Exhibit 99.1
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2000, and for the
period May 17, 1990 (date of inception) to December 31,
2000...................................................... F-3
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
period May 17, 1990 (date of inception) to December 31,
2000...................................................... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2000 and for the
period May 17, 1990 (date of inception) to December 31,
2000...................................................... F-9
Notes to Consolidated Financial Statements.................. F-10
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Sirius Satellite Radio Inc.:
We have audited the accompanying consolidated balance sheets of Sirius
Satellite Radio Inc. (a Delaware corporation in the development stage) and
subsidiary as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the three
years in the period ended December 31, 2000 and for the period from inception
(May 17, 1990) to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sirius Satellite Radio Inc.
and subsidiary, as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for the three years in the period ended
December 31, 2000 and for the period from May 17, 1990 (date of inception) to
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is expected to incur additional substantial
expenditures to plan and implement its service and to sustain its operations
until it generates positive cash flow from operations. The Company's working
capital at December 31, 2000 will not be sufficient to meet these objectives as
presently structured. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
New York, New York
February 21, 2001
F-2
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CUMULATIVE FOR
THE PERIOD
MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
---------------------------------- TO DECEMBER 31,
1998 1999 2000 2000
--------- --------- ---------- -------------------
Revenue...................................... $ -- $ -- $ -- $ --
Operating expenses:
Engineering design & development......... (2,150) (33,134) (71,000) (110,550)
General and administrative............... (11,247) (30,384) (54,634) (115,562)
Special charges.......................... (25,682) -- -- (27,682)
-------- -------- --------- ---------
Total operating expenses............. (39,079) (63,518) (125,634) (253,794)
-------- -------- --------- ---------
Other income (expense):
Interest and investment income........... 7,250 17,502 24,485 53,639
Interest expense......................... (14,272) (16,806) (33,595) (66,785)
-------- -------- --------- ---------
(7,022) 696 (9,110) (13,146)
-------- -------- --------- ---------
Loss before income taxes..................... (46,101) (62,822) (134,744) (266,940)
Income taxes:
Federal.................................. (1,982) -- -- (1,982)
State.................................... (313) -- -- (313)
-------- -------- --------- ---------
Net loss..................................... (48,396) (62,822) (134,744) (269,235)
-------- -------- --------- ---------
Preferred stock dividends.................... (19,380) (30,321) (39,811) (91,850)
Preferred stock deemed dividends............. (11,676) (3,535) (8,260) (75,446)
Accretion of dividends in connection with the
issuance of warrants on preferred stock.... (6,501) (303) (900) (7,704)
-------- -------- --------- ---------
Net loss applicable to common stockholders... $(85,953) $(96,981) $(183,715) $(444,235)
-------- -------- --------- ---------
-------- -------- --------- ---------
Net loss per share applicable to common
stockholders (basic and diluted)........... $(4.79) $(3.96) $(4.72)
-------- -------- ---------
-------- -------- ---------
Weighted average common shares outstanding
(basic and diluted)........................ 17,932 24,470 38,889
-------- -------- ---------
-------- -------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
---------------------------
1999 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 81,809 $ 14,397
Marketable securities, at market......................... 317,810 129,153
Restricted investments, at amortized cost................ 67,454 41,510
Prepaid expense and other................................ 741 13,288
---------- ----------
Total current assets.................................. 467,814 198,348
---------- ----------
Property and equipment...................................... 624,348 1,016,570
Less: accumulated depreciation.............................. (880) (3,105)
---------- ----------
623,468 1,013,465
Other assets:
FCC license.............................................. 83,368 83,368
Debt issue cost, net..................................... 23,053 20,124
Deposits and other....................................... 8,909 8,277
---------- ----------
Total other assets.................................... 115,330 111,769
---------- ----------
Total assets.......................................... $1,206,612 $1,323,582
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $ 30,599 $ 45,057
Satellite construction payable........................... 19,275 9,310
Short-term notes payable................................. 114,075 --
---------- ----------
Total current liabilities............................. 163,949 54,367
Long-term notes payable and accrued interest................ 488,690 472,602
Deferred satellite payments and accrued interest............ 55,140 60,881
Deferred income taxes....................................... 2,237 2,237
---------- ----------
Total liabilities..................................... 710,016 590,087
---------- ----------
Commitments and contingencies:
10 1/2% Series C Convertible Preferred Stock, no par
value: 2,025,000 shares authorized, 1,248,776 and no
shares issued and outstanding at December 31, 1999 and
2000, respectively (liquidation preferences of $124,878
and $0), at net carrying value including accrued
dividends............................................... 149,285 --
9.2% Series A Junior Cumulative Convertible Preferred
Stock, $.001 par value: 4,300,000 shares authorized,
1,461,270 and 1,595,707 shares issued and outstanding at
December 31, 1999 and 2000, respectively (liquidation
preferences of $146,127 and $159,571), at net carrying
value including accrued dividends....................... 148,894 162,380
9.2% Series B Junior Cumulative Convertible Preferred
Stock, $.001 par value: 2,100,000 shares authorized,
655,406 and 715,703 shares issued and outstanding at
December 31, 1999 and 2000, respectively (liquidation
preferences of $65,541 and $71,570), at net carrying
value including accrued dividends....................... 64,238 70,507
9.2% Series D Junior Cumulative Convertible Preferred
Stock, $.001 par value: 10,700,000 shares authorized,
2,145,688 shares issued and outstanding at December 31,
2000 (liquidation preference of $214,569), at net
carrying value including accrued dividends.............. -- 210,125
Stockholders' equity:
Preferred stock, $.001 par value: 50,000,000 shares
authorized 8,000,000 shares designated as 5% Delayed
Convertible Preferred Stock, none issued or
outstanding............................................. -- --
Common stock, $.001 par value: 200,000,000 shares
authorized, 28,721,041 and 42,107,957 shares issued and
outstanding at December 31, 1999 and 2000,
respectively............................................ 29 42
Additional paid-in capital............................... 268,641 559,676
Deficit accumulated during the development stage......... (134,491) (269,235)
---------- ----------
Total stockholders' equity............................ 134,179 290,483
---------- ----------
Total liabilities and stockholders' equity............ $1,206,612 $1,323,582
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
---------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Initial sale of no par
value common stock,
$5.00 per share,
May 17, 1990........... 11,080 $ 55 -- $ -- -- $ --
Initial issuance of
common stock in
satisfaction of amount
due to related party,
$5.00 per share........ 28,920 145 -- -- -- --
Conversion of no par
value common stock to
Class A and Class B no
par value common
stock.................. (40,000) (200) 2,000,000 169 360,000 31
Sale of Class B common
stock, $0.4165 per
share.................. -- -- -- -- 442,000 184
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.4165 per share...... -- -- -- -- 24,000 10
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1990................... -- -- 2,000,000 169 826,000 225
Sale of Class B common
stock, $0.50 per
share.................. -- -- -- -- 610,000 305
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- -- 300,000 150
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1991................... -- -- 2,000,000 169 1,736,000 680
Sale of Class B common
stock, $0.50 per
share.................. -- -- -- -- 200,000 100
