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Old 01-11-2007, 08:43 PM   #1
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Default Reverse Stock Split?

Anyone have any idea what this means for Sirius Stock Holders?

On Tuesday, digital radio programmer Sirius Satellite (SIRI-$3.71) said it had paid its on-air personality Howard Stern an $83 million stock-based performance bonus, which was tied to subscriber targets set when Stern signed a $500 million contract with the Company in October 2004.

Commenting on the shock jock’s earn-out, management said the bonus to Stern would not increase its diluted share count and that expenses related to the payment have been reflected in operating results throughout 2006. [Ed. note. SIRIUS recognized a non-cash expense associated with these shares of $224.8 million during the nine months ended September 30, 2006.]

For the nine-months ended September 30, 2006, Sirius recorded a net loss of $(859.3) million, or a share-net loss of 61 cents, on $443.8 million in revenue.

The Company’s remarks, however, betray the truth.

The similarity between 1924 Germany and present-day SIRIUS should be cause for concern to SIRIUS stockholders.

In 1922, the highest denomination in post-war Germany was 50,000 mark. By 1924 the denomination had increased more than 20,000-fold. [Forgive us for hyperbole] From 2000 to 2006, the number of shares of common stock outstanding of SIRIUS has increased 50-fold [balance on January 1, 2006, was 28.7 million].

Like the the Weimar Republic of Germany issuing fifty-million-mark banknotes and postage stamps with a face value of fifty billion mark, Sirius’ growth model is predicated on the calculus that to fund its OEM distribution channel and content library—to attract new subscribers—all the Company need do is issue more-and-more—in their case, the currency of choice is common stock and/or warrants.

Changing the way people listen to music, sports, news, and entertainment does not come cheap. SIRIUS is authorized to issue 2.5 BILLION shares of its common stock. As of September 30, 2006, the Company had about 1.4 billion shares outstanding (with total stockholder deficit of $200.3 million).

In addition, as of Dec 31, 2006, the Board is currently authorized to issue, without stockholder approval, up to approximately 620 million additional shares of common stock, reserved for issuance in connection with outstanding convertible debt, warrants, incentive stock plans and common stock (to be granted to third parties upon satisfaction of performance targets).

Serving as SIRIUS exclusive automotive partners, DaimlerChrysler, Ford, BMW, Audi, Volkswagen, and Kia offer SIRIUS radios as a factory installed option, or where available, in cars and trucks through their dealerships. This exclusivity, however, came with a recognized cost:

(i) In June 2004, SIRIUS issued DaimlerChrysler warrants to purchase up to 21.5 million shares of its common stock at an exercise price of $1.04 per share, and which will expire May 2012. These warrants vest based on the achievement of various performance milestones, including volume thresholds;

(ii) Ford has warrants to purchase 4.0 million shares at an exercise price of $3.00 (which expire September 2011);

(iii) In January 2004, the Company 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, SIRIUS agreed to issue the Penske companies warrants to purchase up to 38.0 million shares at an exercise price of $2.392 per share (which expire July 2009).

In addition to the automotive OEM channel, content does not come cheap, too:

(i) In January 2004, SIRIUS signed a seven-year agreement with the NFL. The Company delivered to the NFL about 15.2 million shares of its common stock valued at $40.9 million upon execution of this agreement. These shares of common stock are subject to transfer restrictions which lapse over time. SIRIUS recognized expense associated with these shares of $3.5 million during the nine months ended September 30, 2006.

(ii) In January 2004, SIRIUS also issued the NFL warrants to purchase 50.0 million shares at an exercise price of $2.50 per share (and which expire March 2008 – March 2010).

The total number of warrants outstanding to distribution and programming partners approximate 135 million, with average strike prices in the $1.00 – $5.00 range (expiration dates from March 2008 – June 2014).

Programming and content expenses include costs to acquire, create and produce content, on-air talent costs and broadcast and webstreaming royalties.

SIRIUS recently entered into various new agreements with third parties, such as FOX news, the NBA, Chelsea Football Club, and the Metropolitan Opera Radio for music and non-music programming. These agreements require the Company to pay license fees, share advertising revenue, purchase advertising on media properties owned or controlled by the licensor and pay other guaranteed amounts.

Purchased advertising is recorded as a sales and marketing expense in the period the advertising is broadcast. For the nine months ended September 30, 2006, programming and content expenses were $462.5 million (of which $297.1 million was a non-cash expense—the equity granted to third parties.)

For the nine-months ended September 30, 2006, net cash used in operating activities was $(450.1 million), backing out (non-cash) granted to third parties and employees and the red ink rises to $(851.4) million.

Sirius CEO Mel Karmazin said that he expects the Company to turn cash flow positive in FY:07. How? A net loss in ’07 + initiatives to attract new subscribers starting in 1Q (NASCAR) + $280.1 million in cash commitments coming due next year. The only way SIRIUS will come close to stemming the cash outflow is to keep issuing (non-cash) stock.

The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion pengo (100,000,000,000,000,000,000, or 1020).

Can you say reverse stock split?

Editor David J Phillips does not hold financial interests in any of the companies mentioned in this posting.
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Old 01-11-2007, 09:05 PM   #2
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Reverse stock splits are essentially window dressing for a stocks price. A reverse split will simply mean the stock price will be higher, but you'll own less shares. Net-net zero difference. It's just that some investment companies, mutual funds, etc., don't own stocks that are priced less than $5 per share. Reverse splits are sometimes done to get the stock price up so they can buy it, and some people (incorrectly) believe that just the stock price represents the value of the company (which it does not). Personally I've only seen one reverse-split return any shareholder value in some 20+ years of investing. That one was 7-11 (the convenience stores), but it wasn't the reverse-split that directly made that happen. The article you posted, those, was interesting to read. Personally I think they're playing a shell game trying to make the value of the company look like something that it isn't, yet. But that's just my opinion.
- Homie
Lifetime Sirius Subscriber

Originally Posted by atlwxman: "I love Sirius...but in my car, not in my portfolio."

Originally Posted by Andrew-NYC: "...Just make a radio that gets both services, and there will be no need for the merger!"

Current Sirius radios:
Brix Streamer Replay
XACT "Visor"
XACT XTR8 Replay

Last edited by HomieG; 01-11-2007 at 09:07 PM..
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