<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1999
Commission file number 000-27441
XM SATELLITE RADIO HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 54-1878819
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 23RD STREET NW, SUITE 57
WASHINGTON DC 20037
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(Address of principal executive offices)
(Zip code)
202-969-7100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
____ ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS A COMMON STOCK, $0.01 PAR VALUE 26,435,471 SHARES
CLASS B COMMON STOCK, $0.01 PAR VALUE 17,872,176 SHARES
- --------------------------------------------
(Class) (Outstanding as of October 19, 1999)
<PAGE>
XM SATELLITE RADIO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
Part I - Financial Information
Page
Unaudited Condensed Consolidated Statements of 1
Operations for the three and nine month periods
ended September 30, 1998 and 1999 and for the
period December 15, 1992 (date of inception)
to September 30, 1999
Condensed Consolidated Balance Sheets as of 2
December 31, 1998, September 30, 1999 (unaudited),
and Pro Forma September 30, 1999 (unaudited)
Unaudited Condensed Consolidated Statements of Cash 3
Flows for the nine month periods ended September 30,
1998 and 1999 and for the period December 15, 1992
(date of inception) to September 30, 1999
Notes to Unaudited Condensed Consolidated Financial 5
Statements
Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II - Other Information
Signatures
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Month and Nine-Month Periods ended September 30, 1998 and 1999,
and for the period from
December 15, 1992 (date of inception) to September 30, 1999
<TABLE>
<CAPTION>
Three Months ended Nine Months ended December 15, 1992
September 30, September 30, (date of inception)
1998 1999 1998 1999 to September 30, 1999
---- ---- ---- ---- ---------------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and development.................. 1,967 2,219 5,834 3,596 10,538
Professional fees......................... 537 3,372 4,260 5,933 12,264
General and administrative................ 1,361 3,783 1,903 8,286 12,316
------- -------- -------- -------- --------
Total operating expenses................ 3,865 9,374 11,997 17,815 35,118
------- -------- -------- -------- --------
Operating loss.......................... (3,865) (9,374) (11,997) (17,815) (35,118)
Other expense--interest income
(expense), net............................ 8 (8,028) 8 (7,952) (8,475)
------- -------- -------- -------- --------
Net loss................................ $(3,857) $(17,402) $(11,989) $(25,767) $(43,593)
======= ======== ======== ======== ========
Net loss per share:
Basic and diluted......................... $(0.58) $(2.60) $(1.79) $(3.85)
======= ======== ======== ========
Weighted average shares used in
computing net loss per share-basic
and diluted 6,689,250 6,701,513 6,689,250 6,693,338
========= ========= ========= =========
Pro forma net loss per share:
Basic and diluted $(0.09) $(0.39) $(0.27) $(0.58)
========= ========= ========= =========
Weighted average shares used in
computing pro forma net loss
per share basic and diluted 44,292,931 44,305,194 44,292,931 44,297,019
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1998, September 30, 1999, and Pro Forma September 30, 1999
<TABLE>
<CAPTION>
Pro Forma
December 31, September 30, September 30,
1998 1999 1999
---- ---- ----
(unaudited)
(in thousands, except share data)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 310 $ 54,356 168,553
Prepaid and other current assets............................................... 172 579 579
--------- -------- --------
Total current assets......................................................... 482 54,935 169,132
Other assets:
System under construction...................................................... 169,029 282,316 282,316
Property and equipment, net of accumulated depreciation and amortization....... 449 1,153 1,153
Goodwill and intangibles, net of accumulated amortization...................... -- 50,823 50,823
Other assets, net of accumulated amortization.................................. 525 17,590 17,590
-------- -------- --------
Total assets................................................................. $170,485 $406,817 $521,014
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expense........................................... $ 23,569 $ 19,051 $ 19,051
Due to related parties......................................................... 13,767 172 172
Accrued interest on loans payable.............................................. 1,907 -- --
Loans payable due to related parties........................................... 91,546 -- --
Term loan...................................................................... 34 -- --
-------- -------- --------
Total current liabilities.................................................... 130,823 19,223 19,223
Term loan, net of current portion.............................................. 53 -- --
Subordinated convertible notes payable to related party........................ 45,583 103,094 --
Series A convertible notes payable............................................. -- 250,000 --
Accrued interest on notes payable.............................................. 1,209 9,856 --
Capital lease, net of current portion.......................................... -- 310 310
-------- -------- --------
Total liabilities............................................................ 177,668 382,483 19,533
-------- -------- --------
Preferred stock, par value $0.01; 60,000,000 shares authorized, no shares
issued and outstanding at December 31, 1998 and September 30, 1999,
respectively, and 10,761,677 shares issued and outstanding pro forma at
September 30, 1999............................................................ -- -- 108
Common stock old, par value $0.10; 160,542,000 shares authorized,
6,689,250 shares issued and outstanding at December 31, 1998, and no shares
issued and outstanding at September 30, 1999 and pro forma September 30,
1999, respectively............................................................ 669 -- --
Class A common stock, par value $0.01; 180,000,000 shares authorized, no shares,
14,716 shares and 26,004,049 shares issued and outstanding at December 31, 1998,
September 30, 1999, and pro forma September 30, 1999, respectively............ -- -- 260
Class B common stock, par value $0.01; 30,000,000 shares authorized, no shares,
6,689,250 shares and 17,822,808 shares issued and outstanding at December 31, 1998,
September 30, 1999, and pro forma September 30, 1999, respectively............ -- 67 178
Class C common stock, par value $0.01; 30,000,000 shares authorized,
no shares issued and outstanding at December 31, 1998, September 30, 1999
and pro forma September 30, 1999, respectively................................ -- -- --
Additional paid-in capital..................................................... 9,974 67,860 544,528
Deficit accumulated during development stage................................... (17,826) (43,593) (43,593)
-------- -------- --------
Total stockholders' equity (deficit)......................................... (7,183) 24,334 501,481
-------- -------- --------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $170,485 $406,817 $521,014
======== ======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1998 and 1999,
and for the period from
December 15, 1992 (date of inception) to September 30, 1999
<TABLE>
<CAPTION>
Nine Months ended December 15, 1992
September 30, (date of inception) to
1998 1999 September 30, 1999
---- ---- ------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $(11,989) $(25,767) $(43,593)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization................................. 16 1,469 1,559
Beneficial conversion charge.................................. -- 5,520 5,520
Stock compensation............................................ -- 140 140
Changes in operating assets and liabilities:
Increase in prepaid and other current assets................. (100) (407) (619)
