
~~ITEM 7.~~(3)	*~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~*The net income (loss) per share-basic calculations were corrected for an immaterial error for the years ended December 31, 2011 and 2010. See Notes 3 and 17 to our consolidated financial statements included in this Annual Report on Form 10-K.


(4)	A special cash dividend was paid during 2012.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report onForm 10-K contains forward-looking statements within the meaning of the ~~federal securities laws.~~Private Securities Litigation Reform Act of 1995. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those described under “Item 1A —- Risk Factors” and elsewhere in this Annual Report. See “Special Note Regarding Forward-Looking Statements.”

(All dollar amounts referenced in this Item 7 are in thousands, unless otherwise stated)

Executive Summary

We broadcast our music, sports, ~~news,~~entertainment, comedy, talk, ~~entertainment,~~news, traffic and weather channels, as well as infotainment services in the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive ~~certain of~~ our music and other channels, plus new features such as SiriusXM On Demand, over the Internet, including through ~~an application on Apple, Blackberry and Android-powered~~applications for mobile devices.

We have agreements with every major automaker (“OEMs”) to offer satellite radios as factory- or dealer-installed equipment in their ~~vehicles.~~vehicles from which we acquire the majority of our subscribers. We also acquire subscribers through the sale or lease of previously owned vehicles with factory-installed satellite radios. Additionally, we distribute our satellite radios through retail locations nationwide and through our ~~websites.~~website. Satellite radio services are also offered to customers of certain daily rental car companies.

As of December 31, ~~2010,~~2012, we had ~~20,190,964~~23,900,336 subscribers of which 19,570,274 were self-pay subscribers and 4,330,062 were paid promotional subscribers. Our subscriber totals include subscribers under our regular pricing plans; discounted pricing plans; subscribers that have prepaid, including payments either made or due from automakers ~~and dealers~~ for subscriptions included in the sale or lease price of a vehicle; certain radios activated ~~radios in~~for daily rental fleet ~~vehicles; certain~~programs; subscribers to our Internet ~~services;~~services who do not also have satellite radio subscriptions; and certain subscribers to our weather, traffic, data and ~~video~~Backseat TV services.

Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or monthly basis. We offer discounts for prepaid and long-term subscription plans, as well as discounts for multiple subscriptions on each platform. We also derive revenue from ~~activation and~~ other subscription-related fees, the sale of advertising on select non-music channels, the direct sale of satellite radios, components and accessories, and other ancillary services, such as our Internet radio, Backseat TV, data, traffic, and weather services.

In certain cases, automakers include a subscription to our radio services in the sale or lease price of new and ~~certified pre-owned~~previously owned vehicles. The length of these prepaid subscriptions varies, but is typically three to twelve months. In many cases, we receive subscription payments from automakers in advance of the activation of our service. We also reimburse various automakers for certain costs associated with satellite radios installed in their vehicles.

As of January 17, 2013, Liberty Media Corporation beneficially owned, directly and indirectly, over 50% of the outstanding shares of our common stock. Liberty Media owns interests in a broad range of media, communications and entertainment businesses, including its subsidiaries Atlanta National League Baseball Club, Inc. and TruePosition, Inc., its interests in Live Nation Entertainment, Barnes & Noble, and minority equity investments in Time Warner Inc. and Viacom.

We also have an equity interest in ~~the~~Sirius XM Canada which offers satellite radio services ~~offered~~ in Canada. Subscribers to the ~~SIRIUS Canada service and the~~Sirius XM Canada service are not included in our subscriber count.

25

~~Actual~~ 22

Results of Operations

Set forth below are our results of operations for the year endedDecember 31, ~~2010~~2012 compared with the year endedDecember 31, ~~2009~~2011 and the year endedDecember 31, ~~2009~~2011 compared with the year endedDecember 31, ~~2008.~~2010.

2010 vs 2009
2009 vs 2008

For the Years Ended December 31, Change Change
2010 2009 2008 Amount % Amount %

Revenue:
Subscriber revenue, including effects of rebates $ 2,414,174 $ 2,287,503 $ 1,548,919 $ 126,671 6 % $ 738,584 48 %
Advertising revenue, net of agency fees 64,517 51,754 47,190 12,763 25 % 4,564 10 %
Equipment revenue 71,355 50,352 56,001 21,003 42 % (5,649 ) (10 )%
Other revenue 266,946 83,029 11,882 183,917 222 % 71,147 599 %

Total revenue 2,816,992 2,472,638 1,663,992 344,354 14 % 808,646 49 %
Operating expenses:
Revenue share and royalties 435,410 397,210 280,852 38,200 10 % 116,358 41 %
Programming and content 305,914 308,121 312,189 (2,207 ) (1 )% (4,068 ) (1 )%
Customer service and billing 241,680 234,456 165,036 7,224 3 % 69,420 42 %
Satellite and transmission 80,947 84,033 59,279 (3,086 ) (4 )% 24,754 42 %
Cost of equipment 35,281 40,188 46,091 (4,907 ) (12 )% (5,903 ) (13 )%
Subscriber acquisition costs 413,041 340,506 371,343 72,535 21 % (30,837 ) (8 )%
Sales and marketing 215,454 228,956 231,937 (13,502 ) (6 )% (2,981 ) (1 )%
Engineering, design and development 45,390 41,031 40,496 4,359 11 % 535 1 %
General and administrative 240,970 227,554 213,142 13,416 6 % 14,412 7 %
Impairment of goodwill — — 4,766,190 — 0 % (4,766,190 ) nm
Depreciation and amortization 273,691 309,450 203,752 (35,759 ) (12 )% 105,698 52 %
Restructuring, impairments and related costs 63,800 32,807 10,434 30,993 94 % 22,373 214 %

Total operating expenses 2,351,578 2,244,312 6,700,741 107,266 5 % (4,456,429 ) (67 )%

Income (loss) from operations 465,414 228,326 (5,036,749 ) 237,088 104 % 5,265,075 105 %
Other income (expense):
Interest expense, net of amounts capitalized (295,643 ) (315,668 ) (148,455 ) 20,025 6 % (167,213 ) (113 )%
Loss on extinguishment of debt and credit facilities, net (120,120 ) (267,646 ) (98,203 ) 147,526 55 % (169,443 ) (173 )%
Interest and investment (loss) income (5,375 ) 5,576 (21,428 ) (10,951 ) (196 )% 27,004 126 %
Other income 3,399 3,355 (9,599 ) 44 1 % 12,954 135 %

Total other expense (417,739 ) (574,383 ) (277,685 ) 156,644 27 % (296,698 ) (107 )%

Income (loss) before income taxes 47,675 (346,057 ) (5,314,434 ) 393,732 114 % 4,968,377 93 %
Income tax expense (4,620 ) (5,981 ) (2,476 ) 1,361 23 % (3,505 ) (142 )%

Net income (loss) 43,055 (352,038 ) (5,316,910 ) 395,093 112 % 4,964,872 93 %
Preferred stock beneficial conversion feature — (186,188 ) — 186,188 nm (186,188 ) nm

Net income (loss) attributable to common stockholders $ 43,055 $ (538,226 ) $ (5,316,910 ) $ 581,281 108 % $ 4,778,684 90 %



	For the Years Ended December 31,									2012 vs 2011 Change					2011 vs 2010 Change
	2012			2011			2010			Amount			%		Amount			%
Revenue:
Subscriber revenue	$	2,962,665		$	2,595,414		$	2,414,174		$	367,251		14	%	$	181,240		8	%
Advertising revenue, net of agency fees	82,320			73,672			64,517			8,648			12	%	9,155			14	%
Equipment revenue	73,456			71,051			71,355			2,405			3	%	(304		)	—	%
Other revenue	283,599			274,387			266,946			9,212			3	%	7,441			3	%
Total revenue	3,402,040			3,014,524			2,816,992			387,516			13	%	197,532			7	%
Operating expenses:
Cost of services:
Revenue share and royalties	551,012			471,149			435,410			79,863			17	%	35,739			8	%
Programming and content	278,997			281,234			305,914			(2,237		)	(1	)%	(24,680		)	(8	)%
Customer service and billing	294,980			259,719			241,680			35,261			14	%	18,039			7	%
Satellite and transmission	72,615			75,902			80,947			(3,287		)	(4	)%	(5,045		)	(6	)%
Cost of equipment	31,766			33,095			35,281			(1,329		)	(4	)%	(2,186		)	(6	)%
Subscriber acquisition costs	474,697			434,482			413,041			40,215			9	%	21,441			5	%
Sales and marketing	248,905			222,773			215,454			26,132			12	%	7,319			3	%
Engineering, design and development	48,843			53,435			45,390			(4,592		)	(9	)%	8,045			18	%
General and administrative	261,905			238,738			240,970			23,167			10	%	(2,232		)	(1	)%
Depreciation and amortization	266,295			267,880			273,691			(1,585		)	(1	)%	(5,811		)	(2	)%
Restructuring, impairments and related costs	—			—			63,800			—			nm		(63,800		)	nm
Total operating expenses	2,530,015			2,338,407			2,351,578			191,608			8	%	(13,171		)	(1	)%
Income from operations	872,025			676,117			465,414			195,908			29	%	210,703			45	%
Other income (expense):
Interest expense, net of amounts capitalized	(265,321		)	(304,938		)	(295,643		)	39,617			13	%	(9,295		)	(3	)%
Loss on extinguishment of debt and credit facilities, net	(132,726		)	(7,206		)	(120,120		)	(125,520		)	nm		112,914			94	%
Interest and investment income (loss)	716			73,970			(5,375		)	(73,254		)	(99	)%	79,345			nm
Other (loss) income	(226		)	3,252			3,399			(3,478		)	(107	)%	(147		)	(4	)%
Total other expense	(397,557		)	(234,922		)	(417,739		)	(162,635		)	(69	)%	182,817			44	%
Income before income taxes	474,468			441,195			47,675			33,273			8	%	393,520			825	%
Income tax benefit (expense)	2,998,234			(14,234		)	(4,620		)	3,012,468			nm		(9,614		)	(208	)%
Net income	$	3,472,702		$	426,961		$	43,055		$	3,045,741		713	%	$	383,906		892	%

nm —- not meaningful

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Total Revenue

Subscriber Revenueincludes subscription, ~~fees,~~ activation and other ~~fees~~fees.

2012 vs. 2011: For the years endedDecember 31, 2012 and ~~the effects of rebates.~~


	•	~~2010 vs. 2009:~~ ~~For the years ended December 31, 2010 and 2009, subscriber revenue was $2,414,174 and $2,287,503, respectively, an increase of 6%~~2011, or $126,671. The increase was primarily attributable to a 5% increase in daily weighted average subscribers, an increase in the sale of “Best of” programming, decreases in discounts on multi-subscription and internet packages and a $32,159 decrease in the impact of purchase price accounting adjustments attributable to acquired deferred subscriber revenues, partially offset by an increase in the number of subscribers on promotional plans.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, subscriber revenue was $2,287,503 and $1,548,919, respectively, an increase of 48%, or $738,584. The Merger was responsible for approximately $670,870 of the increase and the remaining increase was primarily attributable to the sale of “Best of” programming, decreases in discounts on multi-subscription packages, increased sales of internet packages and higher average subscribers.

~~Future~~ subscriber revenue ~~will be dependent, among other things, upon~~was $2,962,665 and $2,595,414, respectively, an increase of 14%, or $367,251. The increase was primarily attributable to a 9% increase in daily weighted average number of subscribers, the increase in certain of our subscription rates beginning in January 2012, and an increase in subscriptions to premium services, including Premier packages, data services and Internet streaming. The increase was partially offset by subscription discounts offered through customer acquisition and retention programs.

23

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, subscriber revenue was $2,595,414 and $2,414,174, respectively, an increase of 8%, or $181,240. The increase was primarily attributable to an increase of 8% in daily weighted average number of subscribers and an increase in subscriptions to premium services, including Premier packages, data services and Internet subscriptions, partially offset by the impact of subscription discounts offered through customer acquisition and retention programs.

We expect subscriber revenues to grow based on the growth of our subscriber base, ~~conversion and churn rates,~~ promotions, ~~rebates offered to subscribers and corresponding take-rates,~~ plan mix, subscription prices and ~~the~~ identification of additional revenue streams from subscribers. The impact of purchase price accounting adjustments attributable to acquired subscriber deferred revenues will continue to decline in absolute amount and as a percentage of reported total subscriber revenues through 2013 as balances are earned over the acquired subscription period.

Advertising Revenueincludes the sale of advertising on ~~our~~certain non-music channels, net of agency fees. Agency fees are based on a contractual percentage of the gross advertising ~~billing~~ revenue.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, advertising revenue was $64,517 and $51,754, respectively, an increase of 25%, or $12,763. The increase was primarily due to more effective sales efforts and improvements in the national market for advertising.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, net advertising revenue was $51,754 and $47,190, respectively, an increase of 10%, or $4,564. The increase was due to the inclusion of XM revenue from the Merger, which was offset by a decrease in advertising revenue due to the economic environment in 2009.

~~Our~~

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, advertising revenue ~~is subject~~was $82,320 and $73,672, respectively, an increase of 12%, or $8,648. The increase was primarily due to ~~fluctuation based on~~a greater number of advertising spots sold and broadcast, as well as increases in rates charged per spot.

2011 vs. 2010: For the ~~effectiveness~~years endedDecember 31, 2011 and 2010, advertising revenue was $73,672 and $64,517, respectively, an increase of ~~our sales efforts~~14%, or $9,155. The increase was primarily due to a greater number of advertising spots sold and ~~the national economic environment.~~ broadcast, as well as increases in rates charged per spot.

We expect our advertising revenue to grow as advertisers are attracted to our ~~subscribers~~platform by the increase ~~and national advertising spend continues to increase.~~in our subscriber base.

Equipment Revenueincludes revenue and royalties from the sale of satellite radios, components and accessories.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, equipment revenue was $71,355 and $50,352, respectively, an increase of 42%, or $21,003. The increase was driven by royalties from increased OEM installations and aftermarket radios and accessories.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, equipment revenue was $50,352 and $56,001, respectively, a decrease of 10%, or $5,649. The decrease was primarily due to a decline in sales through our direct to consumer distribution channel and lower product royalties, partially offset by the inclusion of XM revenue for a full year.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, equipment revenue was $73,456 and $71,051, respectively, an increase of 3%, or $2,405. The increase was driven by royalties from higher OEM production, offset by lower direct to consumer sales.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, equipment revenue was $71,051 and $71,355, respectively, a decrease of $304. The decrease was driven by a reduction in aftermarket hardware subsidies earned, partially offset by increased royalties from higher OEM production.

We expect equipment revenue to fluctuate based on OEM ~~installations~~production for which we receive royalty payments for our technology and, to a lesser extent, on the volume and mix of equipment sales in our aftermarket and direct to consumer business.

27

Other Revenueincludes amounts earned from subscribers for the U.S. Music Royalty Fee, revenue from ~~affiliates, content licensing fees~~our Canadian affiliate and ~~syndication fees.~~ancillary revenues.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, other revenue was $266,946 and $83,029, respectively. The $183,917 increase was primarily due to the full year impact of the U.S. Music Royalty Fee introduced in the third quarter of 2009.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, other revenue was $83,029 and $11,882, respectively, an increase of 599%, or $71,147. The increase was primarily due to the introduction of the U.S. Music Royalty Fee in the third quarter of 2009 and the inclusion of XM revenue for a full year.

~~Future~~

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, other ~~revenues will be dependent upon~~revenue was $283,599 and $274,387, respectively, an increase of 3%, or $9,212. The increase was driven by revenues from ~~affiliates, content and syndication fees, and the monthly fee assessed for~~ the U.S. Music Royalty ~~Fee.~~Fee as the number of subscribers increased, and higher royalty revenue from Sirius XM Canada.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, other revenue was $274,387 and $266,946, respectively, an increase of 3%, or $7,441. The ~~FCC’s order approving~~increase was primarily due to higher royalty revenue from Sirius XM Canada. While the ~~Merger allows us to pass through cost increases incurred since the filing~~number of ~~our FCC merger application as a result of statutorily or contractually required payments~~subscribers subject to the ~~music, recording~~U.S. Music Royalty Fee increased, that increase was offset by a reduction in December 2010 in the rate charged on primary subscriptions.

Other revenue is dependent upon the U.S. Music Royalty Fee and ~~publishing industries for~~the royalty from our Canadian affiliate. We expect other revenue to increase as our subscriber base drives higher U.S. Music Royalty Fees and as the performance of ~~musical works and sound recordings or for device recording fees.~~our Canadian affiliate improves.

24

Operating Expenses

~~Operating Expenses~~

Revenue Share and Royaltiesinclude distribution and content provider revenue share, advertising revenue share, ~~residuals~~ and broadcast and web streaming royalties. ~~Residuals are monthly fees paid based upon the number of subscribers using satellite radios purchased from retailers.~~ Advertising revenue share is recognized ~~as a component of~~in revenue share and royalties in the period in which the advertising is broadcast.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, revenue share and royalties were $435,410 and $397,210, respectively, an increase of 10%, or $38,200. For the year ended December 31, 2010, revenue share and royalties decreased as a percentage of total revenue. The increase was primarily attributable to a 12% increase in our revenues subject to royalty~~and/or~~ revenue sharing arrangements and an 8% increase in the statutory royalty rate for the performance of sound recordings, partially offset by a decrease in the revenue sharing rate with an automaker and a $18,187 increase in the benefit to earnings from the amortization of deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, revenue share and royalties were $397,210 and $280,852, respectively, an increase of 41%, or $116,358. The increase was primarily attributable to the inclusion of XM’s revenue share and royalty expense as a result of the Merger and an 8% increase in the statutory royalty rate for the performance of sound recordings.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, revenue share and royalties were $551,012 and $471,149, respectively, an increase of 17%, or $79,863, and increased as a percentage of total revenue. The increase was primarily attributable to greater revenues subject to royalty and/or revenue sharing arrangements and a 7% increase in the statutory royalty rate for the performance of sound recordings, partially offset by an increase in the benefit to earnings from the amortization of deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, revenue share and royalties were $471,149 and $435,410, respectively, an increase of 8%, or $35,739. For the year ended December 31, 2011, revenue share and royalties remained flat as a percentage of total revenue. The increase in revenue share and royalties was primarily attributable to a 14% increase in our revenues subject to royalty and/or revenue sharing arrangements and a 7% increase in the statutory royalty rate for the performance of sound recordings, partially offset by a $18,974 increase in the benefit to earnings from the amortization of deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger.

We expect our revenue ~~sharing~~share and royalty costs to increase as our revenues ~~grow, as we expand our distribution of satellite radios through automakers, and as a result of statutory increases in the royalty rate for the performance of sound recordings.~~grow. Under the terms of the Copyright Royalty ~~Board’s~~Board's decision, we paid royalties of ~~6.0%, 6.5%~~8.0% and ~~7.0%~~7.5% of gross revenues, subject to certain exclusions, for ~~2008, 2009~~the years endedDecember 31, 2012, and ~~2010,~~2011, respectively, and will pay ~~royalties of 7.5% and 8.0% for 2011 and 2012, respectively. Our next rate setting proceeding before the Copyright Royalty Board commenced~~9.0% in ~~January 2011 and the results of that proceeding may have an impact on our results of operations.~~2013. The deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger are expected to provide increasing benefits to revenue share and royalties through the expiration of the acquired executory contracts ~~principally~~ in ~~2012 and~~ 2013.

Programming and Contentincludes costs to acquire, create, promote and produce ~~content and on-air talent costs.~~content. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees, ~~share advertising revenue,~~ purchase advertising on media properties owned or controlled by the licensor, which is allocated to sales and marketing, and pay other guaranteed amounts.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, programming and content expenses were $305,914 and $308,121, respectively, a decrease of 1%, or $2,207 and decreased as a percentage of total revenue. The decrease was primarily due to savings in content agreements and production costs, partially offset by increases in personnel costs, general operating expenses and a $14,503 reduction in the benefit to earnings from purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired programming executory contracts.

28


	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, programming and content expenses were $308,121 and $312,189, respectively, a decrease of $4,068, or 1% and decreased as a percentage of total revenue. The increase from the inclusion of a full year of XM expense was offset by savings in content agreements, personnel and on-air talent costs.

~~Our~~2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, programming and content expenses ~~are expected~~were $278,997 and $281,234, respectively, a decrease of 1%, or $2,237, and decreased as a percentage of total revenue. The decrease was primarily due to savings in content agreements, partially offset by increases in personnel costs and reductions in the benefit to earnings from purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired programming executory contracts.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, programming and content expenses were $281,234 and $305,914, respectively, a decrease of 8%, or $24,680, and decreased as a percentage of total revenue. The decrease was primarily due to savings in content agreements and production costs, partially offset by increases in personnel costs and an $8,394 reduction in the benefit to earnings from purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired programming executory contracts.

Excluding the impact from purchase accounting adjustments, based on our current programming offerings, we expect our programming and content expenses to decrease as ~~various~~ agreements expire and are renewed or replaced on more cost effective terms. The impact of purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired programming executory contracts will continue to decline, in absolute amount and as a percentage of reported programming and content costs, through 2015. Substantially all of the deferred credits on executory contracts will be amortized by the end of 2013.

Customer Service and Billingincludes costs associated with the operation and management of third party customer service centers, and our subscriber management systems as well as billing and collection costs, transaction fees and bad debt expense.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, customer service and billing expenses were $241,680 and $234,456, respectively, an increase of 3%, or $7,224 but decreased as a percentage of total revenue. The increase was primarily due to higher call volume, partially offset by lower call center expenses as a result of moving calls to lower cost locations.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, customer service and billing expenses were $234,456 and $165,036, respectively, an increase of 42%, or $69,420 but decreased as a percentage of total revenue. The increase was primarily due to the inclusion of XM’s customer and billing expense as a result of the Merger and increased bad debt expense due to the economic environment during 2009.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, customer service and billing expenses were $294,980 and $259,719, respectively, an increase of 14%, or $35,261, but remained flat as a percentage of total revenue. The increase was primarily due to longer average handle time per call and higher subscriber volume driving increased subscriber contacts and higher technology costs.

25

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, customer service and billing expenses were $259,719 and $241,680, respectively, an increase of 7%, or $18,039, but remained flat as a percentage of total revenue. The increase was primarily attributable to an 8% increase in daily weighted average number of subscribers which drove higher call volume, billing and collection costs, transaction fees, as well as increased handle time per call and personnel costs. This increase was partially offset by lower agent rates, fewer contacts per subscriber and lower general operating costs.

We expect our customer ~~care~~service and billing expenses to increase as our subscriber base ~~grows due to increased call center operating costs, transaction fees and bad debt expense.~~grows.

Satellite and Transmissionconsists of costs associated with the operation and maintenance of our satellites; satellite telemetry, tracking and control systems; terrestrial repeater networks; satellite uplink facilities; broadcast studios; and delivery of our Internet streaming service.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, satellite and transmission expenses were $72,615 and $75,902, respectively, a decrease of 4%, or $3,287, and decreased as a percentage of total revenue. The decrease was primarily due to a reduction of satellite in-orbit insurance expense as we elected not to renew insurance policies on certain older satellites.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, satellite and transmission expenses were $75,902 and $80,947, respectively, a decrease of 6%, or $5,045, and decreased as a percentage of total revenue. The decrease was due to savings in repeater expenses from network optimization along with favorable lease renewals, a reduction of satellite in-orbit insurance expense, and a transition to more cost-effective approaches to satellite and broadcast ~~studios.~~operations.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, satellite and transmission expenses were $80,947 and $84,033, respectively, a decrease of 4%, or $3,086 but decreased as a percentage of total revenue. The decrease was primarily due to savings in repeater expenses, partially offset by increased satellite insurance costs related to our FM-5 satellite.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, satellite and transmission expenses were $84,033 and $59,279, respectively, an increase of 42%, or $24,754 but decreased as a percentage of total revenue. The increase was primarily due to the inclusion of XM’s satellite and transmission expense, partially offset by decreases due to the elimination of contracts, decommissioned repeater sites and a decrease in streaming costs.

We expect overall satellite and transmission expenses to ~~decline~~increase as ~~a result of decreasing operating~~we enhance our Internet-based service and add functionality, launch our FM-6 satellite and incur in-orbit insurance costs, ~~associated with~~and extend our ~~in-orbit satellite fleet and~~terrestrial repeater ~~network optimization.~~network.

Cost of Equipmentincludes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, cost of equipment was $35,281 and $40,188, respectively, a decrease of 12%, or $4,907 and decreased as a percentage of total revenue. The decrease was primarily due to lower inventory write-downs, lower sales through distributors and reduced costs to produce aftermarket radios.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, cost of equipment was $40,188 and $46,091, respectively, a decrease of 13%, or $5,903 and decreased as a percentage of total revenue. The decrease was primarily due to lower sales volume through our direct to consumer channel, lower inventory related charges and lower product and component sales, partially offset by the inclusion of XM’s cost of equipment expense as a result of the Merger.

29

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, cost of equipment was $31,766 and $33,095, respectively, a decrease of 4%, or $1,329, and decreased as a percentage of equipment revenue. The decrease was primarily due to lower direct to consumer sales, partially offset by higher inventory reserves.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, cost of equipment was $33,095 and $35,281, respectively, a decrease of 6%, or $2,186, and decreased as a percentage of equipment revenue. The decrease was primarily due to lower volume of direct to consumer sales.

We expect cost of equipment to vary with changes in sales, supply chain management and inventory valuations.

Subscriber Acquisition Costsinclude hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include a satellite radio and subscription to our service in the sale or lease price of a new ~~or certified pre-owned~~ vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain ~~radios;~~radios and chip sets; commissions paid to ~~retailers and~~ automakers as incentives to purchase, install and activate satellite radios; product warranty obligations; freight; and provisions for inventory allowances attributable to inventory consumed in our OEM and retail distribution channels. The majority of subscriber acquisition costs are incurred and expensed in advance of, or concurrent with, acquiring a subscriber. Subscriber acquisition costs do not include advertising, marketing, loyalty payments to distributors and dealers of satellite radios ~~and~~or revenue share payments to automakers and retailers of satellite radios.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, subscriber acquisition costs were $413,041 and $340,506, respectively, an increase of 21%, or $72,535 and increased as a percentage of total revenue. The increase was primarily a result of the 25% increase in gross subscriber additions and higher subsidies related to the 49% increase in OEM installations, partially offset by lower OEM subsidies per vehicle and an $18,275 increase in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the Merger.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, subscriber acquisition costs were $340,506 and $371,343, respectively, a decrease of 8%, or $30,837 and decreased as a percentage of total revenue. The decrease was primarily a result of lower OEM subsidies and chip set costs, decreases in production of certain radios and lower aftermarket inventory charges in the year ended December 31, 2009 compared to the year ended December 31, 2008, partially offset by the inclusion of XM’s subscriber acquisition costs as a result of the Merger.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, subscriber acquisition costs were $474,697 and $434,482, respectively, an increase of 9%, or $40,215, and decreased as a percentage of total revenue. The increase was primarily a result of higher subsidies related to increased OEM installations occurring in advance of acquiring the subscriber, partially offset by improved OEM subsidy rates per vehicle and increases in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the Merger.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, subscriber acquisition costs were $434,482 and $413,041, respectively, an increase of 5%, or $21,441, and decreased as a percentage of total revenue. The increase was primarily a result of the 12% increase in gross subscriber additions and higher subsidies related to

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increased OEM installations occurring in advance of acquiring the subscriber, partially offset by improved OEM subsidy rates per vehicle and a $6,052 increase in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the Merger.

We expect total subscriber acquisition costs to fluctuate with increases or decreases in OEM installations ~~which are driven by OEM manufacturing and penetration rates,~~ and changes in our gross subscriber additions. ~~Declines~~Changes in contractual OEM subsidy rates and the cost of subsidized radio components will also impact total subscriber acquisition costs. The impact of purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit for acquired executory contracts will vary, in absolute amount and as a percentage of reported subscriber acquisition costs, through the expiration of the acquired contracts ~~primarily~~ in 2013. We intend to continue to offer subsidies, commissions and other incentives to acquire subscribers.

Sales and Marketingincludes costs for advertising, media and production, including promotional events and sponsorships; cooperative marketing; customer acquisition and retention, and personnel. Cooperative marketing costs include fixed and variable payments to reimburse retailers and automakers for the cost of advertising and other product awareness activities performed on our behalf. Customer acquisition and retention costs include expenses related to direct mail, outbound telemarketing and email.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, sales and marketing expenses were $215,454 and $228,956, respectively, a decrease of 6%, or $13,502 and decreased as a percentage of total revenue. The decrease was primarily due to reductions in consumer advertising, event marketing and third party distribution support expenses, partially offset by additional cooperative marketing and personnel costs.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, sales and marketing expenses were $228,956 and $231,937, respectively, a decrease of 1%, or $2,981 and decreased as a percentage of total revenue. The decrease was due to reductions in consumer advertising and cooperative marketing, personnel costs and third party distribution support expenses, partially offset by the inclusion of XM’s sales and marketing expense.

~~We expect~~

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, sales and marketing expenses were $248,905 and $222,773, respectively, an increase of 12%, or $26,132, and remained flat as a percentage of total revenue. The increase was primarily due to additional subscriber communications and retention programs associated with a greater number of subscribers and promotional trials, and higher OEM cooperative marketing.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, sales and marketing expenses were $222,773 and $215,454, respectively, an increase of 3%, or $7,319, and decreased as a percentage of total revenue. The increase was primarily due to increased subscriber communications and retention programs associated with a greater number of subscribers and promotional trials, partially offset by reductions in consumer advertising and event marketing.

We anticipate that sales and marketing expenses will increase as we ~~increase~~launch seasonal advertising and promotional initiatives to attract new subscribers, ~~in existing and new distribution channels,~~ and launch and expand programs to retain our existing subscribers and win-back former subscribers. The impact of purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired sales and marketing contracts will continue to decline, in absolute amount and as a percentage of reported sales and marketing costs, through 2013.

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Engineering, Design and Developmentincludes costs to develop chip sets and new products and services, research and development for broadcast information systems and costs associated with the incorporation of our radios into vehicles manufactured by automakers.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, engineering, design and development expenses were $45,390 and $41,031, respectively, an increase of 11%, or $4,359 but remained flat as a percentage of total revenue. The increase was primarily due to higher personnel, overhead and aftermarket product development costs.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, engineering, design and development expenses were $41,031 and $40,496, respectively, an increase of 1%, or $535 but decreased as a percentage of total revenue. The increase was primarily due to the inclusion of XM’s engineering, design and development expenses, partially offset by lower costs associated with development, tooling and testing of radios as well as lower personnel costs.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, engineering, design and development expenses were $48,843 and $53,435, respectively, a decrease of 9%, or $4,592, and decreased as a percentage of total revenue. The decrease was driven primarily by a reversal of certain non-recurring engineering charges, partially offset by higher product development costs, costs related to the development of enhanced subscriber features and functionality for our service and higher personnel costs.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, engineering, design and development expenses were $53,435 and $45,390, respectively, an increase of 18%, or $8,045, and remained flat as a percentage of total revenue. The increase was primarily due to higher product development costs and costs related to enhanced subscriber features and functionality, partially offset by lower share-based payment expenses.

We expect engineering, design and development expenses to increase in future periods as we develop our next generation chip sets and products.

General and Administrativeincludes executive management, rent and occupancy, finance, legal, human resources, information technology, and ~~investor relations~~insurance costs.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, general and administrative expenses were $240,970 and $227,554, respectively, an increase of 6%, or $13,416 but decreased as a percentage of total revenue. The increase was primarily due to increased personnel and legal costs, partially offset by lower share-based payment expense.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, general and administrative expenses were $227,554 and $213,142, respectively, an increase of 7%, or $14,412 but decreased as a percentage of total revenue. The increase was primarily due to the impact of the Merger, offset by lower costs for certain merger, litigation and regulatory matters.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, general and administrative expenses were $261,905 and $238,738, respectively, an increase of 10%, or $23,167, but remained flat as a percentage of total revenue. The increase was primarily due to higher personnel costs, including share-based payment expenses, office rent expenses and professional fees, partially offset by lower litigation settlement charges.

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2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, general and administrative expenses were $238,738 and $240,970, respectively, a decrease of 1%, or $2,232, and decreased as a percentage of total revenue. The decrease was primarily due to lower share-based payment expense, as well as lower general operating expenses, including rent, insurance and information technology costs.

We expect our general and administrative expenses to increase in future periods ~~primarily~~ as a result of, ~~increased~~among other things, enhanced information technology and personnel costs to support the growth of our ~~business, as well as rising legal costs.~~business.

~~Impairment of Goodwill~~~~is recorded when the carrying value of goodwill exceeds the implied fair value of goodwill.~~


	•	~~2010 vs. 2009:~~ ~~For the years ended December 31, 2010 and 2009, we did not record any impairment of goodwill.~~

	•	~~2009 vs. 2008:~~ ~~For the years ended December 31, 2009 and 2008, impairment of goodwill was $0 and $4,766,190, respectively.~~

Depreciation and Amortizationrepresents the systematic recognition in earnings of the acquisition cost of assets used in operations, including our satellite constellations, property, equipment and intangible assets, over their estimated service lives.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, depreciation and amortization expense was $273,691 and $309,450, respectively, a decrease of 12%, or $35,759 and decreased as a percentage of total revenue. The decrease was primarily due to a $38,136 reduction in the depreciation of acquired satellite constellation and amortization of subscriber relationships, partially offset by depreciation recognized on additional assets placed in-service.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, depreciation and amortization expense was $309,450 and $203,752, respectively, an increase of 52%, or $105,698 and increased as a percentage of total revenue. The increase was primarily due to the impact of the Merger.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, depreciation and amortization expense was $266,295 and $267,880, respectively, a decrease of 1%, or $1,585, and decreased as a percentage of total revenue. The decrease was driven by reductions in the amortization of subscriber relationships and depreciation recognized on assets placed in-service as certain assets reached the end of their estimated service lives.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, depreciation and amortization expense was $267,880 and $273,691, respectively, a decrease of 2%, or $5,811, and decreased as a percentage of total revenue. The decrease was primarily due to a reduction in the amortization of subscriber relationships, partially offset by depreciation recognized on additional assets placed in service.

We expect depreciation ~~and amortization expenses~~expense to increase in future periods as we ~~recognize depreciation expense on our recently launched satellite, XM-5, and complete the construction and~~ launch of our FM-6 satellite,

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which will be partially offset by reduced ~~depreciation and~~ amortization associated with thestepped-up basis in assets acquired in the Merger (including intangible assets, satellites, property and equipment) through the end of their estimated service lives, principally through 2017.

Restructuring, Impairments and Related Costsrepresents charges related to the ~~re-organization~~reorganization of our staff and restructuring of contracts, as well as charges related to the impairment of assets when those costs are deemed to provide no future benefit.