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- -- 209,580 105
Conversion of note
payable to related
party to Class B common
stock, $0.4165 per
share.................. -- -- -- -- 303,440 126
Conversion of Class A
and Class B common
stock to no par value
common stock........... 4,449,020 1,180 (2,000,000) (169) (2,449,020) (1,011)
Sale of no par value
common stock, $1.25 per
share.................. 1,600,000 2,000 -- -- -- --
Conversion of no par
value common stock to
$.001 par value common
stock.................. -- (3,174) -- -- -- --
Sale of $.001 par value
common stock, $5.00 per
share.................. 315,000 -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1992................... 6,364,020 6 -- -- -- --
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 1,029,000 1 -- -- -- --
Compensation expense in
connection with
issuance of stock
options................ -- -- -- -- -- --
Common stock issued in
connection with
conversion of note
payable at $5.00 per
share.................. 60,000 -- -- -- -- --
Common stock issued in
satisfaction of
commissions payable,
$5.00 per share........ 4,000 -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December
31, 1993............... 7,457,020 7 -- -- -- --
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
Initial sale of no par
value common stock,
$5.00 per share,
May 17, 1990........... $ -- $ -- $ -- $ 55
Initial issuance of
common stock in
satisfaction of amount
due to related party,
$5.00 per share........ -- -- -- 145
Conversion of no par
value common stock to
Class A and Class B no
par value common
stock.................. -- -- -- --
Sale of Class B common
stock, $0.4165 per
share.................. -- -- -- 184
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.4165 per share...... -- -- -- 10
Net loss................ -- (839) -- (839)
---------- ----------- ------------ -------
Balance, December 31,
1990................... -- (839) -- (445)
Sale of Class B common
stock, $0.50 per
share.................. -- -- -- 305
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- 150
Net loss................ -- (575) -- (575)
---------- ----------- ------------ -------
Balance, December 31,
1991................... -- (1,414) -- (565)
Sale of Class B common
stock, $0.50 per
share.................. -- -- -- 100
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- 105
Conversion of note
payable to related
party to Class B common
stock, $0.4165 per
share.................. -- -- -- 126
Conversion of Class A
and Class B common
stock to no par value
common stock........... -- -- -- --
Sale of no par value
common stock, $1.25 per
share.................. -- -- -- 2,000
Conversion of no par
value common stock to
$.001 par value common
stock.................. 3,174 -- -- --
Sale of $.001 par value
common stock, $5.00 per
share.................. 1,575 -- -- 1,575
Net loss................ -- (1,551) -- (1,551)
---------- ----------- ------------ -------
Balance, December 31,
1992................... 4,749 (2,965) -- 1,790
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 4,882 -- -- 4,883
Compensation expense in
connection with
issuance of stock
options................ 80 -- -- 80
Common stock issued in
connection with
conversion of note
payable at $5.00 per
share.................. 300 -- -- 300
Common stock issued in
satisfaction of
commissions payable,
$5.00 per share........ 20 -- -- 20
Net loss................ -- (6,568) -- (6,568)
---------- ----------- ------------ -------
Balance, December
31, 1993............... 10,031 (9,533) -- 505
(continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
---------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 250,000 $ -- -- $ -- -- $ --
Initial public offering
of Units, consisting of
two shares of $.001 par
value common stock and
one warrant, $10.00 per
Unit, net of expenses.. 1,491,940 2 -- -- -- --
Deferred compensation on
stock options
granted................ -- -- -- -- -- --
Forfeiture of stock
options by officer..... -- -- -- -- -- --
Compensation expense in
connection with
issuance of stock
options................ -- -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1994................... 9,198,960 9 -- -- -- --
Common stock issued for
services rendered,
between $3.028 and
$3.916 per share....... 107,000 -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1995................... 9,305,960 9 -- -- -- --
Exercise of stock
warrants at $6.00 per
share.................. 791,931 1 -- -- -- --
Exercise of stock options
by officers, between
$1.00 and $5.00 per
share.................. 135,000 -- -- -- -- --
Common stock issued for
services rendered,
between $5.76 and
$12.26 per share....... 67,500 -- -- -- -- --
Common stock options
granted for services
rendered, to purchase
60,000 shares at $4.50
per share.............. -- -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1996................... 10,300,391 10 -- -- -- --
Exercise of stock
options between $1.00
and $2.00 per share.... 43,000 -- -- -- -- --
Value of beneficial
conversion feature on
5% Delayed Convertible
Preferred Stock........ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Sale of $.001 par value
common stock, $13.12
per share, net of
expenses............... 1,905,488 2 -- -- -- --
Exchange of 5% Delayed
Convertible Preferred
Stock into 10 1/2%
Series C Convertible
Preferred Stock........ -- -- -- -- -- --
Conversion of 5% Delayed
Convertible Preferred
Stock into $.001 par
value common stock..... 749,812 1 -- -- -- --
Public offering of $.001
par value common stock
at $18.00 per share,
net of expenses........ 3,050,000 3 -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Issuance of fully vested
in the money stock
options................ -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1997................... 16,048,691 16 -- -- -- --
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ $ 1,159 $ -- $ -- $ 1,159
Initial public offering
of Units, consisting of
two shares of $.001 par
value common stock and
one warrant, $10.00 per
Unit, net of expenses.. 4,834 -- -- 4,836
Deferred compensation on
stock options
granted................ 1,730 -- (1,730) --
Forfeiture of stock
options by officer..... (207) -- 207 --
Compensation expense in
connection with
issuance of stock
options................ 113 -- -- 113
Amortization of deferred
compensation........... -- -- 883 883
Net loss................ -- (4,065) -- (4,065)
---------- ----------- ------------ -------
Balance, December 31,
1994................... 17,660 (13,598) (640) 3,431
Common stock issued for
services rendered,
between $3.028 and
$3.916 per share....... 347 -- -- 347
Amortization of deferred
compensation........... -- -- 320 320
Net loss................ -- (2,107) -- (2,107)
---------- ----------- ------------ -------
Balance, December 31,
1995................... 18,007 (15,705) (320) 1,991
Exercise of stock
warrants at $6.00 per
share.................. 4,588 -- -- 4,589
Exercise of stock options
by officers, between
$1.00 and $5.00 per
share.................. 155 -- -- 155
Common stock issued for
services rendered,
between $5.76 and
$12.26 per share....... 554 -- -- 554
Common stock options
granted for services
rendered, to purchase
60,000 shares at $4.50
per share.............. 120 -- -- 120
Amortization of deferred
compensation........... -- -- 320 320
Net loss................ -- (2,831) -- (2,831)
---------- ----------- ------------ -------
Balance, December 31,
1996................... 23,424 (18,536) -- 4,898
Exercise of stock
options between $1.00
and $2.00 per share.... 56 -- -- 56
Value of beneficial
conversion feature on
5% Delayed Convertible
Preferred Stock........ 51,975 -- -- 51,975
Accretion of deemed
dividend............... (51,975) -- -- (51,975)
Sale of $.001 par value
common stock, $13.12
per share, net of
expenses............... 24,393 -- -- 24,395
Exchange of 5% Delayed
Convertible Preferred
Stock into 10 1/2%
Series C Convertible
Preferred Stock........ (63,450) -- -- (63,450)
Conversion of 5% Delayed
Convertible Preferred
Stock into $.001 par
value common stock..... 10,280 -- -- 10,281
Public offering of $.001
par value common stock
at $18.00 per share,
net of expenses........ 46,424 -- -- 46,427
Dividends on preferred
stock.................. (2,338) -- -- (2,338)
Issuance of fully vested
in the money stock
options................ 448 -- -- 448
Net loss................ -- (4,737) -- (4,737)
---------- ----------- ------------ -------
Balance, December 31,
1997................... 39,237 (23,273) -- 15,980
(continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
---------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Sale of $.001 par value
common stock, $20.00
per share, net of
expenses............... 5,000,000 $ 5 -- $ -- -- $ --
Exercise of stock
options between $2.00
and $4.50 per share.... 44,850 -- -- -- -- --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock into
