UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
WASHINGTON, D.C. 20549
Form 10-K
 
FORM 10-K
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For Fiscal Year Ended DecemberFOR THE FISCAL YEAR ENDED DECEMBER 31, 20102013
OR
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 ________
COMMISSION FILE NUMBER001-34295
SIRIUS XM RADIOHOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 
38-3916511

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)
Registrant’s telephone number, including area code:
(212) 584-5100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: Name of Each Exchange on Which Registered:
Common Stock, par value $0.001 per share The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ        No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  o        No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ        No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of the registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.    þo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
   
Large accelerated filer þ
Accelerated filer oNon-accelerated filer o
(Do not check if a smaller reporting company)		 Smaller Reporting company o
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of Sirius XM Radio Inc., the predecessor of the registrant, as of June 30, 20102013 was $3,689,667,663.$9,917,422,172. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
The number of shares of the registrant’s common stock outstanding as of February 14, 2011January 31, 2014 was 3,933,999,616.6,097,317,573.
DOCUMENTS INCORPORATED BY REFERENCE
Information included in our definitive proxy statement for our 20112014 annual meeting of stockholders scheduled to be held on Wednesday,Monday, May 25, 201119, 2014 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.


Table of Contents

SIRIUS XM RADIOHOLDINGS INC. AND SUBSIDIARIES
20102013 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item No. Description
    
Item No DescriptionPage
PART I
Item 1Business1
Item 1A.Risk Factors13
Item 1B.Unresolved Staff Comments20
Item 2.Properties20
Item 3.Legal Proceedings20
Item 4.(Removed and Reserved)21 
 
PART II
Item 5. 
Item 1.
Business
1
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
16
Item 2.
Properties
16
Item 3.
Legal Proceedings
16
Item 4.
Mine Safety Disclosures
17
PART II
Item 5.
Market for Registrant’sRegistrant'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 Data24
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 RisksRisk
46
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
47
Item 9B.
Other Information
47
  53
Item 9A.Controls and Procedures53
Item 9B.Other Information54 
 
PART III
Item 10.
 
Directors, Executive Officers and Corporate Governance
47
Item 11.
 
Executive Compensation
55
48
Item 11.12.
 Executive Compensation55
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
48
Item 13.
 55
Item 13.
Certain Relationships and Related Transactions and Director Independence
48
Item 14.
Principal Accountant Fees and Services
48
  55
Item 14.Principal Accounting Fees and Services55
PART IV
Item 15.Exhibits and Financial Statement Schedules56 
  
PART IV
Item 15.
Exhibits and Financial Statement Schedules
48
Signatures
49
  57

Special Note Regarding Forward-Looking Statements
The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Annual Report onForm 10-K and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intend,” “plan,” “projection” and “outlook.” Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Annual Report onForm 10-K and in other reports and documents published by us from time to time, particularly the risk factors described under “Risk Factors” in Item 1A of this Annual Report onForm 10-K.
Among the significant factors that could cause our actual results to differ materially from those expressed in the forward-looking statements are:
• 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.

Table of Contents

PART I
Because
ITEM 1.    BUSINESS
This Annual Report on Form 10-K presents information for Sirius XM Holdings Inc. (“Holdings”) and also contains the risk factors referredfinancial results of Sirius XM Radio Inc. (“Sirius XM”) on a combined basis. The terms “we,” “us,” “our,” and “our company” as used herein and unless otherwise stated or indicated by context, refer to above could cause actual results or outcomesSirius XM Radio Inc. and its subsidiaries prior to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only asthe corporate reorganization described below and to Sirius XM Holdings Inc. and its subsidiaries after such corporate reorganization.
Sirius XM Holdings Inc.
Effective November 15, 2013, we completed a corporate reorganization. As part of the datereorganization, Holdings replaced Sirius XM as our publicly held corporation and Sirius XM became a wholly-owned subsidiary of Holdings. Holdings was incorporated in the State of Delaware on which it is made, and we undertakeMay 21, 2013. Holdings has no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrenceoperations independent of unanticipated events or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.its subsidiary Sirius XM.
ITEM 1.BUSINESS
Sirius XM Radio Inc.
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 features such as SiriusXM On Demand and MySXM, over the Internet, including through applications for Apple, Blackberry and Android-powered mobile devices.
 
As of December 31, 2010,2013, we had 20,190,96425,559,310 subscribers. Our subscriber totalssubscribers include:
subscribers under our regular and discounted pricing plans;
• 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
• certain subscribers to our weather, traffic, data and Backseat TV services.
subscribers that have prepaid, including payments made or due from automakers for subscriptions included in the sale or lease price of a vehicle;
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.

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-termlonger term subscription plans as well as discounts for multiple subscriptions on each platform.subscriptions. We also derive revenue from activation and other fees, the


1

sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic, data and Backseat TV services.
Our satellite radios are primarily distributed through automakers (“OEMs”);automakers; retail locations nationwide; and through our websites.website. We have agreements with every major automaker to offer satellite radios as factory or dealer-installed equipment in their vehicles. Satellite radio services are also offered to customers of certain rental car companies.
Certain important datesWe are also a leader in providing connected vehicle applications and services. On November 4, 2013, we purchased the connected vehicle business of Agero, Inc. Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle owners while providing marketing and operational benefits to automakers and their dealers. Subscribers to our connected vehicle services are not included in our corporate history are listed below:subscriber count.
• 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.
• 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.
Prior to January 12, 2011, we operated XM Satellite RadioLiberty Media Corporation ("Liberty Media") beneficially owns, 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., togetherits interests in Charter Communications, Live Nation Entertainment and Barnes & Noble, and minority equity investments in Time Warner Inc., Time Warner Cable, and Viacom.

1
Table of Contents

Recent Development
On January 3, 2014, Holdings' Board of Directors received a non-binding letter from Liberty Media proposing a transaction pursuant to which all outstanding shares of common stock of Holdings not owned by Liberty Media would be converted into the right to receive 0.0760 of a new share of Liberty Series C common stock, which would have no voting rights. Liberty Media indicated that immediately prior to such conversion, Liberty Media intends to distribute, on a 2 to 1 basis, shares of such Series C common stock to all holders of record of Liberty Media's Series A and B common stock. Upon the completion of the proposed transaction, Liberty Media indicated that it expects that Holdings' public stockholders would own approximately 39% of Liberty Media's then-outstanding common stock.
Holdings' Board of Directors has formed a Special Committee of independent directors to consider Liberty Media’s proposal. The Board of Directors has selected Joan L. Amble, James P. Holden and Eddy W. Hartenstein to serve on the Special Committee. The Special Committee is chaired by Mr. Hartenstein.
The Special Committee has retained Evercore Group L.L.C. to act as its financial advisor and Weil, Gotshal & Manges LLP to act as its legal counsel to assist and advise it in connection with its subsidiaries, as an unrestricted subsidiaryevaluation of Liberty Media’s proposal.
Liberty Media’s proposal noted that the transaction will be conditioned on the approval of both the Special Committee and a majority of the public stockholders of Holdings, other than Liberty Media. Liberty Media also noted that the approval by the Liberty Media stockholders of the issuance of the Series C common shares in the proposed transaction would also be required under applicable Nasdaq Stock Market requirements.
The letter provides that no legally binding obligation with respect to any transaction exists unless and until mutually acceptable definitive documentation is executed and delivered with respect thereto.  There can be no assurance that the agreements governing our indebtedness.transaction proposed by Liberty Media or any related transaction will be completed or, if completed, will have any specified terms, including with respect to pricing or timing.
Programming
We offer a dynamic programming lineup of more than 135 channels of commercial-free music plus sports, news,entertainment, talk, entertainment, andnews, traffic and weather. The channelline-upsweather, including:
an extensive selection of music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin and classical;
live play-by-play sports from major leagues and colleges;
a multitude of talk and entertainment channels for our services vary in certain respectsa variety of audiences;
a wide range of national, international and are available at siriusxm.com.financial news; and
continuous, local traffic reports for 22 metropolitan markets throughout the United States.
Our subscription packages allow most listeners to customizediverse spectrum of programming, including our lineup of exclusive material, is a significant differentiator from terrestrial radio and enhance our standard programming lineup. Our “Best of SIRIUS” package offers XM subscribers the Howard Stern channels, Martha Stewart Living Radio, SIRIUS NFL Radio, SIRIUS NASCAR Radio, Playboy Radio, Spice Radio andplay-by-play NFL games and college sports programming. Our “Best of XM” package offers SIRIUS subscribers Oprah Radio, The Virus, XM Public Radio, MLB Network Radio, NHL Home Ice, The PGA Tour Network, and selectplay-by-play of NBA and NHL games and college sports programming.
Subscribers with a la carte-capable radios may customize the programming they receive through our a la carte subscription packages. We also offer family friendly, “mostly music” and “mostly sports, news and talk” packages.
other audio entertainment providers. We make changes to our programming lineup from time to time as we strive to attract new subscribers and offer content which appeals to a broad range of audiences and to our existing subscribers. The channel line-ups for our services are available at siriusxm.com.
Music Programming
Internet Radio
We offer an extensive selection ofstream select music genres, ranging from rock, pop and hip-hopnon-music channels over the Internet. Our Internet service also includes channels and features that are not available on our satellite radio service. Access to country, dance, jazz, Latin and classical. Within each genre we offerour Internet services is offered to subscribers for a range of formats, styles and recordings.
All offee. We have available products that provide access to our original music channels are broadcast commercial free. Certain of our music channels are programmed by third parties and air commercials. Our channels are produced, programmed and hosted byInternet services without the need for a team of experts in their fields, and each channel is operated as an individual radio station, with a distinct format and branding.personal computer. We also offer applications to allow consumers to access our Internet services on smartphones and tablet computers.
We also offer two innovative Internet-based products, SiriusXM On Demand and MySXM. SiriusXM On Demand offers our Internet subscribers listening on our online media player and on smartphones the ability to choose their favorite episodes from timea catalog of content to time, provide special features, such aslisten to whenever they want. Launched in 2013, MySXM permits listeners to personalize ourArtist Confidentialseries which provides interviews and performances from some of the biggest names in existing commercial-free music and an array of “pop up” channels featuring the music of particular artists.


2

Sports Programming
Liveplay-by-play sports is an important part of our programming strategy. We are the Official Satellite Radio Partner of the National Football League (“NFL”), Major League Baseball (“MLB”), NASCAR, National Basketball Association (“NBA”), National Hockey League (“NHL”) and PGA Tour, and broadcast most major college sports, including NCAA Division I football and basketball games. Soccer coverage includes matches from the Barclays English Premier League. We also air FIS Alpine Skiing, World Cup events and horse racing.
We offer many exclusive talk channels and programs such as MLB Network Radio, SIRIUS NASCAR Radio, SIRIUS NFL Radio and Chris “Mad Dog” Russo’sMad Dog Unleashedon Mad Dog Radio, as well as two ESPN channels, ESPN Radio and ESPN Xtra. Simulcasts of select ESPN television shows, includingSportsCenter, can be found on ESPN Xtra.
Talk and Entertainment Programming
We offer a multitude of talk and entertainment channels for a variety of audiences. Our diverse spectrum of talk programming is a significant differentiator from terrestrial radio and other audio entertainment providers.
Our talk radio offerings feature dozens of popular talk personalities, many creating radio shows that air exclusively on our services, including Howard Stern, Oprah Winfrey, Martha Stewart, Dr. Laura Schlessinger, Barbara Walters, Opie and Anthony, Bob Edwards, Senator Bill Bradley, Deepak Chopra and doctors from the NYU Langone Medical Center.
Our comedy channels presentto create a rangemore tailored listening experience. Channel-specific sliders allow users to create over 100 variations of humor such as Jamie Foxx’s The Foxxhole, Laugh USA, Blue Collar Comedyeach of more than 50 channels by adjusting characteristics like library depth, familiarity, music style, tempo, region, and Raw Dog Comedy. Other talkmultiple other channel-specific attributes.  SiriusXM On Demand and entertainment channels include SIRIUS XM Book Radio, Kids Place Live and Radio Disney, as well as OutQ, Road Dog Trucking and Playboy Radio.MySXM are offered to our Internet subscribers at no extra charge.

2
Our religious programming includes The Catholic Channel, which is programmed with the Archdiocese
Table of New York, EWTN, a Global Catholic Radio Network, and Family Talk.Contents

News and Information Programming
We offer a wide range of national, international and financial news, including news from BBC World Service News, Bloomberg Radio, CNBC, CNN, FOX News, MSNBC, NPR and World Radio Network. We also air a range of political call-in talk shows on a variety of channels including our exclusive channel, POTUS.
We offer continuous, local traffic reports for 22 metropolitan markets throughout the United States on the XM service, and 20 metropolitan markets throughout the United States on the SIRIUS service. We broadcast these reports together with local weather reports from The Weather Channel.
Distribution of Radios
Automakers
Automakers
Our primary means of distributingWe distribute satellite radios is through the sale and lease of new vehicles. We have agreements with every major automaker to offer satellite radios as factory or dealer-installed equipment in their vehicles. As of December 31, 2010, satelliteSatellite radios wereare available as a factory or dealer-installed option in substantially all vehicle makes sold in the United States.
Many automakers include a subscription to our radio service in the sale or lease price of their new vehicles. In manycertain cases, we receive subscription payments from automakers in advance of the activation of our service. We share with certain automakers a portion of the revenues we derive from subscribers using vehicles equipped to receive our service. We also reimburse various automakers for certain costs associated with the satellite radios installed in theirnew vehicles, including in certain cases hardware costs, toolingengineering expenses and promotional and advertising expenses.


3

Retail
We sell satellite radios directly to consumers through our websites. Satellite radios are also marketed and distributed through major national and regional retailers. We develop in-store merchandising materials and provide sales force training for several retailers.
Previously Owned Vehicles
We expect toalso acquire an increasing number of subscribers through the sale and lease of previously owned vehicles with factory-installed satellite radios. We have entered into agreements with severalmany automakers to market subscriptions to purchasers and lessees of vehicles which include satellite radios sold through their certified pre-owned programs.
We also work directly with franchise and independent dealers on programs for non-certified vehicles.
We are developinghave developed systems and methods to identify purchasers and lessees of usedpreviously owned vehicles which include satellite radios and expecthave established marketing plans to make other effortspromote our services to market andthese potential subscribers.
Retail
We sell satellite radio subscriptionsand Internet radios directly to owners of used vehicles.consumers through our website. Satellite and Internet radios are also marketed and distributed through major national and regional retailers.
Our Satellite Radio Systems
Our satellite radio systems are designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions. Subscribers can receive our transmissions in all outdoor locations in the continental US where the satellite radio has an unobstructedline-of-sight with one of our satellites or is within range of one of our terrestrial repeaters. We continually monitor our infrastructure and regularly evaluate improvements in technology.
The FCC has allocated the portion of the S-band located between 2320 MHz and 2345 MHz exclusively for satellite radio. Each of our services uses 12.5 MHz of this bandwidth to transmit its respective signals. Uplink transmissions (from the ground to our satellites) use 12.5 MHz of bandwidth in the7060-7072.5 MHz band.
Our satellite radio systems have three principal components:
• satellites, terrestrial repeaters and other satellite facilities;
• studios; and
• satellite radios.
studios; and
radios.
Satellites, Terrestrial Repeaters and Other Satellite Facilities
SIRIUS Satellites. We currently own foura fleet of ten orbiting satellites, and one spare satellite for usefive in the SIRIUS system. These satellites are of the Loral FS-1300 model series. The chart below provides certain information on these satellites:
       
    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
OurSirius system, FM-1, FM-2, FM-3, FM-5 and FM-3 satellites travel in a figure eight pattern extending aboveFM-6, and below the equator, and spend approximately 16 hours per day north of the equator. At any time, two of these three satellites are orbiting north of the equator — with one of them in operation, while the third satellite does not transmit as it traverses the


4

portion of the orbit south of the equator. This orbital configuration yields high signal elevation angles, reducing service interruptions from signal blockage. Our FM-5 satellite is deployed in a geostationary orbit which provides redundant coverage and enhances performance of the satellite constellation.
Space Systems/Loral is constructing a sixth satellite for use in this system. This satellite is also a Loral FS-1300 model satellite. We have an agreement with International Launch Services to launch this satellite on a Proton rocket, and expect to launch this sixth satellite in the fourth quarter of 2011. We plan to deploy this satellite in a geostationary orbit at 115° West Longitude.
XM Satellites.  We own five orbiting satellites for use in the XM system.system, XM-1, XM-2, XM-3, XM-4 and XM-5. Four of these satellites were manufactured by Boeing Satellite Systems International and one was manufactured by Space Systems/Loral. The chart below provides certain information on these satellites:are currently used as spares, two of which are expected to be de-orbited in 2014 as they reach the end of their useful lives.
       
    Estimated End of
  
Satellite Designation Year Delivered Useful Life Current Use
 
XM-1 2001 2013 In-orbit spare satellite in a geostationary orbit at 85°
West Longitude
XM-2 2001 2013 In-orbit spare satellite in a geostationary orbit at 115° West Longitude
XM-3 2005 2020 Broadcasting from a geostationary orbit at 85°
West Longitude
XM-4 2006 2021 Broadcasting from a geostationary orbit at 115° West Longitude
XM-5 2010 2025 In-orbit spare satellite in a geostationary orbit at 85°
West Longitude
Satellite Insurance. We maintainhold in-orbit insurance for our FM-5, XM-4FM-6 and XM-5 satellites.satellites which will expire in 2014, 2014 and 2015, respectively. We may not renew these in-orbit insurance policies when they expire, as we may consider the premium costs to be uneconomical relative to the risk of satellite failure. These policies provide coverage for a total, constructive total or partial loss of the satellitessatellite that occurs during annual (or multi-year) in-orbit periods.prior to expiration of the applicable policy. The insurance does not cover the full cost of constructing, launching and insuring new satellites, nor will it protect us from the adverse effect on business operations due to the loss of a satellite. The policies contain standard commercial satellite insurance provisions, including coverage exclusions. We do not insure satellites for their full expected useful lives as we consider the premium costs to be uneconomical relative to the risk of satellite failure.
Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception of satellite signals can be adversely affected. In many of these areas, we have deployed terrestrial repeaters to supplement satellite coverage. We operate over 140approximately 700 terrestrial repeaters inas part of our systems across the SIRIUS system and over 580 terrestrial repeaters in the XM system.United States.
Other Satellite Facilities. We control and communicate with our SIRIUS satellites from an uplink facilityfacilities in New Jersey. We alsoNorth America and maintain earth stations in Panama and Ecuador to control and communicate with several of our SIRIUSSirius satellites. Our SIRIUS satellites and the XM-1, XM-2 and XM-5 satellites are monitored, tracked and controlled by Intelsat, a third party satellite operator. Our XM-3 and XM-4 satellites are monitored, tracked and controlled by Telesat Canada, a satellite operator. We also operate backup earth stations in the United States.

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Table of Contents

Studios
Our programming originates principally from studios in New York City and Washington D.C., and, to a lesser extent, from smaller studio facilities in Cleveland, Los Angeles, Memphis, Nashville and Orlando.Austin. Our New York City offices house our corporate headquarters. Both our New York City and Washington D.C. offices house facilities for programming origination, programming personnel and facilities to transmit programming.


5

Satellite Radios
Radios are manufactured in three principal configurations - as in-dash radios, Dock & Play radios and home or commercial units.
We design, establish specifications for, source or specify parts and components for, and manage various aspects of the logistics and production of satellite radios. We do not manufacture radios. We have authorized manufacturers and distributors to produce and distribute satellite radios, and have licensed our technology to various electronics manufacturers to develop, manufacture and distribute radios under certain brands. We directly import radios distributed through our websites.do manage various aspects of the production of satellite and Internet radios. To facilitate the sale of satellite radios, we may subsidize a portion of the radio manufacturing costs to reduce the hardware price to consumers.
Satellite radios are manufactured in three principal configurations — as in-dash radios, Dock & Play radios and portable or wearable radios.
• 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.
Home units that provide our satellite service to home and commercial audio systems are also available.
Connected Vehicle Services
We have introduced an interoperable radio called MiRGE. This radio hasare a unified control interface allowingleader in providing connected vehicle applications and services. Our connected vehicle services are designed to enhance the safety, security and driving experience for easy switching between our two satellite radio networks.vehicle owners while providing marketing and operational benefits to automakers and their dealers. We have introduced the XM SkyDock, which connects to an Apple iPhoneoffer a portfolio of location-based services through two-way wireless connectivity, including safety, security, convenience, maintenance and iPod touchdata services, remote vehicles diagnostics, stolen or parked vehicle locator services, and provides live XM satellite radio using the control capabilitymonitoring of the iPhone or iPod touch.
Internet Radio
vehicle emission systems.
We simulcast music channelsentered the connected vehicle services business in 2012 with an agreement with Nissan North America to become the exclusive provider of a comprehensive suite of premium services for Nissan branded vehicles. On November 4, 2013, we purchased the connected vehicle business of Agero, Inc. As a result of this acquisition, our connected vehicle business provides services to several automakers, including Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and select non-music channels over the Internet. Access toToyota. We expect that this acquisition will enhance our Internetpresence in connected vehicle services is offered to subscribers for a fee. We have available products that provide access tothrough our internet radio services in the home without the need for a personal computer.businesses’ existing automaker relationships, subscriber base, full-service product offering and technology platform. We also offer applicationsanticipate that this acquisition will better position us to allow consumersbring innovative connected vehicle services to access our internet services on mobile devices. the global automotive market.
Subscribers to our internet services are not included in our subscriber count, unless the service is purchased separately and not as part of a satellite radio subscription.
International
Canada.  We have an interest in the satellite radio services offered in Canada. SIRIUS Canada, a Canadian corporation that we jointly own with Canadian Broadcasting Corporation and Slaight Communications Inc., offers a satellite radio service in Canada. SIRIUS Canada offers over 120 channels of commercial-free music and news, sports, talk and entertainment programming, including 12 channels offering Canadian content. XM Canada, a Canadian corporation in which we have an ownership interest, also offers satellite radio service in Canada. XM Canada offers over 130 channels of music and news, sports, talk and entertainment programming. Subscribers to these Canadianconnected vehicle services are not included in our subscriber count.
Canada
In November 2010, SIRIUS Canada andWe own approximately 38% of the equity of Sirius XM Canada announced a definitive agreement to combine in astock-for-stock transaction. The transaction is subject to regulatory review and approvals, including approval ofHoldings Inc., the Canadian Radio-television & Telecommunications Commission, approval by XM Canada’s stockholders and other customary conditions. The companies will continue to operate independently until the transaction is complete.
Mexico.  In May 2010, our letter of intent with ACIR DARS Mexico, S. de R.L. de C.V. to pursue a license to offer satellite radio provider in Mexico was terminated.Canada. Subscribers to the services offered by Sirius XM Canada are not included in our subscriber count.


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Other Services
Commercial Accounts. Our music services are alsoprogramming is available for commercial establishments. Commercial subscription accounts are available through providers of in-store entertainment solutions and directly from us. Certain commercial subscribers are included in our subscriber count.
Satellite Television Service.  We offer  Certain of our music channels are offered as part of certain programming packages on the DISH Network satellite television service. Subscribers to the DISH Network satellite television service are not included in our subscriber count.
Content Through Mobile Phone Carriers.  We offer between 20 and 25 music and comedy channels to mobile phone users through relationships with AT&T, Alltel, Sprint and RIM. Subscribers to these services are not included in our subscriber count.
Subscribers to the following services are not included in our subscriber count, unless the applicable service is purchased by the subscriber separately and not as part of a radio subscription to our services:
Backseat TV. We offer Backseat TV, a service offering television content designed primarily for children, in the backseat of vehicles. Backseat TV is available as a factory-installed option in select Chrysler, Dodge and Jeep models, and at retail for aftermarket installation.
Travel Link. We offer Travel Link, a suite of data services that includes graphical weather, fuel prices, sports schedules and scores and movie listings.
Real-Time Traffic Services. We also offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems.