2012 vs. 2011: In 2012 and 2011, we did not record any restructuring, impairments and related costs.


	•	~~2010 vs. 2009:~~For the years ended December 31, 2010 and 2009, restructuring, impairments and related costs was $63,800 and $32,807, respectively, an increase of 94%, or $30,993. The increase was primarily due to the impairment of our FM-4 satellite, due to the launch of XM-5 in the fourth quarter of 2010, and contract termination costs in the year ended December 31, 2010 compared to losses incurred on capitalized installment payments which were expected to provide no future benefit due to the counterparty’s bankruptcy filing in the year ended December 31, 2009.

	•	~~2009 vs. 2008:~~For the years ended December 31, 2009 and 2008, restructuring, impairments and related costs was $32,807 and $10,434, respectively, an increase of 214%, or $22,373. The increase was primarily due to losses incurred on capitalized installment payments which were expected to provide no future benefit due to the counterparty’s bankruptcy filing in the year ended December 31, 2009 compared to Merger related restructuring charges in the year ended December 31, 2008.

2011 vs. 2010: For the year ended December 31, 2010, restructuring, impairments and related costs were $63,800 primarily due to the impairment of our FM-4 satellite as a result of the launch of our XM-5 satellite in 2010 and contract terminations.

Other Income (Expense)

Interest Expense, Net of Amounts Capitalized,includes interest on outstanding debt, reduced by interest capitalized in connection with the construction of our satellites and related launch vehicles.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, interest expense was $295,643 and $315,668, respectively, a decrease of 6%, or $20,025. The decrease was primarily due to decreases in the weighted average interest rate on our outstanding debt in the year ended December 31, 2010 compared to the year ended December 31, 2009 and the redemption of XM’s 10% Senior PIK Secured Notes due 2011 on June 1, 2010.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, interest expense was $315,668 and $148,455, respectively, an increase of 113%, or $167,213. Interest expense increased significantly as a result of the Merger, due to additional debt and higher interest rates. Increases in interest expense were partially offset by the capitalized interest associated with satellite construction and related launch vehicles.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, interest expense was $265,321 and $304,938, respectively, a decrease of 13%, or $39,617. The decrease was primarily due to a lower average outstanding debt balance and a mix of outstanding debt with lower interest rates.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, interest expense was $304,938 and $295,643, respectively, an increase of 3%, or $9,295. The increase was primarily due to lower capitalized interest related to the construction of our satellites and related launch vehicles, partially offset by outstanding debt with lower interest rates.

We expect interest expense to decrease in future periods due to debt retirements at maturity, redemptions and repurchases in 2012. The decrease will be partially offset by a decrease in capitalized interest following the launch of our FM-6 satellite.

Loss on Extinguishment of Debt and Credit Facilities, Net,includes losses incurred as a result of the conversion and retirement of certain debt.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, loss on extinguishment of debt and credit facilities, net, was $120,120 and $267,646, respectively, a decrease of 55%, or $147,526. During the year ended December 31, 2010, the loss was incurred on the repayment of our Senior Secured Term Loan due 2012 and 9.625% Senior Notes due 2013 and XM’s 10% Senior PIK Secured Notes due 2011 and 9.75% Senior Notes due 2014, as well as the partial repayment of XM’s 11.25% Senior Secured Notes due 2013 and our 3.25% Convertible Notes due 2011. During the year ended December 31, 2009, the loss was incurred on the retirement of our 2.5% Convertible Notes due 2009, the extinguishment of our Term Loan and Purchase Money Loan with Liberty Media, the repayment of the XM’s Amended and Restated Credit Agreement due 2011, the partial repayment of XM’s 10% Convertible Senior Notes due 2009 and the termination of XM’s Second Lien Credit Agreement.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, loss on extinguishment of debt and credit facilities, net, was $267,646 and $98,203, respectively, an increase of 173%, or $169,443. During the year ended December 31, 2009, the loss was incurred on the retirement of our 2.5% Convertible Notes due 2009, the extinguishment of our Term Loan and Purchase Money Loan with Liberty Media, the repayment of XM’s Amended and Restated Credit Agreement due 2011, the partial repayment of XM’s 10% Convertible Senior Notes due 2009 and the termination of XM’s Second Lien Credit Agreement. During the year ended

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		~~December 31, 2008, the loss was incurred on the partial induced conversion of our 2.5% Convertible Notes due 2009.~~

2012 vs. 2011: For the year endedDecember 31, 2012, loss on extinguishment of debt and credit facilities, net, was $132,726. The loss was recorded on the repayment of our 13% Senior Notes due 2013 and our 9.75% Senior Secured Notes due 2015. During the year endedDecember 31, 2011, a $7,206 loss was recorded on the repayment of our 11.25% Senior Secured Notes due 2013 and our 3.25% Convertible Notes due 2011.

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2011 vs. 2010: For the year endedDecember 31, 2011, loss on extinguishment of debt and credit facilities, net, was $7,206. During the year ended December 31, 2010, a $120,120 loss was recorded on the repayment of our Senior Secured Term Loan due 2012 and 9.625% Senior Notes due 2013 and XM's 10% Senior PIK Secured Notes due 2011 and 9.75% Senior Notes due 2014, as well as the partial repayment of XM's 11.25% Senior Secured Notes due 2013 and our 3.25% Convertible Notes due 2011.

Interest and Investment Income (Loss)includes realized gains and losses, dividends, interest income, our share of ~~SIRIUS~~Sirius Canada’s and XM Canada’s pre-Merger net losses, and ~~losses recorded~~our share of the income (loss) of Sirius XM Canada.

2012 vs. 2011: For the year endedDecember 31, 2012, interest and investment income was $716 compared to $73,970 in 2011. The interest and investment income for 2012 was primarily due to interest on our investments and our share of Sirius XM Canada's net income, partially offset by the amortization expense related to our equity method intangible assets. The interest and investment income for 2011 was primarily due to income from ~~investments~~our interests in ~~those entities, as well as debt instruments issued by~~Sirius XM Canada ~~when~~due to the ~~fair value~~realized net gain from the Canada Merger in the second quarter of ~~those instruments falls below carrying value~~2011.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, interest and investment income (loss) was $73,970 and $(5,375), respectively, an increase of $79,345. The increase was attributable to a net gain realized as a result of the ~~decline is determined to be other than temporary.~~Canada Merger. This transaction resulted in the recognition of a $75,768 gain recorded in interest and investment income. The gain was partially offset by our share of net losses at our Canadian affiliate.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, interest and investment (loss) income was ($5,375) and $5,576, respectively, a decrease of 196%, or $10,951. The decrease in income was primarily attributable to higher net losses at XM Canada and SIRIUS Canada and a decrease in payments received from SIRIUS Canada in excess of the carrying value of our investments, partially offset by the gain on sale of auction rate securities during the year ended December 31, 2010. In addition, we recorded an impairment charge on our investment in XM Canada during the year ended December 31, 2009.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, interest and investment (loss) income was $5,576 and ($21,428), respectively, an increase of 126%, or $27,004. The increase was attributable to payments received from SIRIUS Canada in excess of the carrying value of our investment, decreases in our share of XM Canada’s net loss and decreases in impairment charges related to our investment in XM Canada for the year ended December 31, 2009 compared to the year ended December 31, 2008, partially offset by increases in our share of SIRIUS Canada’s net loss, lower interest rates in 2009 and a lower average cash balance.

Income Taxes

Income Tax ~~Expense~~~~primarily represents~~Benefit (Expense) includes the reversal of substantially all of our deferred income tax valuation allowance, the change in our deferred tax liability related to the difference in accounting for our FCC licenses, which are amortized over 15 years for tax purposes but not amortized for book purposes in accordance with GAAP, ~~and~~ foreign withholding taxes on royalty ~~income.~~income, and the effect of changes in certain state laws related to the utilization of net operating losses ("NOLs").


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, income tax expense was $4,620 and $5,981, respectively, a decrease of 23%, or $1,361 primarily related to a decrease in the applicable tax rate and foreign withholding taxes on royalty income.

	•	~~2009 vs. 2008:~~ ~~For the years ended December 31, 2009 and 2008, income tax expense was $5,981 and $2,476, respectively, an increase of 142%, or $3,505 primarily related to the inclusion of XM.~~

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2012 vs. 2011: For the year endedDecember 31, 2012, income tax benefit was $2,998,234 compared to income tax expense of $(14,234) for 2011. For the year endedDecember 31, 2012, we released $3,195,651 of valuation allowance due to the cumulative positive evidence that it is more likely than not that our deferred tax assets will be realized.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, income tax expense was $14,234 and $4,620, respectively, an increase of 208%, or $9,614, primarily due to an increase in the applicable state effective tax rates, foreign withholding taxes on royalty income and the state tax impact of the suspension of NOL use in California and Illinois.

As of December 31, 2012, the deferred tax asset valuation allowance of $9,835 relates to deferred tax assets that are not likely to be realized due to certain state NOL limitations.

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Subscriber Data

The following table contains ~~actual~~ subscriber data for the years ended December 31, ~~2010~~2012, 2011 and ~~2009, respectively, and adjusted subscriber data for the year ended~~ 2010, respectively:



	Unaudited
	For the Years Ended December 31,
	2012		2011		2010
Beginning subscribers	21,892,824		20,190,964		18,772,758
Gross subscriber additions	9,617,771		8,696,020		7,768,827
Deactivated subscribers	(7,610,259	)	(6,994,160	)	(6,350,621	)
Net additions	2,007,512		1,701,860		1,418,206
Ending subscribers	23,900,336		21,892,824		20,190,964
Self-pay	19,570,274		17,908,742		16,686,799
Paid promotional	4,330,062		3,984,082		3,504,165
Ending subscribers	23,900,336		21,892,824		20,190,964
Self-pay	1,661,532		1,221,943		982,867
Paid promotional	345,980		479,917		435,339
Net additions	2,007,512		1,701,860		1,418,206
Daily weighted average number of subscribers	22,794,170		20,903,908		19,385,055
Average self-pay monthly churn	1.9	%	1.9	%	1.9	%
New vehicle consumer conversion rate	45	%	45	%	46	%
Note: See pages 39 through 45 for glossary.

Subscribers. At December 31, ~~2008. The subscriber data for the year ended December 31, 2008 has been adjusted to include XM results:~~

Unaudited
For the Years Ended December 31,
2010 2009 2008
(Actual) (Actual) (Adjusted)

Beginning subscribers 18,772,758 19,003,856 17,348,622
Gross subscriber additions 7,768,827 6,208,482 7,710,306
Deactivated subscribers (6,350,621 ) (6,439,580 ) (6,055,072 )

Net additions 1,418,206 (231,098 ) 1,655,234

Ending subscribers 20,190,964 18,772,758 19,003,856

Retail 6,947,830 7,725,750 8,905,087
OEM 13,104,972 10,930,952 9,995,953
Rental 138,162 116,056 102,816

Ending subscribers 20,190,964 18,772,758 19,003,856

Self-pay 16,686,799 15,703,932 15,549,657
Paid promotional 3,504,165 3,068,826 3,454,199

Ending subscribers 20,190,964 18,772,758 19,003,856

Retail (777,920 ) (1,179,452 ) (333,628 )
OEM 2,174,020 935,114 1,962,685
Rental 22,106 13,240 26,177

Net additions 1,418,206 (231,098 ) 1,655,234

Self-pay 982,867 154,275 1,676,311
Paid promotional 435,339 (385,373 ) (21,077 )

Net additions 1,418,206 (231,098 ) 1,655,234

Daily weighted average number of subscribers 19,385,055 18,529,696 18,373,274

Average self-pay monthly churn(1) 1.9 % 2.0 % 1.8 %

Conversion rate(2) 46.2 % 45.4 % 47.5 %

~~Note: See pages 46 through 53 for footnotes.~~

~~Subscribers.~~ ~~At December 31, 2010,~~2012, we had ~~20,190,964~~23,900,336 subscribers, an increase of ~~1,418,206~~2,007,512 subscribers, or 8%9%, from the ~~18,772,758~~21,892,824 subscribers as of December 31, ~~2009.~~2011.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, net additions were 1,418,206 and (231,098), respectively, an increase in net additions of 1,649,304. The improvement was due to the 25% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration and returning activations.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, net additions were (231,098) and 1,655,234, respectively, a decrease in net additions of 1,886,332. The decline was due to a decrease in gross subscriber additions of 19% and an increase in deactivated subscribers of 6%, both of which were impacted by the economic environment during 2009. The decrease in net additions was primarily attributable to fewer

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		~~paid promotional trials due to the decline in North American auto sales and an increase in the average self-pay monthly churn rate from 1.8% in 2008 to 2.0% in 2009.~~

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, net additions were 2,007,512 and 1,701,860, respectively, an increase of 18%, or 305,652. The improvement was due to the increase in gross subscriber additions, primarily resulting from higher new vehicle shipments and light vehicle sales, as well as an increase in the number of conversions from unpaid promotional trials and returning subscriber activations, including consumers in previously owned vehicles.This increase in gross additions was partially offset by an increase in deactivations. The increase in deactivations was primarily due to paid promotional trial deactivations stemming from the growth of paid trials and increased self-pay deactivations from our larger subscriber base.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, net additions were 1,701,860 and 1,418,206, respectively, an increase in net additions of 20%, or 283,654. The improvement was due to the 12% increase in gross subscriber additions, primarily resulting from an increase in U.S. light vehicle sales, new vehicle penetration, and returning subscriber activations including previously owned car acquisitions. This increase in gross additions was partially offset by the 10% increase in deactivations, which was primarily due to an increase in paid promotional trial volume along with growth in our subscriber base.

Average Self-pay Monthly Churn for the year is derived from the average of the quarterly average self-pay monthly churn during the year. Average self-pay monthly churn for a quarter is derived by dividing the monthly average of self-pay deactivations for ~~the~~a quarter by the average self-pay subscriber balance for ~~the~~a quarter. (See accompanying ~~footnotes~~glossary on pages 4639 through 5345 for more details.)


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, our average self-pay monthly churn rate was 1.9% and 2.0%, respectively. The decrease was due to an improving economy, the success of retention and win-back programs and reductions in non-pay cancellation rates.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, our average self-pay monthly churn rate was 2.0% and 1.8%, respectively. The increase was due to the economic environment during 2009 which drove reductions in consumer discretionary spending, combined with subscriber response to our decreases in discounts on multi-subscription and internet packages, channel~~line-up~~ ~~changes in 2008 and the introduction of the U.S. Music Royalty Fee in the third quarter of 2009.~~

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, our average self-pay monthly churn rate was 1.9%.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, our average self-pay monthly churn rate was 1.9%.

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New Vehicle Consumer Conversion Rateis the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after an initial promotional period. ~~(See~~The metric excludes rental and fleet vehicles.(See accompanying ~~footnotes~~glossary on pages 4639 through 5345 for more ~~details.)~~details).


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, our conversion rate was 46.2% and 45.4%, respectively. The increase was primarily due to marketing to promotional period subscribers and an improving economy.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, our conversion rate was 45.4% and 47.5%, respectively. The decrease was primarily due to a reduction in consumer discretionary spending resulting from the economic environment during 2009.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, the new vehicle consumer conversion rate was 45%.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, the new vehicle consumer conversion rate was 45% and 46%, respectively. The ~~discussion~~decrease was primarily due to the changing mix of ~~operating results below excludes~~sales among OEMs and operational issues impacting the ~~effects~~timing of ~~stock-based compensation~~the receipt of customer information and ~~purchase price accounting adjustments associated~~prompt marketing communications with ~~the Merger. Financial measures~~buyers and ~~metrics previously reported as “pro forma” have been renamed “adjusted.”~~lessees of vehicles.

Adjusted Results of Operations

In this section, we present certain financial performance measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States of America (“Non-GAAP”). These Non-GAAP financial measures include: average monthly revenue per subscriber, or ARPU; customer service and billing expenses, per average subscriber; subscriber acquisition cost, or SAC, per gross subscriber addition; ~~customer service and billing expenses, per average subscriber;~~ free cash flow; ~~adjusted total revenue;~~ and adjusted EBITDA. These measures ~~include the historical results of operations of XM and~~ exclude the impact of certain purchase price accounting adjustments. We use these Non-GAAP financial measures to manage our business, to set operational goals and as a basis for determining performance-based compensation for our employees.

The purchase price accounting adjustments include the elimination of the earnings benefit of deferred revenue associated with ~~the~~our investment in Sirius XM Canada, the recognition of subscriber revenues not recognized in purchase price accounting and the elimination of the earnings benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and certain programming providers.

Our adjusted EBITDA also reallocates share-based payment expense from functional operating expense line items to a separate line within operating expenses. We believe the exclusion of share-based payment expense from functional operating expenses is useful given the significant variation in expense that can result from changes in the fair ~~market~~ value ~~of our common~~as determined by the Black-Scholes-Merton model, which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our operating costs.

Free cash flow is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity. In a capital intensive business, with significant historical and current investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders. We believe free cash flow is an indicator of the long-term financial stability of our business. Free cash flow, which is reconciled to “Net cash provided by operating activities”, is a non-GAAP financial measure. This measure can be calculated by deducting amounts under the captions "Additions to property and equipment" and deducting or adding Restricted and other investment activity from "Net cash provided by operating activities" from the consolidated statements of cash flows. Free cash flow should be used in conjunction with other GAAP financial performance measures and may not be comparable to free cash flow measures presented by other companies. Free cash flow should be viewed as a supplemental measure rather than an alternative measure of cash flows from operating activities, as determined in accordance with GAAP. Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt maturities. We believe free cash flow provides useful supplemental information to investors regarding our current and projected cash flow, along with other GAAP measures (such as cash flows from operating and investing activities), to determine our financial condition, and to compare our operating performance to other communications, entertainment and media companies.

We believe these Non-GAAP financial measures provide useful information to investors regarding our financial condition and results of operations. We believe investors find these Non-GAAP financial performance measures useful in evaluating our core trends because it provides a direct view of our underlying contractual costs.

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We believe investors use our current and projected adjusted EBITDA to estimate our current or prospective enterprise value and to make investment decisions. By providing these Non-GAAP financial measures, together with the reconciliations to the most directly comparable GAAP measure, we believe we are enhancing ~~investors~~investors' understanding of our business and our results of operations.

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These Non-GAAP financial measures should be viewed in addition to, and not as an alternative for or superior to, our reported results prepared in accordance with GAAP. Please refer to the ~~footnotes~~glossary (pages 4639 through ~~53)~~45) for a further discussion of such Non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure.

The following table contains our key operating metrics based on our ~~unaudited~~ adjusted results of operations for the years endedDecember 31, 2012, 2011 and 2010, ~~2009 and 2008,~~ respectively:

Unaudited Adjusted
For the Years Ended December 31,
2010 2009 2008
(In thousands, except for per subscriber amounts)

ARPU(3) $ 11.73 $ 10.95 $ 10.56
SAC, per gross subscriber addition(4) $ 59 $ 63 $ 74
Customer service and billing expenses, per average subscriber(5) $ 1.03 $ 1.05 $ 1.11
Free cash flow(6) $ 210,481 $ 185,319 $ (551,771 )
Adjusted total revenue(8) $ 2,838,898 $ 2,526,703 $ 2,436,740
Adjusted EBITDA(7) $ 626,288 $ 462,539 $ (136,298 )



	Unaudited Adjusted
	For the Years Ended December 31,
(in thousands, except for per subscriber amounts)	2012		2011		2010
ARPU	$	12.00	$	11.58	$	11.73
SAC, per gross subscriber addition	$	54	$	55	$	59
Customer service and billing expenses, per average subscriber	$	1.07	$	1.03	$	1.03
Free cash flow	$	709,446	$	415,742	$	210,481
Adjusted EBITDA	$	920,343	$	731,018	$	626,288

~~Note: See pages 46 through 53 for footnotes.~~

Note: See pages 39 through 45 for glossary.

ARPUis derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. (See accompanying ~~footnotes~~glossary on pages 4639 through 5345 for more details.)


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, ARPU was $11.73 and $10.95, respectively. The increase was driven primarily by the full year impact of the U.S. Music Royalty Fee introduced in the third quarter of 2009, increased revenues from the sale of “Best of” programming, decreases in discounts on multi-subscription and internet packages, and increased net advertising revenue, partially offset by an increase in the number of subscribers on promotional plans.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, ARPU was $10.95 and $10.56, respectively. The increase in subscriber revenue was driven mainly by the introduction of the U.S. Music Royalty Fee in the third quarter of 2009, the sale of “Best of” programming, decreases in discounts on multi-subscription and internet packages, partially offset by lower advertising revenue.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, ARPU was $12.00 and $11.58, respectively. The increase was driven primarily by the increase in certain of our subscription rates beginning in January 2012, and an increase in subscriptions to premium services, partially offset by subscription discounts offered through customer acquisition and retention programs and a decrease in the contribution from the U.S. Music Royalty Fee.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, ARPU was $11.58 and $11.73, respectively. The decrease was driven primarily by an increase in subscription discounts offered through customer acquisition and retention programs and a decrease in the contribution from the U.S. Music Royalty Fee, partially offset by an increase in subscriptions to our premium services, including Premier packages, data services and Internet subscriptions.

SAC, Per Gross Subscriber Addition,is derived from subscriber acquisition costs and margins from the ~~direct~~ sale of radios, components and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. (See accompanying ~~footnotes~~glossary on pages 4639 through 5345 for more details.)


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, SAC, per gross subscriber addition was $59 and $63, respectively. The decrease was primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers compared to the year ended December 31, 2009, partially offset by a 49% increase in OEM production with factory-installed satellite radios.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, SAC, per gross subscriber addition was $63 and $74, respectively. The decrease was primarily driven by lower OEM subsidies, fewer OEM installations relative to gross subscriber additions and lower aftermarket inventory charges in the year ended December 31, 2009 compared to the year ended December 31, 2008.

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2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, SAC, per gross subscriber addition, was $54 and $55, respectively. The decrease was primarily due to improved OEM subsidy rates per vehicle, partially offset by higher subsidies related to increased OEM installations occurring in advance of acquiring the subscriber.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, SAC, per gross subscriber addition, was $55 and $59, respectively. The decrease was primarily due to lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations and royalties from radio manufacturers.

Customer Service and Billing Expenses, Per Average Subscriber,is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. (See accompanying ~~footnotes~~glossary on pages 4639 through 5345 for more details.)


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, customer service and billing expenses, per average subscriber was $1.03 and $1.05, respectively. The decrease was primarily due to lower call center expenses as a result of moving calls to lower cost locations, partially offset by higher call volume.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, customer service and billing expenses, per average subscriber was $1.05 and $1.11, respectively. The decrease was primarily due to decreases in personnel costs and customer call center expenses.

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, customer service and billing expenses, per average subscriber, were $1.07 and $1.03, respectively. The increase was primarily due to longer average handle time per call and higher technology costs.

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2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, customer service and billing expenses, per average subscriber, were $1.03.

Free Cash Flowincludes the net cash provided by ~~(used in)~~ operations, additions to property and equipment, ~~merger~~and other investing activity. (See accompanying glossary on pages 39 through 45 for more details.)

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, free cash flow was $709,446 and $415,742, respectively, an increase of $293,704. The increase was primarily driven by higher net cash provided by operating activities resulting from improved operating performance and higher collections from subscribers and distributors, as well as a decrease in capital expenditures resulting from lower satellite and related ~~costs~~launch vehicle construction costs.

2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, free cash flow was $415,742 and $210,481, respectively, an increase of $205,261. The increase was primarily driven by higher net cash provided by operating activities resulting from improved operating performance, cash received from the Canada Merger, higher collections from subscribers and distributors, and the repayment in the first quarter of 2010 of liabilities deferred in 2009, as well as a decrease in capital expenditures for the year ended December 31, 2011 resulting from decreased satellite construction and launch expenditures due to the launch in 2010 of our XM-5 satellite, an increase in restricted and other investment ~~activity. (See accompanying footnotes on pages 46 through 53 for more details.)~~


	•	~~2010 vs. 2009:~~ ~~For the years ended December 31, 2010 and 2009, free cash flow was $210,481 and $185,319, respectively, an increase of $25,162. Net cash provided~~activities driven by operating activities increased $79,065 to $512,895 for the year ended December 31, 2010 compared to the $433,830 provided by operations for the year ended December 31, 2009. Capital expenditures for property and equipment for the year ended December 31, 2010 increased $63,357 to $311,868 compared to $248,511 for the year ended December 31, 2009. The increase in net cash provided by operating activities was primarily the result of growth in deferred revenue and changes in net assets. The increase in capital expenditures for the year ended December 31, 2010 was primarily the result of satellite construction and launch expenditures for our XM-5 and FM-6 satellites.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2009 and 2008, free cash flow was $185,319 and ($551,771), respectively, an increase of $737,090. Net cash provided by (used in) operating activities increased $837,713 to $433,830 for the year ended December 31, 2009 compared to the ($403,883) used in operations for the year ended December 31, 2008. Capital expenditures for property and equipment, merger related costs, and restricted and other investment activity for the year ended December 31, 2009 increased $100,623 to $248,511 compared to $147,888 for the year ended December 31, 2008. The increase in net cash provided by operating activities was primarily the result of growth in deferred revenue and changes in net assets. The increase in capital expenditures for the year ended December 31, 2009 was primarily the result of satellite construction and launch expenditures for our FM-4 and XM-5 satellites.

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~~Adjusted Total Revenue.~~ ~~Our adjusted total revenue includes~~ the ~~recognition~~return of ~~deferred subscriber revenues acquired~~capital resulting from the Canada Merger; partially offset by proceeds from the sale of investment securities in the Merger that are not recognized in our results under purchase price accounting and the elimination of the benefit in earnings from deferred revenue associated with our investment in XM Canada acquired in the Merger. (See the accompanying footnotes on pages 46 through 53 for more details.)year ended December 31, 2010.

Unaudited
For the Years Ended December 31,
2010 2009 2008

Revenue:
Subscriber revenue, including effects of rebates $ 2,414,174 $ 2,287,503 $ 1,548,919
Advertising revenue, net of agency fees 64,517 51,754 47,190
Equipment revenue 71,355 50,352 56,001
Other revenue 266,946 83,029 11,882
Predecessor financial information:
Subscriber revenue, including effects of rebates — — 670,870
Advertising revenue, net of agency fees — — 22,743
Equipment revenue — — 13,397
Other revenue — — 24,184
Purchase price accounting adjustments:
Subscriber revenue, including effects of rebates 14,655 46,814 38,533
Other revenue 7,251 7,251 3,021

Adjusted total revenue $ 2,838,898 $ 2,526,703 $ 2,436,740


	•	~~2010 vs. 2009:~~ Our adjusted total revenue increased 12%, or $312,195, in the year ended December 31, 2010 compared to the year ended December 31, 2009. Subscriber revenue increased 4%, or $94,512, in the year ended December 31, 2010 compared to the year ended December 31, 2009. The increase in subscriber revenue was driven by the increase in subscribers as well as an increase in the sale of “Best of” programming and the decreases in discounts on multi-subscription and internet packages, partially offset by an increase in the number of subscribers on promotional plans. Advertising revenue increased 25%, or $12,763, in the year ended December 31, 2010 compared to the year ended December 31, 2009. The increase in advertising revenue was driven by more effective sales efforts and improvements in the national market for advertising. Equipment revenue increased 42%, or $21,003, in the year ended December 31, 2010 compared to the year ended December 31, 2009. The increase in equipment revenue was driven by royalties from increased OEM installations. Other revenue increased $183,917 in the year ended December 31, 2010 compared to the year ended December 31, 2009. The increase in other revenue was driven by the introduction of the U.S. Music Royalty Fee in the third quarter of 2009.

	•	~~2009 vs. 2008:~~ Our adjusted total revenue increased 4%, or $89,963, in the year ended December 31, 2009 compared to the year ended December 31, 2008. Subscriber revenue increased 3%, or $75,995, in the year ended December 31, 2009 compared to the year ended December 31, 2008. The increase in subscriber revenue was driven by the sale of “Best of” programming, decreases in discounts on multi-subscription packages, increased sales of internet packages and higher average subscribers. Advertising revenue decreased 26%, or $18,179, in the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease in advertising revenue was driven by the economic environment. Equipment revenue decreased 27%, or $19,046, in the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease in equipment revenue was driven by declines in sales through our direct to consumer distribution channel and lower product and component sales offset by higher product royalties. Other revenue increased 131%, or $51,193, in the year ended December 31, 2009 compared to the year ended December 31, 2008. The increase in other revenue was driven by the introduction of the U.S. Music Royalty Fee in the third quarter of 2009.

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Adjusted EBITDA. EBITDA is defined as net income ~~(loss)~~ before interest and investment income (loss); interest expense, net of amounts capitalized; income tax ~~expense~~benefit (expense) and depreciation and amortization. Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt as well as certain other charges, such as goodwill impairment; restructuring, impairments and related costs; certain purchase price accounting adjustments and share-based payment expense. (See the accompanying ~~footnotes~~glossary on pages 4639 through 5345 for more details):

Unaudited
For the Years Ended December 31,
2010 2009 2008

Adjusted EBITDA $ 626,288 $ 462,539 $ (136,298 )

2012 vs. 2011: For the years endedDecember 31, 2012 and 2011, adjusted EBITDA was $920,343 and $731,018, respectively, an increase of 26%, or $189,325. The increase was primarily due to increases in adjusted revenues, partially offset by increases in expenses included in adjusted EBITDA. The increase in adjusted revenues was primarily due to the increase in our subscriber base and the increase in certain of our subscription rates. The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues, higher subscriber acquisition costs related to increased gross subscriber additions and subsidies related to increased OEM installations, customer service and billing costs related to longer average handle times and higher subscriber volume, and higher sales and marketing costs related to subscriber communications and cooperative marketing, partially offset by lower programming and content costs.


	•	~~2010 vs. 2009:~~ For the years ended December 31, 2010 and 2009, adjusted EBITDA was $626,288 and $462,539, respectively, an increase of 35%, or $163,749. The increase was primarily due to an increase of 12%, or $312,195, in revenues, partially offset by an increase of 7%, or $148,446, in expenses included in adjusted EBITDA. The increase in revenue was primarily due to the increase in our subscriber base and the introduction of the U.S. Music Royalty Fee in the third quarter of 2009, as well as increased advertising and equipment revenue, decreases in discounts on multi-subscription and internet packages, and an increase in the sale of “Best of” programming, partially offset by an increase in the number of subscribers on promotional plans. The increase in expenses was primarily driven by higher subscriber acquisition costs related to the 25% increase in gross additions and higher revenue share and royalties expenses associated with growth in revenues subject to revenue sharing and royalty arrangements.

	•	~~2009 vs. 2008:~~ For the years ended December 31, 2010 and 2009, adjusted EBITDA was $462,539 and ($136,298), respectively, an increase of 439%, or $598,837. The increase was primarily due to an increase of 4%, or $89,963, in revenues and a decrease of 20%, or $508,874, in expenses included in adjusted EBITDA. The increase in revenue was primarily due to an increase in weighted average subscribers as well as decreases in discounts on multi-subscription and internet packages, the introduction of the U.S. Music Royalty Fee in the third quarter of 2009 and the sale of “Best of” programming, partially offset by decreased equipment revenue. The decreases in expenses were primarily driven by lower subscriber acquisition costs, lower sales and marketing discretionary spend, savings in programming and content expenses, and lower legal and consulting costs in general and administrative expenses.

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2011 vs. 2010: For the years endedDecember 31, 2011 and 2010, adjusted EBITDA was $731,018 and $626,288, respectively, an increase of 17%, or $104,730. The increase was primarily due to an increase in adjusted revenues, partially offset by an increase in expenses included in adjusted EBITDA. The increase in adjusted revenues was primarily due to the increase in our subscriber base. The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues, increased customer service and billing expenses associated with subscriber growth and higher subscriber acquisition costs related to the 12% increase in gross additions, partially offset by lower programming and content costs.

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Liquidity and Capital Resources

Cash Flows for the Year EndedDecember 31, ~~2010~~2012 Compared with the Year EndedDecember 31, ~~2009~~2011 and Year EndedDecember 31, ~~2009~~2011 Compared with the Year Ended ~~December 31, 2008~~

~~As of~~ December 31, 2010

As of December 31, 2012, 2011 and ~~2009,~~2010, we had ~~$586,691~~$520,945, $773,990 and ~~$383,489,~~$586,691, respectively, inof cash and cash equivalents. The following table presents a summary of our cash flow activity for the periods set forth below:

For the Years Ended December 31,
2010 2009 2008 2010 vs. 2009 2009 vs. 2008

Net cash provided by (used in) operating activities $ 512,895 $ 433,830 $ (152,797 ) $ 79,065 $ 586,627
Net cash (used in) provided by investing activities (302,414 ) (248,511 ) 728,425 (53,903 ) (976,936 )
Net cash used in financing activities (7,279 ) (182,276 ) (634,002 ) 174,997 451,726

Net increase (decrease) in cash and cash equivalents 203,202 3,043 (58,374 ) 200,159 61,417
Cash and cash equivalents at beginning of period 383,489 380,446 438,820 3,043 (58,374 )

Cash and cash equivalents at end of period $ 586,691 $ 383,489 $ 380,446 $ 203,202 $ 3,043

For the Years Ended December 31,
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Net cash provided by operating activities $ 806,765
$ 543,630
$ 512,895
$ 263,135
$ 30,735
Net cash used in investing activities (97,319 ) (127,888 ) (302,414 ) 30,569
174,526
Net cash used in financing activities (962,491 ) (228,443 ) (7,279 ) (734,048 ) (221,164 )
Net (decrease) increase in cash and cash equivalents (253,045 ) 187,299
203,202
(440,344 ) (15,903 )
Cash and cash equivalents at beginning of period 773,990
586,691
383,489
187,299
203,202
Cash and cash equivalents at end of period $ 520,945
$ 773,990
$ 586,691
$ (253,045 ) $ 187,299

Cash Flows Provided by ~~(Used in)~~ Operating Activities

Cash provided by operating activities increased by ~~$79,065, or 18%,~~$263,135 to ~~$512,895~~$806,765 for the year endedDecember 31, ~~2010~~2012 from ~~$433,830~~$543,630 for the year endedDecember 31, ~~2009.~~2011. Cash provided by operating activities increased by ~~$586,627, or 384%,~~$30,735 to ~~$433,830~~$543,630 for the year endedDecember 31, ~~2009~~2011 from cash ~~used in~~provided by operating activities of ~~$152,797~~$512,895 for the year endedDecember 31, ~~2008.~~2010. The primary ~~drivers~~driver of our operating cash flow growth ~~have~~has been improvements in ~~profitability~~profitability.

