,198 | |||||||||||||||||||||||||||||||
Balance at September 30, 2009 |
$ | (656,189 | ) | $ | 1,984,017 | $ | 60,876 | $ | 759,655 | $ | (2,804,547 | ) | $ | (656,189 | ) | $ | (800,214 | ) | $ | 107,503 | $ | 18,162 | $ | 530,524 | $ | (800,214 | ) | |||||||||||||||||
28
Table of Contents
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (SUCCESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (SUCCESSOR ENTITY)
XM | Consolidated | |||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated XM | XM Satellite | XM 1500 | XM Satellite | |||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | Satellite Radio | Radio Holdings | Eckington | XM Investment | Radio | ||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Inc. | Inc. | LLC | LLC | Eliminations | Holdings Inc. | |||||||||||||||||||||||||||||||||
Net cash (used in) provided by
operating activities |
$ | 195,359 | $ | | $ | (5 | ) | $ | | $ | | $ | 195,354 | $ | 29,616 | $ | 3,088 | $ | 560 | $ | | $ | 228,618 | |||||||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||||||||||||||||||||||
Additions to property and
equipment |
(11,217 | ) | | | | | (11,217 | ) | (27,594 | ) | | | | (38,811 | ) | |||||||||||||||||||||||||||||
Sale of restricted and other
investments |
| | | | | | | | | | | |||||||||||||||||||||||||||||||||
Net cash used in
investing activities |
(11,217 | ) | | | | | (11,217 | ) | (27,594 | ) | | | | (38,811 | ) | |||||||||||||||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||||||||||||||||||
Long-term borrowings, net of costs |
387,184 | | | | | 387,184 | | | | | 387,184 | |||||||||||||||||||||||||||||||||
Related party long-term borrowings,
net of costs |
95,093 | | | | | 95,093 | | | | | 95,093 | |||||||||||||||||||||||||||||||||
Repayment of long-term borrowings |
(256,662 | ) | | | | | (256,662 | ) | | | | (179,065 | ) | (435,727 | ) | |||||||||||||||||||||||||||||
Repayment of long-term related
party borrowings |
(100,000 | ) | | | | | (100,000 | ) | | | | | (100,000 | ) | ||||||||||||||||||||||||||||||
Payment of premiums on
redemption of debt |
(12,003 | ) | | | | | (12,003 | ) | (5,072 | ) | | | | (17,075 | ) | |||||||||||||||||||||||||||||
Net cash provided by (used in)
financing activities |
113,612 | | | | | 113,612 | (5,072 | ) | | | (179,065 | ) | (70,525 | ) | ||||||||||||||||||||||||||||||
Net increase (decrease) in cash
and cash equivalents |
297,754 | | (5 | ) | | | 297,749 | (3,050 | ) | 3,088 | 560 | (179,065 | ) | 119,282 | ||||||||||||||||||||||||||||||
Cash and cash equivalents at
beginning of period |
199,938 | | 15 | | | 199,953 | 5,923 | 760 | 104 | | 206,740 | |||||||||||||||||||||||||||||||||
Cash and cash equivalents at
end of period |
$ | 497,692 | $ | | $ | 10 | $ | | $ | | $ | 497,702 | $ | 2,873 | $ | 3,848 | $ | 664 | $ | (179,065 | ) | $ | 326,022 | |||||||||||||||||||||
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 2008 THROUGH JULY 31, 2008 (PREDECESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 2008 THROUGH JULY 31, 2008 (PREDECESSOR ENTITY)
XM | Satellite | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated | XM Satellite | Leasing | XM 1500 | XM | XM Satellite | |||||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | XM Satellite | Radio Holdings | (702-4), | Eckington | Investment | Radio | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Radio Inc. | Inc. | LLT | LLC | LLC | Eliminations | Holdings Inc. | ||||||||||||||||||||||||||||||||||||
Net cash (used in) provided by
operating activities |
$ | (278,970 | ) | $ | | $ | 22 | $ | | $ | | $ | (278,948 | ) | $ | 20,961 | $ | 6,897 | $ | 4 | $ | | $ | | $ | (251,086 | ) | |||||||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||||||||||||||||||||||||||
Additions to property and
equipment |
(23,854 | ) | | | | | (23,854 | ) | (6,989 | ) | | | | | (30,843 | ) | ||||||||||||||||||||||||||||||||
Purchases of restricted and other
investments |
| | | | | | (34,825 | ) | | | | | (34,825 | ) | ||||||||||||||||||||||||||||||||||
Sale of restricted and other
investments |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Net cash used in
investing activities |
(23,854 | ) | | | | | (23,854 | ) | (41,814 | ) | | | | | (65,668 | ) | ||||||||||||||||||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from exercise of
warrants and stock options |
| | | | | | 964 | | | | | 964 | ||||||||||||||||||||||||||||||||||||
Capital contributions from
Holdings |
13,125 | | | | 13,125 | (13,125 | ) | | | | | | ||||||||||||||||||||||||||||||||||||
Long-term borrowings, net of costs |
1,023,190 | | | | | 1,023,190 | | | | | | 1,023,190 | ||||||||||||||||||||||||||||||||||||
Payments to minority interest
holder |
| | | | | | | (6,897 | ) | | | | (6,897 | ) | ||||||||||||||||||||||||||||||||||
Repayment of long-term borrowings |
(35,210 | ) | | | | | (35,210 | ) | | | | | | (35,210 | ) | |||||||||||||||||||||||||||||||||
Other, net |
| | | | | | (2,458 | ) | | | | | (2,458 | ) | ||||||||||||||||||||||||||||||||||
Net cash provided by (used in)
financing activities |
1,001,105 | | | | | 1,001,105 | (14,619 | ) | (6,897 | ) | | | | 979,589 | ||||||||||||||||||||||||||||||||||
Net increase (decrease) in cash
and cash equivalents |
698,281 | | 22 | | | 698,303 | (35,472 | ) | | 4 | | | 662,835 | |||||||||||||||||||||||||||||||||||
Cash and cash equivalents at
beginning of period |
100,111 | | 11 | | | 100,122 | 56,554 | | 10 | | | 156,686 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents at
end of period |
$ | 798,392 | $ | | $ | 33 | $ | | $ | | $ | 798,425 | $ | 21,082 | $ | | $ | 14 | $ | | $ | | $ | 819,521 | ||||||||||||||||||||||||
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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollar amounts in thousands, unless otherwise stated)
XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD AUGUST 1, 2008 THROUGH SEPTEMBER 30, 2008 (PREDECESSOR ENTITY)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD AUGUST 1, 2008 THROUGH SEPTEMBER 30, 2008 (PREDECESSOR ENTITY)
XM | Satellite | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Equipment | XM Non- | Consolidated XM | XM Satellite | Leasing | XM Satellite | |||||||||||||||||||||||||||||||||||||||||||
XM Satellite | XM Radio | Leasing | Guarantor | Satellite Radio | Radio Holdings | (702-4), | XM 1500 | XM Investment | Radio | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Radio Inc. | Inc. | LLC | Subsidiaries | Eliminations | Inc. | Inc. | LLT | Eckington LLC | LLC | Eliminations | Holdings Inc. | ||||||||||||||||||||||||||||||||||||
Net cash (used in) provided by
operating activities |
$ | 8,391 | $ | | $ | (15 | ) | $ | | $ | | $ | 8,376 | $ | (4,249 | ) | $ | 1,479 | $ | (3 | ) | $ | | $ | | $ | 5,603 | |||||||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||||||||||||||||||||||||||
Additions to property and
equipment |
(7,727 | ) | | | | | (7,727 | ) | (166 | ) | | | | | (7,893 | ) | ||||||||||||||||||||||||||||||||
Purchases of restricted and other
investments |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Sale of restricted and other
investments |
| | | | | | 25,400 | | | | | 25,400 | ||||||||||||||||||||||||||||||||||||
Net cash (used in) provided by
investing activities |
(7,727 | ) | | | | | (7,727 | ) | 25,234 | | | | | 17,507 | ||||||||||||||||||||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from exercise of
warrants and stock options |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Capital contributions from
Holdings |
| | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
Long-term borrowings, net of costs |
533,941 | | | | | 533,941 | | | | | | 533,941 | ||||||||||||||||||||||||||||||||||||
Payments to minority interest
holder |
(60,401 | ) | | | | | (60,401 | ) | | (1,479 | ) | | | | (61,880 | ) | ||||||||||||||||||||||||||||||||
Repayment of long-term borrowings |
(1,080,553 | ) | | | | | (1,080,553 | ) | | | | | | (1,080,553 | ) | |||||||||||||||||||||||||||||||||
Payment of premiums on
redemption of debt |
| | | | | | (18,693 | ) | | | | | (18,693 | ) | ||||||||||||||||||||||||||||||||||
Other, net |
| | | | | | (98 | ) | | | | | (98 | ) | ||||||||||||||||||||||||||||||||||
Net cash used in
financing activities |
(607,013 | ) | | | | | (607,013 | ) | (18,791 | ) | (1,479 | ) | | | | (627,283 | ) | |||||||||||||||||||||||||||||||
Net increase (decrease) in cash
and cash equivalents |
(606,349 | ) | | (15 | ) | | | (606,364 | ) | 2,194 | | (3 | ) | | | (604,173 | ) | |||||||||||||||||||||||||||||||
Cash and cash equivalents at
beginning of period |
798,392 | | 33 | | | 798,425 | 21,082 | | 14 | | | 819,521 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents at
end of period |
$ | 192,043 | $ | | $ | 18 | $ | | $ | | $ | 192,061 | $ | 23,276 | $ | | $ | 11 | $ | | $ | | $ | 215,348 | ||||||||||||||||||||||||
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(All dollar amounts referenced in this Item 2 are 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, intend, plan, 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, 2008 (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 Item 1A 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:
| the substantial indebtedness of XM Holdings and XM; |
| the useful life of our satellites, which have experienced component failures including, with respect to a number of satellites, failures on their solar arrays and in certain cases, are not insured; |
| our dependence upon automakers, many of which have experienced a dramatic drop in sales and are in financial distress, and other third parties, such as manufacturers and distributors of satellite radios, retailers and programming providers; and |
| our competitive position versus other forms of audio and video entertainment including terrestrial radio, HD radio, internet radio, mobile phones, iPods and other MP3 devices, and emerging next-generation networks and technologies. |
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 of these forward-looking statements. In addition, any
forward-looking statement speaks only as of the date on which it 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 the statement is made, 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 actual results to differ materially from
those contained in any forward-looking statements.
Executive Summary
We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the
United States on a subscription fee basis through our proprietary satellite radio system. On
July 28, 2008, XM Satellite Radio Holdings Inc. merged with and into Vernon Merger Corporation, a
wholly owned subsidiary of SIRIUS; and as a result, XM Satellite Radio Holdings Inc. is now a
wholly owned subsidiary of SIRIUS. Our system consists of four in-orbit satellites, over 650
terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios.
Subscribers can also receive certain of our music and other channels over the Internet, including
through an app on the Apple iPhone.
Our satellite radios are primarily distributed through automakers (OEMs), retailers and
through our website. We have agreements with major automakers to offer satellite radios as factory
or dealer-installed equipment in their vehicles. Our radios are also offered to customers of rental
car companies.
As of September 30, 2009, we had 9,704,886 subscribers. Our subscriber totals include
subscribers under our regular pricing plans; discounted pricing plans; subscribers that have
prepaid, including payments either made or due from automakers and dealers for prepaid
subscriptions included in the sale or lease price of a vehicle; certain radios activated for daily
rental fleet programs; subscribers to XM Radio Online, our Internet service; and certain
subscribers to our weather, traffic and data services.
Our primary source of revenue is subscription fees, with most of our customers subscribing on
an annual, semi-annual, quarterly or monthly basis. We offer discounts for pre-paid and long-term
subscriptions as well as discounts for multiple subscriptions. In 2009, we increased the discounted
price for additional subscriptions from $6.99 per month to $8.99 per month. We also derive revenue
from activation fees, the sale of advertising on select non-music channels, the direct sale of
satellite radios, components and accessories, and other ancillary services, such as data and
weather services.
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In August 2009, we began charging our subscribers a U.S. Music Royalty Fee (the MRF). The
MRF is $1.98 a month on our base subscriptions and $.97 for plans that are eligible for a second
radio discount. The MRF also varies depending upon subscriber package and plan term. Amounts we
collect through the MRF are included in Other revenue on our unaudited consolidated statements of
operations. The FCC decision approving the Merger permits us to pass through to subscribers
increases in music royalties since March 20, 2007, the date we asked the FCC to approve the Merger.
The MRF is the implementation of that FCC decision.
In certain cases, automakers include a subscription to our radio services in the sale or lease
price of vehicles. The length of these prepaid subscriptions varies, but is typically three months.
We also reimburse various automakers for certain costs associated with satellite radios installed
in their vehicles.
We also have an interest in a satellite radio service offered in Canada. Subscribers to the
Canadian Satellite Radio Holdings Inc. (XM Canada) service are not included in our subscriber
count.
XM Satellite Radio Holdings Inc., together with its subsidiaries, now operates as an
unrestricted subsidiary under the agreements governing SIRIUS existing indebtedness. As an
unrestricted subsidiary, transactions between the companies are required to comply with various
contractual provisions in our respective debt instruments.
Unaudited Actual and Pro Forma Information
Our discussion of our unaudited pro forma information includes non-GAAP financial results that
assume the Merger occurred on January 1, 2008. These financial results exclude the impact of
purchase price accounting adjustments and refinancing transactions related to the Merger. The
discussion also includes the following non-GAAP financial measures: average self-pay monthly churn;
conversion rate; average monthly revenue per subscriber, or ARPU; subscriber acquisition cost, or
SAC, as adjusted, per gross subscriber addition; customer service and billing expenses, as
adjusted, per average subscriber; free cash flow; and adjusted income (loss) from operations. We
believe this non-GAAP financial information provides meaningful supplemental information regarding
our operating performance and is used for internal management purposes, when publicly providing the
business outlook, and as a means to evaluate period-to-period comparisons. Please refer to the
footnotes (pages 49 through 59) following our discussion of results of operations for the
definitions and a further discussion of the usefulness of such non-GAAP financial information and
reconciliation to GAAP.
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Table of Contents
Subscriber and Key Operating Metrics. The following tables contain our actual and pro forma
subscriber and key operating metrics for the three and nine months ended September 30, 2009 and
2008, respectively:
Unaudited Actual and Pro Forma Quarterly Subscribers and Metrics:
Unaudited | ||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Beginning subscribers |
9,641,800 | 9,850,741 | 9,652,691 | 9,026,837 | ||||||||||||
Gross subscriber additions |
833,684 | 2,289,360 | 1,041,242 | 3,161,844 | ||||||||||||
Deactivated subscribers |
(770,598 | ) | (2,435,215 | ) | (797,861 | ) | (2,292,609 | ) | ||||||||
Net additions |
63,086 | (145,855 | ) | 243,381 | 869,235 | |||||||||||
Ending subscribers |
9,704,886 | 9,704,886 | 9,896,072 | 9,896,072 | ||||||||||||
Retail |
3,777,646 | 3,777,646 | 4,418,746 | 4,418,746 | ||||||||||||
OEM |
5,840,637 | 5,840,637 | 5,387,851 | 5,387,851 | ||||||||||||
Rental |
86,603 | 86,603 | 89,475 | 89,475 | ||||||||||||
Ending subscribers |
9,704,886 | 9,704,886 | 9,896,072 | 9,896,072 | ||||||||||||
Retail |
(175,144 | ) | (541,986 | ) | (90,392 | ) | (179,260 | ) | ||||||||
OEM |
237,950 | 397,913 | 333,906 | 1,020,215 | ||||||||||||
Rental |
280 | (1,782 | ) | (133 | ) | 28,280 | ||||||||||
Net additions |
63,086 | (145,855 | ) | 243,381 | 869,235 | |||||||||||
Self-pay |
8,897,480 | 8,897,480 | 8,916,700 | 8,916,700 | ||||||||||||
Paid promotional |
807,406 | 807,406 | 979,372 | 979,372 | ||||||||||||
Ending subscribers |
9,704,886 | 9,704,886 | 9,896,072 | 9,896,072 | ||||||||||||
Self-pay |
(23,551 | ) | (198,099 | ) | 229,857 | 728,418 | ||||||||||
Paid promotional |
86,637 | 52,244 | 13,524 | 140,817 | ||||||||||||
Net additions |
63,086 | (145,855 | ) | 243,381 | 869,235 | |||||||||||
Daily weighted average
number of subscribers |
9,691,620 | 9,682,252 | 9,779,397 | 9,481,219 | ||||||||||||
Unaudited | ||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Average self-pay monthly churn (1)(7) |
2.0 | % | 2.1 | % | 1.7 | % | 1.7 | % | ||||||||
Conversion rate (2)(7) |
50.4 | % | 48.9 | % | 49.7 | % | 51.9 | % | ||||||||
ARPU (3)(7) |
$ | 10.94 | $ | 10.77 | $ | 10.41 | $ | 10.55 | ||||||||
SAC, as adjusted, per gross subscriber addition
(4)(7) |
$ | 65 | $ | 53 | $ | 73 | $ | 70 | ||||||||
Customer service and billing expenses, as adjusted,
per average subscriber (5)(7) |
$ | 1.06 | $ | 1.09 | $ | 1.21 | $ | 1.23 | ||||||||
Total revenue |
$ | 336,424 | $ | 980,998 | $ | 319,936 | $ | 946,426 | ||||||||
Free cash flow (6)(7) |
$ | 92,524 | $ | 189,807 | $ | (21,758 | ) | $ | (284,194 | ) | ||||||
Adjusted income (loss) from operations (8) |
$ | 66,327 | $ | 191,184 | $ | (36,449 | ) | $ | (104,479 | ) | ||||||
Net loss |
$ | (26,303 | ) | $ | (242,382 | ) | $ | (142,958 | ) | $ | (391,798 | ) |
Note: See pages 49 through 59 for footnotes. |
Subscribers. At September 30, 2009 we had 9,704,886 subscribers, a decrease of 191,186
subscribers, or 2%, from the 9,896,072 subscribers as of September 30, 2008. The decrease was
principally the result of 171,966 fewer paid promotional trials due to the decline in the North
American auto sales and 19,220 fewer self-pay subscribers compared to September 30, 2008. Gross
subscriber additions decreased approximately 20% and 28% during the three and nine months ended
September 30, 2009 compared to the three and nine months ended September 30, 2008. OEM gross
subscriber additions decreased due to the decline in the North American automobile sales and retail
gross subscriber additions decreased due to declines in consumer spending. Deactivation rates for
self-pay subscriptions in the quarter increased to 2.0% per month reflecting reductions in consumer
discretionary spending, subscriber response to our increase in prices for multi-subscription
accounts, channel line-up changes in 2008, the institution of a monthly charge for our streaming
service and the introduction of U.S. Music Royalty Fee.