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Real-Time Weather Services. We offer several real-time weather services designed for improving situational awareness in vehicle, marineand/or aviation use.
Competition
FCC Conditions
In order to demonstrate to the FCC that the Merger was in the public interest, we agreed to implement a number of voluntary commitments. These commitments include certain voluntary assurances regarding our programming and programming packages; the creation of public interest channels; and equipment manufacturing, all of which we have complied with. Below we describe other voluntary commitments that we are in the process of complying with or that impose restrictions:
Qualified Entity Channels
We agreed to enter into long-term leases or other agreements to provide rights to four percent of the full-time audio channels on our platforms to a Qualified Entity or Entities defined as an entity or entities that: (1) are not directly or indirectly owned, in whole or in part, by us or one of our affiliates; (2) do not share any common officers, directors or employees with us or any affiliate of us; and (3) do not have any existing relationships with us for the supply of programming during the two years prior to October 19, 2010. We intend to balance the following considerations in selecting lessees:
• 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.
We will notify the FCC of our tentative selections before signing agreements for the leased channels and will enter into lease agreements by April 17, 2011. As digital compression technology enables us to broadcast additional full-time audio channels, we will ensure that four percent of the full-time audio channels on our platforms are


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reserved for Qualified Entities. The Qualified Entities will not be required to make any lease payments for such channels. We may not alter, censor, or otherwise exercise any control over the leased programming but we may remove programming that violates the law.
Subscription Rates
We have agreed not to raise the retail price for, or reduce the number of channels in, our basic $12.95 per month subscription package, our a la carte programming packages or certain other programming packages until July 28, 2011. Under the FCC’s order approving the Merger, we may pass through cost increases incurred since the filing of our FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries for the performance of musical works and sound recordings or for device recording fees. Effective July 29, 2009, we began adding a U.S. Music Royalty Fee to subscriber invoices. Until December 2010, the U.S. Music Royalty Fee was $1.98 a month on our base $12.95 subscriptions and $0.97 for base plans that are eligible for a second radio discount; as of December 6, 2010, we reduced the fee to $1.40 a month on our base $12.95 subscriptions. Subscription packages, such as our “News, Sports and Talk” package, that contain little music are not subject to the U.S. Music Royalty Fee. Amounts collected on account of the U.S. Music Royalty Fee are being used to partially offset payments to the music industry. A summary of the costs passed through pursuant to U.S. Music Royalty Fee is available on our websites.
Competition
Satellite Radio
We face significant competition for both listeners and advertisers. In addition to pre-recorded entertainment purchased or playingadvertisers in cars, homes and using portable players, we compete with the followingour satellite radio business, including providers of radio or other audio services:services. Our digital competitors are making in-roads into vehicles, where we are currently the prominent alternative to traditional AM/FM radio.
Traditional AM/FM RadioRadio.
Our services compete with traditional AM/FM radio. Many traditional radio companies are substantial entities owning large numbers of radio stations or other media properties. The radio broadcasting industry is highly competitive.
Traditional AM/FM radio has had a well-established demand for its services and offers free broadcasts paid for by commercial advertising rather than by a subscription feefees like satellite radio. Many radio stations offer information programming of a local nature, such as local news and sports. TraditionalThe availability of traditional free AM/FM radio reduces the likelihood that customers would be willing to pay for our subscription services and, by offering free broadcasts, it imposesmay impose limits on what we can charge for our services. Some AM/FM radio stations have reduced the number of commercials per hour, expanded the range of music played on the air and experimented with new formats in order to lure customers away from satellite radio.
HD RadioRadio.
Many radio stations now broadcast digital signals, which have clarity similar to our signals. These stations do not charge a subscription fee for their digital signals but do generally carry advertising. A group of major broadcast radio networks have created a coalition to jointly market digital radio services. According to this coalition, over 2,000 radio stations are currently broadcasting primary signals with HD Radio technology and broadcasting more than 1,100 new FM multicast channels (HD2/HD3), and manufacturers are marketing and distributing digital receivers. To the extent that traditional AM/FM radio stations adopt digital transmission technology and listeners adopt digital receivers, any competitive advantage that we enjoy over traditional radio because of our clearer digital signal would be lessened. Traditional AM/FM broadcasters are also complementing their HD Radio efforts by aggressively pursuing Internet radio, and wireless Internet-based distribution arrangements. Several automakers install HD Radio equipment as factory standard equipment in select models, including Ford, Volkswagen, BMW, Mercedes-Benz, Kiaarrangements and Hyundai.data services.
Internet Radio and Internet-Enabled SmartphonesSmartphones.
Internet radio broadcastsservices often have no geographic limitations and can provide listeners with radio programming from across the country and around the world. Major media companies and online-onlyonline providers, including


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Apple, Pandora and Clear Channel, CBS and Pandora, make high fidelity digital streams available through the Internet for free or, in some cases, for a fraction of the cost of a satellite radio subscription. These services compete directly with our services, at home, in the automobile, and wherever audio entertainment is consumed.
Mobile Internet-enabled smartphones,Smartphones, most of which have the capability of interfacing with vehicles, have become popular. These smartphones can typically play recorded or cached content and access live Internet radio via dedicated applications or browsers. These applications are often free to the user and offer music and talk content as long as the user is subscribed to a sufficiently large mobile data plan. Leading audio smartphone radio applications include Pandora, last.FM, Slacker, iheartradioSpotify, iTunes Radio and Stitcher.iheartradio. Certain of these applications also include advanced functionality, such as personalization, and song skipping, and allow the user to access large libraries of content and podcasts on demand.content. These services may become integrated into connected cars in the future.
Third generation mobileMobile networks have enabled a steady increase in the audio quality and reliability of mobile Internet radio streaming, and this is expected to further increase as fourth generation networks become the standard. We expect that improvements from higher bandwidths, wider programming selection, and advancements in functionality are likely to continue making Internet radio and smartphone applications an increasingly significant competitor, particularly in vehicles.
Advanced In-Dash Infotainment SystemsSystems.
A number ofNearly all automakers have deployed or are planning to deploy integrated multimedia systems in dash boards,dashboards, such as Ford’sFord's SYNC, Toyota’sToyota's Entune, and BMW/Mini’sMini's Connected. These systems can combine control of audio entertainment from a variety of sources, including AM/FM/HD radio broadcasts, satellite radio, Internet radio, smartphone applications and stored audio, with navigation and other advanced applications such as restaurant bookings, movie show times and financial information, among others. Liveinformation. Internet radio and other data isare typically pulled intoconnected to the carsystem via a Bluetoothbluetooth link to an Internet-enabled smartphone, and the entire system may be controlled by touchscreen or voice recognition. These systems enhance the attractiveness of our Internet-based competition by making such applications more prominent, easier to access, and safer to use in the car.
Portable Audio Devices
The Apple iPod® is a portable digital music player that allows users to download and purchase music through Apple’s iTunes® Music Store, as well as convert music on compact disc to digital files. iPods® Similar systems are compatible with certain car stereos and various home speaker systems, and certain automakers have entered into arrangements with manufacturers of portable media players that are expected to enhance this compatibility. Availability of musicalso available in the public MP3 audio standard has been growing in recent years with sound files available on the websitesaftermarket and sold through retailers.

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Table of online music retailers, artists and record labels and through numerous file sharing software programs. In addition, many emerging artists give away their music for free via blogs and other websites in order to increase live event ticket sales, which are often more profitable to emerging artists than music sales. These MP3 files can be played instantly, burned to a compact disc or stored in various portable players available to consumers. Internet-based audio formats are becoming increasingly competitive as quality improves and costs are reduced. In addition, many current generation portable audio devices, such as the iPod touch, also contain WiFi connections enabling direct Internet connections for purchasing additional music or streaming music that is not stored on the local device.Contents

Direct Broadcast Satellite and Cable AudioAudio.
A number of companies provideproviders offer specialized audio services through either direct broadcast satellite or cable audio systems. These services are targeted to fixed locations, mostly in-home. The radio service offered by direct broadcast satellite and cable audio is often included as part of a package of digital services with video service, and video customers generally do not pay an additional monthly charge for the audio service.
Other Digital Media ServicesServices.
The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms and portable devices that compete with our services now or that could compete with those services in the future.


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Traffic News Services
A number of providers also compete with our traffic services. Clear Channelnews services, including ClearChannel and Tele Atlas deliver nationwide traffic information for the top 50 markets to in-vehicle navigation systems using RDS/TMC, the radio broadcast standard technology for delivering traffic and travel information to drivers. TheRadiate Media/Cumulus. In addition, in-dash navigation market in which we primarily compete is also being threatened by increasingly capable smartphones that provide advanced navigation functionality, including live traffic. For instance, Android, Palm, Blackberry, and Apple iOS-baseddata services through a direct vehicle interface. Most of these smartphones all includeoffer GPS mapping, and navigation functionality, often withturn-by-turn navigation.
Connected Vehicle Services
Our connected vehicle services business operates in a highly competitive environment. Our major competitors include Verizon Telematics and Sprint. OnStar, a division of General Motors, also offers connected vehicle services in GM vehicles. We also compete with wireless devices such as mobile phones, carriers of mobile communications and, to a lesser extent, with systems developed internally by automakers. We compete against other connected vehicle service providers for automaker arrangements on the basis of service quality and reliability, technical capabilities and systems customization, scope of service, industry experience, past performance and price.
Government Regulation
As operators of a privately owned satellite system, we are regulated by the FCC under the Communications Act of 1934, principally with respect to:
the licensing of our satellite systems;
• 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.
Any assignment or transfer of control of our FCC licenses must be approved by the FCC. The FCC’sFCC's order approving the merger of our wholly-owned subsidiary, Vernon Merger Corporation, with and into XM Satellite Radio Holdings Inc. in July 2008 (the “Merger”) requires us to comply with certain voluntary commitments we made as part of the FCC mergerMerger proceeding. We believe we comply with those commitments.
In 1997, XM and SIRIUS was each awe were the winning bidderbidders for an FCC licenselicenses to operate a satellite digital audio radio service and provide other ancillary services. Our FCC licenses for our SIRIUSSirius satellites expire in 2017. Our FCC licenses for our XM satellites expire in 2013, 2014, 2018 and 2018.2021. We anticipate that, absent significant misconduct on our part, the FCC will renew our licenses to permit operation of our satellites for their useful lives, and grant a license for any replacement satellites.
We have entered into an agreement with Space Systems/Loral to design and construct a sixth satellite for the SIRIUS system. In September 2008, the FCC granted our application to amend our license to add this satellite to the existing SIRIUS satellite constellation. We applied to modify that authorization in April 2010 and that application remains pending.
In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception can be adversely affected. In many of these areas, we have installed terrestrial repeaters to supplement our satellite signal coverage. In 2010, theThe FCC has established rules governing terrestrial repeaters which are also intendedand has granted us a license to protect adjacent wireless services from interference. Once fully implemented, these rules will allow us to obtain blanket licenses to authorize operation ofoperate our repeater network for repeaters meeting certain technical specifications.Site-by-site licensing is available for all other repeaters.network.
We design, establish specifications for, source or specify parts and components for, manage various aspects of the logistics and production of, and, in mostIn many cases, we obtain FCC certifications for satellite radios, including satellite radios that include FM modulators. We believe our radios that are in production comply with all applicable FCC rules.
We are required to obtain export licenses from the United States government to deliver components of our satellite radio systems and related technical data. In addition, the delivery of satellites and the supply of relatedexport certain ground control equipment, satellite communications/control services and technical data related to our satellites and satellite communication/controltheir operations. The delivery of such equipment, services and technical data to destinations outside the United States and to foreign persons is subject to strict export control and prior approval requirements from the United States government (including prohibitions on the sharing of certain satellite-related goods and services with China).
Changes in law or regulations relating to communications policy or to matters affecting our services could adversely affect our ability to retain our FCC licenses or the manner in which we operate.


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Copyrights to Programming
In connection with our satellite radio music programming, we must negotiate and enter into royalty arrangements with two sets of rights holders: holdersHolders of copyrights in musical works (that is, the music and lyrics) and holders of copyrights in sound recordings (that is, the actual recording of a work).
Musical works rights holders, generally songwriters and music publishers, are represented by performing rights organizations such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”), and SESAC, Inc. (“SESAC”). These organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders. We have arrangements with all of these organizations.
Sound recording rights holders, typically large record companies, are primarily represented by SoundExchange, an organization which negotiates licenses, and collects and distributes royalties on behalf of record companies and performing artists. Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we may negotiate royalty arrangements with the sound recording copyright owners, or if negotiation is unsuccessful, the royalty rate is established by the Copyright Royalty Board (the “CRB”) of the Library of Congress. In January 2008, the
The CRB has issued a decisionits determination regarding the royalty rate payable by us under the statutory license covering the performance of sound recordings over our satellite digital audio radio servicesservice, and the making of ephemeral (server) copies in support of such performances, for the six-yearfive-year period starting January 1, 2007 and ending on December 31, 2012.2017. Under the terms of the CRB’sCRB's decision, we paid, or will pay a royalty of 6.0%, 6.0%, 6.5%, 7.0%, 7.5% and 8.0% ofbased on gross revenues, subject to certain exclusions, of 9.5% for 2007, 2008, 2009, 2010, 20112014, 10.0% for 2015, 10.5% for 2016, and 2012, respectively. Our next11% for 2017. The rate settingfor 2013 was 9.0%.
The revenue subject to royalty includes subscription revenue from our U.S. satellite digital audio radio subscribers and advertising revenue from channels other than those channels that make only incidental performances of sound recordings. Exclusions from revenue subject to the statutory license fee include, among other things, revenue from channels, programming and products or other services offered for a separate charge where such channels make only incidental performances of sound recordings; revenue from equipment sales; revenue from current and future data services (including video and connected vehicle services) offered for a separate charge; intellectual property royalties received by us; credit card, invoice and fulfillment service fees; and bad debt expense. The regulations also allow us to further reduce our monthly royalty fee in proportion to the percentage of our performances that feature pre-1972 recordings (which are not subject to federal copyright protection) as well as those that are licensed directly from the copyright holder, rather than through the statutory license.
To secure the rights to stream music content over the Internet, including to mobile devices, we also must obtain licenses from, and pay royalties to, copyright owners of musical compositions and, in certain cases, sound recordings. We have arrangements with ASCAP, SESAC and BMI to license the musical compositions we stream over the Internet. The licensing of certain sound recordings for use on the Internet is also subject to the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 on terms established by the CRB. In 2013, we paid a per performance rate for the streaming of certain sound recordings on the Internet of $0.00210 per play, which rate will change to $0.00220 per play in 2014 and $0.00240 in 2015. Proceedings to establish rates for the streaming of certain sound recordings on the Internet after 2015, known as the Webcasting IV proceeding, before the CRB commenced in January 2011 with a request from2014 before the CRB for a notice of intention to participate in that rate setting proceeding.CRB.
Trademarks
We have registered, and intend to maintain, the trademark “SIRIUS”“Sirius”, “XM”, “SiriusXM” and the “Dog design” logo with the United States Patent and Trademark Office (the “PTO”) in connection with the services we offer. We are not aware of any material claims of infringement or other challenges to our right to use the “SIRIUS”“Sirius”, “XM” or “XM”“SiriusXM” trademark or the “Dog design” logo in the United States. We also have registered, and intend to maintain, trademarks for the names of certain of our channels. We have also registered the trademarks “SIRIUS”“Sirius”, “XM”, and the “Dog design” logo in Canada. We have granted a license to use certain of our trademarks in Canada to each of SIRIUS Canada andSirius XM Canada.
Personnel
As of December 31, 2010,2013, we had 1,4792,195 full-time employees. In addition, we rely upon a number of part-time employees, consultants, other advisors and outsourced relationships. None of our employees are represented by a labor union, and we believe that our employee relations are good.
Corporate Information
Our executive offices are located at 1221 Avenue of the Americas, 36th floor, New York, New York 10020 and our telephone number is(212) 584-5100. Our internet address is www.siriusxm.com. Our annual, quarterly and current reports, and any amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of

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1934 may be accessed free of charge through our website after we have electronically filed or furnished such material with the SEC. Siriusxm.com (including any other reference to such address in this Annual Report) is an inactive textual reference only, meaning that the information contained on or accessible from the website is not part of this Annual Report onForm 10-K and is not incorporated in this report by reference.


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Executive Officers of the Registrant
Certain information regarding our executive officers as of January 31, 2014 is provided below:
NameAgePosition
Name
Age
Position
Mel KarmazinJames E. Meyer6759Chief Executive Officer
Scott A. Greenstein5154President and Chief Content Officer
James E. Meyer56President, Operations and Sales
Dara F. Altman5255Executive Vice President and Chief Administrative Officer
Stephen Cook58Executive Vice President, Sales and Automotive
Patrick L. Donnelly4952Executive Vice President, General Counsel and Secretary
David J. Frear5457Executive Vice President and Chief Financial Officer
Enrique Rodriguez51Executive Vice President, Operations and Products
Katherine Kohler Thomson47Executive Vice President, Chief Marketing Officer
Mel KarmazinJames E. Meyerhas served as our Chief Executive Officer since December 2012. From May 2004 to December 2012, Mr. Meyer was our President, Operations and a member of our board of directors since November 2004.Sales. Prior to joining us,May 2004, Mr. KarmazinMeyer was President and Chief Operating Officer andof Aegis Ventures Incorporated, a consulting firm that provides general management services. From December 2001 until 2002, Mr. Meyer served as special advisor to the Chairman of Thomson S.A., a leading consumer electronics company. From January 1997 until December 2001, Mr. Meyer served as the Senior Executive Vice President for Thomson as well as a member of the board of directors of Viacom Inc. from May 2000executive committee. From 1992 until June 2004.1996, Mr. KarmazinMeyer served as Chairman,Thomson's Senior Vice President and Chief Executive Officer of Infinity Broadcasting Corporation from December 1998 until the merger of Infinity with Viacom in February 2001. Prior to joining Viacom,Product Management. Mr. Karmazin was President and Chief Executive Officer of CBS Corporation from January 1999 andMeyer is a director of CBS Corporation from 1997 until its merger with Viacom in May 2000. He was President and Chief Operating Officer of CBS Corporation from April 1998 through December 1998. Mr. Karmazin joined CBS Corporation in December 1996 as Chairman and Chief Executive Officer of CBS Radio and served as Chairman and Chief Executive Officer of the CBS Station Group (Radio and Television) from May 1997 to April 1998. Prior to joining CBS Corporation, Mr. Karmazin served as President and Chief Executive Officer of Infinity Broadcasting Corporation from 1981 until its acquisition by CBS Corporation in December 1996.ROVI Corporation.
Scott A. Greensteinhas served as our President and Chief Content Officer since May 2004. Prior to May 2004, Mr. Greenstein was Chief Executive Officer of The Greenstein Group, a media and entertainment consulting firm. From 1999 until 2002, he was Chairman of USA Films, a motion picture production, marketing and distribution company. From 1997 until 1999, Mr. Greenstein was Co-President of October Films, a motion picture production, marketing and distribution company. Prior to joining October Films, Mr. Greenstein was Senior Vice President of Motion Pictures, Music, New Media and Publishing at Miramax Films, and held senior positions at Viacom Inc.
James E. Meyerhas served as our President, Operations and Sales, since May 2004. Prior to May 2004, Mr. Meyer was President of Aegis Ventures Incorporated, a consulting firm that provides general management services. From December 2001 until 2002, Mr. Meyer served as special advisor to the Chairman of Thomson S.A., a leading consumer electronics company. From January 1997 until December 2001, Mr. Meyer served as the Senior Executive Vice President for Thomson as well as the Chief Operating Officer for Thomson Consumer Electronics. From 1992 until 1996, Mr. Meyer served as Thomson’s Senior Vice President of Product Management. Mr. Meyer is a director of ROVI Corporation.
Dara F. Altmanhas served as our Executive Vice President and Chief Administrative Officer since September 2008. From January 2006 until September 2008, Ms. Altman served as Executive Vice President, Business and Legal Affairs, of XM. Ms. Altman was Executive Vice President of Business Affairs for Discovery Communications from 1997 to 2005. From 1993 to 1997, Ms. Altman served as Senior Vice President and General Counsel of Reiss Media Enterprises, which owned Request TV, a nationalpay-per-view service. Before Request TV, Ms. Altman served as counsel for Home Box Office. Ms. Altman started her career as an attorney at the law firm of Willkie Farr & Gallagher LLP.
Stephen Cook has served as our Executive Vice President, Sales and Automotive, since January 2013. Mr. Cook served as our Group Vice President and General Manager, Automotive Division, from July 2008 until January 2013. Mr. Cook served as Executive Vice President, Automotive, of XM from July 2006 to July 2008. He also served as XM's Executive Vice President, Sales and Marketing, from January 2002 until July 2006, and as XM's Senior Vice President, Sales and Marketing, from February 1999 until January 2002. Prior to joining XM, Mr. Cook was Chief Operating Officer for Conxus Communications. From 1990 to 1997, Mr. Cook held management positions with GTE's cellular operations. Prior to that time, Mr. Cook worked in brand management for Procter & Gamble.
Patrick L. Donnellyhas served as our Executive Vice President, General Counsel and Secretary, since May 1998. From June 1997 to May 1998, he was Vice President and deputy general counselDeputy General Counsel of ITT Corporation, a hotel, gaming and entertainment company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in February 1998. From October 1995 to June 1997, he was assistant general counsel of ITT Corporation. Prior to October 1995, Mr. Donnelly was an attorney at the law firm of Simpson Thacher & Bartlett LLP.


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David J. Frearhas served as our Executive Vice President and Chief Financial Officer since June 2003. From July 1999 through Februaryto 2003, Mr. Frear was Executive Vice President and Chief Financial Officer of Savvis Communications Corporation, a global managed service provider, delivering internet protocol applications for business customers. From October 1999 through February 2003, Mr. Frear also served as a director

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of Savvis. Mr. Frear was an independent consultant in the telecommunications industry from August 1998 until June 1999. From October 1993 to July 1998, Mr. Frear was Senior Vice President and Chief Financial Officer of Orion Network Systems Inc., an international satellite communications company that was acquired by Loral Space & Communications Ltd. in March 1998. From 1990 to 1993, Mr. Frear was Chief Financial Officer of Millicom Incorporated, a cellular, paging and cable television company. Prior to joining Millicom, he was an investment banker at Bear, Stearns & Co., Inc. and Credit Suisse.
Enrique Rodriguez has served as our Executive Vice President, Operations and Products, since January 2013. He served as our Group Vice President from October 2012 until January 2013. Mr. Rodriguez was the Senior Vice President and General Manager of Cisco System Inc.'s Service Provider Video Technology Group from May 2010 until December 2011. Mr. Rodriguez served as Corporate Vice President for the TV Division of Microsoft Corp. from June 2006 until April 2010. Prior to heading Microsoft's TV Division, Mr. Rodriguez served as Vice President of Xbox Partnerships for Microsoft. Before joining Microsoft in 2003, Rodriguez spent over 20 years at Thomson/RCA in a variety of engineering and executive roles.
Katherine Kohler Thomson was appointed as our Executive Vice President, Chief Marketing Officer, in December 2013. Ms. Thomson was the President and Chief Operating Officer of the Los Angeles Times Media Group from May 2011 until November 2013.  She was also the Chief Operating Officer of Tribune Publishing Company, Inc. from April 2013 until November 2013. Ms. Thomson served as Vice President, Business Operations of FLO TV, a division of Qualcomm Incorporated that delivered live television to mobile devices, from September 2009 until May 2011. From September 2008 through September 2009, she was Executive Vice President and Chief of Staff at the Los Angeles Times Media Group. She joined the Los Angeles Times Media Group from Energy Innovations, an affordable solar energy provider, where she was Chief Operating Officer from August 2007 until September 2008.  Prior to that time, she spent fourteen years in a variety of positions at DIRECTV, culminating in the role of Senior Vice President, Sales and Marketing Operations.

ITEM 1A.RISK FACTORS
In addition to the other information in this Annual Report onForm 10-K, including the information under the caption Item 1. Business “Competition,” the following risk factors should be considered carefully in evaluating us and our business. 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 set forth below and elsewhere in this Annual Report onForm 10-K. See “Special Note Regarding Forward-Looking Statements.”Statements” following this Item 1A. Risk Factors.
We face substantial competition and that competition is likely to increase over time.
We face substantial competition in thefrom other providers of radio and other audio entertainment business.services. Our ability to retain and attract subscribers depends on our success in creating and providing popular or unique music, entertainment, news and sports programming. Our subscribers can obtain certain similar content for free through terrestrial radio stations. In addition, audio entertainmentstations or Internet radio services. Audio content delivered via the Internet, including through mobile devices, is becoming increasingly competitive with our services. A number ofIn addition, automakers and aftermarket manufacturers have introduced or will shortly introduce, factory-installed radios capable of accessing Internet-delivered audio entertainment.entertainment and connecting to Internet-delivered content on smartphones. A summary of various services that compete with us is contained in the section entitled “Business — Competition.”“Item 1. Business-Competition” of this Annual Report on Form 10-K for the year ended December 31, 2013.

Competition could result in lower subscription, advertising or other revenue or increase our marketing, promotion or other expenses and, consequently, lower our earnings and free cash flow. We cannot assure you we will be able to compete successfully with our existing or future competitors or that competition will not have a material adverse effect on our business, financial condition or results of operations.