Increase in other assets..................................... -- (609) (609)
Increase (decrease) in accounts payable and accrued
expenses.................................................... 464 (15,379) (13,678)
Increase (decrease) in amounts due to related parties........ 29,449 (286) 13,481
Increase in accrued interest................................. -- 2,829 3,344
-------- -------- --------
Net cash provided by (used in) operating activities......... 17,840 (32,490) (34,455)
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment............................. (279) (478) (984)
Additions to system under construction......................... (40,746) (93,935) (227,372)
Other investing activities..................................... -- (6,085) (6,085)
-------- -------- --------
Net cash used in investing activities....................... (41,025) (100,498) (234,441)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock and capital
contribution.................................................. -- -- 9,143
Proceeds from issuance of loan payable to related party........ 336 1,548 81,938
Proceeds from issuance of options.............................. -- -- 1,500
Proceeds from issuance of subordinated convertible notes to
related party................................................. 22,000 21,419 67,002
Proceeds from issuance of Series A convertible notes........... -- 250,000 250,000
Repayments of loans payable to related party................... -- (75,000) (75,000)
Payments for deferred financing costs.......................... -- (10,849) (11,242)
Other net financing activities................................. 849 (84) (89)
-------- -------- --------
Net cash provided by financing activities..................... 23,185 187,034 323,252
-------- -------- --------
Net increase in cash and cash equivalents..................... (1) 54,046 54,356
------ -------- --------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year.................. 1 310 --
Cash and cash equivalents at end of period...................... $ 0 $54,356 $54,356
======= ======= =======
Supplemental cash flow disclosure:
Liabilities exchanged for new debt............................. $ -- $81,676 $81,676
Interest capitalized........................................... $7,311 $14,533 $28,258
Interest converted into principal note balance................. $4,582 $ 4,601 $14,259
Acquisition of goodwill........................................ $ -- $51,624 $51,624
Accrued system milestone payments.............................. $ -- $ 5,000 $ 5,000
Accrued expenses transferred to loan balance................... $ -- $ 7,405 $ 7,405
Property acquired through capital lease........................ $ -- $ 431 $ 431
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Business
XM Satellite Radio Inc. ("XMSR"), formerly American Mobile Radio Corporation,
was incorporated on December 15, 1992 in the State of Delaware as a wholly owned
subsidiary of American Mobile Satellite Corporation ("AMSC") for the purpose of
procuring a digital audio radio service ("DARS") license. Business activity for
the period December 15, 1992 through December 31, 1996 was insignificant.
Pursuant to various financing agreements entered into in 1997 between AMSC, XMSR
and WorldSpace, Inc. ("WSI"), WSI acquired a 20 percent interest in XMSR.
On May 16, 1997, AMSC and WSI formed XM Satellite Radio Holdings Inc. (the
"Company"), formerly AMRC Holdings Inc., as a holding company for XMSR in
connection with the construction, launch and operation of a domestic
communications satellite system for the provision of DARS. AMSC and WSI
exchanged their respective interests in XMSR for equivalent interests in the
Company, which had no assets, liabilities or operations prior to the
transaction.
On July 7, 1999, AMSC acquired WSI's remaining debt and equity interests in the
Company in exchange for approximately 8.6 million shares of AMSC's common stock
(see Note 4).
(2) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position of XM Satellite Radio Holdings Inc. and subsidiary, a development stage
entity, as of September 30, 1999, and the results of operations and cash flows
for the three and nine months ended September 30, 1998 and 1999, and the period
from December 15, 1992 (date of inception) through September 30, 1999. The
results of operations for the three and nine months ended September 30, 1998 and
1999 are not necessarily indicative of the results that may be expected for the
full year. These condensed financial statements are unaudited, and do not
include all related footnote disclosures. The interim unaudited condensed
financial statements should be read in conjunction with the audited financial
statements of the Company included in the Company's filings with the Securities
and Exchange Commission.
On September 9, 1999, the board of directors of the Company determined to effect
a stock split providing 53,514 shares of stock for each share owned. All
references to the number of common shares and per share amounts in the unaudited
condensed consolidated financial statements and notes thereto have been restated
to reflect the effect of the split for all periods presented.
The Pro Forma September 30, 1999 condensed consolidated balance sheet gives
effect to (i) the conversion of the $250 million Series A Convertible debt,
together with associated accrued interest of $6.3 million, into 10,761,677
shares of Series A Convertible Preferred Stock and 15,748,333 shares of Class A
Common Stock; (ii) the conversion of the $21.4 million and $81.7 million of
notes issued to AMSC, together with associated accrued interest of $3.6 million,
into 11,133,558 shares of Class B Common Stock; and (iii) the sale of 10,241,000
shares of Class A Common Stock through an initial public offering at $12 per
share, which yielded net proceeds of $114.2 million, as if these transactions
had occurred at September 30, 1999 (see Note 10 Subsequent Events).
(3) Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings Per Share" and SEC Staff Accounting Bulletin No.98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
stockholders (after deducting preferred dividend requirements) for the period by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) available per share is computed by dividing the net
income (loss) available to common stockholders for the period by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. The Company has presented historical basic and diluted net
income (loss) per share in accordance with SFAS No. 128. As the Company had a
net loss in each of the periods presented, basic and diluted net income (loss)
per share is the same. Pro Forma basic and diluted net income (loss) per share
has been calculated assuming (i) the conversion of $150 million Series A
convertible notes, together with associated accrued interest of $4.1 million,
into 16,179,755 shares of Class A common stock; (ii) the conversion of the $21.4
million and $81.7 million of notes issued to AMSC, together with associated
accrued interest of $3.8 million, into 11,182,926 shares of Class B common
stock; and (iii) the sale of 10,241,000 shares of Class A common stock through
an initial public offering, as if these transactions had occurred at January 1,
1998.
5
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Exchange of WSI's Interest in XM Radio (WorldSpace Transaction)
On July 7, 1999, AMSC acquired WSI's remaining debt and equity interests in the
Company in exchange for approximately 8.6 million shares of AMSC's common stock.
Additionally, the Company issued an aggregate $250.0 million of Series A
subordinated convertible notes (see Note 6) to several new investors and used
$75.0 million of the proceeds it received from the issuance of these notes to
redeem certain outstanding loan obligations owed to WSI. As a result of these
transactions, as of July 7, 1999, AMSC owned all of the issued and outstanding
stock of the Company. Concurrent with AMSC's acquisition of the remaining
interest in the Company, the Company recognized goodwill of $51.6 million, which
is being amortized over 15 years.