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Table of Contents
ARPU. ARPU is derived from total earned subscriber revenue and net advertising revenue,
divided by the number of months in the period, divided by the daily weighted average number of
subscribers for the period. See accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, total ARPU was $10.94 and $10.41, respectively. The increase was driven mainly by the sale of Best of programming, increased rates on our multi-subscription packages and revenues earned on our internet packages, partially offset by lower ad revenue. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, total ARPU was $10.77 and $10.55, respectively. Increases in subscriber revenue were driven mainly by the sale of Best of programming, increased rates on our multi-subscription packages and revenues earned on our internet packages, partially offset by lower ad revenue. |
SAC, As Adjusted, Per Gross Subscriber Addition. SAC, as adjusted, per gross subscriber
addition is derived from subscriber acquisition costs and margins from the direct sale of radios
and accessories, excluding share-based payment expense divided by the number of gross subscriber
additions for the period. See accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $65 and $73, respectively. The decrease in SAC was primarily driven by fewer OEM installations relative to gross subscriber additions, lower aftermarket inventory settlements and lower OEM subsidies compared to the three months ended September 30, 2008. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $53 and $70, respectively. The decrease was primarily driven by lower aftermarket inventory settlements, fewer OEM installations relative to gross subscriber additions, and lower OEM subsidies in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. |
Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber. Customer service
and billing expenses, as adjusted, per average subscriber is derived from total customer service
and billing expenses, excluding share-based payment expense, divided by the number of months in the
period, divided by the daily weighted average number of subscribers for the period. See
accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.06 and $1.21, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.09 and $1.23, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses. |
Adjusted Income (Loss) from Operations. We refer to net loss before interest and investment
income; interest expense, net of amounts capitalized; income tax expense, loss on extinguishment of
debt and credit facilities, net; gain (loss) on investments, other expense (income), restructuring,
impairments and related costs, depreciation and amortization, and share-based payment expense as
adjusted income (loss) from operations. See accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, our adjusted income (loss) from operations was $66,327 and ($36,449), respectively. Adjusted income (loss) from operations was favorably impacted by an increase of 5%, or $16,488, in revenues and a decrease of 24%, or $86,288, in total expenses included in adjusted income (loss) from operations. The increase in revenue was due mainly to increased rates on multi-subscription packages, the introduction of the U.S. Music Royalty Fee, revenues earned on internet packages and the sale of Best of programming. The decreases in expenses were primarily driven by lower Subscriber acquisition costs, lower Sales and marketing discretionary spend, lower legal and consulting costs in General and administrative expenses. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, our adjusted income (loss) from operations was $191,184 and ($104,479), respectively. Adjusted income (loss) from operations was favorably impacted by an increase of 4%, or $34,572, in revenues and a decrease of 25%, or $261,091, in total expenses included in adjusted income (loss) from operations. The increase in revenue was due mainly to an increase in weighted average subscribers as well as increased rates on multi-subscription packages, the introduction of the U.S. Music Royalty Fee, revenues earned on internet packages and the sale of Best of programming. The decreases in expenses were primarily driven by lower Subscriber acquisition costs, lower Sales and marketing discretionary spend, lower legal and consulting costs in General and administrative expenses. |
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Unaudited Pro Forma Results of Operations. Set forth below are certain pro forma items that
give effect to the Merger as if it had occurred on January 1, 2008. The pro forma information below
does not give effect to any adjustments as a result of the purchase price accounting for the
Merger. See footnote 8 (pages 50 to 51) for a reconciliation of net loss to adjusted income (loss)
from operations.
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Revenue: |
||||||||||||||||
Subscriber revenue, including effects of
rebates |
$ | 313,852 | $ | 925,060 | $ | 297,151 | $ | 872,337 | ||||||||
Advertising revenue, net of agency fees |
4,147 | 13,475 | 8,358 | 27,908 | ||||||||||||
Equipment revenue |
5,657 | 17,681 | 4,936 | 16,748 | ||||||||||||
Other revenue |
12,768 | 24,782 | 9,491 | 29,433 | ||||||||||||
Total revenue |
336,424 | 980,998 | 319,936 | 946,426 | ||||||||||||
Operating expenses: |
||||||||||||||||
Satellite and transmission |
11,431 | 36,541 | 18,829 | 56,311 | ||||||||||||
Programming and content |
44,904 | 135,192 | 46,207 | 143,009 | ||||||||||||
Revenue share and royalties |
69,949 | 208,605 | 73,747 | 216,155 | ||||||||||||
Customer service and billing |
30,719 | 95,090 | 35,508 | 104,565 | ||||||||||||
Cost of equipment |
5,142 | 12,049 | 7,426 | 25,033 | ||||||||||||
Sales and marketing |
27,813 | 90,176 | 46,126 | 148,635 | ||||||||||||
Subscriber acquisition costs |
54,379 | 126,833 | 73,343 | 214,060 | ||||||||||||
General and administrative |
20,861 | 70,567 | 48,790 | 120,459 | ||||||||||||
Engineering, design and development |
4,899 | 14,761 | 6,409 | 22,678 | ||||||||||||
Depreciation and amortization |
17,484 | 60,434 | 31,957 | 109,878 | ||||||||||||
Share-based payment expense |
8,732 | 36,287 | 11,415 | 41,867 | ||||||||||||
Restructuring, impairments and related costs |
3,029 | 29,614 | | | ||||||||||||
Total operating expenses |
299,342 | 916,149 | 399,757 | 1,202,650 | ||||||||||||
Income (loss) from operations |
37,082 | 64,849 | (79,821 | ) | (256,224 | ) | ||||||||||
Other expense |
(62,807 | ) | (305,498 | ) | (60,904 | ) | (125,947 | ) | ||||||||
Loss before income taxes |
(25,725 | ) | (240,649 | ) | (140,725 | ) | (382,171 | ) | ||||||||
Income tax expense |
(578 | ) | (1,733 | ) | (1,180 | ) | (2,184 | ) | ||||||||
Net loss |
(26,303 | ) | (242,382 | ) | (141,905 | ) | (384,355 | ) | ||||||||
Add: net loss attributable to noncontrolling
interests |
| | (1,053 | ) | (7,443 | ) | ||||||||||
Net loss XM Satellite Radio Holdings Inc.
and Subsidiaries |
$ | (26,303 | ) | $ | (242,382 | ) | $ | (142,958 | ) | $ | (391,798 | ) | ||||
Highlights for the Three Months Ended September 30, 2009. Our revenue grew 5%, or $16,488, in
the three months ended September 30, 2009 compared to the same period in 2008. Subscriber revenue
increased 6%, or $16,701, in the three months ended September 30, 2009 compared to the same period
in 2008. The increase in subscriber revenue was driven by the sale of Best of programming and the
rate increases to our multi-subscription and internet packages. Advertising revenue decreased 50%,
or $4,211, in the three months ended September 30, 2009 compared to the same period in 2008. The
decrease in advertising revenue was driven by the current economic environment. Equipment revenue
increased 15%, or $721, in the three months ended September 30, 2009 compared to the same period in
2008. The increase in equipment revenue was driven by increase in royalties. Other revenue
increased 35%, or $3,277, in the three months ended September 30, 2009 compared to the same period
in 2008. The increase in other revenue was driven by the U.S. Music Royalty Fee introduced this
quarter. The overall increase in revenue, combined with a decrease of 24%, or $86,288, in adjusted
operating costs (total operating expense excluding restructuring, impairments and related costs,
depreciation and amortization, impairment of goodwill and share-based payment expense), resulted in
improved adjusted income (loss) from operations of $66,327 in the three months ended September 30,
2009 compared to ($36,449) in the same three month period in 2008.
Satellite and transmission costs decreased 39%, or $7,398, in the three months ended
September 30, 2009 compared to the same period in 2008 due to reductions in maintenance costs,
repeater lease expense and personnel costs. Programming and content costs decreased 3%, or $1,303,
in the three months ended September 30, 2009 compared to the same period in 2008, due mainly to
reductions in personnel and on-air talent costs as well as savings on content agreements. Revenue
share and royalties decreased 5%, or $3,798, primarily due to decreases in our royalties due to
certain OEM partners, partially offset by an increase in the statutory royalty rate for the
performance of sound recordings. Customer service and billing costs decreased 13%, or $4,789, in
the three months ended September 30, 2009 compared to the same period in 2008 primarily due to
decreases in personnel costs and customer call center expenses across a larger subscriber base.
Cost of equipment decreased 31%, or $2,284, in the three months ended September 30, 2009 compared
to the same period in 2008 as a result of a decrease in our direct to customer sales and lower
inventory write-downs.
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Sales and marketing costs decreased 40%, or $18,313, and decreased as a percentage of revenue
to 8% from 14% in the three months ended September 30, 2009 compared to the same period in 2008 due
to reduced advertising and cooperative marketing spend, as well as reductions to personnel costs
and third party distribution support expenses. Subscriber acquisition costs decreased 26%, or
$18,964, and decreased as a percentage of revenue to 16% from 23% in the three months ended
September 30, 2009 compared to the same period in 2008. This improvement was driven by fewer OEM
installations relative to gross subscriber additions, decreased production of certain radios, lower
OEM subsidies and lower aftermarket inventory reserves compared to the three months ended
September 30, 2008. Subscriber acquisition costs also decreased as a result of the 20% decline in
gross additions during the three months ended September 30, 2009.
General and administrative costs decreased 57%, or $27,929, mainly due to the absence of
certain legal and regulatory costs incurred in 2008 and lower personnel costs. Engineering, design
and development costs decreased 24%, or $1,510, in the three months ended September 30, 2009
compared to the same period in 2008, due to lower costs associated with manufacturing of radios,
OEM tooling and manufacturing, and personnel.
Restructuring, impairments and related costs were $3,029 mainly due to charges related to
revisions in estimated cash flows for vacated leases.
Other expenses increased 3%, or $1,903, in the three months ended September 30, 2009 compared
to the same period in 2008 driven mainly by increases from losses on extinguishment of debt and
credit facilities and increases in interest expense, offset by increases in gains on investments.
The loss on the extinguishment of debt and credit facilities was incurred on the repayment of our
10% Convertible Senior Notes due 2009. Interest expense increased due primarily to the issuance of
the 13% Senior Notes due 2013 and the 7% Exchangeable Senior Subordinated Notes due 2014 in the
third quarter of 2008 and the Amended and Restated Credit Agreement in the first quarter of 2009.
Highlights for the Nine Months Ended September 30, 2009. Our subscriber revenue grew 6%, or
$52,723, in the nine months ended September 30, 2009 compared to the same period in 2008. This
revenue growth was driven by the sale of Best of programming, rate increases on our
multi-subscription and Internet packages, as well as a 2% growth in weighted average subscribers.
Advertising revenue decreased 52%, or $14,433, in the nine months ended September 30, 2009 compared
to the same period in 2008. The decrease in advertising revenue was driven by the current economic
environment. Equipment revenue increased 6%, or $933, in the nine months ended September 30, 2009
compared to the same period in 2008. The increase in equipment revenue was primarily due to the
reduction in incentives offered at the time of purchase. Other revenue decreased 16%, or $4,651, in
the nine months ended September 30, 2009 compared to the same period in 2008. Total revenue
increased 4%, or $34,572, and combined with a decrease of 25%, or $261,091, in adjusted operating
costs (total operating expenses excluding restructuring, impairments and related costs,
depreciation and amortization, impairment of goodwill and share-based payment expense), resulted in
improved adjusted income (loss) from operations of $191,184 in the nine months ended September 30,
2009 compared to ($104,479) in the same period in 2008.
Satellite and transmission costs decreased 35%, or $19,770, in the nine months ended
September 30, 2009 compared to the same period in 2008 due to reductions in maintenance costs,
repeater lease expense, and personnel costs. Programming and content costs decreased 5%, or $7,817,
in the nine months ended September 30, 2009 compared to the same period in 2008, due mainly to
reductions in personnel and on-air talent costs as well as savings on certain content agreements.
Revenue share and royalties decreased 3%, or $7,550, in the nine months ended September 30, 2009
compared to the same period in 2008. Customer service and billing costs decreased 9%, or $9,475, in
the nine months ended September 30, 2009 compared to the same period in 2008 due to scale
efficiencies over a larger subscriber base. Cost of equipment decreased 52%, or $12,984, in the
nine months ended September 30, 2009 compared to the same period in 2008 as a result of a decrease
in direct to customer sales and lower inventory write-downs.
Sales and marketing costs decreased 39%, or $58,459, and have decreased as a percentage of
revenue to 9% from 16% in the nine months ended September 30, 2009 compared to the same period in
2008 due to reduced advertising and cooperative marketing spend as well as reductions to personnel
costs and third party distribution support expenses. Subscriber acquisition costs decreased 41%, or
$87,227, and decreased as a percentage of revenue to 13% from 23% in the nine months ended
September 30, 2009 compared to the same period in 2008. This decrease was driven by a 24%
improvement in SAC, as adjusted, per gross addition due to fewer OEM installations relative to
gross subscriber additions, decreased production of certain radios, lower OEM subsidies and lower
aftermarket inventory reserves in the nine months ended September 30, 2009 compared to the nine
months ended September 30, 2008. Subscriber acquisition costs also decreased as a result of the 28%
decline in gross additions during the nine months ended September 30, 2009.
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General and administrative costs decreased 41%, or $49,892, mainly due to the absence of
certain legal and regulatory charges incurred in 2008 and lower personnel costs. Engineering,
design and development costs decreased 35%, or $7,917, in the nine months ended September 30, 2009
compared to the same period in 2008, due to lower costs associated with manufacturing of radios,
OEM tooling and manufacturing, and personnel.
Restructuring, impairments and related costs increased $29,614, mainly due to a loss of
$24,196 on capitalized installment payments, which are expected to provide no future benefit due to
the counterpartys bankruptcy filing, for the launch of a satellite, and to charges related to
revisions in estimated cash flows for vacated leases.
Other expenses increased 143%, or $179,551, in the nine months ended September 30, 2009
compared to the same period in 2008 driven mainly by the loss on extinguishment of debt and credit
facilities of $111,863 and an increase in interest expense of $77,721. The loss on the
extinguishment of debt and credit facilities was incurred on the full repayment of our Amended and
Restated Credit Agreement and termination of our Second-Lien Credit Agreement. Interest expense
increased due primarily to the issuance of the 13% Senior Notes due 2013 and the 7% Exchangeable
Senior Subordinated Notes due 2014 in the third quarter of 2008 and the issuance of Amended and
Restated Credit Agreement in the first quarter of 2009.
Unaudited Actual Results of Operations
Our discussion of our results of operations, along with the selected financial information in
the tables that follow, includes the following non-GAAP financial measures: average self-pay
monthly churn; conversion rate; average monthly revenue per subscriber, or ARPU; subscriber
acquisition cost, or SAC, as adjusted, per gross subscriber addition; customer service and billing
expenses, as adjusted, per average subscriber; free cash flow; and adjusted income (loss) from
operations. We believe these non-GAAP financial measures provide meaningful supplemental
information regarding our operating performance and are used for internal management purposes, when
publicly providing the business outlook, and as a means to evaluate period-to-period comparisons.
Please refer to the footnotes (pages 49 through 59) following our discussion of results of
operations for the definitions and a further discussion of the usefulness of such non-GAAP
financial measures.
Subscriber and Key Operating Metrics:
The following tables contain our subscriber and key operating metrics for the three and nine
months ended September 30, 2009 and 2008:
Unaudited Actual Quarterly Subscribers and Metrics:
Unaudited | ||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Beginning subscribers |
9,641,800 | 9,850,741 | 9,652,691 | 9,026,837 | ||||||||||||
Gross subscriber additions |
833,684 | 2,289,360 | 1,041,242 | 3,161,844 | ||||||||||||
Deactivated subscribers |
(770,598 | ) | (2,435,215 | ) | (797,861 | ) | (2,292,609 | ) | ||||||||
Net additions |
63,086 | (145,855 | ) | 243,381 | 869,235 | |||||||||||
Ending subscribers |
9,704,886 | 9,704,886 | 9,896,072 | 9,896,072 | ||||||||||||
Retail |
3,777,646 | 3,777,646 | 4,418,746 | 4,418,746 | ||||||||||||
OEM |
5,840,637 | 5,840,637 | 5,387,851 | 5,387,851 | ||||||||||||
Rental |
86,603 | 86,603 | 89,475 | 89,475 | ||||||||||||
Ending subscribers |
9,704,886 | 9,704,886 | 9,896,072 | 9,896,072 | ||||||||||||
Retail |
(175,144 | ) | (541,986 | ) | (90,392 | ) | (179,260 | ) | ||||||||
OEM |
237,950 | 397,913 | 333,906 | 1,020,215 | ||||||||||||
Rental |
280 | (1,782 | ) | (133 | ) | 28,280 | ||||||||||
Net additions |
63,086 | (145,855 | ) | 243,381 | 869,235 | |||||||||||
Self-pay |
8,897,480 | 8,897,480 | 8,916,700 | 8,916,700 | ||||||||||||
Paid promotional |
807,406 | 807,406 | 979,372 | 979,372 | ||||||||||||
Ending subscribers |
9,704,886 | 9,704,886 | 9,896,072 | 9,896,072 | ||||||||||||
Self-pay |
(23,551 | ) | (198,099 | ) | 229,857 | 728,418 | ||||||||||
Paid promotional |
86,637 | 52,244 | 13,524 | 140,817 | ||||||||||||
Net additions |
63,086 | (145,855 | ) | 243,381 | 869,235 | |||||||||||
Daily weighted average
number of subscribers |
9,691,620 | 9,682,252 | 9,779,397 | 9,481,219 | ||||||||||||
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Unaudited | ||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Average self-pay monthly churn (1)(7) |
2.0 | % | 2.1 | % | 1.7 | % | 1.7 | % | ||||||||
Conversion rate (2)(7) |
50.4 | % | 48.9 | % | 49.7 | % | 51.9 | % | ||||||||
ARPU (7)(10) |
$ | 10.62 | $ | 10.30 | $ | 9.79 | $ | 10.33 | ||||||||
SAC, as adjusted, per gross subscriber addition (7)(11) |
$ | 41 | $ | 34 | $ | 61 | $ | 66 | ||||||||
Customer service and billing expenses, as adjusted,
per average subscriber (7)(12) |
$ | 1.06 | $ | 1.09 | $ | 1.21 | $ | 1.23 | ||||||||
Total revenue |
$ | 325,473 | $ | 934,538 | $ | 300,307 | $ | 926,797 | ||||||||
Free cash flow (7)(13) |
$ | 92,524 | $ | 189,807 | $ | (21,758 | ) | $ | (284,194 | ) | ||||||
Adjusted income (loss) from operations (14) |
$ | 118,870 | $ | 317,982 | $ | (16,712 | ) | $ | (84,742 | ) | ||||||
Net loss |
$ | (42,851 | ) | $ | (345,131 | ) | $ | (4,927,641 | ) | $ | (5,176,481 | ) |
Note: See pages 49 through 59 for footnotes. |
Subscribers. At September 30, 2009 we had 9,704,886 subscribers, a decrease of 191,186
subscribers, or 2%, from the 9,896,072 subscribers as of September 30, 2008. The decrease was
principally the result of 171,966 fewer paid promotional trials due to the decline in North
American auto sales and 19,220 fewer self-pay subscribers compared to September 30, 2008. Gross
subscriber additions decreased approximately 20% and 28% during the three and nine months ended
September 30, 2009 compared to the three and nine months ended September 30, 2008. OEM gross
subscriber additions decreased due to the decline in North American automobile sales and retail
gross subscriber additions decreased due to declines in consumer spending. Deactivation rates for
self-pay subscriptions in the quarter increased to 2.0% per month reflecting reductions in consumer
discretionary spending, subscriber response to our increase in prices for multi-subscription
accounts, channel line-up changes in 2008 and the institution of a monthly charge for our streaming
service.