Our ability to attract and retain subscribers in the future is uncertain.
Our ability to retain our subscribers, or increase the number of subscribers to our service, is uncertain and subject to many factors, including:
the price of our service;
the health of the economy;
the production and sale of new vehicles in the United States;
the rate at which existing self-pay subscribers buy and sell new and used vehicles in the United States;
our ability to convince owners and lessees of new and previously owned vehicles that include satellite radios to purchase subscriptions to our service;
the effectiveness of our marketing programs;

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the entertainment value of our programming; and
actions by our competitors, such as terrestrial radio and other audio entertainment and information providers.
As part of our business, we experience, and expect to experience in the future, subscriber turnover (i.e., churn). Some elements of our business strategy may result in churn increasing. For example, our efforts to increase the penetration of satellite radios in new, lower priced vehicle lines may result in the growth of economy-minded subscribers; our work to acquire subscribers purchasing or leasing pre-owned vehicles may attract subscribers of more limited economic means; and our product and marketing efforts may attract more price sensitive subscribers.

If we are unable to retain current subscribers at expected rates, or the costs of retaining subscribers are higher than expected, our financial performance and operating results could be adversely affected. We cannot predict how successful we will be at retaining customers who purchase or lease vehicles that include a prepaid promotional subscription to our satellite radio service. We spend substantial amounts on advertising and marketing and in transactions with automakers, retailers and others to obtain and attract subscribers.

Average monthly revenue per subscriber, which we refer to as ARPU, is another key metric we use to analyze our business. Over the past several years, we have focused substantial attention and efforts on balancing ARPU and subscriber additions. Our ability to increase or maintain ARPU over time is uncertain and depends upon various factors, including:
the value consumers perceive in our service;
our ability to add and retain compelling programming;
the increasing competition we experience from terrestrial and Internet radio and other audio entertainment and information providers;
our ability to increase prices; and
discounted offers we may make to attract new subscribers and retain existing subscribers.
Our profitability could be adversely affected if we are unable to consistently attract new subscribers and retain our current subscribers at prices and margins consistent with our past performance.

Our business depends in large part upon automakers and demand for our service is difficult to predict.the auto industry.
MostA substantial portion of our new subscription growth has come from purchasers and lessees of new and used automobiles; as a result,previously owned automobiles in the United States. The sale and lease of vehicles with satellite radios is an important source of subscribers for our satellite radio service. We have agreements with every major automaker to include satellite radios in new vehicles, although these agreements do not require automakers to install specific or minimum quantities of radios in any given period.

Automotive production and sales are dependent on many factors, including the availability of consumer credit, general economic conditions, consumer confidence and fuel costs. To the extent vehicle sales by automakers decline, or the penetration of factory-installed satellite radios in those vehicles is reduced, subscriber growth for our satellite radio services willmay be adversely impacted if thereimpacted.

Sales of previously owned vehicles represent an increasing source of new subscribers for us. We have agreements with various auto dealers and certain companies operating in the used vehicle market to provide us with data on sales of previously owned satellite radio enabled vehicles. The continuing availability of this information is no offsetting growth in vehicle sales or increased penetration by other automakers.
We cannot estimate with any certainty whether demand for our services will be sufficient for us to continue to increase the number of subscribersimportant to our services.future growth.

General economic conditions can affect our business.
The purchase of a satellite radio subscription is discretionary, and our business and our financial condition can be negatively affected by adverse general economic conditions. For example, the dramatic slowdown in auto sales negatively impacted ourPoor general economic conditions can adversely affect subscriber growth in 2008churn, conversion rates and 2009.vehicle sales.


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Failure of our satellites would significantly damage our business and potential satellite losses may not be covered by insurance.
business.
The useful lives of our satellites will vary and depend on a number of factors, including:
• 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.
Threequality of construction;
random failure of satellite components, which could result in significant damage to or loss of a satellite;
amount of fuel the SIRIUS in-orbit satellites have experienced circuit failures on their solar arrays. The circuit failures these satellites have experienced do not affect current operations. Additional circuit failures on the first three SIRIUS satellites could reduce the estimated useful livessatellite consumes; and

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Table of those satellites.Contents

We have entered into an agreement with Space Systems/Loral to design and construct a new satellite for the SIRIUS system that is expected to be launched in the fourth quarter of 2011. Satellite launches have significant risks, including launch failure, damage or destruction of the satellite during launch and failure to achieve a proper orbitby electrostatic storms, collisions with other objects in space or operateother events, such as planned. Our agreement with Space Systems/Loral does not protect us against the risks inherentnuclear detonations, occurring in a satellite launch or in-orbit operations.space.
Our XM-1 and XM-2 satellites have experienced progressive degradation problems common to early Boeing 702 class satellites and now serve as in-orbit spares. We estimate that the XM-3 and XM-4 satellites will meet their15-year predicted useful lives, and that the XM-1 and XM-2 satellites’ useful lives will end in 2013. Our XM-5 satellite serves as an in-orbit spare for both of our services. In the event of a failure of XM-3, XM-4 or any of the SIRIUS satellites, service would be maintained through XM-5.
In addition, our networks of terrestrial repeaters each communicates with one third-party satellite. If the satellites communicating with the applicable repeater network fail unexpectedly, the services would be disrupted for several hours or longer.

In the ordinary course of operation, satellites experience failures of component parts and operational and performance anomalies. Components on our in-orbit satellites have failedfailed; and from time to time we have experienced anomalies in the operation and performance of these satellites. These failures and anomalies are expected to continue in the ordinary course, and we cannot predict if any of these possible future events will have a material adverse effect on our operations or the useful life of our existing in-orbit satellites. Any material failure of our satellites could cause us to lose customers and could materially harm our reputation and our operating results.

Three of the Sirius in-orbit satellites have experienced degradation on their solar arrays. The degradation these satellites have experienced does not affect current operations. Additional degradation on three Sirius satellites could reduce the estimated lives of those satellites.

Our XM-1 and XM-2 satellites, launched in 2001, experienced progressive degradation problems common to early Boeing 702 class satellites, reached the end of their depreciable lives in 2013 and are expected to be removed from orbit in 2014. Our FM-5 and XM-5 satellites, launched in 2009 and 2010, respectively, have experienced minor degradation on their solar arrays which do not affect current operations. We maintain in-orbit insurance policies covering onlyestimate that our FM-5 and XM-5 satellites will meet their 15-year estimated depreciable lives. Our XM-3 and XM-4 satellites have experienced circuit failures on their solar arrays which do not affect current operations. Additional circuit failures on the satellites could reduce the estimated lives of those satellites. We estimate that our XM-3 satellite, launched in 2005, and our XM-4 satellite, launched in 2006, will meet their 15-year estimated depreciable lives. We estimate that our FM-6 satellite, launched in 2013, will meet its 15-year estimated depreciable life.

Our XM-5 and FM-5 satellites.satellite serves as an in-orbit spare for both of our services. In addition, we may not renew this in-orbit insurance when the policies expire.
Any insurance proceeds will not fully cover our losses in the event of a satellite failure of XM-3, XM-4 or significant degradation. For example,any of the policies coveringSirius satellites, service would be maintained through XM-5.

In addition, our Sirius network of terrestrial repeaters communicates with a single third-party satellite. Our XM network of terrestrial repeaters communicates with a single XM satellite. If the insured satellites do not covercommunicating with the full costapplicable repeater network fail unexpectedly, the services would be disrupted for several hours or longer.

Interruption or failure of constructing, launchingour information technology and insuring new satellites, nor will they cover,communications systems could negatively impact our results and our brand.
We operate a complex and growing business. We offer a wide variety of subscription packages at different price points. Our business is dependent on the operation and availability of our information technology and communication systems and those of certain third party service providers. Any degradation in the quality, or any failure, of our systems could reduce our revenues, cause us to lose customers and damage our brand. Although we do not have protection against, business interruption,implemented practices designed to maintain the availability of our information technology systems and mitigate the harm of any unplanned interruptions, we cannot anticipate all eventualities. We occasionally experience unplanned outages or technical difficulties. We could also experience loss of businessdata or similar losses. Our insurance contains customary exclusions, material changeprocessing capabilities, which could cause us to lose customers and other conditions that could limit recovery under those policies. Further, any insurance proceeds may not be received on a timely basis in order to launch a spare satellite or constructmaterially harm our reputation and launch a replacement satellite or take other remedial measures. In addition, the policies are subject to limitations involving uninsured losses, large satellite performance deductibles and policy limits.
Higher than expected costs of attracting new subscribers or higher subscriber turnover (i.e., churn) could each adversely affect our financial performance and operating results.

WeOur data centers and our information technology and communications systems are spending substantial funds on advertisingvulnerable to damage or interruption from natural disasters, malicious attacks, fire, power loss, telecommunications failures, computer viruses or other attempts to harm our systems.

If hackers were able to circumvent our security measures, we could lose proprietary information or personal information or experience significant disruptions. If our systems become unavailable or suffer a security breach, we may be required to expend significant resources to address these problems, including notification under various federal and marketingstate data privacy regulations, and in transactions with automakers, retailers and others to obtain and attract subscribers. If the costs of attracting new subscribers are greater than expected, our financial performancereputation and operating results could be adversely affected.suffer.


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We are experiencing,rely on internal systems and expectexternal systems maintained by manufacturers, distributors and service providers to continuetake, fulfill and handle customer service requests and host certain online activities. Any interruption or failure of our internal or external systems could prevent us from servicing customers or cause data to experience, subscriber turnover (i.e., churn). be unintentionally disclosed.

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If we are unablefail to retain current subscribers, orprotect the costssecurity of retaining subscribers are higher than expected,personal information about our financial performance and operating resultscustomers, we could be adversely affected. We cannot predict how successful we will be at retaining customers who purchase or lease vehicles that include a subscriptionsubject to costly government enforcement actions and private litigation and our satellite radio service. During 2010, we converted approximately 46.2% of the customers who received a promotional subscription as part of the purchase or lease of a new vehicle to a self-paying subscription. Over the same period, we have experienced churnreputation could suffer.
The nature of our self-paybusiness involves the receipt and storage of personal information about our subscribers. If we experience a data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our subscribers and potential customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of approximately 1.9% per month.
We cannot predict the amount of churn we will experience over the longer term. Our inabilityour services. Such events could lead to retain our existing self-pay subscribers, customers who either purchase or lease vehicles with our service beyond the promotional period, or customers who purchase or lease a vehicle that includes a prepaid subscription to our service couldlost future sales and adversely affect our financial performance and results of operations.

Our ability to retain subscribers and maintain our average monthly revenue per subscriber is uncertain.
During 2010, we added 1,418,206 net subscribers to our satellite radio service. Our ability to retain our subscribers, or increase the number of subscribers to our service, in any given period is subject to many factors, including:
• 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.
Average monthly revenue per subscriber, which we refer to as ARPU, is one of the key metrics we use to evaluate our business and the trends in our business. Over the past several years, we have focused substantial attention and efforts on maintaining and increasing ARPU. Our ability to maintain ARPU at present levels is uncertain and depends upon various factors, including:
• 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.
Our business only recently began to generate free cash flow. If we are unable to consistently generate sufficient revenues to be profitable, the value of our common stock could decline, and without sufficient cash flow we may not be able to make the required payments on our indebtedness and could ultimately default on our commitments.
Royalties for music rights may increase.
have increased and there can be no assurance they will not continue to increase in the future.
We must maintain music programming royalty arrangements with, and pay license fees to, BMI, ASCAP and SESAC. These organizations negotiate with copyright users, collect royalties and distribute them to songwriters and music publishers. We have agreements with ASCAP, BMI and SESAC through December 2011. We do not have a definitive agreement with BMI and continue to operate under an interim agreement.2016. There can be no assurance that the royalties we pay to ASCAP, SESAC, BMI and BMIother songwriters and music publishers will not increase.increase upon expiration of these arrangements.

Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we also must pay royalties to copyright owners of sound recordings. Those royalty rates may be established through negotiation or, if negotiation is unsuccessful, by the CRB. Owners of copyrights in sound recordings have


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created SoundExchange, a collective organization, to collect and distribute royalties. SoundExchange is exempt by statute from UScertain U.S. antitrust laws and exercises significant market power in the licensing of sound recordings. A rate setting proceeding commenced in January 2011, and, if negotiations with SoundExchange prove unsuccessful, new royalty rates will be determined byUnder the CRB, will be effectiveterms of the CRB's decision governing sound recording royalties for the five-year period beginning in 2013, and may be higher than currentending on December 31, 2017, we will pay a royalty rates.
Failure to comply with FCC requirements could damage our business.
We hold FCC licenses and authorizations to operate commercial satellite radio services in the United States, including authorizations for satellites and terrestrial repeaters, and related authorizations. The FCC generally grants licenses and authorizations for a fixed term. Although we expect our licenses and authorizations to be renewed in the ordinary course upon their expiration, there can be no assurance that this will be the case. Any assignment or transfer of control of any of our FCC licenses or authorizations must be approved in advance by the FCC.
The operation of our satellite radio systems isbased on gross revenues, subject to significant regulation by the FCC under authority granted through the Communications Actcertain exclusions, of 9.5% for 2014, 10.0% for 2015, 10.5% for 2016, and related federal law. We are required, among other things, to operate only within specified frequencies; to meet certain conditions regarding the interoperability of our satellite radios with those of other licensed satellite radio systems; to coordinate our satellite radio services with radio systems operating in the same range of frequencies in neighboring countries; and to coordinate our communications links to our satellites with other systems that operate in the same frequency band. Non-compliance by us with these requirements or other conditions or with other applicable FCC rules and regulations could result in fines, additional license conditions, license revocation or other detrimental FCC actions. There is no guarantee that Congress will not modify the statutory framework governing our services, or that the FCC will not modify its rules and regulations in a manner that would have a material impact on our operations.11% for 2017.

The terms of our licenses, the order of the FCC approving the Merger, and the consent decrees we entered into with the FCC require us to meet certain conditions. Non-compliance with these conditions could result in fines, additional license conditions, license revocation or other detrimental FCC actions.
The unfavorable outcome of pending or future litigation could have a material adverse effect.
We are parties to several legal proceedings arising out of various aspects of our business, including patent infringement suits, class action lawsuits alleging violations of federal antitrust laws and state consumer protection statutes.statutes, suits seeking compensation for our use of sound recordings fixed prior to 1972 and actions seeking damages for purported violations of the telephone consumer protection act. We are defending all claims against us. The outcome of these proceedings may not be favorable, and an unfavorable outcome may have a material adverse effect on our business or financial results.

We may not realize the benefits of acquisitions or other strategic initiatives, including the acquisition of Agero’s connected vehicle business.
Our business strategy may include selective acquisitions or other strategic initiatives that allow us to expand our business. The success of any acquisition, including our acquisition of Agero’s connected vehicle business, depends upon effective integration of acquired businesses and assets into our operations, which is subject to risks and uncertainties, including realization of any anticipated synergies and cost savings, the ability to retain and attract personnel, the diversion of management’s attention for other business concerns, and undisclosed or potential legal liabilities of the acquired business or assets.

Rapid technological and industry changes could adversely impact our services.
The audio entertainment industry is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving standards. If we are unable to keep pace with these changes, our business may be unsuccessful.not succeed. Products using new technologies, or emerging industry standards, could make our technologies less competitive in the marketplace.

Failure of other third parties to perform could adversely affect our business.
Our business depends, in part, on various other third parties, including:
manufacturers that build and distribute satellite radios;
• 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.


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programming providers and on-air talent;
vendors that operate our call centers;
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, other important elements of our systems.
 

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If one or more of these third parties do not perform in a sufficientsatisfactory or timely manner, our business could be adversely affected. In addition, a number of third parties on which we depend have experienced, and may in the future experience, financial difficulties or file for bankruptcy protection. Such third parties may not be able to perform their obligations to us in a timely manner, if at all, as a result of their financial condition or may be relieved of their obligations to us as part of seeking bankruptcy protection.

We design, establish specifications, source or specify parts and components, and manage various aspects of the logistics and production of radios. As a result of these activities, we may be exposed to liabilities associated with the design, manufacture and distribution of radios that the providers of an entertainment service would not customarily be subject to, such as liabilities for design defects, patent infringement and compliance with applicable laws, as well as the costs of returned product.

Interruption or failure of our information technology and communications systems could negatively impact our results and our brand.
We operate a complex and growing business. We offer a wide variety of subscription packages at different price points. Our business is dependent on the operation and availability of our information technology and communication systems and those of third party service providers. Any degradation in the quality, or any failure, of our systems could reduce our revenues, cause us to lose customers and damage our brand. Although we have implemented practices designed to maintain the availability of our information technology systems and mitigate the harm of any unplanned interruptions, we do not have complete redundancy for all of our information technology systems, and our disaster recovery planning cannot anticipate all eventualities. We occasionally experience unplanned outages or technical difficulties. We could also experience loss of data or processing capabilities, which could cause us to lose customers and could materially harm our reputation and our operating results.
We are involved in continuing efforts to upgrade and maintain our information technology systems. These maintenance and upgrade activities are costly, and problems with the design or implementation of system enhancements could harm our business and our results of operations.
Our data centers and our information technology and communications systems are vulnerable to damage or interruption from natural disasters, malicious attacks, fire, power loss, telecommunications failures, computer viruses or other attempts to harm our systems. If hackers were able to circumvent our security measures, we could lose proprietary information or personal information or experience significant disruptions. If our systems become unavailable or suffer a security breach, we may be required to expend significant resources to address these problems, including notification under various federal and state data privacy regulations, and our reputation and operating results could suffer.
We rely on internal systems and external systems maintained by manufacturers, distributors and service providers to take, fulfill and handle customer service requests and host certain online activities. Any interruption or failure of our internal or external systems could prevent us from servicing customers or cause data to be unintentionally disclosed.
We may from time to time modify our business plan, and these changes could adversely affect us and our financial condition.
We regularly evaluate our plans and strategy. These evaluations often result in changes to our plans and strategy, some of which may be material. These changes in our plans or strategy may include: the acquisition or termination 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.


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Our substantial indebtedness could adversely affect our operations and could limit our ability to react to changes in the economy or our industry.
As of December 31, 2010, we had an aggregate principal amount of approximately $3.3 billion of indebtedness. Our substantial indebtedness has important consequences. For example, it:
• 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
• may place us at a competitive disadvantage compared to other competitors.
The instruments governing our indebtedness contain covenants that, among other things, place certain limitations on our ability to incur more debt, pay dividends, make distributions, make investments, repurchase stock, create liens, enter into transactions with affiliates, enter into sale lease-back transactions, merge or consolidate, and transfer or sell assets. Failure to comply with the covenants associated with this debt could result in an event of default, which, if not cured or waived, could cause us to seek the protection of the bankruptcy laws, discontinue operations or seek a purchaser for our business or assets.
Changes in consumer protection laws and their enforcement could damage our business.
We engage in extensive marketing efforts to attract and retain subscribers to our services. We employ a wide variety of communications tools as part of our marketing campaigns, including telemarketing efforts; print, television, radio and online advertising; and email solicitations.

Consumer protection laws, rules and regulations are extensive and have developed rapidly, particularly at the Statestate level. Consumer protection laws in certain jurisdictions cover nearly all aspects of our marketing efforts, including the content of our advertising, the terms of consumer offers and the manner in which we communicate with subscribers and prospective subscribers. We are engaged in considerable efforts to ensure that all our activities comply with federal and state laws, rules and regulations relating to consumer protection, including laws relating to privacy. Modifications to federal and state laws, rules and regulations concerning consumer protection, including decisions by federal and state courts and agencies interpreting these laws, could have an adverse impact on our ability to attract and retain subscribers to our services. While we monitor the changes in and interpretations of these laws in consumer-related settlements and decisions, and while we believe that we are in material compliance with applicable laws, there can be no assurances that new laws or regulations will not be enacted or adopted, preexisting laws or regulations will not be more strictly enforced or that our varied operations will continue to comply with all applicable laws, which might adversely affect our operations.

A Multistate Working Group of 2832 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 investigationSeparate investigations into our consumer practices isare being conducted by the AttorneyAttorneys General of the State of Florida. In addition,Florida and New York.

Failure to comply with FCC requirements could damage our business.
We hold FCC licenses and authorizations to operate commercial satellite radio services in the Attorney GeneralUnited States, including authorizations for satellites and terrestrial repeaters, and related authorizations. The FCC generally grants licenses and authorizations for a fixed term. Although we expect our licenses and authorizations to be renewed in the ordinary course upon their expiration, there can be no assurance that this will be the case. Any assignment or transfer of control of any of our FCC licenses or authorizations must be approved in advance by the FCC.

The operation of our satellite radio systems is subject to significant regulation by the FCC under authority granted through the Communications Act of 1934 and related federal law. We are required, among other things, to operate only within specified frequencies; to meet certain conditions regarding the interoperability of our satellite radios with those of other licensed satellite radio systems; to coordinate our satellite radio services with radio systems operating in the same range of frequencies in neighboring countries; and to coordinate our communications links to our satellites with other systems that operate in the same frequency band. Noncompliance by us with these requirements or other conditions or with other applicable FCC rules and regulations could result in fines, additional license conditions, license revocation or other detrimental FCC actions. There is no guarantee that Congress will not modify the statutory framework governing our services, or that the FCC will not modify its rules and regulations in a manner that would have a material impact on our operations.

The terms of our licenses and the order of the StateFCC approving the Merger requires us to meet certain conditions. Non-compliance with these conditions could result in fines, additional license conditions, license revocation or other detrimental FCC actions.


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Table of MissouriContents

Other existing or future government laws and regulations could harm our business.
We are subject to many other federal, state and local laws. These laws and regulations cover issues such as user privacy, behavioral advertising, automatic renewal of agreements, pricing, fraud, electronic waste, mobile and electronic device communications, quality of products and services, taxation, advertising, intellectual property rights and information security. The expansion of these laws, both in terms of their number and their applicability, could harm our business. Similarly, new disclosure and reporting requirements, established under existing or new state or federal laws, such as regulatory rules regarding abusive labor practices in portions of our supply chain, could increase the cost of doing business, adversely affecting our results of operations.

We may from time to time modify our business plan, and these changes could adversely affect us and our financial condition.
We regularly evaluate our plans and strategy. These evaluations often result in changes to our plans and strategy, some of which may be material. These changes in our plans or strategy may include: the acquisition or termination 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 of other businesses, including acquisitions that are not directly related to our satellite radio business.

Our indebtedness could adversely affect our operations and could limit our ability to react to changes in the economy or our industry.
As of December 31, 2013, we had an aggregate principal amount of approximately $3.6 billion of indebtedness and an additional $790.0 million available under our Senior Secured Revolving Credit Facility. Our indebtedness has commenced an action againstimportant consequences. For example, it:
increases our vulnerability to general adverse economic and industry conditions;
requires us regardingto dedicate a portion of our telemarketing practicescash flow from operations to residentspayments 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;
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.
Certain of the Stateinstruments governing our indebtedness contain covenants that, among other things, place certain limitations on our ability to incur more debt, exceed a specified leverage ratio, pay dividends, make distributions, make investments, repurchase stock, create liens, enter into transactions with affiliates, enter into sale lease-back transactions, merge or consolidate, and transfer or sell assets. Failure to comply with the covenants associated with our indebtedness could result in an event of Missouri.default, which, if not cured or waived, could cause us to seek the protection of the bankruptcy laws, discontinue operations or seek a purchaser for our business or assets.

Our broadcast studios, terrestrial repeater networks, satellite uplink facilities or other ground facilities could be damaged by natural catastrophes or terrorist activities.
An earthquake, tornado, flood, terrorist attack or other catastrophic event could damage our broadcast studios, terrestrial repeater networks or satellite uplink facilities, interrupt our service and harm our business. We do not have replacement or redundant facilities that can be used to assume the functions of our terrestrial repeater


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networks. We do have redundant facilities that can be used to assume immediately many of the functions of the broadcast studios and satellite uplink facilities in the event of a catastrophic event.
 
Any damage to the satellites that transmit to our terrestrial repeater networks would likely result in degradation of the affected service for some subscribers and could result in complete loss of service in certain or all areas. Damage to our satellite uplink facilities could result in a complete loss of either of our services until we could transfer operations to suitableback-up facilities.

Electromagnetic interferenceHoldings’ principal stockholder has significant influence over our management and over actions requiring general stockholder approval and its interests may differ from others could damagethe interests of other holders of Holdings’ common stock.
Liberty Media beneficially owns over 50% of Holdings’ common stock. Two Liberty Media executives and one other member of the board of directors of Liberty Media are members of Holdings’ board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of Holdings’ board of directors.

