An artist's concept of an XM radio broadcasting spacecraft built by the Boeing Satellite Systems.

Along with other Boeing 702 Satellite users, XM Satellite Radio was recently advised by Boeing Satellite Systems International, Inc. of a potential long-term issue in the solar array output power on 702 class satellites (both XM satellites are 702s). XM anticipates the solar array situation will have no material impact on its quality of service, conduct of business or cost of oput levels and service quality.

Power arrays on 702s in orbit have exhibited a faster than expected performance degradation during early operational life. At the present time, the output power of both XM satellites' solar arrays are above specification and, based on Boeing's projections from available data, should not fall below specification before the latter half of the decade.

XM has advised its insurance carriers of the above situation and the potential for an XM claim of damages. Given its insurance coverage and contractual arrangements for spare/replacement satellites, XM anticipates the solar array situation will have no material impact on its quality of service, conduct of business or cost of operation.

On Tuesday, XM officially launched the first U.S. digital satellite radio service in its lead markets, Dallas/Fort Worth and San Diego. XM's launch will expand across the entire Southwest and Southeast United States, covering half the country, in mid-October and across the rest of the continental U.S. in November.

XM will transform radio, an industry that has seen little technological change since FM, almost 40 years ago. XM is offering its 100 channels of digital-quality, coast-to-coast sound for $9.99 a month. Leading manufacturers will offer 24 models of XM radios, a broad array including universal models that will easily enable any existing car stereo system to receive XM service, and new AM/FM/XM systems offering many other great features. Sony, Alpine and Pioneer XM radios are being distributed through major electronics retailers including Best Buy, Circuit City, Tweeter, participating RadioShack Dealers and Franchisees, Sears and Crutchfield. Delphi-Delco systems will roll out initially in Cadillac DeVille and Seville models beginning in November, expanding to more than 20 GM models next year.

XM won several awards at the 2001 International Consumer Electronics Show, including "Best of CES" in the automotive category. XM's strategic investors include America's leading car, radio and satellite TV companies -- General Motors, American Honda Motor Co. Inc., Clear Channel Communications and DIRECTV. XM has a distribution agreement with General Motors to integrate XM radios into its vehicles commencing in 2001.