ARPU. ARPU is derived from total earned subscriber revenue and net advertising revenue,
divided by the number of months in the period, divided by the daily weighted average number of
subscribers for the period. See accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, total ARPU was $10.62 and $9.79, respectively. The increase was driven by the revenue earned for Best of programming, increased rates on multi-subscription packages and internet subscriptions. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, total ARPU was $10.30 and $10.33, respectively. The decrease was driven by the effect of purchase accounting adjustments, offset partially by the revenue earned for Best of programming, increased rates on multi-subscription packages and internet subscriptions. |
We expect ARPU to fluctuate based on the growth of our subscriber base, promotions, rebates
offered to subscribers and corresponding take-rates, plan mix, subscription prices, advertising
sales and the identification of additional revenue from subscribers.
SAC, As Adjusted, Per Gross Subscriber Addition. SAC, as adjusted, per gross subscriber
addition is derived from subscriber acquisition costs and margins from the direct sale of radios
and accessories, excluding share-based payment expense, divided by the number of gross subscriber
additions for the period. See accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $41 and $61, respectively. The decrease was primarily driven by the effect of purchase price accounting adjustments, lower aftermarket inventory settlements, lower OEM subsidies and improved equipment margins. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $34 and $66, respectively. The decrease was primarily driven by the effect of purchase price accounting adjustments, lower aftermarket inventory settlements, lower OEM subsidies and improved equipment margins. |
We expect SAC, as adjusted, per gross subscriber addition to decline as the costs of
subsidized components of XM radios decrease in the future. Our SAC, as adjusted, per gross
subscriber addition will continue to be impacted by changes in our mix of OEM and retail additions.
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Table of Contents
Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber. Customer service
and billing expenses, as adjusted, per subscriber is derived from total customer service and
billing expenses, excluding share-based payment expense, divided by the number of months in the
period, divided by the daily weighted average number of subscribers for the period. See
accompanying footnotes for more details.
| Three Months: For the three months ended September 30, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.06 and $1.21, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.09 and $1.23, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses. |
We expect customer service and billing expenses, as adjusted, per average subscriber to
decrease on an annual basis as our subscriber base grows due to scale efficiencies in our call
centers and other customer care and billing operations.
Adjusted Income (Loss) from Operations. We refer to net loss before interest and investment
income, interest expense net of amounts capitalized, income tax expense, gain (loss) on change in
value of embedded derivative, loss on extinguishment of debt and credit facilities, net, loss on
investments, other expense (income), restructuring, impairments and related cost, depreciation and
amortization, and share related payment expense as adjusted income (loss) from operations.
| Three Months: For the three months ended September 30, 2009 and 2008, our adjusted income (loss) from operations was $118,870 and ($16,712), respectively, an increase of $135,582. The increase was primarily driven by improvements in each operating expense area, excluding restructuring, impairments and related cost, depreciation and amortization, impairment of goodwill and share-based payment expense, totaling $110,416 and an increase in total revenue of $25,166. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, our adjusted income (loss) from operations was $317,982 and ($84,742), respectively, an increase of $402,724. The increase was primarily driven by improvements in each operating expense area, excluding restructuring, impairments and related cost, depreciation and amortization, impairment of goodwill and share-based payment expense, totaling $394,983 and an increase in total revenue of $7,741. |
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Table of Contents
Unaudited Actual Results of Operations. As a result of the consummation of the Merger, the
financial results have been presented separately for the three months ended September 30, 2008 for
the Predecessor Entity for the period July 1, 2008 through July 31, 2008 and for the Successor
Entity for the period August 1, 2008 through September 30, 2008 and for the nine months ended
September 30, 2008 for the Predecessor Entity for the period January 1, 2008 through July 31,
2008 and for the Successor Entity for the period August 1, 2008 through September 30, 2008. For
comparative purposes, we combined the Predecessor Entity and Successor Entity periods above in
our discussion of the three and nine months ended September 30, 2009 and September 30, 2008 below,
as we believe this combination is useful to provide the reader a more accurate comparison. This
combination is not a U.S. GAAP measure and it is provided to enhance the readers understanding of
the results of operations for the periods presented. See footnote 14 (pages 56 to 57) for a
reconciliation of net loss to adjusted income (loss) from operations.
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Revenue: |
||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 304,714 | $ | 884,038 | $ | 278,717 | $ | 853,903 | ||||||||
Advertising revenue, net of agency fees |
4,147 | 13,475 | 8,358 | 27,908 | ||||||||||||
Equipment revenue |
5,657 | 17,681 | 4,936 | 16,748 | ||||||||||||
Other revenue |
10,955 | 19,344 | 8,296 | 28,238 | ||||||||||||
Total revenue |
325,473 | 934,538 | 300,307 | 926,797 | ||||||||||||
Operating expenses: |
||||||||||||||||
Satellite and transmission |
11,484 | 36,952 | 19,102 | 59,024 | ||||||||||||
Programming and content |
27,811 | 84,353 | 34,037 | 135,202 | ||||||||||||
Revenue share and royalties |
46,976 | 142,997 | 62,737 | 205,145 | ||||||||||||
Customer service and billing |
31,064 | 96,168 | 36,068 | 106,766 | ||||||||||||
Cost of equipment |
5,142 | 12,049 | 7,426 | 25,033 | ||||||||||||
Sales and marketing |
26,055 | 84,565 | 46,219 | 155,005 | ||||||||||||
Subscriber acquisition costs |
35,049 | 83,524 | 60,848 | 201,565 | ||||||||||||
General and administrative |
25,216 | 91,689 | 52,424 | 135,659 | ||||||||||||
Engineering, design and development |
5,413 | 16,798 | 7,802 | 28,236 | ||||||||||||
Impairment of goodwill |
| | 5,026,838 | 5,026,838 | ||||||||||||
Depreciation and amortization |
41,587 | 146,462 | 45,448 | 123,369 | ||||||||||||
Restructuring, impairments and related costs |
3,029 | 29,614 | | | ||||||||||||
Total operating expenses |
258,826 | 825,171 | 5,398,949 | 6,201,842 | ||||||||||||
Income (loss) from operations |
66,647 | 109,367 | (5,098,642 | ) | (5,275,045 | ) | ||||||||||
Other income (expense) |
||||||||||||||||
Interest and investment income |
729 | 1,848 | 4,557 | 6,976 | ||||||||||||
Interest expense, net of amounts capitalized |
(70,616 | ) | (226,935 | ) | (61,928 | ) | (121,735 | ) | ||||||||
Gain (loss) on change in value of embedded
derivatives |
(33,700 | ) | (111,703 | ) | 242,223 | 242,223 | ||||||||||
Loss on extinguishment of debt and credit
facilities, net |
(3,787 | ) | (111,863 | ) | | | ||||||||||
Loss on investments |
(2,870 | ) | (6,660 | ) | (7,549 | ) | (16,099 | ) | ||||||||
Other income (expense) |
1,324 | 2,548 | (4,069 | ) | (3,174 | ) | ||||||||||
Total other income (expense) |
(108,920 | ) | (452,765 | ) | 173,234 | 108,191 | ||||||||||
Loss before income taxes |
(42,273 | ) | (343,398 | ) | (4,925,408 | ) | (5,166,854 | ) | ||||||||
Income tax expense |
(578 | ) | (1,733 | ) | (1,180 | ) | (2,184 | ) | ||||||||
Net loss |
(42,851 | ) | (345,131 | ) | (4,926,588 | ) | (5,169,038 | ) | ||||||||
Add: net loss attributable to noncontrolling interests |
| | (1,053 | ) | (7,443 | ) | ||||||||||
Net loss XM Satellite Radio Holdings
Inc. and Subsidiaries |
$ | (42,851 | ) | $ | (345,131 | ) | $ | (4,927,641 | ) | $ | (5,176,481 | ) | ||||
Three and Nine Months Ended September 30, 2009 Compared with Three and Nine Months Ended
September 30, 2008 Actual
Total Revenue
Subscriber Revenue. Subscriber revenue includes subscription fees, activation fees and the
effects of rebates.
| Three Months: For the three months ended September 30, 2009 and 2008, subscriber revenue was $304,714 and $278,717, respectively, an increase of 9% or $25,997. The increase was attributable to the sale of Best of programming and increased internet and multi-subscription rates. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, subscriber revenue was $884,038 and $853,903, respectively, an increase of 4% or $30,135. The increase was attributable to the sale of Best of programming, increased internet and multi-subscription rates and higher average subscribers, offset partially by the effect from purchase price accounting adjustments. |
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The following table contains a breakdown of our subscriber revenue for the periods presented:
Successor Entity | Predecessor Entity | ||||||||||||||||||||
Three Months | Nine Months | August 1, 2008 | July 1, 2008 | January 1, 2008 | |||||||||||||||||
Ended | Ended | Through | Through | Through | |||||||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | July 31, 2008 | July 31, 2008 | |||||||||||||||||
Subscription fees |
$ | 303,785 | $ | 881,860 | $ | 183,144 | $ | 94,074 | $ | 659,775 | |||||||||||
Activation fees |
963 | 2,351 | 48 | 1,667 | 11,855 | ||||||||||||||||
Effect of rebates |
(34 | ) | (173 | ) | (159 | ) | (57 | ) | (760 | ) | |||||||||||
Total subscriber
revenue |
$ | 304,714 | $ | 884,038 | $ | 183,033 | $ | 95,684 | $ | 670,870 | |||||||||||
Future subscriber revenue will be dependent upon, among other things, the growth of our
subscriber base, promotions, rebates offered to subscribers and corresponding take-rates, plan mix,
subscription prices and the identification of additional revenue streams from subscribers.
Advertising Revenue. Advertising revenue includes the sale of advertising on our non-music
channels, net of agency fees. Agency fees are based on a contractual rate applied to gross billing
revenue.
| Three Months: For the three months ended September 30, 2009 and 2008, net advertising revenue was $4,147 and $8,358, respectively, which represents a decrease of 50% or $4,211. The decrease was driven by the current economic environment. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, net advertising revenue was $13,475 and $27,908, respectively, which represents a decrease of 52% or $14,433. The decrease was driven by the current economic environment. |
Our advertising revenue is subject to fluctuation based on the national economic environment.
We believe general economic conditions have negatively affected our advertising revenue in
recent quarters. We expect advertising revenue to grow as our subscribers increase, as we continue
to improve brand awareness and content, and as we increase the size and effectiveness of our
advertising sales force.
Equipment Revenue. Equipment revenue includes revenue and royalties from the sale of radios,
components and accessories.
| Three Months: For the three months ended September 30, 2009 and 2008, equipment revenue was $5,657 and $4,936, respectively, an increase of 15% or $721. The increase was primarily due to an increase in royalties partially offset by a decrease in the number of radios sold through our direct to consumer distribution channel. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, equipment revenue was $17,681 and $16,748, respectively, an increase of 6% or $933. The increase was primarily due to an increase in royalties partially offset by a decrease in the number of radios sold through our direct to consumer distribution channel. |
We expect equipment revenue to increase as we introduce new products and as sales grow through
our direct to consumer distribution channel.
Other Revenue. Other revenue consists primarily of revenue related to various agreements with
XM Canada, as well as other miscellaneous revenue that includes content licensing fees, technology
licensing fees and billing fees.
| Three Months: For the three months ended September 30, 2009 and 2008, other revenue was $10,955 and $8,296, respectively, an increase of 32% or $2,659. The increase was primarily due to the U.S. Music Royalty Fee introduced this quarter, offset partially by the effect of purchase price accounting and decreases in content licensing fees and recording revenue. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, other revenue was $19,344 and $28,238, respectively, a decrease of 31% or $8,894. The decrease was primarily due to the effect of purchase price accounting and decreases in content licensing fees and recording revenue, partially offset by the U.S. Music Royalty Fee introduced this quarter. |
Future other revenue will be dependent upon, among other things, the growth of subscriber
base, new content and technology agreements and the development of other sources of revenue.
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Operating Expenses
Satellite and Transmission. Satellite and transmission expenses consist of costs associated
with the operation and maintenance of our satellites; satellite telemetry, tracking and control
system; terrestrial repeater network; satellite uplink facility; and broadcast studios.
| Three Months: For the three months ended September 30, 2009 and 2008, satellite and transmission expenses were $11,484 and $19,102, respectively, a decrease of 40% or $7,618. The decrease was primarily due to lower maintenance and repeater network expenses as well as lower personnel costs. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, satellite and transmission expenses were $36,952 and $59,024, respectively, a decrease of 37% or $22,072. The decrease was primarily due to lower maintenance and repeater network expenses as well as lower personnel costs. |
We expect satellite and transmission expenses, excluding share-based payment expense, to
increase as we add to our in-orbit satellite fleet.
Programming and Content. Programming and content expenses include costs to acquire, create and
produce content and on-air talent costs. We have entered into various agreements with third parties
for music and non-music programming that require us to pay license fees, share advertising revenue,
purchase advertising on media properties owned or controlled by the licensor and pay other
guaranteed amounts. Purchased advertising is recorded as a sales and marketing expense and the cost
of sharing advertising revenue is recorded as Revenue share and royalties in the period the
advertising is broadcast.
| Three Months: For the three months ended September 30, 2009 and 2008, programming and content expenses were $27,811 and $34,037, respectively, a decrease of 18% or $6,226. The decrease was primarily attributable to the lower costs recognized subsequent to the Merger due to the impact of purchase price accounting adjustments, reductions in personnel and on-air talent costs, as well as savings on various content agreements. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, programming and content expenses were $84,353 and $135,202, respectively, a decrease of 38% or $50,849. The decrease was primarily attributable to the lower costs recognized subsequent to the Merger due to the impact of purchase price accounting adjustments, reductions in personnel and on-air talent costs, as well as savings on various content agreements. |
Our programming and content expenses, excluding share-based payment expenses, are expected to
decrease as a result of the Merger, as we reduce duplicate programming and content costs.
Revenue Share and Royalties. Revenue share and royalties include distribution and content
provider revenue share, residuals and broadcast and web streaming royalties. Residuals are monthly
fees paid based upon the number of subscribers using radios purchased from retailers. Advertising
revenue share is recorded to revenue share and royalties in the period the advertising is
broadcast.
| Three Months: For the three months ended September 30, 2009 and 2008, revenue share and royalties were $46,976 and $62,737, respectively, a decrease of 25% or $15,761. This decrease was primarily attributable to the effect of purchase price accounting, offset by an increase in our revenues and an increase in the statutory royalty rate due for the performance of sound recordings. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, revenue share and royalties were $142,997 and $205,145, respectively, a decrease of 30% or $62,148. This decrease was primarily attributable to the effect of purchase price accounting, offset by an increase in our revenues and an increase in the statutory royalty rate due for the performance of sound recordings. |
We expect these costs to increase as our revenues grow, as we expand our distribution of
radios through automakers and retailers, and as a result of increases
in the royalty for the performance of sound
recordings.
Customer Service and Billing. Customer service and billing expenses include costs associated
with the operation of our customer service centers and subscriber management system as well as bad
debt expense.
| Three Months: For the three months ended September 30, 2009 and 2008, customer service and billing expenses were $31,064 and $36,068, respectively, a decrease of 14% or $5,004. The decline was primarily due to decreases in personnel costs and customer call center expenses. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, customer service and billing expenses were $96,168 and $106,766, respectively, a decrease of 10% or $10,598. The decline was primarily due to decreases in personnel costs and customer call center expenses. |
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We expect our customer care and billing expenses to decrease on a per subscriber basis, but
increase overall as our subscriber base grows due to increased call center operating costs,
transaction fees and bad debt expense.
Cost of Equipment. Cost of equipment includes costs from the sale of our radios, components
and accessories.
| Three Months: For the three months ended September 30, 2009 and 2008, cost of equipment was $5,142 and $7,426, respectively, a decrease of 31% or $2,284. The decrease was primarily attributed to fewer radios sold through our direct to consumer distribution channel and lower inventory related charges for obsolescence. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, cost of equipment was $12,049 and $25,033, respectively, a decrease of 52% or $12,984. The decrease was primarily attributed to fewer radios sold through our direct to consumer distribution channel and lower inventory related charges for obsolescence. |
We expect cost of equipment to vary in the future with changes in sales through our direct to
consumer distribution channel.
Sales and Marketing. Sales and marketing expenses include costs for advertising, media and
production, including promotional events and sponsorships; cooperative marketing; customer
retention and compensation. Cooperative marketing costs include fixed and variable payments to
reimburse retailers and automakers for the cost of advertising and other product awareness
activities.
| Three Months: For the three months ended September 30, 2009 and 2008, sales and marketing expenses were $26,055 and $46,219, respectively, a decrease of 44% or $20,164. This decrease was primarily attributable to lower consumer advertising, reduced cooperative marketing spend with our distributors, reduced personnel costs and the effect of purchase price accounting. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, sales and marketing expenses were $84,565 and $155,005, respectively, a decrease of 45% or $70,440. This decrease was primarily attributable to lower consumer advertising, reduced cooperative marketing spend with our distributors, reduced personnel costs and the effect of purchase price accounting. |
We expect sales and marketing expenses, excluding share-based payment expense, to decrease as
we consolidate our advertising and promotional activities with SIRIUS, gain efficiencies in
marketing management and eliminate overlapping distribution support costs.
Subscriber Acquisition Costs. Subscriber acquisition costs include hardware subsidies paid to
radio manufacturers, distributors and automakers, including subsidies paid to automakers who
include our radio and a prepaid subscription to our service in the sale or lease price of a new
vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios;
commissions paid to retailers and automakers as incentives to purchase, install and activate our
radios; product warranty obligations; and compensation costs associated with stock-based awards
granted in connection with certain distribution agreements. The majority of subscriber acquisition
costs are incurred and expensed in advance or concurrent with acquiring a subscriber. Subscriber
acquisition costs do not include advertising, loyalty payments to distributors and dealers of our
radios and revenue share payments to automakers and retailers of our radios.
| Three Months: For the three months ended September 30, 2009 and 2008, subscriber acquisition costs were $35,049 and $60,848, respectively, a decrease of 42% or $25,799. This decrease was primarily driven by purchase price accounting adjustments associated with the Merger, lower aftermarket inventory settlements, lower retail and OEM subsidies due to better product economics and fewer OEM installations due to the weakening automotive market. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, subscriber acquisition costs were $83,524 and $201,565, respectively, a decrease of 59% or $118,041. This decrease was primarily driven by purchase price accounting adjustments associated with the Merger, lower aftermarket inventory settlements, lower retail and OEM subsidies due to better product economics and fewer OEM installations due to the weakening automotive market. |
We expect total subscriber acquisition costs to fluctuate as increases or decreases in our
gross subscriber additions are accompanied by continuing declines in the costs of subsidized
components of our radios. We intend to continue to offer subsidies, commissions and other
incentives to acquire subscribers.