Our net income was $3,472,702, $426,961 and ~~changes~~$43,055 for the years ended December 31, 2012, 2011 and 2010, respectively. Excluding the $3,001,818 non-cash deferred tax valuation allowance reversal in 2012, our increase in net income was primarily driven by an increase in our subscriber revenues of $367,251, or 14%, and $181,240, or 8%, for the years endedDecember 31, 2012 and 2011, respectively, attributable to the increase in daily weighted average subscribers, an increase in certain of our subscription rates beginning in January 2012, and an increase in subscriptions to premium services, including Premier packages, data services and streaming. Our growth in revenue was partially offset by an increase in our operating expenses of $191,608, or 8%, for the year ended December 31, 2012. Operating expenses for the year ended December 31, 2011 were flat compared December 31, 2010. The increase in operating ~~assets~~expenses for the year ended December 31, 2012 was primarily driven by higher revenue share and ~~liabilities.~~royalties expenses associated with growth in revenues, higher subscriber acquisition costs related to an 11% increase in gross subscriber additions and subsidies related to increased OEM installations, customer service and billing costs related to longer average handle times and higher subscriber volume, and higher sales and marketing costs related to subscriber communications and cooperative marketing.


	•	Our net income (loss) was $43,055, ($352,038) and ($5,316,910) for the years ended December 31, 2010, 2009 and 2008, respectively. Our revenue growth has been primarily due to growth in our subscriber revenues which increased by $126,671, or 6%, and $738,584, or 48% (including the impact of the Merger), for the years ended December 31, 2010 and 2009, respectively. Included in the net loss for 2008 was a $4,766,190 charge related to the impairment of goodwill.

	•	Net non-cash adjustments to net income (loss) were $357,743, $566,524 and $5,142,961 for the years ended December 31, 2010, 2009 and 2008, respectively. Significant components of non-cash expenses, and their impact on cash flows from operating activities, include the following:

Net non-cash adjustments to net income were $(2,758,067), $66,975 and $357,743 for the years ended December 31, 2012, 2011 and 2010, respectively. Significant components of non-cash expenses, and their impact on cash flows from operating activities, include the following:

For the Years Ended December 31,
2010 2009 2008

Depreciation and amortization $ 273,691 $ 309,450 $ 203,752
Impairment of goodwill — — 4,766,190
Restructuring, impairments and related costs 66,731 26,964 —
Loss on extinguishment of debt and credit facilities, net 120,120 267,646 98,203
Share-based payment expense 60,437 73,981 87,405
Other non-cash purchase price adjustments (250,727 ) (202,054 ) (68,330 )



	For the Years Ended December 31,
	2012			2011			2010
Depreciation and amortization	$	266,295		$	267,880		$	273,691
Restructuring, impairments and related costs	$	—		$	—		$	66,731
Loss on extinguishment of debt and credit facilities, net	$	132,726		$	7,206		$	120,120
Gain on merger of unconsolidated entities	$	—		$	(75,768	)	$	—
Share-based payment expense	$	63,822		$	53,190		$	60,437
Deferred income taxes	$	(3,001,818	)	$	8,264		$	2,308
Other non-cash purchase price adjustments	$	(289,050	)	$	(275,338	)	$	(250,727	)

Depreciation and amortization expense is expected to increase in future periods as we recognize depreciation expense ~~on our recently launched satellite, XM-5, and complete~~upon the ~~construction and~~ launch of our FM-6 satellite.

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During 2008, we recorded a goodwill impairment charge of $4,766,190, which reduced the carrying value of goodwill from $6,601,046 to $1,834,856. There were no impairment charges recorded in 2010 and 2009.

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Included in restructuring, impairments and related costs for the year endedDecember 31, 2010 are contract termination costs of $7,361 and a loss on the full impairment of our FM-4 satellite of $56,100.

Loss on extinguishment of debt and credit facilities, net, includes losses incurred as a result of ~~the conversion and~~ retirement of certain debt instruments. Future charges related to the retirement ~~or conversions~~ of debt are dependent upon many factors, including ~~the conversion price of debt or~~ our ability to refinance or retire specific debt instruments.

Gain on merger of unconsolidated entities represents the gain on the Canada Merger which closed in June 2011.

Share-based payment expense is expected to increase in future periods as we grant equity awards to our employees and directors. Compensation expense for share-based awards is recorded in the financial statements based on the fair ~~value. The fair~~ value of ~~stock option awards are determined using~~ the ~~Black-Scholes-Merton option-pricing model which is subject~~underlying equity awards.

Deferred income taxes includes a benefit related to ~~various assumptions including the market price~~a reversal of substantially all of our ~~stock, estimated forfeiture rates of awards and~~deferred income tax valuation allowance as the ~~volatility of~~cumulative positive evidence outweighed the historical negative evidence regarding the likelihood that our ~~stock price. The fair value of restricted shares and restricted stock units is based on the market price at date of grant.~~deferred tax asset will be realized.

Other non-cash purchase price adjustments include liabilities recorded as a result of the Merger related to executory contracts with an OEM and certain programming providers, as well as amortization resulting from changes in the value of deferred revenue as a result of the Merger.


	•	Changes in operating assets and liabilities contributed $112,097, $219,344 and $21,152 to operating cash flows for the years ended December 31, 2010, 2009 and 2008, respectively. Significant changes in operating assets and liabilities include the growth in deferred revenue, the timing of collections from our customers and distributors and the timing of payments to vendors and related parties. As we continue to grow our subscriber and revenue base, we expect that deferred revenue and amounts due from customers and distributors will continue to increase. Amounts payable to vendors are also expected to increase as our business grows. The timing of payments to vendors and related parties are based on both contractual commitments and the terms and conditions of each of our vendors.

Changes in operating assets and liabilities increased operating cash flows for the years ended December 31, 2012, 2011 and 2010 by $92,130, $49,694 and $112,097, respectively. As we continue to grow our subscriber and revenue base, we expect that deferred revenue and amounts due from customers and distributors will continue to increase. Amounts payable to vendors are also expected to increase as our business grows. The timing of payments to vendors and related parties are based in part on contractual commitments.

Cash Flows ~~(Used in) Provided by~~Used in Investing Activities

Cash used for investing activities consists primarily of capital expenditures for property and equipment. Capital expenditures have increased as we have continued to invest in the construction of our satellites and related launch vehicles and improvements in infrastructure to support the growth of our business. We will continue to incur significant costs to ~~construct and launch our new satellites and~~ improve our terrestrial repeater network and broadcast and administrative infrastructure. ~~We have entered into various agreements~~In addition, we will continue to ~~design, construct, and~~incur capital expenditures associated with our FM-6 satellite. After the launch of our FM-6 satellite, we anticipate no significant satellite capital expenditures for several years until it becomes necessary to replace satellites in our fleet.

The decrease in cash used for investing activities was primarily due to lower satellite and related launch vehicle construction costs associated with our FM-6 satellite which is expected to launch in mid-2013 and following the ~~normal course~~launch of ~~business.~~our XM-5 satellite in 2010.

Cash Flows Used in Financing Activities

Cash flows used in financing activities ~~have generally been the result~~consists of the issuance and repayment of long-term debt and related party debt, ~~and~~ cash proceeds from ~~equity issuances.~~exercise of stock options and the issuance of a special cash dividend. Proceeds from long-term debt, related party debt and equity issuances have been used to fund our operations, construct and launch new satellites and invest in other infrastructure improvements.

Cash flows used in financing activities in 2012 were primarily due to the repayment of the remaining balance of our 13% Senior Notes due 2013 and our 9.75% Senior Secured Notes due 2015, partially offset by the issuance of our 5.25% Senior Notes due 2022 and the exercise of stock options. The cash flows used in financing activities in 2011 were the result of the repayment of the remaining balance of our 11.25% Senior Secured Notes due 2013 and 3.25% Convertible Notes due 2011. In 2010, we repaid our Senior Secured Term Loan due 2012, 9.625% Senior Notes due 2013, XM's 10% Senior PIK Secured Notes due 2011 and 9.75% Senior Notes due 2014. We also partially repaid XM's 11.25% Senior Secured Notes due 2013 and our 3.25% Convertible Notes due 2011 and paid a special cash dividend of approximately $327,000 during the fourth quarter of 2012 described below under "Special Dividend". We issued the following new debt in 2010: our 8.75% Senior Notes due 2015 and 7.625% Senior Notes due 2018.

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Financings and Capital Requirements

We have historically financed our operations through the sale of debt and equity securities. The Certificate of Designations for our Series B Preferred Stock provides that, so long as Liberty Media beneficially owns at least half of its initial equity investment, Liberty Media’s consent is required for certain actions, including the grant or issuance of our equity securities and the incurrence of debt (other than, in general, debt incurred to refinance existing debt) in amounts greater than $10,000 in any calendar year.

Future Liquidity and Capital Resource Requirements

We have entered into various agreements to design, construct and launch our satellites in the normal course of business. As disclosed in Note 15 into our consolidated financial statements in Item 8 of this Annual Report on Form 10-K, as of December 31, ~~2010,~~2012, we expect to incur ~~capital~~satellite and transmission related expenditures of approximately ~~$120,444~~$67,170 and ~~$5,481~~$27,620 in ~~2011~~2013 and ~~2012,~~2014, respectively, and an additional

41

$~~55,610 over the next five years,~~42,043 thereafter, the majority of which is attributable to the construction and expected launch of our FM-6 satellite and related launch ~~vehicle.~~vehicle in 2013.

Based upon our current business plans, we believe that we have sufficient cash, cash equivalents and marketable securities to cover our estimated short-term and long-term funding needs. In 2012, we entered into a five year Senior Secured Revolving Credit Facility ("Credit Facility") which will be used for working capital and other general corporate purposes, including financing acquisitions, share repurchases and dividends. We expect to fund operating expenses, capital expenditures, working capital requirements, interest payments, taxes and scheduled maturities of our debt with existing cash, ~~and~~ cash flow from operations and our Credit Facility, which we believe ~~that we~~ will be ~~able to generate~~ sufficient ~~revenues~~ to meet our cash requirements.

Our ability to meet our debt and other obligations depends on our future operating performance and on economic, financial, competitive and other factors. We continually review our operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained. ~~Our financial projections are based on assumptions, which we believe are reasonable but contain significant uncertainties.~~

We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our business 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, including acquisitions that are not directly related to our satellite radio business. ~~In addition,~~

Special Dividend

On December 28, 2012, we paid a special cash dividend of $0.05 per share of common stock. This was the first cash dividend ever paid to our ~~operations are affected~~stockholders. Our Series B-1 Preferred Stock held by Liberty Radio, LLC, a wholly-owned subsidiary of Liberty Media Corporation, participated in this cash dividend on an as-converted basis in accordance with its terms. The total amount of this special dividend was approximately $327,000.

The dividend reflects the ~~FCC order approving~~board's desire to return value to stockholders and its confidence in the ~~Merger, which imposed certain conditions upon, among other things,~~long-term growth prospects of our ~~program offerings and~~business. We currently do not intend to declare recurring dividends on our common stock. Our board of directors has not made any determination whether similar special cash dividends will be paid in the future.

Our ability to ~~increase prices.~~pay dividends on our common stock is currently limited by covenants under our debt agreements. We retain sufficient capital capacity to continue making long-term investments in our programming, research and development initiatives and overall operations as well as pursue strategic opportunities which may arise. See Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K.

Stock Repurchase Program

In December 2012, we announced that our board of directors approved a $2,000,000 common stock repurchase program, which we will begin utilizing in 2013. Shares of common stock may be purchased from time to time on the open market or in privately negotiated transactions.

7% Exchangeable Senior Subordinated Notes due 2014

As a result of Liberty Media Corporation's beneficial ownership, a Fundamental Change occurred on January 17, 2013 under the indenture governing the Exchangeable Notes. In accordance with the indenture, on February 1, 2013, we made an offer to each holder of Exchangeable Notes to: (i) have the Company repurchase his or her Exchangeable Notes at a purchase price in cash equal to $1,000 per $1,000 principal amount of the Notes (plus accrued and unpaid interest to, but excluding March 1, 2013); or (ii) exchange his or her Exchangeable Notes for our common stock, at an exchange rate of 581.3112 shares per $1,000 principal amount of Notes, on or prior to March 1, 2013. This exchange rate is a benefit to the holders compared to

36

an exchange rate of 543.1372 shares of common stock in effect prior to occurrence of such Fundamental Change. A holder of the Exchangeable Notes may also elect to retain his or her Notes pursuant to their terms through maturity on December 1, 2014, or otherwise transfer or exchange them in the ordinary course. We believe that we have sufficient resources to fund any required repurchases of the Exchangeable Notes.

Debt Covenants

The indentures and the credit agreement governing our debt include restrictive covenants. As of December 31, ~~2010,~~2012, we were in compliance with the indentures and credit agreement governing our ~~debt covenants.~~

debt. For a discussion of our “Debt Covenants”, refer to Note 1112 to our consolidated financial statements in Item 8 of this Annual Report onForm 10-K.

Off-Balance Sheet Arrangements

We do not have any significant off-balance sheet arrangements other than those disclosed in Note 15 to our consolidated financial statements in Item 8 of this Annual Report onForm 10-K that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

~~2009 Long-Term Stock Incentive Plan~~

In May 2009, our stockholders approved the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (the “2009 Plan”). Employees, consultants and members of our board of directors are eligible to receive awards under the 2009 Plan, which 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 2009 Plan are generally subject to a vesting requirement. Stock-based awards generally expire ten years from the date of grant. Each restricted stock unit entitles the holder to receive one share of common stock upon vesting. As of December 31, 2010, approximately 268,255,000 shares of common stock were available for future grants under the 2009 Plan.

~~Other Plans~~

We maintain four other share-based benefit plans — the XM 2007 Stock Incentive Plan, the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan, the XM 1998 Shares Award Plan and the XM Talent Option Plan. No further awards may be made under these plans. Outstanding awards under these plans are being continued.

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Contractual Cash Commitments

For a discussion of our “Contractual Cash Commitments,” refer to Note 15 to our consolidated financial statements in Item 8 of this Annual Report onForm 10-K.

Related Party Transactions

For a discussion of “Related Party Transactions,” refer to ~~Note 9~~Notes 10 and 18 to our consolidated financial statements in Item 8 of this Annual Report onForm 10-K.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP, 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. Accounting estimates require the use of significant management assumptions and judgments as to future events, and the effect of those events cannot be predicted with certainty. The accounting estimates will change as new events occur, more experience is acquired and more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and use outside experts to assist in that evaluation when we deem necessary. We have disclosed all significant accounting policies in Note 32 to our consolidated financial statements in Item 8 of this Annual Report onForm 10-K. ~~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 of our results of operations.~~

~~Fair Value of XM Assets Acquired and Liabilities Assumed.~~ On July 28, 2008, our wholly-owned subsidiary, Vernon Merger Corporation, merged with and into XM Satellite Radio Holdings Inc., with XM Holdings becoming our wholly-owned subsidiary. The application of purchase accounting resulted in the transaction being valued at $5,836,363 and our recording of goodwill acquired totaling $6,601,046. During 2008, we recorded an impairment charge of $4,766,190, which resulted in a carrying value of goodwill of $1,834,856.

~~Goodwill.~~Goodwill. Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment of our single reporting unit is performed as of ~~October 1~~^stthe fourth quarter of each ~~year, and an assessment is~~year. Assessments are performed at other times if events or circumstances indicate it is more likely than not that the asset is impaired. Step one of the impairment assessment compares the fair value of the entity to its carrying value and if the fair value exceeds its carrying value, goodwill is not impaired. If the carrying value exceeds the fair value, the implied fair value of goodwill is compared to the carrying value of ~~goodwill. If the implied fair value exceeds the carrying value then goodwill is not impaired; otherwise,~~goodwill; an impairment loss will be recorded byfor the amount the carrying value exceeds the implied fair value. At ~~October 1, 2010 and December 31, 2010,~~the date of our annual assessment for 2012, the fair value of our single reporting unit substantially exceeded its carrying value and therefore was not at risk of failing step one ofASC 350-20,Goodwill~~(“ASC350-20”)~~. Subsequent to our annual evaluation of the carrying value of goodwill, there were no events or circumstances that triggered the need for an interim evaluation for impairment. As a result, there were no ~~changes in the carrying value of~~impairment charges to our goodwill during the years ended December 31, ~~2010~~2012 and ~~2009.~~2011.

Long-Lived ~~Assets.~~and Indefinite-Lived Assets. We carry our long-lived assets at cost less accumulated amortization and depreciation. We review our long-lived assets for impairment ~~of our single reporting unit~~ whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. At the time an impairment in the value of a long-lived asset is identified, the impairment is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. ~~To determine fair value, we employ an expected present value technique, which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate discount rate.~~

Our annual impairment assessment of indefinite-lived assets, our FCC licenses and trademark, is performed as of ~~October 1st~~the fourth quarter of each year and an assessment is made at other times if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. ~~At October 1, 2010~~ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, establishes an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is

37

impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying value, a company would not be required to perform a quantitative impairment test. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. During the fourth quarter of 2012, a qualitative impairment analysis was performed and ~~December 31, 2010,~~we determined that the fair value of our FCC licenses and trademark substantially exceeded the carrying value and therefore was not at risk of impairment. Our qualitative assessment includes the consideration of our long term financial projections, current and historical weighted average cost of capital and liquidity factors, legal and regulatory issues and industry and market pressures. Subsequent to our annual evaluation of the carrying value of our long-lived assets, there were no events or circumstances that triggered the need for an impairment evaluation.

~~We use~~During the year ended December 31, 2011, we used independent appraisals to assist in determining the fair value of our FCC ~~licenses.~~licenses and trademark. The income approach, which is commonly called the “Jefferson Pilot Method” or the “Greenfield Method”, ~~has been consistently~~was used to estimate the fair ~~value. This~~value of our FCC licenses and the “Relief from Royalty” method ~~attempts~~valuation approach was utilized to ~~isolate the income that is properly attributable~~

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~~to the license alone (that is, apart from tangible and intangible assets and goodwill). It is based upon modeling a hypothetical “Greenfield”build-up~~ ~~to a normalized enterprise that, by design, lacks inherent goodwill and has essentially purchased (or added) all other assets as part of thebuild-up~~ process. The methodology assumes that, rather than acquiring such an operation as a going concern, the buyer would hypothetically obtain a license at nominal cost and build a new operation with similar attributes from inception. The significant assumption was that the hypothetical start up entity would begin its network build out phase at the impairment testing date and revenues and variable costs would not be generated until the satellite network was operational, approximately five years from inception.value our trademark.

There were no changes in the carrying value of our indefinite life intangible assets during the years ended December 31, ~~2010~~2012 and ~~2009.~~2011.

Useful Life of Broadcast/Transmission ~~System.~~System. Our satellite system includes the costs of our satellite construction, launch vehicles, launch insurance, capitalized interest, spare satellite, terrestrial repeater network and satellite uplink ~~facility.~~facilities. 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 four in-orbit SIRIUS satellites were originally 15 years from the date they were placed into orbit. In June 2006, we adjusted the useful lives of two of our in-orbit SIRIUS satellites to 13 years to reflect the unanticipated loss of power from the solar array and the way we operate the constellation.

We currently expect our first two in-orbit ~~SIRIUS~~Sirius satellites launched in 2000 to operate effectively through 2013, our FM-3 satellite, which was also launched in 2000, to operate effectively through 2015, and our FM-5 satellite, launched in 2009, to operate effectively through ~~2024 and will continue to evaluate the impact of current satellite operational data on the expected useful lives.~~2024. In December 2010, we recorded an other than temporary charge for our FM-4 satellite, the ground spare held in storage since 2002. We operate five in-orbit XM satellites, three of which function as in-orbit spares. ~~The~~Two of the three in-orbit spare satellites were launched in 2001 and the other in 2010 while the other two satellites were launched in 2005 and 2006. We estimate that ~~the~~our XM-3, XM-4 and XM-5 satellites will meet their 15 year predicted ~~useful~~depreciable lives, and that the ~~useful~~depreciable lives of XM-1 and XM-2 will end in 2013.

Certain of our in-orbit satellites have experienced circuit failures on their solar arrays. We continue to monitor the operating condition of our in-orbit satellites. If events or circumstances indicate that the ~~useful~~depreciable lives of our in-orbit satellites have changed, we will modify the depreciable life accordingly. If we were to revise our estimates, our depreciation expense would ~~change, for~~change. For example, a 10% decrease in the expected ~~useful~~depreciable lives of satellites and spacecraft control facilities during ~~2010~~2012 would have resulted in approximately ~~$23,028~~$20,616 of additional depreciation expense.

~~Revenue Recognition.~~ We derive revenue primarily from subscribers, advertising and direct sales of merchandise. Revenue from subscribers consists of subscription fees; revenue derived from our agreements with daily rental fleet programs; non-refundable activation and other fees; and the effects of rebates. Revenue is recognized as it is realized or realizable and earned.

We recognize subscription fees as our services are provided. Prepaid subscription fees are recorded as deferred revenue and amortized to revenue ratably over the term of the applicable subscription plan.

At the time of sale, vehicle owners purchasing or leasing a vehicle with a subscription to our service typically receive between a three-month and twelve-month prepaid subscription. Prepaid subscription fees received from certain automakers are recorded as deferred revenue and amortized to revenue ratably over the service period which commences upon retail sale and activation. We reimburse automakers for certain costs associated with the satellite radio installed in the applicable vehicle at the time the vehicle is manufactured. The associated payments to the automakers are included in Subscriber acquisition costs. These payments are included in Subscriber acquisition costs because we are responsible for providing the service to the customers, including being obligated to the customers in the case of an interruption of service.

Activation fees are recognized ratably over the estimated term of a subscriber relationship, estimated to be approximately 3.5 years during 2010. The estimated term of a subscriber relationship is based on historical experience. If we were to revise our estimate our recognition of activation fees would change, for example, a 10% decrease to the estimated term of a subscriber relationship during 2010 would have resulted in approximately $1,781 of additional activation fees.

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We record an estimate of rebates that are paid by us to subscribers as a reduction to revenue in the period the subscriber activates service. For certain rebate promotions, a subscriber must remain active for a specified period of time to be considered eligible. In those instances, the estimate is recorded as a reduction to revenue over the required activation period. We estimate the effects of mail-in rebates based on actual take-rates for rebate incentives offered in prior periods, adjusted as deemed necessary based on take-rate data available at the time. In subsequent periods, estimates are adjusted when necessary. For instant rebate promotions, we record the consideration paid to the consumer as a reduction to revenue in the period the customer participates in the promotion.

We recognize revenue from the sale of advertising as the advertising is broadcast. Agency fees are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. We pay certain third parties a percentage of advertising revenue. Advertising revenue is recorded gross of such revenue share payments as we are the primary obligor in the transaction. Advertising revenue share payments are recorded to revenue share and royalties during the period in which the advertising is broadcast.

Equipment revenue and royalties from the sale of satellite radios, components and accessories is recognized upon shipment, net of discounts and rebates. Shipping and handling costs billed to customers are recorded as revenue. Shipping and handling costs associated with shipping goods to customers are reported as a component of cost of equipment.

Revenue arrangements with multiple deliverables are divided into separate units of accounting when the products and services meet certain criteria and consideration is allocated among the separate units of accounting based on their relative fair values.

~~Share-based Payment.~~ ~~We account for equity instruments granted to employees in accordance with ASC 718,~~~~Compensation — Stock Compensation~~. ASC 718 requires all share-based compensation payments to be recognized in the financial statements based on fair value. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates. We use the Black-Scholes-Merton option-pricing model to value stock option awards and have elected to treat awards with graded vesting as a single award. Share-based compensation expense is recognized ratably over the requisite service period, which is generally the vesting period, net of forfeitures. We measure non-vested stock awards using the fair market value of restricted shares of common stock on the day the award is granted.

Fair value as determined using Black-Scholes-Merton model varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates. We estimate the fair value of awards granted using the hybrid approach for volatility, which weights observable historical volatility and implied volatility of qualifying actively traded options on our common stock. The expected life assumption represents the weighted-average period stock-based awards are expected to remain outstanding. These expected life assumptions are established through a review of historical exercise behavior of stock-based award grants with similar vesting periods. Where historical patterns do not exist, contractual terms are used. The risk-free interest rate represents the daily treasury yield curve rate at the grant 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.~~

~~Equity instruments granted to non-employees are accounted for in accordance with ASC 505,~~~~Equity~~. The final measurement date for the fair value of equity instruments with performance criteria is the date that each performance commitment for such equity instrument is satisfied or there is a significant disincentive for non-performance.

~~Stock-based awards granted to employees, non-employees and members of our board of directors include warrants, stock options, restricted stock and restricted stock units.~~

Income ~~Taxes.~~Taxes. Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, ~~at each year-end,~~ based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. In determining the period in which related tax benefits are realized for book purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted; excess tax compensation benefits are recorded off balance-sheet as a memo entry until the period the excess tax benefit is realized through a reduction of taxes payable. A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.

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~~Footnotes~~


~~(1)~~		Average self-pay monthly churn represents the monthly average of self-pay deactivations for the quarter divided by the average number of self-pay subscribers for the quarter. Average self-pay churn for the year is the average of the quarterly average self-pay churn.

~~(2)~~		We measure the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after the initial promotion period. We refer to this as the “conversion rate.” At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends.

~~(3)~~		ARPU is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee, which was initially charged to subscribers in the third quarter of 2009. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the Merger. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

Unaudited
For the Years Ended December 31,
2010 2009 2008

Subscriber revenue:
GAAP $ 2,414,174 $ 2,287,503 $ 1,548,919
Predecessor financial information — — 670,870
Net advertising revenue:
GAAP 64,517 51,754 47,190
Predecessor financial information — — 22,743
Other subscription-related revenue (GAAP) 234,148 48,679 —
Purchase price accounting adjustments 14,655 46,814 38,533

$ 2,727,494 $ 2,434,750 $ 2,328,255

Daily weighted average number of subscribers 19,385,055 18,529,696 18,373,274

ARPU $ 11.73 $ 10.95 $ 10.56


~~(4)~~		Subscriber acquisition cost, per gross subscriber addition (or SAC, per gross subscriber addition) is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the Merger

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		~~date attributable to an OEM. SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):~~

Unaudited
For the Years Ended December 31,
2010 2009 2008

Subscriber acquisition costs:
GAAP $ 413,041 $ 340,506 $ 371,343
Predecessor financial information — — 174,083
Less: margin from direct sales of radios and accessories:
GAAP (36,074 ) (10,164 ) (9,910 )
Predecessor financial information — — 6,616
Less: share-based payment expense granted to third parties and employees (GAAP) — — (14 )
Add: purchase price accounting adjustments 79,439 61,164 31,714

$ 456,406 $ 391,506 $ 573,832

Gross subscriber additions 7,768,827 6,208,482 7,710,306

SAC, per gross subscriber addition $ 59 $ 63 $ 74


~~(5)~~		Customer service and billing expenses, per average subscriber, is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments associated with the Merger, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

Unaudited
For the Years Ended December 31,
2010 2009 2008

Customer service and billing expenses:
GAAP $ 241,680 $ 234,456 $ 165,036
Predecessor financial information — — 82,947
Less: share-based payment expense, net of purchase price accounting adjustments:
GAAP (2,207 ) (2,504 ) (2,112 )
Predecessor financial information — — (1,869 )
Add: purchase price accounting adjustments 281 453 193

$ 239,754 $ 232,405 $ 244,195

Daily weighted average number of subscribers 19,385,055 18,529,696 18,373,274

Customer service and billing expenses, per average subscriber $ 1.03 $ 1.05 $ 1.11

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~~(6)~~		~~Free cash flow is calculated as follows (in thousands):~~

Unaudited
For The Years Ended December 31,
2010 2009 2008

Net cash provided by operating activities:
GAAP $ 512,895 $ 433,830 $ (152,797 )
Predecessor financial information — — (251,086 )
Additions to property and equipment:
GAAP (311,868 ) (248,511 ) (130,551 )
Predecessor financial information (30,843 )
Merger related costs:
GAAP — — (23,519 )
Predecessor financial information — — —
Restricted and other investment activity:
GAAP 9,454 — 62,974
Predecessor financial information (25,949 )

Free cash flow $ 210,481 $ 185,319 $ (551,771 )


~~(7)~~		EBITDA is defined as net income (loss) before interest and investment income (loss); interest expense, net of amounts capitalized; taxes expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair market value of our common stock.

		Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income (loss) as disclosed in our consolidated statements of operations. Since adjusted EBITDA is a Non-GAAP financial performance

48


		measure, our calculation of adjusted EBITDA 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, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income (loss) to the adjusted EBITDA is calculated as follows (in thousands):

Unaudited
For the Years Ended December 31,
2010 2009 2008

Net income (loss) (GAAP): $ 43,055 $ (352,038 ) $ (5,316,910 )
Predecessor financial information:
Revenues (see page 52) — — 731,194
Operating expenses (see page 52) — — (961,663 )
Add back items excluded from Adjusted EBITDA:
Purchase price accounting adjustments:
Revenues (seepages 50-52)
21,906 54,065 41,554
Operating expenses (seepages 50-52)
(261,832 ) (240,891 ) 4,661,812
Share-based payment expense, net of purchase price accounting adjustments:
GAAP 63,309 78,782 90,134
Predecessor financial information (see page 52) — — 34,485
Depreciation and amortization:
GAAP 273,691 309,450 203,752
Predecessor financial information (see page 52) — — 88,749
Restructuring, impairments and related costs (GAAP) 63,800 32,807 10,434
Interest expense, net of amounts capitalized (GAAP) 295,643 315,668 148,455
Loss on extinguishment of debt and credit facilities, net (GAAP) 120,120 267,646 98,203
Interest and investment (income) loss (GAAP) 5,375 (5,576 ) 21,428
Other (income) loss (GAAP) (3,399 ) (3,355 ) 9,599
Income tax expense (GAAP) 4,620 5,981 2,476

Adjusted EBITDA $ 626,288 $ 462,539 $ (136,298 )

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~~(8)~~		~~The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the years ended December 31, 2010, 2009 and 2008:~~

Unaudited for the Year Ended December 31, 2010
Purchase Price
Allocation of

Accounting
Share-Based

(In thousands) As Reported Adjustments Payment Expense Adjusted

Revenue:
Subscriber revenue, including effects of rebates $ 2,414,174 $ 14,655 $ — $ 2,428,829
Advertising revenue, net of agency fees 64,517 — — 64,517
Equipment revenue 71,355 — — 71,355
Other revenue 266,946 7,251 — 274,197

Total revenue $ 2,816,992 $ 21,906 $ — $ 2,838,898

Operating expenses
Cost of services:
Revenue share and royalties 435,410 107,967 — 543,377
Programming and content 305,914 57,566 (10,267 ) 353,213
Customer service and billing 241,680 281 (2,207 ) 239,754
Satellite and transmission 80,947 1,170 (3,397 ) 78,720
Cost of equipment 35,281 — — 35,281
Subscriber acquisition costs 413,041 79,439 — 492,480
Sales and marketing 215,454 13,983 (9,423 ) 220,014
Engineering, design and development 45,390 520 (5,868 ) 40,042
General and administrative 240,970 906 (32,147 ) 209,729
Depreciation and amortization(a) 273,691 — — 273,691
Restructuring, impairments and related costs 63,800 — — 63,800
Share-based payment expense(b) — — 63,309 63,309

Total operating expenses $ 2,351,578 $ 261,832 $ — $ 2,613,410


~~(a)~~		Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2010 was $68,000.

~~(b)~~		~~Amounts related to share-based payment expense included in operating expenses were as follows:~~

Programming and content $ 9,817 $ 450 $ — $ 10,267
Customer service and billing 1,926 281 — 2,207
Satellite and transmission 3,109 288 — 3,397
Sales and marketing 8,996 427 — 9,423
Engineering, design and development 5,348 520 — 5,868
General and administrative 31,241 906 — 32,147

Total share-based payment expense $ 60,437 $ 2,872 $ — $ 63,309

50

Unaudited for the Year Ended December 31, 2009
Purchase Price
Allocation of

Accounting
Share-Based

(In thousands) As Reported Adjustments Payment Expense Adjusted

Revenue:
Subscriber revenue, including effects of rebates $ 2,287,503 $ 46,814 $ — $ 2,334,317
Advertising revenue, net of agency fees 51,754 — — 51,754
Equipment revenue 50,352 — — 50,352
Other revenue 83,029 7,251 — 90,280

Total revenue $ 2,472,638 $ 54,065 $ — $ 2,526,703

Operating expenses
Cost of services:
Revenue share and royalties 397,210 89,780 — 486,990
Programming and content 308,121 72,069 (9,720 ) 370,470
Customer service and billing 234,456 453 (2,504 ) 232,405
Satellite and transmission 84,033 1,339 (3,202 ) 82,170
Cost of equipment 40,188 — — 40,188
Subscriber acquisition costs 340,506 61,164 — 401,670
Sales and marketing 228,956 13,507 (10,264 ) 232,199
Engineering, design and development 41,031 977 (5,856 ) 36,152
General and administrative 227,554 1,602 (47,236 ) 181,920
Depreciation and amortization(a) 309,450 — — 309,450
Restructuring, impairments and related costs 32,807 — — 32,807
Share-based payment expense(b) — — 78,782 78,782

Total operating expenses $ 2,244,312 $ 240,891 $ — $ 2,485,203


~~(a)~~		Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2009 was $106,000.

~~(b)~~		~~Amounts related to share-based payment expense included in operating expenses were as follows:~~

Programming and content $ 9,064 $ 656 $ — $ 9,720
Customer service and billing 2,051 453 — 2,504
Satellite and transmission 2,745 457 — 3,202
Sales and marketing 9,608 656 — 10,264
Engineering, design and development 4,879 977 — 5,856
General and administrative 45,634 1,602 — 47,236

Total share-based payment expense $ 73,981 $ 4,801 $ — $ 78,782

51

Unaudited for the Year Ended December 31, 2008
Predecessor
Purchase Price
Allocation of

Financial
Accounting
Share-Based

(In thousands) As Reported Information Adjustments Payment Expense Adjusted

Revenue:
Subscriber revenue, including effects of rebates $ 1,548,919 $ 670,870 $ 38,533 $ — $ 2,258,322
Advertising revenue, net of agency fees 47,190 22,743 — — 69,933
Equipment revenue 56,001 13,397 — — 69,398
Other revenue 11,882 24,184 3,021 — 39,087

Total revenue $ 1,663,992 $ 731,194 $ 41,554 $ — $ 2,436,740

Operating expenses
Cost of services:
Revenue share and royalties 280,852 166,606 30,504 — 477,962
Programming and content 312,189 117,156 34,667 (17,374 ) 446,638
Customer service and billing 165,036 82,947 193 (3,981 ) 244,195
Satellite and transmission 59,279 46,566 424 (7,084 ) 99,185
Cost of equipment 46,091 20,013 — — 66,104
Subscriber acquisition costs 371,343 174,083 31,714 (14 ) 577,126
Sales and marketing 231,937 126,054 5,393 (21,088 ) 342,296
Engineering, design and development 40,496 23,045 400 (11,441 ) 52,500
General and administrative 213,142 116,444 1,083 (63,637 ) 267,032
Impairment of goodwill 4,766,190 — (4,766,190 ) — —
Depreciation and amortization(a) 203,752 88,749 — — 292,501
Restructuring, impairments and related costs 10,434 — — — 10,434
Share-based payment expense(b) — — — 124,619 124,619

Total operating expenses $ 6,700,741 $ 961,663 $ (4,661,812 ) $ — $ 3,000,592


~~(a)~~		Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2008 was $47,000.