(5) Recapitalization
Concurrently with the transaction discussed in Note 4, the Company's capital
structure was reorganized. As a result, AMSC held 6,689,250 shares of Class B
common stock. The Class B common stock has three votes per share. The Company
also has authorized Class A common stock, which is entitled to one vote per
share and non- voting Class C common stock. As of September 30, 1999, there were
14,716 shares of Class A common stock issued and outstanding. The Class B common
stock is convertible into Class A common stock on a one for one basis, as
follows: (1) at any time at the discretion of AMSC, (2) following the Company's
initial public offering, at the direction of the holders of a majority of the
then outstanding shares of Class A common stock (which majority must include at
least 20% of the public holders of Class A common stock), and (3) on or after
January 1, 2002, at the direction of the holders of a majority of the then
outstanding shares of the Company's Class A common stock. Such conversion will
be effected only upon receipt of FCC approval of AMSC's transfer of control of
the Company to a diffuse group of shareholders.
The Company also authorized 60,000,000 shares of preferred stock, of which
15,000,000 shares are designated Series A convertible preferred stock, par value
$0.01 per share. The Series A convertible preferred stock is convertible into
Class A common stock at the option of the holder. The Series A preferred stock
is non-voting and receives dividends, if declared, ratably with the common
stock. No such shares had been issued as of September 30, 1999 (see Note 10
Subsequent Events).
(6) Issuance of Series A Subordinated Convertible Notes of XM Radio to New
Investors
At the closing of the transaction described in Note (4) above, the Company
issued an aggregate $250.0 million of Series A subordinated convertible notes to
six new investors--General Motors Corporation, $50.0 million; Clear Channel
Investments, Inc., $75.0 million; DIRECTV Enterprises, Inc., $50.0 million; and
Columbia Capital, Telcom Ventures, L.L.C. and Madison Dearborn Partners, $75.0
million. The Series A subordinated convertible notes issued by the Company are
convertible into shares of the Company's Series A convertible preferred stock
(in the case of notes held by General Motors Corporation and DIRECTV) or Class A
common stock (in the case of notes held by the other investors) at the election
of the holders or upon the occurrence of certain events, including an initial
public offering of a prescribed size (see Note 10 Subsequent Events). The
conversion price is $9.52 aggregate principal amount of notes for each share of
the Company's stock. The notes mature on December 31, 2004, or, if the Company
issues at least $50.0 million aggregate principal amount of high yield debt
securities, the Company will be entitled to extend the maturity date of the
subordinated convertible notes to a date no later than the six-month anniversary
of the stated maturity date of such high yield debt securities. The notes are
senior to all existing Company indebtedness, including certain notes held by
AMSC that are convertible into the Company's stock, but will be subordinate to
any future high yield debt securities issued by the Company.
(7) Repayment and Conversion of Notes
Using part of the proceeds from the issuance of its Series A subordinated
convertible notes, described in Note 6, on July 7, 1999, the Company paid WSI
$75.0 million to repay an outstanding portion of notes payable to WSI. The
Company then exchanged the $54.5 million of the subordinated convertible notes
payable, $6.9 million in demand notes, $20.3 million in accrued interest and all
of the outstanding options to acquire the Company's common stock for an $81.7
million note to AMSC.
(8) Notes to Related Party
On January 15, 1999, the Company issued a convertible note to AMSC for $21.4
million . This note matures on September 30, 2006 and carries an interest rate
of LIBOR plus five percent per annum. Interest is payable upon maturity. AMSC
shall have a right to convert all or a portion of the aggregate principal amount
of the note into shares of common stock at a conversion price of $16.35 per
share. On July 7, 1999 the Company amended the convertible note agreement with
AMSC to change the maturity date to December 31, 2004, unless extended in
certain circumstances if the Company issues high yield debt securities, modified
the conversion provisions to Class B common stock. It also provided for the
6
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
conversion of the aggregate principal into Class B common stock at a price of
$16.35 per share and the conversion of the accrued interest in Class B common
stock at a price of $9.52 per share.
Following the Worldspace Transaction described in Notes (4) and (7) above, the
Company issued a convertible note to AMSC for $81.7 million. This note bears
interest at LIBOR plus five percent per annum and is due December 31, 2004,
unless extended in certain circumstances if the Company issues high yield debt
securities. The note is convertible at AMSC's option at $8.65 per Class B common
share. The Company took a one-time $5.5 million charge to interest due to the
beneficial conversion feature of the new AMSC note (see Note 10 Subsequent
Events).
(9) Commitments and Contingencies
(a) Satellite Contract
During the first half of 1999, the Company and Hughes Space and Communications,
Inc. ("Hughes") amended the satellite contract to implement a revised work
timetable, payment schedule to reflect the timing of the receipt of additional
funding, and technical modifications. The Company expects to incur total payment
obligations under this contract of approximately $541.3 million, which includes
amounts the Company expects to pay pursuant to the exercise of the option to
build the ground spare satellite and certain financing costs and in- orbit
incentive payments. As of September 30, 1999, the Company had paid $147.9
million under this contract.
(b) Technology Licenses Agreement
During the nine months ended September 30, 1999, the Company incurred additional
costs of $100,000 under the technology licenses agreement with AMSC and
Worldspace Management Corporation, giving a cumulative total from inception of
$6,724,000. The Company does not currently anticipate incurring any further
costs under this agreement.
(c) LCC International Services Contract
In August 1999, the Company signed a contract with LLC International, a related
party, for the engineering for its terrestrial repeater network. Payments by the
Company under this contract are expected to aggregate approximately $115
million, through April 15, 2001. As of September 30, 1999, the Company has paid
$3.9 million under this contract.
(d) General Motors Distribution Agreement
The Company has signed a long-term distribution agreement with the OnStar
division of General Motors providing for the installation of XM radios in
General Motors vehicles. During the term of the agreement, which expires 12
years from the commencement date of the Company's commercial operations, General
Motors has agreed to distribute the service to the exclusion of other S-band
satellite digital radio services. The Company will also have a non- exclusive
right to arrange for the installation of XM radios included in OnStar systems in
non-General Motors vehicles that are sold for use in the United States. The
Company has significant annual, fixed payment obligations to General Motors for
four years following commencement of commercial service. These payments
approximate $35 million in the aggregate during this period. Additional annual
fixed payment obligations beyond the initial four years of the contract term
range from less than $35 million to approximately $130 million through 2009,
aggregating approximately $400 million. In order to encourage the broad
installation of XM radios in General Motors vehicles, the Company has agreed to
subsidize a portion of the cost of XM radios, and to make incentive payments to
General Motors when the owners of General Motors vehicles with installed XM
radios become subscribers for the Company's service. The Company must also share
with General Motors a percentage of the subscription revenue attributable to
General Motors vehicles with installed XM radios, which percentage increases
until there are more than 8 million General Motors vehicles with installed XM
radios. The Company will also make available to General Motors bandwidth on the
Company's system. The agreement is subject to renegotiation at any time based
upon the installation of radios that are interoperable or capable of receiving
CD Radio's service. The agreement is subject to renegotiation if, four years
after the commencement of XM Radio's commercial operations and at two-year
intervals thereafter GM does not achieve and maintain specified installation
levels of General Motors vehicles capable of receiving the Company's service,
starting with 1.24 million units after four years, and thereafter increasing by
the lesser of 600,000 units per year and amounts proportionate to target market
shares in the satellite digital radio service market. There can be no assurances
as to the outcome of any such renegotiations. General Motors' exclusivity
obligations will discontinue if, four years after the Company commences
commercial operations and at two-year intervals thereafter, the Company fails to
achieve and maintain specified minimum market share levels in the satellite
digital radio service market.