$.001 par value common
stock.................. 2,107,666 2 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 7,742 -- -- -- -- --
Compensation expense in
connection with vesting
of stock options....... -- -- -- -- -- --
Value of beneficial
conversion feature on
9.2% Series A Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Value of option on 9.2%
Series B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1998................... 23,208,949 23 -- -- -- --
Sale of $.001 par value
common stock, $24.75
per share, net of
expenses............... 3,450,000 4 -- -- -- --
Issuance of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009............... -- -- -- -- -- --
Exercise of stock
options between $2.00
and $24.38 per share... 205,002 -- -- -- -- --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 1,409,871 1 -- -- -- --
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 423,221 1 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 23,998 -- -- -- -- --
Compensation in
connection with the
issuance of stock
options................ -- -- -- -- -- --
Value of premium on
issuance of 9.2% Series
B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ----------- ------ ----------- -------
Balance, December 31,
1999................... 28,721,041 29 -- -- -- --
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
Sale of $.001 par value
common stock, $20.00
per share, net of
expenses............... $ 97,995 $ -- $ -- $ 98,000
Exercise of stock
options between $2.00
and $4.50 per share.... 140 -- -- 140
Conversion of 10 1/2%
Series C Convertible
Preferred Stock into
$.001 par value common
stock.................. 37,654 -- -- 37,656
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 214 -- -- 214
Compensation expense in
connection with vesting
of stock options....... 950 -- -- 950
Value of beneficial
conversion feature on
9.2% Series A Junior
Cumulative Convertible
Preferred Stock........ 10,884 -- -- 10,884
Value of option on 9.2%
Series B Junior
Cumulative Convertible
Preferred Stock........ (6,600) -- -- (6,600)
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ 181 -- -- 181
Accretion of deemed
dividend............... (11,676) -- -- (11,676)
Dividends on preferred
stock.................. (19,380) -- -- (19,380)
Net loss................ -- (48,396) -- (48,396)
---------- ----------- ------------ -------
Balance, December 31,
1998................... 149,599 (71,669) -- 77,953
Sale of $.001 par value
common stock, $24.75
per share, net of
expenses............... 78,133 -- -- 78,137
Issuance of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009............... 31,382 -- -- 31,382
Exercise of stock
options between $2.00
and $24.38 per share... 1,642 -- -- 1,642
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 25,813 -- -- 25,814
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 11,488 -- -- 11,489
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 654 -- -- 654
Compensation in
connection with the
issuance of stock
options................ 752 -- -- 752
Value of premium on
issuance of 9.2% Series
B Junior
Cumulative Convertible
Preferred Stock........ (3,385) -- -- (3,385)
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ 6,419 -- -- 6,419
Accretion of deemed
dividend............... (3,535) -- -- (3,535)
Dividends on preferred
stock.................. (30,321) -- -- (30,321)
Net loss................ -- (62,822) -- (62,822)
---------- ----------- ------------ -------
Balance, December 31,
1999................... 268,641 (134,491) -- 134,179
(continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
-------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Exercise of stock
options between $2.88
and $38.88 per share... 623,326 $ 1 -- $ -- -- $ --
Exercise of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009, $26.45 per
share.................. 43,344 -- -- -- -- --
Exercise of warrants to
purchase 10 1/2%
Series C Convertible
Preferred Stock........ -- -- -- -- -- --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 8,266,488 8 -- -- -- --
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 2,134,582 2 -- -- -- --
Sale of $.001 par value
common stock, $43.66
per share, net of
expenses............... 2,290,322 2 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 28,854 -- -- -- -- --
Compensation in
connection with the
issuance of common
stock and stock
options................ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ------- ------- ------ ------- -------
Balance, December 31,
2000................... 42,107,957 $ 42 -- $ -- -- $ --
---------- ------- ------- ------ ------- -------
---------- ------- ------- ------ ------- -------
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
Exercise of stock
options between $2.88
and $38.88 per share... $ 7,819 $ -- $-- $ 7,820
Exercise of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009, $26.45 per
share.................. 627 -- -- 627
Exercise of warrants to
purchase 10 1/2%
Series C Convertible
Preferred Stock........ (4,443) -- -- (4,443)
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 164,361 -- -- 164,369
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 63,265 -- -- 63,267
Sale of $.001 par value
common stock, $43.66
per share, net of
expenses............... 99,958 -- -- 99,960
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 1,205 -- -- 1,205
Compensation in
connection with the
issuance of common
stock and stock
options................ 6,314 -- -- 6,314
Accretion of deemed
dividend............... (8,260) -- -- (8,260)
Dividends on preferred
stock.................. (39,811) -- -- (39,811)
Net loss................ -- (134,744) -- (134,744)
---------- ----------- ------- --------
Balance, December 31,
2000................... $ 559,676 $ (269,235) $-- $290,483
---------- ----------- ------- --------
---------- ----------- ------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
CUMULATIVE FOR THE
PERIOD MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
--------------------------------- TO DECEMBER 31,
1998 1999 2000 2000
--------- --------- --------- --------------------
Cash flows from development stage activities:
Net loss.................................. $ (48,396) $ (62,822) $(134,744) $ (269,235)
Adjustments to reconcile net loss to net
cash provided by (used in) development
stage activities:
Depreciation expense................... 49 861 2,352 3,516
Unrealized (gain) loss on marketable
securities........................... 138 (3,396) 1,606 (2,276)
Loss on disposal of assets............. 105 10 249 364
Special charges........................ 23,557 -- -- 25,557
Accretion of note payable charged as
interest expense..................... 25,998 56,199 76,739 160,804
Compensation expense in connection with
issuance of common stock and stock
options.............................. 150 1,206 7,176 11,718
Expense incurred in connection with
conversion of debt................... -- 1,776 12,655 14,431
Increase (decrease) in cash and cash
equivalents resulting from changes in
assets and liabilities:
Prepaid expense and other.............. 762 (575) (12,547) (13,288)
Due to related party................... -- -- -- 351
Other assets........................... (2,368) (3,457) 1,065 (4,991)
Accounts payable and accrued
expenses............................. 5,062 4,019 (23,025) (13,454)
Deferred taxes......................... 2,237 -- -- 2,237
--------- --------- --------- ----------
Net cash provided by (used in)
development stage activities...... 7,294 (6,179) (68,474) (84,266)
--------- --------- --------- ----------
Cash flows from investing activities:
Sales (purchases) of marketable securities
and restricted investments, net.......... 53,911 (266,422) 212,380 (168,989)
Purchase of FCC license................... (22) -- -- (83,368)
Purchases of property and equipment....... (210,510) (309,059) (398,442) (974,002)
Acquisition of Sky-Highway Radio Corp..... -- -- -- (2,000)
--------- --------- --------- ----------
Net cash used in investing
activities........................ (156,621) (575,481) (186,062) (1,228,359)
--------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable... 70,863 180,399 1,883 253,145
Proceeds from issuance of common stock,
net...................................... 98,064 78,337 100,301 362,081
Proceeds from issuance of preferred stock,
net...................................... 129,550 62,900 192,450 505,418
Proceeds from exercise of stock options
and warrants............................. 140 1,643 8,447 15,030
Proceeds from issuance of promissory note
and units, net........................... -- 190,000 -- 306,535
Proceeds from issuance of promissory notes
to related parties....................... -- -- -- 2,965
Repayment of promissory notes............. -- -- -- (2,635)
Repayment of notes payable................ -- -- (115,957) (115,957)
Loan from officer......................... -- -- -- 440