~~(b)~~		~~Amounts related to share-based payment expense included in operating expenses were as follows:~~

Programming and content $ 12,148 $ 4,949 $ 277 $ — $ 17,374
Customer service and billing 1,920 1,869 192 — 3,981
Satellite and transmission 4,236 2,745 103 — 7,084
Subscriber acquisition costs 14 — — — 14
Sales and marketing 13,541 7,047 500 — 21,088
Engineering, design and development 6,192 4,675 574 — 11,441
General and administrative 49,354 13,200 1,083 — 63,637

Total share-based payment expense $ 87,405 $ 34,485 $ 2,729 $ — $ 124,619

52


~~(9)~~		~~The following table reconciles our GAAP Net cash provided by operating activities to our Net income plus non-cash operating activities (in thousands):~~

For the Years Ended December 31,
2010 2009 2008

Net cash provided by operating activities:
GAAP $ 512,895 $ 433,830 $ (152,797 )
Predecessor financial information — — (251,086 )
Less: Changes in operating assets and liabilities, net:
GAAP (112,097 ) (219,344 ) (21,152 )
Predecessor financial information — — 83,513

Net income plus non cash operating activities $ 400,798 $ 214,486 $ (341,522 )


~~ITEM 7A.~~	*~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS~~*

As of December 31, ~~2010,~~2012, we ~~did~~have a valuation allowance of $9,835 which relates to deferred tax assets that are not ~~have any derivative~~likely due to certain state net operating loss limitations.

Recent Accounting Pronouncements

Information regarding accounting pronouncements is included in Note 2 to the consolidated financial ~~instruments.~~ statements.

38

Glossary

Adjusted EBITDA - EBITDA is defined as net income before interest and investment income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii) restructuring, impairments, and related costs, (iv) depreciation and amortization and (v) share-based payment expense. The purchase price accounting adjustments include: (i) the elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition of deferred subscriber revenues not recognized in purchase price accounting, and (iii) elimination of the benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and programming providers. We believe adjusted EBITDA is a useful measure of the underlying trend of our operating performance, which provides useful information about our business apart from the costs associated with our physical plant, capital structure and purchase price accounting. We believe investors find this Non-GAAP financial measure useful when analyzing our results and comparing our operating performance to the performance of other communications, entertainment and media companies. We believe investors use current and projected adjusted EBITDA to estimate our current and prospective enterprise value and to make investment decisions. Because we fund and build-out our satellite radio system through the periodic raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation expense. The exclusion of depreciation and amortization expense is useful given significant variation in depreciation and amortization expense that can result from the potential variations in estimated useful lives, all of which can vary widely across different industries or among companies within the same industry. We believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses. We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair value as determined using the Black-Scholes-Merton model which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statements of comprehensive income of certain expenses, including share-based payment expense and certain purchase price accounting for the Merger. We endeavor to compensate for the limitations of the Non-GAAP measure presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the Non-GAAP measure. Investors that wish to compare and evaluate our operating results after giving effect for these costs, should refer to net income as disclosed in our consolidated statements of comprehensive income. Since adjusted EBITDA is a Non-GAAP financial performance measure, our calculation of adjusted EBITDA 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, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation of net income to the adjusted EBITDA is calculated as follows (in thousands):

39



	Unaudited
	For the Years Ended December 31,
	2012			2011			2010
Net income (GAAP):	$	3,472,702		$	426,961		$	43,055
Add back items excluded from Adjusted EBITDA:
Purchase price accounting adjustments:
Revenues (see pages 41-43)	7,479			10,910			21,906
Operating expenses (see pages 41-43)	(289,278		)	(277,258		)	(261,832		)
Share-based payment expense, net of purchase price accounting adjustments	63,822			53,369			63,309
Depreciation and amortization (GAAP)	266,295			267,880			273,691
Restructuring, impairments and related costs (GAAP)	—			—			63,800
Interest expense, net of amounts capitalized (GAAP)	265,321			304,938			295,643
Loss on extinguishment of debt and credit facilities, net (GAAP)	132,726			7,206			120,120
Interest and investment (income) loss (GAAP)	(716		)	(73,970		)	5,375
Other loss (income) (GAAP)	226			(3,252		)	(3,399		)
Income tax (benefit) expense (GAAP)	(2,998,234		)	14,234			4,620
Adjusted EBITDA	$	920,343		$	731,018		$	626,288

Adjusted Revenues and Operating Expenses - We define this Non-GAAP financial measure as our actual revenues and operating expenses adjusted to exclude the impact of certain purchase price accounting adjustments and share-based payment expense. We use this Non-GAAP financial measure to manage our business, to set operational goals and as a basis for determining performance-based compensation for our employees. The following tables reconcile our actual revenues and operating expenses to our adjusted revenues and operating expenses for the years ended December 31, 2012, 2011 and 2010:

40



	Unaudited For the Year Ended December 31, 2012
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	2,962,665	$	228	$	—		$	2,962,893
Advertising revenue, net of agency fees	82,320		—		—			82,320
Equipment revenue	73,456		—		—			73,456
Other revenue	283,599		7,251		—			290,850
Total revenue	$	3,402,040	$	7,479	$	—		$	3,409,519
Operating expenses
Cost of services:
Revenue share and royalties	$	551,012	$	146,601	$	—		$	697,613
Programming and content	278,997		37,346		(6,120		)	310,223
Customer service and billing	294,980		—		(1,847		)	293,133
Satellite and transmission	72,615		—		(3,329		)	69,286
Cost of equipment	31,766		—		—			31,766
Subscriber acquisition costs	474,697		90,503		—			565,200
Sales and marketing	248,905		14,828		(10,310		)	253,423
Engineering, design and development	48,843		—		(6,238		)	42,605
General and administrative	261,905		—		(35,978		)	225,927
Depreciation and amortization (a)	266,295		—		—			266,295
Share-based payment expense	—		—		63,822			63,822
Total operating expenses	$	2,530,015	$	289,278	$	—		$	2,819,293

(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2012 was $53,000.

41



	Unaudited For the Year Ended December 31, 2011
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	2,595,414	$	3,659	$	—		$	2,599,073
Advertising revenue, net of agency fees	73,672		—		—			73,672
Equipment revenue	71,051		—		—			71,051
Other revenue	274,387		7,251		—			281,638
Total revenue	$	3,014,524	$	10,910	$	—		$	3,025,434
Operating expenses
Cost of services:
Revenue share and royalties	$	471,149	$	126,941	$	—		$	598,090
Programming and content	281,234		49,172		(6,212		)	324,194
Customer service and billing	259,719		18		(1,502		)	258,235
Satellite and transmission	75,902		313		(2,678		)	73,537
Cost of equipment	33,095		—		—			33,095
Subscriber acquisition costs	434,482		85,491		—			519,973
Sales and marketing	222,773		15,233		(8,193		)	229,813
Engineering, design and development	53,435		31		(4,851		)	48,615
General and administrative	238,738		59		(29,933		)	208,864
Depreciation and amortization (a)	267,880		—		—			267,880
Share-based payment expense (b)	—		—		53,369			53,369
Total operating expenses	$	2,338,407	$	277,258	$	—		$	2,615,665

(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2011 was $59,000.

(b) Amounts related to share-based payment expense included in operating expenses were as follows:

Programming and content	$	6,185	$	27	$	—		$	6,212
Customer service and billing	1,484		18		—			1,502
Satellite and transmission	2,659		19		—			2,678
Sales and marketing	8,166		27		—			8,193
Engineering, design and development	4,820		31		—			4,851
General and administrative	29,874		59		—			29,933
Total share-based payment expense	$	53,188	$	181	$	—		$	53,369

42



	Unaudited For the Year Ended December 31, 2010
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	2,414,174	$	14,655	$	—		$	2,428,829
Advertising revenue, net of agency fees	64,517		—		—			64,517
Equipment revenue	71,355		—		—			71,355
Other revenue	266,946		7,251		—			274,197
Total revenue	$	2,816,992	$	21,906	$	—		$	2,838,898
Operating expenses
Cost of services:
Revenue share and royalties	$	435,410	$	107,967	$	—		$	543,377
Programming and content	305,914		57,566		(10,267		)	353,213
Customer service and billing	241,680		281		(2,207		)	239,754
Satellite and transmission	80,947		1,170		(3,397		)	78,720
Cost of equipment	35,281		—		—			35,281
Subscriber acquisition costs	413,041		79,439		—			492,480
Sales and marketing	215,454		13,983		(9,423		)	220,014
Engineering, design and development	45,390		520		(5,868		)	40,042
General and administrative	240,970		906		(32,147		)	209,729
Depreciation and amortization (a)	273,691		—		—			273,691
Restructuring, impairments and related costs	63,800		—		—			63,800
Share-based payment expense (b)	—		—		63,309			63,309
Total operating expenses	$	2,351,578	$	261,832	$	—		$	2,613,410

(a) Purchase price accounting adjustments included above exclude the incremental depreciation and amortization associated with the $785,000 stepped up basis in property, equipment and intangible assets as a result of the Merger. The increased depreciation and amortization for the year ended December 31, 2010 was $68,000.

(b) Amounts related to share-based payment expense included in operating expenses were as follows:

Programming and content	$	9,817	$	450	$	—		$	10,267
Customer service and billing	1,926		281		—			2,207
Satellite and transmission	3,109		288		—			3,397
Sales and marketing	8,996		427		—			9,423
Engineering, design and development	5,348		520		—			5,868
General and administrative	31,241		906		—			32,147
Total share-based payment expense	$	60,437	$	2,872	$	—		$	63,309

ARPU - is derived from total earned subscriber revenue, net advertising revenue and other subscription-related revenue, net of purchase price accounting adjustments, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee. Purchase price accounting adjustments include the recognition of deferred subscriber revenues not recognized in purchase price accounting associated with the Merger. ARPU is calculated as follows (in thousands, except for subscriber and per subscriber amounts):

43



	Unaudited
	For the Years Ended December 31,
	2012		2011		2010
Subscriber revenue (GAAP)	$	2,962,665	$	2,595,414	$	2,414,174
Add: net advertising revenue (GAAP)	82,320		73,672		64,517
Add: other subscription-related revenue (GAAP)	237,868		231,902		234,148
Add: purchase price accounting adjustments	228		3,659		14,655
	$	3,283,081	$	2,904,647	$	2,727,494
Daily weighted average number of subscribers	22,794,170		20,903,908		19,385,055
ARPU	$	12.00	$	11.58	$	11.73

Average self-pay monthly churn - is defined as the monthly average of self-pay deactivations for the period divided by the average number of self-pay subscribers for the period.

Customer service and billing expenses, per average subscriber - is derived from total customer service and billing expenses, excluding share-based payment expense and purchase price accounting adjustments associated with the Merger, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of our common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):



	Unaudited
	For the Years Ended December 31,
	2012			2011			2010
Customer service and billing expenses (GAAP)	$	294,980		$	259,719		$	241,680
Less: share-based payment expense, net of purchase price accounting adjustments	(1,847		)	(1,502		)	(2,207		)
Add: purchase price accounting adjustments	—			18			281
	293,133			258,235			239,754
Daily weighted average number of subscribers	22,794,170			20,903,908			19,385,055
Customer service and billing expenses, per average subscriber	$	1.07		$	1.03		$	1.03

44

Free cash flow - is derived from cash flow provided by operating activities, capital expenditures and restricted and other investment activity. Free cash flow is calculated as follows (in thousands):



	Unaudited
	For the Years Ended December 31,
	2012			2011			2010
Cash Flow information
Net cash provided by operating activities	$	806,765		$	543,630		$	512,895
Net cash used in investing activities	$	(97,319	)	$	(127,888	)	$	(302,414	)
Net cash used in financing activities	$	(962,491	)	$	(228,443	)	$	(7,279	)
Free Cash Flow
Net cash provided by operating activities	$	806,765		$	543,630		$	512,895
Additions to property and equipment	(97,293		)	(137,429		)	(311,868		)
Restricted and other investment activity	(26		)	9,541			9,454
Free cash flow	$	709,446		$	415,742		$	210,481

New vehicle consumer conversion rate - is defined as the percentage of owners and lessees of new vehicles that receive our service and convert to become self-paying subscribers after the initial promotion period. At the time satellite radio enabled vehicles are sold or leased, the owners or lessees generally receive trial subscriptions ranging from three to twelve months. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. We measure conversion rate three months after the period in which the trial service ends. The metric excludes rental and fleet vehicles.

Subscriber acquisition cost, per gross subscriber addition - or SAC, per gross subscriber addition, is derived from subscriber acquisition costs and margins from the sale of radios and accessories, excluding share-based payment expense and purchase price accounting adjustments, divided by the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the elimination of the benefit of amortization of deferred credits on executory contracts recognized at the Merger date attributable to an OEM. SAC, per gross subscriber addition, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):



	Unaudited
	For the Years Ended December 31,
	2012			2011			2010
Subscriber acquisition costs (GAAP)	$	474,697		$	434,482		$	413,041
Less: margin from direct sales of radios and accessories (GAAP)	(41,690		)	(37,956		)	(36,074		)
Add: purchase price accounting adjustments	90,503			85,491			79,439
	$	523,510		$	482,017		$	456,406
Gross subscriber additions	9,617,771			8,696,020			7,768,827
SAC, per gross subscriber addition	$	54		$	55		$	59

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

We do not hold or issue any free-standing derivatives. We hold investments in marketable securities consisting of money market funds, and ~~we also hold~~ certificates of deposit and investments in debt and equity securities of other entities. We classify our investments in marketable securities asavailable-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.

Our debt includes fixed rate instruments and the fair market value of our debt is sensitive to changes in interest rates. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate fluctuations.

45


~~ITEM 8.~~	*~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~*

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements contained in Item 15 herein.


~~ITEM 9.~~ ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None.


~~ITEM 9A.~~ ITEM 9A.	*CONTROLS AND PROCEDURES*

Controls and Procedures

As of December 31, ~~2010,~~2012, an evaluation was performed under the supervision and with the participation of our management, including ~~Mel Karmazin,~~James E. Meyer, 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 (as that term is defined inRule 13a-15(e) and15d-15(e) under the Securities Exchange Act). 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 December 31, ~~2010.~~2012. There has been no change in our internal control over financial reporting (as that term is defined inRule 13a-15(f) and15d-15(f) under the Securities Exchange Act) during the ~~quarter~~year endedDecember 31, ~~2010~~2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Management’s~~Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Exchange Act. We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our internal control over financial reporting. Our management used the

53

framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations to perform this evaluation. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was effective as of December 31, ~~2010.~~2012.

KPMG LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Annual Report on Form 10-K, has issued its report on the effectiveness of our internal control over financial reporting which follows this report.

Audit Report of the Independent Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, ~~2010~~2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their audit report appearing onpage F-2 of this Annual Report onForm 10-K.


~~ITEM 9B.~~ ITEM 9B.	*OTHER INFORMATION*

None.

54

PART III


~~ITEM 10.~~ ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*

The information required by this Item 10 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the ~~2011~~2013 annual meeting of stockholders set forth under the captions Stock Ownership, Governance of the Company, Item 1. Election of Directorsand ~~Executive Compensation,~~Item 2. Ratification of Independent Registered Public Accountants, which we expect to file with the Securities and Exchange Commission prior to April 30, ~~2011.~~2013.

46

Code of Ethics

We have adopted a code of ethics that applies to all employees, including executive officers, and to directors. The Code of Ethics is available on the Corporate Governance page of our website atwww.siriusxm.com.If we ever were to amend or waive any provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our internet website set forth above rather than filing aForm 8-K.


~~ITEM 11.~~ ITEM 11.	*EXECUTIVE COMPENSATION*

The information required by this Item 11 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the ~~2011~~2013 annual meeting of stockholders set forth under the ~~caption Executive Compensation,~~captions Item 1. Election of Directors and Item 2. Ratification of Independent Registered Public Accountants, which we expect to file with the Securities and Exchange Commission prior to April 30, ~~2011.~~2013.


~~ITEM 12.~~ ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

Certain information required by this item is set forth under the heading “Equity Compensation Plan Information” in Part II, Item 5, of this report.

The additional information required by this Item 12 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the ~~2011~~2013 annual meeting of stockholders set forth under the caption Stock Ownership ~~and Governance of the Company,~~, which we expect to file with the Securities and Exchange Commission prior to April 30, ~~2011.~~2013.


~~ITEM 13.~~ ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE*

The information required by this Item 13 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the ~~2011~~2013 annual meeting of stockholders set forth under the captions Governance of the Company and ~~Executive Compensation,~~ Item 1. Election of Directors which we expect to file with the Securities and Exchange Commission prior to April 30, ~~2011.~~2013.


~~ITEM 14.~~ ITEM 14.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

The information required by this Item 14 is incorporated in this report by reference to the applicable information in our definitive proxy statement for the ~~2011~~2013 annual meeting of stockholders set forth under the ~~caption~~captions Item 2. Ratification of Independent Registered Public Accountants - Principal Accountant Fees and Services, which we expect to file with the Securities and Exchange Commission prior to April 30, ~~2011.~~2013.

55

PART IV

ITEM 15.


~~ITEM 15.~~	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*

Documents filed as part of this report:

(1) Financial Statements. See Index to Consolidated Financial Statements appearing onpage F-1.

(2) Financial Statement Schedules. See Index to Consolidated Financial Statements appearing onpage F-1.

(3) Exhibits.

See Exhibit Index ~~appearing on pagesE-1~~ ~~throughE-5~~ ~~for a list of exhibits filed or~~following this report, which is incorporated herein by ~~reference as part of this Annual Report onForm 10-K.~~reference.

56

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this ~~16th~~6th day of February ~~2011.~~2013.

~~SIRIUS XM RADIO INC.~~



	~~By:~~
SIRIUS XM RADIO INC.

By:	/s/ DAVID J. FREAR
	David J. Frear
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

~~David J. Frear~~

~~Executive Vice President and~~

~~Chief Financial Officer~~

~~(Principal Financial Officer)~~

48

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Signature	Title	Date


/s/ E~~Eddy~~DDY W. ~~Hartenstein~~HARTENSTEIN ~~(Eddy W. Hartenstein)~~	Chairman of the Board of Directors and Director	February ~~16, 2011~~6, 2013
	Chairman of the Board of Directors and Director		(Eddy W. Hartenstein)
/s/ J~~Mel Karmazin~~AMES E. MEYER ~~(Mel Karmazin)~~	Chief Executive Officer and Director (Principal Executive Officer)	February ~~16, 2011~~6, 2013
			(James E. Meyer)
/s/ D~~David~~AVID J. ~~Frear~~FREAR ~~(David J. Frear)~~	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	February ~~16, 2011~~6, 2013
		February ~~16, 2011~~6, 2013	(David J. Frear)
/s/ T~~Thomas~~HOMAS D. ~~Barry~~BARRY ~~(Thomas D. Barry)~~	Senior Vice President and Controller ~~(Principal~~ (Principal Accounting Officer)	February ~~16, 2011~~6, 2013
		February ~~16, 2011~~6, 2013	(Thomas D. Barry)
/s/ J~~Joan~~OAN L. ~~Amble~~AMBLE ~~(Joan L. Amble)~~	Director	February ~~16, 2011~~6, 2013
	Director		(Joan L. Amble)
/s/ M~~Leon~~ARK D. ~~Black~~CARLETON ~~(Leon D. Black)~~	Director	February ~~16, 2011~~6, 2013
	Director		(Mark D. Carleton)
/s/ D~~David~~AVID J. A. ~~Flowers~~FLOWERS ~~(David A. Flowers)~~	Director	February ~~16, 2011~~6, 2013
	Director		(David J. A. Flowers)
/s/ J~~Lawrence F. Gilberti~~AMES P. HOLDEN ~~(Lawrence F. Gilberti)~~	Director	February ~~16, 2011~~6, 2013
	Director		(James P. Holden)
/s/ G~~James P. Holden~~REGORY B. MAFFEI ~~(James P. Holden)~~	Director	February ~~16, 2011~~6, 2013
	Director		(Gregory B. Maffei)
/s/ J~~Gregory B. Maffei~~OHN C. MALONE ~~(Gregory B. Maffei)~~	Director	February ~~16, 2011~~6, 2013
	Director		(John C. Malone)
/s/ J~~John C. Malone~~AMES F. MOONEY ~~(John C. Malone)~~	Director	February ~~16, 2011~~

57

					6, 2013
~~Signature~~	~~Title~~		~~Date~~

				(James F. Mooney)
/s/ R~~James F. Mooney~~OBIN S. PRINGLE ~~(James F. Mooney)~~	Director		February ~~16, 2011~~6, 2013
	Director			(Robin S. Pringle)
/s/ C~~Jack Shaw~~HARLES Y. TANABE ~~(Jack Shaw)~~	Director	February 6, 2013
(Charles Y. Tanabe)	Director	February 6, 2013
/s/ CARL VOGEL	Director	February ~~16, 2011~~6, 2013
(Carl Vogel)	Director	February ~~16, 2011~~6, 2013
/s/ VANESSA WITTMAN	Director	February 6, 2013
(Vanessa Wittman)	Director	February 6, 2013

58

49

SIRIUS XM RADIO INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of ~~Operations~~Comprehensive Income for the years ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	F-4
Consolidated Balance Sheets as of December 31, ~~2010~~2012 and ~~2009~~2011	F-5
Consolidated Statements of ~~Stockholders’~~Stockholders' Equity ~~(Deficit) and Comprehensive Income (Loss)~~ for the years ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	F-6
Consolidated Statements of Cash Flows for the years ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	~~F-8~~	F-7
Notes to Consolidated Financial Statements	~~F-10~~	F-9
Schedule II —- Schedule of Valuation and Qualifying Accounts	~~F-44~~	F-38

F-1

~~F-1~~

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Sirius XM Radio Inc. and subsidiaries:

We have audited the accompanying consolidated balance sheets of Sirius XM Radio Inc. and subsidiaries as of December 31, ~~2010~~2012 and ~~2009,~~2011, and the related consolidated statements of ~~operations, stockholders’ equity (deficit) and~~ comprehensive income, ~~(loss),~~stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, ~~2010.~~2012. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 15(2). These consolidated financial statements and financial statement schedule are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sirius XM Radio Inc. and subsidiaries as of December 31, ~~2010~~2012 and ~~2009,~~2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2010,~~2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sirius XM Radio Inc. and ~~subsidiaries’~~subsidiaries' internal control over financial reporting as of December 31, ~~2010,~~2012, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February ~~16, 2011~~6, 2013 expressed an unqualified opinion on the effectiveness of the ~~Company’s~~Company's internal control over financial reporting.

~~As discussed in Note 3 to the consolidated financial statements, Sirius XM Radio Inc. changed its method of accounting for share lending arrangements on January 1, 2010.~~

~~/s/~~ ~~KPMG LLP~~

/s/ KPMG LLP

New York, New York

February ~~16, 2011~~6, 2013

~~F-2~~

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Sirius XM Radio Inc. and subsidiaries:

We have audited Sirius XM Radio Inc. and ~~subsidiaries’~~subsidiaries' internal control over financial reporting as of December 31, ~~2010,~~2012, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sirius XM Radio Inc.’s's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying~~Management’s~~Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the ~~Company’s~~Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A ~~company’s~~company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A ~~company’s~~company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the ~~company’s~~company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sirius XM Radio Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2010,~~2012, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sirius XM Radio Inc. and subsidiaries as of December 31, ~~2010~~2012 and ~~2009,~~2011, and the related consolidated statements of ~~operations, stockholders’ equity (deficit) and~~ comprehensive income, ~~(loss),~~stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, ~~2010,~~2012, and our report dated February ~~16, 2011~~6, 2013 expressed an unqualified opinion on those consolidated financial statements.

~~/s/~~ ~~KPMG LLP~~

/s/ KPMG LLP

New York, New York

February ~~16, 2011~~6, 2013

~~F-3~~

F-3

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE INCOME

For the Years Ended December 31,
2010 2009 2008

(In thousands, except per share data)

Revenue:
Subscriber revenue $ 2,414,174 $ 2,287,503 $ 1,548,919
Advertising revenue, net of agency fees 64,517 51,754 47,190
Equipment revenue 71,355 50,352 56,001
Other revenue 266,946 83,029 11,882

Total revenue 2,816,992 2,472,638 1,663,992
Operating expenses:
Cost of services:
Revenue share and royalties 435,410 397,210 280,852
Programming and content 305,914 308,121 312,189
Customer service and billing 241,680 234,456 165,036
Satellite and transmission 80,947 84,033 59,279
Cost of equipment 35,281 40,188 46,091
Subscriber acquisition costs 413,041 340,506 371,343
Sales and marketing 215,454 228,956 231,937
Engineering, design and development 45,390 41,031 40,496
General and administrative 240,970 227,554 213,142
Impairment of goodwill — — 4,766,190
Depreciation and amortization 273,691 309,450 203,752
Restructuring, impairments and related costs 63,800 32,807 10,434

Total operating expenses 2,351,578 2,244,312 6,700,741

Income (loss) from operations 465,414 228,326 (5,036,749 )
Other income (expense):
Interest expense, net of amounts capitalized (295,643 ) (315,668 ) (148,455 )
Loss on extinguishment of debt and credit facilities, net (120,120 ) (267,646 ) (98,203 )
Interest and investment (loss) income (5,375 ) 5,576 (21,428 )
Other income (loss) 3,399 3,355 (9,599 )

Total other expense (417,739 ) (574,383 ) (277,685 )

Income (loss) before income taxes 47,675 (346,057 ) (5,314,434 )
Income tax expense (4,620 ) (5,981 ) (2,476 )

Net income (loss) 43,055 (352,038 ) (5,316,910 )
Preferred stock beneficial conversion feature — (186,188 ) —

Net income (loss) attributable to common stockholders $ 43,055 $ (538,226 ) $ (5,316,910 )

Net income (loss) per common share:
Basic $ 0.01 $ (0.15 ) $ (2.45 )

Diluted $ 0.01 $ (0.15 ) $ (2.45 )

Weighted average common shares outstanding:
Basic 3,693,259 3,585,864 2,169,489

Diluted 6,391,071 3,585,864 2,169,489



	For the Years Ended December 31,
(in thousands, except per share data)	2012			2011			2010
Revenue:
Subscriber revenue	$	2,962,665		$	2,595,414		$	2,414,174
Advertising revenue, net of agency fees	82,320			73,672			64,517
Equipment revenue	73,456			71,051			71,355
Other revenue	283,599			274,387			266,946
Total revenue	3,402,040			3,014,524			2,816,992
Operating expenses:
Cost of services:
Revenue share and royalties	551,012			471,149			435,410
Programming and content	278,997			281,234			305,914
Customer service and billing	294,980			259,719			241,680
Satellite and transmission	72,615			75,902			80,947
Cost of equipment	31,766			33,095			35,281
Subscriber acquisition costs	474,697			434,482			413,041
Sales and marketing	248,905			222,773			215,454
Engineering, design and development	48,843			53,435			45,390
General and administrative	261,905			238,738			240,970
Depreciation and amortization	266,295			267,880			273,691
Restructuring, impairments and related costs	—			—			63,800
Total operating expenses	2,530,015			2,338,407			2,351,578
Income from operations	872,025			676,117			465,414
Other income (expense):
Interest expense, net of amounts capitalized	(265,321		)	(304,938		)	(295,643		)
Loss on extinguishment of debt and credit facilities, net	(132,726		)	(7,206		)	(120,120		)
Interest and investment income (loss)	716			73,970			(5,375		)
Other (loss) income	(226		)	3,252			3,399
Total other expense	(397,557		)	(234,922		)	(417,739		)
Income before income taxes	474,468			441,195			47,675
Income tax benefit (expense)	2,998,234			(14,234		)	(4,620		)
Net income	$	3,472,702		$	426,961		$	43,055
Unrealized gain on available-for-sale securities	—			—			469
Realized loss on XM Canada investment foreign currency adjustment	—			6,072			—
Foreign currency translation adjustment, net of tax	49			(140		)	251
Total comprehensive income	$	3,472,751		$	432,893		$	43,775
Net income per common share:
Basic	$	0.55		$	0.07		$	0.01
Diluted	$	0.51		$	0.07		$	0.01
Weighted average common shares outstanding:
Basic	4,209,073			3,744,606			3,693,259
Diluted	6,873,786			6,500,822			6,391,071

See accompanying notes to the consolidated financial statements.

~~F-4~~

F-4

SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		As of December 31,
		2010				2009			As of December 31,
	2012				2011
(In thousands, except share and per share data)
(in thousands, except share and per share data)
ASSETS	ASSETS
Current assets:
Cash and cash equivalents		$	586,691			$	383,489		$	520,945		$	773,990
Accounts receivable, net			121,658				113,580		106,142			101,705
Receivables from distributors			67,576				48,738		104,425			84,817
Inventory, net			21,918				16,193		25,337			36,711
Prepaid expenses			134,994				100,273		122,157			125,967
Related party current assets			6,719				106,247		13,167			14,702
Deferred tax asset			44,787				72,640		923,972			132,727
Other current assets			7,432				18,620		12,037			6,335

Total current assets			991,775				859,780		1,828,182			1,276,954
Property and equipment, net			1,761,274				1,711,003		1,571,922			1,673,919
Long-term restricted investments			3,396				3,400		3,999			3,973
Deferred financing fees, net			54,135				66,407		38,677			42,046
Intangible assets, net			2,629,200				2,695,115		2,519,610			2,573,638
Goodwill			1,834,856				1,834,856		1,815,365			1,834,856
Related party long-term assets			30,162				111,767		44,954			54,953
Long-term deferred tax asset									1,219,256			—
Other long-term assets			78,288				39,878		12,878			35,657

Total assets		$	7,383,086			$	7,322,206		$	9,054,843		$	7,495,996


LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	593,174			$	543,686		$	587,652		$	543,193
Accrued interest			72,453				74,566		33,954			70,405
Current portion of deferred revenue			1,201,346				1,083,430		1,474,138			1,333,965
Current portion of deferred credit on executory contracts			271,076				252,831		207,854			284,108
Current maturities of long-term debt			195,815				13,882		4,234			1,623
Related party current liabilities			15,845				108,246		6,756			14,302

Total current liabilities			2,349,709				2,076,641		2,314,588			2,247,596
Deferred revenue			273,973				255,149		159,501			198,135
Deferred credit on executory contracts			508,012				784,078		5,175			218,199
Long-term debt			2,695,856				2,799,702		2,222,080			2,683,563
Long-term related party debt			325,907				263,579		208,906			328,788
Deferred tax liability			914,637				940,182		69			1,011,084
Related party long-term liabilities			24,517				46,301		18,966			21,741
Other long-term liabilities			82,839				61,052		85,993			82,745

Total liabilities			7,175,450				7,226,684		5,015,278			6,791,851

Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, par value $0.001; 50,000,000 authorized at December 31, 2010 and 2009:
Series A convertible preferred stock (liquidation preference of $0 at December 31, 2010 and $51,370 at December 31, 2009); no shares issued and outstanding at December 31, 2010 and 24,808,959 shares issued and outstanding at December 31, 2009			—				25
Convertible perpetual preferred stock, series B (liquidation preference of $13 at December 31, 2010 and 2009); 12,500,000 shares issued and outstanding at December 31, 2010 and 2009			13				13
Convertible preferred stock, series C junior; no shares issued and outstanding at December 31, 2010 and 2009, respectively			—				—
Common stock, par value $0.001; 9,000,000,000 shares authorized at December 31, 2010 and 2009; 3,933,195,112 and 3,882,659,087 shares issued and outstanding at December 31, 2010 and 2009, respectively			3,933				3,882
Accumulated other comprehensive loss, net of tax			(5,861	)			(6,581	)
Preferred stock, par value $0.001; 50,000,000 authorized at December 31, 2012 and 2011:
Series A convertible preferred stock; no shares issued and outstanding at December 31, 2012 and 2011									—			—
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at December 31, 2012 and 2011); 6,250,100 and 12,500,000 shares issued and outstanding at December 31, 2012 and 2011, respectively									6			13
Common stock, par value $0.001; 9,000,000,000 shares authorized at December 31, 2012 and 2011; 5,262,440,085 and 3,753,201,929 shares issued and outstanding at December 31, 2012 and 2011, respectively									5,263			3,753
Accumulated other comprehensive income, net of tax									120			71
Additional paid-in capital			10,420,604				10,352,291		10,345,566			10,484,400
Accumulated deficit			(10,211,053	)			(10,254,108	)	(6,311,390		)	(9,784,092		)

Total stockholders’ equity			207,636				95,522		4,039,565			704,145

Total liabilities and stockholders’ equity		$	7,383,086			$	7,322,206		$	9,054,843		$	7,495,996

See accompanying notes to the consolidated financial statements.

~~F-5~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

We use independent appraisals to assist in determining the fair value of our FCC licenses. The income approach, which is commonly called the “Jefferson Pilot Method” or the “Greenfield Method”, has been consistently used to estimate the fair value. This method attempts to isolate the income that is properly attributable to the license alone (that is, apart from tangible and intangible assets and goodwill). It is based upon modeling a hypothetical “Greenfield”~~build-up~~ ~~to a normalized enterprise that, by design, lacks inherent goodwill and has essentially purchased (or added) all other assets as part of thebuild-up~~ process. The methodology assumes that, rather than acquiring such an operation as a going concern, the buyer would hypothetically obtain a license at nominal cost and build a new operation with similar attributes from inception. The significant assumption was that the hypothetical start up entity would begin its network build out phase at the impairment testing date and revenues and variable costs would not be generated until the satellite network was operational, approximately five years from inception.

~~Other intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment under the provisions ofASC 360-10-35,~~~~Property, Plant and Equipment/Overall/Subsequent Measurement~~. We review intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

~~Fair Value of Financial Instruments~~

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. As of December 31, 2010 and 2009, the carrying amounts of cash and cash equivalents, accounts and other receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.

The fair value for publicly traded instruments is determined using quoted market prices while the fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. As of December 31, 2010 and 2009, the carrying value of our debt was $3,217,578 and $3,077,163, respectively; and the fair value approximated $3,722,905 and $3,195,375, respectively.


