- The Washington Times - Friday, September 12, 2003

Shares of XM Satellite Radio rose to their highest level in a year yesterday after the company said it would raise $150 million by increasing its stock offering.

The Washington-based company, which offers commercial-free radio to subscribers via satellite, said it would make available more than 11.2 million shares of class A stock. Legg Mason and T. Rowe Price are expected to buy most of the new shares at $13.25 per share. The deal is scheduled to close tomorrow.

Shares rose $1.11, or 8.2 percent to close at $14.58, a 52-week high on the Nasdaq Composite Index. Shares have grown more than 540 percent this year.

XM said it was raising the money as it waits to hear about the status of an insurance claim relating to one of its satellites. The company said one of its two Boeing 702 satellites has shown a decline in performance, and may need to be replaced as soon as 2005. XM filed a insurance claim for the satellite earlier this year, but the insurance companies have refused to pay.

“We are raising these funds as financing in the event the [insurance] funds are not collected in a timely manner,” said XM spokesman Chance Patterson.

XM said the money will be used to speed construction of a spare satellite, make some capital expenditures and pay down debt.

It is not clear how much money XM will get in an insurance settlement. Some analysts say the company may not collect at all, as the insurance companies claim the satellite is still performing above the “insured levels.”

Merrill Lynch analyst Marc E. Nabi said in a report yesterday that it is anticipating a settlement of about $270 million. Other analysts said it was impossible to predict how much the company would receive, because the payment will likely be based on how soon the satellite needs to be replaced.

“They’re going to get money, and it’s going to come from insurance,” said Steve Mather, an analyst with Sanders, Morris and Harris in Los Angeles. “The only thing is, it’s going to take a while.”

PanAmSat, a commercial satellite operator, also filed an insurance claim relating to problems with the Boeing 702 satellite.

XM last week began a campaign to attract 1 million subscribers, offering free cars, home entertainment systems and other promotions. The company says it is on target to have 1.2 million subscribers by the end of the year. It reported about 692,000 subscribers as of the end of the second quarter.

“I think the consensus is they’ll actually slightly beat the 1.2 million target,” Mr. Mather said. “They’re growing very, very quickly.”

XM reported a second-quarter loss of $164.3 million ($1.38 per share) compared to $117.2 million ($1.38 per share) during the comparable quarter last year.

Analysts said that in addition to protecting the company in case insurance money does not come in quickly, the sale of stock gives XM enough cash to last at least a year. By then, analysts said, the company may have enough subscribers to become profitable.

“The products are there, and the people love it,” Mr. Mather said. “They’re on track. I can’t really find a skeleton in their closet.”

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