As a result, Liberty Media has the ability to indirectly control our business.
Our satellite radio service may be subject to interference caused by other users of radio frequencies,affairs, policies and operations, such as RF lighting, ultra-wideband technologythe appointment of management, future issuances of common stock or other securities, the payment of dividends, if any, the incurrence of debt, amendments to our certificate of incorporation and Wireless Communications Service (“WCS”) users. The FCC has approved modifications tobylaws and the rules governing the operationsentering into of WCS devicesextraordinary transactions, and their interests may not in the spectrum adjacent to satellite radio, including rule changes that facilitate mobile broadband services in the WCS frequencies. We have opposed certain of the changes out of a concern for their impact on the reception of satellite radio service; and have filed a petitionall cases be aligned with the FCC asking the Commissioninterests of other stockholders of Holdings. In addition, Liberty Media will be able to reconsider certain

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Table of the changes. We cannot predictContents

determine the outcome of all matters requiring general stockholder approval and will be able to cause or prevent a change of control of Holdings or a change in the composition of Holdings’ or our petition for reconsideration. The ultimate impactboard of certain of these rules changes on satellite radio reception is impossible to predictdirectors and dependent on numerous factors outsidecould preclude any unsolicited acquisition of our control, suchcompany. The concentration of ownership could deprive Holdings' stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the designmarket price of Holdings common stock.

The transaction proposed by Liberty Media may not occur, may increase the volatility of the market price of Holdings’ common stock and implementationwill result in certain costs and expenses.
On January 3, 2014, Holdings’ Board of WCS systems and devices,Directors received a non-binding letter from Liberty Media proposing a transaction pursuant to which all outstanding shares of common stock of Holdings not owned by Liberty Media would be converted into the applications deployed through WCS devices, and ultimately the numberright to receive new non-voting shares of WCS devices ultimately adopted by consumers.Liberty Series C common stock.
 
The letter provides that no legally binding obligation with respect to any transaction exists unless and until mutually acceptable definitive documentation is executed and delivered with respect thereto.  There can be no assurance that the transaction proposed by Liberty Media or any related transaction will be completed or, if completed, will have any specified terms.

The market price of Holdings’ common stock may reflect various assumptions as to whether the proposed transaction with Liberty Media will occur. Variations in the market price of Holdings’ common stock may occur as a result of changing assumptions regarding the proposed transaction, independent of changes in our business, financial condition or prospects or changes in general market or economic conditions. As a result, a definitive agreement regarding a transaction, or a failure to reach a definitive agreement regarding a transaction, could result in a significant change in the market price of Holdings’ common stock.

We expect to incur costs in connection with the consideration of Liberty Media’s proposal, including costs of financial and legal advisors to the Special Committee of the Board of Directors of Holdings and costs associated with legal actions arising out of Liberty Media’s proposal. It is difficult to estimate the aggregate amount of such costs, although they could be substantial.

Holdings is a “controlled company” within the meaning of the NASDAQ listing rules and, as a result, qualifies for, and relies on, exemptions from certain corporate governance requirements.
Holdings is a “controlled company” for the purposes of the NASDAQ Stock Market listing rules. As such, Holdings has elected not to comply with certain NASDAQ corporate governance requirements. A majority of the board of directors of Holdings consists of independent directors. Holdings does not have a compensation committee and nominating and corporate governance committee that consist entirely of independent directors.

Our business may be impaired by third-party intellectual property rights.
Development of our systems has depended upon the intellectual property that we have developed, as well as intellectual property licensed from third parties. If the intellectual property that we have developed or use is not adequately protected, others will be permitted to and may duplicate portions of our satellite radio systems or services without liability. In addition, others may challenge, invalidate, render unenforceable or circumvent our intellectual property rights, patents or existing sublicenseslicenses or we may face significant legal costs in connection with defending and enforcing those intellectual property rights. Some of the know-how and technology we have developed, and plan to develop, is not now, nor will it be, covered by U.S. patents or trade secret protections. Trade secret protection and contractual agreements may not provide adequate protection if there is any unauthorized use or disclosure. The loss of necessary technologies could require us to obtain substitute technologytechnologies of lower quality performance standards, at greater cost or on a delayed basis, which could harm us.

Other parties may have patents or pending patent applications, which will later mature into patents or inventions that may block our ability to operate our system or license technologies. We may have to resort to litigation to enforce our rights under license agreements or to determine the scope and validity of other parties’ proprietary rights in the subject matter of those licenses. This may be expensive. Also,expensive and we may not succeed in any such litigation.
 
Third parties may assert claims or bring suit against us for patent, trademark or copyright infringement, or for other infringement or misappropriation of intellectual property rights. Any such litigation could result in substantial cost, and diversion of effort and adverse findings in any proceeding could subject us to significant liabilities to third parties; require us to seek licenses from third parties; block our ability to operate our systems or license our technology; or otherwise adversely affect our ability to successfully develop and market our satellite radio systems.

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Liberty Media Corporation has significant influence over our business and affairs and its interests may differ from ours.
Liberty Media Corporation holds preferred stock that is convertible into 2,586,976,000 sharesTable of common stock. Pursuant to the terms of the preferred stock held by Liberty Media, we cannot take certain actions, such as certain issuances of equity or debt securities, without the consent of Liberty Media. Additionally, Liberty Media has the right to designate a corresponding percentage of our board of directors. As a result, Liberty Media has significant influence over our business and affairs. The interests of Liberty Media may differ from our interests. The extent of Liberty Media’s stock ownership in us also may have the effect of discouraging offers to acquire control of us.Contents


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Our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code.
Special Note About Forward-Looking Statements
We have generated a federal net operating loss carryforward of approximately $8.1 billion throughmade various statements in this Annual Report on Form 10-K that may constitute “forward-looking statements” within the year ended December 31, 2010, and we may generate net operating loss carryforwards in future years.
Section 382meaning of the Internal Revenue CodePrivate Securities Litigation Reform Act of 1986,1995. Forward-looking statements may also be made in our other reports filed with or furnished to the SEC, in our press releases and in other documents. In addition, from time to time, we, through our management, may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified above, which could cause actual results to differ materially from such statements. The words “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “may,” “should,” “could,” “would,” “likely,” “projection,” “outlook” and similar expressions are intended to identify forward-looking statements. We caution you that the risk factors described above are not exclusive. There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as amended (the “Code”), contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes among stockholders owning directly or indirectly 5% or more of the stock of a company anddate on which they are made. We undertake no obligation to update publicly or revise any change in ownership arising from a new issuance of stockforward-looking statements, except as required by the company.law.

If we undergo an ownership change for purposes of Section 382 as a result of future transactions involving our common stock, including purchases or sales of stock between 5% stockholders, our ability to use our net operating loss carryforwards and to recognize certain built-in losses would be subject to the limitations of Section 382. Depending on the resulting limitation, a significant portion of our net operating loss carryforwards could expire before we would be able to use them. Our inability to utilize our net operating loss carryforwards could have a negative impact on our long-term financial position and results of operations. We have adopted a shareholder rights plan designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss carryforwards and built-in losses under Section 382 of the Code.
ITEM 1B.ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2.
ITEM 2.
PROPERTIES
Below is a list of the principal properties that we own or lease:
 
LocationPurposeOwn/Lease
New York, NYCorporate headquarters and studio/production facilitiesLease
New York, NYOffice facilitiesLease
Washington, DCOffice and studio/production facilitiesOwn
Washington, DCOffice facilities and data centerOwn
Lawrenceville, NJOffice and technical/engineering facilitiesLease
Deerfield Beach, FLOffice and technical/engineering facilitiesLease
Farmington Hills, MIOffice and technical/engineering facilitiesLease
Nashville, TNStudio/production facilitiesLease
Vernon, NJTechnical/engineering facilitiesOwn
Ellenwood, GATechnical/engineering facilitiesLease
Los Angeles, CAStudio/production facilitiesLease
Irving, TXOffice and engineering facilities/call centerLease
We also own or lease other small facilities that we use as offices for our advertising sales personnel, studios and warehouse and maintenance space. These facilities are not material to our business or operations. We also lease properties in Panama and Ecuador that we use as earth stations to command and control satellites.

In addition, we lease or license space at over 700approximately 650 locations for use in connection with the terrestrial repeater networks that support our satellite radio services. In general, these leases and licenses are for space on building rooftops and communications towers. None of these individual leases isarrangements are material to our business or operations.

ITEM 3.LEGAL PROCEEDINGS
ITEM 3. 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 32 State Attorneys General, led by the Attorney General of the State of Ohio, and joined by the Attorneys General of 27 other states, has commenced a multi-jurisdictional investigation


20

intois investigating certain of our consumer practices. The investigation focuses on practices relating

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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 AttorneyAttorneys General of the State of Florida. In addition, in September 2010, the Attorney General ofFlorida 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 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. v. Sirius XM Radio Inc.  A subscriber, Carl Blessing, filed a lawsuit against us in December 2009 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 January 2010 in the Supreme Court of the State of New York claiming that, by allowing the price increases that prompted the Blessing litigation, our board of directors breached its duty of loyalty to the corporation. The action names as defendants Sirius XM and fifteen individuals — all directors or former directors of Sirius XM. This lawsuit has been stayed pending resolution of the Blessing litigation.
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.
ITEM 4.(REMOVED AND RESERVED)


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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II
ITEM  5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
OurHoldings’ common stock is traded on the NasdaqNASDAQ Global Select Market under the symbol “SIRI.” The following table sets forth the high and low per share sales price for ourHoldings’ common stock, as reported by Nasdaq,NASDAQ, for the periods indicated below:
         
  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, 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
Year Ended December 31, 2013



First Quarter
$3.25
$2.95
Second Quarter
$3.63
$2.95
Third Quarter
$3.99
$3.30
Fourth Quarter
$4.18
$3.32
On February 14, 2011,January 31, 2014, the closing sales price of our common stock on the NasdaqNASDAQ Global Select Market was $1.83$3.58 per share. On February 14, 2011,January 31, 2014, there were approximately 11,45710,271 record holders of our common stock. We effected our corporate reorganization on November 15, 2013.
Dividends
We have neverOn December 28, 2012, Sirius XM paid a special cash dividends on ourdividend in the amount of $0.05 per share of common stock.  We currently intend to retain earnings, if any, for useThis was the first cash dividend ever paid by us. The holders of Sirius XM’s former Series B-1 Preferred Stock participated in our business and do not anticipate paying anythis cash dividendsdividend on an as-converted basis in the foreseeable future. Ouraccordance with its terms.  The total amount of this dividend was approximately $327 million. Sirius XM’s ability to pay dividends on our common stock is currently limited by the covenants under ourcertain of its debt agreements. See Note 11Holdings’ board of directors has not made any determination whether similar special cash dividends will be paid in the future.
Issuer Purchases of Equity Securities
In December 2012, our board of directors approved a $2.0 billion common stock repurchase program. In October 2013, our board of directors approved an additional $2.0 billion common stock repurchase program. Sirius XM’s board of directors did not establish an end date for this stock repurchase program. In connection with the corporate reorganization, this is now a repurchase program of Holdings. During the year ended December 31, 2013, we repurchased 520,257,866 shares of Holdings’ common stock for an aggregate purchase price of $1.8 billion, which includes commissions and fees. Shares of Holdings’ common stock may be purchased from time to time on the open market and in privately negotiated transactions, including in transactions with Liberty Media and its affiliates. The size and timing of these purchases will be based on a number of factors, including price and business and market conditions.

Pursuant to this approval and as part of the share repurchase programs, on October 9, 2013, Sirius XM entered into an agreement with Liberty Media to repurchase $500 million of Holdings’ common stock from Liberty Media through April 2014. In connection with the corporate reorganization, Holdings assumed Sirius XM's obligations under such agreement. Pursuant to the agreement, we repurchased $160 million of Holdings' common stock from Liberty Media as of December 31, 2013. On January 23, 2014, we entered into an amendment to the agreement with Liberty Media to defer the previously scheduled $240 million repurchase of shares of our consolidated financial statements included incommon stock from Liberty Media from January 27, 2014 to April 25, 2014, the date of the final purchase installment under the agreement. As a result of this report.deferral, we expect to repurchase $340 million of our shares of common stock from Liberty Media on April 25, 2014 at a price of $3.66 per share. We entered into this amendment at the request of the Special Committee of our board of directors that has been formed to review and evaluate the Liberty Media proposal.


22

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The following table provides information about our purchases of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended December 31, 2013:
Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1, 2013 - October 31, 2013 —
 $—
 —
 $2,397,639,899
November 1, 2013 - November 30, 2013 43,712,265
 $3.66
 43,712,265
 $2,237,639,895
December 1, 2013 - December 31, 2013 —
 $—
 —
 $2,237,639,895
Total 43,712,265
 $3.66
 43,712,265
 $2,237,639,895
(1)These amounts include fees and commissions associated with the shares repurchased.

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COMPARISON OF CUMULATIVE TOTAL RETURNS

Set forth below is a graph comparing the cumulative performance of our common stock with the Standard & Poor’sPoor's Composite-500 Stock Index, or the S&P 500, and the NASDAQ Telecommunications Index from December 31, 20052008 to December 31, 2010.2013. The graph assumes that $100 was invested on December 31, 20052008 in each of our common stock, the S&P 500 and the NASDAQ Telecommunications Index. There were no dividendsA dividend with respect to our common stock was declared during these periods.in 2012 only.

Stockholder Return Performance Table
                
   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 Holdings Inc.
December 31, 2008 $100.00 $100.00 $100.00
December 31, 2009 $148.24 $123.45 $500.00
December 31, 2010 $154.06 $139.23 $1,358.33
December 31, 2011 $134.62 $139.23 $1,516.67
December 31, 2012 $137.31 $157.90 $2,408.33
December 31, 2013 $170.29 $204.63 $2,908.33

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Equity Compensation Plan Information
            
     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  282,694
 $2.43
 82,806
Equity compensation plans not approved by security holders  —   —   —  —
 —
 —
       
Total  444,291  $1.45   268,255  282,694
 $2.43
 82,806
       

ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
OurThe operating and balance sheet data included in the following selected financial data set forth below with respect to the consolidated statements of operations for the years ended December 31, 2010, 2009 and 2008, and with respect to the consolidated balance sheets at December 31, 2010 and 2009, are2013 have been derived from ourthe audited consolidated financial statements of Holdings and Sirius XM. Historical operating and balance sheet data included in Item 8 of this Annual Report onForm 10-K. Ourwithin the following selected financial data set forth below with respect to the consolidated statements of operations for the years ended December 31, 2007Holdings and 2006, and with respect to the consolidated balance sheets at December 31, 2008, 2007 and 2006 areSirius XM from 2009 through 2012 is derived from ourthe audited consolidated financial statements which are not included in this Annual Report onForm 10-K.of Sirius XM. This selected financial data should be read in conjunction with the audited Consolidated Financial Statements of Holdings and Sirius XM and related notes thereto included in Item 8 of this Annual Report onForm 10-K and “Management’s“Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report onForm 10-K.
                    
 As of and for the Years Ended December 31, 
 2010 2009(1) 2008(1)(2) 2007 2006 Sirius XM Holdings Inc.
(In thousands, except per share data)           
As of and for the Years Ended December 31,
Statements of Operations Data:
                    
2013 (1) 2012 (2) 2011 2010 2009 (3)
(in thousands, except per share data)         
Statements of Comprehensive Income Data:         
Total revenue $2,816,992  $2,472,638  $1,663,992  $922,066  $637,235 $3,799,095
 $3,402,040
 $3,014,524
 $2,816,992
 $2,472,638
Net income (loss) $43,055  $(538,226) $(5,316,910) $(565,252) $(1,104,867)$377,215
 $3,472,702
 $426,961
 $43,055
 $(538,226)
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 
Net income (loss) per share – basic$0.06
 $0.55
 $0.07
 $0.01
 $(0.15)
Net income (loss) per share – diluted$0.06
 $0.51
 $0.07
 $0.01
 $(0.15)
Weighted average common shares outstanding – basic6,227,646
 4,209,073
 3,744,606
 3,693,259
 3,585,864
Weighted average common shares outstanding – diluted6,384,791
 6,873,786
 6,500,822
 6,391,071
 3,585,864
Cash dividends per share$—
 $0.05
 $—
 $—
 $—
Balance Sheet Data:
                             
Cash and cash equivalents $586,691  $383,489  $380,446  $438,820  $393,421 $134,805
 $520,945
 $773,990
 $586,691
 $383,489
Restricted investments $3,396  $3,400  $141,250  $53,000  $77,850 $5,718
 $3,999
 $3,973
 $3,396
 $3,400
Total assets $7,383,086  $7,322,206  $7,527,075  $1,687,231  $1,650,147 $8,844,780
 $9,054,843
 $7,495,996
 $7,383,086
 $7,322,206
Long-term debt, net of current portion $3,021,763  $3,063,281  $2,820,781  $1,271,699  $1,059,868 $3,093,821
 $2,430,986
 $3,012,351
 $3,021,763
 $3,063,281
Stockholders’ equity (deficit)(3) $207,636  $95,522  $75,875  $(792,737) $(389,071)
Stockholders' equity$2,745,742
 $4,039,565
 $704,145
 $207,636
 $95,522
——————
(1)
The selected financial data for 2013 includes the balances and approximately two months of activity related to the acquisition of the connected vehicle business of Agero, Inc. in November 2013.
(1)(2)A special cash dividend was paid during 2012.
(3)
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.



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 Sirius XM Radio Inc.
 As of and for the Years Ended December 31,
 2013 (1) (2) 2012 (3) 2011 2010 2009 (4)
(in thousands, except per share data)         
Statements of Comprehensive Income Data:         
Total revenue$3,799,095
 $3,402,040
 $3,014,524
 $2,816,992
 $2,472,638
Net (loss) income attributable to Sirius XM Radio Inc.'s stockholder$(66,494) $3,472,702
 $426,961
 $43,055
 $(538,226)
Cash dividends per share$—
 $0.05
 $—
 $—
 $—
Balance Sheet Data:         
Cash and cash equivalents$134,805
 $520,945
 $773,990
 $586,691
 $383,489
Restricted investments$5,718
 $3,999
 $3,973
 $3,396
 $3,400
Total assets$8,851,496
 $9,054,843
 $7,495,996
 $7,383,086
 $7,322,206
Long-term debt, net of current portion$3,093,821
 $2,430,986
 $3,012,351
 $3,021,763
 $3,063,281
Stockholder equity$2,301,346
 $4,039,565
 $704,145
 $207,636
 $95,522
——————
(1)
The selected financial data for 2013 includes the balances and approximately two months of activity related to the acquisition of the connected vehicle business of Agero, Inc. in November 2013 and the fair value adjustments for debt and equity related instruments.
(2)Net income per share for Sirius XM is not presented since Sirius XM is a wholly-owned subsidiary of Holdings.
(3)A special cash dividend was paid during 2012.
(4)
The 20082009 results and balances reflect the results and balancesadoption of XM Satellite Radio Holdings Inc. from the dateASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of the Merger and a $4,766,190 goodwill impairment charge.
(3)No cash dividends were declaredConvertible Debt Issuance or paid in any of the periods presented.


24

Other Financing.

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

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)

The terms “we,” “us,” “our,” and “our company” as used herein and unless otherwise stated or indicated by context, refer to Sirius XM Radio Inc. and its subsidiaries prior to our corporate reorganization and to Sirius XM Holdings Inc. and its subsidiaries after our corporate reorganization.


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 features such as SiriusXM On Demand and MySXM, over the Internet, including through an application on Apple, Blackberry and Android-poweredapplications 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 a majority of our subscribers. We also acquire subscribers through marketing to owners of factory-installed satellite radios that are not currently subscribing to our services. 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, 2010,2013, we had 20,190,96425,559,310 subscribers of which 21,081,817 were self-pay subscribers and 4,477,493 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; activated radios in daily rental fleet vehicles; certain subscribers to our Internet services;services who do not also have satellite radio subscriptions; and certain subscribers to our weather, traffic, data and videoBackseat TV services.


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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-termlonger term subscription plans as well as discounts for multiple subscriptions on each platform.subscriptions. 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 weather, traffic, data and Backseat TV data and weather services.

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

We are also a leader in providing connected vehicle applications and services. Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle owners while providing marketing and operational benefits to automakers and their dealers. Subscribers to our connected vehicle services are not included in our subscriber count.

Liberty Media Corporation beneficially owns, 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 Charter Communications, Live Nation Entertainment and Barnes & Noble, and minority equity investments in Time Warner Inc., Time Warner Cable, and Viacom.

We also have ana 38% equity interest in theSirius XM Canada which offers satellite radio services offered in Canada. Subscribers to the SIRIUS Canada service and theSirius XM Canada service are not included in our subscriber count.

Recent Development

25

On January 3, 2014, Holdings' Board of Directors received a non-binding letter from Liberty Media proposing a transaction pursuant to which all outstanding shares of common stock of Holdings not owned by Liberty Media would be converted into the right to receive 0.0760 of a new share of Liberty Series C common stock, which would have no voting rights. Liberty Media indicated that immediately prior to such conversion, Liberty Media intends to distribute, on a 2 to1 basis, shares of such Series C common stock to all holders of record of Liberty Media's Series A and B common stock. Upon the completion of the proposed transaction, Liberty Media indicated that it expects that Holdings' public stockholders would own approximately 39% of Liberty Media's then-outstanding common stock.

Holdings' Board of Directors has formed a Special Committee of independent directors to consider Liberty Media’s proposal. The Board of Directors has selected Joan L. Amble, James P. Holden and Eddy W. Hartenstein to serve on the Special Committee. The Special Committee is chaired by Mr. Hartenstein.
The Special Committee has retained Evercore Group L.L.C. to act as its financial advisor and Weil, Gotshal & Manges LLP to act as its legal counsel to assist and advise it in connection with its evaluation of Liberty Media’s proposal.

Liberty Media’s proposal noted that the transaction will be conditioned on the approval of both the Special Committee and a majority of the public stockholders of Holdings, other than Liberty Media. Liberty Media also noted that the approval by the Liberty Media stockholders of the issuance of the Series C common shares in the proposed transaction would also be required under applicable NASDAQ Stock Market requirements.

The letter provides that no legally binding obligation with respect to any transaction exists unless and until mutually acceptable definitive documentation is executed and delivered with respect thereto.  There can be no assurance that the transaction proposed by Liberty Media or any related transaction will be completed or, if completed, will have any specified terms, including with respect to pricing or timing.






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Table of ContentsActual

Results of Operations

Set forth below are our results of operations for the year endedDecember 31, 20102013 compared with the year ended December 31, 20092012 and the year ended December 31, 20092012 compared with the year endedDecember 31, 2011.

For the Years Ended December 31, 2013 vs 2012 Change 2012 vs 2011 Change

2013 2012 2011 Amount % Amount %
Revenue:          
 
Subscriber revenue$3,284,660
 $2,962,665
 $2,595,414
 $321,995
 11 % $367,251
 14 %
Advertising revenue89,288
 82,320
 73,672
 6,968
 8 % 8,648
 12 %
Equipment revenue80,573
 73,456
 71,051
 7,117
 10 % 2,405
 3 %
Other revenue344,574
 283,599
 274,387
 60,975
 22 % 9,212
 3 %
Total revenue3,799,095
 3,402,040
 3,014,524
 397,055
 12 % 387,516
 13 %
Operating expenses:             
Cost of services:             
Revenue share and royalties677,642
 551,012
 471,149
 126,630
 23 % 79,863
 17 %
Programming and content290,323
 278,997
 281,234
 11,326
 4 % (2,237) (1)%
Customer service and billing320,755
 294,980
 259,719
 25,775
 9 % 35,261
 14 %
Satellite and transmission79,292
 72,615
 75,902
 6,677
 9 % (3,287) (4)%
Cost of equipment26,478
 31,766
 33,095
 (5,288) (17)% (1,329) (4)%
Subscriber acquisition costs495,610
 474,697
 434,482
 20,913
 4 % 40,215
 9 %
Sales and marketing291,024
 248,905
 222,773
 42,119
 17 % 26,132
 12 %
Engineering, design and development57,969
 48,843
 53,435
 9,126
 19 % (4,592) (9)%
General and administrative262,135
 261,905
 238,738
 230
 — % 23,167
 10 %
Depreciation and amortization253,314
 266,295
 267,880
 (12,981) (5)% (1,585) (1)%
Total operating expenses2,754,542
 2,530,015
 2,338,407
 224,527
 9 % 191,608
 8 %
Income from operations1,044,553
 872,025
 676,117
 172,528
 20 % 195,908
 29 %
Other income (expense):             
Interest expense, net of amounts capitalized(204,671) (265,321) (304,938) 60,650
 23 % 39,617
 13 %
Loss on extinguishment of debt and credit facilities, net(190,577) (132,726) (7,206) (57,851) (44)% (125,520) nm
Interest and investment income6,976
 716
 73,970
 6,260
 874 % (73,254) (99)%
Loss on change in value of derivatives(20,393) —
 —
 (20,393) nm
 —
 nm
Other income (loss)1,204
 (226) 3,252
 1,430
 633 % (3,478) (107)%
Total other expense(407,461) (397,557) (234,922) (9,904) (2)% (162,635) (69)%
Income before income taxes637,092
 474,468
 441,195
 162,624
 34 % 33,273
 8 %
Income tax (expense) benefit(259,877) 2,998,234
 (14,234) (3,258,111) (109)% 3,012,468
 nm
Net income$377,215
 $3,472,702
 $426,961
 $(3,095,487) (89)% $3,045,741
 713 %
              
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24
Table of Contents

Our results of operations discussed below include Sirius XM Connected Vehicle Services Inc. activity from the acquisition date, November 4, 2013, as well as the impact of purchase price accounting adjustments associated with the acquisition and the Merger. 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. The deferred credits on executory contracts attributable to third party arrangements with an OEM included in revenue share and royalties, subscriber acquisition costs, and sales and marketing concluded with the expiration of the acquired contract during 2013. The impact of these purchase price accounting adjustments is detailed in our Adjusted Revenues and Operating Expenses tables on pages 39 through 45 of our glossary.