~~(4)~~ (6)	Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment is performed as of ~~October 1st~~the fourth quarter of each year, and an assessment is performed at other times if ~~events~~an event occurs or circumstances ~~indicate it is~~change that would more likely than not ~~that~~reduce the fair value of the asset ~~is impaired.~~below its carrying value. At ~~October 1, 2010~~the date of our annual assessment for 2012 and ~~December 31, 2010,~~2011, the fair value of our single reporting unit substantially exceeded its carrying value and therefore was not at risk of failing step one of ASC 350-20, ~~350-20,~~Goodwill~~Goodwill(“ASC350-20”)~~.

As ~~a result,~~of December 31, 2012, there were no indicators of impairment and no impairment loss was recorded for goodwill during the years endedDecember 31, 2012, 2011 and 2010. The cumulative balance of goodwill impairment that has been recorded since the Merger is $4,766,190, which was recognized during the year ended December 31, 2008.

During the year endedDecember 31, 2012, with the release of our deferred income tax valuation allowance, we reduced goodwill by $19,491 related to the subsequent exercise of certain stock options and vesting of certain restricted stock units that were recorded at fair value in connection with the Merger. There were no changes in the carrying value of our goodwill during the ~~years~~year endedDecember 31, ~~2010 and 2009. During 2008, we recorded goodwill in the amount~~2011.

F-16

Table of ~~$6,601,046 and we recorded an impairment charge of $4,766,190.~~Contents

~~F-18~~

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~— (Continued)~~- Continued

(Dollar amounts in thousands, unless otherwise stated)


~~(5)~~ (7)	Intangible Assets

Intangible assets ~~consisted~~consist of the following:

December 31, 2010 December 31, 2009
Gross
Gross

Weighted Average
Carrying
Accumulated
Net Carrying
Carrying
Accumulated
Net Carrying

Useful Lives Value Amortization Value Value Amortization Value

Indefinite life intangible assets:
FCC licenses Indefinite $ 2,083,654 $ — $ 2,083,654 $ 2,083,654 $ — $ 2,083,654
Trademark Indefinite 250,000 — 250,000 250,000 — 250,000
Definite life intangible assets:
Subscriber relationships 9 years 380,000 (144,325 ) 235,675 380,000 (91,186 ) 288,814
Licensing agreements 9.1 years 75,000 (23,721 ) 51,279 75,000 (13,906 ) 61,094
Proprietary software 6 years 16,552 (9,566 ) 6,986 16,552 (6,823 ) 9,729
Developed technology 10 years 2,000 (483 ) 1,517 2,000 (283 ) 1,717
Leasehold interests 7.4 years 132 (43 ) 89 132 (25 ) 107

Total intangible assets $ 2,807,338 $ (178,138 ) $ 2,629,200 $ 2,807,338 $ (112,223 ) $ 2,695,115

December 31, 2012 December 31, 2011

Weighted Average
Useful Lives

Gross
Carrying
Value

Accumulated
Amortization

Net Carrying
Value

Gross
Carrying
Value

Accumulated
Amortization

Net Carrying
Value
Indefinite life intangible assets:
FCC licenses Indefinite $ 2,083,654
$ —
$ 2,083,654
$ 2,083,654
   $ —
$ 2,083,654
Trademark Indefinite 250,000
—
250,000
250,000
   —
250,000
Definite life intangible assets:
Subscriber relationships 9 years 380,000
(233,317 ) 146,683
380,000
   (191,201 ) 188,799
Licensing agreements 9.1 years 78,489
(44,161 ) 34,328
78,897
   (34,145 ) 44,752
Proprietary software 6 years 16,552
(12,777 ) 3,775
16,552
   (11,507 ) 5,045
Developed technology 10 years 2,000
(883 ) 1,117
2,000
   (683 ) 1,317
Leasehold interests 7.4 years 132
(79 ) 53
132
   (61 ) 71
Total intangible assets $ 2,810,827
$ (291,217 ) $ 2,519,610
$ 2,811,235
   $ (237,597 ) $ 2,573,638

Indefinite Life Intangible Assets

We have identified our FCC licenses and the XM trademark as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use.

We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our licenses expires:



FCC ~~License~~satellite licenses		Expiration ~~Year~~
year
SIRIUS FM-1 ~~satellite~~			2017
SIRIUS FM-2 ~~satellite~~			2017
SIRIUS FM-3 ~~satellite~~			2017
SIRIUS ~~FM-4 ground spare satellite~~	FM-5		2017
SIRIUS ~~FM-5 satellite~~FM-6 (1)			~~2017~~
XM-1 ~~satellite~~			2014
XM-2 ~~satellite~~			2014
XM-3 ~~satellite~~			2013
XM-4 ~~satellite~~			2014
XM-5 ~~satellite~~			2018


(1)	We hold an FCC license for our FM-6 satellite, which will expire eight years from when this satellite is launched and placed into operation.

Prior to expiration, we are required to apply for a renewal of our FCC licenses. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred. Each of the FCC licenses authorizes us to use the broadcast spectrum, which is a renewable, reusable resource that does not deplete or exhaust over time.

~~F-19~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

In connection with the Merger, ~~$250,000~~$250,000 of the purchase price was allocated to the XM trademark. As of December 31, ~~2010,~~2012, there were no legal, regulatory or contractual limitations associated with the XM trademark.

Our annual impairment assessment of our indefinite intangible assets is performed as of ~~October 1st~~the fourth quarter of each year. An assessment is ~~made~~performed at other times if ~~events~~an event occurs or ~~changes in~~ circumstances ~~indicate~~change that ~~it is~~would more likely than not ~~that~~reduce the ~~assets have been impaired.~~fair value of the asset below its carrying value. At ~~October 1, 2010 and December 31, 2010,~~ the date of our annual assessment for 2012, our qualitative impairment assessment of fair value of our indefinite intangible assets indicated that such assets substantially exceeded ~~its~~their carrying value and therefore was not at risk of impairment. In 2011, we utilized independent appraisals to assist in determining the fair value of our indefinite intangible assets.

F-17

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

As of December 31, 2012, there were no indicators of impairment and no impairment loss was recorded for indefinite intangible assets during the years endedDecember 31, 2012, 2011 and 2010.

Definite Life Intangible Assets

Subscriber relationships are amortized on an accelerated basis over 9 years, which reflects the estimated pattern in which the economic benefits will be consumed. Other definite life intangible assets include certain licensing agreements, which are amortized over a weighted average useful life of 9.1 years on a straight-line basis.

Amortization expense for all definite life intangible assets was ~~$65,915, $76,587~~$53,620, $59,050 and ~~$35,789~~$66,324 for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively. Expected amortization expense for each of the fiscal years 2013 through ~~December 31, 2015~~2017 and for periods thereafter is as follows:

Year Ending December 31, Amount

2011 $ 58,850
2012 53,420
2013 47,097
2014 38,619
2015 37,293
Thereafter 60,267

Total definite life intangibles assets, net $ 295,546



Year ending December 31,	Amount
2013	$	47,330
2014	38,852
2015	37,526
2016	31,932
2017	18,968
Thereafter	11,348
Total definite life intangible assets, net	$	185,956


~~(6)~~ (8)	~~Subscriber Revenue~~Interest Costs

Subscriber revenue consists of subscription fees, revenue derived from agreements with certain daily rental fleet operators, non-refundable activation and other fees as well as the effects of rebates. Revenues received from OEMs for subscriptions included in the sale or lease price of vehicles are also included in subscriber revenue over the service period.

~~Subscriber revenue consists of the following:~~

For the Years Ended December 31,
2010 2009 2008

Subscription fees $ 2,398,790 $ 2,266,809 $ 1,529,726
Activation fees 16,028 21,837 23,025
Effect of rebates (644 ) (1,143 ) (3,832 )

Total subscriber revenue $ 2,414,174 $ 2,287,503 $ 1,548,919

~~F-20~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


~~(7)~~	~~Interest Costs~~

We ~~capitalize~~capitalized a portion of the interest on funds borrowed ~~to finance~~as part of the ~~construction costs~~cost of constructing our satellites and related launch ~~vehicles for~~vehicle. We are currently capitalizing the interest associated with our FM-6 satellite and will continue to do so until its launch. During the year endedDecember 31, 2010, we also capitalized costs related to our XM-5 ~~satellites.~~satellite and related launch vehicle. We also incur interest costs on all of our debt instruments and on our satellite incentive agreements. The following is a summary of our interest costs:

For the Years Ended December 31,
2010 2009 2008

Interest costs charged to expense $ 295,643 $ 315,668 $ 148,455
Interest costs capitalized 63,880 61,201 20,872

Total interest costs incurred $ 359,523 $ 376,869 $ 169,327



	For the Years Ended December 31,
	2012		2011		2010
Interest costs charged to expense	$	265,321	$	304,938	$	295,643
Interest costs capitalized	31,982		33,522		63,880
Total interest costs incurred	$	297,303	$	338,460	$	359,523

Included in interest costs incurred is non-cash interest expense, consisting of amortization related to original issue discounts, premiums and deferred financing fees of ~~$42,841, $43,066~~$35,924, $39,515 and ~~$(2,689)~~$42,841 for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively.

F-18

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)


~~(8)~~ (9)	Property and Equipment

Property and equipment, net, consists of the following:

December 31,
December 31,

2010 2009

Satellite system $ 1,943,537 $ 1,680,732
Terrestrial repeater network 109,582 108,841
Leasehold improvements 43,567 43,480
Broadcast studio equipment 51,985 49,965
Capitalized software and hardware 163,689 146,035
Satellite telemetry, tracking and control facilities 57,665 55,965
Furniture, fixtures, equipment and other 63,265 57,536
Land 38,411 38,411
Building 56,685 56,424
Construction in progress 297,771 430,543

Total property and equipment 2,826,157 2,667,932
Accumulated depreciation and amortization (1,064,883 ) (956,929 )

Property and equipment, net $ 1,761,274 $ 1,711,003

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~We accounted for~~ the Series B Preferred Stock ~~by recording~~into 1,293,467,684 shares of our common stock. For a ~~$227,716 increase~~discussion of subsequent events refer to additional paid-in capital, excluding issuance costs, for the amount of allocated proceeds received and an additional $186,188 increase in paid-in capital for the beneficial conversion feature, which was immediately recognized as a charge to retained earnings.Note 18.

~~Loan Investments~~

On February 17, 2009, SIRIUS entered into a Credit Agreement (the “LM Credit Agreement”) with Liberty Media Corporation, as administrative agent and collateral agent, and Liberty Media, LLC, as lender. The LM Credit Agreement provided for a $250,000 term loan and $30,000 of purchase money loans. In August 2009, we repaid all amounts due and terminated the LM Credit Agreement in connection with the issue and sale of SIRIUS’ 9.75% Senior Secured Notes due 2015.

On February 17, 2009, XM entered into a Credit Agreement with Liberty Media Corporation, as administrative agent and collateral agent, and Liberty Media, LLC, as lender. On March 6, 2009, XM amended and restated that credit agreement (the “Second-Lien Credit Agreement”) with Liberty Media Corporation. In June 2009, XM repaid all amounts due and terminated the Second-Lien Credit Agreement in connection with the issue and sale of its 11.25% Senior Secured Notes due 2013.

On March 6, 2009, XM amended and restated the $100,000 Term Loan, dated as of June 26, 2008 and the $250,000 Credit Agreement, dated as of May 5, 2006. These facilities were combined as term loans into the Amended and Restated Credit Agreement, dated as of March 6, 2009. Liberty Media, LLC, purchased $100,000 aggregate principal amount of such loans from the existing lenders. In June 2009, XM used a portion of the net proceeds from the sale of its 11.25% Senior Secured Notes due 2013 to extinguish the Amended and Restated Credit Agreement.

Liberty Media has advised us that as of December 31, ~~2010~~2012 and ~~2009,~~2011, respectively, it also owned the following:

December 31,
December 31,

2010 2009

9.625% Senior Notes due 2013 $ — $ 55,221
8.75% Senior Notes due 2015 150,000 —
9.75% Senior Secured Notes due 2015 50,000 50,000
11.25% Senior Secured Notes due 2013 — 87,000
13% Senior Notes due 2013 76,000 76,000
7% Exchangeable Senior Subordinated Notes due 2014 11,000 11,000
7.625% Senior Notes due 2018 50,000 —

Total principal debt 337,000 279,221
Less: discounts 11,093 15,642

Total carrying value debt $ 325,907 $ 263,579

~~In October 2010, Liberty Media tendered its $87,000~~



	December 31, 2012		December 31, 2011
8.75% Senior Notes due 2015	$	150,000	$	150,000
9.75% Senior Secured Notes due 2015	—		50,000
13% Senior Notes due 2013	—		76,000
7% Exchangeable Senior Subordinated Notes due 2014	11,000		11,000
7.625% Senior Notes due 2018	50,000		50,000
Total principal debt	211,000		337,000
Less: discounts	2,094		8,212
Total carrying value of debt	$	208,906	$	328,788

During the year endedDecember 31, 2012, we redeemed $50,000 of ~~the 11.25%~~our 9.75% Senior Secured Notes due ~~2013~~2015 and ~~purchased $50,000~~$76,000 of ~~the 7.625%~~our 13% Senior Notes due ~~2018 at issuance.~~2013 held by Liberty Media as part of the redemption of these Notes in their entirety.

As of December 31, ~~2010~~2012 and ~~2009,~~2011, we recorded ~~$9,765~~$3,980 and ~~$8,523,~~$9,722, respectively, related to accrued interest with Liberty Media to Related party current liabilities. We recognized Interest expense associated with debt held by Liberty Media of ~~$40,169~~$30,931, $35,681 and ~~$79,640~~$40,169 for the years endedDecember 31, ~~2010~~2012, 2011 and ~~2009,~~2010, respectively.

F-20

Table of Contents

~~SIRIUS Canada~~

In 2005, we entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, SIRIUS is reimbursed for certain costs incurred to provide SIRIUS Canada service, including certain costs incurred

~~F-23~~

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~— (Continued)~~- Continued

(Dollar amounts in thousands, unless otherwise stated)

Sirius XM Canada

In June 2011, Canadian Satellite Radio Holdings Inc. (“CSR”), the parent company of XM Canada, and Sirius Canada completed a transaction to combine their operations (“the Canada Merger”). The combined company operates as Sirius XM Canada. We own approximately 46,700,000 Class A shares on a converted basis of CSR, representing a 37.9% equity interest and a 25.0% voting interest.

We had the following related party current asset balances attributable to Sirius XM Canada at December 31, 2012 and 2011:



	For the Years Ended December 31,
	2012		2011
Deferred programming costs and accrued interest	$	4,350	$	2,500
Dividends receivable	6,176		—
Chip set and other services reimbursement	2,641		7,404
Non-interest bearing note, principal	—		4,798
Total	$	13,167	$	14,702

In November 2012, Sirius XM Canada declared a special cash dividend of Cdn $0.0825 per Class A shares of stock and Cdn $0.0275 per Class B shares of stock for shareholders of record on November 28, 2012 in addition to a quarterly cash dividend of the same amount for shareholders of record on the same date. We received $1,185 in December 2012 which was recorded as a reduction of our investment balance in Sirius XM Canada. As of December 31, 2012, we recorded a receivable for the ~~production~~remaining balance of the dividend which was due to us.

We provide Sirius XM Canada with chip sets and ~~distribution~~other services and we are reimbursed for these costs.

We had the following related party long-term asset balances attributable to Sirius XM Canada at December 31, 2012 and 2011:



	For the Years Ended December 31,
	2012		2011
Non-interest bearing note, principal	$	404	$	410
Carrying value of host contract of debenture	3,877		3,490
Carrying value of embedded derivative of debenture	9		—
Investment balance*	37,983		45,061
Deferred programming costs and accrued interest	1,924		4,780
Total	$	44,197	$	53,741

* The investment balance includes equity method goodwill and intangible assets of ~~radios, as well as information technology support costs. In consideration~~$27,615 and $28,589 for the ~~rights granted pursuant to this license~~years endedDecember 31, 2012 and ~~services agreement,~~2011, respectively.

As a result of the Canada Merger, we ~~have the right to receive~~hold a royalty equal to a percentage of SIRIUS Canada’s gross revenues based on subscriber levels (ranging between 5% to 15%) and the number of Canadian-specific channels made available to SIRIUS Canada. Ournon-interest bearing note issued by CSR. We also hold an investment in ~~SIRIUS~~Cdn $4,000 face value of 8% convertible unsecured subordinated debentures issued by CSR, for which the embedded conversion feature is bifurcated from the host contract. The host contract is accounted for at fair value as an available-for-sale security with changes in fair value recorded to Accumulated other comprehensive income, net of tax. The embedded conversion feature is accounted for at fair value as a derivative with changes in fair value recorded in earnings as Interest and investment income (loss).

Our interest in Sirius XM Canada is ~~primarily non-voting shares which carry an 8% cumulative dividend.~~

~~We recorded~~accounted for under the ~~following revenue from SIRIUS Canada. Royalty income~~equity method. The excess of the cost of our ownership interest in the equity of Sirius XM Canada over our share of the net assets is recognized as goodwill and intangible assets and is included in the carrying amount of our investment. Equity method goodwill is not amortized. We periodically evaluate this investment to determine if there has been an other ~~revenue and dividend income~~than temporary decline below carrying value. Equity method intangible assets are amortized over their respective useful lives, which is ~~included~~recorded in Interest and investment income (loss).

F-21

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in ~~our consolidated statements of operations:~~thousands, unless otherwise stated)

For the Years Ended December 31,
2010 2009 2008

Royalty income $ 10,684 $ 5,797 $ 1,309
Dividend income 926 839 199

Total revenue from SIRIUS Canada $ 11,610 $ 6,636 $ 1,508

~~Receivables from royalty and dividend income were utilized~~We had the following related party liability balances attributable to ~~absorb a portion of our share of net losses generated by SIRIUS~~Sirius XM Canada ~~during the years ended~~ at December 31, ~~2010~~2012 and ~~2009. Total costs that have been or will be reimbursed by SIRIUS Canada for the years ended December 31, 2010, 2009 and 2008 were $12,185, $11,031 and $14,973, respectively.~~2011:

~~XM Canada~~



	For the Years Ended December 31,
	2012		2011
Carrying value of deferred revenue for NHL games	$	21,742	$	24,517
Amounts due to Sirius XM Canada	—		1,804
Total current and long-term liabilities	$	21,742	$	26,321

In 2005, XM entered into agreements to provide XM Canada, now Sirius XM Canada after the Canada Merger, with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year term and Sirius XM Canada has the unilateral option to extend the agreements for an additional five ~~years.~~ year term. We receive a 15% royalty for all subscriber fees earned by XM Canada each month for its basic service and an activation fee for each gross activation of an XM Canada subscriber on XM’s system. Sirius XM Canada is obligated to pay us a total of ~~$70,300~~$70,300 for the rights to broadcast and market National Hockey League (“NHL”) games for a~~10-year~~ten year term. We recognize these payments on a gross basis as a principal obligor pursuant to the provisions of ASC 605,Revenue Recognition. The estimated fair value of deferred revenue from XM Canada as of the Merger date was approximately ~~$34,000,~~$34,000, which is amortized on a straight-line basis through 2020, the end of the expected term of the agreements. As

We recorded the following revenue from Sirius XM Canada as Other revenue in our consolidated statements of comprehensive income:



	For the Years Ended December 31,
	2012		2011 *
Royalty income	$	31,368	$	13,735
Amortization of Sirius XM Canada deferred income	2,776		1,388
Licensing fee revenue	4,500		3,000
Advertising reimbursements	833		417
Total revenue from Sirius XM Canada	$	39,477	$	18,540

* Sirius XM Canada commenced operations in June 2011.

Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income (loss) in our consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net income was $554 and $1,081 for the years endedDecember 31, ~~2010~~2012 and ~~2009,~~2011, respectively. We recorded amortization expense related to the equity method intangible assets of $974 and $1,556 for the years endedDecember 31, 2012 and 2011, respectively.

Sirius Canada

We had an equity interest of 49% in Sirius Canada until June 21, 2011 when the Canada Merger closed.

In 2005, we entered into a license and services agreement with Sirius Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred to provide Sirius Canada service, including certain costs incurred for the production and distribution of radios, as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, we had the right to receive a royalty equal to a percentage of Sirius Canada’s gross revenues based on subscriber levels (ranging between 5% and 15%) and the number of Canadian-specific channels made available to Sirius Canada.

F-22

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

We recorded the following revenue from Sirius Canada. Royalty income is included in Other revenue and dividend income is included in Interest and investment income (loss) in our consolidated statements of comprehensive income:



	For the Years Ended December 31,
	2011 *		2010
Royalty income	$	9,945	$	10,684
Dividend income	460		926
Total revenue from Sirius Canada	$	10,405	$	11,610

* Sirius Canada combined with XM Canada in June 2011.

Receivables from royalty and dividend income were utilized to absorb a portion of our share of net losses generated by Sirius Canada. Total costs reimbursed by Sirius Canada were $5,253 and $12,185 for the years endedDecember 31, 2011 and 2010, respectively.

Our share of net earnings or losses of Sirius Canada was recorded to Interest and investment income (loss) in our consolidated statements of comprehensive income on a one month lag. Our share of Sirius Canada’s net loss was $9,717 and $10,257 for the years endedDecember 31, 2011 and 2010, respectively. The payments received from Sirius Canada in excess of carrying value were $6,748 and $10,281 for the years endedDecember 31, 2011 and 2010, respectively.

XM Canada

We had an equity interest of ~~deferred revenue related~~21.5% in XM Canada until June 21, 2011 when the Canada Merger closed.

The Cdn $45,000 standby credit facility we extended to XM Canada was ~~$28,792~~paid and ~~$31,568, respectively.~~

terminated as a result of the Canada Merger. We ~~have extended~~received $38,815 in cash upon payment of this facility. As a ~~Cdn$45,000 standby~~result of the repayment of the credit facility ~~to XM~~and completion of the Canada which can be utilized to purchase terrestrial repeaters or finance royalty and activation fees payable to us. The facility matures on December 31, 2012 and bears interest at 17.75% per annum. We have the right to convert unpaid principal amounts into Class A subordinate voting shares of XM Canada at the price of Cdn$16.00 per share. As of December 31, 2010 and 2009, amounts drawn by XM Canada on this facility in lieu of payment of fees recorded in Related party long-term assets were $21,390, net ofMerger, we released a ~~$9,607~~$15,649 valuation allowance ~~and $18,429, respectively. The December 31, 2010 valuation allowance of $9,607~~ related to the absorption of our share of the net loss from our investment in XM Canada ~~shares.~~as of June 21, 2011.

As of December 31, 2010 and 2009, amounts due from XM Canada also included $7,201 and $6,000, respectively, attributable to deferred programming costs and accrued interest (in addition to the amounts drawn on the standby credit facility), all of which is reported as Related party long-term assets.

~~F-24~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

We recorded the following revenue from XM Canada as Other revenue in our consolidated statements of ~~operations:~~comprehensive income:

For the Years Ended December 31,
2010 2009 2008

Amortization of XM Canada deferred income $ 2,776 $ 2,776 $ 1,156
Subscriber and activation fee royalties 10,313 11,603 97
Licensing fee revenue 4,500 6,000 2,500
Advertising reimbursements 1,083 1,067 366

Total revenue from XM Canada $ 18,672 $ 21,446 $ 4,119

For the Years Ended December 31,
2011 * 2010
Amortization of XM Canada deferred income $ 1,388
$ 2,776
Subscriber and activation fee royalties 5,483
10,313
Licensing fee revenue 3,000
4,500
Advertising reimbursements 833
1,083
Total revenue from XM Canada $ 10,704
$ 18,672

* XM Canada combined with Sirius Canada in June 2011.

Our share of net earnings or losses of XM Canada was recorded to Interest and investment income (loss) in our consolidated statements of comprehensive income on a one month lag. Our share of XM Canada’s net loss was $6,045 and $12,147 for the years endedDecember 31, 2011 and 2010, respectively.

F-23
Table of Contents
SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

General Motors and American Honda

We have a long-term distribution agreement with General Motors Company ~~(“GM”~~("GM"). GM had a representative on our board of directors and was considered a related party through May 27, 2010. During the term of the agreement, GM has agreed to distribute ~~the XM~~our service. We subsidize a portion of the cost of satellite radios and ~~makes~~make incentive payments to GM when the owners of GM vehicles with factory- or ~~dealer-installed~~dealer- installed satellite radios become self-paying subscribers. We also share with GM a percentage of the subscriber revenue attributable to GM vehicles with factory- or dealer- installed satellite radios. ~~As part of the agreement,~~ GM provides certain call-center related services directly to subscribers who are also GM customers for which we reimburse GM.

We make bandwidth available to OnStar ~~Corporation~~LLC for audio and data transmissions to owners of enabled GM vehicles, regardless of whether the owner is a subscriber. ~~OnStar’s~~OnStar's use of our bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with our business, and must meet our quality standards. We also granted to OnStar a certain amount of time to use our studios on an annual basis and agreed to provide certain audio content for distribution on ~~OnStar’s~~OnStar's services.

We have a long-term distribution agreement with American Honda. American Honda had a representative on our board of directors and was considered a related party through May 27, 2010. We have an agreement to make a certain amount of ~~its~~our bandwidth available to American Honda. American ~~Honda’s~~Honda's use of our bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with our business, and must meet our quality standards. This agreement remains in effect so long as American Honda holds a certain amount of ~~its~~ investment in us. We make incentive payments to American Honda for each purchaser ofor a Honda or Acura vehicle that becomes a self-paying subscriber and ~~shares~~we share with American Honda a portion of the subscriber revenue attributable to Honda and Acura vehicles with installed satellite radios.

~~As of May 27, 2010, the following aggregate assets and liabilities related to GM and American Honda were reclassified from related party to non-related party:~~

Balance sheet line item:
Related party current assets $ 107,908
Related party long term assets 73,016
Related party current liabilities 57,996

~~F-25~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

We recorded the following total related party revenue from GM and American Honda, primarily consisting of subscriber revenue, in connection with the agreements above:

For the Years Ended December 31,
2010* 2009 2008

GM $ 12,759 $ 31,037 $ 16,803
American Honda 4,990 12,254 7,504

Total $ 17,749 $ 43,291 $ 24,307



	For the Year Ended December 31,
	2010 *
GM	$	12,759
American Honda	4,990
Total	$	17,749

*GM and American Honda were considered related parties through May 2010.


*		~~GM and American Honda were considered related parties through May 27, 2010.~~

We have incurred the following related party expenses with GM and American Honda:

For the Years Ended December 31,
2010* 2009 2008
American
American
American

GM Honda GM Honda GM Honda

Sales and marketing $ 13,374 $ — $ 31,595 $ 500 $ 16,115 $ 815
Revenue share and royalties 15,823 3,167 58,992 6,541 36,305 2,051
Subscriber acquisition costs 17,514 1,969 34,895 5,397 30,975 3,433
Customer service and billing 125 — 268 — 119 —
Interest expense, net of amounts capitalized 1,421 — 4,644 — 51 —

Total $ 48,257 $ 5,136 $ 130,394 $ 12,438 $ 83,565 $ 6,299



	For the Year Ended December 31,
	2010 *
	GM		American Honda
Sales and marketing	$	13,374	$	—
Revenue share and royalties	15,823		3,167
Subscriber acquisition costs	17,514		1,969
Customer service and billing	125		—
Interest expense, net of amounts capitalized	1,421		—
Total	$	48,257	$	5,136


*		GM and American Honda were considered related parties through May ~~27,~~ 2010.


~~(10)~~	~~Investments~~

~~Our investments consist~~

F-24

Table of ~~the following:~~Contents

December 31,
December 31,

2010 2009

Investment in SIRIUS Canada $ — $ —
Investment in XM Canada — 2,390
Investment in XM Canada debentures 3,313 2,970
Auction rate certificates — 8,556
Restricted investments 3,396 3,400

Total investments $ 6,709 $ 17,316

~~Canadian Entities~~

Our investments in SIRIUS Canada and XM Canada (the “Canadian Entities”) are recorded using the equity method since we have a significant influence, but do not control the Canadian Entities. Under this method, our investments in the Canadian Entities, originally recorded at cost, are adjusted quarterly to recognize our proportionate share of net earnings or losses as they occur, rather than at the time dividends or other distributions are received, limited to the extent of our investment in, advances to and commitments to fund the Canadian Entities. We have a 49.9% economic interest in SIRIUS Canada and a 21.54% economic interest in XM Canada.

~~F-26~~

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~— (Continued)~~- Continued

(Dollar amounts in thousands, unless otherwise stated)

(11) Investments

~~Our share~~

Long Term Restricted Investments

Restricted investments relate to reimbursement obligations under letters of ~~net earnings or losses~~credit issued for the benefit of the Canadian Entities is recorded to Interest and investment income (loss) in our consolidated statements of operations. As it relates to XM Canada, this is done on a one month lag. We evaluate the Canadian Entities periodically and record an impairment charge to Interest and investment income (loss) in our consolidated statements of operations if we determine that decreases in fair value are considered to be other-than temporary. In addition, any payments received from the Canadian Entities in excess of the carrying valuelessors of our ~~investments in, advances to and commitments to such entity is recorded to Interest and investment income (loss) in our consolidated statements~~office space. As of ~~operations.~~

~~We recorded the following related party amounts to Interest and investment income (loss):~~

For the Years Ended December 31,
2010 2009 2008

Share of SIRIUS Canada net loss $ (10,257 ) $ (6,636 ) $ (4,745 )
Payments received from SIRIUS Canada in excess of carrying value 10,281 13,738 —
Release of liability with SIRIUS Canada — 1,351 —
Share of XM Canada net loss (12,147 ) (2,292 ) (9,309 )
Impairment of XM Canada — (4,734 ) (16,453 )
Realized gain on sale of auction rate certificates 425 — —
Other — 504 —

Total $ (11,698 ) $ 1,931 $ (30,507 )

~~In addition, during the years ended~~ December 31, ~~2010~~2012 and ~~2009, we recorded $149~~2011, our Long-term restricted investments were $3,999 and ~~$543, respectively, of a foreign exchange gain to Accumulated other comprehensive loss, net of tax, related to our investment in XM Canada.~~

~~We hold an investment in Cdn$4,000 face value of 8% convertible unsecured subordinated debentures issued by XM Canada, for which~~$3,973, respectively. During the ~~embedded conversion feature is bifurcated from the host contract. The host contract is accounted for at fair value as anavailable-for-sale~~year ended security with changes in fair value recorded to Accumulated other comprehensive loss, net of tax. The embedded conversion feature is accounted for at fair value as a derivative with changes in fair value recorded in earnings as Interest and investment income (loss). As of December 31, ~~2010, the carrying values~~2011, $250 of ~~the host contract~~obligations relating to these letters of credit were terminated and ~~embedded derivative related to our investment in the debentures~~a new letter of credit agreement was ~~$3,302 and $11, respectively. As of December 31, 2009, the carrying values of the host contract and embedded derivative related to our investment in the debentures was $2,961 and $9, respectively.~~entered into for $826 for additional space.

Auction Rate Certificates

Auction rate certificates are long-term securities structured to reset their coupon rates by means of an auction. We accounted for our investment in auction rate certificates asavailable-for-sale securities. In January 2010, our investment in the auction rate certificates was called by the issuer at par plus accrued interest, or ~~$9,456,~~$9,456, resulting in a gain of ~~$425~~$425 in the year ended ~~December 31, 2010.~~

~~Restricted Investments~~

~~Restricted investments relate to reimbursement obligations under letters of credit issued for the benefit of lessors of office space. As of~~ December 31, 2010 ~~and 2009, Long-term restricted investments were $3,396 and $3,400, respectively.~~

~~F-27~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~
.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

(12) Debt


~~(11)~~	~~Debt~~

Our debt consists of the following:

Conversion

Price
December 31,
December 31,

(per Share) 2010 2009

3.25% Convertible Notes due 2011(a) $ 5.30 $ 191,979 $ 230,000
Less: discount (515 ) (1,371 )
Senior Secured Term Loan due 2012(b) N/A — 244,375
9.625% Senior Notes due 2013(c) N/A — 500,000
Less: discount — (3,341 )
8.75% Senior Notes due 2015(d) N/A 800,000 —
Less: discount (12,213 ) —
9.75% Senior Secured Notes due 2015(e) N/A 257,000 257,000
Less: discount (10,116 ) (11,695 )
10% Senior PIK Secured Notes due 2011(f) N/A — 113,685
Less: discount — (7,325 )
11.25% Senior Secured Notes due 2013(g) N/A 36,685 525,750
Less: discount (1,705 ) (32,259 )
13% Senior Notes due 2013(h) N/A 778,500 778,500
Less: discount (59,592 ) (76,601 )
9.75% Senior Notes due 2014(i) N/A — 5,260
7% Exchangeable Senior Subordinated Notes due 2014(j) $ 1.875 550,000 550,000
Less: discount (7,620 ) (9,119 )
7.625% Senior Notes due 2018(k) N/A 700,000 —
Less: discount (12,054 ) —
Other debt:
Capital leases N/A 7,229 14,304

Total debt 3,217,578 3,077,163
Less: total current maturities non-related party 195,815 13,882

Total long-term 3,021,763 3,063,281
Less: related party 325,907 263,579

Total long-term, excluding related party $ 2,695,856 $ 2,799,702


*~~(a)~~*	*~~3.25% Convertible Notes due 2011~~*

In October 2004, we issued $230,000 in aggregate principal amount of 3.25% Convertible Notes due October 15, 2011 (the “3.25% Notes”), which 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 principal amount, or $5.30 per share of common stock, subject to certain adjustments. Interest is payable semi-annually on April 15 and October 15 of each year. The obligations under the 3.25% Notes are not secured by any of our assets. In December 2010, we purchased $38,021 of the outstanding 3.25% Notes at a price of 100.25% of the principal amount plus accrued interest. We recorded an aggregate loss on extinguishment of the 3.25% Notes of $209,

~~F-28~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~



	Conversion Price (per share)		December 31, 2012			December 31, 2011
8.75% Senior Notes due 2015	N/A		$	800,000		$	800,000
Less: discount			(7,056		)	(9,753		)
9.75% Senior Secured Notes due 2015	N/A		—			257,000
Less: discount			—			(8,356		)
13% Senior Notes due 2013	N/A		—			778,500
Less: discount			—			(39,504		)
7% Exchangeable Senior Subordinated Notes due 2014	$	1.841	550,000			550,000
Less: discount			(4,112		)	(5,956		)
7.625% Senior Notes due 2018	N/A		700,000			700,000
Less: discount			(9,647		)	(10,898		)
5.25% Senior Notes due 2022	N/A		400,000			—
Less: discount			(5,826		)	—
Other debt:
Capital leases	N/A		11,861			2,941
Total debt			2,435,220			3,013,974
Less: total current maturities non-related party			4,234			1,623
Total long-term			2,430,986			3,012,351
Less: related party			208,906			328,788
Total long-term, excluding related party			$	2,222,080		$	2,683,563

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~8.75%

consisting primarily of unamortized discount, deferred financing fees and repayment of premium to Loss on extinguishment of debt and credit facilities, net, in our consolidated statement of operations.