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General and Administrative. General and administrative expenses include rent and occupancy,
finance, legal, human resources, information technology and investor relations costs.
| Three Months: For the three months ended September 30, 2009 and 2008, general and administrative expenses were $25,216 and $52,424, respectively, a decrease of 52% or $27,208. This decrease was the result of lower costs for certain Merger, litigation and regulatory matters. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, general and administrative expenses were $91,689 and $135,659, respectively, a decrease of 32% or $43,970. This decrease was the result of lower costs for certain Merger, litigation and regulatory matters. |
We expect total general and administrative expenses, excluding share-based payment expense, to
decrease in future periods as we gain efficiencies in staff, facilities, and information technology
costs.
Engineering, Design and Development. Engineering, design and development expenses include
costs to develop our future generation of chip sets and new products, research and development for
broadcast information, and costs associated with the incorporation of radios into vehicles
manufactured by automakers.
| Three Months: For the three months ended September 30, 2009 and 2008, engineering, design and development expenses were $5,413 and $7,802, respectively, a decrease of 31% or $2,389. This decrease was primarily attributable to reduced OEM and product development costs and personnel costs. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, engineering, design and development expenses were $16,798 and $28,236, respectively, a decrease of 41% or $11,438. This decrease was primarily attributable to reduced OEM and product development costs and personnel costs. |
We expect engineering, design and development expenses, excluding share-based payment expense,
to increase in future periods as we increase development of our next generation chipsets.
Other Income (Expense)
Interest and Investment Income. Interest and investment income includes realized gains and
losses, dividends and interest income, including amortization of the premium and discount arising
at purchase.
| Three Months: For the three months ended September 30, 2009 and 2008, interest and investment income was $729 and $4,557, respectively, a decrease of 84% or $3,828. The decrease was primarily attributable to a lower average cash balance and lower interest rates in 2009. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, interest and investment income was $1,848 and $6,976, respectively, a decrease of 74% or $5,128. The decrease was primarily attributable to a lower average cash balance and lower interest rates in 2009. |
Interest Expense. Interest expense includes interest on outstanding debt, reduced by interest
capitalized in connection with the construction of our new satellite and launch vehicle.
| Three Months: For the three months ended September 30, 2009 and 2008, interest expense was $70,616 and $61,928, respectively, an increase of 14% or $8,688. Interest expense increased significantly due to the additional debt issuances in July and August 2008 as a result of the Merger, the financing transactions in February and March 2009, and the impact of the purchase price adjustments which set the existing debt at fair value and caused interest expense to increase. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, interest expense was $226,935 and $121,735, respectively, an increase of 86%, or $105,200. Interest expense increased significantly due to the additional debt issuances in July and August 2008 as a result of the Merger, the financing transactions in February and March 2009, and the impact of the purchase price adjustments which set the existing debt at fair value and caused interest expense to increase. |
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Gain (loss) on change in value of embedded derivative. We are required to account for the
conversion feature of our exchangeable debt, which is exchangeable into SIRIUS common stock,
separately and recognize the changes in the fair value of these embedded derivatives in earnings.
The fair value of the derivative will be impacted by the value of the underlying SIRIUS common
shares.
| Three Months: For the three months ended September 30, 2009, we recorded a loss on change in value of embedded derivative of $33,700, and for the three months ended September 30, 2008, we recorded a gain on change in value of embedded derivative of $242,223. As a result of the Merger, we recorded derivative liabilities reflecting the fair value of the embedded derivative as of the Merger date. Subsequent to July 28, 2008, the SIRIUS stock price decreased significantly resulting in a decreased fair value and a gain on the change in value of the derivative. During the three months ended September 30, 2009, the SIRIUS stock price increased resulting in an increased fair value and a loss on the change in value of the derivative. |
| Nine Months: For the nine months ended September 30, 2009, we recorded a loss on change in value of embedded derivative of $111,703, and for the nine months ended September 30, 2008, we recorded a gain on change in value of embedded derivative of $242,223. As a result of the Merger, we recorded derivative liabilities reflecting the fair value of the embedded derivative as of the Merger date. Subsequent to July 28, 2008, the SIRIUS stock price decreased significantly resulting in a decreased fair value and a gain on the change in value of the derivative. During the nine months ended September 30, 2009, the SIRIUS stock price increased resulting in an increased fair value and a loss on the change in value of the derivative. |
Loss on extinguishment of debt and credit facilities, net. Loss on extinguishment of debt and
credit facilities, net includes losses incurred as a result of the conversion of certain of our
debt instruments.
| Three Months: For the three months ended September 30, 2009 and 2008, Loss on extinguishment of debt and credit facilities, net was $3,787 and $0, respectively. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, Loss on extinguishment of debt and credit facilities, net was $111,863 and $0, respectively. |
Gain (loss) on investments. Gain (loss) on investments includes our share of XM Canadas net
losses and losses recorded from our investment in XM Canada when the decrease in fair value was
determined to be other than temporary.
| Three Months: For the three months ended September 30, 2009 and 2008, loss on investments was $2,870 and $7,549, respectively, a decrease of 62% or $4,679. The decrease was primarily attributable to a decrease in our share of XM Canadas net loss for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. |
| Nine Months: For the nine months ended September 30, 2009 and 2008, loss on investments was $6,660 and $16,099, respectively, a decrease of 59% or $9,439. The decrease was primarily attributable to the inclusion of our share of XM Canadas net income for the nine months ended September 30, 2009, net of impairments versus our share of XM Canadas net loss for the nine months ended September 30, 2008. |
Income Taxes
Income Tax Expense. Income tax expense primarily represents the recognition of a deferred tax
liability related to the difference in accounting for our FCC license and trade name, which is
amortized over 15 years for tax purposes but not amortized for book purposes in accordance with
U.S. generally accepted accounting principles.
| Three Months: We recorded income tax expense of $578 and $1,180 for the three months ended September 30, 2009 and 2008, respectively. |
| Nine Months: We recorded income tax expense of $1,733 and $2,184 for the nine months ended September 30, 2009 and 2008, respectively. |
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Liquidity and Capital Resources
Cash Flows for the Nine Months Ended September 30, 2009 Compared with the Nine Months Ended
September 30, 2008
As of September 30, 2009 and 2008, we had $326,022 and $215,348, respectively, in cash and
cash equivalents and $206,740 as of December 31, 2008.
The following table presents a summary of our cash flow activity for the periods set forth
below.
Successor Entity | Predecessor Entity | Combined | |||||||||||||||||||
Nine Months | August 1, 2008 | January 1, 2008 | Nine Months | ||||||||||||||||||
Ended | Through | Through | Ended | ||||||||||||||||||
September 30, 2009 | September 30, 2008 | July 31, 2008 | September 30, 2008 | Variance | |||||||||||||||||
Net cash provided by (used in) operating
activities |
$ | 228,618 | $ | 5,603 | $ | (251,086 | ) | $ | (245,483 | ) | $ | 474,101 | |||||||||
Net cash (used in) provided by investing
activities |
(38,811 | ) | 17,507 | (65,668 | ) | (48,161 | ) | 9,350 | |||||||||||||
Net cash (used in) provided by financing
activities |
(70,525 | ) | (627,283 | ) | 979,589 | 352,306 | (422,831 | ) | |||||||||||||
Net increase in cash and cash equivalents |
119,282 | (604,173 | ) | 662,835 | 58,662 | 60,620 | |||||||||||||||
Cash and cash equivalents at beginning of
period |
206,740 | 819,521 | 156,686 | 156,686 | 50,054 | ||||||||||||||||
Cash and cash equivalents at end of period |
$ | 326,022 | $ | 215,348 | $ | 819,521 | $ | 215,348 | $ | 110,674 | |||||||||||
Cash Flows Provided by (Used in) Operating Activities
Net cash provided by operating activities increased $474,101 to $228,618 for the nine months
ended September 30, 2009 from net cash used in operating activities of $245,483 for the nine months
ended September 30, 2008. The increase was primarily the result of a decreased net loss, net of
non-cash operating activities of $231,217, and a decrease in cash used in other operating assets
and liabilities of $242,884.
Cash Flows Used in Investing Activities
Net cash used in investing activities decreased $9,350 to $38,811 for the nine months ended
September 30, 2009 from $48,161 for the nine months ended September 30, 2008. The decrease was
primarily the result of a decrease of $9,425 in net restricted and other investment activity.
We will incur significant capital expenditures to construct and launch our new satellites and
improve our terrestrial repeater network and broadcast and administrative infrastructure. These
capital expenditures will support our growth and the resiliency of our operations, and will also
support the delivery of future new revenue streams.
Cash Flows (Used in) Provided by Financing Activities
Net cash used in financing activities increased $422,831 to $70,525 for the nine months ended
September 30, 2009 from net cash provided by financing activities of $352,306 for the nine months
ended September 30, 2008. The increase in cash used in financing activities was primarily due to a
decrease of $1,074,854 in net proceeds from the issuance of debt, offset partially by a decrease in
debt payment of $580,036 and a decrease of $68,777 in payments to a minority interest holder.
Financings and Capital Requirements
We have historically financed our operations through the sale of debt and equity securities.
The Certificate of Designations for SIRIUS Series B Preferred Stock provides that so long as
Liberty beneficially owns at least half of its initial equity investment, we need the consent of
Liberty for certain actions, including the grant or issuance of SIRIUS equity securities and the
incurrence of debt in amounts greater than a stated threshold.
Future Liquidity and Capital Resource Requirements
Based upon our current plans we believe that we have sufficient cash, cash equivalents and
marketable securities to cover the estimated funding needs through cash flow breakeven, the point
at which revenues are sufficient to fund expected operating expenses, capital expenditures, working
capital requirements, interest payments and taxes. The ability to meet our debt and other
obligations depends on our future operating performance and on economic, financial, competitive and
other factors. We continually review our operations for opportunities to adjust the timing of
expenditures to ensure that sufficient resources are maintained. We have the ability and intend to
manage the timing and related expenditures of certain activities, including the launch of
satellites, the deferral of capital projects, as well as the deferral of other discretionary
expenses. Our financial projections are based on assumptions, which we believe are reasonable but
contain significant uncertainties. There can be no assurance that our plan will be successful.
We operate as unrestricted subsidiaries under the agreements governing SIRIUS existing
indebtedness. Under certain circumstances, SIRIUS may be unwilling or unable to contribute or loan
us capital to support our operations. To the extent our funds are insufficient to support our
business, we may be required to seek additional financing, which may not be available on favorable
terms, or at all. If we are unable to secure additional financing, our business and results of
operations may be adversely affected.
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We regularly evaluate our plans and strategy. These evaluations often result in changes to our
plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our plans or strategy may
include: the acquisition of unique or compelling programming; the introduction of new features or
services; significant new or enhanced distribution arrangements; investments in infrastructure,
such as satellites, equipment or radio spectrum; and acquisitions of third parties that own
programming, distribution, infrastructure, assets, or any combination of the foregoing. In
addition, our operations will also be affected by the FCC order approving the Merger which imposed
certain conditions upon, among other things, our program offerings and our ability to increase
prices. Our future liquidity also may be adversely affected by, among other things, the nature and
extent of the benefits we achieve as a wholly owned unrestricted subsidiary of SIRIUS.
Off-Balance Sheet Arrangements
We are required under the terms of certain agreements to deposit monies in escrow, which place
restrictions on our cash and cash equivalents. As of December 31, 2008, $120,000 was classified as
restricted investments as a result of obligations under escrow deposits. In February 2009, we
released to a programming provider $120,000 held in escrow in satisfaction of future obligations
under our agreement with them.
We do not have any significant off-balance sheet arrangements other than those disclosed in
Note 14 to our unaudited consolidated financial statements in Item 1 of this Form 10-Q that are
reasonably likely to have a material effect on our financial condition, results of operations,
liquidity, capital expenditures or capital resources.
Contractual Cash Commitments
For a discussion of our Contractual Cash Commitments refer to Note 14 to our unaudited
consolidated financial statements in Item 1 of this Form 10-Q.
Related Party Transactions
For a discussion of Related Party Transactions refer to Note 8 to our unaudited consolidated
financial statements in Item 1 of this Form 10-Q.
Critical Accounting Policies and Estimates
For a discussion of our Critical Accounting Policies and Estimates refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report
on Form 10-K for the year ended December 31, 2008 and Note 3 to our unaudited consolidated
financial statements in Item 1 of this Form 10-Q.
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Footnotes to Results of Operations
(1) | Average self-pay monthly churn represents the monthly average of self-pay deactivations by the quarter divided by the average self-pay subscriber balance for the quarter. | |
(2) | We measure the percentage of subscribers that receive our service and convert to self-paying after the initial promotion period. We refer to this as the conversion rate. At the time of sale, vehicle owners generally receive a three month prepaid trial subscription and we receive a subscription fee from the OEM. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends. Based on our experience it may take up to 90 days after the trial service ends for subscribers to respond to our marketing communications and become self-paying subscribers. | |
(3) | ARPU is derived from total earned subscriber revenue and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. ARPU is calculated as follows (in thousands, except for per subscriber amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Subscriber revenue |
$ | 313,852 | $ | 925,060 | $ | 297,151 | $ | 872,337 | ||||||||
Net advertising revenue |
4,147 | 13,475 | 8,358 | 27,908 | ||||||||||||
Total subscriber and net advertising
revenue |
$ | 317,999 | $ | 938,535 | $ | 305,509 | $ | 900,245 | ||||||||
Daily weighted average number of subscribers |
9,691,620 | 9,682,252 | 9,779,397 | 9,481,219 | ||||||||||||
ARPU |
$ | 10.94 | $ | 10.77 | $ | 10.41 | $ | 10.55 |
(4) | SAC, as adjusted, per gross subscriber addition is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense, divided by the number of gross subscriber additions for the period. SAC, as adjusted, per gross subscriber addition is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Subscriber acquisition cost |
$ | 54,379 | $ | 126,833 | $ | 73,343 | $ | 214,060 | ||||||||
Less: share-based payment expense granted
to third parties and employees |
| | | | ||||||||||||
Less/Add: margin from direct sales of radios
and accessories |
(515 | ) | (5,632 | ) | 2,490 | 8,285 | ||||||||||
SAC, as adjusted |
$ | 53,864 | $ | 121,201 | $ | 75,833 | $ | 222,345 | ||||||||
Gross subscriber additions |
833,684 | 2,289,360 | 1,041,242 | 3,161,844 | ||||||||||||
SAC, as adjusted, per gross subscriber
addition |
$ | 65 | $ | 53 | $ | 73 | $ | 70 |
(5) | Customer service and billing expenses, as adjusted, per average subscriber is derived from total customer service and billing expenses, excluding share-based payment expense, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Customer service and billing expenses, as adjusted, per average subscriber is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Customer service and billing expenses |
$ | 31,179 | $ | 96,526 | $ | 36,173 | $ | 106,871 | ||||||||
Less: share-based payment expense |
(460 | ) | (1,436 | ) | (665 | ) | (2,306 | ) | ||||||||
Customer service and billing expenses, as
adjusted |
$ | 30,719 | $ | 95,090 | $ | 35,508 | $ | 104,565 | ||||||||
Daily weighted average number of subscribers |
9,691,620 | 9,682,252 | 9,779,397 | 9,481,219 | ||||||||||||
Customer service and billing expenses, as
adjusted,
per average subscriber |
$ | 1.06 | $ | 1.09 | $ | 1.21 | $ | 1.23 |
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(6) | Free cash flow is calculated as follows (in thousands): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Net cash provided by (used in)
operating activities |
$ | 127,214 | $ | 228,618 | $ | (10,469 | ) | $ | (245,483 | ) | ||||||
Additions to property and equipment |
(34,690 | ) | (38,811 | ) | (11,289 | ) | (38,736 | ) | ||||||||
Restricted and other investment activity |
| | | 25 | ||||||||||||
Free cash flow |
$ | 92,524 | $ | 189,807 | $ | (21,758 | ) | $ | (284,194 | ) | ||||||
