|
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, 2005
Commission file number 0-24710
_________________
SIRIUS SATELLITE RADIO INC.
(Exact name of registrant as specified in its charter)
_________________
Delaware |
|
52-1700207 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
1221 Avenue of the Americas, 36th Floor
New York, New York 10020
(Address of principal executive offices)
(Zip code)
212-584-5100
(Registrants telephone number, including area code)
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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Common Stock, $0.001 par value
(Class) |
|
1,331,477,962 shares
(Outstanding as of November 4, 2005) |
|
|
|
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) |
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30,
|
|
For the Nine Months
Ended September 30,
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber revenue, including effects of mail-in rebates |
|
|
$ |
64,273 |
|
$ |
18,025 |
|
$ |
155,799 |
|
$ |
40,177 |
|
Advertising revenue, net of agency fees |
|
|
|
1,508 |
|
|
249 |
|
|
3,094 |
|
|
399 |
|
Equipment revenue |
|
|
|
1,030 |
|
|
823 |
|
|
3,300 |
|
|
1,013 |
|
Other revenue |
|
|
|
20 |
|
|
19 |
|
|
48 |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
66,831 |
|
|
19,116 |
|
|
162,241 |
|
|
41,637 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (excludes depreciation shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite and transmission |
|
|
|
7,228 |
|
|
7,620 |
|
|
20,709 |
|
|
24,215 |
|
Programming and content |
|
|
|
23,542 |
|
|
18,732 |
|
|
63,589 |
|
|
37,550 |
|
Customer service and billing |
|
|
|
9,416 |
|
|
5,329 |
|
|
26,646 |
|
|
13,718 |
|
Cost of equipment |
|
|
|
1,453 |
|
|
1,146 |
|
|
4,381 |
|
|
1,615 |
|
Sales and marketing |
|
|
|
38,181 |
|
|
42,645 |
|
|
107,543 |
|
|
103,670 |
|
Subscriber acquisition costs |
|
|
|
68,675 |
|
|
47,066 |
|
|
204,461 |
|
|
108,758 |
|
General and administrative |
|
|
|
13,966 |
|
|
11,808 |
|
|
42,918 |
|
|
31,009 |
|
Engineering, design and development |
|
|
|
9,784 |
|
|
10,444 |
|
|
33,232 |
|
|
22,090 |
|
Depreciation |
|
|
|
24,559 |
|
|
23,811 |
|
|
73,640 |
|
|
71,082 |
|
Equity granted to third parties and employees(1) |
|
|
|
36,946 |
|
|
17,752 |
|
|
116,882 |
|
|
47,660 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
233,750 |
|
|
186,353 |
|
|
694,001 |
|
|
461,367 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
|
(166,919 |
) |
|
(167,237 |
) |
|
(531,760 |
) |
|
(419,730 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and investment income |
|
|
|
7,645 |
|
|
2,291 |
|
|
16,922 |
|
|
5,906 |
|
Interest expense |
|
|
|
(13,693 |
) |
|
(5,267 |
) |
|
(28,219 |
) |
|
(34,235 |
) |
Loss from redemption of debt |
|
|
|
(6,214 |
) |
|
|
|
|
(6,214 |
) |
|
|
|
Income (expense) from affiliate |
|
|
|
(739 |
) |
|
|
|
|
(739 |
) |
|
|
|
Other income |
|
|
|
30 |
|
|
1,340 |
|
|
82 |
|
|
1,411 |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
|
(12,971 |
) |
|
(1,636 |
) |
|
(18,168 |
) |
|
(26,918 |
) |
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
|
(179,890 |
) |
|
(168,873 |
) |
|
(549,928 |
) |
|
(446,648 |
) |
Income tax expense |
|
|
|
(560 |
) |
|
(560 |
) |
|
(1,680 |
) |
|
(3,641 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
$ |
(180,450 |
) |
$ |
(169,433 |
) |
$ |
(551,608 |
) |
$ |
(450,289 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted) |
|
|
$ |
(0.14 |
) |
$ |
(0.14 |
) |
$ |
(0.42 |
) |
$ |
(0.37 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted) |
|
|
|
1,328,458 |
|
|
1,236,845 |
|
|
1,322,399 |
|
|
1,230,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Allocation of equity granted to third parties and employees to other operating expenses: |
|
|
|
|
Satellite and transmission |
|
|
$ |
467 |
|
$ |
202 |
|
$ |
1,455 |
|
$ |
797 |
|
Programming and content |
|
|
|
4,855 |
|
|
5,520 |
|
|
14,793 |
|
|
8,397 |
|
Customer service and billing |
|
|
|
140 |
|
|
53 |
|
|
405 |
|
|
185 |
|
Sales and marketing |
|
|
|
9,642 |
|
|
6,246 |
|
|
30,348 |
|
|
21,629 |
|
Subscriber acquisition costs |
|
|
|
12,354 |
|
|
3,030 |
|
|
31,115 |
|
|
7,097 |
|
General and administrative |
|
|
|
6,137 |
|
|
2,159 |
|
|
21,746 |
|
|
7,415 |
|
Engineering, design and development |
|
|
|
3,351 |
|
|
542 |
|
|
17,020 |
|
|
2,140 |
|
|
|
|
|
|
|
|
|
|
Total equity granted to third parties and employees |
|
|
$ |
36,946 |
|
$ |
17,752 |
|
$ |
116,882 |
|
$ |
47,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
1
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts) |
|
|
|
|
|
|
|
September 30, 2005 |
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
A S S E T S |
|
|
|
|
|
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
|
|
$ |
810,333 |
|
$ |
753,891 |
|
Marketable securities |
|
|
|
124,050 |
|
|
5,277 |
|
Prepaid expenses |
|
|
|
20,546 |
|
|
12,956 |
|
Restricted investments |
|
|
|
25,165 |
|
|
4,706 |
|
Other current assets |
|
|
|
52,799 |
|
|
34,210 |
|
|
|
|
|
|
Total current assets |
|
|
|
1,032,893 |
|
|
811,040 |
|
Property and equipment, net |
|
|
|
822,004 |
|
|
881,280 |
|
FCC license |
|
|
|
83,654 |
|
|
83,654 |
|
Restricted investments, net of current portion |
|
|
|
67,450 |
|
|
92,615 |
|
Deferred financing fees |
|
|
|
17,333 |
|
|
13,140 |
|
Other long-term assets |
|
|
|
69,055 |
|
|
75,884 |
|
|
|
|
|
|
Total assets |
|
|
$ |
2,092,389 |
|
$ |
1,957,613 |
|
|
|
|
|
|
|
|
|
L I A B I L I T I E S A N D S T O C K H O L D E R S E Q U I T Y |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
$ |
218,420 |
|
$ |
182,933 |
|
Accrued interest |
|
|
|
12,075 |
|
|
5,758 |
|
Deferred revenue |
|
|
|
149,896 |
|
|
80,823 |
|
|
|
|
|
|
Total current liabilities |
|
|
|
380,391 |
|
|
269,514 |
|
Long-term debt |
|
|
|
1,096,789 |
|
|
656,274 |
|
Deferred revenue, net of current portion |
|
|
|
28,541 |
|
|
15,691 |
|
Other long-term liabilities |
|
|
|
11,862 |
|
|
15,501 |
|
|
|
|
|
|
Total liabilities |
|
|
|
1,517,583 |
|
|
956,980 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value: 2,500,000,000 shares authorized,
1,330,777,459 and 1,276,922,634 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively |
|
|
|
1,331 |
|
|
1,277 |
|
Additional paid-in capital |
|
|
|
3,025,800 |
|
|
2,916,199 |
|
Deferred compensation |
|
|
|
(34,861 |
) |
|
(50,963 |
) |
Accumulated other comprehensive loss |
|
|
|
|
|
|
(24 |
) |
Accumulated deficit |
|
|
|
(2,417,464 |
) |
|
(1,865,856 |
) |
|
|
|
|
|
Total stockholders equity |
|
|
|
574,806 |
|
|
1,000,633 |
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
|
$ |
2,092,389 |
|
$ |
1,957,613 |
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
2
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands, except share and per share amounts)
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In
Capital
|
|
Deferred
Compensation |
|
Accumulated
Other
Comprehensive
Loss |
|
Accumulated
Deficit
|
|
Total
|
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004 |
|
|
|
1,276,922,634 |
|
$ |
1,277 |
|
$ |
2,916,199 |
|
$ |
(50,963 |
) |
$ |
(24 |
) |
$ |
(1,865,856 |
) |
$ |
1,000,633 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(551,608 |
) |
|
(551,608 |
) |
Change in unrealized gain on available-
for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
$ |
(551,584 |
) |
|
|
|
|
|
|
|
|
|
Issuance of common stock to employees
and employee benefit plans |
|
|
|
2,740,297 |
|
|
3 |
|
|
3,151 |
|
|
|
|
|
|
|
|
|
|
|
3,154 |
|
Issuance of common stock to third parties |
|
|
|
38,580 |
|
|
|
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
360 |
|
Compensation in connection with the
issuance of stock-based awards |
|
|
|
|
|
|
|
|
|
1,354 |
|
|
|
|
|
|
|
|
|
|
|
1,354 |
|
Issuance of stock-based awards |
|
|
|
|
|
|
|
|
|
17,706 |
|
|
(17,706 |
) |
|
|
|
|
|
|
|
|
|
Cancellation of stock-based awards |
|
|
|
|
|
|
|
|
|
(818 |
) |
|
818 |
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
32,990 |
|
|
|
|
|
|
|
|
32,990 |
|
Equity granted to third parties |
|
|
|
|
|
|
|
|
|
74,604 |
|
|
|
|
|
|
|
|
|
|
|
74,604 |
|
Exercise of options, $0.67 to $5.17 per
share |
|
|
|
8,088,194 |
|
|
8 |
|
|
11,110 |
|
|
|
|
|
|
|
|
|
|
|
11,118 |
|
Exchange of 3½% Convertible Notes due
2008, including accrued interest |
|
|
|
1,597,826 |
|
|
2 |
|
|
2,175 |
|
|
|
|
|
|
|
|
|
|
|
2,177 |
|
Exercise of warrants, $0.92 to $2.392
per share |
|
|
|
41,389,928 |
|
|
41 |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2005 |
|
|
|
1,330,777,459 |
|
$ |
1,331 |
|
$ |
3,025,800 |
|
$ |
(34,861 |
) |
$ |
|
|
$ |
(2,417,464 |
) |
$ |
574,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
3
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) |
|
|
For the Nine Months
Ended September 30, |
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
$ |
(551,608 |
) |
$ |
(450,289 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation |
|
73,640 |
|
|
71,082 |
|
Non-cash interest expense |
|
2,365 |
|
|
21,168 |
|
Non-cash loss from redemption of debt |
|
712 |
|
|
|
|
Loss on disposal of property and equipment |
|
286 |
|
|
19 |
|
Equity granted to third parties and employees |
|
116,882 |
|
|
47,660 |
|
Deferred income taxes |
|
1,680 |
|
|
3,641 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Marketable securities |
|
16 |
|
|
(92 |
) |
Prepaid expenses and other current assets |
|
(26,187 |
) |
|
(7,869 |
) |
Other long-term assets |
|
3,131 |
|
|
(3,406 |
) |
Accrued interest |
|
6,341 |
|
|
3,848 |
|
Accounts payable and accrued expenses |
|
36,213 |
|
|
44,721 |
|
Deferred revenue |
|
81,923 |
|
|
33,306 |
|
Other long-term liabilities |
|
(3,522 |
) |
|
691 |
|
|
|
|
|
|
Net cash used in operating activities |
|
(258,128 |
) |
|
(235,520 |
) |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Additions to property and equipment |
|
(17,949 |
) |
|
(22,316 |
) |
Sales of property and equipment |
|
65 |
|
|
237 |
|
Purchases of restricted investments |
|
(6,291 |
) |
|
(90,104 |
) |
Release of restricted investments |
|
10,997 |
|
|
|
|
Purchases of available-for-sale securities |
|
(128,700 |
) |
|
|
|
Sales of available-for-sale securities |
|
5,100 |
|
|
|
|
Maturities of available-for-sale securities |
|
4,835 |
|
|
25,000 |
|
|
|
|
|
|
Net cash used in investing activities |
|
(131,943 |
) |
|
(87,183 |
) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net |
|
493,005 |
|
|
293,600 |
|
Redemption of debt |
|
(57,609 |
) |
|
|
|
Proceeds from exercise of stock options |
|
11,125 |
|
|
6,004 |
|
Proceeds from exercise of warrants |
|
|
|
|
19,850 |
|
Other |
|
(8 |
) |
|
(99 |
) |
|
|
|
|
|
Net cash provided by financing activities |
|
446,513 |
|
|
319,355 |
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
56,442 |
|
|
(3,348 |
) |
Cash and cash equivalents at the beginning of period |
|
753,891 |
|
|
520,979 |
|
|
|
|
|
|
Cash and cash equivalents at the end of period |
$ |
810,333 |
|
$ |
517,631 |
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
4
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
1. Business
We are a provider of satellite radio service in the United States. We currently offer more than 120
channels-65 channels of commercial-free music and over 55 channels of sports, news, talk, entertainment,
traffic and weather programming for a monthly subscription fee of $12.95. We offer discounts for
pre-paid, long-term and multiple subscriptions.
Since inception, we have used substantial resources to develop our satellite radio system. Our satellite
radio system consists of our FCC license, satellites, national broadcast studio, terrestrial repeater
network, satellite uplink facility and satellite telemetry, tracking and control facilities. On
July 1,
2002, we launched our service nationwide.
As of September 30, 2005, we had 2,173,920 subscribers as compared with 1,143,258 subscribers as of
December 31, 2004 and 662,289 subscribers as of September 30, 2004. Our subscriber totals
include subscribers under our regular pricing plans, as well as subscribers currently in promotional
periods; subscribers that have prepaid, including payments from automakers for prepaid bundled subscriptions
included in the sale or lease price of a new vehicle; and active SIRIUS radios under our agreement
with Hertz.
Our primary source of revenue is subscription fees. We also derive revenues from activation fees, the
sale of advertising on our non-music channels and the direct sale of SIRIUS radios and accessories.
2. Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements of Sirius Satellite Radio Inc. and its
subsidiary have been prepared in accordance with U.S. generally accepted accounting principles and
the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial
reporting. Accordingly, they do not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial statements. All intercompany transactions
have been eliminated in consolidation.
In presenting unaudited consolidated financial statements, management makes estimates and assumptions
that affect the amounts reported and related disclosures. Estimates, by their nature, are based on
judgment and available information. Actual results could differ from those estimates. In the opinion
of management, all normal recurring adjustments necessary for a fair presentation of the consolidated
financial statements as of September 30, 2005 and December 31, 2004, and for the three
and nine months ended September 30, 2005 and 2004, have been recorded. The results of operations
for the three and nine months ended September 30, 2005 are not necessarily indicative of the
results that may be expected for the full year. Our unaudited consolidated financial statements should
be read together with our consolidated financial statements and footnotes contained in our Annual
Report on Form 10-K for the year ended December 31, 2004.
3. Summary of Significant Accounting Policies
Stock-Based Compensation
We have adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS)
No. 148, Accounting for Stock-Based CompensationTransition and DisclosureAn Amendment
of FASB Statement No. 123. The measure of fair value most often employed under SFAS No. 123,
Accounting for Stock-Based Compensation, and used by us, is the Black-Scholes option
valuation model (Black-Scholes). Black-Scholes was developed for use in estimating the
fair market value of traded options, which have no vesting restrictions and are fully transferable.
Option valuation models require the input of highly subjective assumptions, including the expected
stock price volatility. Because our stock-based awards have characteristics significantly different
from those of traded options and because changes in the subjective assumptions can materially affect
the fair market value estimate, in our opinion, the existing option valuation models do not necessarily
provide a reliable single measure of the fair value of our stock-based awards.
5
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
The following table illustrates the effect on net loss and net loss per share had stock-based compensation
for employees been recorded based on the fair value method under SFAS No. 123:
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Net lossas reported |
$ |
(180,450 |
) |
$ |
(169,433 |
) |
$ |
(551,608 |
) |
$ |
(450,289 |
) |
Stock-based compensation to employees included in equity
granted to third parties and employees |
|
11,027 |
|
|
4,967 |
|
|
38,331 |
|
|
17,828 |
|
Stock-based compensation to employeespro forma |
|
(22,066 |
) |
|
(9,821 |
) |
|
(72,617 |
) |
|
(41,697 |
) |
|
|
|
|
|
|
|
|
|
Net losspro forma |
$ |
(191,489 |
) |
$ |
(174,287 |
) |
$ |
(585,894 |
) |
$ |
(474,158 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutedas reported |
$ |
(0.14 |
) |
$ |
(0.14 |
) |
$ |
(0.42 |
) |
$ |
(0.37 |
) |
Basic and dilutedpro forma |
$ |
(0.14 |
) |
$ |
(0.14 |
) |
$ |
(0.44 |
) |
$ |
(0.39 |
) |
The pro forma stock-based compensation to employees was estimated using Black-Scholes with the following
assumptions for each period:
|
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
4.12 |
% |
|
4.12 |
% |
|
4.05 |
% |
|
3.83 |
% |
|
Expected life of optionsyears |
5.59 |
|
|
6.49 |
|
|
5.54 |
|
|
5.77 |
|
|
Expected stock price volatility |
112 |
% |
|
110 |
% |
|
112 |
% |
|
112 |
% |
|
Expected dividend yield |
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
|
Research and Development Costs |
Research and development costs are expensed as incurred. Research and development costs for the three
months ended September 30, 2005 and 2004 were $6,291 and $5,661, respectively, and $22,119 and
$15,702 for the nine months ended September 30, 2005 and 2004, respectively. These costs are
included in engineering, design and development expenses in our accompanying unaudited consolidated
statements of operations.
|
Net (Loss) Income Per Share |
We compute net (loss) income per share in accordance with SFAS No. 128, Earnings Per Share.
Basic net (loss) income per share is calculated using the weighted average common shares outstanding
during each reporting period. Diluted net (loss) income per share adjusts the weighted average common
shares outstanding for the potential dilution that could occur if common stock equivalents (convertible
debt, warrants, stock options and restricted stock units) were exercised or converted into common
stock. Common stock equivalents of approximately 239,000,000 and 235,000,000 for the three and nine
months ended September 30, 2005, respectively, and 175,000,000 and 172,000,000 for the three
and nine months ended September 30, 2004, respectively, were not considered in the calculation
of diluted net loss per share as the effect would have been anti-dilutive.
|
Comprehensive (Loss) Income |
We report comprehensive (loss) income in accordance with SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 established a standard for reporting and displaying other comprehensive
(loss) income and its components within financial statements. Unrealized gains and losses on available-for-sale
securities are the only component of our other comprehensive loss. Comprehensive loss for the three
months ended September 30, 2005 and 2004 was $180,450 and $169,432, respectively, and $551,584
and $450,340 for the nine months ended September 30, 2005 and 2004, respectively.
6
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
Marketable Securities
We account for marketable securities in accordance with the provisions of SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities. Marketable securities consist of United
States government notes, certificates of deposit and auction rate securities. We classify our marketable
securities as available-for-sale securities. Available-for-sale securities are carried at fair market
value. Unrealized gains and losses are included as a component of stockholders equity. Realized
gains and losses, dividends and interest income, including amortization of the premium and discount
arising at purchase, are included in interest and investment income. While the underlying securities
of auction rate securities have contractual maturities of more than 20 years, the interest rates
on such securities reset at intervals of 28 or 35 days. Therefore, these auction rate securities
are priced and subsequently trade as short-term investments because of such interest rate reset feature.
We received proceeds from sales and/or maturities of marketable securities of $9,935 and $25,000 for
the nine months ended September 30, 2005 and 2004, respectively. There were no unrealized holding
gains or losses on marketable securities as of September 30, 2005. We had unrealized holding
losses on marketable securities of $24 as of December 31, 2004.
Restricted investments consist of United States government notes, certificates of deposit and money
market funds. As of September 30, 2005 and December 31, 2004, long-term restricted investments were
$67,450 and $92,615, respectively, and short-term restricted investments were $25,165 and $4,706,
respectively. Long-term restricted investments for both periods primarily included certificates of
deposit for the escrow fund in connection with our National Football League (NFL) agreement
which are invested under our direction and will be drawn by the NFL to pay the rights fees due for
certain NFL seasons and certificates of deposits for amounts pledged to secure our reimbursement
obligations under letters of credit issued for the benefit of the lessor of our headquarters. As
of September 30, 2005, short-term restricted investments included certificates of deposit to pay
the rights fees due for the 2006-2007 NFL season. As of December 31, 2004, short-term restricted
investments included monies deposited in escrow to secure our obligation to reimburse Ford for certain
costs incurred in connection with the introduction of SIRIUS radios as a factory option. This escrow
for Ford was terminated in June 2005.
|
Recently Issued Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R,
Share-Based Payment. SFAS No. 123R revises SFAS No. 123 and supersedes Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees. In
April 2005, the SEC announced SFAS No. 123R would be effective no later than the first fiscal
year beginning after June 15, 2005. We will adopt the provisions of SFAS No. 123R effective
January 1, 2006.
SFAS No. 123R requires all share-based payments to employees to be recognized in the financial statements
based on fair value. We currently account for share-based payments to employees using APB No. 25s
intrinsic value method. We will be required to follow a fair value approach, such as the Black-Scholes
or lattice option valuation models, at the date of a stock-based award grant. SFAS No. 123R permits
one of two methods of adoption: (1) modified prospective method or (2) modified retrospective
method. We plan to adopt SFAS No. 123R using the modified prospective method. This method requires
that we recognize compensation expense for all share-based payments granted on or after January 1,
2006 and for all awards granted to employees prior to January 1, 2006 that remain unvested on
January 1, 2006. In March 2005, the SEC issued Staff Accounting Bulletin (SAB)
No. 107. SAB No. 107 provides guidance related to the valuation of share-based payment arrangements
for public companies, including guidance related to share-based payment transactions with non-employees,
expected volatility, expected term and the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS No. 123R.
The
adoption of SFAS No. 123R is expected to have a material impact on our equity
granted to third parties and employees expense included in our consolidated
statements of operations in future periods. The actual impact will depend on
levels and terms of future share-based
7
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
payments granted, as well as other variables. Had we adopted SFAS No. 123R in prior periods, the impact
of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure
of pro forma net loss and net loss per share in Note 3 to our unaudited consolidated financial statements.
Reclassifications
Certain amounts in the prior period consolidated financial statements have been reclassified to conform
to the current period presentation.
4. Subscriber Revenue
Subscriber revenue consists of subscription fees, non-refundable activation fees and the effects of
mail-in rebates. Revenues received from automakers for prepaid subscriptions included in the sale
or lease price of a new vehicle are also included in subscriber revenue over the service period.
Subscriber revenue consists of the following:
|
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Subscription fees |
$ |
63,920 |
|
$ |
17,550 |
|
$ |
154,575 |
|
$ |
40,475 |
|
|
Activation fees |
|
1,858 |
|
|
571 |
|
|
4,742 |
|
|
1,302 |
|
|
Effect of mail-in rebates |
|
(1,505 |
) |
|
(96 |
) |
|
(3,518 |
) |
|
(1,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total subscriber revenue |
$ |
64,273 |
|
$ |
18,025 |
|
$ |
155,799 |
|
$ |
40,177 |
|
|
|
|
|
|
|
|
|
|
|
5. Supplemental Cash Flow Disclosures
The following represents supplemental cash flow information:
|
For the Nine Months
Ended September 30, |
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
Cash paid for interest |
$ |
19,511 |
|
$ |
9,359 |
|
Supplemental non-cash operating activities: |
|
|
|
|
|
|
Common stock issued in satisfaction of accrued compensation |
|
2,557 |
|
|
913 |
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
Common stock issued to the NFL |
|
|
|
|
40,967 |
|
Common stock issued in exchange of 3½% Convertible Notes due 2008, including
accrued interest |
|
2,177 |
|
|
86,568 |
|
8
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
6. Long-Term Debt
Our long-term debt consists of the following:
|
|
Conversion
Price
(per share) |
|
As of |
|
|
September 30,
2005 |
|
December 31,
2004 |
|
|
|
|
|
|
|
|
|
9 5/8% Senior Notes due 2013 |
$ |
N/A |
|
$ |
500,000 |
|
$ |
|
|
|
3¼% Convertible Notes due 2011 |
|
5.30 |
|
|
230,000 |
|
|
230,000 |
|
|
2½% Convertible Notes due 2009 |
|
4.41 |
|
|
300,000 |
|
|
300,000 |
|
|
3½% Convertible Notes due 2008 |
|
1.38 |
|
|
65,045 |
|
|
67,250 |
|
|
8¾% Convertible Subordinated Notes due 2009 |
|
28.4625 |
|
|
1,744 |
|
|
1,744 |
|
|
14½% Senior Secured Notes due 2009 |
|
N/A |
|
|
|
|
|
28,080 |
|
|
15% Senior Secured Discount Notes due 2007 |
|
N/A |
|
|
|
|
|
29,200 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
$ |
1,096,789 |
|
$ |
656,274 |
|
|
|
|
|
|
|
|
|
|
9 5/8% Senior Notes due 2013
In August 2005, we issued $500,000 in aggregate principal amount of our 9 5/8% Senior Notes due 2013 resulting in net proceeds of $493,005. Our 9 5/8% Senior Notes due 2013 mature on August 1, 2013 and interest is payable semi-annually on February
1 and August 1 of each year. The obligations under our 9 5/8% Senior Notes due 2013 are not secured by any of our assets.
In September 2005, we redeemed our outstanding 15% Senior Secured Discount Notes due 2007 and our 14½%
Senior Secured Notes due 2009, including accrued interest. We recognized a loss from redemption of
debt of $6,214 in connection with this redemption, including a redemption premium of $5,502 and the
write-off of unamortized debt issuance costs of $712. The obligations under our 15% Senior Secured
Discount Notes due 2007 and 14½% Senior Secured Notes due 2009 were secured by liens on certain
of our assets which were released in connection with the redemption of the notes.
3¼% Convertible Notes due 2011
In October 2004, we issued $230,000 in aggregate principal amount of our 3¼% Convertible Notes
due 2011 resulting in net proceeds of $224,813. These notes are convertible, at the option of the
holder, into shares of our common stock at any time at a conversion rate of 188.6792 shares of common
stock for each $1,000.00 principal amount, or $5.30 per share of common stock, subject to certain
adjustments. Our 3¼% Convertible Notes due 2011 mature on October 15, 2011 and interest
is payable semi-annually on April 15 and October 15 of each year. The obligations under
our 3¼% Convertible Notes due 2011 are not secured by any of our assets.
2½% Convertible Notes due 2009
In February 2004, we issued $250,000 in aggregate principal amount of our 2½% Convertible Notes
due 2009 resulting in net proceeds of $244,625. In March 2004, we issued an additional $50,000 in
aggregate principal amount of our 2½% Convertible Notes due 2009 pursuant to an option granted
in connection with the initial offering of the notes, resulting in net proceeds of $48,975. These
notes are convertible, at the option of the holder, into shares of our common stock at any time at
a conversion rate of 226.7574 shares of common stock for each $1,000.00 principal amount, or $4.41
per share of common stock, subject to certain adjustments. Our 2½% Convertible Notes due 2009
mature on February 15, 2009 and interest is payable semi-annually on February 15 and August 15
of each year. The obligations under our 2½% Convertible Notes due 2009 are not secured by any
of our assets.
9
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
3½% Convertible Notes due 2008
In May 2003, we issued $201,250 in aggregate principal amount of our 3½% Convertible Notes due
2008 resulting in net proceeds of $194,224. These notes are convertible, at the option of the holder,
into shares of our common stock at any time at a conversion rate of 724.6377 shares of common stock
for each $1,000.00 principal amount, or $1.38 per share of common stock, subject to certain adjustments.
Our 3½% Convertible Notes due 2008 mature on June 1, 2008 and interest is payable semi-annually
on June 1 and December 1 of each year. The obligations under our 3½% Convertible Notes
due 2008 are not secured by any of our assets.