--------- --------- --------- ----------
Net cash provided by financing
activities........................ 298,617 513,279 187,124 1,327,022
--------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................. 149,290 (68,381) (67,412) 14,397
Cash and cash equivalents at the beginning of
period...................................... 900 150,190 81,809 --
--------- --------- --------- ----------
Cash and cash equivalents at the end of
period...................................... $ 150,190 $ 81,809 $ 14,397 $ 14,397
--------- --------- --------- ----------
--------- --------- --------- ----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest................................. $ 2,383 $ 22,825 $ 38,405 $ 63,696
Cash paid during the period for taxes..... $ 58 $ -- $ -- $ 58
Supplemental disclosure of non-cash investing
and financing activities:
Capitalized interest...................... $ 16,243 $ 56,567 $ 63,728 $ 136,538
Deferred satellite payments, including
accrued interest......................... $ 31,324 $ 23,816 $ 5,741 $ 60,881
Common stock issued in satisfaction of
notes payable and amounts due to related
parties, including accrued interest...... $ -- $ 10,151 $ 63,267 $ 74,825
Exchange of 5% Delayed Convertible
Preferred Stock for 10 1/2%
Series C Convertible Preferred Stock..... $ -- $ -- $ -- $ 173,687
Exchange of 10 1/2% Series C Convertible
Preferred Stock and
accrued dividends for common stock....... $ 37,656 $ 25,814 $ 164,369 $ 227,839
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
1. BUSINESS
Sirius Satellite Radio Inc., a Delaware corporation, is developing a service
for broadcasting digital quality music programming via satellites to
subscribers' vehicles. We intend to focus on providing a consumer service, and
anticipate that the equipment required to receive our broadcasts will be
manufactured by consumer electronics manufacturers. In April 1997, we were the
winning bidder in an FCC auction for one of two national satellite broadcast
licenses with a winning bid of $83.3 million. We paid the bid amount during 1997
and were awarded an FCC license on October 10, 1997.
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sirius
Satellite Radio Inc. and our wholly owned subsidiary. Intercompany transactions
are eliminated in consolidation. Our principal activities to date have included
developing our technology, obtaining regulatory approval for our service,
constructing four satellites, launching three satellites, constructing our
national broadcast studio, acquiring content for our programming, constructing
our terrestrial repeater network, arranging for the development of radios
capable of receiving our service, strategic planning, market research,
recruiting our management team and securing financing for capital expenditures
and working capital. We have not yet recognized any revenues, accordingly, our
financial statements are presented as those of a development stage enterprise,
as prescribed by Statement of Financial Accounting Standards ('SFAS') No. 7,
'Accounting and Reporting by Development Stage Enterprises.'
Our financial statements for the year ended December 31, 2000 have been
prepared on a going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. We expect to incur additional substantial expenditures to plan and
implement our service and to sustain our operations until we generate positive
cash flow from operations. Our working capital at December 31, 2000 will not be
sufficient to meet these objectives as presently structured. We plan to raise
additional financing through the sale of debt or equity securities or a
combination thereof; however, no assurance can be given that such financings
will be completed on terms acceptable to us. If we are unable to obtain
additional financing, we will be required to curtail our operations. The
financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should we be unable to continue as a going concern.
RISKS AND UNCERTAINTIES
As a development stage enterprise, our future operations are subject to the
risks and uncertainties frequently encountered by companies in new and rapidly
evolving markets for satellite products and services. Among the significant
risks that have a direct bearing on our results of operations are the
unavailability of radios capable of receiving our service and our dependence
upon third parties to manufacture and distribute them; the potential risk of
delay in implementing our business plan; unproven market for our proposed
service; and our need for additional financing.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
reported period. The estimates involve judgments with respect to, among other
things, various future
F-10
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
factors which are difficult to predict and are beyond our control. Actual
amounts could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and investments with
original maturities of three months or less.
MARKETABLE SECURITIES AND RESTRICTED INVESTMENTS
Marketable securities are classified as trading securities and are stated at
market value. Marketable securities consist of obligations of U.S. government
agencies and commercial paper issued by major U.S. corporations with high credit
ratings. Unrealized holding gains of $3,882 and $2,275 were reflected in
earnings at December 31, 1999 and 2000, respectively.
Restricted investments consist of fixed income securities and are stated at
amortized cost plus accrued interest income. Restricted investments are
classified as held-to-maturity securities and unrealized holding gains and
losses are not reflected in earnings. Unrealized holding losses were $716 and
$16 at December 31, 1999 and 2000, respectively. The securities included in
restricted investments are restricted to provide for interest payments through
May 15, 2002 on our 14 1/2% Senior Secured Notes due 2009.
PROPERTY AND EQUIPMENT
All costs incurred to prepare our system for use are capitalized, including
interest on funds borrowed to finance construction. To date, such costs consist
of satellite construction and launch, broadcast studio equipment, terrestrial
repeater network in process and capitalized interest. Charges to operations for
depreciation of these items will begin upon commencement of commercial
broadcasting. We anticipate that we will depreciate our satellites over 15
years. Depreciation of technical and other equipment is computed on the
straight-line method based on estimated useful lives ranging from 3 to 10 years.
We review our long-lived assets and identifiable intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset is not recoverable. At such time as an impairment in
value is identified, the impairment will be quantatively measured in accordance
with SFAS No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of,' and charged to operations. No material
impairment losses have been recognized to date.
FCC LICENSE
Our FCC license is recorded at cost and will be amortized using the
straight-line method over a period of 40 years. Amortization of our FCC license
will begin upon the commencement of commercial broadcasting.
F-11
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
FAIR VALUE
The carrying amount of cash and cash equivalents, marketable securities
and restricted investments approximate fair value because of the short
maturity of these investments. The fair value of our redeemable convertible
preferred stock was estimated based on the market value of our common stock
as of December 31, 2000 (See Note 7). The fair value of our long-term notes
payable was estimated using quoted market prices. The following table
summarizes the book and fair values of these notes at December 31, 1999
and 2000:
DECEMBER 31, 1999 DECEMBER 31, 2000
----------------------- -----------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
15% Senior Secured Discount Notes due 2007........ $184,513 $160,342 $218,405 $135,103
14 1/2% Senior Secured Notes due 2009............. 170,427 180,000 173,361 140,000
8 3/4% Convertible Subordinated Notes due 2009.... 133,750 217,183 80,836 98,717
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years as differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the sum of the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
We record redeemable convertible preferred stock on the date of issuance by
allocating, when appropriate, a portion of the proceeds that represents a
beneficial conversion feature to additional paid-in capital. The beneficial
conversion feature (discount) is amortized using the effective interest method
and is recognized as a deemed dividend over the shortest period of conversion.
The carrying value of the redeemable convertible preferred stock accretes to its
liquidation value over the mandatory redemption period. The periodic accretion
increases the net loss applicable to common stockholders.