Total Revenue

Subscriber Revenue includes subscription, activation and other fees.

2013 vs. 2012: For the years ended December 31, 2008.
                             
     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%
                             
nm — not meaningful


26

Total Revenue
Subscriber Revenueincludes subscription fees, activation2013 and other fees 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%, 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.
Future2012, subscriber revenue will be dependent, among other things, uponwas $3,284,660 and $2,962,665, respectively, an increase of 11%, or $321,995. The increase was primarily attributable to a 9% increase in the daily weighted average number of subscribers, the impact of the increase in certain of our subscription rates beginning in January 2012 as more subscribers migrated to the higher rates, and an increase in subscriptions to premium services, premier channels and Internet streaming, as well as the inclusion of connected vehicle subscription revenue in 2013. These increases were partially offset by subscription discounts offered through customer acquisition and retention programs, and an increasing number of lifetime subscription plans that have reached full revenue recognition.

2012 vs. 2011: For the years ended December 31, 2012 and 2011, subscriber revenue 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 channels, data services and Internet streaming. The increase was partially offset by subscription discounts offered through customer acquisition and retention programs.

We expect subscriber revenues to increase based on the growth of our subscriber base, conversion and churn rates,including connected vehicle subscribers, promotions, rebates offered to subscribers and corresponding take-rates,subscription plan mix, subscription prices and the identification of additional revenue streams from subscribers. The impactWe increased certain 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 acquiredour subscription period.rates beginning January 2014.

Advertising Revenueincludes the sale of advertising on ourcertain 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
2013 vs. 2012: For the years ended December 31, 2013 and 2012, advertising revenue is subjectwas $89,288 and $82,320, respectively, an increase of 8%, or $6,968. The increase was primarily due to fluctuation based ona greater number of advertising spots sold and broadcast, as well as increases in rates charged per spot.

2012 vs. 2011: For the effectivenessyears ended December 31, 2012 and 2011, advertising revenue was $82,320 and $73,672, respectively, an increase of our sales efforts12%, or $8,648. 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 more advertisers are attracted to our subscribers increasenational platform and national advertising spend continues to increase.growing subscriber base and as we launch additional non-music channels.

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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, equipment revenue was $80,573 and $73,456, respectively, an increase of 10%, or $7,117. The increase was driven by royalties from higher OEM production, the mix of royalty eligible radios and, to a lesser extent, improved aftermarket subsidies.

2012 vs. 2011: For the years ended December 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.


25
Table of Contents

We expect equipment revenue to fluctuate based on OEM installationsproduction 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 feesour 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
2013 vs. 2012: For the years ended December 31, 2013 and 2012, other revenues will be dependent uponrevenue was $344,574 and $283,599, respectively, an increase of 22%, or $60,975. 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 subscribers on the 12.5% rate increased, and higher royalty revenue from Sirius XM Canada.

2012 vs. 2011: For the years ended December 31, 2012 and 2011, other revenue was $283,599 and $274,387, respectively, an increase of 3%, or $9,212. The FCC’s order approvingincrease was driven by revenues from the Merger allows usU.S. Music Royalty Fee as the number of subscribers increased, and higher royalty revenue from Sirius XM Canada.

We expect other revenue to pass through cost increases incurred sinceincrease as our subscriber base drives higher U.S. Music Royalty Fees and as the filingrevenue of our FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries for the performance of musical works and sound recordings or for device recording fees.Canadian affiliate grows.

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 ofin 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
2013 vs. 2012: For the years ended December 31, 2013 and 2012, revenue share and royalties were $677,642 and $551,012, respectively, an increase of 23%, or $126,630, 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 12.5% increase in the statutory royalty rate for the performance of sound recordings as well as a percentage of total revenue. The increase was primarily attributable to a 12% increase in our revenues subject to royaltyand/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.
We expect our revenue sharing 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. Under the terms of the Copyright Royalty Board’s decision, we paid royalties of 6.0%, 6.5% and 7.0% of gross revenues, subject to certain exclusions, for 2008, 2009 and 2010, 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 in January 2011 and the results of that proceeding may have an impact on our results of operations. The deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger are expected to provide increasing benefits toMerger.

2012 vs. 2011: For the years ended December 31, 2012 and 2011, revenue share and royalties throughwere $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 expirationstatutory 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.

We expect our revenue share and royalty costs to increase as our revenues grow, our royalty rates increase and as a result of the acquiredabove noted discontinued deferred credits on executory contracts principally inassociated with the Merger. As determined by the Copyright Royalty Board's decision, we paid royalties of 9.0%, 8.0% and 7.5% of gross revenues, subject to certain exclusions, for the years ended December 31, 2013, 2012 and 2013.2011, respectively, and will pay 9.5% in 2014.

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 byand other amounts.

2013 vs. 2012: For the licensoryears ended December 31, 2013 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.
Our2012, programming and content expenses are expectedwere $290,323 and $278,997, respectively, an increase of 4%, or $11,326, but decreased as a percentage of total revenue. The increase was primarily due to 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 and increased personnel costs.

2012 vs. 2011: For the years ended December 31, 2012 and 2011, programming and content expenses were $278,997 and $281,234, respectively, a decrease of 1%, or $2,237, and decreased as variousa percentage of total revenue. The decrease was primarily due to savings in content agreements, expirepartially offset by increases in personnel costs and are renewedreductions 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.


26
Table of Contents

Excluding the impact from purchase accounting adjustments, based on our current programming offerings, we expect our programming and content expenses to fluctuate as we offer additional programming, and renew or replaced on more cost effective terms.replace expiring agreements. 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 were amortized by the end of 2013.

Customer Service and Billingincludes costs associated with the operation and management of internal and 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, customer service and billing expenses were $320,755 and $294,980, respectively, an increase of 9%, or $25,775, but remained flat as a percentage of total revenue. The increase was primarily due to efforts to improve our customer service experience, resulting in higher spend on customer service agents, staffing and training, higher subscriber volume driving increased subscriber contacts, increased bad debt expense and higher technology costs.

2012 vs. 2011: For the years ended December 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.

We expect our customer careservice and billing expenses to increase as our subscriber base grows dueand as we attempt to increased call center operating costs, transaction fees and bad debt expense.improve the customer service experience for our subscribers.

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 broadcast studios.delivery of our Internet streaming service.

• 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, satellite and transmission expenses were $79,292 and $72,615, respectively, an increase of 9%, or $6,677, but remained flat as a percentage of total revenue. The increase was primarily due to increased costs associated with our Internet streaming operations.

2012 vs. 2011: For the years ended December 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 satellites.

We expect overall satellite and transmission expenses to declineincrease as a result of decreasing operating costs associated withwe enhance our in-orbit satellite fleetInternet-based service and add functionality, expand our terrestrial repeater network, optimization.and incur in-orbit insurance costs.

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

2013 vs. 2012: For the years ended December 31, 2013 and 2012, cost of equipment was $26,478 and $31,766, respectively, a decrease of 17%, or $5,288, and decreased as a percentage of equipment revenue. The decrease was primarily due to lower average cost per product sold and lower inventory reserves, partially offset by higher direct to consumer volume compared to prior year periods.

2012 vs. 2011: For the years ended December 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.

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


27
Table of Contents

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 andor 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, subscriber acquisition costs were $495,610 and $474,697, respectively, an increase of 4%, or $20,913, but decreased as a percentage of total revenue. The increase was primarily a result of higher subsidies related to increased OEM installations and lower benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the Merger, partially offset by improved OEM subsidy rates per vehicle.

2012 vs. 2011: For the years ended December 31, 2012 and 2011, subscriber acquisition costs were $474,697 and $434,482, respectively, an increase of 9%, or $40,215, but 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.

We expect total subscriber acquisition costs to fluctuate withdecrease as a result of the expiration of the acquired executory contracts noted above. The decrease will be partially offset by increases or decreases in OEM installations which are driven by OEM manufacturing and penetration rates, and changes in our gross subscriber additions. DeclinesChanges 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 communications.
• 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
2013 vs. 2012: For the years ended December 31, 2013 and 2012, sales and marketing expenses were $291,024 and $248,905, respectively, an increase of 17%, or $42,119, and increased 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.

2012 vs. 2011: For the years ended December 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.

We anticipate that sales and marketing expenses will increase as we increase advertisingchanges in certain contractual marketing agreements become effective and promotional initiatives to attract new subscribers in existing and new distribution channels, and launch andas we expand programs to retain our existing subscribers, win back former subscribers, and attract new subscribers. We expect the increase in sales and marketing costs to be partially offset by the impact of the expiration of the acquired executory contracts noted above.


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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 new 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, engineering, design and development expenses were $57,969 and $48,843, respectively, an increase of 19%, or $9,126, but remained flat as a percentage of total revenue. The increase was driven primarily by higher product development costs, costs related to enhanced subscriber features and functionality for our service, and by the reversal of certain non-recurring engineering charges that were recorded in the second quarter of 2012.


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2012 vs. 2011: For the years ended December 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.

We expect engineering, design and development expenses to increase in future periods as we continue to develop our next generation chip setsproducts and products.services.
                
General and Administrativeincludes executive management, rent and occupancy, finance, legal, human resources, information technology, and investor relationsinsurance 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, general and administrative expenses were $262,135 and $261,905, respectively, an increase of less than 1%, or $230, but decreased as a percentage of total revenue. The increase was primarily due to higher information technology costs, offset by lower legal costs.

2012 vs. 2011: For the years ended December 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.

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

Impairment of Goodwillis 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, depreciation and amortization expense was $253,314 and $266,295, respectively, a decrease of 5%, or $12,981, and decreased as a percentage of total revenue. The decrease was driven by certain satellites reaching the end of their estimated service lives, partially offset by additional assets placed in-service.

2012 vs. 2011: For the years ended December 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.

We expect depreciation and amortization expensesexpense to increasedecrease 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 bydue to 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. These decreases will be partially offset by increased depreciation resulting from our FM-6 satellite being placed into service.

Restructuring, Impairments and Related Costsrepresents charges related to the re-organization 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.
• 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.
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.

2013 vs. 2012: For the years ended December 31, 2013 and 2012, interest expense was $204,671 and $265,321, respectively, a decrease of 23%, or $60,650. The decrease was primarily due to lower average interest rates resulting from the redemption or repayment of $2,535,500 of higher interest rate debt throughout 2012 and 2013, which was replaced with $2,650,000 of lower interest rate debt.

2012 vs. 2011: For the years ended December 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.

We expect interest expense to increase in future periods as total debt outstanding increases and we cease to capitalize interest associated with satellite construction.


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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.
2013 vs. 2012: For the year ended December 31, 2013, loss on extinguishment of debt and credit facilities, net, was $190,577. The loss in 2013 was recorded on the repayment and redemption of our 7.625% Senior Notes due 2018 and our 8.75% Senior Notes due 2015. During the year ended December 31, 2012, a $132,726 loss was recorded on the repayment of our 13% Senior Notes due 2013 and our 9.75% Senior Secured Notes due 2015.

2012 vs. 2011: For the year ended December 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 ended December 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.

Interest and Investment Income (Loss)includes realized gains and losses, dividends, interest income, and our share of SIRIUS Canada’sthe income of Sirius XM Canada.

2013 vs. 2012: For the year ended December 31, 2013, interest and investment income was $6,976 compared to $716 in 2012. The interest and investment income for 2013 and 2012 was primarily due to our share of Sirius XM Canada’sCanada's net lossesincome, partially offset by the amortization expense related to our equity method intangible assets.

2012 vs. 2011: For the year ended December 31, 2012, interest and losses recordedinvestment 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 investmentsour interests in those entities, as well as debt instruments issued bySirius XM Canada whendue to the realized net gain from the XM Canada and Sirius Canada merger in the second quarter of 2011.

Loss on change in value of derivatives represents the change in fair value of those instruments falls below carryingthe commitments under the share repurchase agreement with Liberty Media, which are accounted for as a derivative.

2013 vs. 2012: For the year ended December 31, 2013, net loss on change in value andof derivatives was $20,393 which resulted from the decline is determinedchange in value of the shares to be other than temporary.repurchased under the share repurchase agreement with Liberty Media.   We expect to repurchase approximately 92,889,000 shares of common stock from Liberty Media on April 25, 2014 at a price of $3.66 per share. The value of the derivative will fluctuate based on the movement of our stock price. For the years ended December 31, 2012 and 2011, we did not record any losses on change in value of derivatives.
• 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 Expenseprimarily represents(Expense) Benefit includes the change in our deferred tax liabilityassets, foreign withholding taxes and current federal and state tax expenses.

2013 vs. 2012: For the year ended December 31, 2013, income tax expense was $259,877 compared to income tax benefit of $2,998,234 for 2012. Our annual effective tax rate for the year ending December 31, 2013 was 41% primarily as a result of $9,545 of non-deductible expenses related to the differenceloss on change in accountingvalue of derivatives. For the year ended December 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.

2012 vs. 2011: For the year ended December 31, 2012, income tax benefit was $2,998,234 compared to income tax expense of $14,234 for 2011. For the year ended December 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 FCC licenses, which are amortized over 15 years fordeferred tax purposes but not amortized for book purposes in accordance with GAAP and foreign withholding taxes on royalty income.assets will be realized.

• 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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Subscriber Data
The following table contains actual subscriber data for the years ended December 31, 20102013, 2012 and 2009, respectively, and adjusted2011, respectively. Subscribers to our connected vehicle services are not included in our subscriber data for the year ended count:
  Unaudited
  For the Years Ended December 31,
  2013 2012 2011
Beginning subscribers 23,900,336
 21,892,824
 20,190,964
Gross subscriber additions 10,136,381
 9,617,771
 8,696,020
Deactivated subscribers (8,477,407) (7,610,259) (6,994,160)
Net additions 1,658,974
 2,007,512
 1,701,860
Ending subscribers 25,559,310
 23,900,336
 21,892,824
Self-pay 21,081,817
 19,570,274
 17,908,742
Paid promotional 4,477,493
 4,330,062
 3,984,082
Ending subscribers 25,559,310
 23,900,336
 21,892,824
Self-pay 1,511,543
 1,661,532
 1,221,943
Paid promotional 147,431
 345,980
 479,917
Net additions 1,658,974
 2,007,512
 1,701,860
Daily weighted average number of subscribers 24,886,300
 22,794,170
 20,903,908
Average self-pay monthly churn 1.8% 1.9% 1.9%
New vehicle consumer conversion rate 44% 45% 45%
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, 2010,2013, we had 20,190,96425,559,310 subscribers, an increase of 1,418,2061,658,974 subscribers, or 8%7%, from the 18,772,75823,900,336 subscribers as of December 31, 2009.2012.
• 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.
2013 vs. 2012: For the years ended December 31, 2013 and 2012, net additions were 1,658,974 and 2,007,512, respectively, a decrease of 17%, or 348,538. The increase in gross subscriber additions was primarily due to increases in new car sales and new subscriptions in previously owned vehicles.  These increases were offset in part by a change from a paid trial to an unpaid trial in the fourth quarter of 2013 pursuant to an agreement with an OEM. The increase in deactivated subscribers was due to an increase in paid promotional trial deactivations driven by the growth of paid trial expirations, along with an increase in self-pay deactivations due to an increase in the subscriber base.

2012 vs. 2011: For the years ended December 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.

Average Self-pay Monthly Churnis derived by dividing the monthly average of self-pay deactivations for the quarterperiod divided by the average number of self-pay subscriber balancesubscribers for the quarter.period. (See accompanying footnotesglossary 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, channelline-up changes in 2008 and the introduction of the U.S. Music Royalty Fee in the third quarter of 2009.

2013 vs. 2012: For the years ended December 31, 2013 and 2012, our average self-pay monthly churn rate was 1.8% and 1.9%, respectively. The decrease was due to a higher mix of existing subscribers migrating to paid trials in new vehicles which are not included in average self-pay churn.

2012 vs. 2011: For the years ended December 31, 2012 and 2011, 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. (SeeThe metric excludes rental and fleet vehicles.(See accompanying footnotesglossary 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.

2013 vs. 2012: For the years ended December 31, 2013 and 2012, the new vehicle consumer conversion rate was 44% and 45%, respectively. The discussiondecrease in the new vehicle consumer conversion rate for the twelve month period was primarily due to the mix of operating results below excludessales by OEMs.

2012 vs. 2011: For the effects of stock-based compensationyears ended December 31, 2012 and purchase price accounting adjustments associated with2011, the Merger. Financial measures and metrics previously reported as “pro forma” have been renamed “adjusted.”new vehicle consumer conversion rate was 45%.

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 theour 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 commonas 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 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 audited 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 investorsinvestors' understanding of our business and our results of operations.

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. In addition, these Non-GAAP financial measures may not be comparable

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to similarly-titled measures by other companies. Please refer to the footnotesglossary (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 ended December 31, 2010, 20092013, 2012 and 2008,2011, 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)2013 2012 2011
ARPU$12.27
 $12.00
 $11.58
SAC, per gross subscriber addition$50
 $54
 $55
Customer service and billing expenses, per average subscriber$1.07
 $1.07
 $1.03
Free cash flow$927,496
 $709,446
 $415,742
Adjusted EBITDA$1,166,140
 $920,343
 $731,018
Note: See pages 46 through 53 for footnotes.
Note: See pages 39 through 45 for a reconciliation to GAAP in the accompanying 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(For a reconciliation to GAAP see the accompanying footnotesglossary 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.

2013 vs. 2012: For the years ended December 31, 2013 and 2012, ARPU was $12.27 and $12.00, respectively. The increase was driven primarily by the contribution of the U.S. Music Royalty Fee, the impact of 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 lifetime subscription plans that have reached full revenue recognition.

2012 vs. 2011: For the years ended December 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.

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(For a reconciliation to GAAP see the accompanying footnotesglossary 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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2013 vs. 2012: For the years ended December 31, 2013 and 2012, SAC, per gross subscriber addition, was $50 and $54, respectively. The decrease was primarily due to lower subsidies per vehicle.

2012 vs. 2011: For the years ended December 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 a subscriber.


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(For a reconciliation to GAAP see the accompanying footnotesglossary 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.

2013 vs. 2012: For the years ended December 31, 2013 and 2012, customer service and billing expenses, per average subscriber, were $1.07.


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2012 vs. 2011: For the years ended December 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.

Free Cash Flowincludes the net cash provided by (used in) operations, additions to property and equipment, merger related costs and restricted and other investment activity. (See(For a reconciliation to GAAP see the accompanying footnotesglossary on pages 4639 through 5345 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 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 includes2013 vs. 2012: For the recognitionyears ended December 31, 2013 and 2012, free cash flow was $927,496 and $709,446, respectively, an increase of deferred subscriber revenues acquired in$218,050. The increase was primarily driven by higher net cash provided by operating activities from improved operating performance, lower interest payments, and higher collections from subscribers and distributors, partially offset by payments related to the Merger that are not recognized inlaunch of our results under purchase price accountingFM-6 satellite and the eliminationpurchase of certain long-lead parts for a future satellite.

2012 vs. 2011: For the benefityears ended December 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 from improved operating performance and higher collections from subscribers and distributors, as well as a decrease in earningscapital expenditures resulting 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.)lower satellite and related launch vehicle construction costs.
             
  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 expensebenefit (expense) and depreciation and amortization. Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt, loss on change in value of derivatives as well as certain other charges, such as goodwill impairment; restructuring, impairments and related costs;impairment, certain purchase price accounting adjustments and share-based payment expense. (See(For a reconciliation to GAAP see the accompanying footnotesglossary on pages 4639 through 5345 for more details):details.)
             
  Unaudited 
  For the Years Ended December 31, 
  2010  2009  2008 
 
Adjusted EBITDA $626,288  $462,539  $(136,298)
             

2013 vs. 2012: For the years ended December 31, 2013 and 2012, adjusted EBITDA was $1,166,140 and $920,343, respectively, an increase of 27%, or $245,797. 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 certain of our subscription rates. The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues, sales and marketing costs related to subscriber communications and retention marketing, customer service and billing costs related to increased agent training and staffing as well as subscriber volume and subscriber acquisition 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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2012 vs. 2011: For the years ended December 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 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, 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 sales and marketing costs related to subscriber communications and cooperative marketing, partially offset by lower programming and content costs.


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Liquidity and Capital Resources

Cash Flows for the Year EndedDecember 31, 20102013 Compared with the Year EndedDecember 31, 20092012 and Year EndedDecember 31, 20092012 Compared with the Year EndedDecember 31, 20082011.

As of December 31, 20102013 and 2009,December 31, 2012, we had $586,691$134,805 and $383,489,$520,945, 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,    
 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
Net cash provided by operating activities$1,102,832
 $806,765
 $543,630
 $296,067
 $263,135
Net cash used in investing activities(700,688) (97,319) (127,888) (603,369) 30,569
Net cash used in financing activities(788,284) (962,491) (228,443) 174,207
 (734,048)
Net (decrease) increase in cash and cash equivalents(386,140) (253,045) 187,299
 (133,095) (440,344)
Cash and cash equivalents at beginning of period520,945
 773,990
 586,691
 (253,045) 187,299
Cash and cash equivalents at end of period$134,805
 $520,945
 $773,990
 $(386,140) $(253,045)

Cash Flows Provided by (Used in) Operating Activities

Cash flows provided by operating activities increased by $296,067 to $1,102,832 for the year ended December 31, 2013 from $806,765 for the year ended December 31, 2012.

Our largest source of cash provided by operating activities is generated by subscription and subscription-related revenues. We also generate cash from the sale of advertising on certain non-music channels and the sale of satellite radios, components and accessories. Our primary uses of cash from operating activities include revenue share and royalty payments to distributors and content providers, and payments to radio manufacturers, distributors and automakers. In addition, uses of cash from operating activities include payments to vendors to service, maintain and acquire subscribers, general corporate expenditures, and compensation and related costs.
Cash provided by operating activities increased by $79,065, or 18%, to $512,895consists of net income adjusted for the year ended December 31, 2010 from $433,830 for the year ended December 31, 2009. Cash provided by operating activities increased by $586,627, or 384%, to $433,830 for the year ended December 31, 2009 from cash used in operating activities of $152,797 for the year ended December 31, 2008. The primary drivers of our operating cash flow growth have been improvements in profitability and changes in operating assets and liabilities.
• 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 netcertain non-cash items, including depreciation, amortization, 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:
             
  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)
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 the construction and launch of our FM-6 satellite.
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 ended December 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.
Share-basedshare-based payment expense, is expected to increase in future periods as we grant equity awards to our employeesdeferred income taxes 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 to various assumptions including the market price of our stock, estimated forfeiture rates of awards and the volatility of our stock price. The fair value of restricted shares and restricted stock units is based on the market price at date of grant.
Otherother non-cash purchase price adjustments.
The adjustments include liabilities recorded as a result offor the Merger relatednon-cash items increased from the year ended December 31, 2012 to executory contracts with an OEM and certain programming providers, as well as amortization resulting from changesthe year ended December 31, 2013 due to the $3,195,651 non-cash change 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.
Cash Flows (Used in) Provided by Investing Activitiestax valuation allowance reversal during 2012.
 
Cash Flows Used in Investing Activities

Cash flows used forin investing activities consists primarily of capital expenditures for property and equipment. Capital expenditures have increasedequipment, as we have continued to investwell as the investment in the construction of our satellites and related launch vehicles and improvements in infrastructureconnected vehicle business purchased from Agero, Inc. We expect 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 agreementsOur FM-6 satellite was launched during the fourth quarter of 2013.

The increase in cash flows used in investing activities was primarily due to design, construct,the investment in Sirius XM Connected Vehicle Services Inc., satellite launch-related payments, an increase in spending to enhance our terrestrial repeater network, and launch our satellites in the normal coursepurchase of business.certain long-lead parts for a future satellite.