During the nine months ended September 30, 2005, we issued 1,597,826 shares of our common stock in
exchange for $2,177 in aggregate principal amount of our 3½% Convertible Notes due 2008, including
accrued interest. In January 2004, we issued 56,409,853 shares of our common stock in exchange for
$69,000 in aggregate principal amount of our 3½% Convertible Notes due 2008, including accrued
interest. We recorded debt conversion costs of $19,592 for the nine months ended September 30,
2004. No debt conversion costs were recognized for the three and nine months ended September 30,
2005.
7. Stockholders Equity
Common Stock, par value $0.001 per share
We are authorized to issue 2,500,000,000 shares of our common stock. As of September 30, 2005, approximately
500,946,000 shares of our common stock were reserved for issuance in connection with outstanding
convertible debt, warrants and incentive stock plans.
During the nine months ended September 30, 2005, employees exercised 8,088,194 stock options at exercise
prices ranging from $0.67 to $5.17 per share, resulting in proceeds to us of $11,118.
In January 2004, we signed a seven-year agreement with the NFL. We delivered to the NFL 15,173,070
shares of our common stock valued at $40,967 upon execution of this agreement. These shares of common
stock are subject to transfer restrictions which lapse over time. We recognized expense associated
with these shares of $1,641 during each of the three months ended September 30, 2005 and 2004, and
$3,501 and $1,933 during the nine months ended September 30, 2005 and 2004, respectively. Of the
remaining $33,181 in common stock value, $5,852 and $27,329 are included in other current assets
and other long-term assets, respectively, on our accompanying unaudited consolidated balance sheet
as of September 30, 2005.
Warrants
In
June 2004, we issued DaimlerChrysler AG warrants to purchase up to 21,500,000
shares of our common stock at an exercise price of $1.04 per share. These warrants
vest based on the achievement of various performance milestones, including the
volume thresholds contained in our agreement with DaimlerChrysler. These warrants
replaced warrants issued to DaimlerChrysler AG in October 2002.
In February 2004, we announced an agreement with RadioShack Corporation to distribute, market and sell
SIRIUS radios. In connection with this agreement, we issued RadioShack warrants to purchase up to
10,000,000 shares of our common stock. These warrants have an exercise price of $5.00 per share and
vest and become exercisable if RadioShack achieves activation targets during the five-year term of
the agreement.
In
January 2004, we signed an agreement with Penske Automotive Group, Inc., United
Auto Group, Inc., Penske Truck Leasing Co. L.P. and Penske Corporation (collectively,
the Penske companies). In connection with this agreement, we agreed
to issue the Penske companies warrants to purchase up to 38,000,000 shares of
our common stock at an exercise price of $2.392 per share. Two million of these
warrants vested upon issuance. The balance of these warrants vest over time
and upon achievement of certain milestones by the Penske companies. During the
nine months ended September 30, 2005, Penske exercised 2,700,000 vested warrants
in a series of cashless exercises. In connection with these transactions, we
issued 1,851,423 shares of our common stock.
In January 2004, we issued the NFL warrants to purchase 50,000,000 shares of our common stock at an
exercise price of $2.50 per share. Of these warrants, 16,666,665 vest upon the delivery to us of
media assets by the
10
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
NFL and its member clubs, and 33,333,335 of these warrants will be earned by the NFL or its member
clubs as we acquire subscribers which are directly trackable through their efforts.
In March 2003, we issued warrants to purchase 45,416,690 shares of our common stock in exchange for
all of our outstanding 9.2% Series A Junior Cumulative Convertible Preferred Stock and 9.2%
Series B Junior Cumulative Convertible Preferred Stock held by affiliates of Apollo Management,
L.P. (Apollo). Apollo exercised all of these warrants prior to their expiration on March 7,
2005 in a series of cashless exercises. In connection with these transactions, we issued 39,538,505
shares of our common stock.
Warrants to acquire shares of our common stock were outstanding as follows (shares in thousands):
|
Average
Exercise
Price |
|
Expiration
Date |
|
Number of Warrants
Outstanding as of |
|
|
September 30,
2005 |
|
December 31,
2004 |
|
|
|
|
|
|
|
|
|
NFL |
$ |
2.50 |
|
March 2008March 2010 |
|
|
50,000 |
|
|
50,000 |
|
Apollo |
|
0.99 |
|
March 2005 |
|
|
|
|
|
45,417 |
|
Penske companies |
|
2.392 |
|
July 2009 |
|
|
35,300 |
|
|
38,000 |
|
DaimlerChrysler |
|
1.04 |
|
May 2012 |
|
|
21,500 |
|
|
21,500 |
|
RadioShack |
|
5.00 |
|
December 2010 |
|
|
10,000 |
|
|
10,000 |
|
Ford |
|
3.00 |
|
September 2011 |
|
|
4,000 |
|
|
4,000 |
|
Other distribution and programming partners |
|
3.16 |
|
January 2008June 2014 |
|
|
9,133 |
|
|
9,363 |
|
Other |
|
20.33 |
|
June 2005April 2011 |
|
|
4,533 |
|
|
6,333 |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
3.08 |
|
|
|
|
134,466 |
|
|
184,613 |
|
|
|
|
|
|
|
|
|
|
|
We recognized expense of $22,763 and $7,960 in connection with warrants for the three months ended
September 30, 2005 and 2004, respectively, and $68,787 and $23,339 for the nine months ended
September 30, 2005 and 2004, respectively.
8. Benefit Plans
In January 2003, our board of directors adopted the Sirius Satellite Radio 2003 Long-Term Stock Incentive
Plan (the 2003 Plan), and on March 4, 2003 our stockholders approved this plan.
On May 25, 2004, our stockholders approved an amendment to the 2003 Plan to include members
of our board of directors as eligible participants. Employees, consultants and members of our board
of directors are eligible to receive awards under the 2003 Plan. The 2003 Plan provides for the
grant
of stock options, restricted stock, restricted stock units and other stock-based awards that
the
compensation committee of our board of directors may deem appropriate.
Vesting and other terms of stock-based awards are set forth in the agreements with the individuals
receiving the awards. Stock-based awards granted under the 2003 Plan are generally subject to a vesting
requirement that includes one or all of the following: (1) over time, generally three to five years
from the date of grant; (2) on a specific date in future periods, with acceleration to earlier periods
if performance criteria are satisfied; or (3) as certain performance targets set at the time of grant
are achieved. Stock-based awards generally expire ten years from the date of grant. Each restricted
stock unit entitles the holder to receive one share of our common stock upon vesting.
As of September 30, 2005, approximately 113,134,000 stock options, shares of restricted stock and restricted
stock units were outstanding. As of September 30, 2005, approximately 94,221,000 shares of our common
stock were available for grant under the 2003 Plan.
During the nine months ended September 30, 2005, we granted 3,245,817 non-qualified stock options at
fair market value on the date of grant with an average exercise price of $6.20 per share.
11
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
We recorded additional deferred compensation of $207 during the nine months ended September 30, 2005
in connection with stock options granted. As of September 30, 2005 and December 31, 2004,
we had $3,164 and $7,363, respectively, of deferred compensation in connection with stock options
granted to employees below fair market value at the date of grant and stock options granted to members
of our board of directors. Such deferred compensation is being amortized to expense over the vesting
period. We also record expense for stock options granted to consultants based on fair value at the
date of grant as determined in accordance with SFAS No. 123. We recognized stock compensation expense
associated with stock options of $2,589 and $4,734 for the three months ended September 30,
2005 and 2004, respectively, and $11,297 and $12,048 for the nine months ended September 30,
2005 and 2004, respectively. Stock compensation expense associated with stock options for the nine
months ended September 30, 2005 included a charge of $479 for an employee that was deemed to
benefit from the modification of a stock-based award resulting in a new measurement date. Expense
associated with stock options is recorded as a component of equity granted to third parties and employees
in our accompanying unaudited consolidated statements of operations.
|
Restricted Stock Units and Restricted Stock |
During the nine months ended September 30, 2005, we granted 1,870,875 restricted stock units with a
grant date fair value of $6.32 per share.
In November 2004, we granted 3,000,000 shares of restricted common stock. The restrictions applicable
to these shares lapse in equal installments on November 18 of each of the next five years beginning
on November 18, 2005.
We recorded additional deferred compensation of $17,499 during the nine months ended September 30,
2005 in connection with restricted stock units granted. As of September 30, 2005 and December 31,
2004, we had $31,697 and $43,600, respectively, of deferred compensation associated with restricted
stock and restricted stock units. Such deferred compensation is being amortized to expense over the
vesting period and is recorded as a component of equity granted to third parties and employees in
our accompanying unaudited consolidated statements of operations. We recognized stock compensation
expense associated with these restricted stock units and shares of restricted stock of $7,862 and
$3,231 for the three months ended September 30, 2005 and 2004, respectively, and $26,958 and
$9,790 for the nine months ended September 30, 2005 and 2004, respectively. For the three and
nine months ended September 30, 2005, we also recognized stock compensation expense of $811
and $2,422, respectively, for restricted stock units expected to be granted in February 2006 for
services performed in 2005.
We sponsor the Sirius Satellite Radio 401(k) Savings Plan (the Plan) for eligible employees.
The Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax salary
subject to certain defined limits. Currently we match 50% of employee voluntary contributions, up
to 6% of an employees pre-tax salary, in the form of shares of our common stock. Our matching
contribution vests at a rate of 33 1/3% for each year of employment and is fully vested after three years of employment. Expense resulting
from our matching contribution to the Plan was $162 and $186 for the three months ended September 30,
2005 and 2004, respectively, and $710 and $550 for the nine months ended September 30, 2005
and 2004, respectively.
We may also elect to contribute to the profit sharing portion of the Plan based upon the total compensation
of all participants eligible to receive an allocation. These additional contributions, referred to
as profit-sharing contributions, are determined by the compensation committee of our board of directors.
Employees are only eligible to receive profit-sharing contributions during any year in which they
are employed on the last day of the year. Profit-sharing contribution expense was $1,118 and $3,207
for the three and nine months ended September 30, 2005, respectively.
9. Income Taxes
We recorded income tax expense of $560 for each of the three months ended September 30, 2005 and
2004 and $1,680 and $3,641 for the nine months ended September 30, 2005 and 2004, respectively.
Such expense
12
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
represents the recognition of a deferred tax liability related to the difference in accounting for
our FCC license, which is amortized over 15 years for tax purposes but not amortized for book purposes.
10. Commitments and Contingencies
We have entered into various contracts, which have resulted in significant cash obligations in future
periods. The following table summarizes our expected contractual cash commitments as of September 30,
2005:
|
|
Remaining
2005
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
Thereafter |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations |
|
$ |
2,092 |
|
$ |
8,488 |
|
$ |
7,764 |
|
$ |
7,569 |
|
$ |
7,527 |
|
$ |
33,258 |
|
$ |
66,698 |
|
Satellite and transmission |
|
|
855 |
|
|
3,335 |
|
|
3,155 |
|
|
3,155 |
|
|
3,155 |
|
|
15,027 |
|
|
28,682 |
|
Programming and content |
|
|
14,939 |
|
|
129,252 |
|
|
99,050 |
|
|
100,207 |
|
|
127,002 |
|
|
149,951 |
|
|
620,401 |
|
Customer service and billing |
|
|
660 |
|
|
5,674 |
|
|
3,138 |
|
|
|
|
|
|
|
|
|
|
|
9,472 |
|
Marketing and distribution |
|
|
33,902 |
|
|
63,060 |
|
|
21,959 |
|
|
9,470 |
|
|
13,750 |
|
|
22,875 |
|
|
165,016 |
|
Chip set development and
production |
|
|
22,020 |
|
|
9,281 |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
34,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
commitments |
|
$ |
74,468 |
|
$ |
219,090 |
|
$ |
138,066 |
|
$ |
120,401 |
|
$ |
151,434 |
|
$ |
221,111 |
|
$ |
924,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have entered into operating leases related to our national broadcast studio, office space, terrestrial
repeaters and equipment.
|
Satellite and Transmission |
We have entered into agreements with third parties to operate and maintain our off-site satellite telemetry,
tracking and control facilities and certain components of our terrestrial repeater network.
We have entered into agreements with licensors of programming and other content providers and, in certain
instances, are obligated to pay license fees and guarantee minimum advertising revenue share. In
addition, we have agreements with various rights organizations pursuant to which we pay royalties
for public performances of music.
|
Customer Service and Billing |
We have entered into agreements with third parties to provide customer service, billing and subscriber
management services.
|
Marketing and Distribution |
We have entered into various marketing, sponsorship and distribution agreements to promote our brand
and are obligated to make payments to sponsors, retailers, automakers and radio manufacturers under
these agreements. In addition, certain programming and content agreements require us to purchase
advertising on properties owned or controlled by the licensors. We have also agreed to reimburse
automakers for certain engineering and development costs associated with the incorporation of SIRIUS
radios into vehicles they manufacture.
|
Chip Set Development and Production |
We have entered into agreements with third parties to develop, produce and supply chip sets, and in
certain instances to license intellectual property related to such chip sets. Certain of these
agreements
require that we purchase a minimum quantity of chip sets.
13
|
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited) |
|
Joint Development Agreement |
Under the terms of a joint development agreement with XM Radio, the other holder of a FCC satellite
radio license, each party is obligated to fund one half of the development cost for a unified standard
for satellite radios. The costs related to the joint development agreement are being expensed as
incurred to engineering, design and development expense in our accompanying unaudited consolidated
statements of operations. We are currently unable to determine the expenditures necessary to complete
this process, but they may be significant.
In addition to the contractual cash commitments described above, we have entered into agreements with
automakers, radio manufacturers and others that include per-radio and per-subscriber payments and
revenue share arrangements. These future costs are dependent upon many factors and are difficult
to anticipate; however, these costs may be substantial. We may enter into additional programming,
distribution, marketing and other agreements that contain similar provisions.
We are required under the terms of certain agreements to provide letters of credit and deposit monies
in escrow, which place restrictions on our cash and cash equivalents. As of September 30, 2005 and
December 31, 2004, $92,615 and $97,321, respectively, were classified as restricted investments as
a result of our reimbursement obligations under these letters of credit and escrow arrangements.
As of September 30, 2005, we have not entered into any off-balance sheet arrangements or transactions.