7
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(e) Office Lease
On September 29, 1999, the Company entered into a noncancelable operating lease
for office space that will expire in 2010. The future minimum lease payments
under the noncancelable lease will be as follows (in thousands):
Year ending December 31:
------------------------
1999.......................... $ --
2000.......................... 667
2001.......................... 2,021
2002.......................... 2,085
2003.......................... 2,149
Thereafter.................... 16,566
-------
$23,488
=======
Concurrent with the execution of the lease agreement, the Company established a
$3.4 million letter of credit as a security deposit for the office space.
(f) Patent Infringement Action
In January, 1999, a competitor of the Company commenced an action against the
Company for patent infringement. In February, 1999, the Company filed an answer
to the action. The Company does not believe that it has infringed and will not
infringe any of the competitor's patents and intends to vigorously defend
against the suit; however, the outcome is uncertain at this time.
(g) FCC Occurrences
AMSC and WSI had previously submitted an application for Consent and Transfer of
Control with the FCC. Challenges have been filed against the application. The
application was withdrawn on July 7, 1999 based upon the WorldSpace Transaction.
(10) Subsequent Events
(a) Initial Public Offering
On October 8, 1999, the Company completed its initial public offering of
10,000,000 shares of Class A common stock at $12.00 per share. The offering
yielded net proceeds of $111.5 million.
On October 17, 1999, the underwriters of the Company's initial public offering
exercised the over-allotment option for an additional 241,000 shares of Class A
common stock at $12.00 per share. This exercise yielded net proceeds of $2.7
million.
(b) Conversion of Series A Subordinated Convertible Notes
Concurrent with the closing of the Company's initial public offering, the $250
million of Series A subordinated convertible notes together with associated
accrued interest of $6.8 million were converted into 10,786,504 shares of Series
A convertible preferred stock and 16,179,755 shares of Class A common stock.
(c) Conversion of Notes to Related Party
Concurrent with the closing of the Company's initial public offering, the $21.4
million and $81.7 million notes issued to AMSC together with associated accrued
interest of $3.8 million were converted into 11,182,926 shares of Class B common
stock.
8
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other sections herein,
including statements regarding the development of the Company's business, the
markets for the Company's services, the Company's anticipated capital
expenditures, and other similar statements are forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995)
which can be identified as any statement that does not relate strictly to
historical or current facts. Forward-looking statements use such words as
"plans", "expects", "will", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", "believes", "anticipates",
"intends", "may", "should", "continue", "seek", "could" and other similar
reasonable expressions. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its expectations
will be achieved. The important factors that could cause actual results to
differ materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation, the key factors that have
a direct bearing on the Company's future results of operations. These are the
potential risk of delay in implementing the Company's business plan; possible
increased costs of construction and launch of necessary satellites; dependence
on Hughes Space and Communications, Inc. and consumer electronics manufacturers;
the availability of receivers and antennas; risk of launch failure; unproven
market for the Company's proposed service; unproven application of existing
technology; the Company's need for additional financing, as well as other risks
referenced from time to time in the Company's filings with the SEC, including
the Company's Registration Statement on Form S-1 (File No. 333-83619). All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements. The Company does not undertake any
obligation to release publicly any revisions to such forward-looking statements
to reflect the occurrence of unanticipated events.
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and Notes thereto included
herewith, and with the Company's Management's Discussion and Analysis of
Financial Condition and Results of Operations and audited financial statements
and notes thereto for the years ended December 31, 1997 and 1998, and for the
period from December 15, 1992 (date of inception) to December 31, 1998, included
in the Company's Form S-1 (File No. 333-83619).
OVERVIEW
XM Satellite Radio Inc. was incorporated in Delaware in 1992 as a wholly-owned
subsidiary of American Mobile Satellite Corporation ("AMSC"). XM Satellite Radio
Holdings Inc. became a holding company for XM Satellite Radio Inc. in connection
with a strategic investment by WorldSpace, Inc. ("WSI") in early 1997. In July
1999, following the Company's repayment of $75.0 million in debt owed to WSI,
WSI conveyed all of its debt and equity interest in the Company to a trust. AMSC
then acquired all of that interest from the trust, making AMSC the Company's
only stockholder at that time. In July 1999, the Company issued $250.0 million
of Series A subordinated convertible notes. In October 1999, the Company
completed an initial public offering and exercised an overallotment option for a
cumulative total of 10,241,000 shares of Class A common stock, yielding net
proceeds of $114.2 million. Concurrent with the closing of the Company's initial
public offering, the $250.0 million of Series A subordinated convertible notes,
together with associated accrued interest of $6.8 million, were converted into
10,786,504 shares of Series A convertible preferred stock and 16,179,755 shares
of Class A common stock. Additionally, the $21.4 million and $81.7 million
issued to AMSC, together with associated accrued interest of $3.8 million
converted into 11,182,926 shares of Class B common stock.
The Company is in the development stage. Since the Company's inception in
December 1992, the Company has devoted its efforts to establishing and
commercializing the XM Radio system. The Company's activities were limited
until 1997, when it pursued and obtained regulatory approval from the FCC to
provide satellite radio service. The Company's principal activities to date have
included
- designing and developing the XM Radio system;
- negotiating contracts with satellite and launch vehicle operators, specialty
programmers, radio manufacturers and car manufacturers;
- developing technical standards and specifications;
- conducting market research; and
- securing financing for working capital and capital expenditures.
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<PAGE>
The Company has incurred substantial losses to date and expect to continue to
incur significant losses for the foreseeable future as it continues to design,
develop and deploy the XM Radio system and for some period following its
commencement of commercial operations.
The Company intends to capitalize all costs related to its satellite contract
and its FCC license, including all applicable interest. These capitalized costs
will be depreciated over the estimated useful lives of the satellites and ground
control stations. Depreciation of the Company's satellites will commence upon
in-orbit delivery. Depreciation of the Company's satellite control facilities
and terrestrial repeaters and the amortization of its FCC license will start
upon the commencement of commercial operations.