NET LOSS PER SHARE
Basic loss per share is based on the weighted average number of outstanding
shares of our common stock. Diluted loss per share adjusts the weighted average
for the potential dilution that could occur if common stock equivalents
(convertible preferred stock, convertible debt, warrants and stock options) were
exercised or converted into our common stock. As of December 31, 1998, 1999 and
2000, approximately 16,646,000, 21,127,000 and 28,458,000 common stock
equivalents were outstanding, respectively, and were excluded from the
calculation of diluted loss per share because they were antidilutive.
DEFERRED DEBT ISSUANCE COSTS
Costs associated with the issuance of debt are deferred and amortized
to interest expense over the terms of the respective notes using the effective
interest rate method.
STOCK-BASED AWARDS
We use the intrinsic-value method of accounting for stock-based awards
granted to employees as prescribed in Accounting Principles Board Opinion No.
25, 'Accounting for Stock Issued to Employees.' Accordingly, we measure the
compensation cost for stock-based awards granted to employees as the excess of
the market value of our common stock at the date of grant over the amount which
must be paid to acquire our common stock. We have elected the disclosure-only
provision of Financial Accounting Standards No. 123 ('SFAS No. 123'),
'Accounting for Stock-Based Compensation,' and have provided pro-forma
disclosures on net loss and net loss per share in the notes to the financial
statements. Stock-based awards granted to non-employees are accounted for at
their fair value in accordance with SFAS No. 123.
F-12
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 130, 'Reporting Comprehensive Income,' that requires additional reporting
with respect to certain changes in assets and liabilities that previously were
included in stockholders' equity. During the periods presented, we had no
comprehensive income items to report.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, 'Accounting for Derivative
Instruments and Hedging Activities.' SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. In May 1999, the FASB issued SFAS No. 137,
'Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133,' which deferred the effective date of
SFAS No. 133 by one year. As a result, SFAS No. 133 will be effective for all
fiscal quarters beginning after June 15, 2000. The FASB amended SFAS No. 133
with SFAS No. 138, 'Accounting for Certain Derivative Instruments and Certain
Hedge Activities-an Amendment of FASB Statement No. 133,' for certain
derivative instruments and certain hedging activities. The adoption of SFAS
No. 133 will not have a material impact on the financial statements.
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
---------------------
1999 2000
---- ----
Satellite-1........................................... $ -- $ 258,379
Satellite-2........................................... -- 269,454
Satellite-3........................................... -- 273,373
Leasehold improvements................................ 15,285 20,257
Broadcast studio equipment............................ 15,731 18,854
Satellite telemetry, tracking and control equipment... 10,346 15,484
Customer care, billing and conditional access......... 1,645 10,616
Furniture, fixtures and equipment..................... 5,496 9,747
Construction in process............................... 575,845 140,406
-------- ----------
624,348 1,016,570
Less: accumulated depreciation........................ (880) (3,105)
-------- ----------
Property and equipment, net....................... $623,468 $1,013,465
-------- ----------
-------- ----------
F-13
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
Construction in process consists of the following:
DECEMBER 31,
-------------------
1999 2000
---- ----
Construction of satellites.............................. $375,294 $115,141
Construction of launch vehicles......................... 199,385 --
Construction of terrestrial repeater network............ 1,166 25,265
-------- --------
Construction in process............................. $575,845 $140,406
-------- --------
-------- --------
Our satellites were successfully launched on June 30, 2000, September 5,
2000 and November 30, 2000. We received title to our satellites on July 31,
2000, September 29, 2000 and December 22, 2000, following the completion of
in-orbit testing of each satellite. We expect our fourth, spare, satellite to be
delivered to ground storage in August 2001.
4. SHORT-TERM NOTES PAYABLE
We entered into a credit agreement with Bank of America and other lenders in
July 1998 under which Bank of America and the other lenders provided us a
$115,000 term loan facility. The proceeds of the facility were used to fund
progress payments for the purchase of launch services and to pay interest, fees
and other related expenses. On February 29, 2000, we repaid these loans and
cancelled the related credit agreement.
5. LONG-TERM NOTES PAYABLE
Long-term notes payable consists of the following:
DECEMBER 31,
-------------------
MATURITY 1999 2000
-------- ---- ----
15% Senior Secured Discount Notes due 2007............ 12/01/07 $184,513 $218,405
14 1/2% Senior Secured Notes due 2009................. 5/15/09 170,427 173,361
8 3/4% Convertible Subordinated Notes due 2009........ 9/29/09 133,750 80,836
-------- --------
Long-term notes payable........................... $488,690 $472,602
-------- --------
-------- --------
15% SENIOR SECURED DISCOUNT NOTES DUE 2007
In November 1997, we received net proceeds of $116,000 from the issuance of
12,910 units, each consisting of $20 aggregate principal amount at maturity of
our 15% Senior Secured Discount Notes due 2007 and a warrant to purchase
additional 15% Senior Secured Discount Notes due 2007 in an aggregate principal
amount at maturity of $3. Our 15% Senior Secured Discount Notes due
2007 will not require cash interest payments prior to December 1, 2002, and will
accrete to a principal amount at stated maturity of $297,000 by that date.
As of December 31, 1999 and 2000, we had accreted interest relating to our
15% Senior Secured Discount Notes due 2007 of $59,488 and $93,381, respectively.
Cash interest will be payable semi-annually on each June 1 and December 1 of
the remaining years of our 15% Senior Secured Discount Notes due 2007. Our 15%
Senior Secured Discount Notes due 2007 are redeemable, at our option, in whole
or in part, at any time on or after December 1, 2002 at specified redemption
prices plus accrued interest, if any, to the date of redemption. Our 15% Senior
Secured Discount Notes due 2007 are senior obligations and are secured by a
pledge of the stock of Satellite CD Radio, Inc., our subsidiary that holds our
FCC license. The indenture governing our 15% Senior Secured Discount Notes due
2007 contains limitations on our ability to incur additional indebtedness.
F-14
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
14 1/2% SENIOR SECURED NOTES DUE 2009
In May 1999, we received net proceeds of approximately $190,000 from the
issuance of 200,000 units, each consisting of $1 aggregate principal amount of
our 14 1/2% Senior Secured Notes due 2009 and three warrants, each to purchase
3.65 shares of our common stock. The warrants are exercisable through May 15,
2009 at an exercise price of $28.60 per share. Cash interest is payable
semi-annually on each May 15 and November 15 of the remaining years of our
14 1/2% Senior Secured Notes due 2009. We invested $79,300 of the net proceeds
of our 14 1/2% Senior Secured Notes due 2009 in a portfolio of U.S. government
securities, which we pledged as security for the payment in full of interest on
our 14 1/2% Senior Secured Notes due 2009 through May 15, 2002. Our 14 1/2%
Senior Secured Notes due 2009 are redeemable, at our option, in whole or in
part, at any time on or after May 15, 2004 at a specified redemption price plus
accrued interest, if any, to the date of redemption. Our 14 1/2% Senior Secured
Notes due 2009 are senior obligations and are secured by a pledge of the stock
of Satellite CD Radio, Inc., our subsidiary that holds our FCC license. The
indenture governing our 14 1/2% Senior Secured Notes due 2009 contains
limitations on our ability to incur additional indebtedness.
As required by the terms of the warrants issued in conjunction with our
14 1/2% Senior Secured Notes due 2009, we adjusted the number of shares for
which each warrant may be exercised and the exercise price per share on
January 31, 2000, in connection with the issuance of our 9.2% Series D
Cumulative Convertible Preferred Stock. As of December 31, 2000, these warrants
may be exercised to purchase 3.947 shares of our common stock at an exercise
price per share of $26.45.