In
September 2005, SIRIUS Canada Inc., our Canadian affiliate, received notice
that Canadas Federal Cabinet had declined to reverse a decision to
issue SIRIUS Canada a license to broadcast in Canada. This decision affirmed
the earlier licensing ruling of the Canadian Radio-television and Telecommunications
Commission (the CRTC) that authorized SIRIUS Canada to offer a satellite
radio service in Canada. SIRIUS Canada is a Canadian corporation owned by Canadian
Broadcasting Corporation, Standard Radio Inc. and us. SIRIUS Canada anticipates
offering a satellite radio service in Canada in late 2005. For the nine months
ended September 30, 2005, we recorded $739 for our share of SIRIUS Canadas
net loss.
14
|
|
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts are in thousands, unless otherwise stated) |
Special Note Regarding Forward-Looking Statements
The following cautionary statements identify important factors that could cause our actual results
to differ materially from those projected in forward-looking statements made in this Quarterly Report
on Form 10-Q and in other reports and documents published by us from time to time. Any statements
about our beliefs, plans, objectives, expectations, assumptions, future events or performance are
not historical facts and may be forward-looking. These statements are often, but not always, made
through the use of words or phrases such as will likely result, are expected to,
will continue, is anticipated, estimated, intends,
plans, projection and outlook. Any forward-looking statements
are qualified in their entirety by reference to the factors discussed throughout our Annual Report
on Form 10-K for the year ended December 31, 2004 (the Form 10-K) and in other
reports and documents published by us from time to time, particularly the risk factors described
under BusinessRisk Factors in Part I of the Form 10-K.
Among the significant factors that could cause our actual results to differ materially from those expressed
in the forward-looking statements are:
|
|
the useful life of our satellites, which have experienced circuit failures on their solar arrays and
other component failures and are not insured; |
|
|
|
|
|
our dependence upon third parties, including manufacturers of SIRIUS radios, retailers, automakers
and programming partners; and |
|
|
|
|
|
our competitive position versus XM Radio, the other satellite radio service provider in the United
States, which has substantially more subscribers than we do and may have certain competitive advantages,
and versus other forms of audio and video entertainment. |
Because the risk factors referred to above could cause actual results or outcomes to differ materially
from those expressed in any forward-looking statements made by us or on our behalf, you should not
place undue reliance on any of these forward-looking statements. In addition, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no obligation to update
any forward-looking statement or statements to reflect events or circumstances after the date on
which the statement is made, to reflect the occurrence of unanticipated events or otherwise. New
factors emerge from time to time, and it is not possible for us to predict which will arise or to
assess with any precision the impact of each factor on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
Executive Summary
We currently broadcast more than 120 channels of programming to listeners across the country. We offer
65 channels of 100% commercial-free music and feature over 55 channels of sports, news, talk, entertainment,
traffic and weather for a monthly subscription fee of $12.95. We offer discounts for pre-paid, long-term
and multiple subscriptions.
Since inception, we have used substantial resources to develop our satellite radio system. Our satellite
radio system consists of our FCC license, satellites, national broadcast studio, terrestrial repeater
network, satellite uplink facility and satellite telemetry, tracking and control facilities. On
July 1,
2002, we launched our service nationwide.
Our primary source of revenue is subscription fees. We also derive revenue from activation fees, the
sale of advertising on our non-music channels and from the direct sale of SIRIUS radios and accessories.
Currently we receive an average of approximately nine months of prepaid revenue per subscriber upon
activation.
Our cost of services includes expenses for satellite and transmission, programming and content, customer
service and billing, and costs associated with the sale of equipment. Satellite and transmission
expenses consist of costs associated with the operation and maintenance of our satellite telemetry,
tracking and control system, terrestrial repeater network, satellite uplink facility and national
broadcast studio. Programming and content expenses include costs to acquire, create and produce content,
on-air talent costs and broadcast royalties. Customer
15
service and billing expenses include costs associated with the operation of our customer service centers
and subscriber management system.
As of September 30, 2005, we had 2,173,920 subscribers compared with 1,143,258 subscribers as of December 31,
2004 and 662,289 subscribers as of September 30, 2004. Our subscriber totals include subscribers
under our regular pricing plans, as well as subscribers currently in promotional periods; subscribers
that have prepaid, including payments from automakers for prepaid subscriptions included in the sale
or lease price of a new vehicle; and active SIRIUS radios under our agreement with Hertz.
The following tables contain a breakdown of our subscribers and other metrics which we use to measure
our operating performance:
Subscribers:
|
|
As of |
|
|
|
|
|
|
|
September 30,
2005 |
|
June 30,
2005 |
|
March 31,
2005 |
|
December 31,
2004 |
|
September 30,
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
1,564,718 |
|
|
1,354,798 |
|
|
1,109,813 |
|
|
911,255 |
|
|
534,871 |
|
OEM |
|
|
581,988 |
|
|
432,988 |
|
|
311,324 |
|
|
203,469 |
|
|
100,261 |
|
Hertz |
|
|
27,214 |
|
|
26,840 |
|
|
27,558 |
|
|
28,534 |
|
|
27,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscribers |
|
|
2,173,920 |
|
|
1,814,626 |
|
|
1,448,695 |
|
|
1,143,258 |
|
|
662,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Metrics:
|
For the Three Months Ended |
|
|
|
|
|
September 30,
2005 |
|
June 30,
2005 |
|
March 31,
2005 |
|
December 31,
2004 |
|
September 30,
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross subscriber additionsincluding
Hertz subscribers |
|
465,228 |
|
|
432,687 |
|
|
354,708 |
|
|
521,479 |
|
|
207,181 |
|
Deactivated subscribers |
|
105,934 |
|
|
66,756 |
|
|
49,271 |
|
|
40,510 |
|
|
25,233 |
|
Average monthly churn(1)(5) |
|
1.8 |
% |
|
1.4 |
% |
|
1.3 |
% |
|
1.5 |
% |
|
1.5 |
% |
ARPU(2)(5) |
$ |
11.15 |
|
$ |
10.50 |
|
$ |
10.72 |
|
$ |
9.57 |
|
$ |
10.84 |
|
Subscriber acquisition costs per gross
subscriber addition(3)(5) |
$ |
149 |
|
$ |
160 |
|
$ |
190 |
|
$ |
124 |
|
$ |
229 |
|
Loss from operations, as reported |
$ |
(166,919 |
) |
$ |
(174,582 |
) |
$ |
(190,259 |
) |
$ |
(258,574 |
) |
$ |
(167,237 |
) |
Depreciation |
|
24,559 |
|
|
24,580 |
|
|
24,501 |
|
|
24,288 |
|
|
23,811 |
|
Equity granted to third parties and employees |
|
36,946 |
|
|
41,230 |
|
|
38,706 |
|
|
79,065 |
|
|
17,752 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted loss from operations(4)(5) |
$ |
(105,414 |
) |
$ |
(108,772 |
) |
$ |
(127,052 |
) |
$ |
(155,221 |
) |
$ |
(125,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
_____________ |
|
|
(1) |
Average monthly churn represents the number of deactivated subscribers divided by average quarterly
subscribers. |
|
|
(2) |
Average monthly revenue per subscriber, or ARPU, is derived from total earned subscriber revenue and
net advertising revenue divided by the daily weighted average number of subscribers for the period. |
|
|
(3) |
Subscriber acquisition costs per gross subscriber addition is derived from total subscriber acquisition
costs and negative margins from the direct sale of SIRIUS radios and accessories divided by the number
of gross subscriber additions for the period. Figures are rounded to the nearest whole dollar. |
|
|
(4) |
Adjusted loss from operations represents the loss from operations before depreciation and equity granted
to third parties and employees. We believe adjusted loss from operations is useful because it represents
operating expenses excluding the effects of non-cash items. This measure most closely resembles EBITDA,
defined as net loss before interest income, interest expense, income taxes, depreciation and amortization.
EBITDA is a common financial measure used in analyzing the performance of companies. |
|
|
(5) |
Average monthly churn, ARPU, subscriber acquisition costs per gross subscriber addition and adjusted
loss from operations are not measures of financial performance under U.S. generally accepted accounting
principles and are used by us as a measure of operating performance. As a result, these metrics may
be susceptible to varying calculations; may not be comparable to other similarly titled measures
of other companies; and should not be considered in isolation or as a substitute for measures of
financial performance prepared in accordance with U.S. generally accepted accounting principles. |
16
Costs associated with acquiring subscribers are generally incurred and expensed in advance of acquiring
a subscriber and are recognized as subscriber acquisition costs. We acquire a large percentage of
our annual gross subscriber additions in the fourth quarter of our fiscal year in connection with
holiday sales. As a result, our subscriber acquisition costs per gross subscriber addition are generally
higher in the first three quarters of our fiscal year and decline in the fourth quarter as we experience
higher activation rates.
SIRIUS radios are primarily distributed through retailers and automakers. SIRIUS radios can be purchased
at major retailers, including Best Buy, Circuit City, Crutchfield, Costco, RadioShack, Sams
Club, Target and Wal-Mart. Sirius is also available at heavy truck dealer, truck stops and travel
centers nationwide. On September 30, 2005, SIRIUS radios were available at over 25,000 retail
locations. We also have agreements with Ford Motor Company (Ford), DaimlerChrysler Corporation
(DaimlerChrysler), Mitsubishi Motors North America, BMW of North America, LLC, Nissan
North America, Inc., Volkswagen of America, Inc. and Porsche Cars North America, Inc. that contemplate
the manufacture and sale of vehicles that include SIRIUS radios. We recently extended each of our
exclusive agreements with Ford, DaimlerChrysler and BMW. In October 2005, we extended our exclusive
agreement with DaimlerChrysler to September 2012. This agreement includes all Chrysler Group and
Mercedes-Benz vehicles as well as Freightliner trucks. In September 2005, we extended our exclusive
relationship with BMW through August 2008. All BMW models are covered by the agreement. During the
second quarter of 2005, we also extended our agreement with Ford through September 2011. All Ford
brands in the U.S. are covered by the agreement. SIRIUS radios are also offered to renters of Hertz
vehicles at many airport locations nationwide.
We believe our ability to attract and retain subscribers depends in large part on creating and sustaining
distribution channels for SIRIUS radios and on the quality and entertainment value of our programming.
We expect to concentrate our future efforts on enhancing and refining our programming, whether through
additional agreements with third parties or our own creative efforts; introducing SIRIUS radios with
new features and functions; and expanding the distribution of SIRIUS radios through arrangements
with automakers and through additional retail points-of-sale.
In September 2005, SIRIUS Canada Inc., our Canadian affiliate, received notice that Canadas
Federal Cabinet had declined to reverse a decision to issue SIRIUS Canada a license to broadcast
in Canada. This decision affirmed the earlier licensing ruling of the Canadian Radio-television
and Telecommunications Commission (the CRTC) that authorized SIRIUS Canada to offer a
satellite radio service in Canada. SIRIUS Canada is a Canadian corporation owned by Canadian Broadcasting
Corporation, Standard Radio Inc. and us. SIRIUS Canada anticipates offering a satellite radio service
in Canada in late 2005.
We have principally funded our operations through the sale of debt and equity securities. In August
2005, we sold $500,000 in aggregate principal amount of our 9 5/8% Senior Notes due 2013 resulting in net proceeds of $493,005. In 2004, we raised net proceeds of
$614,438 through the offering of 25,000,000 shares of our common stock, $230,000 in aggregate principal
amount of our 3¼% Convertible Notes due 2011 and $300,000 in aggregate principal amount of our
2½% Convertible Notes due 2009.
17
Results of Operations
Three Months Ended September 30, 2005 Compared with the Three Months Ended September 30, 2004
Subscriber Revenue. Subscriber revenue includes subscription fees, activation fees and the effects of mail-in rebates.
As of September 30, 2005, we had 2,173,920 subscribers compared with 1,143,258 subscribers at December 31,
2004 and 662,289 subscribers as of September 30, 2004. Our subscriber totals include subscribers
under our regular pricing plans, as well as subscribers currently in promotional periods; subscribers
that have prepaid, including payments from automakers for subscriptions included in the sale or lease
price of a new vehicle; and active SIRIUS radios under our agreement with Hertz.
Subscriber revenue increased $46,248 to $64,273 for the three months ended September 30, 2005
from $18,025 for the three months ended September 30, 2004. The increase in subscriber revenue
was attributable to the growth of subscribers to our service. We added 1,511,631 net new subscribers
since September 30, 2004.
The following table contains a breakdown of our subscriber revenue:
|
For the Three Months
Ended September 30, |
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
Variance |
|
|
|
|
|
|
|
|
Subscription fees |
$ |
63,920 |
|
$ |
17,550 |
|
$ |
46,370 |
|
Activation fees |
|
1,858 |
|
|
571 |
|
|
1,287 |
|
Effects of mail-in rebates |
|
(1,505 |
) |
|
(96 |
) |
|
(1,409 |
) |
|
|
|
|
|
|
|
Total subscriber revenue |
$ |
64,273 |
|
$ |
18,025 |
|
$ |
46,248 |
|
|
|
|
|
|
|
|
|
|
|
|
Future subscriber revenue will be dependent upon, among other things, the growth of our subscriber
base, promotions and mail-in rebates offered to subscribers and the identification of additional
revenue streams from subscribers.
Advertising Revenue. Advertising revenue includes the sale of advertising on our non-music channels, net of agency fees.
Agency fees are based on a stated percentage per the advertising agreements applied to gross billing
revenue for our advertising inventory.
Advertising revenue increased $1,259 to $1,508 for the three months ended September 30, 2005 from
$249 for the three months ended September 30, 2004. The increase was a result of an increase
in rates per spot, more spots due to new and more attractive programming and increased advertiser
interest as we continue to build brand awareness.
We expect advertising revenue to grow as our subscribers increase and we continue to improve brand
awareness and content.
ARPU. Average monthly revenue per subscriber, or ARPU, is derived from total earned subscriber revenue and
net advertising revenue divided by the daily weighted average number of subscribers for the period.