(7) | Average self-pay monthly churn; conversion rate; ARPU; SAC, as adjusted, per gross subscriber addition; customer service and billing expenses, as adjusted, per average subscriber; and free cash flow are not measures of financial performance under U.S. generally accepted accounting principles (GAAP). We believe these non-GAAP financial measures provide meaningful supplemental information regarding our operating performance and are used by us for budgetary and planning purposes; when publicly providing our business outlook; as a means to evaluate period-to-period comparisons; and to compare our performance to that of our competitors. We believe that investors also use our current and projected metrics to monitor the performance of our business and to make investment decisions. | |
We believe the exclusion of share-based payment expense in our calculations of SAC, as adjusted, per gross subscriber addition and customer service and billing expenses, as adjusted, per average subscriber is useful given the significant variation in expense that can result from changes in the fair market value of SIRIUS common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our subscriber acquisition costs and customer service and billing expenses. Specifically, the exclusion of share-based payment expense in our calculation of SAC, as adjusted, per gross subscriber addition is critical in being able to understand the economic impact of the direct costs incurred to acquire a subscriber and the effect over time as economies of scale are reached. | ||
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. | ||
(8) | We refer to net loss before interest and investment income; interest expense net of amounts capitalized; income tax expense; loss from redemption of debt; loss on investments; other expense (income); restructuring, impairments and related costs; depreciation and amortization; and share related payment expense as adjusted income (loss) from operations. Adjusted income (loss) from operations is not a measure of financial performance under U.S. GAAP. We believe adjusted income (loss) from operations is a useful measure of our operating performance. We use adjusted income (loss) from operations for budgetary and planning purposes; to assess the relative profitability and on-going performance of our consolidated operations; to compare our performance from period-to-period; and to compare our performance to that of our competitors. We also believe adjusted income (loss) from operations is useful to investors to compare our operating performance to the performance of other communications, entertainment and media companies. We believe that investors use current and projected adjusted income (loss) from operations to estimate our current or prospective enterprise value and to make investment decisions. | |
Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for interest and depreciation expense. We believe adjusted income (loss) from operations provides useful information about the operating performance of our business apart from the costs associated with our capital structure and physical plant. The exclusion of interest and depreciation and amortization expense is useful given fluctuations in interest rates and significant variation in depreciation and amortization expense that can result from the amount and timing of capital expenditures and potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of taxes is appropriate for comparability purposes as the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. We believe the exclusion of restructuring, impairments and related costs is useful given the non-recurring nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair market value of Sirius common stock. To compensate for the exclusion of taxes, other (expense) income, depreciation and amortization and share-based payment expense, we separately measure and budget for these items. |
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There are material limitations associated with the use of adjusted income (loss) from operations in evaluating our company compared with net loss, which reflects overall financial performance, including the effects of taxes, other income (expense), depreciation and amortization, restructuring, impairments and related costs and share-based payment expense. We use adjusted income (loss) from operations to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net loss as disclosed in our unaudited consolidated statements of operations. Since adjusted income (loss) from operations is a non-GAAP financial measure, our calculation of adjusted income (loss) from operations may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. | ||
The reconciliation of the pro forma unadjusted net loss to the pro forma adjusted income (loss) from operations is calculated as follows (see footnotes for reconciliation of the pro forma amounts to their respective GAAP amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
(in thousands) | September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | ||||||||||||
Reconciliation of Net loss to Adjusted income (loss) from
operations: |
||||||||||||||||
Net loss |
$ | (26,303 | ) | $ | (242,382 | ) | $ | (141,905 | ) | $ | (384,355 | ) | ||||
Add back Net loss items excluded from Adjusted income
(loss) from
operations: |
||||||||||||||||
Interest and investment income |
(729 | ) | (1,848 | ) | (4,557 | ) | (6,976 | ) | ||||||||
Interest expense, net of amounts capitalized |
58,203 | 191,371 | 53,843 | 113,650 | ||||||||||||
Income tax expense |
578 | 1,733 | 1,180 | 2,184 | ||||||||||||
Loss on extinguishment of debt and credit facilities, net |
3,787 | 111,863 | | | ||||||||||||
Loss on investments |
2,870 | 6,660 | 7,549 | 16,099 | ||||||||||||
Other (income) expense |
(1,324 | ) | (2,548 | ) | 4,069 | 3,174 | ||||||||||
Income (loss) from operations |
37,082 | 64,849 | (79,821 | ) | (256,224 | ) | ||||||||||
Restructuring, impairments and related costs |
3,029 | 29,614 | | | ||||||||||||
Depreciation and amortization |
17,484 | 60,434 | 31,957 | 109,878 | ||||||||||||
Share-based payment expense |
8,732 | 36,287 | 11,415 | 41,867 | ||||||||||||
Adjusted income (loss) from operations |
$ | 66,327 | $ | 191,184 | $ | (36,449 | ) | $ | (104,479 | ) | ||||||
There are material limitations associated with the use of a pro forma unadjusted results of operations in evaluating our company compared with our GAAP Results of operations, which reflects overall financial performance. We use pro forma unadjusted results of operations to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to Results of operations as disclosed in our unaudited consolidated statements of operations. Since pro forma unadjusted results of operations is a non-GAAP financial measure, our calculations may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. |
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(9) | The following tables reconcile our GAAP Results of operations to our non-GAAP pro forma unadjusted results of operations: |
Unaudited For the Three Months Ended September 30, 2009 | ||||||||||||||||
Purchase Price | Allocation of | |||||||||||||||
Accounting | Share-based Payment | |||||||||||||||
As Reported | Adjustments | Expense | Pro Forma | |||||||||||||
Revenue: |
||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 304,714 | $ | 9,138 | $ | | $ | 313,852 | ||||||||
Advertising revenue, net of agency fees |
4,147 | | | 4,147 | ||||||||||||
Equipment revenue |
5,657 | | | 5,657 | ||||||||||||
Other revenue |
10,955 | 1,813 | | 12,768 | ||||||||||||
Total revenue |
325,473 | 10,951 | | 336,424 | ||||||||||||
Operating expenses (excludes depreciation and
amortization
shown separately below) (1) |
||||||||||||||||
Cost of services: |
||||||||||||||||
Satellite and transmission |
11,484 | 331 | (384 | ) | 11,431 | |||||||||||
Programming and content |
27,811 | 18,117 | (1,024 | ) | 44,904 | |||||||||||
Revenue share and royalties |
46,976 | 22,973 | | 69,949 | ||||||||||||
Customer service and billing |
31,064 | 115 | (460 | ) | 30,719 | |||||||||||
Cost of equipment |
5,142 | | | 5,142 | ||||||||||||
Sales and marketing |
26,055 | 3,155 | (1,397 | ) | 27,813 | |||||||||||
Subscriber acquisition costs |
35,049 | 19,330 | | 54,379 | ||||||||||||
General and administrative |
25,216 | 374 | (4,729 | ) | 20,861 | |||||||||||
Engineering, design and development |
5,413 | 224 | (738 | ) | 4,899 | |||||||||||
Depreciation and amortization |
41,587 | (24,103 | ) | | 17,484 | |||||||||||
Share-based payment expense |
| | 8,732 | 8,732 | ||||||||||||
Restructuring, impairments and related costs |
3,029 | | | 3,029 | ||||||||||||
Total operating expenses |
258,826 | 40,516 | | 299,342 | ||||||||||||
Income (loss) from operations |
66,647 | (29,565 | ) | | 37,082 | |||||||||||
Other income (expense) |
||||||||||||||||
Interest and investment income |
729 | | | 729 | ||||||||||||
Interest expense, net of amounts capitalized |
(70,616 | ) | 12,413 | | (58,203 | ) | ||||||||||
Gain (loss) on change in value of embedded
derivatives |
(33,700 | ) | 33,700 | | | |||||||||||
Loss on extinguishment of debt and credit
facilities, net |
(3,787 | ) | | | (3,787 | ) | ||||||||||
Loss on investments |
(2,870 | ) | | | (2,870 | ) | ||||||||||
Other income |
1,324 | | | 1,324 | ||||||||||||
Total other income (expense) |
(108,920 | ) | 46,113 | | (62,807 | ) | ||||||||||
Loss before income taxes |
(42,273 | ) | 16,548 | | (25,725 | ) | ||||||||||
Income tax expense |
(578 | ) | | | (578 | ) | ||||||||||
Net loss |
(42,851 | ) | 16,548 | | (26,303 | ) | ||||||||||
Add: net loss attributable to noncontrolling interests |
| | | | ||||||||||||
Net loss XM Satellite Radio Holdings Inc. and Subsidiaries |
$ | (42,851 | ) | $ | 16,548 | $ | | $ | (26,303 | ) | ||||||
(1) Amounts related to share-based payment expense
included in operating expenses were as follows: |
||||||||||||||||
Satellite and transmission |
$ | 273 | $ | 111 | $ | | $ | 384 | ||||||||
Programming and content |
859 | 165 | | 1,024 | ||||||||||||
Customer service and billing |
345 | 115 | | 460 | ||||||||||||
Sales and marketing |
1,261 | 136 | | 1,397 | ||||||||||||
Subscriber acquisition costs |
| | | | ||||||||||||
General and administrative |
4,355 | 374 | | 4,729 | ||||||||||||
Engineering, design and development |
514 | 224 | | 738 | ||||||||||||
Total share-based payment expense |
$ | 7,607 | $ | 1,125 | $ | | $ | 8,732 | ||||||||
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Table of Contents
Unaudited For the Nine Months Ended September 30, 2009 | ||||||||||||||||
Purchase Price | Allocation of | |||||||||||||||
Accounting | Share-based Payment | |||||||||||||||
As Reported | Adjustments | Expense | Pro Forma | |||||||||||||
Revenue: |
||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 884,038 | $ | 41,022 | $ | | $ | 925,060 | ||||||||
Advertising revenue, net of agency fees |
13,475 | | | 13,475 | ||||||||||||
Equipment revenue |
17,681 | | | 17,681 | ||||||||||||
Other revenue |
19,344 | 5,438 | | 24,782 | ||||||||||||
Total revenue |
934,538 | 46,460 | | 980,998 | ||||||||||||
Operating expenses (excludes depreciation and
amortization
shown separately below) (1) |
||||||||||||||||
Cost of services: |
||||||||||||||||
Satellite and transmission |
36,952 | 1,013 | (1,424 | ) | 36,541 | |||||||||||
Programming and content |
84,353 | 54,708 | (3,869 | ) | 135,192 | |||||||||||
Revenue share and royalties |
142,997 | 65,608 | | 208,605 | ||||||||||||
Customer service and billing |
96,168 | 358 | (1,436 | ) | 95,090 | |||||||||||
Cost of equipment |
12,049 | | | 12,049 | ||||||||||||
Sales and marketing |
84,565 | 9,986 | (4,375 | ) | 90,176 | |||||||||||
Subscriber acquisition costs |
83,524 | 43,309 | | 126,833 | ||||||||||||
General and administrative |
91,689 | 1,252 | (22,374 | ) | 70,567 | |||||||||||
Engineering, design and development |
16,798 | 772 | (2,809 | ) | 14,761 | |||||||||||
Depreciation and amortization |
146,462 | (86,028 | ) | | 60,434 | |||||||||||
Share-based payment expense |
| | 36,287 | 36,287 | ||||||||||||
Restructuring, impairments and related costs |
29,614 | | | 29,614 | ||||||||||||
Total operating expenses |
825,171 | 90,978 | | 916,149 | ||||||||||||
Income (loss) from operations |
109,367 | (44,518 | ) | | 64,849 | |||||||||||
Other income (expense) |
||||||||||||||||
Interest and investment income |
1,848 | | | 1,848 | ||||||||||||
Interest expense, net of amounts capitalized |
(226,935 | ) | 35,564 | | (191,371 | ) | ||||||||||
Gain (loss) on change in value of embedded
derivatives |
(111,703 | ) | 111,703 | | | |||||||||||
Loss on extinguishment of debt and credit
facilities, net |
(111,863 | ) | | | (111,863 | ) | ||||||||||
Loss on investments |
(6,660 | ) | | | (6,660 | ) | ||||||||||
Other income |
2,548 | | | 2,548 | ||||||||||||
Total other income (expense) |
(452,765 | ) | 147,267 | | (305,498 | ) | ||||||||||
Loss before income taxes |
(343,398 | ) | 102,749 | | (240,649 | ) | ||||||||||
Income tax expense |
(1,733 | ) | | | (1,733 | ) | ||||||||||
Net loss |
(345,131 | ) | 102,749 | | (242,382 | ) | ||||||||||
Add: net loss attributable to noncontrolling interests |
| | | | ||||||||||||
Net loss XM Satellite Radio Holdings Inc. and Subsidiaries |
$ | (345,131 | ) | $ | 102,749 | $ | | $ | (242,382 | ) | ||||||
(1) Amounts related to share-based payment expense
included in operating expenses were as follows: |
||||||||||||||||
Satellite and transmission |
$ | 1,073 | $ | 351 | $ | | $ | 1,424 | ||||||||
Programming and content |
3,368 | 501 | | 3,869 | ||||||||||||
Customer service and billing |
1,077 | 359 | | 1,436 | ||||||||||||
Sales and marketing |
3,862 | 513 | | 4,375 | ||||||||||||
Subscriber acquisition costs |
| | | | ||||||||||||
General and administrative |
21,122 | 1,252 | | 22,374 | ||||||||||||
Engineering, design and development |
2,037 | 772 | | 2,809 | ||||||||||||
Total share-based payment expense |
$ | 32,539 | $ | 3,748 | $ | | $ | 36,287 | ||||||||
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Table of Contents
Unaudited For the Three Months Ended September 30, 2008 | ||||||||||||||||||||
As Reported | ||||||||||||||||||||
July 1, 2008 | August 1, 2008 | Purchase Price | Allocation of | |||||||||||||||||
Through July 31, | Through September | Accounting | Share-based Payment | |||||||||||||||||
2008 | 30, 2008 | Adjustments (a) | Expense | Pro Forma | ||||||||||||||||
Revenue: |
||||||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 95,684 | $ | 183,033 | $ | 18,434 | $ | | $ | 297,151 | ||||||||||
Advertising revenue, net of agency fees |
3,193 | 5,165 | | | 8,358 | |||||||||||||||
Equipment revenue |
1,585 | 3,351 | | | 4,936 | |||||||||||||||
Other revenue |
4,242 | 4,054 | 1,195 | | 9,491 | |||||||||||||||
Total revenue |
104,704 | 195,603 | 19,629 | | 319,936 | |||||||||||||||
Operating expenses (excludes depreciation and
amortization
shown separately below) (1) |
||||||||||||||||||||
Cost of services: |
||||||||||||||||||||
Satellite and transmission |
6,644 | 12,458 | 638 | (911 | ) | 18,829 | ||||||||||||||
Programming and content |
15,991 | 18,046 | 13,912 | (1,742 | ) | 46,207 | ||||||||||||||
Revenue share and royalties |
24,198 | 38,539 | 11,010 | | 73,747 | |||||||||||||||
Customer service and billing |
12,249 | 23,819 | 105 | (665 | ) | 35,508 | ||||||||||||||
Cost of equipment |
2,406 | 5,020 | | | 7,426 | |||||||||||||||
Sales and marketing |
17,268 | 28,951 | 2,081 | (2,174 | ) | 46,126 | ||||||||||||||
Subscriber acquisition costs |
33,366 | 27,482 | 12,495 | | 73,343 | |||||||||||||||
General and administrative |
33,209 | 19,215 | 777 | (4,411 | ) | 48,790 | ||||||||||||||
Engineering, design and development |
2,611 | 5,191 | 119 | (1,512 | ) | 6,409 | ||||||||||||||
Impairment of goodwill |
| 5,026,838 | (5,026,838 | ) | | | ||||||||||||||
Depreciation and amortization |
10,828 | 34,620 | (13,491 | ) | | 31,957 | ||||||||||||||
Share-based payment expense |
| | | 11,415 | 11,415 | |||||||||||||||
Total operating expenses |
158,770 | 5,240,179 | (4,999,192 | ) | | 399,757 | ||||||||||||||
Loss from operations |
(54,066 | ) | (5,044,576 | ) | 5,018,821 | | (79,821 | ) | ||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest and investment income |
594 | 3,963 | | | 4,557 | |||||||||||||||
Interest expense, net of amounts capitalized |
(14,130 | ) | (47,798 | ) | 8,085 | | (53,843 | ) | ||||||||||||
Gain (loss) on change in value of embedded
derivatives |
| 242,223 | (242,223 | ) | | | ||||||||||||||
Loss on extinguishment of debt and credit
facilities, net |
| | | | | |||||||||||||||
Loss on investments |
(4,460 | ) | (3,089 | ) | | | (7,549 | ) | ||||||||||||
Other income (expense) |
5 | (4,074 | ) | | | (4,069 | ) | |||||||||||||
Total other income (expense) |
(17,991 | ) | 191,225 | (234,138 | ) | | (60,904 | ) | ||||||||||||
Loss before income taxes |
(72,057 | ) | (4,853,351 | ) | 4,784,683 | | (140,725 | ) | ||||||||||||
Income tax expense |
(508 | ) | (672 | ) | | | (1,180 | ) | ||||||||||||
Net loss |
(72,565 | ) | (4,854,023 | ) | 4,784,683 | | (141,905 | ) | ||||||||||||
Add: net loss attributable to noncontrolling interests |
(1,053 | ) | | | | (1,053 | ) | |||||||||||||
Net loss XM Satellite Radio Holdings Inc. and Subsidiaries |
$ | (73,618 | ) | $ | (4,854,023 | ) | $ | 4,784,683 | $ | | $ | (142,958 | ) | |||||||
(1) Amounts related to share-based payment expense
included in operating expenses were as follows: |
||||||||||||||||||||
Satellite and transmission |
$ | 305 | $ | 570 | $ | 36 | $ | | $ | 911 | ||||||||||
Programming and content |
586 | 961 | 195 | | 1,742 | |||||||||||||||
Customer service and billing |
228 | 332 | 105 | | 665 | |||||||||||||||
Sales and marketing |
770 | 1,038 | 366 | | 2,174 | |||||||||||||||
Subscriber acquisition costs |
| | | | | |||||||||||||||
General and administrative |
1,634 | 2,000 | 777 | | 4,411 | |||||||||||||||
Engineering, design and development |
510 | 710 | 292 | | 1,512 | |||||||||||||||
Total share-based payment expense |
$ | 4,033 | $ | 5,611 | $ | 1,771 | $ | | $ | 11,415 | ||||||||||
(a) | Includes impairment of goodwill. |
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Table of Contents
Unaudited For the Nine Months Ended September 30, 2008 | ||||||||||||||||||||
As Reported | ||||||||||||||||||||
January 1, 2008 | August 1, 2008 | Purchase Price | Allocation of | |||||||||||||||||
Through July 31, | Through September | Accounting | Share-based Payment | |||||||||||||||||
2008 | 30, 2008 | Adjustments (a) | Expense | Pro Forma | ||||||||||||||||
Revenue: |
||||||||||||||||||||
Subscriber revenue, including effects of
rebates |
$ | 670,870 | $ | 183,033 | $ | 18,434 | $ | | $ | 872,337 | ||||||||||
Advertising revenue, net of agency fees |
22,743 | 5,165 | | | 27,908 | |||||||||||||||
Equipment revenue |
13,397 | 3,351 | | | 16,748 | |||||||||||||||
Other revenue |
24,184 | 4,054 | 1,195 | | 29,433 | |||||||||||||||
Total revenue |
731,194 | 195,603 | 19,629 | | 946,426 | |||||||||||||||
Operating expenses (excludes depreciation and
amortization
shown separately below) (1) |
||||||||||||||||||||
Cost of services: |
||||||||||||||||||||
Satellite and transmission |
46,566 | 12,458 | 638 | (3,351 | ) | 56,311 | ||||||||||||||
Programming and content |
117,156 | 18,046 | 13,912 | (6,105 | ) | 143,009 | ||||||||||||||