Cash Flows Used in Financing Activities

Cash flows used in financing activities have generally been the resultconsists of the issuance and repayment of long-term debt and related party debt, cash flows resulting from the exercise of stock options and cash proceeds from equity issuances.the purchase of common stock under our share repurchase program. Proceeds from long-term debt, related party debt and equity issuances have been used to fund our operations, acquire the connected vehicle business of Agero, Inc., construct and launch new satellites and invest in other infrastructure improvements.

FinancingsCash flows used in financing activities in 2013 were primarily due to the repurchase of approximately 520,257,866 shares of common stock under our share repurchase program for approximately $1,762,360, and Capital Requirementsthe redemption of $800,000 of

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our 8.75% Senior Notes due 2015 and $700,000 of our 7.625% Senior Notes due 2018. In 2013, we issued $650,000 aggregate principal amount of 5.875% Senior Notes due 2020, $600,000 aggregate principal amount of 5.75% Senior Notes due 2021, $500,000 aggregate principal amount of 4.25% Senior Notes due 2020, and $500,000 aggregate principal amount of 4.625% Senior Notes due 2023. Cash flows used in financing activities during 2012 were due to the repayment of the remaining balances of $778,500 of our 13% Senior Notes due 2013 and $257,000 of our 9.75% Senior Secured Notes due 2015, partially offset by the issuance $400,000 aggregate principal amount of 5.25% Senior Notes due 2022 and the proceeds received from the exercise of stock options.
  
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 in our consolidated financial statements, as of December 31, 2010, we expect to incur capital expenditures of approximately $120,444 and $5,481 in 2011 and 2012, respectively, and an additional


41

$55,610 over the next five years, the majority of which is attributable to the construction and launch of our FM-6 satellite and related launch vehicle.
    
Based upon our current business plans, we believe that we have sufficient cash, cash equivalents and marketable securities to cover our estimated funding needs. 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 weborrowings under our Credit Facility. We believe that we will be ablehave sufficient cash and cash equivalents as well as debt capacity to generate sufficient revenues to meetcover our cash requirements.estimated short-term and long-term funding needs, stock repurchases and strategic opportunities.

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,

Stock Repurchase Program
Since December 2012, our board of directors has approved $4,000,000 for repurchases of our common stock. Our board of directors did not establish an end date for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including transactions with Liberty Media and its affiliates.

On October 9, 2013, we entered into an agreement with Liberty Media to repurchase $500 million of our common stock from Liberty Media. Pursuant to the agreement with Liberty Media, we repurchased $160 million of our common stock from Liberty Media as of December 31, 2013. On January 23, 2014, we entered into an amendment to the agreement with Liberty Media to defer the previously scheduled $240 million repurchase of shares of our common stock from Liberty Media from January 27, 2014 to April 25, 2014, the date of the final purchase installment under the agreement. As a result of this deferral, we expect to repurchase $340 million of our shares of common stock from Liberty Media on April 25, 2014 at a price of $3.66 per share. We entered into this amendment at the request of the Special Committee of our board of directors that has been formed to review and evaluate the Liberty Media proposal.

During the year endedDecember 31, 2013, we repurchased 520,257,866 shares of our common stock for $1,762,360, including fees and commissions, on the open market and in privately negotiated transactions, including transactions with Liberty Media. All common stock repurchases were settled and retired as of December 31, 2013. As of December 31, 2013, $2,237,640 remained available under our stock repurchase program. We expect to fund future repurchases through a combination of cash on hand, cash generated by operations are affected by the FCC order approving the Merger, which imposed certain conditions upon, among other things, our program offerings and our ability to increase prices.future borrowings.

Debt Covenants
TheOur indentures and the agreement governing our debtCredit Facility include restrictive covenants. As of December 31, 2010,2013, we were in compliance with the indentures and the agreement governing our debt covenants.
Credit Facility. For a discussion of our “Debt Covenants”,Covenants,” refer to Note 1113 to our consolidated financial statements in Item 8 of this Annual Report onForm 10-K.

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Off-Balance Sheet Arrangements

We do not have any significant off-balance sheet arrangements other than those disclosed in Note 1516 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.


42

Contractual Cash Commitments

For a discussion of our “Contractual Cash Commitments,” refer to Note 1516 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 911 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 requirerequires 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 3 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 1stthe fourth quarter of each year, and an assessment isyear. 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 2013, 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 ofimpairment charges to our goodwill during the years ended December 31, 20102013 or 2012.

Long-Lived and 2009.
Long-Lived Assets.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 XM trademark, is performed as of October 1stthe 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, 2010ASU 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 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 is not 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 2013, 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.
We use independent appraisals 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 assist in determiningour annual evaluation of the faircarrying value of our FCC licenses. The income approach, which is commonly calledlong-lived assets, there were no events or circumstances that triggered 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 attributableneed for an impairment evaluation.


43


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 part37
Table of theContentsbuild-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.

There were no changes in the carrying value of our indefinite life intangible assets during the years ended December 31, 20102013 and 2009.2012.

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,satellites, 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

We operate five in-orbit SIRIUSSirius satellites, FM-1, FM-2, FM-3, FM-5 and FM-6. Our FM-1 and FM-2 satellites were originally 15 years fromlaunched in 2000 and reached the date they were placed into orbit. In June 2006, we adjusted the usefulend of their depreciable lives of two ofin 2013, but are still in operation. We estimate that our in-orbit SIRIUSFM-3, FM-5 and FM-6 satellites, to 13 years to reflect the unanticipated loss of power from the solar arraylaunched in 2000, 2009 and the way we operate the constellation. We currently expect our first two in-orbit SIRIUS satellites to2013, respectively, will operate effectively through 2013, FM-3 to operate effectively throughthe end of their depreciable lives in 2015, FM-5 to operate effectively through 2024 and will continue to evaluate the impact of current satellite operational data on the expected useful lives. In December 2010, we recorded an other than temporary charge for FM-4, the ground spare held in storage since 2002.2028, respectively. We operate five in-orbit XM satellites, XM-1, XM-2, XM-3, XM-4 and XM-5, three of which function as in-orbit spares. The threeOur XM-1 and XM-2 in-orbit spare satellites were launched in 2001 reached the end of their depreciable lives in 2013 and are expected to be removed from orbit in 2014. We estimate that our third in-orbit spare satellite, XM-5, launched in 2010 while theand our two other twoXM satellites, wereXM-3, launched in 2005, and 2006. We estimate that the XM-3, XM-4, and XM-5 satelliteslaunched in 2006, will meet their 15 year predicted useful lives, and that the useful lives of XM-1 and XM-2 will end in 2013.15-year estimated depreciable lives.

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 usefuldepreciable 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, forchange. For example, a 10% decrease in the expected usefuldepreciable lives of satellites and spacecraft control facilities during 20102013 would have resulted in approximately $23,028$24,395 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.


44

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 theover-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.


45

As of December 31, 2013, we had a valuation allowance of $7,831 relating to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations.




38
Table of ContentsFootnotes

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, loss on change in value of derivatives 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) depreciation and amortization and (iii) 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 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):


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Table of Contents

 Unaudited
 For the Years Ended December 31,
 2013 2012 2011
Net income (GAAP):$377,215
 $3,472,702
 $426,961
Add back items excluded from Adjusted EBITDA:     
Purchase price accounting adjustments:     
Revenues (see pages 41-43)7,251
 7,479
 10,910
Operating expenses (see pages 41-43)(207,854) (289,278) (277,258)
Share-based payment expense, net of purchase price accounting adjustments68,876
 63,822
 53,369
Depreciation and amortization (GAAP)253,314
 266,295
 267,880
Interest expense, net of amounts capitalized (GAAP)204,671
 265,321
 304,938
Loss on extinguishment of debt and credit facilities, net (GAAP)190,577
 132,726
 7,206
Interest and investment (income) (GAAP)(6,976) (716) (73,970)
Loss on change in value of derivatives (GAAP)20,393
 —
 —
Other (income) loss (GAAP)(1,204) 226
 (3,252)
Income tax expense (benefit) (GAAP)259,877
 (2,998,234) 14,234
Adjusted EBITDA$1,166,140

$920,343
 $731,018

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 endedDecember 31, 2013, 2012 and 2011:

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Table of Contents

 Unaudited For the Year Ended December 31, 2013
(in thousands)As Reported Purchase Price Accounting Adjustments Allocation of Share-based Payment Expense Adjusted
Revenue:       
Subscriber revenue$3,284,660
 $—
 $—
 $3,284,660
Advertising revenue89,288
 —
 —
 89,288
Equipment revenue80,573
 —
 —
 80,573
Other revenue344,574
 7,251
 —
 351,825
Total revenue$3,799,095
 $7,251
 $—
 $3,806,346
Operating expenses       
Cost of services:       
Revenue share and royalties$677,642
 $122,534
 $—
 $800,176
Programming and content290,323
 8,033
 (7,584) 290,772
Customer service and billing320,755
 —
 (2,219) 318,536
Satellite and transmission79,292
 —
 (3,714) 75,578
Cost of equipment26,478
 —
 —
 26,478
Subscriber acquisition costs495,610
 64,365
 —
 559,975
Sales and marketing291,024
 12,922
 (14,792) 289,154
Engineering, design and development57,969
 —
 (7,405) 50,564
General and administrative262,135
 —
 (33,162) 228,973
Depreciation and amortization (a)253,314
 —
 —
 253,314
Share-based payment expense—
 —
 68,876
 68,876
Total operating expenses$2,754,542
 $207,854
 $—
 $2,962,396
        
(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 December 31, 2013 was $47,000.



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 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 revenue82,320
 —
 —
 82,320
Equipment revenue73,456
 —
 —
 73,456
Other revenue283,599
 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 content278,997
 37,346
 (6,120) 310,223
Customer service and billing294,980
 —
 (1,847) 293,133
Satellite and transmission72,615
 —
 (3,329) 69,286
Cost of equipment31,766
 —
 —
 31,766
Subscriber acquisition costs474,697
 90,503
 —
 565,200
Sales and marketing248,905
 14,828
 (10,310) 253,423
Engineering, design and development48,843
 —
 (6,238) 42,605
General and administrative261,905
 —
 (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 December 31, 2012 was $53,000.


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 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 revenue73,672
 —
 —
 73,672
Equipment revenue71,051
 —
 —
 71,051
Other revenue274,387
 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 content281,234
 49,172
 (6,212) 324,194
Customer service and billing259,719
 18
 (1,502) 258,235
Satellite and transmission75,902
 313
 (2,678) 73,537
Cost of equipment33,095
 —
 —
 33,095
Subscriber acquisition costs434,482
 85,491
 —
 519,973
Sales and marketing222,773
 15,233
 (8,193) 229,813
Engineering, design and development53,435
 31
 (4,851) 48,615
General and administrative238,738
 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 billing1,484
 18
 —
 1,502
Satellite and transmission2,659
 19
 —
 2,678
Sales and marketing8,166
 27
 —
 8,193
Engineering, design and development4,820
 31
 —
 4,851
General and administrative29,874
 59
 —
 29,933
Total share-based payment expense$53,188
 $181
 $—
 $53,369


ARPU - is derived from total earned subscriber revenue, 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):

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Table of Contents

 Unaudited
 For the Years Ended December 31,
 2013 2012 2011
Subscriber revenue (GAAP)$3,284,660
 $2,962,665
 $2,595,414
Add: advertising revenue (GAAP)89,288
 82,320
 73,672
Add: other subscription-related revenue (GAAP)290,895
 237,868
 231,902
Add: purchase price accounting adjustments—
 228
 3,659
 $3,664,843
 $3,283,081
 $2,904,647
Daily weighted average number of subscribers24,886,300
 22,794,170
 20,903,908
ARPU$12.27

$12.00
 $11.58

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. 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,
 2013 2012 2011
Customer service and billing expenses (GAAP)$320,755
 $294,980
 $259,719
Less: share-based payment expense, net of purchase price accounting adjustments(2,219) (1,847) (1,502)
Add: purchase price accounting adjustments—
 —
 18
 $318,536
 $293,133
 $258,235
Daily weighted average number of subscribers24,886,300

22,794,170

20,903,908
Customer service and billing expenses, per average subscriber$1.07

$1.07
 $1.03

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,
 2013
2012
2011
Cash Flow information     
Net cash provided by operating activities$1,102,832
 $806,765
 $543,630
Net cash used in investing activities$(700,688) $(97,319) $(127,888)
Net cash used in financing activities$(788,284) $(962,491) $(228,443)
Free Cash Flow     
Net cash provided by operating activities$1,102,832
 $806,765
 $543,630
Additions to property and equipment(173,617) (97,293) (137,429)
Purchases of restricted and other investments(1,719) (26) 9,541
Free cash flow$927,496

$709,446
 $415,742


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Table of Contents

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 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,
 2013 2012 2011
Subscriber acquisition costs (GAAP)$495,610
 $474,697
 $434,482
Less: margin from direct sales of radios and accessories (GAAP)(54,095) (41,690) (37,956)
Add: purchase price accounting adjustments64,365
 90,503
 85,491
 $505,880
 $523,510
 $482,017
Gross subscriber additions10,136,381
 9,617,771
 8,696,020
SAC, per gross subscriber addition$50

$54
 $55


45
Table of Contents

Supplementary discussion for Sirius XM:

The consolidated statements of comprehensive income of Sirius XM are essentially identical to the consolidated statements of comprehensive income of Holdings, except for the following:
 For the Years Ended December 31,
 2013 2012 2011
Net income attributable to Holdings$377,215
 $3,472,702
 $426,961
Loss on change in value of derivative for forward contract with Liberty Media included in Holdings' consolidated statements of comprehensive income (a)23,106
 —
 —
Loss on change in fair value of 7% Exchangeable Senior Subordinated Notes due 2014 included in Sirius XM's consolidated statements of comprehensive income (b)(466,815) —
 —
Net income attributable to Sirius XM's sole stockholder$(66,494) $3,472,702
 $426,961
(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


46

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 
             


47

(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)
             


49

(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 resultThe fair value of the Merger.Share Repurchase Agreement with Liberty Media is recorded in Holdings' consolidated balance sheet, with changes in fair value recorded in Holdings' statements of comprehensive income. 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 resultimpact of the Merger. The increased depreciation and amortization forShare Repurchase Agreement is excluded from Sirius XM's financial statements as the year ended December 31, 2009 was $106,000.
(b)Amounts related to share-based payment expense included in operating expenses were as follows:publicly traded common stock being repurchased by Liberty Media resides at Holdings, effective November 15, 2013.
                 
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 
                     

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(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.(b)
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKSThe additional fair value in excess of the carrying amount associated with the 7% Exchangeable Senior Subordinated Notes due 2014 is recorded in Sirius XM's consolidated balance sheet, with changes in fair value recorded in Sirius XM's statements of comprehensive income. This is eliminated in Holdings' consolidated balance sheets and statements of comprehensive income.

For a discussion and analysis of Sirius XM's financial condition and results, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of December 31, 2010,2013, we did not have any derivative financial instruments. 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. Our borrowings under the Senior Secured Revolving Credit Facility (the "Credit Facility") carry a variable interest rate based on LIBOR plus an applicable rate based on our debt to operating cash flow ratio. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate fluctuations.

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.
46

ITEM 9A.
CONTROLS AND PROCEDURES

Controls and Procedures
As of December 31, 2010,2013, 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, 2010.2013. 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 quarteryear endedDecember 31, 20102013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’sManagement'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 of the Treadway Commission in 1992 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, 2010.2013.
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, 20102013 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.OTHER INFORMATION
ITEM 9B. OTHER INFORMATION

None.


54

PART III

ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our executive officers is contained in the discussion entitled “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K.

The additional information required by this Item 10 is incorporated in this report by reference to the applicable information in ourHoldings’ definitive proxy statement for the 20112014 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, 2011.2014.

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.
47

ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report by reference to the applicable information in ourHoldings’ definitive proxy statement for the 20112014 annual meeting of stockholders set forth under the captioncaptions Item 1. Election of Directors, Executive Compensation and Item 2. Ratification of Independent Registered Public Accountants, which we expect to file with the Securities and Exchange Commission prior to April 30, 2011.2014.

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 ourHoldings’ definitive proxy statement for the 20112014 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, 2011.2014.

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 ourHoldings’ definitive proxy statement for the 20112014 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, 2011.2014.

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 ourHoldings’ definitive proxy statement for the 20112014 annual meeting of stockholders set forth under the caption 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, 2011.2014.


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 listfollowing this report, which is incorporated herein by reference.


48

56

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 16th4th day of February 2011.2014.
 
SIRIUS XM RADIO INC.
 By:
SIRIUS XM HOLDINGS 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)
    
    

49

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 TitleDate
    
/s/    GEddy W. HartensteinREGORY B. MAFFEI

(Eddy W. Hartenstein)		 Chairman of the Board of Directors and DirectorFebruary 16, 20114, 2014
(Gregory B. Maffei) 
/s/    JMel KarmazinAMES E. MEYER

(Mel Karmazin)		 Chief Executive Officer and Director (Principal Executive Officer)February 16, 20114, 2014
(James E. Meyer) 
/s/    DDavidAVID J. FrearFREAR

(David J. Frear)		 
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 16, 20114, 2014
(David J. Frear) 
/s/    TThomasHOMAS D. BarryBARRY

(Thomas D. Barry)		 
Senior Vice President and Controller (Principal
(Principal Accounting Officer)
February 16, 20114, 2014
(Thomas D. Barry) 
/s/    JJoanOAN L. AmbleAMBLE

(Joan L. Amble)		 DirectorFebruary 16, 20114, 2014
(Joan L. Amble) 
/s/    ALeon D. BlackNTHONY J. BATES

(Leon D. Black)		 DirectorFebruary 16, 20114, 2014
(Anthony J. Bates) 
/s/    GDavid A. FlowersEORGE W. BODENHEIMER

(David A. Flowers)		 DirectorFebruary 16, 20114, 2014
(George W. Bodenheimer) 
/s/    DLawrence F. GilbertiAVID J. A. FLOWERS

(Lawrence F. Gilberti)		 DirectorFebruary 16, 20114, 2014
(David J. A. Flowers) 
/s/    EJames P. HoldenDDY W. HARTENSTEIN

(James P. Holden)		 DirectorFebruary 16, 20114, 2014
(Eddy W. Hartenstein) 
/s/    JGregory B. MaffeiAMES P. HOLDEN

(Gregory B. Maffei)		 DirectorFebruary 16, 20114, 2014
(James P. Holden) 
/s/    EJohn C. MaloneVAN D. MALONE

(John C. Malone)		 DirectorFebruary 16, 2011


57

4, 2014
SignatureTitleDate
(Evan D. Malone) 
/s/    JJamesAMES F. MooneyMOONEY

(James F. Mooney)		 DirectorFebruary 16, 20114, 2014
(James F. Mooney) 
/s/    CJack ShawARL E. VOGEL

(Jack Shaw)		 DirectorFebruary 4, 2014
(Carl E. Vogel)
/s/    VANESSA A. WITTMAN
DirectorFebruary 16, 20114, 2014
(Vanessa A. Wittman)
/s/    DAVID ZASLAV
DirectorFebruary 4, 2014
(David Zaslav)


50


58

SIRIUS XM RADIO INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm
F-2
 F-2 
SIRIUS XM HOLDINGS INC.
Consolidated Statements of OperationsComprehensive Income for the years ended December 31, 2010, 20092013, 2012 and 20082011
F-4
F-5
Consolidated Balance Sheets as of December 31, 20102013 and 20092012
F-5
F-6
Consolidated Statements of Stockholders’Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for the years ended December 31, 2010, 20092013, 2012 and 20082011
F-6
F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 20092013, 2012 and 20082011
F-8
 F-8 
SIRIUS XM RADIO INC.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011
F-10
Consolidated Balance Sheets as of December 31, 2013 and 2012
F-11
Consolidated Statements of Stockholder Equity for the years ended December 31, 2013, 2012 and 2011
F-12
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
F-13
Combined Notes to Consolidated Financial Statements
F-15
 F-10 
Schedule II —- Schedule of Valuation and Qualifying Accounts
F-44
F-45


F-1


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sirius XM RadioHoldings Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Sirius XM RadioHoldings Inc. and subsidiaries as of December 31, 20102013 and 2009,2012, 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, 2010.2013. 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 the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the 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 RadioHoldings Inc. and subsidiaries as of December 31, 20102013 and 2009,2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010,2013, 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, presentspresent 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 RadioHoldings Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2010,2013, based on criteria established inInternal Control —- Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 16, 20114, 2014 expressed an unqualified opinion on the effectiveness of the 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, 20114, 2014


F-2


F-2

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sirius XM RadioHoldings Inc. and subsidiaries:
We have audited Sirius XM RadioHoldings Inc. and subsidiaries’subsidiaries' internal control over financial reporting as of December 31, 2010,2013, based on criteria established inInternal Control —- Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sirius XM RadioHoldings 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 accompanyingManagement’sManagement's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany'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 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 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 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 RadioHoldings Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2013, based on criteria established inInternal Control —- Integrated Framework (1992)issued 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 RadioHoldings Inc. and subsidiaries as of December 31, 20102013 and 2009,2012, 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, 2010,2013, and our report dated February 16, 20114, 2014 expressed an unqualified opinion on those consolidated financial statements.
 
/s/  KPMG LLP
/s/ KPMG LLP
New York, New York
February 16, 20114, 2014


F-3

F-3

Report of Independent Registered Public Accounting Firm
The Board of Directors
Sirius XM Radio Inc. and subsidiaries:
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Sirius XM Radio Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, stockholder equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and in accordance with the auditing 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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 its subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013 in accordance with U.S. generally accepted accounting principles.

/s/ KPMG LLP
New York, New York
February 4, 2014



F-4
Table of Contents
SIRIUS XM RADIOHOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME

            
 For the Years Ended December 31, 
 2010 2009 2008 For the Years Ended December 31,
(In thousands, except per share data)
            
(in thousands, except per share data)2013 2012 2011
Revenue:            
 
  
Subscriber revenue $2,414,174  $2,287,503  $1,548,919 $3,284,660
 $2,962,665
 $2,595,414
Advertising revenue, net of agency fees  64,517   51,754   47,190 
Advertising revenue89,288
 82,320
 73,672
Equipment revenue  71,355   50,352   56,001 80,573
 73,456
 71,051
Other revenue  266,946   83,029   11,882 344,574
 283,599
 274,387
       
Total revenue  2,816,992   2,472,638   1,663,992 3,799,095
 3,402,040
 3,014,524
Operating expenses:            
 
 
Cost of services:            
 
 
Revenue share and royalties  435,410   397,210   280,852 677,642
 551,012
 471,149
Programming and content  305,914   308,121   312,189 290,323
 278,997
 281,234
Customer service and billing  241,680   234,456   165,036 320,755
 294,980
 259,719
Satellite and transmission  80,947   84,033   59,279 79,292
 72,615
 75,902
Cost of equipment  35,281   40,188   46,091 26,478
 31,766
 33,095
Subscriber acquisition costs  413,041   340,506   371,343 495,610
 474,697
 434,482
Sales and marketing  215,454   228,956   231,937 291,024
 248,905
 222,773
Engineering, design and development  45,390   41,031   40,496 57,969
 48,843
 53,435
General and administrative  240,970   227,554   213,142 262,135
 261,905
 238,738
Impairment of goodwill  —   —   4,766,190 
Depreciation and amortization  273,691   309,450   203,752 253,314
 266,295
 267,880
Restructuring, impairments and related costs  63,800   32,807   10,434 
       
Total operating expenses  2,351,578   2,244,312   6,700,741 2,754,542
 2,530,015
 2,338,407
       
Income (loss) from operations  465,414   228,326   (5,036,749)
Income from operations1,044,553
 872,025
 676,117
Other income (expense):            
 
 
Interest expense, net of amounts capitalized  (295,643)  (315,668)  (148,455)(204,671) (265,321) (304,938)
Loss on extinguishment of debt and credit facilities, net  (120,120)  (267,646)  (98,203)(190,577) (132,726) (7,206)
Interest and investment (loss) income  (5,375)  5,576   (21,428)
Interest and investment income6,976
 716
 73,970
Loss on change in value of derivatives(20,393) —
 —
Other income (loss)  3,399   3,355   (9,599)1,204
 (226) 3,252
       
Total other expense  (417,739)  (574,383)  (277,685)(407,461) (397,557) (234,922)
       
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:            
Income before income taxes637,092
 474,468
 441,195
Income tax (expense) benefit(259,877) 2,998,234
 (14,234)
Net income$377,215
 $3,472,702
 $426,961
Realized loss on XM Canada investment foreign currency translation adjustment—
 —
 6,072
Foreign currency translation adjustment, net of tax(428) 49
 (140)
Total comprehensive income$376,787
 $3,472,751
 $432,893
Net income per common share:
 
 
Basic $0.01  $(0.15) $(2.45)$0.06
 $0.55
 $0.07
       
Diluted $0.01  $(0.15) $(2.45)$0.06
 $0.51
 $0.07
       
Weighted average common shares outstanding:            
 
 
Basic  3,693,259   3,585,864   2,169,489 6,227,646
 4,209,073
 3,744,606
       
Diluted  6,391,071   3,585,864   2,169,489 6,384,791
 6,873,786
 6,500,822
       

See accompanying notes to the consolidated financial statements.