Set forth below is a table showing the calculation of ARPU:
|
For the Three
Months Ended
September 30, |
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
Average monthly subscriber revenue per subscriber before effects of Hertz
subscribers and mail-in rebates |
$ |
11.08 |
|
$ |
10.92 |
|
Effects of Hertz subscribers |
|
0.06 |
|
|
(0.18 |
) |
Effects of mail-in rebates |
|
(0.25 |
) |
|
(0.05 |
) |
|
|
|
|
|
Average monthly subscriber revenue per subscriber |
|
10.89 |
|
|
10.69 |
|
18
Average monthly net advertising revenue per subscriber |
|
0.26 |
|
|
0.15 |
|
|
|
|
|
|
ARPU |
$ |
11.15 |
|
$ |
10.84 |
|
|
|
|
|
|
The increase in ARPU to $11.15 for the three months ended September 30, 2005 from $10.84 for the
three months ended September 30, 2004 was primarily attributable to the effects of improvement
in our Hertz program, increased advertising revenue and promotional activity in the third quarter
of 2004 that provided an effective first year price of $9.99 per month for new subscribers, offset
by the dilutive effects of mail-in rebates and the timing of commencement of revenue recognition
for prepaid subscriptions.
Future ARPU will be dependent upon the amount and timing of promotions, mail-in rebates offered to
subscribers, the identification of additional revenue streams from subscribers and the sale of advertising
on our non-music channels.
Equipment Revenue. Equipment revenue includes revenue from the direct sale of SIRIUS radios and accessories.
Equipment revenue increased $207 to $1,030 for the three months ended September 30, 2005 from
$823 for the three months ended September 30, 2004. The increase was the result of increased
sales through our direct to consumer distribution channel.
We expect equipment revenue to increase in the future as we continue to introduce new products and
as sales through our direct to consumer distribution channel grow.
Satellite and Transmission. Satellite and transmission expenses consist of in-orbit satellite insurance and costs associated with
the operation and maintenance of our satellite telemetry, tracking and control system, terrestrial
repeater network, satellite uplink facility and national broadcast studio.
Satellite
and transmission expenses decreased $392 to $7,228 for the three months ended
September 30, 2005 from $7,620 for the three months ended September 30,
2004. The decrease was primarily attributable to a $737 reduction in satellite
insurance costs. Effective August 2004, we discontinued our in-orbit satellite
insurance. This decision was made after a review of the health of our satellite
constellation; the exclusions from coverage contained in the available insurance;
the costs of the available insurance; and the practices of other satellite companies
as to in-orbit insurance. Such decrease was offset by increased costs associated
with additions to our personnel. As of September 30, 2005, we had 140 terrestrial
repeaters in operation as compared with 135 terrestrial repeaters as of September 30,
2004.
Future increases in satellite and transmission expenses will primarily be attributable to the addition
of new terrestrial repeaters and maintenance costs of existing terrestrial repeaters. In addition,
such expenses may also increase in future periods if we decide to reinstate our in-orbit satellite
insurance or launch new satellites.
Programming and Content. Programming and content expenses include costs to acquire, create and produce content, on-air talent
costs and broadcast royalties. We have entered into various agreements with third parties for music
and non-music programming. These agreements require us to share advertising revenue, pay license
fees, purchase advertising on media properties owned or controlled by the licensor and pay certain
other guaranteed amounts. Purchased advertising is recorded as a sales and marketing expense in the
period the advertising is broadcast.
Programming and content expenses increased $4,810 to $23,542 for the three months ended September 30,
2005 from $18,732 for the three months ended September 30, 2004. The increase was primarily
attributable to license fees associated with new content agreements; compensation related costs for
additions to headcount; additional on-air talent costs due to the expansion of the programming lineup;
and broadcast royalties as a result of the increase in our subscriber base.
Our programming and content expenses will increase as we continue to develop and enhance our channels.
Our agreements with Howard Stern and NASCAR beginning in 2006 and 2007, respectively, will significantly
increase our programming and content expenses. We regularly evaluate programming opportunities and
may choose to acquire and develop new content or renew current programming agreements in the future
at substantial cost.
19
Customer Service and Billing. Customer service and billing expenses include costs associated with the operation of our customer service
centers and subscriber management system.
Customer service and billing expenses increased $4,087 to $9,416 for the three months ended September 30,
2005 from $5,329 for the three months ended September 30, 2004. The increase was primarily due
to increased customer service representative costs and credit card fees necessary to support the
growth of our subscriber base and telecommunications charges as a result of the expansion and growth
of our call centers to accommodate our subscriber base. Customer service and billing expenses increased
77% compared with an increase in our end of period subscribers of 228%. Customer service and billing
expenses per average subscriber per month declined 50% to $1.59 for the three months ended September 30,
2005 from $3.16 for the three months ended September 30, 2004.
We
expect our customer care and billing expenses to increase and our costs per
subscriber to decrease on an annual basis as our subscriber base grows.
Cost of Equipment. Cost of equipment includes costs for SIRIUS radios and accessories sold through our direct to consumer
distribution channel.
Cost of equipment increased $307 to $1,453 for the three months ended September 30, 2005 from
$1,146 for the three months ended September 30, 2004. The increase was attributable to higher
sales from our direct to consumer distribution channel, offset by reductions in the per unit costs
of SIRIUS radios and accessories.
We expect cost of equipment to increase in the future as we introduce new products and as sales through
our direct to consumer distribution channel grow.
Sales and Marketing. Sales and marketing expenses include advertising media and production costs and distribution costs.
Advertising media and production costs primarily include promotional events, sponsorships, media,
advertising production and market research. Distribution costs primarily include the costs of residuals,
market development funds, revenue share and in-store merchandising. Residuals are monthly fees paid
based upon the number of subscribers using a SIRIUS radio purchased from a retailer. Market development
funds are fixed and variable payments to reimburse retailers and radio manufacturers for the cost
of advertising and other product awareness activities.
Sales and marketing expenses decreased $4,464 to $38,181 for the three months ended September 30,
2005 from $42,645 for the three months ended September 30, 2004. The decrease was primarily
attributable to lower advertising media and production costs as a result of the expiration of certain
sponsorships and higher costs incurred in 2004 for our NFL marketing campaign. Distribution costs
in total remained relatively consistent, decreasing as a result of costs associated with the rollout
of our sales efforts with RadioShack in the third quarter of 2004, offset by increased retail residuals
and OEM revenue share in the third quarter of 2005.
We expect sales and marketing expenses to increase as we continue to build brand awareness through
national advertising and promotional activities and expand the distribution of SIRIUS radios. Beginning
in 2007, our agreement with NASCAR will increase our sponsorship costs included in sales and marketing
expense.
Subscriber Acquisition Costs. Subscriber acquisition costs include hardware subsidies paid to radio manufacturers and automakers,
including subsidies paid to automakers who include a SIRIUS radio and a prepaid subscription to our
service in the sale or lease price of a new vehicle; subsidies paid to chip set manufacturers; and
commissions paid to retailers and automakers as incentives to purchase, install and activate SIRIUS
radios. The majority of subscriber acquisition costs are incurred and expensed in advance of acquiring
a subscriber. Subscriber acquisition costs do not include advertising, loyalty payments to distributors
and dealers of SIRIUS radios and revenue share payments to automakers and retailers of SIRIUS radios
which are included in sales and marketing expense. Subscriber acquisition costs also do not include
amounts capitalized in connection with our agreement with Hertz, as we retain ownership of the SIRIUS
radios used by Hertz.
Subscriber acquisition costs increased $21,609 to $68,675 for the three months ended September 30,
2005 from $47,066 for the three months ended September 30, 2004, an increase of 46%. Over the same
period, gross subscriber additions increased 125% from 207,181 for the three months ended September 30,
2004 to 465,228 for the three months ended September 30, 2005. The increase in subscriber acquisition
costs was attributable to subsidies for higher shipments of SIRIUS radios and chip sets to accommodate
the growth of our subscriber base and commissions resulting from the increase in gross subscriber
additions, offset by decreases in our average hardware and chip set subsidy rates.
20
Subscriber
acquisition costs per gross subscriber addition were $149 and $229 for the three
months ended September 30, 2005 and 2004, respectively. The decline was
primarily attributable to the reduction in subsidy rates as we continued to
reduce manufacturing and chip set costs.
We expect total subscriber acquisition costs to increase in the future as our gross subscriber additions
increase and we continue to offer subsidies, commissions and other incentives to acquire subscribers.
However, we anticipate that the costs of certain subsidized components of SIRIUS radios will decrease
in the future as manufacturers experience economies of scale in production and we secure additional
manufacturers of these components. We expect subscriber acquisition costs per gross subscriber addition
to decline in the fourth quarter of 2005, reflecting the effects of reductions in hardware subsidy
rates for future generation product and the impact of inventory sell-through for holiday sales. If
competitive forces require us to increase hardware subsidies or promotions, subscriber acquisition
costs per gross subscriber addition could increase.
General and Administrative. General and administrative expenses include rent and occupancy, accounting, legal, human resources,
information technology and investor relations costs.
General and administrative expenses increased $2,158 to $13,966 for the three months ended September 30,
2005 from $11,808 for the three months ended September 30, 2004. The increase was primarily
attributable to additional personnel-related costs to support the growth of our business and bad
debt expense. The increase was offset in part by a decrease in consulting fees.
We expect our general and administrative expenses to increase in future periods for personnel-related,
services and facility costs to support our growth.
Engineering, Design and Development. Engineering, design and development expenses include costs to develop our future generation of chip
sets and new products and costs associated with the incorporation of SIRIUS radios into vehicles
manufactured by automakers.
Engineering, design and development expenses decreased $660 to $9,784 for the three months ended September 30,
2005 from $10,444 for the three months ended September 30, 2004. The decline was primarily attributable
to decreased chip set development costs, offset by product development costs for our next generation
of radios.
We expect our engineering, design and development expenses to increase in future periods as automakers
continue their efforts to incorporate SIRIUS radios across a broader range of their vehicles and
as we develop future generations of chip sets and new products and services.
Equity Granted to Third Parties and Employees. Equity granted to third parties and employees expense includes the costs associated with warrants,
stock options, restricted stock, restricted stock units and other stock-based awards granted to third
parties pursuant to programming, sales and marketing and distribution agreements; employees; members
of our board of directors; consultants; and employee benefit plans.
Equity granted to third parties and employees expense for warrants increased $14,803 to $22,763 for
the three months ended September 30, 2005 from $7,960 for the three months ended September 30,
2004. This increase was primarily attributable to expense accrued based on certain distribution partners
performance toward achieving eligible vehicle, subscriber activation and delivery milestones and
as a result of increases in the fair market value of our stock. Expense associated with warrants
that have not yet vested may change in future periods as a result of price changes in our common stock.
Equity granted to third parties and employees expense for stock options, restricted stock, restricted
stock units and other stock-based awards increased $4,391 to $12,542 for the three months ended September 30,
2005 from $8,151 for the three months ended September 30, 2004. The increase was primarily attributable
to expense associated with restricted stock units which accelerate to earlier periods as performance
targets for fiscal periods are met, new grants of restricted stock units and modifications of existing
stock-based awards. The remaining increase was primarily related to expense accrued for 2005 profit
sharing and restricted stock units granted, or that we expect to grant, for services performed in
2004 and 2005, respectively.
Equity granted to third parties and employees expense for the three months ended September 30,
2005 and 2004 also included $1,641 of expense associated with the 15,173,070 shares of our common
stock granted to the NFL.
21
Future expense associated with equity granted to third parties and employees is contingent upon a number
of factors, including the amount of stock-based awards granted, the price of our common stock, valuation
assumptions, vesting provisions and the timing as to when certain performance criteria are met, and
could materially change. Beginning January 1, 2006, we are required to adopt Statement of Financial
Accounting Standard (SFAS) No. 123R, Share-Based Payment. We plan to adopt
SFAS No. 123R using the modified prospective method. This method requires that we recognize compensation
expense for all share-based payments granted on or after January 1, 2006 and for all awards
granted to employees prior to January 1, 2006 that remain unvested on January 1, 2006.
The adoption of SFAS No. 123R is expected to have a material impact on our equity granted to third
parties and employees expense included in our consolidated statements of operations, although such
impact cannot be quantified at this time because it will depend on share-based payments granted in the future.
Interest and Investment Income. Interest and investment income includes interest on our cash and cash equivalents, marketable securities,
and restricted investments and net gains or losses on the sale of marketable securities.
Interest and investment income increased $5,354 to $7,645 for the three months ended September 30,
2005 from $2,291 for the three months ended September 30, 2004. The increase was primarily attributable
to the increase in our average cash, cash equivalents and marketable securities balance resulting
from funds raised through offerings of debt securities and an increase in the average interest rate.
Interest Expense. Interest expense includes interest on outstanding debt and debt conversion costs. Debt conversion costs
represent the loss associated with debt exchanged and are calculated as the difference between the
fair market value of additional shares issued in excess of the fair market value of the amount of
shares that would have been issued under original conversion ratios.
Interest expense increased $8,426 to $13,693 for the three months ended September 30, 2005 from
$5,267 for the three months ended September 30, 2004. The increase was primarily due to the
issuance of our 9 5/8 % Senior Notes due 2013 in August 2005 and our 3¼% Convertible Notes due 2011 in October 2004.
Loss from Redemption of Debt.
For the three months ended September 30, 2005, a loss from redemption of debt of $6,214 was recognized
in connection with the redemption of our 15% Senior Secured Discount Notes due 2007 and our 14½%
Senior Secured Notes due 2009, including a redemption premium of $5,502 and the write-off of unamortized
debt issuance costs of $712.
Income
(Expense) from Affiliate. For the three months ended September 30, 2005,
we recorded $739 for our share of SIRIUS Canada Inc.s net loss.
Other Income. Other income for the three months ended September 30, 2004 was primarily related to a legal settlement
in our favor of $1,333.
Income Taxes
Income Tax Expense. We recorded income tax expense of $560 for the three months ended September 30, 2005 and 2004.
This expense represents the recognition of a deferred tax liability related to the difference in
accounting for our FCC license, which is amortized over 15 years for tax purposes but not amortized
for book purposes under U.S. generally accepted accounting principles.
Nine Months Ended September 30, 2005 Compared with the Nine Months Ended September 30, 2004
Total Revenue
Subscriber Revenue. Subscriber revenue increased $115,622 to $155,799 for the nine months ended September 30, 2005
from $40,177 for the nine months ended September 30, 2004. The increase in subscriber revenue
was attributable to the growth of subscribers to our service. We added 1,511,631 net new subscribers
since September 30, 2004.