In February 2011, we purchased $94,148 of the outstanding 3.25% Notes at a price of 100.75%-100.94% of the principal amount plus accrued interest. We will recognize an aggregate loss on extinguishment of $1,079 on the 3.25% Notes, which consists primarily of unamortized discount and deferred financing fees in the first quarter of 2011.


*~~(b)~~*	*~~Senior Secured Term Loan due 2012~~*

In June 2007, we entered into a term credit agreement with a syndicate of financial institutions. The term credit agreement provided for a senior secured term loan (the “Senior Secured Term Loan”) of $250,000, which was fully drawn. On March 16, 2010, we used net proceeds of $244,714 from the sale of our 8.75% Senior Notes due 2015 to repay the Senior Secured Term Loan, including accrued and unpaid interest of $339. We recorded an aggregate loss on extinguishment on the Senior Secured Term Loan of $2,450, consisting of deferred financing fees to Loss on extinguishment of debt and credit facilities, net, in our consolidated statements of operations.


*~~(c)~~*	*~~9.625% Senior Notes due 2013~~*

In August 2005, we issued $500,000 in aggregate principal amount of 9.625% Senior Notes due 2013 (the “9.625% Notes”). In April 2010, we used net proceeds of $534,091 from the issuance of our 8.75% Senior Notes due 2015 to redeem the 9.625% Notes, including accrued and unpaid interest of $10,026 and a repayment premium of $24,065. We recorded an aggregate loss on extinguishment on the 9.625% Notes of $27,705, consisting primarily of unamortized discount, deferred financing fees and repayment premium to Loss on extinguishment of debt and credit facilities, net, in our consolidated statements of operations.


*~~(d)~~*	*~~8.75% Senior Notes due 2015~~*

In March 2010, we issued ~~$800,000~~$800,000 aggregate principal amount of 8.75% Senior Notes due 2015 (the ~~“8.75%~~“8.75% Notes”). Interest is payable semi-annually in arrears on April 1 and October 1 of each year at a rate of 8.75% per annum. The 8.75% Notes mature on April 1, ~~2015.~~2015. The 8.75% Notes were issued for ~~$786,000,~~$786,000, resulting in an aggregate original issuance discount of ~~$14,000.~~$14,000. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 8.75% Notes on a senior unsecured basis.


*~~(e)~~*	*~~9.75% Senior Secured Notes due 2015~~*

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Table of Contents

In August 2009, we issued $257,000 aggregate principal amount of 9.75% Senior Secured Notes due September 1, 2015 (the “9.75% Notes”). Interest is payable semi-annually in arrears on March 1 and September 1 of each year at a rate of 9.75% per annum. The 9.75% Notes were issued for $244,292, resulting in an aggregate original issuance discount of $12,708. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 9.75% Notes. The 9.75% Notes and related guarantees are secured by first-priority liens on substantially all of our assets and the assets of the guarantors. In connection with the merger of XM Satellite Radio Inc. into us, we entered into a new collateral agreement relating to the 9.75% Notes which secures the 9.75% Notes with a lien on substantially all of our and the guarantors’ assets.


*~~(f)~~*	*~~10% Senior PIK Secured Notes due 2011~~*

On December 31, 2009, XM had outstanding $113,685 aggregate principal amount of 10% Senior PIK Secured Notes due 2011 (the “PIK Notes”). On June 1, 2010, XM redeemed all outstanding PIK Notes at a price of 100% plus accrued interest. We recognized an aggregate loss on extinguishment of the PIK Notes of $4,138, consisting primarily of unamortized discount, as a Loss on extinguishment of debt and credit facilities, net, in our consolidated statements of operations.

~~F-29~~

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~— (Continued)~~- Continued

(Dollar amounts in thousands, unless otherwise stated)


*~~(g)~~*	*~~11.25% Senior Secured Notes due 2013~~*

In June 2009, XM issued $525,750 aggregate principal amount of 11.25% Senior Secured Notes due 2013 (the “11.25% Notes”). The 11.25% Notes were issued for $488,398, resulting in an aggregate original issuance discount of $37,352.

In October 2010, XM purchased $489,065 in aggregate principal amount of the 11.25% Notes. The aggregate purchase price for the 11.25% Notes, including the consent payments and accrued and unpaid interest, was $567,927. We recorded an aggregate loss on extinguishment of the 11.25% Notes of $85,216, consisting primarily of unamortized discount, deferred financing fees and repayment premium to Loss on extinguishment of debt and credit facilities, net, in our consolidated statement of operations. The purchases were made pursuant to a tender offer for the 11.25% Notes. Concurrent with the tender offer for the 11.25% Notes, XM solicited consents to amend the 11.25% Notes and the related indenture and security documents to eliminate most of the restrictive covenants and certain events of default applicable to the 11.25% Notes and to release the security for, and guarantees of, the 11.25% Notes.

The remainder of the 11.25% Notes of $36,685 was purchased in January 2011 for an aggregate purchase price of $40,376. A loss from extinguishment of debt of $4,891 will be recorded in the first quarter of 2011.


*~~(h)~~*	*~~13% Senior Notes due 2013~~*

In July 2008, XM issued $778,500 aggregate principal amount of 13% Senior Notes due 2013 (the “13% Notes”). Interest is payable semi-annually in arrears on February 1 and August 1 of each year at a rate of 13% per annum. The 13% Notes mature on August 1, 2013. Substantially all of our domestic wholly-owned subsidiaries guarantee the obligations under the 13% Notes.


*~~(i)~~*	*~~9.75% Senior Notes due 2014~~*

On December 31, 2009, XM had outstanding $5,260 aggregate principal amount of 9.75% Senior Notes due 2014 (the “XM 9.75% Notes”). In August 2010, XM redeemed all of the outstanding XM 9.75% Notes plus accrued interest of $150 for $5,666. We recorded a loss on extinguishment on the XM 9.75% Notes of $256 due to the cash redemption premium paid, as a Loss on extinguishment of debt and credit facilities, net, in our consolidated statements of operations.


*~~(j)~~*	*7% Exchangeable Senior Subordinated Notes due 2014*

In August 2008, XMwe issued ~~$550,000~~$550,000 aggregate principal amount of 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”). The Exchangeable Notes are senior subordinated obligations and rank junior in right of payment to our existing and future senior debt and equally in right of payment with our existing and future senior subordinated debt. Substantially all of our domestic wholly-owned subsidiaries have guaranteed the Exchangeable Notes on a senior subordinated basis.

Interest is payable semi-annually in arrears on June 1 and December 1 of each year at a rate of 7% per annum. The Exchangeable Notes mature on December 1, ~~2014.~~2014. The Exchangeable Notes are exchangeable at any time at the option of the holder into shares of our common stock at an initial exchange rate of 533.3333 shares of common stock per ~~$1,000~~$1,000 principal amount of Exchangeable Notes, which is equivalent to an approximate exchange price of ~~$1.875~~$1.875 per share of common stock. If a holder of the Exchangeable Notes elects to exchange the notes in connection with a corporate transaction that constitutes a fundamental change, the exchange rate will be increased by an additional number of shares of common stock determined by the Indenture. Due to the special cash dividend in December 2012, the conversion rate increased to 543.1372 shares per common stock per $1,000 principal amount. For a discussion of subsequent events refer to Note 18.


*~~(k)~~* During the year endedDecember 31, 2012, the common stock reserved for exchange in connection with the Exchangeable Notes were considered to be dilutive in our calculation of diluted net income per share.	*~~7.625% Senior Notes due 2018~~*

7.625% Senior Notes due 2018

In October 2010, XMwe issued ~~$700,000~~$700,000 aggregate principal amount of 7.625% Senior Notes due 2018 (the ~~“7.625% Senior~~“7.625% Notes”). Interest is payable semi-annually in arrears on May 1 and November 1 of each year ~~commencing on May 1, 2011,~~ at a rate of 7.625% per annum. ~~A majority of the net proceeds were used to purchase~~

~~F-30~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~$489,065 aggregate principal amount of the 11.25% Notes.~~ The 7.625% ~~Senior~~ Notes mature on November 1, ~~2018.~~2018. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 7.625% Notes.

5.25% Senior ~~Notes.~~Notes due 2022

In August 2012, we issued $400,000 aggregate principal amount of 5.25% Senior Notes due 2022 (the “5.25% Notes”). Interest is payable semi-annually in arrears on February 15 and August 15 of each year at a rate of 5.25% per annum. The 5.25% Notes mature on August��15, 2022. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 5.25% Notes.

~~Expired~~

Senior Secured Revolving Credit ~~Arrangements~~Facility

~~LM Term Loan and LM Purchase Money Loan~~

In ~~February 2009, SIRIUS~~December 2012, we entered into a five-year Senior Secured Revolving Credit ~~Agreement~~Facility (the ~~“LM Credit Agreement”~~"Credit Facility") with ~~Liberty Media Corporation, as administrative agent~~a syndicate of financial institutions for $1,250,000. The Credit Facility is secured by substantially all our assets and ~~collateral agent. The LM Credit Agreement provided for a $250,000 term loan (“LM Term Loan”) and $30,000~~the assets of ~~purchase money loans (“LM Purchase Money Loan”). Concurrently with entering into the LM Credit Agreement, SIRIUS borrowed $250,000 under the LM Term Loan.~~our subsidiaries. The proceeds of loans under the ~~LM Term Loan were~~Credit Facility will be used ~~(i) to repay at maturity our outstanding 2.5% Convertible Notes due February 17, 2009~~for working capital and ~~(ii) for~~other general corporate purposes, including ~~related transaction costs.~~financing acquisitions, share repurchases and dividends. Interest on borrowings is payable on a quarterly basis and accrues at a rate based on LIBOR plus an applicable rate. We are also required to pay a variable fee on the average daily unused portion of the Credit Facility which is currently 0.30% per annum and is payable on a quarterly basis. The Credit Facility contains customary covenants, including a maintenance covenant.

As of December 31, 2012, we have not drawn on the Credit Facility.

Retired Debt

9.75% Senior Secured Notes due 2015

In August 2009, we issued $257,000 aggregate principal amount of 9.75% Senior Secured Notes due September 1, 2015 (the “9.75% Notes”). The 9.75% Notes were issued for $244,292, resulting in an aggregate original issuance discount of $12,708. Substantially all of our domestic wholly-owned subsidiaries guaranteed our obligations under the 9.75% Notes. The 9.75% Notes and related guarantees were secured by first-priority liens on substantially all of our assets and the assets of the guarantors.

During the year endedDecember 31, 2012, we purchased $257,000 in aggregate principal amount of the 9.75% Notes for an aggregate purchase price, including interest, of $281,698. We recognized an aggregate loss on the extinguishment of the

F-26

Table of Contents

SIRIUS ~~used net proceeds from~~XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

9.75% Notes of $22,184 during the ~~sale~~year endedDecember 31, 2012, consisting primarily of ~~its 9.75%~~unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.

13% Senior Notes due 2013

In July 2008, we issued $778,500 aggregate principal amount of 13% Senior Notes due 2013 (the “13% Notes”). The 13% Notes would have matured on August 1, 2013. Substantially all of our domestic wholly-owned subsidiaries guaranteed our obligations under the 13% Notes.

During the year endedDecember 31, 2012, we purchased $778,500, in aggregate principal amount of the 13% Notes for an aggregate purchase price, including interest, of $879,133. We recognized an aggregate loss on the extinguishment of the 13% Notes of $110,542 during the year endedDecember 31, 2012, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to ~~extinguish~~Loss on extinguishment of debt and credit facilities, net.

3.25% Convertible Notes due 2011

In 2011, we purchased $168,113 of our then outstanding 3.25% Convertible Notes due 2011 (the "3.25% Notes") at prices between 100.75% and 101% of the ~~LM Term Loan~~principal amount plus accrued interest. We recognized a loss on extinguishment of debt for the 3.25% Notes of $2,291 for the year endedDecember 31, 2011, which consisted primarily of cash premiums paid, unamortized discount and ~~LM Purchase Money Loan.~~deferred financing fees. The remainder of the 3.25% Notes was paid upon maturity in the fourth quarter of 2011.

11.25% Senior Secured Notes due 2013

In October 2010, we purchased $489,065 in aggregate principal amount of our 11.25% Senior Secured Notes due 2013 (the "11.25% Notes"). The aggregate purchase price for the 11.25% Notes was $567,927. We recorded an aggregate loss on extinguishment of the ~~LM Term Loan and LM Purchase Money Loan~~11.25% Notes of ~~$134,520~~$85,216, consisting primarily of ~~the~~ unamortized discount, deferred financing fees and ~~unaccreted portion of the~~ repayment premium to Loss on extinguishment of debt and credit facilities, net, in our 2010 consolidated statements of ~~operations.~~

~~Amended and Restated Credit Agreement due 2011~~

~~In March 2009, XM amended and restated~~comprehensive income. The remainder of the ~~$100,000 Senior Secured Term Loan due 2009, dated as~~11.25% Notes of June 26, 2008, and the $250,000 Senior Secured Revolving Credit Facility due 2009, dated as of May 5, 2006. These facilities were combined as term loans into the Amended and Restated Credit Agreement, dated as of March 6, 2009. Liberty Media LLC$36,685 was purchased ~~$100,000 aggregate principal amount of such loans from the lenders.~~

In June 2009, XM used net proceeds from the sale of its 11.25% Notes to repay amounts due under and extinguish the Amended and Restated Credit Agreement. XM paid a repayment premium of $6,500. We recordedin January 2011 for an aggregate purchase price of $40,376. A loss on extinguishment of the Amended and Restated Credit Agreement of $49,996 consisting primarily of the unamortized discount, deferred financing fees and unaccreted portion of the repayment premium to Loss onfrom extinguishment of debt ~~and credit facilities, net, in our consolidated statements~~ of ~~operations.~~$4,915 associated with this purchase was recorded during the year ended December 31, 2011.

~~Second-Lien Credit Agreement~~

In February 2009, XM entered into a Credit Agreement (the “XM Credit Agreement”) with Liberty Media Corporation, as administrative agent and collateral agent. The XM Credit Agreement provided for a $150,000 term loan. On March 6, 2009, XM amended and restated the XM Credit Agreement (the “Second-Lien Credit Agreement”) with Liberty Media Corporation.

In June 2009, XM terminated the Second-Lien Credit Agreement in connection with the sale of the 11.25% Notes and repaid all amounts due thereunder. We recorded a loss on termination of the Second-Lien Credit Agreement of $57,663 related to deferred financing fees to Loss on extinguishment of debt and credit facilities, net, in our consolidated statements of operations.

Covenants and Restrictions

Our debt generally requires compliance with certain covenants that restrict our ability to, among other things, (i) incur additional indebtedness unless our consolidated leverage ~~ratio~~ would be no greater than ~~6.00 to 1.00~~5.0 times consolidated operating cash flow after the incurrence of the indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary

~~F-31~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

prepayments of certain debt, in each case subject to exceptions. We ~~operated XM~~also must comply with a maintenance covenant that we not exceed a total leverage ratio, calculated as ~~an unrestricted subsidiary for purposes~~total consolidated debt to consolidated operating cash flow, of ~~compliance with the covenants contained in our debt instruments through January 12, 2011.~~5.0 to 1.0.

Under our debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; (v) certain events of bankruptcy; (vi) a judgment for payment of money exceeding a specified aggregate amount; and (vii) voidance of subsidiary guarantees, subject to grace periods where applicable. If an event of default occurs and is continuing, our debt could become immediately due and payable.

At December 31, ~~2010,~~2012 and 2011, we were in compliance with our debt covenants.

F-27

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)


~~(12)~~ (13)	Stockholders’ Equity

Common Stock, par value ~~$0.001~~$0.001 per share

We were authorized to issue up to 9,000,000,000 shares of common stock as of December 31, ~~2010~~2012 and ~~2009.~~2011. There were ~~3,933,195,112~~5,262,440,085 and ~~3,882,659,087~~3,753,201,929 shares of common stock issued and outstanding as of December 31, ~~2010~~2012 and ~~2009,~~2011, respectively.

As of December 31, ~~2010,~~2012, approximately ~~3,361,345,000~~1,885,629,000 shares of common stock were reserved for issuance in connection with outstanding convertible debt, preferred stock, warrants, incentive stock awards and common stock to be granted to third parties upon satisfaction of performance targets.

Special Dividend Declared, $0.05 per share

On December 5, 2012, we declared a special cash dividend of $0.05 per share on our outstanding common stock and preferred stock, on an as-converted basis, to stockholders of record as of the close of business on December 18, 2012. The dividend was paid in cash on December 28, 2012 in the amount of $327,062.

Stock Repurchase Program

In December 2012, we announced that our board of directors approved a $2,000,000 common stock repurchase program. Shares of common stock may be purchased from time to time on the open market or in privately negotiated transactions. As of December 31, 2012, we have not repurchased any shares.

Share Lending Arrangements

To facilitate the offering of the Exchangeable Notes, we entered into share lending agreements with Morgan Stanley Capital Services Inc. (“MS”) and UBS AG London Branch (“UBS”) in July 2008, under which we loaned MS and UBS an aggregate of 262,400,000 shares of our common stock in exchange for a fee of ~~$0.001~~$0.001 per share. ~~The obligations of MS to us under its share lending agreement are guaranteed by its parent company, Morgan Stanley.~~ During the third quarter of 2009, MS returned to us 60,000,000 shares of our common stock ~~borrowed in July 2008, which~~borrowed. In October 2011, MS and UBS returned the remaining 202,400,000 shares loaned. The returned shares were retired upon ~~receipt. As of December 31, 2010~~receipt and ~~2009, there were 202,400,000 shares loaned under the facilities.~~

~~Under each~~removed from outstanding common stock. The share lending agreement, the share loan will terminate in whole or in part, as the case may be, and the relevant borrowed shares must be returned to us upon the earliest of the following: (i) the share borrower terminates all or a portion of the loan between it and us, (ii) we notify the share borrower that some of the Exchangeable Notes as to which borrowed shares relateagreements have been exchanged, repaid or repurchased or are otherwise no longer outstanding, (iii) the maturity date of the Exchangeable Notes, December 1, 2014, (iv) the date as of which the entire principal amount of the Exchangeable Notes ceases to be outstanding as a result of exchange, repayment, repurchase or otherwise or (v) the termination of the share lending agreement by the share borrower or by us upon default by the other party, including the bankruptcy of us or the share borrower or, in the case of the MS share lending agreement, the guarantor. A share borrower may delay the return of borrowed shares for up to 30 business days (or under certain circumstances, up to 60 business days) if such share borrower is legally prevented from returning the borrowed shares to us, in which case the share borrower may, under certain circumstances, choose to pay us the value of the borrowed shares in cash instead of returning the borrowed shares. Once borrowed shares are returned to us, they may not be re-borrowed under the share lending agreements. There were no requirements for the share borrowers to provide collateral.

The shares we loaned to the share borrowers are issued and outstanding for corporate law purposes, and holders of borrowed shares (other than the share borrowers) have the same rights under those shares as holders of any of our other outstanding common shares.terminated. Under GAAP, the borrowed shares ~~are~~were not considered outstanding for the purpose of computing and reporting our net income ~~(loss)~~ per common share. ~~The accounting method may change if, due~~

We recorded interest expense related to ~~a default by either UBS or MS (or Morgan Stanley, as guarantor),~~ the ~~borrowed shares, or~~amortization of the ~~equivalent value of those shares, will not be returned to us as required under~~costs associated with the share lending ~~agreements.~~

~~F-32~~

arrangement and other issuance costs for our Exchangeable Notes of ~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~
$12,402, $11,189 and $10,095 for the years endedDecember 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, the unamortized balance of the debt issuance costs was $27,652, with $27,099 recorded in Deferred financing fees, net, and $553 recorded in Long-term related party assets. As of December 31, 2011, the unamortized balance of the debt issuance costs was $40,054, with $39,253 recorded in Deferred financing fees, net, and $801 recorded in Long-term related party assets. These costs will continue to be amortized until the debt is terminated.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~Other

In January 2004, ~~SIRIUS~~Sirius Satellite Radio Inc. signed a ~~seven-year~~seven-year agreement with a sports programming ~~provider.~~provider which expired in February 2011. Upon execution of this agreement, ~~SIRIUS~~Sirius delivered 15,173,070 shares of common stock valued at ~~$40,967~~$40,967 to that programming provider. These shares of common stock ~~are~~were subject to transfer restrictions which ~~lapse~~lapsed over time. We recognized share-based payment expense associated with these shares of ~~$5,852~~$1,568 and $5,852 in the years endedDecember 31, ~~2010, 2009~~2011 and ~~2008.~~2010, respectively. As of December 31, ~~2010, there was a $1,568 remaining balance~~2011, the value of the common stock ~~value included in other current assets. As of December 31, 2009, there~~ was ~~a $7,420 remaining balance of common stock value included in other current assets and other long-term assets in the amount of $5,852 and $1,568, respectively.~~fully expensed.

Preferred Stock, par value ~~$0.001~~$0.001 per share

We were authorized to issue up to 50,000,000 shares of undesignated preferred stock as of December 31, ~~2010~~2012 and ~~2009.~~

2011. There were ~~zero and 24,808,959~~no shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) issued and outstanding as of December 31, ~~2010~~2012 and ~~2009, respectively. In September 2010, the holder of the Series A Preferred Stock converted the 24,808,959 outstanding shares into an equal number of~~2011.

There were 6,250,100 and 12,500,000 shares of ~~our common stock.~~

~~There were 12,500,000 shares of Convertible Perpetual~~Series B Preferred Stock ~~Series B (the “Series B Preferred Stock”),~~ issued and outstanding as of December 31, ~~2010~~2012 and ~~2009.~~2011, respectively. In September 2012, Liberty Media converted 6,249,900 shares of the Series B Preferred Stock into 1,293,467,684 shares of common stock. The Series B Preferred Stock is convertible into shares of our common stock at the rate of 206.9581409 shares of common stock for each share of Series B Preferred Stock, representing approximately ~~40%~~20% of our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

outstanding shares of common stock (after giving effect to such conversion). As the holder of the Series B Preferred Stock, Liberty Radio LLC is entitled to a number of votes equal to the number of shares of our common stock into which ~~each~~ such shares of Series B Preferred Stock ~~share is~~are convertible. Liberty Radio LLC will also receive dividends and distributions ratably with our common stock, on an as-converted basis. With respect to dividend rights, the Series B Preferred Stock ranks evenly with our common stock and each other class or series of our equity securities not expressly provided as ranking senior to the Series B Preferred Stock. With respect to liquidation rights, the Series B Preferred Stock ranks evenly with each other class or series of our equity securities not expressly provided as ranking senior to the Series B Preferred Stock, and ~~will rank~~ranks senior to our common stock. ~~In 2009, we accounted for the issuance~~For a discussion of ~~Series B Preferred Stock by recording a $227,716 increase~~subsequent events refer to additional paid-in capital for the amount of allocated proceeds received and an additional $186,188 increase to paid-in capital for the beneficial conversion feature, which was recognized as a charge to retained earnings.Note 18.

There were no shares of Preferred Stock, Series C Junior (the “Series C Junior Preferred Stock”), issued and outstanding as of December 31, 2010 and 2009. In 2009, our board of directors created and reserved for issuance in accordance with the Rights Plan (as described below) 9,000 shares of the Series C Junior Preferred Stock. The shares of Series C Junior Preferred Stock are not redeemable and rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of our preferred stock, unless the terms of such series shall so provide.Warrants

~~Warrants~~

We have issued warrants to purchase shares of common stock in connection with distribution, ~~and~~ programming ~~agreements,~~and satellite purchase ~~agreements and certain debt issuances.~~agreements. As of December 31, ~~2010,~~2012 and 2011, approximately ~~42,421,000~~18,455,000 and 22,506,000 warrants to acquire an equal number of shares of common stock ~~with an average exercise price of $2.66 per share~~ were outstanding and fully vested. Warrants ~~vest over time or upon~~were excluded from the ~~achievement~~calculation of ~~milestones and~~diluted net income per common share as the effect would have been anti-dilutive for the year ended December 31, 2012. The warrants expire at various times through 2015. At December 31, 2012 and 2011, the weighted average exercise price of outstanding warrants was $2.55 and $2.63 per share, respectively. We ~~incurred~~did not incur warrant related ~~expense of $0, $2,522 and $1,865 for~~expenses during the years endedDecember 31, 2012, 2011 or 2010 ~~2009 and 2008, respectively.~~.

~~F-33~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Talent Option Plan. No further awards may be made under these plans. ~~Outstanding awards under these plans are being continued.~~

The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:

For the Years Ended December 31,
2010 2009 2008

Risk-free interest rate 1.7 % 2.5 % 2.3 %
Expected life of options — years 5.28 4.68 4.89
Expected stock price volatility 85 % 88 % 80 %
Expected dividend yield 0 % 0 % 0 %

~~The following table summarizes~~



	For the Years Ended December 31,
	2012	2011	2010
Risk-free interest rate	0.8%	1.1%	1.7%
Expected life of options — years	5.06	5.27	5.28
Expected stock price volatility	49%	68%	85%
Expected dividend yield	0%	0%	0%

We do not intend to pay regular dividends on our common stock. Accordingly, the ~~range of assumptions~~dividend yield percentage used in the Black-Scholes-Merton option value is set to ~~compute the fair value of options granted to third parties, other than non-employee members of our board of directors:~~zero for all periods.

For the Years Ended December 31,
2009 2008

Risk-free interest rate 0.67-2.69% 0.37-3.34%
Expected life — years 2.33-6.19 1.25-4.08
Expected stock price volatility 83-130% 80%
Expected dividend yield 0% 0%

There were no options granted to third parties, other than non-employee members of our board of directors, during the ~~year~~years endedDecember 31, ~~2010.~~

~~F-35~~

2012~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~
, 2011 and 2010.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following table summarizes stock option activity under our share-based payment plans for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008 (shares~~2010 (options in thousands):

Weighted-
Weighted-Average

Average
Remaining
Aggregate

Exercise
Contractual Term
Intrinsic

Shares Price (Years) Value

Outstanding, January 1, 2008 79,600 $ 5.38
Options exchanged for outstanding XM Holdings options 67,711 $ 4.09
Granted 24,358 $ 2.12
Exercised (117 ) $ 1.74
Forfeited, cancelled or expired (6,116 ) $ 4.09

Outstanding, December 31, 2008 165,436 $ 4.42
Granted 265,761 $ 0.53
Exercised — $ —
Forfeited, cancelled or expired (66,405 ) $ 5.21

Outstanding, December 31, 2009 364,792 $ 1.44
Granted 71,179 $ 0.97
Exercised (19,360 ) $ 0.56
Forfeited, cancelled or expired (14,741 ) $ 3.58

Outstanding, December 31, 2010 401,870 $ 1.32 6.45 $ 327,294

Exercisable, December 31, 2010 123,479 $ 2.68 4.52 $ 59,739



	Options		Weighted- Average Exercise Price (1)		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2010	364,792		$	1.44
Granted	71,179		$	0.97
Exercised	(19,360	)	$	0.56
Forfeited, cancelled or expired	(14,741	)	$	3.58
Outstanding as of December 31, 2010	401,870		$	1.32
Granted	77,450		$	1.80
Exercised	(13,300	)	$	0.87
Forfeited, cancelled or expired	(26,440	)	$	4.15
Outstanding as of December 31, 2011	439,580		$	1.25
Granted	58,626		$	2.53
Exercised	(214,199	)	$	0.59
Forfeited, cancelled or expired	(9,495	)	$	3.09
Outstanding as of December 31, 2012	274,512		$	1.92	7.29	$	320,751
Exercisable as of December 31, 2012	93,822		$	2.53	5.19	$	89,517


(1)	The weighted-average exercise price for options outstanding and exercisable as of December 31, 2012 in the table above have been adjusted to reflect the reduction to the exercise price related to the December 28, 2012 special cash dividend.

The weighted average grant date fair value of options granted during the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010 was ~~$0.67, $0.36~~$1.09, $1.04 and ~~$1.27,~~$0.67, respectively. The total intrinsic value of stock options exercised during the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010 was ~~$13,261, $0~~$399,794, $13,408 and ~~$127.~~$13,261, respectively.

On December 5, 2012, we declared a special cash dividend of $0.05 per share on our outstanding common stock and preferred stock, on an as-converted basis, to stockholders of record as of the close of business on December 18, 2012. The dividend was paid in cash on December 28, 2012. The compensation committee of our board of directors, which administers

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

our stock incentive plans, adjusted the exercise price of stock options issued under the plans by decreasing the exercise price by $0.05 per share. The stock options outstanding as of December 18, 2012 were adjusted on December 28, 2012. This adjustment did not result in any additional incremental share-based payment expense being recognized.

We recognized share-based payment expense associated with stock options of ~~$44,833, $46,080~~$60,299, $48,038 and ~~$49,148~~$44,833 for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively.

~~F-36~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following table summarizes the nonvested restricted stock and restricted stock unit activity under our share-based payment plans for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010 (shares in thousands):

Weighted-Average

Grant Date

Shares Fair Value

Nonvested, January 1, 2008 3,623 $ 3.70
Shares exchanged for non-vested XM holdings shares 33,339 $ 2.93
Granted 3,208 $ 2.87
Vested restricted stock awards (15,342 ) $ 2.97
Vested restricted stock units (2,793 ) $ 3.55
Forfeited (2,104 ) $ 2.90

Nonvested, December 31, 2008 19,931 $ 2.84
Granted 84,851 $ 0.37
Vested restricted stock awards (8,476 ) $ 2.98
Vested restricted stock units (87,036 ) $ 0.46
Forfeited (2,351 ) $ 1.92

Nonvested, December 31, 2009 6,919 $ 2.65
Granted — $ —
Vested restricted stock awards (4,039 ) $ 2.85
Vested restricted stock units (192 ) $ 2.92
Forfeited (291 ) $ 2.72

Nonvested, December 31, 2010 2,397 $ 2.57

The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2010, 2009 and 2008 was $0, $0.37 and $2.87; no restricted stock units were granted during 2010.



	Shares		Grant Date Fair Value
Nonvested as of January 1, 2010	6,919		$	2.65
Granted	—		$	—
Vested restricted stock awards	(4,039	)	$	2.85
Vested restricted stock units	(192	)	$	2.92
Forfeited	(291	)	$	2.72
Nonvested as of December 31, 2010	2,397		$	2.57
Granted	—		$	—
Vested restricted stock awards	(1,854	)	$	3.30
Vested restricted stock units	(101	)	$	3.08
Forfeited	(21	)	$	3.05
Nonvested as of December 31, 2011	421		$	1.46
Granted	8		$	—
Vested restricted stock awards	—		$	—
Vested restricted stock units	—		$	—
Forfeited	—		$	—
Nonvested as of December 31, 2012	429		$	1.46

The total intrinsic value of restricted stock and restricted stock units that vested during the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010 was ~~$3,927, $45,827~~$0, $3,178 and ~~$21,451,~~$3,927, respectively.

We recognized share-based payment expense associated with restricted stock units and shares of restricted stock of ~~$7,397, $16,632~~$0, $543 and ~~$21,813~~$7,397 for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively.

No restricted stock units were granted during 2011 or 2010. In connection with the special cash dividend paid in December 2012, we granted 8,000 incremental restricted stock units to prevent the economic dilution of the holders of our restricted stock units. This grant did not result in any additional incremental share-based payment expense being recognized.

Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units and shares granted to employees and members of our board of directors at December 31, ~~2010~~2012 and ~~2009,~~December 31, 2011, net of estimated forfeitures, was ~~$108,170~~$129,010 and ~~$114,068,~~$129,983, respectively. The ~~weighted-average period over which the~~total unrecognized compensation ~~expense for these awards is~~costs at December 31, 2012 are expected to be recognized ~~is three years as~~over a weighted-average period of ~~December 31, 2010.~~three years.

401(k) Savings Plan

We sponsor the Sirius XM Radio 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees.

The Sirius XM Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions, up to 6% of an employee’s pre-tax ~~salary,~~salary. For the years ended December 31, 2012, 2011 and 2010, these matching contributions were made in the form of

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

shares of our common stock. Employer matching contributions under the Sirius XM Plan vest at a rate of 33133.33%/3% for each year of employment and are fully vested after three years of employment for all current and future ~~contributions. Legacy XM Plan participants are fully vested for all current and future employer~~ contributions. Share-based payment expense resulting from the matching contribution to the ~~plans~~Sirius XM Plan was ~~$2,356, $2,895~~$3,523, $3,041 and ~~$2,735~~$2,356 for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively.

~~F-37~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

We may also elect to contribute to the profit sharing portion of the Sirius XM Plan based upon the total eligible compensation of eligible participants. These additional contributions ~~in the form of shares of common stock~~ are determined by the compensation committee of our board of directors. ~~Employees are only eligible~~We did not contribute to ~~receive profit-sharing contributions during any year in which they are employed on~~ the ~~last day~~profit sharing portion of the ~~year. Profit-sharing contribution expense was $0, $0 and $6,610 for the years ended December 31, 2010, 2009 and 2008, respectively.~~Sirius XM Plan in 2012, 2011 or 2010.


~~(14)~~ (15)	~~Income Taxes~~

~~Our income tax expense consisted of the following:~~

For the Years Ended December 31,
2010 2009 2008

Current taxes:
Federal $ — $ — $ —
State 942 — —
Foreign 1,370 1,622 —

Total current taxes 2,312 1,622 —

Deferred taxes:
Federal 4,163 3,962 2,674
State (1,855 ) 397 (198 )

Total deferred taxes 2,308 4,359 2,476

Total income tax expense $ 4,620 $ 5,981 $ 2,476

~~The following table indicates the significant elements contributing to the difference between the federal tax benefit at the statutory rate and at our effective rate:~~

For the Years Ended

December 31,
2010 2009 2008

Federal tax expense (benefit), at statutory rate $ 16,678 $ (117,883 ) $ (1,858,784 )
State income tax expense (benefit), net of federal benefit 1,620 (11,788 ) (185,879 )
State rate changes (2,252 ) — 17,307
Non-deductible expenses 4,130 1,849 1,930,650
Other, net 6,193 (4,945 ) (477 )
Change in valuation allowance (21,749 ) 138,748 99,659

Income tax expense $ 4,620 $ 5,981 $ 2,476

~~F-38~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:~~

December 31,
2010 2009

Deferred tax assets:
Net operating loss carryforwards $ 3,091,869 $ 3,086,067
GM payments and liabilities 308,776 311,235
Deferred revenue 346,221 226,763
Severance accrual 266 1,821
Accrued bonus 16,599 16,130
Expensed costs capitalized for tax 44,149 59,999
Loan financing costs 1,568 17,288
Investments 62,742 61,643
Stock based compensation 118,507 155,754
Other 53,260 49,538

Total deferred tax assets 4,043,957 3,986,238
Deferred tax liabilities:
Depreciation of property and equipment (379,180 ) (126,240 )
FCC license (773,850 ) (771,407 )
Other intangible assets (209,489 ) (251,360 )
Other — (89,441 )

Net deferred tax liabilities (1,362,519 ) (1,238,448 )
Net deferred tax assets before valuation allowance 2,681,438 2,747,790
Valuation allowance (3,551,288 ) (3,615,332 )

Net deferred tax liability $ (869,850 ) $ (867,542 )

The difference in the net deferred tax liability of $869,850 and $867,542 at December 31, 2010 and 2009, respectively, is primarily the result of the amortization of the FCC license which is amortized over 15 years for tax purposes but not amortized for book purposes. This net deferred tax liability cannot be offset against our deferred tax assets under GAAP since it relates to indefinite-lived assets and is not anticipated to reverse in the same period.