Revenue share and royalties |
166,606 | 38,539 | 11,010 | | 216,155 | |||||||||||||||
Customer service and billing |
82,947 | 23,819 | 105 | (2,306 | ) | 104,565 | ||||||||||||||
Cost of equipment |
20,013 | 5,020 | | | 25,033 | |||||||||||||||
Sales and marketing |
126,054 | 28,951 | 2,081 | (8,451 | ) | 148,635 | ||||||||||||||
Subscriber acquisition costs |
174,083 | 27,482 | 12,495 | | 214,060 | |||||||||||||||
General and administrative |
116,444 | 19,215 | 777 | (15,977 | ) | 120,459 | ||||||||||||||
Engineering, design and development |
23,045 | 5,191 | 119 | (5,677 | ) | 22,678 | ||||||||||||||
Impairment of goodwill |
| 5,026,838 | (5,026,838 | ) | | | ||||||||||||||
Depreciation and amortization |
88,749 | 34,620 | (13,491 | ) | | 109,878 | ||||||||||||||
Share-based payment expense |
| | | 41,867 | 41,867 | |||||||||||||||
Total operating expenses |
961,663 | 5,240,179 | (4,999,192 | ) | | 1,202,650 | ||||||||||||||
Loss from operations |
(230,469 | ) | (5,044,576 | ) | 5,018,821 | | (256,224 | ) | ||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest and investment income |
3,013 | 3,963 | | | 6,976 | |||||||||||||||
Interest expense, net of amounts capitalized |
(73,937 | ) | (47,798 | ) | 8,085 | | (113,650 | ) | ||||||||||||
Gain (loss) on change in value of embedded
derivatives |
| 242,223 | (242,223 | ) | | | ||||||||||||||
Loss on extinguishment of debt and credit
facilities, net |
| | | | | |||||||||||||||
Loss on investments |
(13,010 | ) | (3,089 | ) | | | (16,099 | ) | ||||||||||||
Other income (expense) |
900 | (4,074 | ) | | | (3,174 | ) | |||||||||||||
Total other income (expense) |
(83,034 | ) | 191,225 | (234,138 | ) | | (125,947 | ) | ||||||||||||
Loss before income taxes |
(313,503 | ) | (4,853,351 | ) | 4,784,683 | | (382,171 | ) | ||||||||||||
Income tax expense |
(1,512 | ) | (672 | ) | | | (2,184 | ) | ||||||||||||
Net loss |
(315,015 | ) | (4,854,023 | ) | 4,784,683 | | (384,355 | ) | ||||||||||||
Add: net loss attributable to noncontrolling
interests |
(7,443 | ) | | | | (7,443 | ) | |||||||||||||
Net loss XM Satellite Radio Holdings Inc. and Subsidiaries |
$ | (322,458 | ) | $ | (4,854,023 | ) | $ | 4,784,683 | $ | | $ | (391,798 | ) | |||||||
(1) Amounts related to share-based payment expense
included in operating expenses were as follows: |
||||||||||||||||||||
Satellite and transmission |
$ | 2,745 | $ | 570 | $ | 36 | $ | | $ | 3,351 | ||||||||||
Programming and content |
4,949 | 961 | 195 | | 6,105 | |||||||||||||||
Customer service and billing |
1,869 | 332 | 105 | | 2,306 | |||||||||||||||
Sales and marketing |
7,047 | 1,038 | 366 | | 8,451 | |||||||||||||||
Subscriber acquisition costs |
| | | | | |||||||||||||||
General and administrative |
13,200 | 2,000 | 777 | | 15,977 | |||||||||||||||
Engineering, design and development |
4,675 | 710 | 292 | | 5,677 | |||||||||||||||
Total share-based payment expense |
$ | 34,485 | $ | 5,611 | $ | 1,771 | $ | | $ | 41,867 | ||||||||||
(a) | Includes impairment of goodwill. | |
(10) | ARPU is derived from total earned subscriber revenue and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. ARPU is calculated as follows (in thousands, except for per subscriber amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Subscriber revenue |
$ | 304,714 | $ | 884,038 | $ | 278,717 | $ | 853,903 | ||||||||
Net advertising revenue |
4,147 | 13,475 | 8,358 | 27,908 | ||||||||||||
Total subscriber and net advertising
revenue |
$ | 308,861 | $ | 897,513 | $ | 287,075 | $ | 881,811 | ||||||||
Daily weighted average number of subscribers |
9,691,620 | 9,682,252 | 9,779,397 | 9,481,219 | ||||||||||||
ARPU |
$ | 10.62 | $ | 10.30 | $ | 9.79 | $ | 10.33 |
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(11) | SAC, as adjusted, per gross subscriber addition is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense, divided by the number of gross subscriber additions for the period. SAC, as adjusted, per gross subscriber addition is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Subscriber acquisition cost |
$ | 35,049 | $ | 83,524 | $ | 60,848 | $ | 201,565 | ||||||||
Less: share-based payment expense granted
to third parties and employees |
| | | | ||||||||||||
Add: margin from direct sales of radios
and accessories |
(515 | ) | (5,632 | ) | 2,490 | 8,285 | ||||||||||
SAC, as adjusted |
$ | 34,534 | $ | 77,892 | $ | 63,338 | $ | 209,850 | ||||||||
Gross subscriber additions |
833,684 | 2,289,360 | 1,041,242 | 3,161,844 | ||||||||||||
SAC, as adjusted, per gross subscriber
addition |
$ | 41 | $ | 34 | $ | 61 | $ | 66 |
(12) | Customer service and billing expenses, as adjusted, per average subscriber is derived from total customer service and billing expenses, excluding share-based payment expense, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Customer service and billing expenses, as adjusted, per average subscriber is calculated as follows (in thousands, except for subscriber and per subscriber amounts): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Customer service and billing expenses |
$ | 31,064 | $ | 96,168 | $ | 36,068 | $ | 106,766 | ||||||||
Less: share-based payment expense |
(345 | ) | (1,077 | ) | (560 | ) | (2,201 | ) | ||||||||
Customer service and billing expenses, as
adjusted |
$ | 30,719 | $ | 95,091 | $ | 35,508 | $ | 104,565 | ||||||||
Daily weighted average number of subscribers |
9,691,620 | 9,682,252 | 9,779,397 | 9,481,219 | ||||||||||||
Customer service and billing expenses, as
adjusted,
per average subscriber |
$ | 1.06 | $ | 1.09 | $ | 1.21 | $ | 1.23 |
(13) | Free cash flow is calculated as follows (in thousands): |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Net cash provided by (used in)
operating activities |
$ | 127,214 | $ | 228,618 | $ | (10,469 | ) | $ | (245,483 | ) | ||||||
Additions to property and equipment |
(34,690 | ) | (38,811 | ) | (11,289 | ) | (38,736 | ) | ||||||||
Restricted and other investment activity |
| | | 25 | ||||||||||||
Free cash flow |
$ | 92,524 | $ | 189,807 | $ | (21,758 | ) | $ | (284,194 | ) | ||||||
(14) | We refer to net loss before interest and investment income; interest expense net of amounts capitalized; income tax expense; gain on change in value of embedded derivative; loss on extinguishment of debt and credit facilities, net; loss on investments; other expense (income); depreciation and amortization; and share-based payment expense as adjusted income (loss) from operations. Adjusted income (loss) from operations is not a measure of financial performance under U.S. GAAP. We believe adjusted income (loss) from operations is a useful measure of our operating performance. We use adjusted income (loss) from operations for budgetary and planning purposes; to assess the relative profitability and on-going performance of our consolidated operations; to compare our performance from period-to-period; and to compare our performance to that of our competitors. We also believe adjusted income (loss) from operations is useful to investors to compare our operating performance to the performance of other communications, entertainment and media companies. We believe that investors use current and projected adjusted income (loss) from operations to estimate our current or prospective enterprise value and make investment decisions. |
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Table of Contents
Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for interest and depreciation expense. We believe adjusted income (loss) from operations provides useful information about the operating performance of our business apart from the costs associated with our capital structure and physical plant. The exclusion of interest and depreciation and amortization expense is useful given fluctuations in interest rates and significant variation in depreciation and amortization expense that can result from the amount and timing of capital expenditures and potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of taxes is appropriate for comparability purposes as the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. We believe the exclusion of restructuring, impairments and related costs is useful given the non-recurring nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair market value of Sirius common stock. To compensate for the exclusion of taxes, other (expense) income, depreciation and amortization and share-based payment expense, we separately measure and budget for these items. | ||
There are material limitations associated with the use of adjusted income (loss) from operations in evaluating our company compared with net loss, which reflects overall financial performance, including the effects of taxes, other income (expense), depreciation and amortization and share-based payment expense. We use adjusted income (loss) from operations to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net loss as disclosed in our unaudited consolidated statements of operations. Since adjusted income (loss) from operations is a non-GAAP financial measure, our calculation of adjusted income (loss) from operations may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. | ||
Adjusted income (loss) from operations is calculated as follows: |
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2009 | September 30, 2009 | September 30, 2008 | September 30, 2008 | |||||||||||||
Reconciliation of Net loss to Adjusted income (loss) from
operations: |
||||||||||||||||
Net loss as reported |
$ | (42,851 | ) | $ | (345,131 | ) | $ | (4,926,588 | ) | $ | (5,169,038 | ) | ||||
Add back Net loss items excluded from Adjusted income (loss)
from operations: |
||||||||||||||||
Interest and investment income |
(729 | ) | (1,848 | ) | (4,557 | ) | (6,976 | ) | ||||||||
Interest expense, net of amounts capitalized |
70,616 | 226,935 | 61,928 | 121,735 | ||||||||||||
Income tax expense |
578 | 1,733 | 1,180 | 2,184 | ||||||||||||
(Gain) loss on change in value of embedded derivatives |
33,700 | 111,703 | (242,223 | ) | (242,223 | ) | ||||||||||
Loss on extinguishment of debt and credit facilities, net |
3,787 | 111,863 | | | ||||||||||||
Loss on investments |
2,870 | 6,660 | 7,549 | 16,099 | ||||||||||||
Other (income) expense |
(1,324 | ) | (2,548 | ) | 4,069 | 3,174 | ||||||||||
Income (loss) from operations |
66,647 | 109,367 | (5,098,642 | ) | (5,275,045 | ) | ||||||||||
Impairment of goodwill |
| | 5,026,838 | 5,026,838 | ||||||||||||
Restructuring, impairments and related costs |
3,029 | 29,614 | | | ||||||||||||
Depreciation and amortization |
41,587 | 146,462 | 45,448 | 123,369 | ||||||||||||
Share-based payment expense |
7,607 | 32,539 | 9,644 | 40,096 | ||||||||||||
Adjusted income (loss) from operations |
$ | 118,870 | $ | 317,982 | $ | (16,712 | ) | $ | (84,742 | ) | ||||||
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(15) | The following tables combine our Predecessor and Successor GAAP Results of operations for the three and nine September 30, 2009 and 2008: |
Successor Entity | Predecessor Entity | Combined | |||||||||||||||
Three Months | August 1, 2008 | July 1, 2008 | Three Months | ||||||||||||||
Ended | Through | Through | Ended | ||||||||||||||
September 30, 2009 | September 30, 2008 | July 31, 2008 | September 30, 2008 | ||||||||||||||
Revenue: |
|||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 304,714 | $ | 183,033 | $ | 95,684 | $ | 278,717 | |||||||||
Advertising revenue, net of agency fees |
4,147 | 5,165 | 3,193 | 8,358 | |||||||||||||
Equipment revenue |
5,657 | 3,351 | 1,585 | 4,936 | |||||||||||||
Other revenue |
10,955 | 4,054 | 4,242 | 8,296 | |||||||||||||
Total revenue |
325,473 | 195,603 | 104,704 | 300,307 | |||||||||||||
Operating expenses (excludes depreciation and
amortization
shown separately below) (1) |
|||||||||||||||||
Cost of services: |
|||||||||||||||||
Satellite and transmission |
11,484 | 12,458 | 6,644 | 19,102 | |||||||||||||
Programming and content |
27,811 | 18,046 | 15,991 | 34,037 | |||||||||||||
Revenue share and royalties |
46,976 | 38,539 | 24,198 | 62,737 | |||||||||||||
Customer service and billing |
31,064 | 23,819 | 12,249 | 36,068 | |||||||||||||
Cost of equipment |
5,142 | 5,020 | 2,406 | 7,426 | |||||||||||||
Sales and marketing |
26,055 | 28,951 | 17,268 | 46,219 | |||||||||||||
Subscriber acquisition costs |
35,049 | 27,482 | 33,366 | 60,848 | |||||||||||||
General and administrative |
25,216 | 19,215 | 33,209 | 52,424 | |||||||||||||
Engineering, design and development |
5,413 | 5,191 | 2,611 | 7,802 | |||||||||||||
Impairment of goodwill |
| 5,026,838 | | 5,026,838 | |||||||||||||
Depreciation and amortization |
41,587 | 34,620 | 10,828 | 45,448 | |||||||||||||
Restructuring, impairments and related costs |
3,029 | | | | |||||||||||||
Total operating expenses |
258,826 | 5,240,179 | 158,770 | 5,398,949 | |||||||||||||
Income (loss) from operations |
66,647 | (5,044,576 | ) | (54,066 | ) | (5,098,642 | ) | ||||||||||
Other income (expense) |
|||||||||||||||||
Interest and investment income |
729 | 3,963 | 594 | 4,557 | |||||||||||||
Interest expense, net of amounts capitalized |
(70,616 | ) | (47,798 | ) | (14,130 | ) | (61,928 | ) | |||||||||
Gain (loss) on change in value of embedded
derivatives |
(33,700 | ) | 242,223 | | 242,223 | ||||||||||||
Loss on extinguishment of debt and credit
facilities, net |
(3,787 | ) | | | | ||||||||||||
Loss on investments |
(2,870 | ) | (3,089 | ) | (4,460 | ) | (7,549 | ) | |||||||||
Other income (expense) |
1,324 | (4,074 | ) | 5 | (4,069 | ) | |||||||||||
Total other income (expense) |
(108,920 | ) | 191,225 | (17,991 | ) | 173,234 | |||||||||||
Loss before income taxes |
(42,273 | ) | (4,853,351 | ) | (72,057 | ) | (4,925,408 | ) | |||||||||
Income tax expense |
(578 | ) | (672 | ) | (508 | ) | (1,180 | ) | |||||||||
Net loss |
(42,851 | ) | (4,854,023 | ) | (72,565 | ) | (4,926,588 | ) | |||||||||
Add: net loss attributable to noncontrolling interests |
| | (1,053 | ) | (1,053 | ) | |||||||||||
Net loss XM Satellite Radio Holdings Inc. and Subsidiaries |
$ | (42,851 | ) | $ | (4,854,023 | ) | $ | (73,618 | ) | $ | (4,927,641 | ) | |||||
(1) Amounts related to share-based payment expense
included in operating expenses were as follows: |
|||||||||||||||||
Satellite and transmission |
$ | 273 | $ | 570 | $ | 305 | $ | 875 | |||||||||
Programming and content |
859 | 961 | 586 | 1,547 | |||||||||||||
Customer service and billing |
345 | 332 | 228 | 560 | |||||||||||||
Sales and marketing |
1,261 | 1,038 | 770 | 1,808 | |||||||||||||
Subscriber acquisition costs |
| | | | |||||||||||||
General and administrative |
4,355 | 2,000 | 1,634 | 3,634 | |||||||||||||
Engineering, design and development |
514 | 710 | 510 | 1,220 | |||||||||||||
Total share-based payment expense |
$ | 7,607 | $ | 5,611 | $ | 4,033 | $ | 9,644 | |||||||||
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Successor Entity | Predecessor Entity | Combined | |||||||||||||||
Nine Months | August 1, 2008 | January 1, 2008 | Nine Months | ||||||||||||||
Ended | Through | Through | Ended | ||||||||||||||
September 30, 2009 | September 30, 2008 | July 31, 2008 | September 30, 2008 | ||||||||||||||
Revenue: |
|||||||||||||||||
Subscriber revenue, including effects of rebates |
$ | 884,038 | $ | 183,033 | $ | 670,870 | $ | 853,903 | |||||||||
Advertising revenue, net of agency fees |
13,475 | 5,165 | 22,743 | 27,908 | |||||||||||||
Equipment revenue |
17,681 | 3,351 | 13,397 | 16,748 | |||||||||||||
Other revenue |
19,344 | 4,054 | 24,184 | 28,238 | |||||||||||||
Total revenue |
934,538 | 195,603 | 731,194 | 926,797 | |||||||||||||
Operating expenses (excludes depreciation and
amortization
shown separately below) (1) |
|||||||||||||||||
Cost of services: |
|||||||||||||||||
Satellite and transmission |
36,952 | 12,458 | 46,566 | 59,024 | |||||||||||||
Programming and content |
84,353 | 18,046 | 117,156 | 135,202 | |||||||||||||
Revenue share and royalties |
142,997 | 38,539 | 166,606 | 205,145 | |||||||||||||
Customer service and billing |
96,168 | 23,819 | 82,947 | 106,766 | |||||||||||||
Cost of equipment |
12,049 | 5,020 | 20,013 | 25,033 | |||||||||||||
Sales and marketing |
84,565 | 28,951 | 126,054 | 155,005 | |||||||||||||
Subscriber acquisition costs |
83,524 | 27,482 | 174,083 | 201,565 | |||||||||||||
General and administrative |
91,689 | 19,215 | 116,444 | 135,659 | |||||||||||||
Engineering, design and development |
16,798 | 5,191 | 23,045 | 28,236 | |||||||||||||
Impairment of goodwill |
| 5,026,838 | | 5,026,838 | |||||||||||||
Depreciation and amortization |
146,462 | 34,620 | 88,749 | 123,369 | |||||||||||||
Restructuring, impairments and related costs |
29,614 | | | | |||||||||||||
Total operating expenses |
825,171 | 5,240,179 | 961,663 | 6,201,842 | |||||||||||||
Income (loss) from operations |
109,367 | (5,044,576 | ) | (230,469 | ) | (5,275,045 | ) | ||||||||||
Other income (expense) |
|||||||||||||||||
Interest and investment income |
1,848 | 3,963 | 3,013 | 6,976 | |||||||||||||
Interest expense, net of amounts capitalized |
(226,935 | ) | (47,798 | ) | (73,937 | ) | (121,735 | ) | |||||||||
Gain (loss) on change in value of embedded
derivatives |
(111,703 | ) | 242,223 | | 242,223 | ||||||||||||
Loss on extinguishment of debt and credit
facilities, net |
(111,863 | ) | | | | ||||||||||||
Loss on investments |
(6,660 | ) | (3,089 | ) | (13,010 | ) | (16,099 | ) | |||||||||
Other income (expense) |
2,548 | (4,074 | ) | 900 | (3,174 | ) | |||||||||||
Total other income (expense) |
(452,765 | ) | 191,225 | (83,034 | ) | 108,191 | |||||||||||
Loss before income taxes |
(343,398 | ) | (4,853,351 | ) | (313,503 | ) | (5,166,854 | ) | |||||||||
Income tax expense |
(1,733 | ) | (672 | ) | (1,512 | ) | (2,184 | ) | |||||||||
Net loss |
(345,131 | ) | (4,854,023 | ) | (315,015 | ) | (5,169,038 | ) | |||||||||
Add: net loss attributable to noncontrolling interests |
| | (7,443 | ) | (7,443 | ) | |||||||||||
Net loss XM Satellite Radio Holdings Inc. and Subsidiaries |
$ | (345,131 | ) | $ | (4,854,023 | ) | $ | (322,458 | ) | $ | (5,176,481 | ) | |||||
(1) Amounts related to share-based payment expense
included in operating expenses were as follows: |
|||||||||||||||||
Satellite and transmission |
$ | 1,073 | $ | 570 | $ | 2,745 | $ | 3,315 | |||||||||
Programming and content |
3,368 | 961 | 4,949 | 5,910 | |||||||||||||
Customer service and billing |
1,077 | 332 | 1,869 | 2,201 | |||||||||||||
Sales and marketing |
3,862 | 1,038 | 7,047 | 8,085 | |||||||||||||
Subscriber acquisition costs |
| | | | |||||||||||||
General and administrative |
21,122 | 2,000 | 13,200 | 15,200 | |||||||||||||
Engineering, design and development |
2,037 | 710 | 4,675 | 5,385 | |||||||||||||
Total share-based payment expense |
$ | 32,539 | $ | 5,611 | $ | 34,485 | $ | 40,096 | |||||||||
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As of September 30, 2009, we did not hold or issue any free-standing derivatives. Upon
completion of the Merger, the convertible and exchangeable features in the 10% Senior Secured
Discount Convertible Notes due 2009, and the 10% Convertible Senior Notes due 2009 became
settleable in SIRIUS common stock and were subsequently accounted for as embedded derivatives. In
the event the debt holders exercise their conversion or exchange option, SIRIUS intends to issue
common stock to fulfill the obligation.