The following table contains a breakdown of our subscriber revenue:
22
|
|
|
|
|
|
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
Variance |
|
|
|
|
|
|
|
|
|
|
Subscription fees |
$ |
154,575 |
|
$ |
40,475 |
|
$ |
114,100 |
|
|
Activation fees |
|
4,742 |
|
|
1,302 |
|
|
3,440 |
|
|
Effects of mail-in rebates |
|
(3,518 |
) |
|
(1,600 |
) |
|
(1,918 |
) |
|
|
|
|
|
|
|
|
|
Total subscriber revenue |
$ |
155,799 |
|
$ |
40,177 |
|
$ |
115,622 |
|
|
|
|
|
|
|
|
|
Advertising Revenue. Advertising revenue increased $2,695 to $3,094 for the nine months ended September 30, 2005 from
$399 for the nine months ended September 30, 2004. The increase was a result of an increase
in rates per spot, more spots due to new and more attractive programming and increased advertiser
interest as we continue to build brand awareness.
ARPU. Set forth below is a table showing the calculation of ARPU:
|
|
For the Nine Months
Ended September 30,
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Average monthly subscriber revenue per subscriber before effects of Hertz
subscribers and mail-in rebates |
$ |
10.78 |
|
$ |
11.15 |
|
|
Effects of Hertz subscribers |
|
0.04 |
|
|
(0.29 |
) |
|
Effects of mail-in rebates |
|
(0.24 |
) |
|
(0.42 |
) |
|
|
|
|
|
|
|
Average monthly subscriber revenue per subscriber |
|
10.58 |
|
|
10.44 |
|
|
Average monthly net advertising revenue per subscriber |
|
0.21 |
|
|
0.10 |
|
|
|
|
|
|
|
|
ARPU |
$ |
10.79 |
|
$ |
10.54 |
|
|
|
|
|
|
|
The increase in ARPU to $10.79 for the nine months ended September 30, 2005 from $10.54 for the
nine months ended September 30, 2004 was primarily attributable to the reduced impact of mail-in
rebates, which resulted from an increase in our average subscriber base and the reduction of our
first and third quarter 2005 rebate offer to $30 from $50 per eligible activation; the effects of
improvement in our Hertz program; the effects of plan mix; and increased advertising revenue. These
positive trends were offset, in part, by the effects of the timing of the commencement of revenue
recognition for prepaid subscriptions.
Equipment Revenue. Equipment revenue increased $2,287 to $3,300 for the nine months ended September 30, 2005 from
$1,013 for the nine months ended September 30, 2004. The increase was the result of increased
sales through our direct to consumer distribution channel.
Operating Expenses
Satellite and Transmission. Satellite and transmission expenses decreased $3,506 to $20,709 for the nine months ended September 30,
2005 from $24,215 for the nine months ended September 30, 2004. The decrease was primarily attributable
to a $5,159 reduction in satellite insurance costs, offset by increased costs associated with the
use of security software to prevent the theft of our service and additions to our personnel.
Programming and Content. Programming and content expenses increased $26,039 to $63,589 for the nine months ended September 30,
2005 from $37,550 for the nine months ended September 30, 2004. The increase was primarily attributable
to license fees associated with sports related programming; compensation related costs for additions
to headcount; additional on-air talent costs due to the expansion of the programming lineup; and
broadcast royalties as a result of the increase in our subscribers.
Customer Service and Billing. Customer service and billing expenses increased $12,928 to $26,646 for the nine months ended September 30,
2005 from $13,718 for the nine months ended September 30, 2004. The increase was primarily due
to increased customer service representative costs and credit card fees necessary to support the
growth of our subscriber base, increased telecommunication charges as a result of the expansion and
growth of our call centers to accommodate our subscriber base and increased operation and maintenance
costs associated with our new billing system implemented in the fourth quarter of 2004. Customer
service and billing expenses increased 94% compared with an increase in our end of period subscribers
of 228%. Customer service and billing expenses per
23
average subscriber per month declined 49% to $1.81 for the nine months ended September 30, 2005 from
$3.57 for the nine months ended September 30, 2004.
Cost of Equipment. Cost of equipment increased $2,766 to $4,381 for the nine months ended September 30, 2005 from
$1,615 for the nine months ended September 30, 2004. The increase was attributable to higher
sales through our direct to consumer distribution channel, offset by reductions in the per unit costs
of SIRIUS radios and accessories.
Sales and Marketing. Sales and marketing expenses increased $3,873 to $107,543 for the nine months ended September 30,
2005 from $103,670 for the nine months ended September 30, 2004. Distribution costs increased
primarily due to higher retail residuals and OEM revenue share as a result of the increase in subscribers,
offset by decreased costs associated with our retail channel, partially as a result of sales
efforts with the RadioShack rollout in 2004. In addition, personnel-related costs increased to support
our growth. Such increases were offset by decreased advertising media and production costs primarily
due to the expiration of certain sponsorships and higher costs incurred in 2004 for our NFL marketing
campaign.
Subscriber Acquisition Costs. Subscriber acquisition costs increased $95,703 to $204,461 for the nine months ended September 30,
2005 from $108,758 for the nine months ended September 30, 2004, an increase of 88%. Over the
same period, gross subscriber additions increased 169% from 465,077 for the nine months ended September 30,
2004 to 1,252,623 for the nine months ended September 30, 2005. The increase in subscriber
acquisition costs was attributable to subsidies for higher shipments of SIRIUS radios and chip sets
to accommodate the growth of our subscriber base and increases in commissions resulting from the
increase in gross subscriber additions, offset by reductions in hardware and chip set subsidy rates
as we continued to reduce manufacturing and chip set costs.
Subscriber acquisition costs per gross subscriber addition were $164 and $235 for the nine months ended
September 30, 2005 and 2004, respectively. The decline was primarily attributable to the reduction
in hardware and chip set subsidy rates as we continued to reduce manufacturing and chip set costs.
General and Administrative. General and administrative expenses increased $11,909 to $42,918 for the nine months ended September 30,
2005 from $31,009 for the nine months ended September 30, 2004. The increase was primarily a
result of additional personnel-related costs and rent and occupancy costs to support the growth of
our business and bad debt expense.
Engineering, Design and Development. Engineering, design and development expenses increased $11,142 to $33,232 for the nine months ended
September 30, 2005 from $22,090 for the nine months ended September 30, 2004. The increase was
primarily attributable to additional personnel-related costs to support research and development
efforts, costs associated with tooling and manufacturing upgrades at DaimlerChrysler and Ford to
support factory installations of SIRIUS radios, and product development costs for our next generation
of radios. These increases were offset by decreases in chip set development costs.
Equity
Granted to Third Parties and Employees. Equity granted to third parties
and employees expense for warrants increased $45,448 to $68,787 for the nine
months ended September 30, 2005 from $23,339 for the nine months ended
September 30, 2004. This increase was primarily attributable to expense
accrued based on certain distribution partners performance toward achieving
eligible vehicle, subscriber activation and delivery milestones and higher prices
as a result of increases in the fair market value of our stock. In addition,
we recognized approximately $23,000 of higher expense based on the fair market
value of our common stock on the final measurement date as a result of certain
distribution partners satisfaction of performance commitments.
Equity granted to third parties and employees expense for stock options, restricted stock, restricted
stock units and other stock-based awards increased $22,206 to $44,594 for the nine months ended September 30,
2005 from $22,388 for the nine months ended September 30, 2004. The increase was primarily attributable
to expense associated with restricted stock units which accelerate to earlier periods as performance
targets for fiscal periods are met, new grants of restricted stock units, and modifications of existing
stock-based awards. The remaining increase was primarily related to expense accrued for 2005 profit
sharing and restricted stock units we expect to grant for services performed in 2005. Such increases
were offset in part by lower expense associated with performance options that vested in March 2005.
24
Equity granted to third parties and employees expense for the nine months ended September 30,
2005 and 2004 also included $3,501 and $1,933, respectively, of expense associated with the 15,173,070
shares of our common stock granted to the NFL.
Other Income (Expense)
Interest and Investment Income. Interest and investment income increased $11,016 to $16,922 for the nine months ended September 30,
2005 from $5,906 for the nine months ended September 30, 2004. The increase was primarily attributable
to the increase in our average cash, cash equivalents and marketable securities balance resulting
from funds raised through offerings of debt securities and an increase in the average interest rate.
Interest Expense. Interest expense decreased $6,016 to $28,219 for the nine months ended September 30, 2005 from
$34,235 for the nine months ended September 30, 2004. The decrease was primarily due to debt
conversion costs of $19,592 as a result of the issuance of 56,409,853 shares of our common stock
in exchange for $69,000 in aggregate principal amount of our 3½% Convertible Notes due 2008,
including accrued interest, in 2004. This decrease was offset by an increase in interest expense
resulting from the issuance of our 9 5/8% Senior Notes due 2013 in August 2005, our 3¼% Convertible Notes due 2011 in October 2004 and
a full nine month impact of our 2½% Convertible Notes due 2009 issued in the first quarter of
2004.
Loss from Redemption of Debt. For the nine months ended September 30, 2005, a loss from redemption of debt of $6,214 was recognized
in connection with the redemption of our 15% Senior Secured Discount Notes due 2007 and our 14½%
Senior Secured Notes due 2009, including a redemption premium of $5,502 and the write-off of unamortized
debt issuance costs of $712.
Income
(Expense) from Affiliate. For the nine months ended September 30, 2005,
we recorded $739 for our share of SIRIUS Canada Inc.s net loss.
Other Income. Other income for the nine months ended September 30, 2004 was primarily related to a legal settlement
in our favor of $1,333.
Income Taxes
Income Tax Expense. We recorded income tax expense of $1,680 and $3,641 for the nine months ended September 30, 2005
and 2004, respectively. This expense represents the recognition of a deferred tax liability related
to the difference in accounting for our FCC license, which is amortized over 15 years for tax purposes
but not amortized for book purposes under U.S. generally accepted accounting principles.
Liquidity and Capital Resources
Cash Flows for the Nine Months Ended September 30, 2005 Compared with the Nine Months Ended September 30,
2004
As of September 30, 2005, we had $810,333 in cash and cash equivalents compared with $517,631
as of September 30, 2004, an increase of $292,702. Cash and cash equivalents increased $56,442
during the nine months ended September 30, 2005. The increase was a result of net cash provided
by financing activities of $446,513 offset by net cash used in operating activities and investing
activities of $258,128 and $131,943, respectively.
Net Cash Used in Operating Activities. The following table contains a breakdown of our net loss adjusted for non-cash items and our changes
in operating assets and liabilities:
|
|
For the Nine Months
Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
Variance |
|
|
|
|
|
|
|
|
|
|
Net loss adjusted for non-cash items: |
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(551,608 |
) |
$ |
(450,289 |
) |
$ |
(101,319 |
) |
|
Depreciation |
|
73,640 |
|
|
71,082 |
|
|
2,558 |
|
|
Non-cash interest expense |
|
2,365 |
|
|
21,168 |
|
|
(18,803 |
) |
25
|
Non-cash loss from redemption of debt |
|
712 |
|
|
|
|
|
712 |
|
|
Loss on disposal of assets |
|
286 |
|
|
19 |
|
|
267 |
|
|
Equity granted to third parties and employees |
|
116,882 |
|
|
47,660 |
|
|
69,222 |
|
|
Deferred income taxes |
|
1,680 |
|
|
3,641 |
|
|
(1,961 |
) |
|
|
|
|
|
|
|
|
|
Total net loss adjusted for non-cash items |
|
(356,043 |
) |
|
(306,719 |
) |
|
(49,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
16 |
|
|
(92 |
) |
|
108 |
|
|
Prepaid expenses and other current assets |
|
(26,187 |
) |
|
(7,869 |
) |
|
(18,318 |
) |
|
Other long-term assets |
|
3,131 |
|
|
(3,406 |
) |
|
6,537 |
|
|
Accrued interest |
|
6,341 |
|
|
3,848 |
|
|
2,493 |
|
|
Accounts payable and accrued expenses |
|
36,213 |
|
|
44,721 |
|
|
(8,508 |
) |
|
Deferred revenue |
|
81,923 |
|
|
33,306 |
|
|
48,617 |
|
|
Other long-term liabilities |
|
(3,522 |
) |
|
691 |
|
|
(4,213 |
) |
|
|
|
|
|
|
|
|
|
Total changes in operating assets and liabilities |
|
97,915 |
|
|
71,199 |
|
|
26,716 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
$ |
(258,128 |
) |
$ |
(235,520 |
) |
$ |
(22,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities increased $22,608 to $258,128 for the nine months ended September 30,
2005 from $235,520 for the nine months ended September 30, 2004. Such increase was attributable
to the $49,324 increase in the net loss adjusted for non-cash items, from $306,719 for the nine months
ended September 30, 2004 to $356,043 for the nine months ended September 30, 2005, offset
by an increase of $26,716 for changes in operating assets and liabilities.
The increase in the net loss adjusted for non-cash items was primarily a result of an 88%, or $95,703,
increase in subscriber acquisition costs reflecting higher shipments of SIRIUS radios and chip sets
and increased commissions to support a 169% increase in gross subscribers, offset by reductions in
average subsidy rates as we continued to reduce manufacturing and chip set costs. Increases in other
operating expenses were also required to support the 228% increase in our subscriber base; the growth
of our operations; and to acquire content, primarily sports programming. Such increases were offset
by a 288%, or $115,622, increase in subscriber revenue.
The net inflow of cash from changes in operating assets and liabilities was primarily attributable
to an increase of $48,617 in deferred revenue for subscribers electing annual and other prepaid subscription
programs. We currently receive an average of approximately nine months of prepaid revenue per subscriber
upon activation. This increase was offset in part by the increase of $18,318 in prepaid expenses
and other current assets primarily for increases in accounts receivable and chip set inventory to
support the growth of our business.
We expect to continue to have net outflows of cash for 2005 to fund the growth of our operations. These
cash outflows will be partially offset by cash received from subscribers on prepaid subscription
plans.
Net Cash Used in Investing Activities. Net cash used in investing activities increased $44,760 to $131,943 for the nine months ended September 30,
2005 from $87,183 for the nine months ended September 30, 2004. For the nine months ended September 30,
2005, we purchased $128,700 of auction rate securities with a portion of the proceeds from our offering
of 9 5/8% Senior Notes due 2013. Of this amount, we sold $5,100 in September 2005.