After the Company begins commercial operations, which it are targeting for the
second quarter of 2001, the Company anticipates that its revenues will consist
primarily of customers' subscription fees and advertising revenues.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared With Three Months Ended
September 30, 1998
Research and development expenses increased to approximately $2.2 million for
the three months ended September 30, 1999, compared with approximately $2.0
million for the three months ended September 30, 1998. The increase in the
research and development expenses primarily resulted from the commencement of
development of some of the Company's system technology during the third quarter
of 1999.
Professional fees increased to approximately $3.4 million for the three months
ended September 30, 1999, compared with $0.5 million for the three months ended
September 30, 1998. Professional fees for the three months ended September 30,
1999 primarily reflect legal, regulatory and marketing expenses. Professional
fees for the three months ended September 30, 1998 reflect regulatory and
consulting activities. The professional fees increased as the Company engaged
more consultants. The Company expects the professional fees to trend upward as
it continues to develop the system and market strategy.
General and administrative expenses increased to $3.8 million for the three
months ended September 30, 1999, compared with $1.4 million for the three
months ended September 30, 1998. The increase primarily reflects increased
headcount and facility expenses, which are anticipated to continue to increase
through commercial operations. The Company also commenced the amortization of
its goodwill and intangibles during the three months ended September 30, 1999.
As of September 30, 1999 and 1998, the Company owed $353.1 million and $107.7
million, respectively, under various debt agreements which it entered into for
the purpose of financing the XM Radio system. The Company capitalized interest
costs of $6.4 million and $2.6 million associated with its FCC license and the
XM Radio system during the three months ended September 30, 1999 and 1998,
respectively. The Company expensed interest costs of $8.9 million and $0.0
million during the three months ended September 30, 1999 and 1998, respectively.
The Company incurred a one-time $5.5 million charge to interest due to the
beneficial conversion feature of the new AMSC note. The Company also exceeded
its interest capitalization threshold by $3.4 million during the quarter ended
September 30, 1999.
Interest income increased to $0.9 million for the three months ended September
30, 1999, compared with the three months ended September 30, 1998, which was
insignificant. The increase was the result of higher average balances of cash
and short-term investments during the three months ended September 30, 1999 due
to the proceeds from the issuance of Series A convertible notes in the third
quarter of 1999 exceeding the amounts of expenditures for satellite and launch
vehicle construction, other capital expenditures and operating expenses.
Depreciation expense of computers and related facilities amounted to $0.1
million during the three months ended September 30, 1999. The Company had no
significant fixed assets in service during the three months ended September 30,
1998.
The net loss for the three-month periods ended September 30, 1999 and 1998 was
$17.4 million and $3.9 million, respectively. The increase in net losses for the
three month ended September 30, 1999, compared with the three months ended
September 30, 1998, reflects an increase in interest expense and additional
general and administration expenses, primarily due to increased headcount and
facility expenses, in preparation for commercial operations, and the
commencement of amortization of goodwill and intangibles.
Nine Months Ended September 30, 1999 Compared With Nine Months Ended September
30, 1998
Research and development expenses decreased to $3.6 million for the nine months
ended September 30, 1999 compared with $5.8 million for the nine months ended
September 30, 1998. The decrease in research and development expenses resulted
from the completion of the development of some of the Company's system
technology during 1998.
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Professional fees increased to approximately $5.9 million for the nine months
ended September 30, 1999, compared with $4.3 million for the nine months ended
September 30, 1998. The increase primarily reflects additional legal,
regulatory and marketing expenses.
General and administrative expenses increased to $8.3 million for the nine
months ended September 30, 1999, compared with $1.9 million for the nine months
ended September 30, 1998. The increase primarily reflects increased headcount
and facility expenses to begin program management and operations. The Company
also commenced the amortization of our goodwill and intangibles during the nine
months ended September 30, 1999.
As of September 30, 1999 and 1998, the Company owed $353.1 million and $107.7
million, respectively, under various debt agreements which it entered into for
the purpose of financing the XM Radio system. The Company capitalized interest
costs of $14.7 million and $7.3 million associated with its FCC license and
the XM Radio system during the nine months ended September 30, 1999 and 1998,
respectively. The Company expensed interest costs of $8.9 million and $0 during
the nine months ended September 30, 1999 and 1998, respectively.
Interest income increased to $0.9 million for the nine months ended September
30, 1999, compared with the nine months ended September 30, 1998 which was
insignificant. The increase was the result of higher average balances of cash
and short-term investments during the nine months ended September 30, 1999 due
to the proceeds from the issuance of Series A convertible notes in the third
quarter of 1999 exceeding the amounts of expenditures for satellite and launch
vehicle construction, other capital expenditures and operating expenses.
Depreciation expense of computers and related facilities amounted to $0.1
million during the nine months ended September 30, 1999. The Company had no
significant fixed assets in service during the nine months ended September 30,
1998.
The net loss for the nine months ended September 30, 1999 and 1998 was $25.8
million and $12.0 million, respectively. The increase in net losses for the
nine month ended September 30, 1999, compared with the nine months ended
September 30, 1998, primarily reflects an increase in interest expense and
additional general and administration expenses, primarily due to increased
headcount and facility expenses, in preparation for commercial operations and
the commencement of amortization of goodwill and intangibles.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had a total of cash and cash equivalents of
$54.4 million and working capital of $41.8 million, compared with cash and cash
equivalents of $0.3 million and working capital of $(130.3) million at December
31, 1998. The increases in the respective balances are due primarily to the
proceeds from the issuance of Series A subordinated convertible notes in July
1999 (see -- Sources of Funds) exceeding capital expenditures and operating
expenses for the first nine months of 1999 and the conversion of the current WSI
loans payable into the non-current AMSC new convertible note. Subsequent to
September 30, 1999, the Company successfully completed an initial public
offering which raised $114.2 million in net proceeds.
Funding Requirements
The Company estimates that it will require approximately $1.1 billion to develop
and implement the XM Radio system from inception through the commencement of
commercial operations, targeted for the second quarter of 2001. Since
inception, the Company has raised an aggregate of $445.0 million, net of expense
and repayment of debt. These funds are expected to be sufficient, in the absence
of additional financing, to cover funding needs into the first quarter of 2000.
The Company will require substantial additional funding of approximately $635.1
million to finish building the XM Radio system and to provide working capital
until it commences commercial operations.
The Company currently expects to satisfy its funding requirements by selling
debt or equity securities and by obtaining loans or other credit lines from
banks or other financial institutions. In addition, the Company plans to raise
funds through vendor financing arrangements associated with its terrestrial
repeater project. If the Company is successful in raising additional financing,
it anticipates that a significant portion of the financing will consist of debt
securities. The Company is actively considering possible financings, and because
of its substantial capital needs it may consummate one or more financings at any
time.
The Company may offer debt securities in a private placement in the near future.