F-4

F-5
Table of Contents
SIRIUS XM RADIOHOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

        
 As of December 31, 
 2010 2009 As of December 31,
2013 2012
(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 $134,805
 $520,945
Accounts receivable, net  121,658   113,580 103,937
 106,142
Receivables from distributors  67,576   48,738 88,975
 104,425
Inventory, net  21,918   16,193 13,863
 25,337
Prepaid expenses  134,994   100,273 110,530
 122,157
Related party current assets  6,719   106,247 9,145
 13,167
Deferred tax asset  44,787   72,640 937,598
 923,972
Other current assets  7,432   18,620 20,160
 12,037
     
Total current assets  991,775   859,780 1,419,013
 1,828,182
Property and equipment, net  1,761,274   1,711,003 1,594,574
 1,571,922
Long-term restricted investments  3,396   3,400 5,718
 3,999
Deferred financing fees, net  54,135   66,407 12,604
 38,677
Intangible assets, net  2,629,200   2,695,115 2,700,062
 2,519,610
Goodwill  1,834,856   1,834,856 2,204,553
 1,815,365
Related party long-term assets  30,162   111,767 30,164
 44,954
Long-term deferred tax asset868,057
 1,219,256
Other long-term assets  78,288   39,878 10,035
 12,878
     
Total assets $7,383,086  $7,322,206 $8,844,780
 $9,054,843
     
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:
           
Accounts payable and accrued expenses $593,174  $543,686 $578,333
 $587,652
Accrued interest  72,453   74,566 42,085
 33,954
Current portion of deferred revenue  1,201,346   1,083,430 1,586,611
 1,474,138
Current portion of deferred credit on executory contracts  271,076   252,831 3,781
 207,854
Current maturities of long-term debt  195,815   13,882 496,815
 4,234
Current maturities of long-term related party debt10,959
 —
Related party current liabilities  15,845   108,246 20,320
 6,756
     
Total current liabilities  2,349,709   2,076,641 2,738,904
 2,314,588
Deferred revenue  273,973   255,149 149,026
 159,501
Deferred credit on executory contracts  508,012   784,078 1,394
 5,175
Long-term debt  2,695,856   2,799,702 3,093,821
 2,222,080
Long-term related party debt  325,907   263,579 —
 208,906
Deferred tax liability  914,637   940,182 
Related party long-term liabilities  24,517   46,301 16,337
 18,966
Other long-term liabilities  82,839   61,052 99,556
 86,062
     
Total liabilities  7,175,450   7,226,684 6,099,038
 5,015,278
     
Commitments and contingencies (Note 15)        
Commitments and contingencies (Note 16)
 
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)
Convertible perpetual preferred stock, series B-1, par value $0.001 (liquidation preference of $0.001 per share); 50,000,000 authorized and 0 and 6,250,100 shares issued and outstanding at December 31, 2013 and 2012, respectively—
 6
Common stock, par value $0.001; 9,000,000,000 shares authorized at December 31, 2013 and 2012; 6,096,220,526 and 5,262,440,085 shares issued and outstanding at December 31, 2013 and 2012, respectively6,096
 5,263
Accumulated other comprehensive (loss) income, net of tax(308) 120
Additional paid-in capital  10,420,604   10,352,291 8,674,129
 10,345,566
Accumulated deficit  (10,211,053)  (10,254,108)(5,934,175) (6,311,390)
     
Total stockholders’ equity  207,636   95,522 2,745,742
 4,039,565
     
Total liabilities and stockholders’ equity $7,383,086  $7,322,206 $8,844,780
 $9,054,843
     

See accompanying notes to the consolidated financial statements.


F-5

F-6
Table of Contents
SIRIUS XM RADIOHOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


 
Convertible Perpetual
Preferred Stock,
Series B-1
 Common Stock     Treasury Stock    
(in thousands, except share data)Shares Amount Shares Amount Accumulated Other Comprehensive Income (Loss) 
Additional
Paid-in
Capital
 Shares Amount 
Accumulated
Deficit
 
Total
Stockholders’
Equity
Balance at January 1, 201112,500,000
 $13
 3,933,195,112
 $3,933
 $(5,861) $10,420,604
 —
 $—
 $(10,211,053) $207,636
Comprehensive income, net of tax—
 —
 —
 —
 5,932
 —
 —
 —
 426,961
 432,893
Issuance of common stock to employees and employee benefit plans, net of forfeitures—
 —
 1,882,801
 2
 —
 3,480
 —
 —
 —
 3,482
Share-based payment expense—
 —
 —
 —
 —
 48,581
 —
 —
 —
 48,581
Exercise of options and vesting of restricted stock units—
 —
 13,401,048
 13
 —
 11,540
 —
 —
 —
 11,553
Issuance of common stock upon exercise of warrants—
 —
 7,122,951
 7
 —
 (7) —
 —
 —
 —
Return of shares under share borrow agreements—
 —
 (202,399,983) (202) —
 202
 —
 —
 —
 —
Balance at December 31, 201112,500,000
 $13
 3,753,201,929
 $3,753
 $71
 $10,484,400
 —
 $—
 $(9,784,092) $704,145
Comprehensive income, net of tax—
 —
 —
 —
 49
 —
 —
 —
 3,472,702
 3,472,751
Issuance of common stock to employees and employee benefit plans, net of forfeitures—
 —
 1,571,175
 2
 —
 3,521
 —
 —
 —
 3,523
Share-based payment expense—
 —
 —
 —
 —
 60,299
 —
 —
 —
 60,299
Exercise of options—
 —
 214,199,297
 214
 —
 125,695
 —
 —
 —
 125,909
Cash dividends paid on common shares ($0.05)—
 —
 —
 —
 —
 (262,387) —
 —
 —
 (262,387)
Cash dividends paid on preferred shares on as-converted basis—
 —
 —
 —
 —
 (64,675) —
 —
 —
 (64,675)
Conversion of preferred stock to common stock(6,249,900) (7) 1,293,467,684
 1,294
 —
 (1,287) —
 —
 —
 —
Balance at December 31, 20126,250,100
 $6
 5,262,440,085
 $5,263
 $120
 $10,345,566
 —
 $—
 $(6,311,390) $4,039,565
Comprehensive income, net of tax—
 —
 —
 —
 (428) —
 —
 —
 377,215
 376,787
Share-based payment expense—
 —
 —
 —
 —
 68,876
 —
 —
 —
 68,876
Exercise of options and vesting of restricted stock units—
 —
 32,841,381
 32
 —
 19,396
 —
 —
 —
 19,428
Minimum withholding taxes on net share settlement of stock-based compensation—
 —
 —
 —
 —
 (46,342) —
 —
 —
 (46,342)
Conversion of preferred stock to common stock(6,250,100) (6) 1,293,509,076
 1,293
 —
 (1,287) —
 —
 —
 —
Conversion of Exchangeable Notes to common stock—
 —
 27,687,850
 28
 —
 45,069
 —
 —
 —
 45,097
Common stock repurchased—
 —
 —
 —
 —
 —
 520,257,866
 (1,764,969) —
 (1,764,969)
Common stock retired—
 —
 (520,257,866) (520) —
 (1,764,449) (520,257,866) 1,764,969
 —
 —
Initial fair value of forward contract—
 —
 —
 —
 —
 7,300
 —
 —
 —
 7,300
Balance at December 31, 2013—
 $—
 6,096,220,526
 $6,096
 $(308) $8,674,129
 —
 $—
 $(5,934,175) $2,745,742
See accompanying notes to the consolidated financial statements.

F-7
Table of Contents
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)CASH FLOWS

 For the Years Ended December 31,
(in thousands)2013
2012
2011
Cash flows from operating activities:     
Net income$377,215
 $3,472,702
 $426,961
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization253,314
 266,295
 267,880
Non-cash interest expense, net of amortization of premium21,698
 35,924
 39,515
Provision for doubtful accounts39,016
 34,548
 33,164
Amortization of deferred income related to equity method investment(2,776) (2,776) (2,776)
Loss on extinguishment of debt and credit facilities, net190,577
 132,726
 7,206
Gain on merger of unconsolidated entities—
 —
 (75,768)
(Gain) loss on unconsolidated entity investments, net(5,865) 420
 6,520
Dividend received from unconsolidated entity investment22,065
 1,185
 —
Loss on disposal of assets351
 657
 269
Loss on change in value of derivative20,393
 —
 —
Share-based payment expense68,876
 63,822
 53,190
Deferred income taxes259,787
 (3,001,818) 8,264
Other non-cash purchase price adjustments(207,854) (289,050) (275,338)
Distribution from investment in unconsolidated entity—
 —
 4,849
Changes in operating assets and liabilities:  

 

Accounts receivable(36,189) (38,985) (13,211)
Receivables from distributors20,944
 (19,608) (17,241)
Inventory11,474
 11,374
 (14,793)
Related party assets2,031
 9,523
 30,036
Prepaid expenses and other current assets16,788
 647
 8,525
Other long-term assets2,973
 22,779
 36,490
Accounts payable and accrued expenses(44,009) 46,043
 (32,010)
Accrued interest8,131
 (36,451) (2,048)
Deferred revenue73,593
 101,311
 55,336
Related party liabilities(1,991) (7,545) (1,542)
Other long-term liabilities12,290
 3,042
 152
Net cash provided by operating activities1,102,832
 806,765
 543,630
Cash flows from investing activities:     
Additions to property and equipment(173,617) (97,293) (137,429)
Purchases of restricted and other investments(1,719) (26) (826)
Acquisition of business, net of cash acquired(525,352) —
 —
Release of restricted investments—
 —
 250
Return of capital from investment in unconsolidated entity—
 —
 10,117
Net cash used in investing activities(700,688) (97,319) (127,888)
Cash flows from financing activities:     
Proceeds from exercise of stock options21,968
 123,369
 11,553
Taxes paid in lieu of shares issued for stock-based compensation(46,342) —
 —
Proceeds from long-term borrowings and revolving credit facility, net of costs3,156,063
 383,641
 —
Payment of premiums on redemption of debt(175,453) (100,615) (5,020)
Repayment of long-term borrowings and revolving credit facility(1,782,160) (915,824) (234,976)
Repayment of related party long-term borrowings(200,000) (126,000) —
Common stock repurchased and retired(1,762,360) —
 —
Dividends paid—
 (327,062) —
Net cash used in financing activities(788,284) (962,491) (228,443)
Net (decrease) increase in cash and cash equivalents(386,140) (253,045) 187,299
Cash and cash equivalents at beginning of period520,945
 773,990
 586,691
Cash and cash equivalents at end of period$134,805
 $520,945
 $773,990
See accompanying notes to the consolidated financial statements.

F-8
Table of Contents
SIRIUS XM HOLDINGS INC. AND COMPREHENSIVE INCOME (LOSS)SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                         
  Series A
  Series B
        Accumulated
        Total
 
  Convertible
  Convertible
        Other
  Additional
     Stockholders’
 
  Preferred Stock  Preferred Stock  Common Stock  Comprehensive
  Paid-in
  Accumulated
  Equity
 
  Shares  Amount  Shares  Amount  Shares  Amount  Loss  Capital  Deficit  (Deficit) 
 
(In thousands, except share and per share data)
Balance at January 1, 2008  —  $—   —  $—   1,471,143,570  $1,471  $—  $3,604,764  $(4,398,972) $(792,737)
Net loss  —   —   —   —   —   —   —   —   (5,316,910)  (5,316,910)
Other comprehensive loss:                                        
Unrealized loss onavailable-for-sale securities
  —   —   —   —   —   —   (1,040)  —   —   (1,040)
Foreign currency translation adjustment, net of tax of $137  —   —   —   —   —   —   (6,831)  —   —   (6,831)
                                         
Total comprehensive loss                                      (5,324,781)
Common stock issued to XM Satellite Radio Holdings stockholders  —   —   —   —   1,440,858,219   1,441   —   5,459,412   —   5,460,853 
Restricted common stock issued to XM Satellite Radio Holdings stockholders  —   —   —   —   29,739,201   30   —   66,598   —   66,628 
Issuance of common stock to employees and employee benefit plans, net of forfeitures  —   —   —   —   5,091,274   5   —   10,841   —   10,846 
Issuance of common stock under share borrow agreements  —   —   —   —   262,399,983   262   —   —   —   262 
Series A convertible preferred stock issued to XM Satellite Radio Holdings stockholders  24,808,959   25   —   —   —   —   —   47,070   —   47,095 
Compensation in connection with the issuance of stock-based awards  —   —   —   —   —   —   —   83,610   —   83,610 
Conversion of XM Satellite Radio Holdings vested stock-based awards  —   —   —   —   —   —   —   94,616   —   94,616 
Conversion of XM Satellite Radio Holdings outstanding warrants  —   —   —   —   —   —   —   115,784   —   115,784 
Exercise of options  —   —       —   117,442   —   —   208   —   208 
Exercise of warrants  —   —   —   —   899,836   1   —   (1)  —   — 
Exercise of XM Satellite Radio Holdings outstanding warrants  —   —   —   —   17,173,644   17   —   (17)  —   — 
Exchange of 3.5% Convertible Notes due 2008, including accrued interest  —   —   —   —   24,131,155   24��  —   33,478   —   33,502 
Exchange of 2.5% Convertible Notes due 2009, including accrued interest  —   —   —   —   400,211,513   401   —   208,712   —   209,113 
Restricted shares withheld for taxes upon vesting  —   —   —   —   —   —   —   (84)  —   (84)
Adoption of ASU2009-15 (Refer to Note 3)
  —   —   —   —   —   —   —   70,960   —   70,960 
                                         
Balance at December 31, 2008  24,808,959  $25   —  $—   3,651,765,837  $3,652  $(7,871) $9,795,951  $(9,715,882) $75,875 
Net loss  —   —   —   —   —   —   —   —   (352,038)  (352,038)
Other comprehensive loss:                                        
Unrealized gain onavailable-for-sale securities
  —   —   —   —   —   —   473   —   —   473 
Foreign currency translation adjustment, net of tax of $110  —   —   —   —   —   —   817   —   —   817 
                                         
Total comprehensive loss  —   —   —   —   —   —   —   —   —   (350,748)
Issuance of preferred stock — related party, net of issuance costs  —   —   12,500,000   13   —   —   —   410,179   (186,188)  224,004 
Issuance of common stock to employees and employee benefit plans, net of forfeitures  —   —   —   —   8,511,009   8   —   2,622   —   2,630 
Structuring fee on 10% Senior PIK Secured Notes due 2011  —   —   —   —   59,178,819   59   —   5,859   —   5,918 
Share-based payment expense  —   —   —   —   —   —   —   71,388   —   71,388 
Returned shares under share borrow agreements  —   —   —   —   (60,000,000)  (60)  —   60   —   — 
Issuance of restricted stock units in satisfaction of accrued compensation  —   —   —   —   83,803,422   84   —   31,207   —   31,291 
Exchange of 2.5% Convertible Notes due 2009, including accrued interest  —   —   —   —   139,400,000   139   —   35,025   —   35,164 
                                         
Balance at December 31, 2009  24,808,959  $25   12,500,000  $13   3,882,659,087  $3,882  $(6,581) $10,352,291  $(10,254,108) $95,522 


 For the Years Ended December 31,
(in thousands)2013 2012 2011
Supplemental Disclosure of Cash and Non-Cash Flow Information     
Cash paid during the period for:     
Interest, net of amounts capitalized$169,781
 $262,039
 $258,676
Income taxes paid2,783
 4,935
 —
Acquisition related costs2,902
 —
 —
Non-cash investing and financing activities:
 
 
Capital lease obligations incurred to acquire assets11,966
 12,781
 —
Conversion of Series B preferred stock to common stock1,293
 1,294
 —
Common stock issuance upon exercise of warrants—
 —
 7
Conversion of 7% Exchangeable Notes to common stock, net of debt issuance and deferred financing costs45,097
 —
 —
Performance incentive payments16,900
 —
 —
Goodwill reduced for the exercise and vesting of certain stock awards274
 19,491
 —
See accompanying notes to the consolidated financial statements.


F-6

F-9
Table of Contents
SIRIUS XM RADIO INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Sirius XM Holdings Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME (LOSS)

                                         
  Series A
  Convertible Perpetual
        Accumulated
        Total
 
  Convertible
  Preferred Stock,
        Other
  Additional
     Stockholders’
 
  Preferred Stock  Series B  Common Stock  Comprehensive
  Paid-in
  Accumulated
  Equity
 
  Shares  Amount  Shares  Amount  Shares  Amount  Loss  Capital  Deficit  (Deficit) 
 
(In thousands, except share and per share data)                        
                                         
Balance at December 31, 2009  24,808,959  $25   12,500,000  $13   3,882,659,087  $3,882  $(6,581) $10,352,291  $(10,254,108) $95,522 
                                         
Net income                                  43,055   43,055 
                                         
Other comprehensive income:                                        
                                         
Unrealized gain onavailable-for-sale securities
  —   —   —   —   —   —   469   —   —   469 
                                         
Foreign currency translation adjustment, net of tax of $63  —   —   —   —   —   —   251   —   —   251 
                                         
                                         
Total comprehensive income  —   —   —   —   ——   —   —   —   —   43,775 
                                         
Issuance of common stock to employees and employee benefit plans, net of forfeitures  —   —   —   —   6,175,089   6   —   5,265   —   5,271 
                                         
Share-based payment expense  —   —   —   —   —   —   —   52,229   —   52,229 
                                         
Exercise of options and vesting of restricted stock units  —   —   —   —   19,551,977   20   —   10,819   —   10,839 
                                         
Conversion of preferred stock to common stock  (24,808,959)  (25)  —   —   24,808,959   25   —   —   —   — 
                                         
                                         
Balance at December 31, 2010  —  $—   12,500,000  $13   3,933,195,112  $3,933  $(5,861) $10,420,604  $(10,211,053) $207,636 
                                         
 For the Years Ended December 31,
(in thousands, except per share data)2013 2012 2011
Revenue:     
Subscriber revenue$3,284,660
 $2,962,665
 $2,595,414
Advertising revenue89,288
 82,320
 73,672
Equipment revenue80,573
 73,456
 71,051
Other revenue344,574
 283,599
 274,387
Total revenue3,799,095
 3,402,040
 3,014,524
Operating expenses:
 
 
Cost of services:
 
 
Revenue share and royalties677,642
 551,012
 471,149
Programming and content290,323
 278,997
 281,234
Customer service and billing320,755
 294,980
 259,719
Satellite and transmission79,292
 72,615
 75,902
Cost of equipment26,478
 31,766
 33,095
Subscriber acquisition costs495,610
 474,697
 434,482
Sales and marketing291,024
 248,905
 222,773
Engineering, design and development57,969
 48,843
 53,435
General and administrative262,135
 261,905
 238,738
Depreciation and amortization253,314
 266,295
 267,880
Total operating expenses2,754,542
 2,530,015
 2,338,407
Income from operations1,044,553
 872,025
 676,117
Other income (expense):
 
 
Interest expense, net of amounts capitalized(204,671) (265,321) (304,938)
Loss on extinguishment of debt and credit facilities, net(190,577) (132,726) (7,206)
Interest and investment income6,976
 716
 73,970
Loss on fair value of debt and equity instruments(464,102) —
 —
Other income (loss)1,204
 (226) 3,252
Total other expense(851,170) (397,557) (234,922)
Income before income taxes193,383
 474,468
 441,195
Income tax (expense) benefit(259,877) 2,998,234
 (14,234)
Net (loss) income attributable to Sirius XM Radio Inc.'s sole stockholder$(66,494) $3,472,702
 $426,961
Realized loss on XM Canada investment foreign currency translation adjustment—
 —
 6,072
Foreign currency translation adjustment, net of tax(428) 49
 (140)
Total comprehensive (loss) income attributable to Sirius XM Radio Inc.'s sole stockholder$(66,922) $3,472,751
 $432,893

See accompanying notes to the consolidated financial statements.


F-7

F-10
Table of Contents
SIRIUS XM RADIO INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Sirius XM Holdings Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWSBALANCE SHEETS

             
  For the Years Ended December 31, 
  2010  2009  2008 
 
(In thousands)
            
Cash flows from operating activities:            
Net income (loss) $43,055  $(352,038) $(5,316,910)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Depreciation and amortization  273,691   309,450   203,752 
Impairment of goodwill  —   —   4,766,190 
Non-cash interest expense, net of amortization of premium  42,841   43,066   (2,689)
Provision for doubtful accounts  32,379   30,602   21,589 
Restructuring, impairments and related costs  66,731   26,964   — 
Amortization of deferred income related to equity method investment  (2,776)  (2,776)  (1,156)
Loss on extinguishment of debt and credit facilities, net  120,120   267,646   98,203 
Loss on investments, net  11,722   13,664   28,999 
Loss on disposal of assets  1,017   —   4,879 
Share-based payment expense  60,437   73,981   87,405 
Deferred income taxes  2,308   5,981   2,476 
Other non-cash purchase price adjustments  (250,727)  (202,054)  (68,330)
Other  —   —   1,643 
Changes in operating assets and liabilities:            
Accounts receivable  (39,236)  (42,158)  (32,121)
Receivables from distributors  (11,023)  (2,788)  14,401 
Inventory  (5,725)  8,269   8,291 
Related party assets  (9,803)  15,305   (22,249)
Prepaid expenses and other current assets  75,374   10,027   (19,953)
Other long-term assets  17,671   86,674   (5,490)
Accounts payable and accrued expenses  5,420   (46,645)  (83,037)
Accrued interest  (884)  2,429   23,081 
Deferred revenue  133,444   93,578   79,090 
Related party liabilities  (53,413)  50,172   28,890 
Other long-term liabilities  272   44,481   30,249 
             
Net cash provided by (used in) operating activities  512,895   433,830   (152,797)
             
Cash flows from investing activities:            
Additions to property and equipment  (311,868)  (248,511)  (130,551)
Sales of property and equipment  —   —   105 
Purchases of restricted and other investments  —   —   (3,000)
Acquisition of acquired entity cash  —   —   819,521 
Merger related costs  —   —   (23,519)
Sale of restricted and other investments  9,454   —   65,869 
             
Net cash (used in) provided by investing activities  (302,414)  (248,511)  728,425 
             
Cash flows from financing activities:            
Proceeds from exercise of warrants and stock options  10,839   —   471 
Preferred stock issuance, net of costs  —   (3,712)  — 
Long-term borrowings, net of costs  1,274,707   582,612   531,743 
Related party long-term borrowings, net of costs  196,118   362,593   — 
Payment of premiums on redemption of debt  (84,326)  (17,075)  (18,693)
Payments to noncontrolling interest  —   —   (61,880)
Repayment of long-term borrowings  (1,262,396)  (755,447)  (1,085,643)
Repayment of related party long-term borrowings  (142,221)  (351,247)  — 
             
Net cash used in financing activities  (7,279)  (182,276)  (634,002)
             
Net increase (decrease) in cash and cash equivalents  203,202   3,043   (58,374)
Cash and cash equivalents at beginning of period  383,489   380,446   438,820 
             
Cash and cash equivalents at end of period $586,691  $383,489  $380,446 
             
 As of December 31,
 2013 2012
(in thousands, except share and per share data)   
ASSETS   
Current assets:   
Cash and cash equivalents$134,805
 $520,945
Accounts receivable, net103,937
 106,142
Receivables from distributors88,975
 104,425
Inventory, net13,863
 25,337
Prepaid expenses110,530
 122,157
Related party current assets15,861
 13,167
Deferred tax asset937,598
 923,972
Other current assets20,160
 12,037
Total current assets1,425,729
 1,828,182
Property and equipment, net1,594,574
 1,571,922
Long-term restricted investments5,718
 3,999
Deferred financing fees, net12,604
 38,677
Intangible assets, net2,700,062
 2,519,610
Goodwill2,204,553
 1,815,365
Related party long-term assets30,164
 44,954
Long-term deferred tax asset868,057
 1,219,256
Other long-term assets10,035
 12,878
Total assets$8,851,496
 $9,054,843
LIABILITIES AND STOCKHOLDER EQUITY   
Current liabilities:   
Accounts payable and accrued expenses$578,332
 $587,652
Accrued interest42,085
 33,954
Current portion of deferred revenue1,586,611
 1,474,138
Current portion of deferred credit on executory contracts3,781
 207,854
Current maturities of long-term debt963,630
 4,234
Current maturities of long-term related party debt10,959
 —
Related party current liabilities4,618
 6,756
Total current liabilities3,190,016
 2,314,588
Deferred revenue149,026
 159,501
Deferred credit on executory contracts1,394
 5,175
Long-term debt3,093,821
 2,222,080
Long-term related party debt—
 208,906
Related party long-term liabilities16,337
 18,966
Other long-term liabilities99,556
 86,062
Total liabilities6,550,150
 5,015,278
Commitments and contingencies (Note 16)
 
Stockholder equity:
  
Convertible perpetual preferred stock, series B-1, par value $0.001 (liquidation preference of $0.001 per share); 0 and 50,000,000 authorized and 0 and 6,250,100 shares issued and outstanding at December 31, 2013 and 2012, respectively—
 6
Common stock, par value $0.001; 1,000 and 9,000,000,000 shares authorized and 1,000 and 5,262,440,085 shares issued and outstanding at December 31, 2013 and 2012, respectively—
 5,263
Accumulated other comprehensive (loss) income, net of tax(308) 120
Additional paid-in capital8,679,538
 10,345,566
Accumulated deficit(6,377,884) (6,311,390)
Total stockholder equity2,301,346
 4,039,565
Total liabilities and stockholder equity$8,851,496
 $9,054,843

See accompanying notes to the consolidated financial statements.