We also released funds which were originally placed in escrow to support our obligation to reimburse
Ford for certain costs it incurs in connection with the introduction of SIRIUS radios as a factory
option. Additional cash inflows of $4,835 for the nine months ended September 30, 2005 were a result
of the maturity of available-for-sale securities. During the nine months ended September 30,
2004, we deposited $85,000 in escrow to fund the rights fees for the 2006-2007, 2007-2008 and 2008-2009
NFL seasons. These deposits were offset by cash inflows of $25,000 as a result of the maturity of
available-for-sale securities. Capital expenditures were $17,949 and $22,316 for the nine months
ended September 30, 2005 and 2004, respectively.
Net Cash Provided by Financing Activities. Net cash provided by financing activities increased $127,158 to $446,513 for the nine months ended
September 30, 2005 from $319,355 for the nine months ended September 30, 2004. We raised
net proceeds of $493,005 during the nine months ended September 30, 2005 through the offering
of $500,000 in aggregate principal amount of our 9 5/8% Senior Notes due 2013. We raised
net proceeds of $293,600 during the nine months ended September 30, 2004 through the offering
of $300,000 in aggregate principal amount of our 2½% Convertible Notes due 2009. We also received
proceeds from the exercise of options of $11,125 and
26
$6,004 for the nine months ended September 30, 2005 and 2004, respectively, and proceeds from
the exercise of warrants of $19,850 for the nine months ended September 30, 2004.
Financings and Capital Requirements
We have financed our operations through the sale of debt and equity securities.
|
|
In August 2005, we sold $500,000 in aggregate principal amount of our 9 5/8% Senior Notes due 2013 resulting in net proceeds of $493,005. |
|
|
|
|
|
In October 2004, we sold 25,000,000 shares of our common stock and issued $230,000 in aggregate principal
amount of our 31/4% Convertible Notes due 2011 resulting in aggregate net proceeds of $320,838. |
|
|
|
|
|
In the first quarter of 2004, we issued $300,000 in aggregate principal amount of our 21/2% Convertible Notes due 2009 resulting in net proceeds of $293,600. We also issued 21,027,512 shares
of our common stock for $19,850 in net proceeds in connection with the exercise of warrants held
by affiliates of The Blackstone Group L.P. |
Future Liquidity and Capital Resource Requirements
Based upon our current plans, we believe that our cash, cash equivalents and marketable securities
will be sufficient to cover our estimated funding needs through cash flow breakeven, the point at
which our revenues are sufficient to fund expected operating expenses, capital expenditures, working
capital requirements, interest and principal payments and taxes. We expect to generate positive free
cash flow for the full year 2007, and our first quarter of positive free cash flow could be reached
as early as the fourth quarter of 2006. Our financial projections are based on assumptions, which
we believe are reasonable but contain significant uncertainties.
Our business is in its early stages, and we regularly evaluate our plans and strategy. These evaluations
often result in changes to our plans and strategy, some of which may be material and significantly
change our cash requirements or cause us to achieve cash flow breakeven at a later date. These changes
in our plans or strategy may include: the acquisition of unique or compelling programming; the introduction
of new features or services; significant new or enhanced distribution arrangements; investments in
infrastructure, such as satellites, equipment or radio spectrum; and acquisitions of third parties
that own programming, distribution, infrastructure, assets, or any combination of the foregoing.
To fund incremental cash requirements, or as market opportunities arise, we may choose to raise additional
funds through the sale of additional debt securities, equity securities or a combination of debt
and equity securities. The incurrence of indebtedness would result in increased fiscal obligations
and could contain restrictive covenants. The sale of additional equity or convertible debt securities
may result in dilution to our stockholders. These additional sources of funds may not be available
or, if available, may not be available on terms favorable to us.
2003 Long-Term Stock Incentive Plan
In January 2003, our board of directors adopted the Sirius Satellite Radio 2003 Long-Term Stock Incentive
Plan (the 2003 Plan), and on March 4, 2003 our stockholders approved this plan.
On May 25, 2004, our stockholders approved an amendment to the 2003 Plan to include members
of our board of directors as eligible participants. Employees, consultants and members of our board
of directors are eligible to receive awards under the 2003 Plan. The 2003 Plan provides for the
grant
of stock options, restricted stock, restricted stock units and other stock-based awards that
the
compensation committee of our board of directors may deem appropriate.
Vesting and other terms of stock-based awards are set forth in the agreements with the individuals
receiving the awards. Stock-based awards granted under the 2003 Plan are generally subject to a vesting
requirement that includes one or all of the following: (1) over time, generally three to five
years from the date of grant; (2) on a specific date in future periods, with acceleration to
earlier periods if performance criteria are satisfied; or (3) as certain performance targets
set at the time of grant are achieved. Stock-based awards generally expire ten years from date of
grant. Each restricted stock unit entitles the holder to receive one share of our common stock upon
vesting.
27
As of September 30, 2005, approximately 113,134,000 stock options, shares of restricted stock
and restricted stock units were outstanding. As of September 30, 2005, approximately 94,221,000 shares
of our common stock were available for grant under the 2003 Plan. During the nine months ended September 30,
2005, employees exercised 8,088,194 stock options at exercise prices ranging from $0.67 to $5.17
per share, resulting in proceeds to us of $11,118. The exercise of vested options could result in
an inflow of cash in future periods.
Contractual Cash Commitments
We have entered into various contracts that have resulted in significant cash obligations in future
periods. These cash obligations could vary in future periods if we change our business plan or strategy,
which could include significant additions to our programming, infrastructure or distribution. The
following table summarizes our expected contractual cash commitments as of September 30, 2005:
|
Remaining
2005
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
Thereafter |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations |
$ |
4,876 |
|
$ |
68,375 |
|
$ |
65,528 |
|
$ |
129,435 |
|
$ |
361,246 |
|
$ |
934,453 |
|
$ |
1,563,913 |
|
Lease obligations |
|
2,092 |
|
|
8,488 |
|
|
7,764 |
|
|
7,569 |
|
|
7,527 |
|
|
33,258 |
|
|
66,698 |
|
Satellite and transmission |
|
855 |
|
|
3,335 |
|
|
3,155 |
|
|
3,155 |
|
|
3,155 |
|
|
15,027 |
|
|
28,682 |
|
Programming and content |
|
14,939 |
|
|
129,252 |
|
|
99,050 |
|
|
100,207 |
|
|
127,002 |
|
|
149,951 |
|
|
620,401 |
|
Customer service and billing |
|
660 |
|
|
5,674 |
|
|
3,138 |
|
|
|
|
|
|
|
|
|
|
|
9,472 |
|
Marketing and distribution |
|
33,902 |
|
|
63,060 |
|
|
21,959 |
|
|
9,470 |
|
|
13,750 |
|
|
22,875 |
|
|
165,016 |
|
Chip set development and
production |
|
22,020 |
|
|
9,281 |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
34,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
commitments |
$ |
79,344 |
|
$ |
287,465 |
|
$ |
203,594 |
|
$ |
249,836 |
|
$ |
512,680 |
|
$ |
1,155,564 |
|
$ |
2,488,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations
Long-term debt obligations include principal and interest payments. As of September 30, 2005,
we had $1,096,789 in aggregate principal amount of outstanding debt.
Lease Obligations
We have entered into operating leases related to our national broadcast studio, office space, terrestrial
repeaters and equipment.
Satellite and Transmission
We have entered into agreements with third parties to operate and maintain our off-site satellite telemetry,
tracking and control facilities and certain components of our terrestrial repeater network.
Programming and Content
We have entered into agreements with licensors of programming and other content providers and, in certain
instances, are obligated to pay license fees and guarantee minimum advertising revenue share. In
addition, we have agreements with various rights organizations pursuant to which we pay royalties
for public performances of music.
Customer Service and Billing
We have entered into agreements with third parties to provide customer service, billing and subscriber
management services.
Marketing and Distribution
We have entered into various marketing, sponsorship and distribution agreements to promote our brand
and are obligated to make payments to sponsors, retailers, automakers and radio manufacturers under
these agreements.
28
In addition, certain programming and content agreements require us to purchase advertising on properties
owned or controlled by the licensors. We have also agreed to reimburse automakers for certain engineering
and development costs associated with the incorporation of SIRIUS radios into vehicles they manufacture.
Chip Set Development and Production
We have entered into agreements with third parties to develop, produce and supply chip sets, and in
certain instances to license intellectual property related to such chip sets. Certain of these
agreements
require that we purchase a minimum quantity of chip sets.
Joint Development Agreement
Under the terms of a joint development agreement with XM Radio, the other holder of a FCC satellite
radio license, each party is obligated to fund one half of the development cost for a unified standard
for satellite radios. The costs related to the joint development agreement are being expensed as
incurred to engineering, design and development expense. We are currently unable to determine the
expenditures necessary to complete this process, but they may be significant.
Other Commitments
In addition to the contractual cash commitments described above, we have entered into agreements with
automakers, radio manufacturers and others that include per-radio and per-subscriber payments and
revenue share arrangements. These future costs are dependent upon many factors and are difficult
to anticipate; however, these costs may be substantial. We may enter into additional programming,
distribution, marketing and other agreements that contain similar provisions.
We are required under the terms of certain agreements to provide letters of credit and deposit monies
in escrow, which place restrictions on our cash and cash equivalents. As of September 30, 2005
and December 31, 2004, $92,615 and $97,321, respectively, were classified as restricted investments
as a result of our reimbursement obligations under these letters of credit and escrow arrangements.
As of September 30, 2005, we have not entered into any off-balance sheet arrangements or transactions.
In September 2005, SIRIUS Canada Inc., our Canadian affiliate, received notice that Canadas
Federal Cabinet had declined to reverse a decision to issue SIRIUS Canada a license to broadcast
in Canada. This decision affirmed the earlier licensing ruling of the Canadian Radio-television
and Telecommunications Commission (the CRTC) that authorized SIRIUS Canada to offer a
satellite radio service in Canada. SIRIUS Canada is a Canadian corporation owned by Canadian Broadcasting
Corporation, Standard Radio Inc. and us. SIRIUS Canada anticipates offering a satellite radio service
in Canada in late 2005.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting
principles, which require management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the periods. We have disclosed all significant accounting policies in Note 3
to the unaudited consolidated financial statements included in this report. We have identified the
following policies, which were discussed with the audit committee of our board of directors, as critical
to our business and understanding our results of operations.
Subscriber Revenue Recognition. Revenue from subscribers consists of subscription fees, including revenues associated with prepaid
subscriptions included in the sale or lease price of a new vehicle; revenue derived from our agreement
with Hertz; and non-refundable activation fees.
We recognize subscription fees as our service is provided to a subscriber. We record deferred revenue
for prepaid subscription fees and amortize these prepayments to revenue ratably over the term of
the respective subscription plan. At the time of sale, vehicle owners purchasing or leasing a vehicle
with a subscription typically receive between a six-month and one-year prepaid subscription. We receive
payment from automakers for these subscriptions in advance of our service being activated. We also
reimburse the automakers for certain costs associated with the SIRIUS radio installed in the applicable
vehicle at the time the vehicle is manufactured. The
29
associated payments to the automakers are included in subscriber acquisition costs. Although we receive
payments from the automakers, they do not resell our service; rather, automakers facilitate the sale
of our service to our customers similar to an agent. We believe this is the appropriate characterization
of our relationship since we are responsible for providing services to our customers including being
obligated to the customer if there were interruption of service.
Activation fees are recognized ratably over the estimated term of a subscriber relationship, currently
estimated to be 3.5 years. The estimated term of a subscriber relationship is based on market research
and managements judgment and, if necessary, will be refined in the future as historical data
becomes available.
As required by Emerging Issues Task Force (EITF) No. 01-09, Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendors Products), an estimate
of mail-in rebates that are paid by us directly to subscribers is recorded as a reduction to subscriber
revenue in the period the subscriber activates our service. We estimate the effects of mail-in rebates
based on actual take-rates for rebate incentives offered in prior periods. In subsequent periods,
estimates are adjusted when necessary.
Stock-Based Compensation. In accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, we use the intrinsic value method to measure the compensation costs of stock-based
awards granted to employees and members of our board of directors. Accordingly, we record compensation
expense for stock-based awards granted to employees and members of our board of directors over the
vesting period equal to the excess of the market price of the underlying common stock at the date
of grant over the exercise price of the stock-based award. The intrinsic value of restricted stock
units as of the date of grant is amortized to expense over the vesting period. These charges are
recorded as a component of equity granted to third parties and employees in our accompanying unaudited
consolidated statements of operations.
We account for modifications to stock-based awards in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation (FIN No. 44). FIN No. 44 provides that when the modification
of a stock-based award occurs, a new measurement date results because the modification may allow
an employee to vest in an award that would have otherwise been forfeited pursuant to the original
terms. A new measurement of potential compensation is measured as of the date of the modification.
While measurement of the potential compensation is made as of that date, the recognition of the compensation
expense depends on whether the employee ultimately retains the stock-based award that otherwise would
have been forfeited under the awards original vesting terms.
We
granted stock-based awards which vest July 1, 2008 with acceleration to earlier
time periods as performance targets for fiscal periods are met. The performance
targets are established annually and may be modified by our board of directors.
As these targets are set new measurement dates result. We recognize expense
resulting from a new measurement date only if such employees voluntarily resign
or are terminated for cause and had exercised or exercise such stock-based awards
during the period of the accelerated vest date through July 1, 2008, the
original vest date. Under these conditions, employees are deemed to benefit
from the accelerated vest date. Stock-based awards with new measurement dates
could result in the recognition of additional stock compensation expense of
up to $23,372 through July 1, 2008 if during such period all of the affected
employees were to voluntarily resign or were terminated for cause and had exercised
or exercise such awards. Stock compensation expense associated with stock options
for the nine months ended September 30, 2005 includes a charge of $479
for an employee that was deemed to benefit from the modification of a stock-based
award resulting in a new measurement date.
In accordance with FIN No. 44, we record compensation charges or benefits related to repriced stock
options based on the market value of our common stock until the repriced stock options are exercised,
forfeited or expire.