Often, high yield debt securities are issued as part of units with warrants to
purchase common stock. If warrants were issued in any debt placement by the
Company, the amount of common stock that may be purchased and the price at which
stock would be purchased under the warrants would depend upon market conditions
at that time.
The Company may not be able to raise any funds or obtain loans on favorable
terms or at all. The Company's ability to obtain the required financing depends
on several factors, including future market conditions; its success or lack of
success in developing, implementing and marketing our satellite radio service;
its future creditworthiness; and restrictions contained in agreements with its
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<PAGE>
investors or lenders. If the Company fails to obtain any necessary financing on
a timely basis, a number of adverse effects could occur. The Company's
satellite construction and launch and other events necessary to its business
could be materially delayed or their costs could materially increase. The
Company could default on its commitments to its satellite construction or launch
contractors, creditors or others, leading to termination of construction or
inability to launch its satellites. Finally, the Company may not be able to
launch its satellite radio service as planned and may have to discontinue
operations or seek a purchaser for its business or assets.
Sources Of Funds
To date, the Company has funded its capital needs through the issuance of debt
and equity. As of October 17, 1999, the Company has raised approximately $445.0
million of capital, net of expenses and repayment of debt. These funds have
been used to acquire its FCC license, make required payments under its satellite
contract with Hughes, make required payments under its contract with LCC
International, and for working capital and operating expenses. Of the $445.0
million raised to date, approximately $167.0 million has been raised through the
issuance of equity to, and receipt of loans from AMSC and WSI. Of this amount,
approximately $90.7 million and $46.0 million was raised in 1997 and 1998,
respectively, and $30.3 million was raised in January 1999.
In July 1999, the Company issued $250.0 million of Series A subordinated
convertible notes to six strategic and financial investors--General Motors,
$50.0 million; Clear Channel Communications, $75.0 million; DIRECTV, $50.0
million; and Columbia Capital, Telcom Ventures, L.L.C. and Madison Dearborn
Partners, $75.0 million in the aggregate. Using part of the proceeds from the
issuance of the Series A subordinated convertible notes, the Company paid WSI
$75.0 million in July 1999 to redeem an outstanding loan owed to WSI. The
Company incurred fees and expenses totaling $11.3 million in connection with
these transactions.
In October 1999, the Company raised $114.2 million from the issuance of 10.2
million shares of Class A common stock at a price of $12 per share less $8.7
million in underwriting discounts and commissions and estimated expenses. The
Series A convertible notes, together with related accrued interest,
automatically converted into 16,072,962 shares of the Company's Class A common
stock and 10,715,310 shares of the Company's Series A preferred stock. Also, the
AMSC notes, together with related accrued interest, automatically converted into
11,182,926 shares of the Company's Class B common stock.
Uses Of Funds
Of the approximately $1.1 billion of funds to be used through commencement of
commercial operations, an estimated $569.4 million are expected to be incurred
under contracts presently in place and for the Company's FCC license, which has
already been paid for in full. Total capital expenditures from inception to
September 30, 1999, totaled $228.4 million.
Satellite Contract. Under the Company's satellite contract, Hughes will deliver
two satellites in orbit and if the Company exercise its option, complete
construction of a ground spare satellite. Hughes will also provide ground
equipment and software to be used in the XM Radio system and certain launch and
operations support services. The Company expects that by commencement of
commercial operations in the second quarter of 2001, it will have had to pay an
aggregate amount of approximately $472.6 million for these items and for Hughes
to complete the optional ground spare satellite. This amount does not include
incentive payments, which will depend in part on projected satellite performance
at the acceptance date. Such payments could total up to an additional $68.7
million over the useful lives of the satellites. As of September 30, 1999, the
Company had paid approximately $147.9 million under its satellite contract and
has recognized an additional $5.0 million in accrued milestone payments which
were paid subsequently.
Launch Insurance. Based on current industry estimates, the Company expects that
launch insurance for both satellites will cost approximately $50.0 million. As
of September 30, 1999, the Company had not incurred any costs with respect to
launch insurance.
Terrestrial Repeater System. Based on the current design of the XM Radio system
and preliminary bids, the Company estimates that through its expected
commencement of operations in the second quarter of 2001, it will incur
aggregate costs of approximately $263.3 million for a terrestrial repeater
system. The Company expects these costs to cover the capital cost of the design,
development and installation of a system of terrestrial repeaters to cover
approximately 70 cities and metropolitan areas. As of September 30, 1999, the
Company had incurred costs with respect to the terrestrial repeater buildout of
$3.9 million which was paid during the three months ended September 30, 1999.
In August 1999, the Company signed a contract with LCC International calling for
payments of approximately $115 million for engineering and site preparation.
Ground Segment. Based on the design of the XM Radio system, available research,
preliminary bids and actual contract costs, the Company expects to incur
aggregate ground segment costs through the expected commencement of operations
in the second quarter of 2001 of approximately $65.9 million. The Company
expects these costs will cover the satellite control facilities, programming
production studios and various other equipment and facilities. As of September
30, 1999, the Company had not incurred any costs with respect to the ground
segment.
FCC License. In October 1997, the Company received one of two satellite radio
licenses issued by the FCC. The Company has paid approximately $90.0 million for
this license, including the initial bid right. There are no further payments
required relating to the
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license. Operating Expenses and Working Capital Requirements. In addition to the
above capital needs, the Company will require funds for working capital,
operating expenses and royalty payments currently estimated to be approximately
$138.3 million through targeted commercial launch in the second quarter of 2001.
From inception through September 30, 1999, the Company has incurred total
operating expenses of $43.6 million. Total cash used in operating activities was
$40.5 million. The difference between the loss incurred to date and cash used in
operations is principally due to $3.3 million in accrued interest.
The Company anticipates a non-cash compensation charge for performance-based
stock options to be incurred in the fourth quarter.
Funds Required For XM Radio Following Commencement Of Commercial Operations
Even after commencement of commercial operations, the Company expects to need
significant additional funds to cover its cash requirements before it generates
sufficient cash flow from operations to cover its expenses. The Company cannot
accurately estimate the amount of additional funds needed, since this will
depend on business decisions to be made in the future and revenues received from
operations, but it expects the amount to be substantial. Funds will be needed to
cover operating expenses, marketing and promotional expenses including an
extensive marketing campaign in connection with the launch of the Company's
service, distribution expenses, programming costs and any further development of
the XM Radio system that it may undertake after operations commence.
The Company currently expects to satisfy its funding requirements for the period
following commencement of commercial operations in substantially the same manner
as its requirements prior to commencement of commercial operations.