8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009
In September 1999, we issued $125,000 aggregate principal amount of our
8 3/4% Convertible Subordinated Notes due 2009 in an underwritten public
offering resulting in net proceeds of $119,000. In October 1999, we issued an
additional $18,750 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 to satisfy the underwriters' over-allotment option,
resulting in net proceeds of $18,000. Our 8 3/4% Convertible Subordinated Notes
due 2009 are convertible, at the option of the holder, unless previously
redeemed, into shares of our common stock at any time at a conversion rate of
35.134 shares of common stock per $1 principal amount, subject to certain
adjustments. We may redeem our 8 3/4% Convertible Subordinated Notes due 2009,
in whole or in part, at our option, on or after September 29, 2002, contingent
upon certain circumstances. As of December 31, 2000, we had acquired $62,914 of
our 8 3/4% Convertible Subordinated Notes due 2009 in exchange for shares of our
common stock. Cash interest is payable semi-annually on each March 29 and
September 29 of the remaining years of our 8 3/4% Convertible Subordinated Notes
due 2009.
LEHMAN TERM LOAN FACILITY
In June 2000, we entered into an agreement with Lehman Commercial Paper Inc.
('Lehman') and Lehman Brothers Inc. pursuant to which Lehman agreed to provide a
term loan facility (the 'Lehman Term Loan Facility') for us in the aggregate
principal amount of $150,000. The loans under the Lehman Term Loan Facility will
be made available to us upon the demonstration of our broadcast system and upon
satisfaction of certain customary conditions.
In connection with the Lehman Term Loan Facility, we have placed into
escrow, for the benefit of Lehman, 2,100,000 warrants, each to purchase one
share of our common stock at an exercise price of $29.00 per share. 525,000 of
these warrants are vested, 1,050,000 of these warrants will vest upon the making
of the loans under the Lehman Term Loan Facility and the remaining 525,000 will
vest only under certain conditions relating to the performance of our publicly
issued senior notes.
F-15
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
6. DEFERRED SATELLITE PAYMENTS
Under an amended and restated contract (the 'Loral Satellite Contract') with
Space Systems/Loral, Inc. ('Loral'), Loral agreed to defer certain amounts due
under the Loral Satellite Contract. The amounts deferred, which approximate fair
value, bear interest at 10% per year and were originally due in quarterly
installments beginning in June 2002; however, the agreement governing these
deferred amounts provides that this date, and subsequent payment dates, will be
extended by the number of days that the achievement of any milestone under the
Loral Satellite Contract is delayed beyond the date set forth in the Loral
Satellite Contract. Our fourth, ground spare, satellite is expected to be
delivered to ground storage in August 2001 and was originally expected to be
delivered to ground storage in October 2000. As a result of Loral's delay in
delivering this satellite, we do not expect to make any required payments with
respect to these deferred amounts until April 2003, at the earliest. We do,
however, have the right to prepay any deferred payments together with accrued
interest, without penalty. As collateral security for these deferred payments,
we have granted Loral a security interest in our terrestrial repeater network.
7. CAPITAL STOCK
COMMON STOCK, PAR VALUE $.001 PER SHARE
On September 29, 1994, we completed our initial public offering by issuing
1,491,940 shares of our common stock for net proceeds of approximately $4,800.
On August 5, 1997, we sold 1,905,488 shares of our common stock to Loral Space &
Communications Ltd. for net proceeds of approximately $24,400. In November 1997,
we issued 2,800,000 shares of our common stock for net proceeds of $42,200 in a
public offering. In December 1997, we issued an additional 250,000 shares of our
common stock, in connection with the partial exercise of the option granted to
the underwriters of our November 1997 public offering solely to cover
over-allotments, for net proceeds of $4,200. In November 1998, we issued
5,000,000 shares of our common stock to Prime 66 Partners, L.P. for net proceeds
of $98,000. In September 1999, we issued 3,000,000 shares of our common stock in
an underwritten public offering for net proceeds of approximately $68,000. In
October 1999, we issued an additional 450,000 shares of our common stock in
connection with the exercise of the option granted to the underwriters of our
September 1999 public offering solely to cover over-allotments, for net proceeds
of approximately $10,000. In February 2000, we sold 2,290,322 shares of our
common stock to DaimlerChrysler Corporation for an aggregate purchase price of
approximately $100,000.
As of December 31, 2000, approximately 43,000,000 shares of our common stock
were reserved for issuance in connection with outstanding shares of convertible
preferred stock, convertible debt, warrants and stock options.
PREFERRED STOCK
In April 1997, we completed a private placement of our 5% Delayed
Convertible Preferred Stock. We sold a total of 5,400,000 shares of our 5%
Delayed Convertible Preferred Stock for an aggregate price of $135,000. The 5%
Delayed Convertible Preferred Stock was immediately convertible at a discount to
the fair market value of our common stock and, accordingly, we recorded
approximately $52,000 as a deemed dividend in determining net loss attributable
to common stockholders.
In November 1997, we exchanged 1,846,799 shares of our 10 1/2% Series C
Convertible Preferred Stock for all outstanding shares of our 5% Delayed
Convertible Preferred Stock. Each share of our 10 1/2% Series C Convertible
Preferred Stock was convertible into a number of shares of our common stock
calculated by dividing the $100.00 per share liquidation preference by a
conversion price of $18.00. On March 3, 2000, we notified the holders of our
10 1/2% Series C Convertible Preferred Stock and the holders of all outstanding
warrants to purchase our 10 1/2% Series C Convertible Preferred Stock that we
would redeem these securities on April 12, 2000. As of April 12, 2000, all of
the outstanding warrants to
F-16
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
purchase shares of our 10 1/2% Series C Convertible Preferred Stock were
exercised and all of the outstanding shares of 10 1/2% Series C Convertible
Preferred Stock (including those shares received upon the exercise of such
warrants) had been converted into shares of our common stock.
On December 23, 1998, we completed a transaction with Apollo Investment Fund
IV, L.P., a Delaware limited partnership, and Apollo Overseas Partners IV, L.P.,
a Cayman Islands limited partnership (collectively, the 'Apollo Investors'),
pursuant to which we sold to the Apollo Investors 1,350,000 shares of our 9.2%
Series A Junior Cumulative Convertible Preferred Stock, par value $.001 per
share, for an aggregate purchase price of $135,000. Each share of our 9.2%
Series A Junior Cumulative Convertible Preferred Stock is convertible into a
number of shares of our common stock calculated by dividing the $100.00 per
share liquidation preference (the 'Series A Liquidation Preference') by a
conversion price of $30.00. This conversion price is subject to adjustment for
certain corporate events. Dividends on our 9.2% Series A Junior Cumulative
Convertible Preferred Stock are payable annually in cash or additional shares of
our 9.2% Series A Junior Cumulative Convertible Preferred Stock, at our option.
From and after November 15, 2001 and prior to November 15, 2003, we may redeem
our 9.2% Series A Junior Cumulative Convertible Preferred Stock at the Series A
Liquidation Preference, plus any unpaid dividends, provided the price of our
common stock is at least $60.00 per share for a period of twenty consecutive
trading days immediately preceding the date of the notice of redemption. From
and after November 15, 2003, our right to redeem our 9.2% Series A Junior
Cumulative Convertible Preferred Stock is not restricted by the market price of
our common stock. We are required to redeem all outstanding shares of our 9.2%
Series A Junior Cumulative Convertible Preferred Stock at a price equal to the
Series A Liquidation Preference plus any unpaid dividends on November 15, 2011.