We account for stock-based awards granted to non-employees at fair value in accordance with Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
In accordance with EITF No. 96-18, Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, we record
expense based upon performance using the fair value of equity instruments issued to non-employees,
other than non-employee members of our board of directors, at each reporting date. The final measurement
date of equity instruments with performance criteria is the date that each performance commitment
for such equity instrument is satisfied. Fair value is determined using the Black-Scholes option
valuation model and varies based on assumptions used for the expected life, expected stock price
volatility and risk-free interest rates. Since we do not have sufficient historical information regarding
the life expectancy of stock-based awards granted to non-employees, we currently use an expected
life based on the term of the stock-
30
based award as specified in each agreement. Expected stock price volatility is calculated over a period
equal to the expected life and the risk-free interest rate represents the daily treasury yield curve
rate at the reporting date based on the closing market bid yields on actively traded U.S. treasury
securities in the over-the-counter market for the expected term. Our assumptions may change in future
periods as the life expectancy of the stock-based awards may shorten based on exercise activity.
In addition, expected stock price volatility is subject to change based on fluctuations in our stock
price. These costs are classified in our accompanying unaudited consolidated statements of operations
as a component of equity granted to third parties and employees.
Subscriber Acquisition Costs. Subscriber acquisition costs include hardware subsidies paid to radio manufacturers and automakers,
including subsidies paid to automakers who include a SIRIUS radio and a prepaid subscription to our
service in the sale or lease price of a new vehicle; subsidies paid to chip set manufacturers; and
commissions paid to retailers and automakers as incentives to purchase, install and activate SIRIUS
radios. The majority of subscriber acquisition costs are incurred in advance of acquiring a subscriber.
Subscriber acquisition costs do not include advertising, loyalty payments to distributors and dealers
of SIRIUS radios and revenue share payments to automakers and retailers of SIRIUS radios which are
included in sales and marketing expense. Subscriber acquisition costs also do not include amounts
capitalized in connection with our agreement with Hertz, as we retain ownership of the SIRIUS radios
used by Hertz.
Subsidies paid to radio manufacturers and automakers are expensed upon shipment or installation. Commissions
paid to retailers and automakers are expensed either upon activation or sale of the SIRIUS radio.
Chip sets that are shipped to radio manufacturers and held on consignment are recorded as inventory
and expensed as subscriber acquisition costs when placed into production by radio manufacturers.
Costs for chip sets not held on consignment are expensed as subscriber acquisition costs when the
chip sets are shipped to radio manufacturers.
Long-Lived Assets. We carry our long-lived assets at cost less accumulated depreciation. In accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset is not recoverable. At the time an impairment in value of a long-lived asset is identified,
the impairment will be measured as the amount by which the carrying amount of a long-lived asset
exceeds its fair value. To determine fair value, we would employ an expected present value technique,
which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate
discount rate.
Useful Life of Satellite System. Our satellite system includes the cost of satellite construction, launch vehicles, launch insurance,
capitalized interest, our spare satellite and our terrestrial repeater network. In accordance with
SFAS No. 144, we monitor our satellites for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset is not recoverable. The expected useful lives of our
in-orbit satellites are 15 years from the date they were placed into orbit. We are depreciating our
three in-orbit satellites over their respective remaining useful lives beginning February 14, 2002
or, in the case of our spare satellite, from the date it was delivered to ground storage in April
2002. Our spare satellite is expected to operate effectively for 15 years from the date of launch.
Space Systems/Loral, the manufacturer of our satellites, has identified circuit failures in solar
arrays on satellites since 1997, including our satellites. We continue to monitor these failures,
which we believe have not affected the expected useful lives of our satellites. If events or circumstances
indicate that the useful lives of our satellites have changed, we will modify the depreciable life accordingly.
FCC License. We carry our FCC license at cost. Our FCC license has an indefinite life and is evaluated for impairment
on an annual basis or more frequently if there are indicators of impairment. In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, we completed an impairment analysis of
our FCC license as of December 31, 2004, and determined that there was no impairment. We use
projections regarding estimated future cash flows and other factors in assessing the fair value of
our FCC license. If these estimates or projections change in the future, we may be required to record
an impairment charge related to our FCC license.
Income Taxes. We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes.
Operating losses in prior periods have generated significant state and federal tax net operating
losses, or NOL carryforwards. We are required to record a valuation allowance against the deferred
tax asset associated with these NOL carryforwards if it is more likely than not that
we will not be able to utilize it to offset future taxes. Due to our history of unprofitable operations
and our expected future losses, we have recorded a valuation allowance equal to 100% of these deferred
tax assets. We could be profitable in the future at levels which would cause management to conclude
that it is more likely than not that we will realize all or a portion of these NOL
31
carryforwards. Upon reaching such a conclusion, we would record the estimated net realizable value
of the deferred tax asset at that time and would then provide for income taxes at a rate equal to
our combined federal and state effective rates. Subsequent revisions to the estimated net realizable
value of the deferred tax asset could cause our provision for income taxes to vary significantly
from period to period, although our cash tax payments would remain unaffected until the benefit of
these NOL carryforwards is utilized.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We hold investments in marketable securities, which consist of United States government notes, certificates
of deposit and auction rate securities. We classify our marketable securities as available-for-sale.
These securities are consistent with the investment objectives contained within our investment policy.
The basic objectives of our investment policy are the preservation of capital, maintaining sufficient
liquidity to meet operating requirements and maximizing yield. Despite the underlying long-term maturity
of auction rate securities, from the investors perspective, such securities are priced and
subsequently traded as short-term investments because of the interest rate reset feature. Interest
rates are reset through an auction process at predetermined periods of 28 or 35 days. Failed auctions
rarely occur. As of September 30, 2005, we held approximately $123,600 in auction rate securities.
Item 4. Controls and Procedures
As of September 30, 2005, an evaluation was performed under the supervision and with the participation
of our management, including Mel Karmazin, our Chief Executive Officer, and David J. Frear, our Executive
Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our management, including our Chief
Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures
were effective as of September 30, 2005. There have been no significant changes in our internal
control over financial reporting or in other factors that could significantly affect our internal
control over financial reporting subsequent to September 30, 2005.
32
Part II
Other Information
Item 6. Exhibits
See Exhibit Index attached hereto.
33
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SIRIUS SATELLITE RADIO INC. |
|
|
|
|
|
|
|
|
|
By: |
|
/S/ DAVID J. FREAR |
|
|
|
David J. Frear
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
November 8, 2005
34
EXHIBIT INDEX
Exhibit |
|
Description |
|
|
|
3.1 |
|
Amended and Restated
Certificate of Incorporation dated March 4, 2003 (incorporated by reference
to Exhibit 3.1 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2002). |
|
|
|
3.2 |
|
Amended and Restated
By-Laws (incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
|
|
|
|
4.1 |
|
Form of certificate
for shares of Common Stock (incorporated by reference to Exhibit 4.3 to
the Companys Registration Statement on Form S-1 (File No. 33-74782)).
|
|
|
|
4.2
|
|
Warrant Agreement,
dated as of May 15, 1999, between the Company and United States Trust Company
of New York, as warrant agent (incorporated by reference to Exhibit 4.4.4
to the Companys Registration Statement on Form S-4 (File No. 333-82303)).
|
|
|
|
4.3
|
|
Indenture, dated as
of September 29, 1999, between the Company and United States Trust Company
of Texas, N.A., as trustee, relating to the Companys 8¾% Convertible
Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.2 to
the Companys Current Report on Form 8-K filed on October 13, 1999).
|
|
|
|
4.4
|
|
First Supplemental
Indenture, dated as of September 29, 1999, between the Company and United
States Trust Company of Texas, N.A., as trustee, relating to the Companys
8¾% Convertible Subordinated Notes due 2009 (incorporated by reference
to Exhibit 4.01 to the Companys Current Report on Form 8-K filed on
October 1, 1999). |
|
|
|
4.5
|
|
Second Supplemental
Indenture, dated as of March 4, 2003, among the Company, The Bank of New
York (as successor to United States Trust Company of Texas, N.A.), as resigning
trustee, and HSBC Bank USA, as successor trustee, relating to the Companys
8¾% Convertible Subordinated Notes due 2009 (incorporated by reference
to Exhibit 4.16 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2002). |
|
|
|
4.6
|
|
Third Supplemental
Indenture, dated as of March 7, 2003, between the Company and HSBC Bank
USA, as trustee, relating to the Companys 8¾% Convertible Subordinated
Notes due 2009 (incorporated by reference to Exhibit 4.17 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2002). |
|
|
|
4.7
|
|
Form of 8¾%
Convertible Subordinated Note due 2009 (incorporated by reference to Article
VII of Exhibit 4.01 to the Companys Current Report on Form 8-K filed
on October 1, 1999). |
|
|
|
4.8
|
|
Indenture, dated as
of May 23, 2003, between the Company and The Bank of New York, as trustee
(incorporated by reference to Exhibit 99.2 to the Companys Current
Report on Form 8-K dated May 30, 2003). |
|
|
|
4.9
|
|
Supplemental Indenture,
dated as of May 23, 2003, between the Company and The Bank of New York,
as trustee, relating to the Companys 3½% Convertible Notes
due 2008 (incorporated by reference to Exhibit 99.3 to the Companys
Current Report on Form 8-K dated May 30, 2003). |
|
|
|
4.10
|
|
Second Supplemental
Indenture, dated as of February 20, 2004, between the Company and The Bank
of New York, as trustee, relating to the Companys 2½% Convertible
Notes due 2009 ( incorporated by reference to Exhibit 4.20 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2003). |
|
|
|
4.11
|
|
Third Supplemental
Indenture, dated as of October 13, 2004, between the Company and The Bank
of New York, as trustee, relating to the Companys 3¼% Convertible
Notes due 2011 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated October 13, 2004). |
|
|
|
4.12
|
|
Indenture, dated as
of August 9, 2005, between the Company and The Bank of New York, as trustee,
relating to the Companys 9 5/8 %
Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated August 12, 2005). |
|
|
|
4.13
|
|
Common Stock Purchase
Warrant granted by the Company to DaimlerChrysler AG dated October 4, 2005
(filed herewith). |
|
|
|
4.14
|
|
Common Stock Purchase
Warrant granted by the Company to Ford Motor Company dated October 7, 2002
(incorporated by reference to Exhibit 4.16 to the Companys Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002). |
|
|
|
35
Exhibit |
|
Description |
|
|
|
4.15
|
|
Form of Media-Based
Incentive Warrant dated February 3, 2004 issued by the Company to NFL Enterprises
LLC ( incorporated by reference to Exhibit 4.25 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2003). |
|
|
|
4.16
|
|
Bounty-Based Incentive
Warrant dated February 3, 2004 issued by the Company to NFL Enterprises
LLC ( incorporated by reference to Exhibit 4.26 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2003). |
|
|
|
4.17
|
|
Amended and Restated
Warrant Agreement, dated as of December 27, 2000, between the Company and
United States Trust Company of New York, as warrant agent and escrow agent
(incorporated by reference to Exhibit 4.27 to the Companys Registration
Statement on Form S-3 (File No. 333-65602)). |
|
|
|
10.1.1
|
|
Lease Agreement, dated
as of March 31, 1998, between Rock-McGraw, Inc. and the Company (incorporated
by reference to Exhibit 10.1.2 to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998). |
|
|
|
10.1.2
|
|
Supplemental Indenture,
dated as of March 22, 2000, between Rock-McGraw, Inc. and the Company (incorporated
by reference to Exhibit 10.1.2 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000). |
|
|
|
*10.2
|
|
Employment Agreement
dated November 18, 2004 between the Company and Mel Karmazin (incorporated
by reference to Exhibit 10.2 to the Companys Annual Report on Form
10-K for the year ended December 31, 2004). |
|
|
|
*10.3
|
|
Employment Agreement,
dated as of June 3, 2003, between the Company and David J. Frear (incorporated
by reference to Exhibit 10.7 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2003). |
|
|
|
*10.4
|
|
First Amendment, dated
as of August 10, 2005, to the Employment Agreement, dated as of June 3,
2003, between the Company and David Frear (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K dated August
12, 2005). |
|
|
|
*10.5
|
|
Employment Agreement,
dated as of May 5, 2004, between the Company and Scott A. Greenstein (incorporated
by reference to Exhibit 10.4 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2004). |
|
|
|
*10.6
|
|
First Amendment, dated
as of August 8, 2005, to the Employment Agreement, dated as of May 5, 2004,
between the Company and Scott Greenstein (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K dated August 12, 2005).
|
|
|
|
*10.7
|
|
Amended and Restated
Employment Agreement, dated as of March 11, 2005, between the Company and
James E. Meyer (incorporated by reference to Exhibit 10.5 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2004). |
|
|
|
*10.8
|
|
Restricted Stock Unit
Agreement, dated as of August 9, 2005, between the Company and James E.
Meyer (incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K dated August 12, 2005). |
|
|
|
*10.9
|
|
Employment Agreement,
dated as of November 8, 2004, between the Company and Patrick L. Donnelly
(incorporated by reference to Exhibit 10.6 to the Companys Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004). |
|
|
|
*10.10
|
|
CD Radio Inc. 401(k)
Savings Plan (incorporated by reference to Exhibit 4.4 to the Companys
Registration Statement on Form S-8 (File No. 333-65473)). |
|
|
|
*10.11
|
|
Amended and Restated
Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan (incorporated
by reference to Exhibit 10.10 to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004). |
|
|
|
*10.12
|
|
Form of Option Agreement,
dated as of December 29, 1997, between the Company and each Optionee (incorporated
by reference to Exhibit 10.16.2 to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998). |
|
|
|
10.13
|
|
Joint Development
Agreement, dated as of February 16, 2000, between the Company and XM Satellite
Radio Inc. (incorporated by reference to Exhibit 10.28 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000). |
|
|
|
36
Exhibit |
|
Description |
|
|
|
31.1
|
|
Certificate of Mel
Karmazin, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith). |
|
|
|
31.2
|
|
Certificate of David
J. Frear, Executive Vice President and Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
32.1
|
|
Certificate of Mel
Karmazin, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
|
|
|
32.2
|
|
Certificate of David
J. Frear, Executive Vice President and Chief Financial Officer, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith). |
|
|
|
______________ |
* |
This document has been identified as a management contract or compensatory plan or arrangement. |
|
|
|
Portions of this exhibit have been omitted pursuant to Applications for Confidential treatment filed
by the Company with the Securities and Exchange Commission. |
37