Year 2000 Readiness
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Many such systems will
need to accept four-digit entries in order to distinguish 20th century dates
from 21st century dates. As a result, before the end of this year, computer
systems and software used by many companies need to be upgraded to comply with
these Year 2000 requirements. Otherwise these systems may cause miscalculations
that will interfere with business activities or simply fail to work. When the
Company uses the terms "Year 2000 Ready" or "Year 2000 Readiness," it mean that
customers will not experience any material difference in performance and
functionality of our networks as a result of the date being prior to, during or
after the Year 2000.
The Company began assessing its Year 2000 Readiness in mid-1998. The Company has
substantially completed the identification, necessary modification and testing
of all its current systems, which it believes are Year 2000 compliant. This
required no significant expense. Because the Company is a development stage
company and does not expect to commence commercial operations until the second
quarter of 2001, it does not expect that Year 2000 issues will pose significant
operational or financial problems. The Company's existing technology development
contracts require Year 2000 Readiness, and it will require Year 2000 Readiness
in all new contracts that it enters.
In addition to the Company's internal review process, it has had initial
communications with certain significant third parties with which it does
business to evaluate their Year 2000 Readiness and state of compliance and
determine the extent to which its systems may be affected if they fail to
remediate their own Year 2000 issues.
To date, the Company has not identified any system which presents a material
risk of not being Year 2000 Ready in a timely fashion or for which a suitable
alternative cannot be implemented. However, as the Company progresses with its
Year 2000 Readiness review, it may identify systems that present a material risk
of Year 2000 disruption. If the Company determines that its business or a
segment thereof is at material risk of disruption due to Year 2000 issues or
anticipate that our Year 2000 Readiness will not be completed in a timely
fashion, it will work to enhance its contingency plan.
Qualitative and Quantitative Discussion of Market Risk
To date, the Company does not have any derivative financial instruments. All of
the Company's indebtedness was automatically converted into equity upon the
completion of the Company's initial public offering. As a result, the Company
believes that its exposure to interest rate risk is not material to the results
of operations.
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PART II: OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds
(i) On July 7, 1999, the Company issued an aggregate $250.0 million of Series A
subordinated convertible notes to six strategic and financial investors:
General Motors Corporation ($50 million); Clear Channel Communications ($75
million); DIRECTV ($50 million); and Columbia Capital, Telcom Ventures,
L.L.C. and Madison Dearborn Partners ($75 million in the aggregate). In
accordance with the terms of the notes, upon and as a result of the
Company's initial public offering on October 8, 1999, the notes, and
accrued interest thereon, converted into equity of the Company at a
conversion price of $9.52 per share as follows: General Motors Corporation
and DIRECTV each received 5,393,252 shares of Series A preferred stock of
the Company; Clear Channel Communications received 8,089,877 shares of
Class A common stock of the Company; and Columbia Capital, Telcom Ventures,
L.L.C. and Madison Dearborn Partners each received 2,696,626 shares of
Class A common stock of the Company.
The above sale was exempt from registration under Section 4(2) of the
Securities Act of 1933 and Regulation D thereunder.
On July 7, 1999, the Company issued to AMSC a $81.7 million convertible
note bearing interest at LIBOR plus five percent per annum and due December
31, 2004. the note was convertible into Class B common stock of the
Company at $8.52 per share. This sale was exempt from registration under
Section 4(2) of the Securities Act of 1933 and Regulation D thereunder.
Also on July 7, the Company amended its convertible note agreement with
AMSC to change the maturity date of a $21.4 million convertible note
previously issued to AMSC to December 31, 2004, unless extended in certain
circumstances, and to provide for the conversion of the aggregate principal
of the note into Class B common stock at a price of $16.35 per share and
the conversion of the accrued interest in Class B common stock at a price
of $9.52 per share.
In accordance with the terms of the $81.7 million convertible note and the
$21.4 million convertible note, upon and as a result of the Company's
initial public offering on October 8, 1999, the notes, and accrued interest
thereon, converted into 9,704,481 shares and 1,478,445 shares,
respectively, of Class B common stock of the Company.
On July 16, 1999, the Company issued 14,716 shares of its Class A common
stock to Gary Parsons, the Chairman of the Company's Board of Directors,
pursuant to its employment agreement with Mr. Parsons. The stock is
subject to repurchase by the Company at $9.52 per share if Mr. Parsons'
employment with the Company is terminated before July 16, 2000. This
transaction was exempt from registration under rule 701 of the Securities
Act.
(ii) Pursuant to Item 701 (f) of Regulation S-K, the following information is
being furnished to disclose certain information regarding the uses of
proceeds received by the Company in its initial public offering of its
Class A common stock ("IPO"):
(1) The Company's Registration Statement for the IPO (File No. 333-83619) was
declared effective on October 5, 1999.
(2) The offering commenced on October 8, 1999 and terminated when all of the
shares were sold.
(3) The managing underwriters for the IPO were Bear Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette, Deutsche Banc Alex. Brown, and Merrill Lynch
& Co.
(4) In the IPO, the Company registered and sold an aggregate 10,000,000 shares
of its Class A common stock, par value $.01 per share.
(5) On October 17, 1999, the underwriters exercised their over-allotment option
to purchase 241,000 shares of the Company's Class A common stock.
(6) The aggregate offering proceeds of the shares sold in the offering,
including the over-allotment option, were $122,892,000.
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(7) The following is a reasonable estimate of the expenses that were incurred
in connection with the IPO:
<TABLE>
<S> <C>
Underwriting fees and commissions $7,485,210
SEC registration fee 51,152
Printing and engraving expense 200,000
Legal fees and expense 500,000
Blue Sky fees and expense 7,500
NASD filing fee 18,900
Accounting fees and expense 200,000
Transfer agent fee 20,000
Listing fee 95,000
Miscellaneous 69,948
----------
Total $8,647,710
==========
</TABLE>
The payments referred to above were not made directly or indirectly to
officers, directors, and general partners of the issuer or their
associates, or to any person owning 10% of more of any class of securities
of the issuer, or to any officers of the issuer and were not direct of
indirect payments.
(8) The net offering proceeds from the offering, including the over-allotment
option, were approximately $114,244,290.
(9) The net offering proceeds from the IPO are in the form of short-term
investments pending their use as described in the Company's Registration
Statement for the IPO.
Item 4: Submission of Matters to a Vote of Security Holders.
(a) On July 8, 1999 and September 27, 1999, the Company's stockholders took
certain actions pursuant to unanimous written consent.
(b) On July 8, 1999, by unanimous written consent, the Company's stockholders
elected or re-elected the following individuals as directors of the Company:
Gary M. Parsons
Hugh Panero
Randall T. Mays
Randy S. Segal
Jack Shaw
Rajendra Singh
Ronald L. Zarrella
Of the above directors, Messrs. Parsons, Panero and Shaw were directors of the
Company prior to the election.