On the date of issuance, the 9.2% Series A Junior Cumulative Convertible
Preferred Stock was immediately convertible at a discount to the then fair
market value of our common stock and, accordingly, we recorded approximately
$11,000 as a deemed dividend in net loss applicable to common stockholders. At
December 31, 2000, the estimated fair value of our 9.2% Series A Junior
Cumulative Convertible Preferred Stock approximated book value and accrued
dividends payable relating to this stock totaled $26,421.
The Apollo Investors granted to us, in conjunction with the 9.2% Series A
Junior Cumulative Convertible Preferred Stock transaction, an option to sell to
the Apollo Investors 650,000 shares of our 9.2% Series B Junior Cumulative
Convertible Preferred Stock, par value $.001 per share, for an aggregate
purchase price of $65,000. We recorded the value of our 9.2% Series B Junior
Cumulative Convertible Preferred Stock at fair value and recorded approximately
$3,101 of deemed dividends related primarily to the amortization of the value of
this option during 1999. We exercised the option to sell our 9.2% Series B
Junior Cumulative Convertible Preferred Stock to the Apollo Investors on
October 13, 1999. The terms of our 9.2% Series B Junior Cumulative Convertible
Preferred Stock are similar to those of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock. At December 31, 2000, the estimated fair value of
our 9.2% Series B Junior Cumulative Convertible Preferred Stock approximated
book value and accrued dividends payable relating to this stock totaled $7,400.
On January 31, 2000, we completed a transaction with certain affiliates of
The Blackstone Group, L.P. ('Blackstone') pursuant to which we sold to
Blackstone 2,000,000 shares of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock, par value $.001 per share, for an aggregate purchase price of
$200,000. Each share of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock is convertible into a number of shares of our common stock
calculated by dividing the $100.00 per share liquidation preference (the 'Series
D Liquidation Preference') by a conversion price of $34.00. This conversion
price is subject to adjustment for certain corporate events. Dividends on our
9.2% Series D Junior Cumulative Convertible Preferred Stock are payable annually
in cash or additional shares of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock, at our option. From and after December 23, 2002 and prior to
December 23, 2004, we may redeem our 9.2% Series D Junior Cumulative Convertible
Preferred Stock at the Series D Liquidation Preference, plus any unpaid
dividends, provided the price of our common stock is at least $68.00 per share
for a period of twenty consecutive
F-17
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
trading days immediately preceding the date of the notice of redemption. From
and after December 23, 2004, our right to redeem our 9.2% Series D Junior
Cumulative Convertible Preferred Stock is not restricted by the market price of
our common stock. We are required to redeem all outstanding shares of our 9.2%
Series D Junior Cumulative Convertible Preferred Stock at a price equal to the
Series D Liquidation Preference plus any unpaid dividends on November 15, 2011.
At December 31, 2000, the estimated fair value of our 9.2% Series D Junior
Cumulative Convertible Preferred Stock was $188,931 and accrued dividends
payable relating to this stock totaled $17,057.
WARRANTS
In connection with our initial public offering in 1994, we issued warrants
to purchase 745,970 shares of our common stock. Additionally, we issued to the
underwriters, as consideration, warrants to purchase 123,560 shares of our
common stock. In September 1996, we received proceeds of $4,589 relating to the
exercise of 864,848 warrants and the remaining 4,682 warrants expired
unexercised. Of the warrants exercised, 764,848 shares of our common stock were
issued in exchange for cash at a purchase price of $6.00 per share and 27,083
shares of our common stock were issued in a cashless exercise of 100,000
warrants held by the underwriters.
In connection with the November 1997 issuance of our 10 1/2% Series C
Convertible Preferred Stock, we granted our investment advisor and certain
related persons, in lieu of a warrant to purchase shares of 5% Delayed
Convertible Preferred Stock, warrants to purchase an aggregate of 177,178 shares
of our 10 1/2% Series C Convertible Preferred Stock at an initial exercise price
of $68.47 per share. The warrants were convertible at a discount to the then
fair market value of our common stock and accordingly, we will record, over the
life of the warrant, $1,600 as a deemed dividend in connection with the issuance
of warrants on the 10 1/2% Series C Convertible Preferred Stock. During 2000, we
accreted dividends of $900 related to this warrant. As of April 12, 2000, all of
the outstanding warrants to purchase shares of our 10 1/2% Series C Convertible
Preferred Stock had been exercised.
We granted to an investor warrants to purchase 1,800,000 shares of our
common stock at $50.00 per share during the period from June 15, 1998 until June
15, 2005, subject to certain conditions. After June 15, 2000, we may redeem all
of these warrants, provided that the price of our common stock is at least
$75.00 per share during a specified period.
As part of our agreement with Ford Motor Company ('Ford') on June 11, 1999,
we issued to Ford 4,000,000 warrants, each to purchase one share of our common
stock at an exercise price of $30.00 per share. These warrants are exercisable
based upon the number of new Ford vehicles equipped to receive our broadcasts
Ford manufactures, and are fully exercisable after 4,000,000 new Ford vehicles
equipped to receive our broadcasts are manufactured.
As part of our agreement with DaimlerChrysler Corporation, Mercedes-Benz
USA, Inc. and Freightliner Corporation (collectively, 'DaimlerChrysler') on
January 28, 2000, we issued to DaimlerChrysler Corporation 4,000,000 warrants,
each to purchase one share of our common stock at an exercise price of $60.00
per share. These warrants are exercisable based upon the number of new
DaimlerChrysler vehicles equipped to receive our broadcasts DaimlerChrysler
manufactures, and are fully exercisable after 4,000,000 new DaimlerChrysler
vehicles equipped to receive our broadcasts are manufactured.
8. BENEFIT PLANS
STOCK OPTION PLANS
In February 1994, we adopted our 1994 Stock Option Plan (the '1994 Plan')
and our 1994 Directors' Nonqualified Stock Option Plan (the 'Directors' Plan').
In June 1999, we adopted our 1999 Long-Term Stock Incentive Plan (the '1999
Plan'). Our stock option plans provide for grants of options as incentives and
rewards to encourage employees, officers, consultants and directors in our long
term success. Generally, options granted under the plans vest over a four year
period and are exercisable for a period of ten years from the date of grant.
Compensation expense for options granted to non-
F-18
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
employees, included in general and administrative expenses, totaled $260 and
$835 for the years ended December 31, 1999 and 2000. As of December 31, 2000,
the aggregate number of shares of common stock available for issuance and the
common stock available for grant pursuant to the 1994 Plan, the Directors' Plan
and the 1999 Plan were 12,766,000 and 4,363,000, respectively.