We hold investments in marketable securities, which consist of auction rate certificates and a
debt security. We classify our marketable securities as available-for-sale. We hold an investment
in auction rate certificates which are classified as available-for-sale. These securities are
consistent with the investment objectives contained within our investment policy. The basic
objectives of our investment policy are the preservation of capital, maintaining sufficient
liquidity to meet operating requirements and maximizing yield.
Our debt includes fixed and variable rate instruments and the fair market value of our debt is
sensitive to changes in interest rates. Under our current policies, we do not use interest rate
derivative instruments to manage our exposure to interest rate fluctuations.
ITEM 4. | CONTROLS AND PROCEDURES |
Controls and Procedures
As of September 30, 2009, an evaluation was performed under the supervision and with the
participation of our management, including Mel Karmazin, our President, and David J. Frear, our
Treasurer, of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our management, including our President and our Treasurer,
concluded that our disclosure controls and procedures were effective as of September 30, 2009.
There has been no change in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting during the three months ended September 30, 2009.
60
Table of Contents
PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
FCC Merger Order. On July 25, 2008, the FCC adopted an order approving the Merger. The order
became effective immediately upon adoption. Inc September 2008, Mt. Wilson FM Broadcasters, Inc.
filed a Petition for Reconsideration of this order. This Petition for Reconsideration remains
pending.
Atlantic Recording Corporation, BMG Music, Capital Records, Inc., Elektra Entertainment Group
Inc., Interscope Records, Motown Record Company, L.P., Sony BMG Music Entertainment, UMG
Recordings, Inc., Virgin Records, Inc. and Warner Bros. Records Inc. v. XM Satellite Radio Inc. In
May 2006, the plaintiffs filed this action in the United States District Court for the Southern
District of New York. The complaint seeks monetary damages and equitable relief, and alleges that
XM radios that include advanced recording functionality infringe upon plaintiffs copyrighted sound
recordings. XM filed a motion to dismiss this matter, and that motion was denied in January 2007.
XM has resolved the lawsuit with respect to Universal Music Group, Warner Music Group, Sony BMG
Music Entertainment and EMI Group, and each of these parties has withdrawn as a party to the
lawsuit, and this lawsuit has been dismissed with respect to such parties.
Music publishing companies and certain other record companies also have filed lawsuits,
purportedly on a class basis, with similar allegations. We believe these allegations are without
merit and that our products comply with applicable copyright law, including the Audio Home
Recording Act. We intend to vigorously defend this matter. There can be no assurance regarding the
ultimate outcome of these matters, or the significance, if any, to our business, consolidated
results of operations or financial position.
Other Matters. In the ordinary course of business, we are a defendant in various lawsuits and
arbitration proceedings, including actions filed by former employees, parties to contracts or
leases and owners of patents, trademarks, copyrights or other intellectual property. None of these
actions are, in our opinion, likely to have a material adverse effect on our cash flows, financial
position or results of operations.
ITEM 1A. | RISK FACTORS |
Except as disclosed in our Quarterly Report on Form 10-Q for the three months ended March 31,
2009, there have been no material changes to the risk factors previously disclosed in response to
Part 1, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not applicable.
ITEM 5. | OTHER INFORMATION |
Not applicable.
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Table of Contents
ITEM 6. | EXHIBITS |
See Exhibits Index attached hereto.
EXHIBIT INDEX
Exhibit | Description | |||||
2.1 | | Agreement and Plan of Merger,
dated as of February 19, 2007,
among Sirius Satellite Radio
Inc., Vernon Merger Corporation
and XM Satellite Radio Holdings
Inc. (incorporated by reference
to Exhibit 2.1 to XM Satellite
Radio Holdings Inc.s Current
Report on Form 8-K dated
February 21, 2007). |
||||
3.1 | | Restated Certificate of
Incorporation of XM Satellite
Radio Holdings Inc.
(incorporated by reference to
Exhibit 3.1 to Amendment No. 4
to XM Satellite Radio Holdings
Inc.s Registration Statement on
Form S-1, File No. 333-83619). |
||||
3.2 | | Bylaws of Vernon Merger
Corporation (incorporated by
reference to Exhibit 3.2 to XM
Satellite Radio Holdings Inc.s
Current Report on Form 8-K filed
July 30, 2008).**** |
||||
3.3 | | Certificate of Amendment of
Restated Certificate of
Incorporation of XM Satellite
Radio Holdings Inc.
(incorporated by reference to
Exhibit 3.5 to Amendment No. 1
to XM Satellite Radio Holdings
Inc.s Registration Statement on
Form S-3, File No. 333-89132). |
||||
3.4 | | Certificate of Amendment of
Restated Certificate of
Incorporation of XM Satellite
Radio Holdings Inc.
(incorporated by reference to
Exhibit 3.6 to XM Satellite
Radio Holdings Inc.s Annual
Report on Form 10-K for the year
ended December 31, 2002). |
||||
3.5 | | Restated Certificate of
Incorporation of XM Satellite
Radio Inc. (incorporated by
reference to XM Satellite Radio
Holdings Inc.s Registration
Statement on Form S-4, File No.
333-391789). |
||||
3.6 | | Amended and Restated Bylaws of
XM Satellite Radio Inc.
(incorporated by reference to
Exhibit 3.10 to Sirius XM Radio
Inc.s Quarterly Report on Form
10-Q for the quarter ended
September 30, 2008). |
||||
3.7 | | Amendments to the Amended and
Restated By-Laws of XM Satellite
Radio Holdings Inc.
(incorporated by reference to XM
Satellite Radio Holdings Inc.s
Current Report on Form 8-K filed
December 7, 2007). |
||||
3.8 | | Certificate of Ownership and
Merger, dated August 5, 2008
(incorporated by reference to
Exhibit 3.1 to Sirius XM Radio
Inc.s Current Report on Form
8-K dated August 5, 2008). |
||||
4.1 | | Form of certificate for shares
of Sirius XM Radio Inc.s Common
Stock (incorporated by reference
to Exhibit 4.3 to Sirius XM
Radio Inc.s Registration
Statement on Form S-1 (File No.
33-74782)). |
||||
4.2 | | Form of certificate for shares
of XM Satellite Radio Holdings
Inc.s Class A common stock
(incorporated by reference to
Exhibit 3 to XM Satellite Radio
Holdings Inc.s Registration
Statement on Form 8-A filed on
September 23, 1999). |
||||
4.3 | | Warrant Agreement, dated March
15, 2000, between XM Satellite
Radio Holdings Inc., as Issuer,
and United States Trust Company
of New York, as Warrant Agent
(incorporated by reference to
Amendment No. 1 to Exhibit 4.5
to XM Satellite Radio Holdings
Inc.s Registration Statement on
Form S-1, File No. 333-39176). |
||||
4.4 | | Warrant Registration Rights
Agreement, dated March 15, 2000,
among XM Satellite Radio
Holdings Inc., Bear, Stearns &
Co., Inc., Donaldson, Lufkin and
Jenrette Securities Corporation,
Salomon Smith Barney Inc. and
Lehman Brothers Inc.
(incorporated by reference to
Exhibit 4.6 to Amendment No. 1
to XM Satellite Radio Holdings
Inc.s Registration Statement on
Form S-1, File No. 333-39176). |
||||
4.5 | | Form of Warrant (incorporated by
reference to Exhibit 4.7 to
Amendment No. 1 to XM Satellite
Radio Holdings Inc.s
Registration Statement on Form
S-1, File No. 333-39176). |
||||
4.6 | | Security Agreement, dated as of
January 28, 2003, among XM
Satellite Radio Inc., XM
Satellite Radio Holdings Inc.,
XM Equipment Leasing LLC, and
The Bank of New York, as trustee
(incorporated by reference to
Exhibit 4.2 to XM Satellite
Radio Holdings Inc.s Current
Report on Form 8-K filed on
January 29, 2003). |
||||
4.7 | | Amended and Restated Security
Agreement, dated as of January
28, 2003, between XM Satellite
Radio Inc. and The Bank of New
York (incorporated by reference
to Exhibit 4.3 to XM Satellite
Radio Holdings Inc.s Current
Report on Form 8-K filed on
January 29, 2003). |
62
Table of Contents
Exhibit | Description | |||||
4.8 | | Warrant Agreement, dated as of
January 28, 2003, between XM
Satellite Radio Holdings Inc.
and The Bank of New York
(incorporated by reference to
Exhibit 4.6 to XM Satellite
Radio Holdings Inc.s Current
Report on Form 8-K filed on
January 29, 2003). |
||||
4.9 | | Second Amended and Restated Registration Rights
Agreement, dated as of January 28, 2003, among
XM Satellite Radio Holdings Inc. and certain
shareholders and noteholders named therein
(incorporated by reference to Exhibit 10.5 to XM
Satellite Radio Holdings Inc.s Current Report
on Form 8-K filed with the SEC on January 29,
2003). |
||||
4.10 | | Form of 10% Senior Secured Discount Convertible
Note due 2009 (incorporated by reference to
Exhibit 4.9 to XM Satellite Radio Holdings
Inc.s Current Report on Form 8-K filed on
January 29, 2003). |
||||
4.11 | | Global Common Stock Purchase Warrant
(incorporated by reference to Exhibit 4.11 to XM
Satellite Radio Holdings Inc.s Current Report
on Form 8-K filed on January 29, 2003). |
||||
4.12 | | First Amendment to Security Agreement, dated as
of June 12, 2003, among XM Satellite Radio Inc.,
XM Satellite Radio Holdings Inc., XM Equipment
Leasing LLC and The Bank of New York
(incorporated by reference to Exhibit 4.9 to XM
Satellite Radio Holdings Inc.s Registration
Statement on Form S-4, File No. 333-106823). |
||||
4.13 | | Third Amended and Restated Shareholders and
Noteholders Agreement, dated as of June 16,
2003, among XM Satellite Radio Holdings Inc. and
certain shareholders and noteholders named
therein (incorporated by reference to Exhibit
10.1 to XM Satellite Radio Holdings Inc.s
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003). |
||||
4.14 | | Amended and Restated Note Purchase Agreement,
dated as of June 16, 2003, among XM Satellite
Radio Inc., XM Satellite Radio Holdings Inc. and
certain investors named therein (incorporated by
reference to Exhibit 10.40 to XM Satellite Radio
Holdings Inc.s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003). |
||||
4.15 | | Form of Amendment to Third Amended and Restated
Shareholders and Noteholders Agreement, dated as
of January 13, 2004, among XM Satellite Radio
Holdings Inc. and the parties thereto
(incorporated by reference to Exhibit 10.61 to
XM Satellite Radio Holdings Inc.s Annual Report
on Form 10-K for the year ended December 31,
2003). |
||||
4.17 | | Indenture, dated as of May 1, 2006, among XM
Satellite Radio Holdings Inc., XM Satellite
Radio Inc. and The Bank of New York, as trustee,
relating to the 9.75% Senior Notes due 2014
(incorporated by reference to Exhibit 4.1 to XM
Satellite Radio Holdings Inc.s Current Report
on Form 8-K filed on May 5, 2006). |
||||
4.18 | | Form of 9.75% Senior Note due 2014 (incorporated
by reference to Exhibit 4.3 to XM Satellite
Radio Holdings Inc.s Current Report on Form 8-K
filed on May 5, 2006). |
||||
4.19 | | Form of 10% senior secured note (incorporated by
reference to Exhibit 10.6 to XM Satellite Radio
Holdings Inc.s Current Report on Form 8-K filed
February 14, 2007). |
||||
4.20 | | Agreement, dated as of June 26, 2008, among XM
Satellite Radio Holdings Inc., the undersigned
holders of XMs 1.75% Convertible Senior Notes
due 2009, Brown Rudnick LLP and Sirius Satellite
Radio Inc. (incorporated by reference to Exhibit
10.7 to XM Satellite Radio Holdings Inc.s
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008). |
||||
4.21 | | First Supplemental Indenture, dated July 24,
2008, between XM Satellite Radio Holdings Inc.
and The Bank of New York Mellon, relating to the
1.75% Convertible Senior Notes due 2009
(incorporated by reference to Exhibit 4.64 to
Sirius XM Radio Inc.s Quarterly Report on Form
10-Q for the quarter ended September 30, 2008). |
||||
4.22 | | Purchase Agreement, dated as of July 24, 2008,
among XM Escrow LLC, XM Satellite Radio Inc., XM
Satellite Radio Holdings Inc., XM Equipment
Leasing LLC, XM Radio Inc., J.P. Morgan
Securities Inc., Morgan Stanley & Co.
Incorporated and UBS Securities LLC, relating to
the 13% Senior Notes due 2013 (incorporated by
reference to Exhibit 4.65 to Sirius XM Radio
Inc.s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008). |
||||
4.23 | | Purchase Agreement, dated as of July 28, 2008,
among XM Satellite Radio Inc., XM Satellite
Radio Holdings Inc., XM Equipment Leasing LLC,
XM Radio Inc., Sirius Satellite Radio Inc., J.P.
Morgan Securities Inc., Morgan Stanley & Co.
Incorporated and UBS Securities LLC, relating to
the 7% Exchangeable Senior Subordinated Notes
due 2014 (incorporated by reference to Exhibit
4.66 to Sirius XM Radio Inc.s Quarterly Report
on Form 10-Q for the quarter ended September 30,
2008). |
||||
4.24 | | First Supplemental Warrant Agreement, dated July
28, 2008, among Sirius Satellite Radio Inc., XM
Satellite Radio Holdings Inc. and The Bank of
New York Mellon relating to the Warrants, dated
March 15, 2000, with the United States Trust
Company of New York (incorporated by reference
to Exhibit 4.67 to Sirius XM Radio Inc.s
Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.25 | | First Supplemental Warrant Agreement, dated July 28, 2008,
among Sirius Satellite Radio Inc., XM Satellite Radio
Holdings Inc. and The Bank of New York Mellon, relating to
the Warrants, dated January 28, 2003, with The Bank of New
York Mellon as warrant agent (incorporated by reference to
Exhibit 4.68 to Sirius XM Radio Inc.s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008). |
63
Table of Contents
Exhibit | Description | |||||
4.26 | | Written instrument, dated July 28, 2008, between Sirius
Satellite Radio Inc. and XM Satellite Radio Holdings Inc.
relating to the Warrant Agreement with Space Systems /Loral,
dated June 3, 2005 (incorporated by reference to
Exhibit 4.69 to Sirius XM Radio Inc.s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008). |
||||
4.27 | | Written instrument, dated July 28, 2008, between Sirius
Satellite Radio Inc. and XM Satellite Radio Holdings Inc.
relating to the Warrant Agreement with Boeing Satellite
Systems International Inc., dated July 31, 2003 and assigned
to Bank of America, N.A. on May 24, 2006 (incorporated by
reference to Exhibit 4.70 to Sirius XM Radio Inc.s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008). |
||||
4.28 | | Second Supplemental Indenture, dated July 28, 2008, between
XM Satellite Radio Holdings Inc. and Sirius Satellite Radio
Inc., relating to the 1.75% Convertible Senior Notes due
2009 (incorporated by reference to Exhibit 4.71 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.29 | | First Supplemental Indenture, dated July 28, 2008, among XM
Satellite Radio Inc., as issuer, XM Satellite Radio Holdings
Inc., XM Equipment Leasing LLC, XM Radio Inc. and The Bank
of New York Mellon, relating to the 9.75% Senior Notes due
2014 (incorporated by reference to Exhibit 4.72 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.30 | | Second Supplemental Indenture, dated July 28, 2008, among XM
Satellite Radio Inc., as issuer, XM Satellite Radio Holdings
Inc., XM Equipment Leasing LLC, XM Radio Inc. and The Bank
of New York Mellon, relating to the 9.75% Senior Notes due
2014 (incorporated by reference to Exhibit 4.73 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.31 | | Notice from XM Satellite Radio Holdings Inc., dated July 28,
2008, relating to the 10% Senior Discount Convertible Notes
due 2009 (incorporated by reference to Exhibit 4.75 to
Sirius XM Radio Inc.s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008). |
||||
4.32 | | Indenture, dated as of July 31, 2008, among XM Escrow LLC
and The Bank of New York Mellon, relating to the 13% Senior
Notes due 2013 (incorporated by reference to Exhibit 4.77 to
Sirius XM Radio Inc.s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008). |
||||
4.33 | | Supplemental Indenture, dated as of July 31, 2008, among XM
Satellite Radio Holdings Inc., XM Satellite Radio Inc., XM
Equipment Leasing LLC, XM Radio Inc., and The Bank of New
York Mellon, relating to the 13% Senior Notes due 2013
(incorporated by reference to Exhibit 4.78 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.34 | | Supplemental Indenture, dated as of July 31, 2008, among XM
Satellite Radio Holdings Inc., XM Escrow LLC and The Bank of
New York Mellon, relating to the 13% Senior Notes due 2013
(incorporated by reference to Exhibit 4.79 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.35 | | Indenture, dated as of August 1, 2008 among XM Satellite
Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment
LLC, XM Radio Inc., Sirius Satellite Radio Inc. and The Bank
of New York Mellon, as trustee, relating to the 7%
Exchangeable Senior Subordinated Notes due 2014
(incorporated by reference to Exhibit 4.80 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.36 | | Registration Rights Agreement, dated August 1, 2008, among
XM Satellite Radio Inc., XM Satellite Radio Holdings Inc.,
XM Equipment Leasing LLC, XM Radio Inc., Sirius Satellite
Radio Inc., J.P. Morgan Securities Inc., Morgan Stanley &
Co. Incorporated and UBS Securities LLC, relating to the 7%
Exchangeable Senior Subordinated Notes due 2014
(incorporated by reference to Exhibit 4.81 to Sirius XM
Radio Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008). |
||||
4.38 | | Note Purchase Agreement, dated as of February 13, 2009,
among Sirius XM Radio Inc., XM Satellite Radio Holdings
Inc., XM 1500 Eckington LLC, XM Investment LLC and the
purchasers listed on schedule I thereto, relating to XM
Satellite Radio Holdings Inc.s 10% Senior PIK Secured Notes
due 2011 (incorporated by reference to Exhibit 4.1 to Sirius
XM Radio Inc.s Current Report on Form 8-K filed on February
17, 2009). |
||||
4.39 | | Indenture, dated as of February 13, 2009, among Sirius XM
Radio Inc., XM Satellite Radio Holdings Inc., XM 1500
Eckington LLC, XM Investment LLC and U.S. Bank National
Association, as trustee and collateral trustee, relating
to XM Satellite Radio Holdings Inc.s 10% Senior PIK
Secured Notes due 2011 (incorporated by reference to
Exhibit 4.2 to Sirius XM Radio Inc.s Current Report on
Form 8-K filed on February 17, 2009). |
64
Table of Contents
Exhibit | Description | |||||
4.40 | | Security Agreement, dated as of February 13, 2009, among
XM 1500 Eckington LLC, XM Investment LLC and U.S. Bank
National Association, as collateral trustee, relating to
XM Satellite Radio Holdings Inc.s 10% Senior PIK Secured
Notes due 2011 (incorporated by reference to Exhibit 4.3
to Sirius XM Radio Inc.s Current Report on Form 8-K
filed on February 17, 2009). |
||||
4.41 | | Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing, dated as of February 13,
2009, from XM 1500 Eckington LLC, as grantor, to Stewart
Title of Maryland Inc., as trustee for the benefit of
U.S. Bank National Association as collateral agent, as
beneficiary (incorporated by reference to Exhibit 4.4 to
Sirius XM Radio Inc.s Current Report on Form 8-K filed
on February 17, 2009). |
||||
4.42 | | Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing, dated as of February 13,
2009, from XM Investment LLC, as grantor, to Stewart
Title of Maryland Inc., as trustee for the benefit of
U.S. Bank National Association as collateral agent, as
beneficiary (incorporated by reference to Exhibit 4.5 to
Sirius XM Radio Inc.s Current Report on Form 8-K filed
on February 17, 2009). |
||||
4.43 | | Registration Rights Agreement, dated as of February 13,
2009, among Sirius XM Radio Inc., XM Satellite Radio
Holdings Inc., XM 1500 Eckington LLC, XM Investment LLC
and the purchasers signatory thereto, relating to XM
Satellite Radio Holdings Inc.s 10% Senior PIK Secured
Notes due 2011 (incorporated by reference to Exhibit 4.6
to Sirius XM Radio Inc.s Current Report on Form 8-K
filed on February 17, 2009). |
||||
4.44 | | Third Supplemental Indenture, dated as of March 6, 2009,
among XM Satellite Radio Inc., XM Equipment Leasing LLC,
XM Radio Inc. and the Bank of New York Mellon, as
trustee, relating to the 9.75% Senior Notes due 2014
(incorporated by reference to Exhibit 4.56 to Sirius XM
Radio Inc.s Annual Report on Form 10-K for the year
ended December 31, 2008). |
||||
4.45 | | Indenture, dated June 30, 2009, between XM Satellite
Radio Inc. and U.S. Bank National Association relating to
the 11.25% Senior Secured Notes due 2013 (incorporated by
reference to Exhibit 4.59 to Sirius XM Radio Inc.s
Quarterly Report on Form 10-Q for the quarter ended June
30, 2009). |
||||
4.46 | | Third Amendment to Security Agreement, dated June 30,
2009, among XM Satellite Radio Holdings Inc., XM
Satellite Radio Inc., certain subsidiaries thereof, and
U.S. Bank National Association (incorporated by reference
to Exhibit 4.60 to Sirius XM Radio Inc.s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009). |
||||
*10.1 | | Operational Assistance Agreement, dated as of June 7,
1999, between XM Satellite Radio Inc. and Clear Channel
Communications, Inc. (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to XM Satellite Radio
Holdings Inc.s Registration Statement on Form S-1, File
No. 333-83619). |
||||
**10.2 | | Technology Licensing Agreement among XM Satellite Radio
Inc., XM Satellite Radio Holdings Inc., WorldSpace
Management Corporation and American Mobile Satellite
Corporation, dated as of January 1, 1998, amended by
Amendment No. 1 to Technology Licensing Agreement, dated
June 7, 1999 (incorporated by reference to Exhibit 10.3
to XM Satellite Radio Holdings Inc.s Annual Report on
Form 10-K for the period year December 31, 2007). |
||||
***10.3 | | Third Amended and Restated Distribution and Credit
Agreement, dated as of February 6, 2008, among General
Motors Corporation, XM Satellite Radio Holdings Inc. and
XM Satellite Radio Inc. (incorporated by reference to
Exhibit 10.63 to XM Satellite Radio Holdings Inc.s
Annual Report on Form 10-K for the period year December
31, 2007). |
||||
**10.5 | | Third Amended and Restated Satellite Purchase Contract
for In-Orbit Delivery, dated as of May 15, 2001, between
XM Satellite Radio Inc. and Boeing Satellite Systems
International Inc. (incorporated by reference to Exhibit
10.36 to Amendment No. 1 to XM Satellite Radio Holdings
Inc.s Registration Statement on Form S-3, File No.