On September 27, 1999, by unanimous written consent, the Company's stockholders
elected Thomas J. Donohue and Nathaniel A. Davis as directors of the Company
effective upon closing of the Company's initial public offering. All of the
Company's directors who were elected or re-elected as directors on July 8, 1999,
as listed above, continued as directors of the Company after the September 27,
1999 election.
(c) On July 8, 1999, the following matters were approved by unanimous written
consent of the Company's stockholders:
(i) an increase from 25 to 50 of the number of shares of Class A
common stock authorized to be issued under the Company's 1998
Shares Award Plan; and
(ii) the election of directors, as described in paragraph (b) above.
On September 27, 1999, the following matters were approved by unanimous
written consent of the Company's stockholders:
(i) the amendment and restatement of the Company's Certificate of
Incorporation;
(ii) the adoption by the Company of its Employee Stock Purchase Plan;
and
(iii) the election of directors, as described in paragraph (b) above.
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Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of XM Satellite Radio
Holdings Inc. (incorporated by reference to Exhibit 3.1 to the
XM Satellite Radio Holdings Inc. Registration Statement on
Form S-1, filed with the SEC on July 23, 1999, as amended).
3.2 Restated Bylaws of XM Satellite Radio Holdings Inc.
(incorporated by reference to Exhibit 3.2 to the XM Satellite
Radio Holdings Inc. Registration Statement on Form S-1, filed
with the SEC on July 23, 1999, as amended).
4.1 Form of Certificate for our Class A common stock (incorporated
by reference to Exhibit 3 to the XM Satellite Radio Holdings
Inc. Registration Statement on Form 8-A, filed with the SEC on
September 23, 1999).
10.1 Shareholders' Agreement, dated as of July 7, 1999, by and
among XM Satellite Radio Holdings Inc., American Mobile
Satellite Corporation, Baron Asset Fund, Clear Channel
Investments, Inc., Columbia XM Radio Partners, LLC, DIRECTV
Enterprises, Inc., General Motors Corporation, Madison
Dearborn Capital Partners III, L.P., Special Advisors Fund I,
LLC, Madison Dearborn Special Equity III, L.P., and Telcom-XM
Investors, L.L.C. (incorporated by reference to Exhibit 10.1
to the XM Satellite Radio Holdings Inc. Registration Statement
on Form S-1, filed with the SEC on July 23, 1999, as amended).
10.2 Registration Rights Agreement, dated July 7, 1999, by and
among XM Satellite Radio Holdings Inc., American Mobile
Satellite Corporation, the Baron Asset Fund series of Baron
Asset Fund, and the holders of Series A subordinated
convertible notes of XM Satellite Radio Holdings Inc.
(incorporated by reference to Exhibit 10.2 to the XM Satellite
Radio Holdings Inc. Registration Statement on Form S-1, filed
with the SEC on July 23, 1999, as amended).
10.3 Satellite Purchase Contract for In-Orbit Delivery, by and
between XM Satellite Radio Inc. and Hughes Space and
Communications International, Inc., dated July 21, 1999
(incorporated by reference to Exhibit 10.6 to the XM Satellite
Radio Holdings Inc. Registration Statement on Form S-1, filed
with the SEC on July 23, 1999, as amended).
10.4 Amended and Restated Agreement by and between XM Satellite
Radio, Inc. and STMicroelectronics Srl, dated September 27,
1999 (incorporated by reference to Exhibit 10.7 to the XM
Satellite Radio Holdings Inc. Registration Statement on Form
S-1, filed with the SEC on July 23, 1999, as amended).
10.5 Agreement, dated as of July 16, 1999 between XM Satellite
Radio Holdings Inc. and Gary Parsons (incorporated by
reference to Exhibit 10.12 to the XM Satellite Radio Holdings
Inc. Registration Statement on Form S-1, filed with the SEC on
July 23, 1999, as amended).
10.6 Letter Agreement with Stelios Patsiokas dated September 14,
1998 (incorporated by reference to Exhibit 10.15 to the XM
Satellite Radio Holdings Inc. Registration Statement on Form
S-1, filed with the SEC on July 23, 1999, as amended).
10.7 Form of Indemnification Agreement between XM Satellite Radio
Holdings Inc. and each of its directors and executive officers
(incorporated by reference to Exhibit 10.17 to the XM
Satellite Radio Holdings Inc. Registration Statement on Form
S-1, filed with the SEC on July 23, 1999, as amended).
10.8 Firm Fixed Price Contract #001 between XM Satellite Radio Inc.
and the Fraunhofer Gesellschaft zur Foderung Der angewandten
Forschung e.V., dated July 16, 1999 (incorporated by reference
to Exhibit 10.20) to the XM Satellite Radio Holdings Inc.
Registration Statement on Form S-1, filed with the SEC on July
23, 1999, as amended).
10.9 Contract for Engineering and Construction of Terrestrial
Repeater Network System by and between XM Satellite Radio Inc.
and LCC International, Inc., dated August 18, 1999
(incorporated by reference to Exhibit 10.21 to the XM
Satellite Radio Holdings Inc. Registration Statement on Form
S-1, filed with the SEC on July 23, 1999, as amended).
10.10 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.22 to the XM Satellite Radio Holdings Inc.
Registration Statement on Form S-1, filed with the SEC on July
23, 1999, as amended).
10.11 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 the XM
Satellite Radio Holdings Inc. Registration Statement on Form
S-1, filed with the SEC on July 23, 1999, as amended).
16
<PAGE>
10.12 Form of Lease between Consortium One Eckington, L.L.C. and XM
Satellite Radio, Inc., dated September 29, 1999 (incorporated
by reference to Exhibit 10.26) to the XM Satellite Radio
Holdings Inc. Registration Statement on Form S-1, filed with
the SEC on July 23, 1999, as amended).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: None
(c) Exhibits: (27) Financial Data Schedule
17
<PAGE>
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.
(Registrant)
November 12, 1999 By: /s/ Heinz Stubblefield
_________________________________________________
Heinz Stubblefield
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS schedule contains summary financial information extracted from the
Company's unaudited Consolidated Statement of Loss, Consolidated Balance Sheet,
and Consolidated Statement of Cash Flows, in each case for the three months
ended September 30, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 54,356
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,935
<PP&E> 1,217
<DEPRECIATION> 64
<TOTAL-ASSETS> 406,817
<CURRENT-LIABILITIES> 19,223
<BONDS> 353,094
0
0
<COMMON> 67
<OTHER-SE> 24,267
<TOTAL-LIABILITY-AND-EQUITY> 406,817
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,028
<INCOME-PRETAX> (17,402)
<INCOME-TAX> (17,402)
<INCOME-CONTINUING> (17,402)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,402)
<EPS-BASIC> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
