Updated from 8:08 a.m. EST.

NEW YORK ( TheStreet) -- Sirius XM ( SIRI - Get Report) shares were dropping more than 6% in midday trading on Tuesday after the satellite radio company reported a loss of $81.4 million during the fourth quarter as operating service expenses rose and it paid off a major portion of its debt.

For the quarter ended Dec. 31, 2010, Sirius posted a loss of 2 cents a share. A year earlier, the company earned $11.8 million, or breakeven on a per-share basis.
Analysts were expecting Sirius to break even in the latest fourth quarter as well.

The company improved its adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, by nearly 25% to $144 million from $115 million in the 2009 period, while total operating expenses were up 12.1% to $664.3 million from $592.5 million.

Free cash flow in the fourth quarter of 2010 was $167 million, up from $150 million in the fourth quarter of 2009.

Excluding debt extinguishment and restructuring charges, net income attributable to Sirius stockholders for the fourth quarter would have been $64 million, up from $18 million for the same period in 2009.

Revenue in the quarter grew 8.8% to $735.9 million from $676.2 million as subscriber revenue rose $620.9 million from $588 million.

Sirius added 328,789 net subscribers in the fourth quarter, up from net subscriber additions of 257,028 in the fourth quarter of 2009. Average self-pay monthly customer churn was 1.9% in the quarter, compared with 2% in the year prior.

The company said its subscriber base climbed to 20.2 million subscribers at the end of 2010, up from 18.8 million at the end of 2009.

"Sirius XM's results in 2010 were exceptional, surpassing our guidance and achieving record revenues, adjusted Ebitda and free cash flow. Our unparalleled content and the continuing improvements in the economy helped us attain a record-high subscriber base of 20.2 million," CEO Mel Karmazin said in a statement Tuesday.

"Our renewed contracts with Howard Stern and the NFL, as well as investments in exciting new content, ensure that our subscribers will continue to enjoy the unparalleled entertainment that has made Sirius XM the largest subscription radio company in the world," Karmazin added. "With the outlook for improving U.S. auto sales, declining capital expenditures and the expanded functionality coming with the launch of Sirius XM 2.0, we look forward to another year of growth and strong financial performance."

For the full 2010 fiscal year, Sirius swung to a profit of $43.1 million, or a penny a share, compared with a loss of $538.2 million, or 15 cents a share, a year earlier. Excluding debt extinguishment and restructuring charges, Sirius' 2010 net income for 2010 would have been $227 million.

Full-year revenue climbed to $2.82 billion from $2.47 billion on 1.4 million new subscribers in 2010.

Management expects 2011 full-year revenue of about $3 billion, and predicts its adjusted Ebitda will come in at $715 million.

"With continuing improvements in auto sales, and self-pay churn and conversion rates for 2011 similar to our strong performance in 2010, we expect to grow our net new subscribers by another 1.4 million in 2011, continuing our track record of solid subscriber growth. We also expect this year's free cash flow to approach $300 million," Karmazin said.

Sirius spiked to a new 52-week high of $1.88 in trading early Monday after Wunderlich Securities raised its price target on the satellite radio company stock to $2 from $1.75.

Wunderlich analyst Matthew Harrigan maintained his buy rating on the stock at that time.

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Barrington Research maintained its "overweight" rating on the stock following the report, saying the company met all of its "key objectives" from both a financial and operational perspective.

"The only major metric that did not come fairly close to our estimate was the EPS figure, which was weighed down by an impairment charge related to the write-down of a satellite that will not be used plus charges related to early extinguishment of debt as management continues its process of taking out older higher cost secured debt issues in favor of lower cost unsecured offerings," analyst James Goss said in a note to clients.

The company's increased free cash flow is "part of a pattern that has enabled Sirius XM to continue to restructure its financial position," Goss said.

"We continue to feel Sirius has become a legitimate fundamental story in terms of operations and finances," Goss said. "The stock has once again scaled up to our target price, and well before the one-year time frame was up."

Shares have risen more than 12% since the start of the year. The stock fell 6.6%, or 12 cents, to $1.71 in midday trading on Tuesday.

--Written by Theresa McCabe in Boston.

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