333-89132). |
||||
10.6 | | Assignment and Novation Agreement, dated as of December
5, 2001, among XM Satellite Radio Holdings Inc., XM
Satellite Radio Inc. and Boeing Satellite Systems
International Inc. (incorporated by reference to Exhibit
10.3 to XM Satellite Radio Holdings Inc.s Current Report
on Form 8-K filed on December 6, 2001). |
||||
**10.7 | | Amendment to the Satellite Purchase Contract for In-Orbit
Delivery, dated as of December 5, 2001, between XM
Satellite Radio Inc. and Boeing Satellite Systems
International Inc. (incorporated by reference to Exhibit
10.4 to XM Satellite Radio Holdings Inc.s Current Report
on Form 8-K filed on December 6, 2001). |
||||
10.8 | | GM/DIRECTV Director Designation Agreement, dated as of
January 28, 2003, among XM Satellite Radio Holdings Inc.,
General Motors Corporation and DIRECTV Enterprises LLC
(incorporated by reference to Exhibit 10.43 to XM
Satellite Radio Holdings Inc.s Current Report on Form
8-K filed on January 29, 2003). |
65
Table of Contents
Exhibit | Description | |||||
10.9 | | Amended and Restated Assignment and Use Agreement, dated
as of January 28, 2003, between XM Satellite Radio Inc.
and XM Radio Inc. (incorporated by reference to Exhibit
10.7 to XM Satellite Radio Holdings Inc.s Current Report
on Form 8-K filed on January 29, 2003). |
||||
10.10 | | Amended and Restated Director Designation Agreement,
dated as of February 1, 2003, among XM Satellite Radio
Holdings Inc. and the shareholders and noteholders named
therein (incorporated by reference to Exhibit 10.42 to XM
Satellite Radio Holdings Inc.s Quarterly Report on Form
10-Q for the quarter ended March 31, 2003). |
||||
**10.11 | | Amended and Restated Amendment to the Satellite Purchase
Contract for In-Orbit Delivery, dated May 23, 2003, among
XM Satellite Radio Inc. and XM Satellite Radio Holdings
Inc. and Boeing Satellite Systems International, Inc.
(incorporated by reference to Exhibit 10.53 to XM
Satellite Radio Holdings Inc.s Quarterly Report on Form
10-Q for the quarter ended June 30, 2003). |
||||
**10.12 | | July 2003 Amendment to the Satellite Purchase Contract
for In-Orbit Delivery, dated July 31, 2003, among XM
Satellite Radio Inc. and XM Satellite Radio Holdings Inc.
and Boeing Satellite Systems International, Inc.
(incorporated by reference to Exhibit 10.54 to XM
Satellite Radio Holdings Inc.s Quarterly Report on Form
10-Q for the quarter ended June 30, 2003). |
||||
**10.13 | | Contract for Launch Services, dated August 5, 2003,
between Sea Launch Limited Partnership and XM Satellite
Radio Holdings Inc. (incorporated by reference to Exhibit
10.55 to XM Satellite Radio Holdings Inc.s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003). |
||||
10.14 | | Amendment No. 1 to Amended and Restated Director
Designation Agreement, dated as of September 9, 2003,
among XM Satellite Radio Holdings Inc. and the
shareholders and noteholders named therein (incorporated
by reference to Exhibit 10.56 to XM Satellite Radio
Holdings Inc.s Quarterly Report in Form 10-Q for the
quarter ended September 30, 2003). |
||||
10.15 | | December 2003 Amendment to the Satellite Purchase
Contract for In-Orbit Delivery, dated December 19, 2003,
among XM Satellite Radio Inc., XM Satellite Radio
Holdings Inc. and Boeing Satellite Systems International,
Inc. (incorporated by reference to Exhibit 10.57 to XM
Satellite Radio Holdings Inc.s Annual Report on Form
10-K for the year ended December 31, 2003). |
||||
10.16 | | First Amendment dated as of June 26, 2008 to the
Intercreditor Agreement dated as of May 5, 2006 among The
Bank of New York, in its capacity as collateral agent
under certain intercreditor agreements dated as of
January 28, 2003, JP Morgan Chase Bank, National
Association, in its capacity as administrative agent
under the Original Facility, JP Morgan Chase Bank,
National Association, as new collateral agent for the
secured parties under that certain Collateral Agency
Agreement dated as of June 26, 2008 and General Motors
Corporation, acknowledged and agreed to by XM Satellite
Radio Inc., XM Satellite Radio Holdings Inc. and certain
other parties (incorporated by reference to Exhibit 10.4
to XM Satellite Radio Holding Inc.s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008). |
||||
10.17 | | Consent and Amendment Agreement, dated as of July 10,
2008, among XM Satellite Radio Holdings Inc. and the
undersigned holders of XM Satellite Radio Holdings Inc.s
1.75% Convertible Senior Notes due 2009 (incorporated by
reference to Exhibit 10.8 to XM Satellite Radio Holdings
Quarterly Report on Form 10-Q for the quarter ended June
30, 2008). |
||||
10.18 | | Waiver and Letter Agreement, dated as of July 14, 2008,
among XM Satellite Radio Inc., XM Satellite Radio
Holdings Inc. and certain beneficial owners of XM
Satellite Radio Inc.s 9.75% Senior Notes due 2014
(incorporated by reference to Exhibit 10.6 to XM
Satellite Radio Inc.s Current Report on Form 8-K filed
on July 17, 2008). |
||||
10.19 | | Credit Agreement, dated as of February 17, 2009, among XM
Satellite Radio Holdings Inc., XM Satellite Radio Inc.,
the lender parties thereto and Liberty Media Corporation,
as administrative agent (incorporated by reference to
Exhibit 10.29 to Sirius XM Radio Inc.s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009). |
||||
10.20 | | Amended and Restated Credit Agreement, dated as of
March 6, 2009, among XM Satellite Radio Holdings Inc., XM
Satellite Radio Inc., the lender parties thereto and
Liberty Media Corporation, as administrative agent
(incorporated by reference to Exhibit 10.26 to XM
Satellite Radio Inc.s Registration Statement on Form S-1,
File No. 333-158079). |
||||
10.21 | | Guarantee and Collateral Agreement, dated as of March 6,
2009, among XM Satellite Radio Holdings Inc., XM Satellite
Radio Inc., the subsidiary guarantors named therein and
Liberty Media Corporation, as administrative agent
(incorporated by reference to Exhibit 10.27 to XM
Satellite Radio Inc.s Registration Statement on Form S-1,
File No. 333-158079). |
66
Table of Contents
Exhibit | Description | |||||
10.22 | | Amended and Restated Credit Agreement, dated as of March
6, 2009, among XM Satellite Radio Holdings Inc., XM
Satellite Radio Inc., the lender parties thereto and
JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.28 to XM
Satellite Radio Inc.s Registration Statement on Form S-1,
File No. 333-158079). |
||||
10.23 | | Intercreditor Agreement, dated as of March 6, 2009, among
XM Satellite Radio Inc., JPMorgan Chase Bank, N.A. and
Liberty Media Corporation agent (incorporated by reference
to Exhibit 10.29 to XM Satellite Radio Inc.s Registration
Statement on Form S-1, File No. 333-158079). |
||||
10.24 | | Second Amendment to Security Agreement, dated as of March
6, 2009, among XM Satellite Radio Holdings Inc., XM
Satellite Radio Inc., XM Equipment Leasing LLC and
JPMorgan Chase Bank, N.A., as collateral agent
(incorporated by reference to Exhibit 10.30 to XM
Satellite Radio Inc.s Registration Statement on Form S-1,
File No. 333-158079). |
||||
10.25 | | Joinder Agreement, dated as of March 6, 2009, among XM
Satellite Radio Holdings Inc., XM Satellite Radio Inc., XM
Equipment Leasing LLC and JPMorgan Chase Bank, N.A., as
collateral agent (incorporated by reference to Exhibit
10.31 to XM Satellite Radio Inc.s Registration Statement
on Form S-1, File No. 333-158079). |
||||
10.26 | | Amended and Restated Guarantee Agreement, dated as of
March 6, 2009, among XM Satellite Radio Holdings Inc.,
certain of its subsidiaries named therein and certain
subsidiaries of XM Satellite Radio Inc. and JPMorgan Chase
Bank, N.A., as administrative agent (incorporated by
reference to Exhibit 10.32 to XM Satellite Radio Inc.s
Registration Statement on Form S-1, File No. 333-158079). |
||||
*10.27 | | Form of Employee Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.19 to Amendment
No. 1 to XM Satellite Radio Holdings Inc.s Registration
Statement on Form S-1, File No. 333-83619). |
||||
*10.28 | | Non-Qualified Stock Option Agreement between Gary Parsons
and XM Satellite Radio Holdings Inc., dated July 16, 1999
(incorporated by reference to Exhibit 10.23 to Amendment
No. 5 to XM Satellite Radio Holdings Inc.s Registration
Statement on Form S-1, File No. 333-83619). |
||||
*10.29 | | Form of Director Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.25 to Amendment
No. 5 to XM Satellite Radio Holdings Inc.s Registration
Statement on Form S-1, File No. 333-83619). |
||||
*10.30 | | XM Satellite Radio Holdings Inc. Talent Option Plan
(incorporated by reference to Exhibit 99. to XM Satellite
Radio Holdings Inc.s Registration Statement on Form S-8,
File No. 333-65022). |
||||
*10.31 | | Form of 2003 Executive Stock Option Agreement
(incorporated by reference to Exhibit 10.52 to XM
Satellite Radio Holdings Inc.s Quarterly Report on Form
10-Q for the quarter ended March 31, 2003). |
||||
*10.32 | | 1998 Shares Award Plan (incorporated by reference to
Exhibit 4.1 to XM Satellite Radio Holdings Inc.s
Registration Statement on Form S-8, File No. 333-106827). |
||||
*10.33 | | Employee Stock Purchase Plan (incorporated by reference to
Exhibit 4.2 to XM Satellite Radio Holdings Inc.s
Registration Statement on Form S-8, File No. 333-106827). |
||||
*10.34 | | Form of Employment Agreement, dated as of August 6, 2004,
among XM Satellite Radio Holdings Inc., XM Satellite Radio
Inc. and Gary Parsons (incorporated by reference to
Exhibit 10.40 to XM Satellite Radio Holdings Inc.s
Quarterly Report on Form 10-Q for the quarter ended June
30, 2004). |
||||
*10.35 | | Form of 2004 Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.42 to XM
Satellite Radio Holdings Inc.s Quarterly Report on Form
10-Q for the quarter ended June 30, 2004). |
||||
*10.36 | | Form of Restricted Stock Agreement for executive officers
(incorporated by reference to Exhibit 10.39 to XM
Satellite Radio Holdings Inc.s Quarterly Report on Form
10-Q for the quarter ended March 31, 2005). |
||||
*10.37 | | Amendment No. 1 to Employment Agreement, dated as of
April 4, 2007, among Gary Parsons, XM Satellite Radio
Holdings Inc. and XM Satellite Radio Inc. (incorporated by
reference to Exhibit 10.1 to XM Satellite Radio Holdings
Inc.s Current Report on Form 8-K filed April 10, 2007). |
||||
*10.38 | | Form of Severance Agreement for executive officers other
than Chairman, CEO, President and COO (incorporated by
reference to Exhibit 10.4 to XM Satellite Radio Holdings
Inc.s Current Report on Form 8-K filed April 10, 2007). |
||||
*10.39 | | Form of Non-Qualified Stock Option Agreement (incorporated
by reference to Exhibit 10.2 to XM Satellite Radio
Holdings Inc.s Current Report on Form 8-K filed June 1,
2007). |
67
Table of Contents
Exhibit | Description | |||||
*10.40 | | Form of Restricted Stock Agreement (incorporated by
reference to Exhibit 10.3 to XM Satellite Radio Holdings
Inc.s Current Report on Form 8-K filed June 1, 2007). |
||||
*10.41 | | XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan
(incorporated by reference to Exhibit 10.5 to XM Satellite
Radio Holdings Inc.s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007). |
||||
*10.42 | | Amendment No. 2 to Employment Agreement, dated as of
February 27, 2008, among Gary Parsons, XM Satellite Radio
Holdings Inc. and XM Satellite Radio Inc. (incorporated by
reference to Exhibit 10.64 to XM Satellite Radio Holdings
Inc.s Annual Report on Form 10-K for the period year
December 31, 2007) |
||||
*10.43 | | Amendment No. 3 to Employment Agreement, dated as of June
26, 2008, among Gary Parsons, XM Satellite Radio Holdings
Inc. and XM Satellite Radio Inc. (incorporated by
reference to Exhibit 10.5 to XM Satellite Radio Holding
Inc.s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008). |
||||
*10.44 | | Letter agreement dated June 30, 2009 amending the
Employment Agreement dated November 18, 2004 between Mel
Karmazin and Sirius XM Radio Inc. (incorporated by
reference to Exhibit 10.1 to Sirius XM Radio Inc.s
Current Report on Form 8-K filed on July 1, 2009). |
||||
31.1 | | Certificate of Mel Karmazin, President of XM Satellite
Radio Holdings Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
||||
31.2 | | Certificate of Mel Karmazin, President of XM Satellite
Radio Inc., pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith). |
||||
31.3 | | Certificate of David J. Frear, Treasurer of XM Satellite
Radio Holdings Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
||||
31.4 | | Certificate of David J. Frear, Treasurer of XM Satellite
Radio Inc., pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith). |
||||
32.1 | | Certificate of Mel Karmazin, President and David J. Frear,
Treasurer of XM Satellite Radio Holdings Inc., pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith). |
||||
32.2 | | Certificate of Mel Karmazin, President and David J. Frear,
Treasurer of XM Satellite Radio Inc., 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. | |
** | Pursuant to the Commissions Orders Granting Confidential Treatment under Rule 406 of the Securities Act of 1933 or Rule 24(b)-2 under the Securities Exchange Act of 1934, certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text. | |
*** | Confidential treatment has been requested with respect to portions of this Exhibit that have been omitted by redacting a portion of the text. | |
**** | In accordance with the Agreement and Plan of Merger, dated as of February 17, 2007, entered into by and among XM Satellite Radio Holdings Inc., Sirius Satellite Radio Inc. and Vernon Merger Corporation (filed as Exhibit 2.1 herewith), the bylaws of Vernon Merger Corporation became the bylaws of XM Satellite Radio Holdings Inc. upon the effectiveness of the Merger. |
68
Table of Contents
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.
XM SATELLITE RADIO HOLDINGS INC . | ||||||
By: | /s/ DAVID J. FREAR
|
|||||
Treasurer | ||||||
(Principal Financial Officer) | ||||||
November 5, 2009 |
||||||
XM SATELLITE RADIO INC. | ||||||
By: | /s/ DAVID J. FREAR
|
|||||
David J. Frear | ||||||
Treasurer | ||||||
(Principal Financial Officer) | ||||||
November 5, 2009 |
69