At December 31, 2010, we had net operating loss (“NOL”) carryforwards of approximately $8,052,000 for federal and state income tax purposes available to offset future taxable income. These NOL carryforwards expire on various dates beginning in 2014. We have had several ownership changes under Section 382 of the Internal Revenue Code, which may limit our ability to utilize tax deductions.

As a result of the Merger, both SIRIUS and XM had a Section 382 ownership change. The ownership change does not limit our ability to utilize future tax deductions and so no adjustments were made to gross deferred tax assets as a result of the Merger.

Future changes in our ownership may limit our ability to utilize our deferred tax assets. Realization of our deferred tax assets is dependent upon future earnings; accordingly, a full valuation allowance was recorded against the assets.

As of December 31, 2010 and 2009, we recorded $942 and $0, respectively, for uncertain state tax positions in other long term liabilities. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2010 will significantly increase or decrease during the twelve-month period ending

~~F-39~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

December 31, 2011; however, various events could cause our current expectations to change in the future. Should our position with respect to the majority of these uncertain tax positions be upheld, the effect would be recorded in the statement of operations as part of the income tax provision.

The impact of temporary differences and tax attributes are considered when calculating interest and penalty accruals associated with the tax reserve. The amount accrued for interest and penalties as of December 31, 2010 and December 31, 2009 was zero for both periods. Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense.


~~(15)~~	Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of December 31, ~~2010:~~2012:

2011 2012 2013 2014 2015 Thereafter Total

Long-term debt obligations(1) $ 196,332 $ 1,558 $ 816,321 $ 550,182 $ 1,057,000 $ 700,000 $ 3,321,393
Cash interest payments 299,518 292,463 290,271 186,935 113,433 160,125 1,342,745
Satellite and transmission 120,444 5,481 5,963 14,455 13,997 21,195 181,535
Programming and content 255,463 218,662 174,596 151,581 145,231 3,750 949,283
Marketing and distribution 44,657 20,155 12,956 8,590 7,000 8,000 101,358
Satellite incentive payments 9,767 12,071 12,790 12,632 12,165 86,123 145,548
Operating lease obligations 32,279 28,090 24,256 18,383 10,364 3,101 116,473
Other 30,527 9,679 298 2 — — 40,506

Total(2) $ 988,987 $ 588,159 $ 1,337,451 $ 942,760 $ 1,359,190 $ 982,294 $ 6,198,841



	2013		2014		2015		2016		2017		Thereafter		Total
Long-term debt obligations	$	4,234	$	553,406	$	803,355	$	866	$	—	$	1,100,000	$	2,461,861
Cash interest payments	186,552		186,918		113,285		78,193		78,865		158,375		802,188
Satellite and transmission	67,170		27,620		13,874		4,351		3,484		20,334		136,833
Programming and content	219,450		187,964		173,959		23,613		11,125		—		616,111
Marketing and distribution	20,825		12,650		6,385		3,878		568		381		44,687
Satellite incentive payments	9,211		12,377		11,478		12,311		13,259		69,066		127,702
Operating lease obligations	38,434		32,190		34,805		24,727		18,568		206,426		355,150
Other	59,848		21,534		3,572		1,071		278		23		86,326
Total (1)	$	605,724	$	1,034,659	$	1,160,713	$	149,010	$	126,147	$	1,554,605	$	4,630,858


(1)		~~Includes capital lease obligations.~~

~~(2)~~		The table does not include our reserve for uncertain ~~taxes,~~tax positions, which at December 31, ~~2010~~2012 totaled ~~$942,~~$1,432, as the specific timing of any cash payments ~~relating to this obligation~~ cannot be projected with reasonable certainty.

Long-term debt obligations.Long-term debt obligations include principal payments on outstanding debt and capital lease obligations. Included in the chart above in 2013 is $36,685 of the 11.25% Notes, which were repurchased in full in January 2011, for an aggregate purchase price of $40,376, which includes consent payments and accrued and unpaid interest. Included in the chart above in 2011, is $94,148 of the 3.25% Notes which was repurchased in February 2011 for a purchase price of $96,041 which includes accrued and unpaid interest.

Cash interest payments.Cash interest payments include interest due on outstanding debt and capital lease payments through maturity. ~~The chart above does not give effect to the purchases of the 11.25% Notes in January 2011 or the 3.25% Notes in February 2011.~~

Satellite and transmission.We have entered into agreements with third parties to operate and maintain the off-site satellite telemetry, tracking and control facilities and certain components of our terrestrial repeater networks. We have also entered into various agreements to design and construct a satellite and related launch vehicle for use in our systems.

~~F-40~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

We have an agreement with Space Systems/Loral to design and construct a sixth satellite, FM-6, for use in the SIRIUS system. In January 2008, we entered into an agreement with International Launch Services (ILS) to secure a satellite launch on a Proton rocket for this satellite.

Programming and content.We have entered into various programming agreements. Under the terms of these agreements, ~~we are obligated to provide payments to other entities that may~~our obligations include fixed payments, advertising commitments and revenue sharing arrangements.

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. Certain programming and content agreements also require us to purchase advertising on properties owned or controlled by the licensors. We also reimburse automakers for certain engineering and development costs associated with the incorporation of satellite radios into vehicles they manufacture. In addition, in the event certain new products are not shipped by a distributor to its customers within 90 days of the distributor’s receipt of goods, we have agreed to purchase and take title to the product.

Satellite incentive payments.Boeing Satellite Systems International, Inc., the manufacturer of four of XM’s in-orbit satellites, may be entitled to future in-orbit performance payments with respect to two of XM’s satellites. As of December 31, ~~2010,~~2012, we have accrued ~~$28,605~~$27,832 related to contingent in-orbit performance payments for our XM-3 and XM-4 satellites based on expected operating performance over their fifteen ~~year~~-year design life. Boeing may also be entitled to an additional ~~$10,000~~$10,000 if our XM-4 satellite continues to operate above baseline specifications during the five years beyond the satellite’s ~~fifteen-year~~fifteen-year design life.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

Space Systems/Loral, a manufacturer of our in-orbit satellites, may be entitled to future in-orbit performance payments. As of December 31, ~~2010,~~2012, we have accrued ~~$12,565~~$8,663 and ~~$21,450~~$21,450 related to contingent performance payments for our FM-5 and XM-5 satellites, respectively, based on their expected operating performance over their ~~fifteen-year~~fifteen-year design life.

Operating lease obligations.We have entered into cancelable and non-cancelable operating leases for office space, equipment and terrestrial repeaters. These leases provide for minimum lease payments, additional operating expense charges, leasehold improvements and rent escalations that have initial terms ranging from one to fifteen years, and certain leases that have options to renew. The effect of the rent holidays and rent concessions are recognized on a straight-line basis over the lease term, including reasonably assured renewal periods. Total rent recognized in connection with leases for the years endedDecember 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010 was ~~$36,652, $44,374~~$37,474, $34,143 and ~~$40,378,~~$36,652, respectively.

Other.We have entered into various agreements with third parties for general operating purposes. In addition to the minimum contractual cash commitments described above, we have entered into agreements with other variable cost arrangements. These future costs are dependent upon many factors, including subscriber growth, 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 variable cost provisions.

We do not have any other significant off-balance sheet financing arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Legal Proceedings

In the ordinary course of business, we are a defendant or party to various claims and lawsuits, including those discussed below. These claims are at various stages of arbitration or adjudication.

State Consumer ~~Investigations.~~Investigations. A Multistate Working Group of 2831 State Attorneys General, led by the Attorney General of the State of Ohio, is investigating certain of our consumer practices. The investigation focuses on practices relating to the cancellation of subscriptions; automatic renewal of subscriptions; charging, billing, collecting, and refunding or crediting of payments from consumers; and soliciting customers.

A separate investigation into our consumer practices is being conducted by the ~~Attorney~~Attorneys General of the State of ~~Florida. In addition, in September 2010, the Attorney General of~~Florida and the State of ~~Missouri commenced an action against us in Missouri Circuit Court, Twenty-Second Judicial Circuit, St. Louis, Missouri, alleging violations of the~~

~~F-41~~

~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Missouri Telemarketing No-Call List Act. The suit seeks a permanent injunction prohibiting us from making, or causing to be made, telephone solicitations to our subscribers in the State of Missouri who are on Missouri’s no-call list, statutory penalties and reimbursement of costs. We believe our telemarketing activities to our subscribers in Missouri fully comply with applicable law.

New York. We are cooperating with these investigations and believe our consumer practices comply with all applicable federal and state laws and regulations.

~~Carl Blessing et al.~~One Twelve, Inc. and Don Buchwald v. Sirius XM Radio Inc. ~~A subscriber, Carl Blessing, filed a lawsuit~~ In March 2011, One Twelve, Inc., Howard Stern's production company, and Don Buchwald, Stern's agent, commenced an action against us in the United States District Court for the Southern District of New York. Mr. Blessing’s lawsuit has been consolidated with substantially identical lawsuits brought by other subscribers. Mr. Blessing and 23 other plaintiffs purport to represent all subscribers who were subject to: an increase in the price for additional-radio subscriptions from $6.99 to $8.99; the imposition of the US Music Royalty Fee; and the elimination of our free streaming internet service. Based on these pricing changes, the suit raises four claims. First, the suit claims the pricing changes show that the Merger lessened competition or led to a monopoly in violation of the Clayton Act. Second, it claims that, for the same reason, the Merger led to monopolization in violation of the Sherman Act. Third, it claims that our subscriber service agreement misrepresents that the US Music Royalty Fee will be used exclusively to defray increases in royalty costs incurred since the filing of the merger application with the FCC (and as permitted by the FCC order) in violation of the consumer protection and unfair trade practice laws of 41 states and the District of Columbia. A fourth claim — that the alleged misrepresentation violates the implied duty of good faith and fair dealing we owe our subscribers under New York contract law — has been dismissed by the court. The complaint seeks monetary damages as well as treble damages under the Clayton Act. Discovery in this matter is substantially complete and a trial has been scheduled for May 2011. We believe that the plaintiffs’ claims are without merit and we are vigorously defending ourselves in this litigation.

~~A stockholder, Mark Fialkov, also filed a shareholder derivative suit~~ in the Supreme Court of the State of New York, ~~claiming that, by allowing the price increases that prompted the Blessing litigation, our board~~County of ~~directors breached its duty of loyalty to the corporation.~~New York. The action ~~names~~alleged that, upon the Merger, we failed to honor our obligations under the performance-based compensation provisions of our prior agreement dated October 2004 with One Twelve and Buchwald, as ~~defendants Sirius XM~~agent; One Twelve and ~~fifteen individuals — all directors or former directors~~Buchwald each assert a claim of ~~Sirius XM. This lawsuit has been stayed pending resolution~~breach of contract. In April 2012, the ~~Blessing litigation.~~Court granted our motion for summary judgment and dismissed with prejudice the suit. The Court found the agreement unambiguous. One Twelve and Buchwald have appealed this decision.

Other ~~Matters.~~Matters. In the ordinary course of business, we are a defendant in various other lawsuits and arbitration proceedings, including derivative actions; actions filed by subscribers, both on behalf of themselves and on a class action basis; former employees; parties to contracts or leases; and owners of patents, trademarks, copyrights or other intellectual property. None of these other actions are, in our opinion, likely to have a material adverse effect on our business, financial condition or results of operations.

F-33

Table of Contents


~~(16)~~	~~Subsequent Events~~

~~Merger of XM Satellite Radio Inc. and Sirius XM Radio Inc.~~

On January 12, 2011, XM Satellite Radio Inc., our wholly-owned subsidiary, merged with and into Sirius XM Radio Inc. Prior to January 12, 2011, we operated XM Satellite Radio Inc., together with its subsidiaries, as an unrestricted subsidiary under the agreements governing our indebtedness.

~~Repurchase of 11.25% Notes~~

The remainder of the 11.25% Notes of $36,685 was purchased in January 2011, for an aggregate purchase price of $40,376. A loss from extinguishment of debt of $4,891 will be recorded in the first quarter of 2011.

~~F-42~~

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~— (Continued)~~- Continued

(Dollar amounts in thousands, unless otherwise stated)

(16) Income Taxes

~~Repurchase of 3.25% Notes~~

~~In February 2011, $94,148~~Our income tax expense consisted of the ~~3.25% Notes~~following:



	For the Years Ended December 31,
	2012			2011		2010
Current taxes:
Federal	$	—		$	—	$	—
State	1,319			3,229		942
Foreign	2,265			2,741		1,370
Total current taxes	3,584			5,970		2,312
Deferred taxes:
Federal	(2,729,823		)	3,991		4,163
State	(271,995		)	4,273		(1,855		)
Total deferred taxes	(3,001,818		)	8,264		2,308
Total income tax (benefit) expense	$	(2,998,234	)	$	14,234	$	4,620

The following table indicates the significant elements contributing to the difference between the federal tax (benefit) expense at the statutory rate and at our effective rate:



	For the Years Ended December 31,
	2012			2011			2010
Federal tax expense, at statutory rate	$	166,064		$	154,418		$	16,678
State income tax expense, net of federal benefit	16,606			15,751			1,620
State income rate changes	2,251			3,851			(2,252		)
Non-deductible expenses	477			457			4,130
Change in valuation allowance	(3,195,651		)	(166,452		)	(21,749		)
Other, net	12,019			6,209			6,193
Income tax (benefit) expense	$	(2,998,234	)	$	14,234		$	4,620

F-34

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are represented below:



	For the Years Ended December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	2,493,239		$	3,025,621
GM payments and liabilities	80,742			194,976
Deferred revenue	511,700			410,812
Severance accrual	46			21
Accrued bonus	23,798			17,296
Expensed costs capitalized for tax	26,569			35,227
Loan financing costs	428			1,575
Investments	39,915			40,880
Stock based compensation	64,636			89,862
Other	34,705			42,924
Total deferred tax assets	3,275,778			3,859,194
Deferred tax liabilities:
Depreciation of property and equipment	(185,007		)	(405,892		)
FCC license	(772,550		)	(781,742		)
Other intangible assets	(165,227		)	(188,988		)
Other	—			(189		)
Total deferred tax liabilities	(1,122,784		)	(1,376,811		)
Net deferred tax assets before valuation allowance	2,152,994			2,482,383
Valuation allowance	(9,835		)	(3,360,740		)
Total net deferred tax asset (liability)	$	2,143,159		$	(878,357	)

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried forward under tax law. Management's evaluation of the realizability of deferred tax assets considers both positive and negative evidence, including historical financial performance, scheduled reversal of deferred tax assets and liabilities, projected taxable income and tax planning strategies in making this assessment. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified.

For the year ended December 31, 2012, our deferred tax asset valuation allowance decreased by $3,350,905 in response to cumulative positive evidence in 2012 which outweighed the historical negative evidence from our emergence from cumulative losses in recent years and updated assessments regarding that it was ~~purchased,~~more likely than not that our deferred tax assets will be realized. Realization of the net deferred tax assets is dependent on our generation of sufficient future taxable income to obtain benefit from the reversal of temporary differences, primarily related to gross net operating loss carryforwards of approximately $6,571,519. In addition to the gross book net operating loss carryforwards, we have $599,153 of excess share-based compensation deductions that will not be realized until we utilize $6,571,519 of net operating losses, resulting in an approximate gross operating loss carryforward on our tax return of $7,170,672 or $2,493,239 tax effected. As of December 31, 2012, the deferred tax asset valuation allowance of $9,835 relates to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations. These net operating loss carryforwards expire on various dates beginning in 2017 and ending in 2028.

There is no current U.S. federal income tax provision, as all federal taxable income was offset by utilizing U.S. federal net operating loss carryforwards. The state income tax provision is primarily related to taxable income in certain states that have suspended the ability to use net operating loss carryforwards. The foreign income tax provision is primarily related to foreign withholding taxes related to royalty income between us and our Canadian affiliate.

F-35

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

As of December 31, 2012 and 2011, the gross liability for ~~an aggregate purchase price~~income taxes associated with uncertain state tax positions was $1,432, respectively. If recognized, $1,432 of ~~$96,041. A loss from extinguishment~~unrecognized tax benefits would affect the effective tax rate. This liability is recorded in Other long-term liabilities. No penalties have been accrued for. We do not currently anticipate that our existing reserves related to uncertain tax positions as of ~~debt~~December 31, 2012 will significantly increase or decrease during the twelve-month period ending December 31, 2013; however, various events could cause our current expectations to change in the future. Should our position with respect to the majority of ~~$1,079 will~~these uncertain tax positions be upheld, the effect would be recorded in ~~the first quarter~~our consolidated statements of ~~2011.~~

~~Canada Merger~~

Canadian Satellite Radio Holdings Inc. (“CSR”), parent company of XM Canada, and SIRIUS Canada announced in November 2010 that they have entered into a definitive agreement to combine the companies (the “Canada Merger”). Under the termscomprehensive income as part of the ~~agreement, SIRIUS Canada shareholders will be issued shares~~income tax provision. Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of ~~CSR representing~~income tax expense. We have recorded interest expense of $55 and $92 for the years ended December 31, 2012 and 2011, respectively, related to our unrecognized tax benefits presented below.

Changes in our uncertain income tax positions, from January 1 through December 31 are presented below:



	2012		2011
Balance, beginning of year	$	1,432	$	942
Additions for tax positions from prior years	—		490
Balance, end of year	$	1,432	$	1,432

We have federal and certain state income tax audits pending. We do not expect the ultimate disposition of these audits to have a 58.0% equity interest in CSR immediately following closing of the transaction. Our approximate ownership interest in CSR following closing of the Canada Merger will be a 37.1% equity interest (25.0% voting interest) representing approximately 45.5 million shares and will be accounted for under the equity method. The Canada Merger is anticipated to close during the second quarter of 2011. We are still evaluating the impact of the Canada Mergermaterial adverse affect on our financial ~~statements.~~position or results of operations.


~~(17)~~	~~Quarterly Financial Data — Unaudited~~

(17) Quarterly Financial Data--Unaudited

Our quarterly results of operations are summarized below:

For the Three Months Ended
March 31 June 30 September 30 December 31

2010:
Total revenue $ 663,784 $ 699,761 $ 717,548 $ 735,899
Cost of services $ (260,867 ) $ (266,121 ) $ (280,545 ) $ (291,699 )
Income from operations $ 125,140 $ 125,634 $ 143,069 $ 71,571
Net income (loss) $ 41,598 $ 15,272 $ 67,629 $ (81,444 )
Net income (loss) per common share — basic(1) $ 0.01 $ — $ 0.02 $ (0.02 )
Net income (loss) per common share — diluted(1) $ 0.01 $ — $ 0.01 $ (0.02 )
2009:
Total revenue $ 586,979 $ 590,829 $ 618,656 $ 676,174
Cost of services $ (268,947 ) $ (254,432 ) $ (266,888 ) $ (273,741 )
Income from operations $ 41,061 $ 37,235 $ 66,355 $ 83,675
Net (loss) income $ (52,648 ) $ (159,644 ) $ (151,527 ) $ 11,781
Net loss per common share — basic and diluted(1) $ (0.07 ) $ (0.04 ) $ (0.04 ) $ —



	For the Three Months Ended
	March 31			June 30			September 30			December 31
2012
Total revenue	$	804,722		$	837,543		$	867,360		$	892,415
Cost of services	$	(292,309	)	$	(293,975	)	$	(314,204	)	$	(328,882	)
Income from operations	$	199,238		$	227,942		$	231,749		$	213,096
Net income	$	107,774		$	3,134,170		$	74,514		$	156,244
Net income per common share--basic (1) (2)	$	0.02		$	0.49		$	0.01		$	0.02
Net income per common share--diluted (1)	$	0.02		$	0.48		$	0.01		$	0.02
2011
Total revenue	$	723,839		$	744,397		$	762,550		$	783,738
Cost of services	$	(270,689	)	$	(273,331	)	$	(277,360	)	$	(299,719	)
Income from operations	$	164,172		$	172,982		$	184,488		$	154,475
Net income	$	78,121		$	173,319		$	104,185		$	71,336
Net income per common share--basic (1) (2)	$	0.01		$	0.03		$	0.02		$	0.01
Net income per common share--diluted (1)	$	0.01		$	0.03		$	0.02		$	0.01


(1)		The sum of ~~the~~ quarterly net ~~loss~~income per share applicable to common stockholders (basic and diluted) does not necessarily agree to the net ~~loss~~income per share for the year due to the timing of our common stock issuances.

~~F-43~~

(2)
We identified and corrected an immaterial error affecting the historical presentation of basic earnings per share. The adjustment reflects the Series B Preferred Stock held by Liberty Media as participating securities as the holders of such preferred stock may participate in dividends and distributions ratably with holders of our common stock on an as-converted basis as disclosed in Footnote 3. The effects of the error were not material to any previously reported quarterly or annual period. The corrected net income per common share--basic calculations are presented in the quarterly results of operations table. The previously reported net income per common share--basic for the three months ended March 31, 2012 and June 30, 2012 were $0.03 and $0.83, respectively. The previously reported net income per common share--basic for the six months ended June 30, 2012 was $0.86 and the adjusted net income per

~~Schedule~~F-36

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollar amounts in thousands, unless otherwise stated)

common share--basic was $0.51. The previously reported net income per common share--basic for the three month ended March 31, 2011, June 30, 2011, and December 31, 2011 were $0.02, $0.05 and $0.02, respectively. The previously reported net income per common share--basic for the six months ended June 30, 2011 was $0.07 and the adjusted net income per common share--basic was $0.04.

(18) Subsequent Events

On January 3, 2013, the Federal Communications Commission granted Liberty Media approval to acquire de jure control of us. On January 17, 2013, Liberty Media filed a Form 4 with the Securities and Exchange Commission indicating that on January 15, 2013 it, indirectly through its subsidiaries, purchased an additional 50,000,000 shares of our common stock. On January 18, 2013, Liberty Radio, LLC, a wholly-owned subsidiary of Liberty Media and the holder of all of the outstanding shares of our Series B Preferred Stock, converted all of its Series B Preferred Stock into 1,293,509,076 shares of our common stock. As a result of this recent purchase and conversion Liberty Media beneficially owned as of January 17, 2013, directly and indirectly, an aggregate of 3,292,800,311 shares of our common stock, representing approximately 50.21% of all the outstanding shares of our common stock.

As a result of the foregoing, a Fundamental Change occurred on January 17, 2013 under the indenture governing the Exchangeable Notes. In accordance with the indenture, on February 1, 2013, we made an offer to each holder of Exchangeable Notes to: (i) have the Company repurchase his or her Exchangeable Notes at a purchase price in cash equal to $1,000 per $1,000 principal amount of the Notes (plus accrued and unpaid interest to, but excluding March 1, 2013); or (ii) exchange his or her Exchangeable Notes for our common stock, at an exchange rate of 581.3112 shares per $1,000 principal amount of Notes, on or prior to March 1, 2013. This exchange rate is a benefit to the holders compared to an exchange rate of 543.1372 shares of common stock in effect prior to occurrence of such Fundamental Change. A holder of the Exchangeable Notes may also elect to retain his or her Notes pursuant to their terms through maturity on December 1, 2014, or otherwise transfer or exchange them in the ordinary course.

F-37

SIRIUS XM RADIO INC. AND SUBSIDIARIES

Schedule ~~II — Schedule~~II--Schedule of Valuation and Qualifying Accounts

Write-offs/

Balance
Charged to
Payments/
Balance

Description January 1, Expenses Other December 31,
(In thousands)

2008
Allowance for doubtful accounts $ 4,608 21,589 (15,337 ) $ 10,860
Deferred tax assets — valuation allowance $ 1,426,092 99,659 1,950,832 (1) $ 3,476,583
2009
Allowance for doubtful accounts $ 10,860 30,602 (32,795 ) $ 8,667
Deferred tax assets — valuation allowance $ 3,476,583 138,749 — $ 3,615,332
2010
Allowance for doubtful accounts $ 8,667 32,379 (30,824 ) $ 10,222
Deferred tax assets — valuation allowance $ 3,615,332 (21,749 ) (42,295 ) $ 3,551,288



(in thousands)	Balance January 1,		Charged to Expenses (Benefit)		Write-offs/ Payments/ Other		Balance December 31,
Description
2010
Allowance for doubtful accounts	$	8,667	32,379		(30,824	)	$	10,222
Deferred tax assets—valuation allowance	$	3,615,332	(21,749	)	(42,295	)	$	3,551,288
2011
Allowance for doubtful accounts	$	10,222	33,164		(33,454	)	$	9,932
Deferred tax assets—valuation allowance	$	3,551,288	(166,452	)	(24,096	)	$	3,360,740
2012
Allowance for doubtful accounts	$	9,932	34,548		(32,769	)	$	11,711
Deferred tax assets—valuation allowance	$	3,360,740	(3,195,651	)	(155,254	)	$	9,835

F-38

EXHIBIT INDEX



~~(1)~~Exhibit			Description

3.1			Amended and Restated Certificate of Incorporation of the Company, dated March 4, 2003 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002).

3.2			Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated July 28, 2008 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated August 1, 2008).

3.3			Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated December 18, 2008 (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-3 dated December 30, 2008).

3.4			Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated May 29, 2009 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 dated July 1, 2009).

3.5			Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).

3.6			Certificate of Amendment of the Amended and Restated By-Laws of the Company, dated July 28, 2008 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K dated August 1, 2008).

3.7			Certificate of Designations of Series B-1 Convertible Perpetual Preferred Stock of the Company, dated March 5, 2009 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated March 6, 2009).

3.8			Certificate of Ownership and Merger, dated January 12, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated January 12, 2011).

4.1			Form of certificate for shares of the Company's common stock (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 (File No. 33-74782)).

4.2			Indenture, dated as of August 1, 2008, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment LLC, XM Radio Inc., the Company and The Bank of New York Mellon, as trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.80 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
4.3			Registration Rights Agreement, dated August 1, 2008, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC, XM Radio Inc., the Company, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and UBS Securities LLC, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.81 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).

4.4			Form of Media-Based Incentive Warrant, dated as of January 27, 2009, issued by the Company to NFL Enterprises LLC (incorporated by reference to Exhibit 4.48 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008).

4.5			Investment Agreement, dated as of February 17, 2009, among the Company and Liberty Radio LLC (incorporated by reference to Exhibit 4.55 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008).

4.6			Indenture, dated as of March 17, 2010, among the Company, the guarantors thereto and U.S. Bank National Association, as trustee, relating to the 8.75% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 19, 2010).

4.7			Supplemental Indenture, dated April 14, 2010, among XM Satellite Radio Inc., certain subsidiaries thereof and The Bank of New York Mellon, as trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to XM Satellite Radio Inc.'s Quarterly Report on Form 10-Q filed on May 7, 2010).

4.8			Indenture, dated as of October 27, 2010, among XM Satellite Radio Inc., the guarantors thereto and U.S. Bank National Association, as trustee, relating to the 7.625% Senior Notes due 2018 (incorporated by reference to Exhibit 4.1 to XM Satellite Radio Inc.'s Current Report on Form 8-K filed on October 28, 2010).

E-1


		~~Adjustments to reflect allocation of the purchase price in connection with the Merger.~~

~~F-44~~

~~EXHIBIT INDEX~~

Exhibit Description

2 .1 Agreement and Plan of Merger, dated as of February 19, 2007, among the Company, Vernon Merger Corporation and XM Satellite Radio Holdings Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report onForm 8-K dated February 21, 2007).
3 .1 Amended and Restated Certificate of Incorporation of the Company, dated March 4, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2002).
3 .2 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated July 28, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated August 1, 2008).
3 .3 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated December 18, 2008 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement onForm S-3 dated December 30, 2008).
3 .4 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated May 29, 2009 (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement onForm S-8 dated July 1, 2009).
3 .5 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2001).
3 .6 Certificate of Amendment of the Amended and Restated By-Laws of the Company, dated July 28, 2008 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report onForm 8-K dated August 1, 2008).
3 .7 Certificate of Designations ofSeries B-1 Convertible Perpetual Preferred Stock of the Company, dated March 5, 2009 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated March 6, 2009).
3 .8 Certificate of Ownership and Merger, dated August 5, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated August 5, 2008).
3 .9 Certificate of Ownership and Merger, dated January 12, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated January 12, 2011).
4 .1 Form of certificate for shares of the Company’s Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement onForm S-1 (FileNo. 33-74782)).
4 .2 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 Company’s Registration Statement onForm S-3 (FileNo. 333-65602)).
4 .3 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 Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2002).
4 .4 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 Company’s Current Report onForm 8-K dated May 30, 2003).
4 .5 Third Supplemental Indenture, dated as of October 13, 2004, between the Company and The Bank of New York, as trustee, relating to the Company’s 3.25% Convertible Notes due 2011 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K dated October 13, 2004).
4 .6 Common Stock Purchase Warrant granted by the Company to DaimlerChrysler AG dated October 1, 2007 (incorporated by reference to Exhibit 4.13 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2007).
4 .7 Written instrument, dated July 28, 2008, among the Company, XM Satellite Radio Holdings Inc. and Vernon Merger Corporation relating to the Warrant Agreement with Space Systems / Loral, dated June 3, 2005 (incorporated by reference to Exhibit 4.69 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).

~~E-1~~

Exhibit Description

4 .8 Indenture, dated as of July 31, 2008, among XM Escrow LLC and The Bank of New York Mellon, as trustee, relating to the 13% Senior Notes due 2013 (incorporated by reference to Exhibit 4.77 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
4 .9 Supplemental Indenture, dated as of July 31, 2008, among XM Satellite Radio Holdings Inc., XM Satellite Radio Inc., XM Equipment Leasing LLC, XM Radio Inc., and The Bank of New York Mellon, as trustee, relating to the 13% Senior Notes due 2013 (incorporated by reference to Exhibit 4.78 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
4 .10 Supplemental Indenture, dated as of July 31, 2008, among XM Satellite Radio Holdings Inc., XM Escrow LLC and The Bank of New York Mellon, as trustee, relating to the 13% Senior Notes due 2013 (incorporated by reference to Exhibit 4.79 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
4 .11 Indenture, dated as of August 1, 2008 among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment LLC, XM Radio Inc., the Company and The Bank of New York Mellon, as trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.80 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
4 .12 Registration Rights Agreement, dated August 1, 2008, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC, XM Radio Inc., the Company, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and UBS Securities LLC, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.81 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
4 .13 Form of Media-Based Incentive Warrant, dated as of January 27, 2009, issued by the Company to NFL Enterprises LLC (incorporated by reference to Exhibit 4.48 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2008).
4 .14 Investment Agreement, dated as of February 17, 2009, among the Company and Liberty Radio LLC (incorporated by reference to Exhibit 4.55 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2008).
4 .15 Rights Agreement, dated as of April 29, 2009, between the Company and The Bank of New York Mellon, as Rights Agent, which includes the Form of Certificate of Designation as Exhibit A, Form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on April 29, 2009).
4 .16 Indenture, dated as of August 24, 2009, between the Company and U.S. Bank National Association relating to the 9.75% Senior Secured Notes due 2015 (incorporated by reference to Exhibit 4.61 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2009).
4 .17 Indenture, dated as of March 17, 2010, among the Company, the guarantors thereto and U.S. Bank National Association, as trustee, relating to the 8.75% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K dated March 19, 2010).
4 .18 Third Supplemental Indenture, dated April 14, 2010, among XM Satellite Radio Inc., certain subsidiaries thereof and The Bank of New York Mellon, as trustee, relating to the 13% Senior Notes due 2013 (incorporated by reference to XM Satellite Radio Inc.’s Quarterly Report onForm 10-Q filed on May 7, 2010).
4 .19 Supplemental Indenture, dated April 14, 2010, among XM Satellite Radio Inc., certain subsidiaries thereof and The Bank of New York Mellon, as trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to XM Satellite Radio Inc.’s Quarterly Report onForm 10-Q filed on May 7, 2010).
4 .20 Indenture, dated as of October 27, 2010, among XM Satellite Radio Inc., the guarantors thereto and U.S. Bank National Association, as trustee, relating to the 7.625% Senior Notes due 2018 (incorporated by reference to Exhibit 4.1 to XM Satellite Radio Inc.’s Current Report onForm 8-K filed on October 28, 2010).
4 .21 Supplemental Indenture, dated January 12, 2011, by and among XM Satellite Radio Inc., the Company, certain subsidiaries thereof and The Bank of New York Mellon, as trustee, relating to the 13% Senior Notes due 2013 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report onForm 8-K filed on January 12, 2011).

~~E-2~~

Exhibit Description

4 .22 Supplemental Indenture, dated January 12, 2011, by and among XM Satellite Radio Inc., the Company, certain subsidiaries thereof and The Bank of New York Mellon, as trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report onForm 8-K filed on January 12, 2011).
4 .23 Supplemental Indenture, dated January 12, 2011, by and among XM Satellite Radio Inc., the Company, certain subsidiaries thereof and U.S. Bank National Association, as trustee, relating to the 7.625% Senior Notes due 2018 (incorporated by reference to Exhibit 4.4 to the Company’s Current Report onForm 8-K filed on January 12, 2011).
4 .24 Supplemental Indenture, dated January 12, 2011, by and among the Company, certain subsidiaries thereof and U.S. Bank National Association, as trustee, relating to the 8.75% Senior Notes due 2015 (filed herewith).
4 .25 Supplemental Indenture, dated January 12, 2011, by and among the Company, certain subsidiaries thereof and U.S. Bank National Association, as trustee, relating to the 9.75% Senior Secured Notes due 2015 (filed herewith).
4 .26 Collateral Agreement, dated January 12, 2011, by and among the Company, certain subsidiaries thereof and U.S. Bank National Association, as collateral agent, relating to the 9.75% Senior Secured Notes due 2015 (incorporated by reference to Exhibit 4.5 to the Company’s Current Report onForm 8-K filed on January 12, 2011).
10 .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 Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 1998).
**10 .2 Operational Assistance Agreement, dated as of June 7, 1999, between XM Satellite Radio Inc. and Clear Channel Communications, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to XM Satellite Radio Holdings Inc.’s Registration Statement onForm S-1, FileNo. 333-83619).
**10 .3 Technology Licensing Agreement among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., WorldSpace Management Corporation and American Mobile Satellite Corporation, dated as of January 1, 1998, amended by Amendment No. 1 to Technology Licensing Agreement, dated June 7, 1999 (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.’s Annual Report onForm 10-K for the year ended December 31, 2007).
***10 .4 Third Amended and Restated Distribution and Credit Agreement, dated as of February 6, 2008, among General Motors Corporation, XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. (incorporated by reference to Exhibit 10.63 to XM Satellite Radio Holdings Inc.’s Annual Report onForm 10-K for the year ended December 31, 2007).
10 .5 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 Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2000).
**10 .6 Third Amended and Restated Satellite Purchase Contract for In-Orbit Delivery, dated as of May 15, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.36 to Amendment No. 1 to XM Satellite Radio Holdings Inc.’s Registration Statement onForm S-3, FileNo. 333-89132).
10 .7 Assignment and Novation Agreement, dated as of December 5, 2001, between XM Satellite Radio Holdings Inc., XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.’s Current Report onForm 8-K filed on December 6, 2001).
**10 .8 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated as of December 5, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.4 to XM Satellite Radio Holdings Inc.’s Current Report onForm 8-K filed on December 6, 2001).
10 .9 Amended and Restated Assignment and Use Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and XM Radio Inc. (incorporated by reference to Exhibit 10.7 to XM Satellite Radio Holdings Inc.’s Current Report onForm 8-K filed on January 29, 2003).