The following table summarizes the option activity under all option plans
for the years ended December 31, 1998, 1999 and 2000:
1998 1999 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
Outstanding at Beginning of
Year........................... 1,909,500 $ 8.16 2,453,525 $12.87 6,497,773 $24.56
Granted.......................... 659,500 $28.13 4,569,250 $29.88 2,165,178 $37.70
Exercised........................ (44,850) $ 3.11 (205,002) $ 8.02 (615,576) $12.35
Cancelled........................ (70,625) $18.55 (320,000) $21.38 (497,400) $30.02
--------- --------- ---------
Outstanding at End of Year....... 2,453,525 $12.87 6,497,773 $24.56 7,549,975 $28.97
--------- --------- ---------
--------- --------- ---------
Exercise prices for stock options outstanding as of December 31, 2000 ranged
from $1.00 to $63.25. The following table provides certain information with
respect to stock options outstanding and exercisable at December 31, 2000:
RANGE OF EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING
PRICES PER SHARE SHARES UNDER OPTION EXERCISE PRICE PER SHARE CONTRACTUAL LIFE IN YEARS
- ---------------- ------------------- ------------------------ -------------------------
OUTSTANDING:
Under $5.00.................. 487,500 $ 3.47 3.8
$5.00 - $14.99............... 600,322 $ 9.79 2.2
$15.00 - $24.99.............. 748,163 $22.32 9.1
$25.00 - $34.99.............. 4,261,200 $30.72 8.4
Over $35..................... 1,452,790 $43.72 9.3
EXERCISABLE:
Under $5.00.................. 447,500 $ 3.78
$5.00 - $14.99............... 594,322 $ 9.76
$15.00 - $24.99.............. 54,400 $23.24
$25.00 - $34.99.............. 2,124,660 $30.81
Over $35..................... 53,000 $37.59
If we had elected to recognize compensation cost based on the fair value of
stock-based awards in accordance with SFAS No. 123, our net loss and net loss
per share (basic and diluted) on a pro-forma basis would have been:
1998 1999 2000
---- ---- ----
Net loss -- as reported............................... $(85,953) $(96,981) $(183,715)
Net loss -- pro-forma................................. $(51,028) $(99,587) $(170,637)
Net loss per share -- as reported..................... $ (4.79) $ (3.96) $ (4.72)
Net loss per share -- pro-forma....................... $ (2.85) $ (4.07) $ (4.39)
The pro-forma expense related to stock options is recognized over the
vesting period, generally four years. The fair value of each option grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for each year:
1998 1999 2000
---- ---- ----
Risk-free interest rate..................................... 4.72% 6.70% 4.89%
Expected life of options -- years........................... 4.36 4.38 4.38
Expected stock price volatility............................. 75% 70% 72%
Expected dividend yield..................................... N/A N/A N/A
F-19
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
401(k) SAVINGS PLAN
We sponsor the Sirius Satellite Radio 401(k) Savings Plan (the '401(k)
Plan') for eligible employees. The 401(k) Plan allows eligible employees to
voluntarily contribute from 1% to 12% of their pretax salary subject to certain
defined limits. We may match up to 100% of the voluntary employee contribution
in the form of our common stock. Our matching contribution vests at a rate of
33 1/3% each year and is fully vested after three years of employment.
Contribution expense resulting from our matching contribution to the 401(k) Plan
was $104, $454, $864 and $1,422 for 1998, 1999, 2000 and for the period May 17,
1990 (date of inception) to December 31, 2000, respectively.
9. INCOME TAXES
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax assets and deferred tax liability are as follows:
DECEMBER 31,
-------------------
1999 2000
---- ----
Start-up costs capitalized for tax purposes............. $ 29,198 $ 65,586
Net operating loss carryforwards........................ 12,262 23,433
Capitalized interest expense............................ 6,095 10,841
Other................................................... (376) 1,198
-------- ---------
47,179 101,058
Valuation allowance..................................... (49,416) (103,295)
-------- ---------
Net deferred tax liability.............................. $ (2,237) $ 2,237
-------- ---------
-------- ---------
Realization of deferred tax assets at the balance sheet date is dependent
upon future earnings, which are uncertain. Accordingly, a full valuation
allowance was recorded against the assets.
At December 31, 2000, we had net operating loss carryforwards of
approximately $57,576 for federal and state income tax purposes available to
offset future taxable income. The net operating loss carryforwards expire at
various dates beginning in 2008. A significant portion of costs incurred to date
has been capitalized for tax purposes as a result of our status as a development
stage enterprise. Total start-up costs as of December 31, 2000 were $160,689.
Once we begin our active trade or business, these capitalized costs will be
amortized over 60 months. The total deferred tax asset related to capitalized
start-up costs of $65,586 includes $18,100 which, when realized, would not
affect financial statement income but will be recorded directly to stockholders'
equity.
10. SPECIAL CHARGES
During 1998, we decided to enhance our satellite delivery system to include
a third in-orbit satellite and to terminate certain launch and orbit related
contracts. We recorded special charges totaling $25,682 related primarily to the
termination of such contracts.
11. RELATED PARTIES
Since inception, we have relied upon related parties for certain consulting,
legal and management services. We have paid for these services with cash and
with the issuance of our common stock. Total cash expenses incurred in
transactions with related parties during the years ended December 31, 1998, 1999
and 2000 and the period from May 17, 1990 (date of inception) to December 31,
2000 were $127, $94, $24 and $2,564, respectively. We have also issued common
stock in lieu of cash in settlement of other related party liabilities. There
were no related party expenses settled with the issuance of common stock during
the years ended December 31, 1998, 1999 and 2000. Related party expenses settled
with
F-20
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
the issuance of common stock for the period from May 17, 1990 (date of
inception) to December 31, 2000 were $1,311.
During the years ended December 31, 1998, 1999 and 2000 we made payments of
$2,000, $9,379 and $67 to a financial advisory firm, of which a related party is
a partner.
12. LEASES AND RENTALS
Total rent expense for the years ended December 31, 1998, 1999 and 2000 and
the period May 17, 1990 (date of inception) to December 31, 2000 was $1,985,
$4,976, $6,712 and $15,156, respectively. Future minimum lease payments under
non-cancelable operating leases totaled $100,719 as of December 31, 2000 and are
payable as follows:
2001........................ $ 7,450
2002........................ 7,452
2003........................ 7,454
2004........................ 7,702
2005........................ 7,631
Thereafter.................. 63,030
13. COMMITMENTS AND CONTINGENCIES
SATELLITE CONSTRUCTION AND LAUNCH SERVICES
To build and launch the satellites necessary to provide our service, we
entered into the Loral Satellite Contract. The Loral Satellite Contract provides
for Loral to construct, launch and deliver three satellites in-orbit and
checked-out, to construct a fourth satellite for use as a ground spare and to
deliver $15,000 of long-lead time parts for a fifth satellite. We are committed
to make aggregate payments of $745,890 under the Loral Satellite Contract. As of
December 31, 2000, $674,080 of this commitment has been satisfied. Under the
Loral Satellite Contract, with the exception of a payment made to Loral in March
1993, payments are made in installments that commenced in April 1997 and will
end in October 2004. Future contractual payments are due as follows: $21,810 in
2001, $0 in 2002, $25,000 in 2003 and $25,000 in 2004.
INTEGRATED CIRCUITS
During 1998, we signed an agreement with Lucent Technologies, Inc.
('Lucent') pursuant to which Lucent agreed to use commercially reasonable
efforts to deliver commercial quantities of integrated circuits ('chip sets'),
which will be used in radios capable of receiving our broadcasts. We agreed to
pay Lucent the costs of the chip set development work totaling $9,000. On
February 1, 1999, we amended and restated this agreement because the design and
development of the chip sets required more engineering resources than originally
estimated. We estimate that the costs of this development work could total
approximately $50,000.
F-21