~~E-3~~

Exhibit Description

**10 .10 Amended and Restated Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated May 23, 2003, among XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing Satellite Systems International, Inc. (incorporated by reference to Exhibit 10.53 to XM Satellite Radio Holdings Inc.’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2003).
**10 .11 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated July 31, 2003, among XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing Satellite Systems International, Inc. (incorporated by reference to Exhibit 10.54 to XM Satellite Radio Holdings Inc.’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2003).
10 .12 Amendment No. 1 to Amended and Restated Director Designation Agreement, dated as of September 9, 2003, among XM Satellite Radio Holdings Inc. and the shareholders and noteholders named therein (incorporated by reference to Exhibit 10.56 to XM Satellite Radio Holdings Inc.’s Quarterly Report inForm 10-Q for the quarter ended September 30, 2003).
10 .13 December 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated December 19, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and Boeing Satellite Systems International, Inc. (incorporated by reference to Exhibit 10.57 to XM Satellite Radio Holdings Inc.’s Annual Report onForm 10-K for the year ended December 31, 2003).
10 .14 Share Lending Agreement, dated July 28, 2008, among the Company and Morgan Stanley Capital Services, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
10 .15 Share Lending Agreement, dated July 28, 2008, among the Company and UBS AG, London Branch (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008).
*10 .16 Form of Option Agreement between the Company and each Optionee (incorporated by reference to Exhibit 10.16.2 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 1998).
*10 .17 Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.25 to Amendment No. 5 to XM Satellite Radio Holdings Inc.��s Registration Statement onForm S-1, FileNo. 333-83619).
*10 .18 CD Radio Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement onForm S-8 (FileNo. 333-65473)).
*10 .19 Employment Agreement, dated as of June 3, 2003, between the Company and David J. Frear (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2003).
*10 .20 Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2004).
*10 .21 Employment Agreement dated November 18, 2004 between the Company and Mel Karmazin (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2004).
*10 .22 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 Company’s Current Report onForm 8-K dated August 12, 2005).
*10 .23 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 Company’s Current Report onForm 8-K dated August 12, 2005).
*10 .24 Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to XM Satellite Radio Holdings Inc.’s Current Report onForm 8-K filed June 1, 2007).
*10 .25 Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.’s Current Report onForm 8-K filed June 1, 2007).
*10 .26 XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to XM Satellite Radio Holdings Inc.’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2007).

~~E-4~~

Exhibit Description

*10 .27 Sirius XM Radio 401(k) Savings Plan, as amended and restated effective January 1, 2009 (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2009).
*10 .28 Second Amendment, dated as of February 12, 2008, to the Employment Agreement, dated as of June 3, 2003, between the Company and David J. Frear (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K dated February 13, 2008).
*10 .29 Employment Agreement, dated as of September 26, 2008, between the Company and Dara F. Altman (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K dated October 1, 2008).
*10 .30 Agreement to Forfeit Non-Qualified Stock Options, dated as of May 13, 2009, between Mel Karmazin and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed May 13, 2009).
*10 .31 Letter Agreement dated June 30, 2009 amending the Employment Agreement dated November 18, 2004 between Mel Karmazin and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed July 1, 2009).
*10 .32 Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement onForm S-8 dated July 1, 2009).
*10 .33 Employment Agreement, dated as of July 28, 2009, between the Company and Scott A. Greenstein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed July 29, 2009).
*10 .34 Employment Agreement, dated as of October 14, 2009, between the Company and James E. Meyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed October 16, 2009).
*10 .35 Separation Agreement and Release of Claims, dated as of November 12, 2009, between the Company, XM Satellite Radio Holdings Inc., XM Satellite Radio Inc, and Gary Parsons (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed November 12, 2009).
*10 .36 Employment Agreement, dated as of January 14, 2010, between the Company and Patrick L. Donnelly (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed January 15, 2010).
*10 .37 First Amendment, dated as of February 14, 2011, to the Employment Agreement, dated as of October 14, 2009, between the Company and James E. Meyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed February 15, 2011).
21 .1 List of Subsidiaries (filed herewith).
23 .1 Consent of KPMG LLP (filed herewith).
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).


*Exhibit			Description

4.9			Supplemental Indenture, dated January 12, 2011, by and among XM Satellite Radio Inc., the Company, certain subsidiaries thereof and The Bank of New York Mellon, as trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on January 12, 2011).

4.10			Supplemental Indenture, dated January 12, 2011, by and among XM Satellite Radio Inc., the Company, certain subsidiaries thereof and U.S. Bank National Association, as trustee, relating to the 7.625% Senior Notes due 2018 (incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed on January 12, 2011).

4.11			Supplemental Indenture, dated January 12, 2011, by and among the Company, certain subsidiaries thereof and U.S. Bank National Association, as trustee, relating to the 8.75% Senior Notes due 2015 (incorporated by reference to Exhibit 4.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010).

4.12			Indenture, dated as of August 13, 2012, among the Company, the guarantors thereto and U.S. Bank National Association, as trustee, relating to the Company's 5.25% Senior Notes due 2022 (incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 2012).

4.13			Credit Agreement, dated as of December 5, 2012 among the Company, JPMorgan Chase Bank, N.A. as administrative agent, and the other agents and lenders party thereto (incorporated by reference to the Company's Current Report on Form 8-K filed on December 10, 2012).

**10.1			Operational Assistance Agreement, dated as of June 7, 1999, between XM Satellite Radio Inc. and Clear Channel Communications, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to XM Satellite Radio Holdings Inc.'s Registration Statement on Form S-1, File No. 333-83619).

**10.2			Technology Licensing Agreement among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., WorldSpace Management Corporation and American Mobile Satellite Corporation, dated as of January 1, 1998, amended by Amendment No. 1 to Technology Licensing Agreement, dated June 7, 1999 (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2007).

***10.3			Third Amended and Restated Distribution and Credit Agreement, dated as of February 6, 2008, among General Motors Corporation, XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. (incorporated by reference to Exhibit 10.63 to XM Satellite Radio Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2007).

**10.4			Third Amended and Restated Satellite Purchase Contract for In-Orbit Delivery, dated as of May 15, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.36 to Amendment No. 1 to XM Satellite Radio Holdings Inc.'s Registration Statement on Form S-3, File No. 333-89132).

10.5			Assignment and Novation Agreement, dated as of December 5, 2001, between XM Satellite Radio Holdings Inc., XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.'s Current Report on Form 8-K filed on December 6, 2001).


**10.6			Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated as of December 5, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.4 to XM Satellite Radio Holdings Inc.'s Current Report on Form 8-K filed on December 6, 2001).

10.7			Amended and Restated Assignment and Use Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and XM Radio Inc. (incorporated by reference to Exhibit 10.7 to XM Satellite Radio Holdings Inc.'s Current Report on Form 8-K filed on January 29, 2003).

**10.8			Amended and Restated Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated May 23, 2003, among XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.53 to XM Satellite Radio Holdings Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).

**10.9			Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated July 31, 2003, among XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.54 to XM Satellite Radio Holdings Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).

E-2



Exhibit			Description

**10.10			December 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated December 19, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to Exhibit 10.57 to XM Satellite Radio Holdings Inc.'s Annual Report on Form 10-K for the year ended December 31, 2003).

*10.11			Form of Option Agreement between the Company and each Optionee (incorporated by reference to Exhibit 10.16.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).

*10.12			Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.25 to Amendment No. 5 to XM Satellite Radio Holdings Inc.'s Registration Statement on Form S-1, File No. 333-83619).

*10.13			CD Radio Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File No. 333-65473)).

*10.14			Employment Agreement, dated as of June 3, 2003, between the Company and David J. Frear (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
*10.15			Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).

*10.16			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 Company's Current Report on Form 8-K dated August 12, 2005).

*10.17			First Amendment, dated as of August 10, 2005, to the Employment Agreement, dated as of June 3, 2003, between the Company and David J. Frear (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated August 12, 2005).

*10.18			Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to XM Satellite Radio Holdings Inc.'s Current Report on Form 8-K filed June 1, 2007).

*10.19			Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.'s Current Report on Form 8-K filed June 1, 2007).

*10.20			XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to XM Satellite Radio Holdings Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).

*10.21			Sirius XM Radio 401(k) Savings Plan, as amended and restated effective January 1, 2009 (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2009).

*10.22			Second Amendment, dated as of February 12, 2008, to the Employment Agreement, dated as of June 3, 2003, between the Company and David J. Frear (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 13, 2008).

*10.23			Employment Agreement, dated as of September 26, 2008, between the Company and Dara F. Altman (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 1, 2008).

*10.24			Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-8 dated July 1, 2009).

*10.25			Employment Agreement, dated as of July 28, 2009, between the Company and Scott A. Greenstein (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 29, 2009).

*10.26			Employment Agreement, dated as of October 14, 2009, between the Company and James E. Meyer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 16, 2009).

*10.27			Employment Agreement, dated as of January 14, 2010, between the Company and Patrick L. Donnelly (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 15, 2010).

*10.28			First Amendment, dated as of February 14, 2011, to the Employment Agreement dated as of October 14, 2009, between the Company and James E. Meyer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed February 15, 2011).

*10.29			Employment Agreement, dated as of July 21, 2011, between the Company and David J. Frear (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 22, 2011).

E-3



Exhibit			Description

*10.30			Employment Agreement, dated as of August 23, 2011, between the Company and Dara F. Altman (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 24, 2011).

*10.31			Second Amendment, dated as of March 5, 2012, to the Employment Agreement, dated as of October 14, 2009, between the Company and James E. Meyer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 5, 2012).

*10.32			Third Amendment, dated as of December 18, 2012, to the Employment Agreement, dated as of October 14, 2009, between the Company and James E. Meyer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 19, 2012).

*10.33			Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2012).

*10.34			Form of Non-Qualified Stock Option Agreement (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2012).

21.1			List of Subsidiaries (filed herewith).

23.1			Consent of KPMG LLP (filed herewith).

31.1			Certificate of James E. Meyer, 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 James E. Meyer, 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).

101.1			The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010; (ii) Consolidated Balance Sheets as of December 31, 2012 and 2011; (iii) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2012, 2011 and 2010; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010; and (v) Notes to Consolidated Financial Statements.

____________________


*	This document has been identified as a management contract or compensatory plan or arrangement.


**	**	Pursuant to the ~~Commission’s~~Commission's Orders Granting Confidential Treatment under Rule 406 of the Securities Act of 1933 orRule 24(b)-2 under the Securities Exchange Act of 1934, certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text.


*****		Confidential treatment has been requested with respect to portions of this Exhibit that have been omitted by redacting a portion of the text.

~~E-5~~

E-4



Delaware		52-1700207
(State or other jurisdiction of incorporation ofor organization)		(I.R.S. Employer Identification Number)


1221 Avenue of the Americas, 36th Floor		~~10020~~
New York, New York		~~(Zip Code)~~10020
(Address of principal executive offices)		(Zip Code)



Title of Each Class:		Name of Each Exchange on Which Registered:

Common Stock, par value $0.001 per share		The Nasdaq Global Select Market



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

~~Large accelerated filer~~ þ	~~Accelerated filer~~ o	~~Non-accelerated filer~~ o (Do not check if a smaller reporting company)	~~Smaller Reporting company~~ o



Item No.		Description

~~Item No~~		~~Description~~		~~Page~~

PART I
~~Item 1~~		~~Business~~			1
~~Item 1A.~~		~~Risk Factors~~			13
~~Item 1B.~~		~~Unresolved Staff Comments~~			20
~~Item 2.~~		~~Properties~~			20
~~Item 3.~~		~~Legal Proceedings~~			20
~~Item 4.~~		~~(Removed and Reserved)~~			21

~~PART II~~
~~Item 5.~~
Item 1.		Business	1
Item 1A.		Risk Factors	10
Item 1B.		Unresolved Staff Comments	17
Item 2.		Properties	17
Item 3.		Legal Proceedings	17
Item 4.		Mine Safety Disclosures	18

		PART II
Item 5.		Market for ~~Registrant’s~~Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.		Selected Financial Data	22	21
Item 6.7.		~~Selected Financial Data~~			24
~~Item 7.~~		~~Management’s~~ Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.			25
~~Item 7A.~~		Quantitative and Qualitative Disclosures About Market Risks	45
Item 8.			53
~~Item 8.~~		Financial Statements and Supplementary Data	46
Item 9.			53
~~Item 9.~~		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
Item 9A.		Controls and Procedures	46
Item 9B.		Other Information	46
		53
~~Item 9A.~~		~~Controls and Procedures~~			53
~~Item 9B.~~		~~Other Information~~			54

	PART III
Item 10.		Directors, Executive Officers and Corporate Governance	46
Item 11.		Executive Compensation	55	47
Item ~~11.~~12.		~~Executive Compensation~~			55
~~Item 12.~~		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.			55
~~Item 13.~~		Certain Relationships and Related Transactions and Director Independence	47
Item 14.		Principal Accountant Fees and Services	47
		55
~~Item 14.~~		~~Principal Accounting Fees and Services~~			55

~~PART IV~~
~~Item 15.~~		~~Exhibits and Financial Statement Schedules~~			56
		PART IV
Item 15.		Exhibits and Financial Statement Schedules	47
		Signatures	48
			57



The Howard Stern Show		Bob Dylan's Theme Time Radio Hour
Tom Petty's Buried Treasure		Jimmy Buffett concerts
The Opie & Anthony Show		The Jamie Foxx Show
Coach K		Dr. Laura
The Bob Edwards Show		Mad Dog Unleashed featuring Christopher "Mad Dog" Russo
Ripken Baseball		Rotten Tomatoes Radio



þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		~~For Fiscal Year Ended December~~FOR THE FISCAL YEAR ENDED DECEMBER 31, ~~2010~~2012


OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		~~For the Transition Period From to~~ FOR THE TRANSITION PERIOD FROM __________ TO ________


	•	our competitive position versus other forms of audio and video entertainment including terrestrial radio, HD radio, Internet radio, mobile phones, iPods and other MP3 devices, and emerging next-generation networks and technologies;

	•	~~our ability to retain subscribers and maintain our average monthly revenue per subscriber;~~

	•	~~our dependence upon automakers and other third parties, such as manufacturers and distributors of satellite radios, retailers and programming providers;~~

	•	~~our substantial indebtedness; and~~

	•	~~the useful life of our satellites, which, in most cases, are not insured.~~


	•	~~subscribers under our regular and discounted pricing plans;~~

	•	~~subscribers that have prepaid, including payments either made or due from automakers for prepaid subscriptions included in the sale or lease price of a vehicle;~~

	•	~~certain radios activated for daily rental fleet programs;~~

	•	~~certain subscribers to our Internet services; and~~

	•	subscribers that have prepaid, including payments made or due from automakers for subscriptions included in the sale or lease price of a vehicle; certain radios activated for daily rental fleet programs; subscribers to our Internet services who do not also have satellite radio subscriptions; and certain subscribers to our weather, traffic, data and Backseat TV services.


	•	~~Sirius XM Radio Inc. was incorporated in the State of Delaware as Satellite CD Radio, Inc. on May 17, 1990.~~

	•	~~On December 7, 1992, Satellite CD Radio, Inc. changed its name to CD Radio Inc., and Satellite CD Radio, Inc. was formed as a wholly owned subsidiary.~~

	•	~~On November 18, 1999, CD Radio Inc. changed its name to Sirius Satellite Radio Inc.~~

	•	~~In July 2008, our wholly owned subsidiary, Vernon Merger Corporation, merged (the “Merger”) with and into XM Satellite Radio Holdings Inc.~~

	•	~~On August 5, 2008, we changed our name from Sirius Satellite Radio Inc. to Sirius XM Radio Inc.~~

	•	On December 7, 1992, Satellite CD Radio, Inc. changed its name to CD Radio Inc., and Satellite CD Radio, Inc. was formed as a wholly owned subsidiary. On November 18, 1999, CD Radio Inc. changed its name to Sirius Satellite Radio Inc. In July 2008, our wholly owned subsidiary, Vernon Merger Corporation, merged (the “Merger”) with and into XM Satellite Radio Holdings Inc. On August 5, 2008, we changed our name from Sirius Satellite Radio Inc. to Sirius XM Radio Inc. In April 2010, XM Satellite Radio Holdings Inc. merged with and into XM Satellite Radio Inc.; and in January 2011, ~~XM Satellite Radio Inc., our wholly-owned subsidiary, merged with and into Sirius XM Radio Inc.~~


	•	satellites, terrestrial repeaters and other satellite facilities;

	•	~~studios; and~~

	•	~~satellite radios.~~


		Estimated End of
Satellite Designation	Year Delivered	Useful Life	Current Use

FM-1	2000	2013	Broadcasting from an inclined elliptical orbit
FM-2	2000	2013	Broadcasting from an inclined elliptical orbit
FM-3	2000	2015	Broadcasting from an inclined elliptical orbit
FM-4	2002	2010	Spare satellite in ground storage
FM-5	2009	2024	Broadcasting from a geostationary orbit at 96° West Longitude


	•	In-dash radios are integrated into vehicles and allow the user to listen to satellite radio with the push of a button. Aftermarket in-dash radios are available at retailers nationally, and to automakers for factory or dealer installation.

	•	Dock & Play radios enable subscribers to transport their radios easily to and from their cars, trucks, homes, offices, boats or other locations with available adapter kits. Dock & Play radios adapt to existing audio systems through FM modulation or direct audio connection and can be easily installed. Audio systems and boom boxes, which enable subscribers to use their radios virtually anywhere, are available for various models. The Stratus 6 and Starmate 5 Dock & Play radios also support a la carte channel selection.

	•	~~Portable or wearable radios offer live satellite radio “on the go” and recorded satellite, MP3 and WMA content.~~


	•	~~provide a new source of programming and is a new entrant in the mass media industry,~~

	•	~~offer a diverse viewpoint or diverse entertainment content,~~

	•	~~provide original content or programming of a type not otherwise available to our subscribers,~~

	•	~~improve service to historically underserved audiences, and~~

	•	~~in our reasonable judgment, be able to meet its obligations and be able to deliver its proposed mix or type of programming for the duration of the lease term.~~


	•	~~the licensing of our satellite systems;~~

	•	~~preventing interference with or to other users of radio frequencies; and~~

	•	preventing interference with or to other users of radio frequencies; and compliance with FCC rules established specifically for U.S. satellites and satellite radio services.


~~ITEM 1.~~ITEM 1.	*BUSINESS*


ITEM 1A.	*RISK FACTORS*


	•	~~degradation and durability of solar panels;~~

	•	~~quality of construction;~~

	•	~~random failure of satellite components, which could result in significant damage to or loss of a satellite;~~

	•	~~amount of fuel the satellites consume; and~~

	•	~~damage or destruction by electrostatic storms or collisions with other objects in space.~~


~~ITEM 1B.~~ITEM 1B.	*UNRESOLVED STAFF COMMENTS*


~~Name~~		~~Age~~		~~Position~~
Name	Age	Position
~~Mel Karmazin~~James E. Meyer			67		58	Chief Executive Officer
Scott A. Greenstein			51		53	President and Chief Content Officer
~~James E. Meyer~~			56			~~President, Operations and Sales~~
Dara F. Altman			52		54	Executive Vice President and Chief Administrative Officer
Stephen Cook	57	Executive Vice President, Sales and Automotive
Patrick L. Donnelly			49		51	Executive Vice President, General Counsel and Secretary
David J. Frear			54		56	Executive Vice President and Chief Financial Officer
Enrique Rodriguez	50	Executive Vice President, Operations and Products


	•	~~the health of the economy;~~

	•	~~the production and sale of new vehicles in the United States;~~

	•	~~our ability to convince owners and lessees of new and used vehicles that include satellite radios to purchase subscriptions to our service;~~

	•	~~the effectiveness of our marketing programs;~~

	•	~~the entertainment value of our programming; and~~

	•	~~actions by our competitors, such as terrestrial radio and other audio entertainment providers.~~


	•	the value consumers perceive in our service;

	•	~~our ability to add and retain compelling programming;~~

	•	~~the increasing competition we experience from terrestrial radio and other providers of audio entertainment; and~~

	•	~~pricing and other offers we may make to attract new subscribers and retain existing subscribers.~~


	•	~~manufacturers that build and distribute satellite radios;~~

	•	~~companies that manufacture and sell integrated circuits for satellite radios;~~

	•	~~programming providers and on-air talent;~~

	•	~~retailers that market and sell satellite radios and promote subscriptions to our services; and~~

	•	~~vendors that have designed or built, and vendors that support or operate, important elements of our systems, such as our satellites and customer service facilities.~~


	•	~~increases our vulnerability to general adverse economic and industry conditions;~~

	•	requires us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund capital expenditures, marketing and other general corporate activities;

	•	~~limits our ability to borrow additional funds or make capital expenditures;~~

	•	~~limits our flexibility in planning for, or reacting to, changes in our business and the audio entertainment industry; and~~

	•	requires us to dedicate a portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund capital expenditures, marketing and other general corporate activities; limits our ability to borrow additional funds or make capital expenditures; limits our flexibility in planning for, or reacting to, changes in our business and the audio entertainment industry; and may place us at a competitive disadvantage compared to other competitors.



Location		Purpose		Own/Lease

New York, NY		Corporate headquarters and studio/production facilities		Lease
New York, NY		Office facilities		Lease
Washington, DC		Office and studio/production facilities		Own
Washington, DC		Office facilities and data center		Own
Lawrenceville, NJ		Office and technical/engineering facilities		Lease
Deerfield Beach, FL		Office and technical/engineering facilities		Lease
Farmington Hills, MI		Office and technical/engineering facilities		Lease
Nashville, TN		Studio/production facilities		Lease
Vernon, NJ		Technical/engineering facilities		Own
Ellenwood, GA		Technical/engineering facilities	Lease
Los Angeles, CA	Studio/production facilities	Lease


~~ITEM 5.~~	*~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~*


	High		Low

Year ended December 31, 2009
First Quarter	$	0.43	$	0.05
Second Quarter		0.63		0.30
Third Quarter		0.78		0.35
Fourth Quarter		0.69		0.51
Year ended December 31, 2010
First Quarter	$	1.18	$	0.61
Second Quarter		1.25		0.84
Third Quarter		1.20		0.90
Fourth Quarter		1.69		1.18



	High	Low
Year Ended December 31, 2011
First Quarter	$1.88	$1.49
Second Quarter	$2.44	$1.62
Third Quarter	$2.35	$1.44
Fourth Quarter	$1.92	$1.27
Year Ended December 31, 2012
First Quarter	$2.36	$1.80
Second Quarter	$2.41	$1.78
Third Quarter	$2.64	$1.84
Fourth Quarter	$3.01	$2.55


	Nasdaq
	Telecommunications
	Index		S&P 500 Index		Sirius XM Radio Inc.
December 31, 2005	$	100.00	$	100.00	$	100.00
December 31, 2006	$	127.76	$	113.62	$	52.84
December 31, 2007	$	139.48	$	117.63	$	45.22
December 31, 2008	$	79.53	$	72.36	$	1.79
December 31, 2009	$	117.89	$	89.33	$	8.96
December 31, 2010	$	122.52	$	100.75	$	24.33



	NASDAQ Telecommunications Index	S&P 500 Index	Sirius XM Radio Inc.
December 31, 2007	$100.00	$100.00	$100.00
December 31, 2008	$57.02	$61.51	$3.96
December 31, 2009	$84.52	$75.94	$19.80
December 31, 2010	$87.84	$85.65	$53.80
December 31, 2011	$76.75	$85.65	$60.07
December 31, 2012	$78.29	$97.13	$95.38


					Number of
					Securities
	Number of				Remaining Available
	Securities to be				for Future Issuance
	Issued Upon		Weighted-Average		Under Equity
	Exercise of		Exercise Price		Compensation
	Outstanding		of Outstanding		Plans (Excluding
	Options, Warrants		Options, Warrants		Securities Reflected
	and Rights		and Rights		in Column (a))
(shares in thousands)							Column (a) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights	Column (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Column (c) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities Reflected in Column (a))
Plan Category	(a)		(b)		(c)
(Shares in thousands)

Equity compensation plans approved by security holders		444,291	$	1.45		268,255	292,967	$	1.96	143,243
Equity compensation plans not approved by security holders		—		—		—	—	—		—

Total		444,291	$	1.45		268,255	292,967	$	1.96	143,243


	As of and for the Years Ended December 31,
	2010		2009(1)			2008(1)(2)			2007			2006
(In thousands, except per share data)

Statements of Operations Data:
Total revenue	$	2,816,992	$	2,472,638		$	1,663,992		$	922,066		$	637,235
Net income (loss)	$	43,055	$	(538,226	)	$	(5,316,910	)	$	(565,252	)	$	(1,104,867	)
Net income (loss) per share — basic	$	0.01	$	(0.15	)	$	(2.45	)	$	(0.39	)	$	(0.79	)
Net income (loss) per share — diluted	$	0.01	$	(0.15	)	$	(2.45	)	$	(0.39	)	$	(0.79	)
Weighted average common shares outstanding — basic		3,693,259		3,585,864			2,169,489			1,462,967			1,402,619
Weighted average common shares outstanding — diluted		6,391,071		3,585,864			2,169,489			1,462,967			1,402,619
Balance Sheet Data:
Cash and cash equivalents	$	586,691	$	383,489		$	380,446		$	438,820		$	393,421
Restricted investments	$	3,396	$	3,400		$	141,250		$	53,000		$	77,850
Total assets	$	7,383,086	$	7,322,206		$	7,527,075		$	1,687,231		$	1,650,147
Long-term debt, net of current portion	$	3,021,763	$	3,063,281		$	2,820,781		$	1,271,699		$	1,059,868
Stockholders’ equity (deficit)(3)	$	207,636	$	95,522		$	75,875		$	(792,737	)	$	(389,071	)


(1)		The 2009 and 2008 results and balances reflect the adoption of ASU 2009-15, ~~2009-15,~~Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other ~~Financing.~~Financing.


(2)		The 2008 results and balances reflect the results and balances of XM Satellite Radio Holdings Inc. from the date of the Merger and a $4,766,190 goodwill impairment charge.

~~(3)~~		~~No cash dividends were declared or paid in any of the periods presented.~~


										2010 vs 2009						2009 vs 2008
	For the Years Ended December 31,									Change						Change
	2010			2009			2008			Amount			%			Amount			%

Revenue:
Subscriber revenue, including effects of rebates	$	2,414,174		$	2,287,503		$	1,548,919		$	126,671			6	%	$	738,584			48	%
Advertising revenue, net of agency fees		64,517			51,754			47,190			12,763			25	%		4,564			10	%
Equipment revenue		71,355			50,352			56,001			21,003			42	%		(5,649	)		(10	)%
Other revenue		266,946			83,029			11,882			183,917			222	%		71,147			599	%

Total revenue		2,816,992			2,472,638			1,663,992			344,354			14	%		808,646			49	%
Operating expenses:
Revenue share and royalties		435,410			397,210			280,852			38,200			10	%		116,358			41	%
Programming and content		305,914			308,121			312,189			(2,207	)		(1	)%		(4,068	)		(1	)%
Customer service and billing		241,680			234,456			165,036			7,224			3	%		69,420			42	%
Satellite and transmission		80,947			84,033			59,279			(3,086	)		(4	)%		24,754			42	%
Cost of equipment		35,281			40,188			46,091			(4,907	)		(12	)%		(5,903	)		(13	)%
Subscriber acquisition costs		413,041			340,506			371,343			72,535			21	%		(30,837	)		(8	)%
Sales and marketing		215,454			228,956			231,937			(13,502	)		(6	)%		(2,981	)		(1	)%
Engineering, design and development		45,390			41,031			40,496			4,359			11	%		535			1	%
General and administrative		240,970			227,554			213,142			13,416			6	%		14,412			7	%
Impairment of goodwill		—			—			4,766,190			—			0	%		(4,766,190	)		nm
Depreciation and amortization		273,691			309,450			203,752			(35,759	)		(12	)%		105,698			52	%
Restructuring, impairments and related costs		63,800			32,807			10,434			30,993			94	%		22,373			214	%

Total operating expenses		2,351,578			2,244,312			6,700,741			107,266			5	%		(4,456,429	)		(67	)%

Income (loss) from operations		465,414			228,326			(5,036,749	)		237,088			104	%		5,265,075			105	%
Other income (expense):
Interest expense, net of amounts capitalized		(295,643	)		(315,668	)		(148,455	)		20,025			6	%		(167,213	)		(113	)%
Loss on extinguishment of debt and credit facilities, net		(120,120	)		(267,646	)		(98,203	)		147,526			55	%		(169,443	)		(173	)%
Interest and investment (loss) income		(5,375	)		5,576			(21,428	)		(10,951	)		(196	)%		27,004			126	%
Other income		3,399			3,355			(9,599	)		44			1	%		12,954			135	%

Total other expense		(417,739	)		(574,383	)		(277,685	)		156,644			27	%		(296,698	)		(107	)%

Income (loss) before income taxes		47,675			(346,057	)		(5,314,434	)		393,732			114	%		4,968,377			93	%
Income tax expense		(4,620	)		(5,981	)		(2,476	)		1,361			23	%		(3,505	)		(142	)%

Net income (loss)		43,055			(352,038	)		(5,316,910	)		395,093			112	%		4,964,872			93	%
Preferred stock beneficial conversion feature		—			(186,188	)		—			186,188			nm			(186,188	)		nm

Net income (loss) attributable to common stockholders	$	43,055		$	(538,226	)	$	(5,316,910	)	$	581,281			108	%	$	4,778,684			90	%


	Unaudited for the Year Ended December 31, 2010
			Purchase Price		Allocation of
			Accounting		Share-Based
(In thousands)	As Reported		Adjustments		Payment Expense			Adjusted

Revenue:
Subscriber revenue, including effects of rebates	$	2,414,174	$	14,655	$	—		$	2,428,829
Advertising revenue, net of agency fees		64,517		—		—			64,517
Equipment revenue		71,355		—		—			71,355
Other revenue		266,946		7,251		—			274,197

Total revenue	$	2,816,992	$	21,906	$	—		$	2,838,898

Operating expenses
Cost of services:
Revenue share and royalties		435,410		107,967		—			543,377
Programming and content		305,914		57,566		(10,267	)		353,213
Customer service and billing		241,680		281		(2,207	)		239,754
Satellite and transmission		80,947		1,170		(3,397	)		78,720
Cost of equipment		35,281		—		—			35,281
Subscriber acquisition costs		413,041		79,439		—			492,480
Sales and marketing		215,454		13,983		(9,423	)		220,014
Engineering, design and development		45,390		520		(5,868	)		40,042
General and administrative		240,970		906		(32,147	)		209,729
Depreciation and amortization(a)		273,691		—		—			273,691
Restructuring, impairments and related costs		63,800		—		—			63,800
Share-based payment expense(b)		—		—		63,309			63,309

Total operating expenses	$	2,351,578	$	261,832	$	—		$	2,613,410


Programming and content	$	9,064	$	656	$	—	$	9,720
Customer service and billing		2,051		453		—		2,504
Satellite and transmission		2,745		457		—		3,202
Sales and marketing		9,608		656		—		10,264
Engineering, design and development		4,879		977		—		5,856
General and administrative		45,634		1,602		—		47,236

Total share-based payment expense	$	73,981	$	4,801	$	—	$	78,782


	Unaudited for the Year Ended December 31, 2008
			Predecessor		Purchase Price			Allocation of
			Financial		Accounting			Share-Based
(In thousands)	As Reported		Information		Adjustments			Payment Expense			Adjusted

Revenue:
Subscriber revenue, including effects of rebates	$	1,548,919	$	670,870	$	38,533		$	—		$	2,258,322
Advertising revenue, net of agency fees		47,190		22,743		—			—			69,933
Equipment revenue		56,001		13,397		—			—			69,398
Other revenue		11,882		24,184		3,021			—			39,087

Total revenue	$	1,663,992	$	731,194	$	41,554		$	—		$	2,436,740

Operating expenses
Cost of services:
Revenue share and royalties		280,852		166,606		30,504			—			477,962
Programming and content		312,189		117,156		34,667			(17,374	)		446,638
Customer service and billing		165,036		82,947		193			(3,981	)		244,195
Satellite and transmission		59,279		46,566		424			(7,084	)		99,185
Cost of equipment		46,091		20,013		—			—			66,104
Subscriber acquisition costs		371,343		174,083		31,714			(14	)		577,126
Sales and marketing		231,937		126,054		5,393			(21,088	)		342,296
Engineering, design and development		40,496		23,045		400			(11,441	)		52,500
General and administrative		213,142		116,444		1,083			(63,637	)		267,032
Impairment of goodwill		4,766,190		—		(4,766,190	)		—			—
Depreciation and amortization(a)		203,752		88,749		—			—			292,501
Restructuring, impairments and related costs		10,434		—		—			—			10,434
Share-based payment expense(b)		—		—		—			124,619			124,619

Total operating expenses	$	6,700,741	$	961,663	$	(4,661,812	)	$	—		$	3,000,592


Programming and content	$	12,148	$	4,949	$	277	$	—	$	17,374
Customer service and billing		1,920		1,869		192		—		3,981
Satellite and transmission		4,236		2,745		103		—		7,084
Subscriber acquisition costs		14		—		—		—		14
Sales and marketing		13,541		7,047		500		—		21,088
Engineering, design and development		6,192		4,675		574		—		11,441
General and administrative		49,354		13,200		1,083		—		63,637

Total share-based payment expense	$	87,405	$	34,485	$	2,729	$	—	$	124,619