F-8

F-11
Table of Contents
SIRIUS XM RADIO INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Sirius XM Holdings Inc.)
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS  — (Continued)STOCKHOLDER EQUITY

             
  For the Years Ended December 31, 
  2010  2009  2008 
 
(In thousands)
            
Supplemental Disclosure of Cash and Non-Cash Flow Information            
Cash paid during the period for:            
Interest, net of amounts capitalized $241,160  $257,328  $137,542 
Non-cash investing and financing activities:            
Share-based payments in satisfaction of accrued compensation  —   31,291   8,729 
Common stock issued in exchange of 3.5% Convertible Notes due            
2008, including accrued interest  —   —   33,502 
Common stock issued in exchange of 2.5% Convertible Notes due            
2009, including accrued interest  —   18,000   209,113 
Structuring fee on 10% Senior PIK Secured Notes due 2011  —   5,918   — 
Preferred stock issued to Liberty Media  —   227,716   — 
Release of restricted investments  —   137,850   — 
Equity issued in the acquisition of XM  —   —   5,784,976 
In-orbit satellite performance incentives  21,450   14,905   — 
Sale-leaseback of equipment  5,305   —   — 
Conversion of Series A preferred stock to common stock  25   —   — 
 
Convertible Perpetual
Preferred Stock,
Series B-1
 Common Stock     Treasury Stock    
(in thousands, except share data)Shares Amount Shares Amount Accumulated Other Comprehensive Income (Loss) 
Additional
Paid-in
Capital
 Shares Amount 
Accumulated
Deficit
 
Total
Stockholder
Equity
Balance at January 1, 201112,500,000
 $13
 3,933,195,112
 $3,933
 $(5,861) $10,420,604
 —
 $—
 $(10,211,053) $207,636
Comprehensive income, net of tax—
 —
 —
 —
 5,932
 —
 —
 —
 426,961
 432,893
Issuance of common stock to employees and employee benefit plans, net of forfeitures—
 —
 1,882,801
 2
 —
 3,480
 —
 —
 —
 3,482
Share-based payment expense—
 —
 —
 —
 —
 48,581
 —
 —
 —
 48,581
Exercise of options and vesting of restricted stock units—
 —
 13,401,048
 13
 —
 11,540
 —
 —
 —
 11,553
Issuance of common stock upon exercise of warrants—
 —
 7,122,951
 7
 —
 (7) —
 —
 —
 —
Return of shares under share borrow agreements—
 —
 (202,399,983) (202) —
 202
 —
 —
 —
 —
Balance at December 31, 201112,500,000
 $13
 3,753,201,929
 $3,753
 $71
 $10,484,400
 —
 $—
 $(9,784,092) $704,145
Comprehensive income, net of tax—
 —
 —
 —
 49
  
 —
 —
 3,472,702
 3,472,751
Issuance of common stock to employees and employee benefit plans, net of forfeitures—
 —
 1,571,175
 2
 —
 3,521
 —
 —
 —
 3,523
Share-based payment expense—
 —
 —
 —
 —
 60,299
 —
 —
 —
 60,299
Exercise of options—
 —
 214,199,297
 214
 —
 125,695
 —
 —
 —
 125,909
Cash dividends paid on common shares ($0.05)—
 —
 —
 —
 —
 (262,387) —
 —
 —
 (262,387)
Cash dividends paid on preferred shares—
 —
 —
 —
 —
 (64,675) —
 —
 —
 (64,675)
Conversion of preferred stock to common stock on as-converted basis(6,249,900) (7) 1,293,467,684
 1,294
 —
 (1,287) —
 —
 —
 —
Balance at December 31, 20126,250,100
 $6
 5,262,440,085
 $5,263
 $120
 $10,345,566
 —
 $—
 $(6,311,390) $4,039,565
Comprehensive income, net of tax—
 —
 —
 —
 (428) —
 —
 —
 (66,494) (66,922)
Share-based payment expense—
 —
 —
 —
 —
 58,903
 —
 —
 —
 58,903
Exercise of options and vesting of restricted stock units—
 —
 29,157,786
 28
 —
 19,249
 —
 —
 —
 19,277
Minimum withholding taxes on net share settlement of stock-based compensation—
 —
 —
 —
 —
 (31,941) —
 —
 —
 (31,941)
Conversion of preferred stock to common stock(6,250,100) (6) 1,293,509,076
 1,293
 —
 (1,287) —
 —
 —
 —
Conversion of Exchangeable Notes to common stock—
 —
 27,687,850
 28
 —
 45,069
 —
 —
 —
 45,097
Common stock repurchased—
 —
 —
 —
 —
 —
 520,257,866
 (1,764,969) —
 (1,764,969)
Common stock retired—
 —
 (520,257,866) (520) —
 (1,764,449) (520,257,866) 1,764,969
 —
 —
Transfer of common stock to Sirius XM Holdings Inc.—
 —
 (6,092,536,931) (6,092) —
 6,092
 —
 —
 —
 —
Transfer of forward contract to Sirius XM Holdings Inc.—

—

—

—

—

(4,964)
—

—

—

(4,964)
Initial value of forward contract—

—

—

—

—

7,300

—

—

—

7,300
Common stock issued by Sirius XM Radio Inc. to Sirius XM Holdings Inc.—
 —
 1,000
 —
 —
 —
 —
 —
 —
 —
Balance at December 31, 2013—
 $—
 1,000
 $—
 $(308) $8,679,538
 —
 $—
 $(6,377,884) $2,301,346
See accompanying notes to the consolidated financial statements.


F-9

F-12
Table of Contents
SIRIUS XM RADIO INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Sirius XM Holdings Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

 For the Years Ended December 31,
(in thousands)2013
2012
2011
Cash flows from operating activities:     
Net income$(66,494) $3,472,702
 $426,961
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization253,314
 266,295
 267,880
Non-cash interest expense, net of amortization of premium21,698
 35,924
 39,515
Provision for doubtful accounts39,016
 34,548
 33,164
Amortization of deferred income related to equity method investment(2,776) (2,776) (2,776)
Loss on extinguishment of debt and credit facilities, net190,577
 132,726
 7,206
Gain on merger of unconsolidated entities—
 —
 (75,768)
(Gain) loss on unconsolidated entity investments, net(5,865) 420
 6,520
Dividend received from unconsolidated entity investment22,065
 1,185
 —
Loss on disposal of assets351
 657
 269
Loss on fair value of debt and equity instruments464,102
 —
 —
Share-based payment expense58,903
 63,822
 53,190
Deferred income taxes259,787
 (3,001,818) 8,264
Other non-cash purchase price adjustments(207,854) (289,050) (275,338)
Distribution from investment in unconsolidated entity—
 —
 4,849
Changes in operating assets and liabilities:     
Accounts receivable(36,189) (38,985) (13,211)
Receivables from distributors20,944
 (19,608) (17,241)
Inventory11,474
 11,374
 (14,793)
Related party assets(2,246) 9,523
 30,036
Prepaid expenses and other current assets16,788
 647
 8,525
Other long-term assets2,973
 22,779
 36,490
Accounts payable and accrued expenses(44,009) 46,043
 (32,010)
Accrued interest8,131
 (36,451) (2,048)
Deferred revenue73,593
 101,311
 55,336
Related party liabilities(1,991) (7,545) (1,542)
Other long-term liabilities12,290
 3,042
 152
Net cash provided by operating activities1,088,582
 806,765
 543,630
Cash flows from investing activities:     
Additions to property and equipment(173,617) (97,293) (137,429)
Purchases of restricted and other investments(1,719) (26) (826)
Acquisition of business, net of cash acquired(525,352) —
 —
Release of restricted investments—
 —
 250
Return of capital from investment in unconsolidated entity—
 —
 10,117
Net cash used in investing activities(700,688) (97,319) (127,888)
Cash flows from financing activities:     
Proceeds from exercise of stock options21,817
 123,369
 11,553
Taxes paid in lieu of shares issued for stock-based compensation(31,941) —
 —
Proceeds from long-term borrowings and revolving credit facility, net of costs3,156,063
 383,641
 —
Payment of premiums on redemption of debt(175,453) (100,615) (5,020)
Repayment of long-term borrowings and revolving credit facility(1,782,160) (915,824) (234,976)
Repayment of related party long-term borrowings(200,000) (126,000) —
Common stock repurchased and retired(1,762,360) —
 —
Dividends paid—
 (327,062) —
Net cash used in financing activities(774,034) (962,491) (228,443)
Net (decrease) increase in cash and cash equivalents(386,140) (253,045) 187,299
Cash and cash equivalents at beginning of period520,945
 773,990
 586,691
Cash and cash equivalents at end of period$134,805
 $520,945
 $773,990
See accompanying notes to the consolidated financial statements.

F-13
Table of Contents
SIRIUS XM RADIO INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Sirius XM Holdings Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)


 For the Years Ended December 31,
(in thousands)2013 2012 2011
Supplemental Disclosure of Cash and Non-Cash Flow Information     
Cash paid during the period for:     
Interest, net of amounts capitalized$169,781
 $262,039
 $258,676
Income taxes paid2,783
 4,935
 —
Acquisition related costs2,902
 —
 —
Non-cash investing and financing activities:
 
 
Capital lease obligations incurred to acquire assets11,966
 12,781
 —
Conversion of Series B preferred stock to common stock1,293
 1,294
 —
Common stock issuance upon exercise of warrants—
 —
 7
Conversion of 7% Exchangeable Notes to common stock, net of debt issuance and deferred financing costs45,097
 —
 —
Performance incentive payments16,900
 —
 —
Goodwill reduced for the exercise and vesting of certain stock awards274
 19,491
 —
See accompanying notes to the consolidated financial statements.


F-14
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise stated)


(1)Business & Basis of Presentation

These are the notes to the financial statements of Sirius XM Holdings Inc. (“Holdings”) and Sirius XM Radio Inc. (“Sirius XM”). The terms “we,” “us,” “our,” and “our company” as used herein and unless otherwise stated or indicated by context, refer to Sirius XM Radio Inc. and its subsidiaries prior to the corporate reorganization described below and to Sirius XM Holdings Inc. and its subsidiaries after such corporate reorganization.
Effective November 15, 2013, we completed a corporate reorganization. As part of the reorganization, Holdings replaced Sirius XM as our publicly held corporation and Sirius XM became a wholly-owned subsidiary of Holdings. Holdings was incorporated in the State of Delaware on May 21, 2013. Holdings has no operations independent of its subsidiary Sirius XM.
Business
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 features such as SiriusXM On Demand and MySXM, over the Internet, including through applications for Apple, Blackberrymobile devices.

We have agreements with every major automaker (“OEMs”) to offer satellite radios in their vehicles from which we acquire a majority of our subscribers. We also acquire subscribers through marketing campaigns to owners of factory-installed satellite radios that are not currently subscribing to our services. Additionally, we distribute our satellite radios through retail locations nationwide and Android-powered mobile devices.through our website. Satellite radio services are also offered to customers of certain daily rental car companies.

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-termlonger term subscription plans as well as discounts for multiple subscriptions on each platform.subscriptions. We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic, data and Backseat TV services.
Our satellite radios are primarily distributed through automakers (“OEMs”); nationwide throughautomakers; retail locations;locations nationwide; and through our websites. We have agreements with every major automaker to offer satellite radios as factory or dealer-installed equipment in their vehicles.website. Satellite radiosradio services are also offered to customers of certain rental car companies.
(2)  Principles of Consolidation and Basis of Presentation

PrinciplesIn certain cases, automakers and dealers include a subscription to our radio services in the sale or lease price of Consolidationnew or previously owned vehicles. The length of these trial subscriptions varies but is typically three to twelve months. We receive subscription payments for these trials from certain automakers. We also reimburse various automakers for certain costs associated with satellite radios installed in new vehicles.

We are also a leader in providing connected vehicle applications and services. Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle owners while providing marketing and operational benefits to automakers and their dealers. Subscribers to our connected vehicle services are not included in our subscriber count.

Liberty Media Corporation beneficially owns, 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 Charter Communications, Live Nation Entertainment and Barnes & Noble, and minority equity investments in Time Warner Inc., Time Warner Cable, and Viacom.

F-15
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

Recent Development
On January 3, 2014, Holdings' Board of Directors received a non-binding letter from Liberty Media proposing a transaction pursuant to which all outstanding shares of common stock of Holdings not owned by Liberty Media would be converted into the right to receive 0.0760 of a new share of Liberty Series C common stock, which would have no voting rights. Liberty Media indicated that immediately prior to such conversion, Liberty Media intends to distribute, on a 2 to 1 basis, shares of such Series C common stock to all holders of record of Liberty Media's Series A and B common stock. Upon the completion of the proposed transaction, Liberty Media indicated that it expects that Holdings' public stockholders would own approximately 39% of Liberty Media's then-outstanding common stock.

Holdings' Board of Directors has formed a Special Committee of independent directors to consider Liberty Media’s proposal. The Board of Directors has selected Joan L. Amble, James P. Holden and Eddy W. Hartenstein to serve on the Special Committee. The Special Committee is chaired by Mr. Hartenstein.

The Special Committee has retained Evercore Group L.L.C. to act as its financial advisor and Weil, Gotshal & Manges LLP to act as its legal counsel to assist and advise it in connection with its evaluation of Liberty Media’s proposal.

Liberty Media’s proposal noted that the transaction will be conditioned on the approval of both the Special Committee and a majority of the public stockholders of Holdings, other than Liberty Media. Liberty Media also noted that the approval by the Liberty Media stockholders of the issuance of the Series C common shares in the proposed transaction would also be required under applicable Nasdaq Stock Market requirements.

The letter provides that no legally binding obligation with respect to any transaction exists unless and until mutually acceptable definitive documentation is executed and delivered with respect thereto.  There can be no assurance that the transaction proposed by Liberty Media or any related transaction will be completed or, if completed, will have any specified terms, including with respect to pricing or timing.
Basis of Presentation
Our financial statements include the consolidated accounts for Holdings and subsidiaries and the accompanying consolidated financial statements of Sirius XM Radio Inc. and subsidiaries, whose operating results and financial position are consolidated into Holdings. The consolidated balance sheets and statements of comprehensive income for Holdings are essentially identical to the consolidated balance sheets and consolidated statements of comprehensive income for Sirius XM, with the following exceptions:
Besides the shares which settled in November, the fair value of the share repurchase agreement with Liberty Media is recorded in Holdings' consolidated balance sheet, with changes in fair value recorded in Holdings' statements of comprehensive income.
The additional fair value in excess of the carrying amount associated with the conversion feature for the 7% Exchangeable Senior Subordinated Notes due 2014 is recorded in Sirius XM's consolidated balance sheet, with changes in fair value recorded in Sirius XM's statements of comprehensive income. This is eliminated in Holdings' consolidated balance sheets and statements of comprehensive income.
As a result of our corporate reorganization effective November 15, 2013, all of the outstanding shares of Sirius XM's common stock were converted, on a share for share basis, into identical shares of common stock of Holdings.

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany transactions have been eliminated in consolidation.
Basis of Presentation
InThe combined notes to the opinion of management, all normal recurring adjustments necessary for a fair presentation of our consolidated financial statements as of December 31, 2010relate to Holdings and 2009, and for the years ended December 31, 2010, 2009 and 2008 have been made.
Although the effective date of the Merger was July 28, 2008, due to the immateriality of the results of operations for the period between July 28 and July 31, 2008, we have accounted for the Merger as if it had occurred on July 31, 2008 with the results and balances of XM Holdings included as of July 31, 2008. We accounted for the Merger as an acquisition of XM Holdings under the purchase method of accounting for business combinations. The acquisition cost approximated $5,836,363, including transaction costs, and was allocated to the underlying net assets acquired, based on the respective estimated fair values. This allocation included intangible assets, such as FCC licenses, customer relationships, license agreements and trademarks. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. Because the Merger was consummated on July 28, 2008, the accompanying financial statements and notes for periods prior to that date reflect only the financial results of Sirius Satellite Radio Inc., as predecessor to Sirius XM, Radio Inc., andwhich, except as noted, are therefore not comparable to our financial results for 2010, 2009 and the fourth quarter of 2008.
We have evaluated events subsequent to the balance sheet date and prior to the filing of this Annual Report onForm 10-K for the year ended December 31, 2010 and have determined no events have occurred that would require adjustment to our consolidated financial statements. For a discussion of subsequent events refer to Note 16.
Reclassifications
essentially identical. Certain amountsnumbers in our prior period consolidated financial statements have been reclassified to conform to our current period presentation.


F-10

SIRIUS All significant intercompany transactions and balances between Holdings and Sirius XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(3)  Summary of Significant Accounting Policies
Useand their respective consolidated subsidiaries are eliminated in both sets of Estimates
In presentingconsolidated financial statements. Intercompany transactions between Holdings and Sirius XM do not eliminate in the Sirius XM consolidated financial statements, but do eliminate in the Holdings consolidated financial statements.

The preparation of financial statements in conformity with GAAP requires management makesto make estimates and assumptions that affect the reported amounts and accompanying notes. Additionally, estimates were used when recording the fair values of assets acquired and liabilities assumedreported in the Merger.financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates.
Significant estimates inherent in the preparation of the accompanying consolidated financial statements include revenue recognition, asset impairment, usefuldepreciable lives of our satellites, share-based payment expense, and valuation allowances against deferred tax assets. Economic conditions


F-16
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

(2)Acquisitions

On November 4, 2013, we purchased all of the United States could have a material impact on our accounting estimates.outstanding shares of the capital stock of the connected vehicle business of Agero, Inc. ("Agero") for $525,352, net of acquired cash of $1,966. Agero's connected vehicle business provides services to several automakers, including Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and Toyota. The final working capital calculation associated with this transaction is still in negotiation.
Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) updated Accounting Standards Codification (“ASC”) 470 to incorporate ASU2009-15,Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing, intotable below summarizes the ASC. This standard requires share-lending arrangements in an entity’s own shares to be initially measured at fair value of the assets acquired and treated as an issuance cost, excluded from basic and diluted earnings per share, and requires an entity to recognize a charge to earnings if it becomes probable the counterparty will default on the arrangement. This guidance was adoptedliabilities assumed as of January 1, 2010 on a retrospective basis, as required,the acquisition date:
Acquired Assets: 
Cash and cash equivalents$1,966
Other current assets8,669
Property and equipment26,251
Intangible assets subject to amortization230,663
Goodwill389,462
Other assets2,695
Total assets$659,706


Assumed Liabilities:

Deferred revenue$(28,404)
Deferred income tax liabilities, net(78,127)
Other liabilities(25,857)
Total liabilities$(132,388)
Total consideration$527,318

The transaction was accounted for all arrangements outstandingusing the acquisition method of accounting. The initial purchase price allocation is subject to change upon receipt of the final valuation analysis for the connected vehicle business of Agero. The fair value assessed for the majority of the assets acquired and liabilities assumed equaled their carrying value. The excess purchase price over identifiable net tangible assets of $389,462 has been recorded to Goodwill in our consolidated balance sheets as of that date. The following table reflects the retrospective adoption of ASU2009-15 on our December 31, 20092013. A total of $230,663 has been allocated to identifiable intangible assets subject to amortization and relates to the assessed fair value of the acquired OEM relationships and proprietary software and is being amortized over the estimated weighted average useful lives of 15 and 10 years, respectively.

We recognized acquisition related costs of $2,902 that was expensed in General and administrative expenses in our consolidated balance sheet:
             
  As Originally
  Retrospective
  As Currently
 
  Reported  Adjustments  Reported 
 
Balance Sheet Line Item:            
Deferred financing fees, net $8,902  $57,505  $66,407 
Related party long-term assets, net of current portion  110,594   1,173   111,767 
Long-term debt, net of current portion  2,799,127   575   2,799,702 
Long-term related party debt, net of current portion  263,566   13   263,579 
Additional paid-in capital  10,281,331   70,960   10,352,291 
Accumulated deficit  (10,241,238)  (12,870)  (10,254,108)
The following table reflects the adoptionstatements of ASU2009-15 on our statement of operations for the years ended December 31, 2009 and 2008:
                         
  For the Year Ended
  For the Year Ended
 
  December 31, 2009  December 31, 2008 
  As Originally
  Retrospective
  As Currently
  As Originally
  Retrospective
  As Currently
 
  Reported  Adjustments  Reported  Reported  Adjustments  Reported 
 
Statement of Operations Line Item:                        
Interest expense, net of amounts capitalized $(306,420) $(9,248) $(315,668) $(144,833) $(3,622) $(148,455)
Net loss attributable to common stockholders  (528,978)  (9,248)  (538,226)  (5,313,288)  (3,622)  (5,316,910)
Forcomprehensive income during the year ended December 31, 2010, we recorded $10,095, in interest expense2013. Pro forma financial information related to this acquisition has not been provided as it is not material to our consolidated results of operations.

(3)Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds, certificates of deposit, in-transit credit card receipts and highly liquid investments purchased with an original maturity of three months or less.
Equity Method Investments
We hold equity method investments in Sirius XM Canada and M-Way Solutions GmbH.
Investments in which we have the ability to exercise significant influence but not control are accounted for pursuant to the equity method of accounting. We recognize our proportionate share of earnings or losses of our affiliates as they occur as a component of Other income (expense) in our consolidated statements of comprehensive income on a one month lag.
The difference between our investment and our share of the fair value of the underlying net assets of our affiliates is first allocated to either finite-lived intangibles or indefinite-lived intangibles and the balance is attributed to goodwill. We follow ASC 350, Intangibles - Goodwill and Other, which requires that equity method finite-lived intangibles be amortized over their estimated useful life while indefinite-lived intangibles and goodwill are not amortized. The amortization of the costs associated with the share-lending arrangement and other issuance costs. Asequity

F-17
Table of December 31, 2010, the unamortized balance of the debt issuance costs was $51,243, with $50,218 recorded in deferred financing fees, net,


F-11

ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

method finite-lived intangible assets is recorded in Interest and investment income in our consolidated statements of comprehensive income. We periodically evaluate our equity method investments to determine if there has been an other than temporary decline below carrying value. Equity method finite-lived intangibles, indefinite-lived intangibles and goodwill are included in the carrying amount of the investment.
Property and Equipment
Property and equipment, including satellites, are stated at cost, less accumulated depreciation. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation is calculated using the straight-line method over the following estimated useful life of the asset:
 
Satellite system2 - 15 years
Terrestrial repeater network5 - 15 years
Broadcast studio equipment3 - 15 years
Capitalized software and hardware3 - 7 years
Satellite telemetry, tracking and control facilities3 - 15 years
Furniture, fixtures, equipment and other2 - 7 years
Building20 or 30 years
Leasehold improvementsLesser of useful life or remaining lease term

We review long-lived assets, such as property and $1,025 recordedequipment, and purchased intangibles subject to amortization for impairment whenever events or changes in long-term related party assets. Ascircumstances indicate the carrying amount may not be recoverable. Recoverability of December 31, 2010assets to be held and 2009,used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. We did not record any impairments in 2013, 2012 or 2011.
Goodwill and Other Intangible Assets
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 during the remaining 202,400,000 loaned sharesfourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. Step one of the impairment assessment compares the fair value 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, an impairment loss will be recorded by the amount the carrying value exceeds the implied fair value. We did not record any impairments in 2013, 2012 or 2011.

The impairment test for other intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying value.  This test is performed during the fourth quarter of each year, and an assessment is performed at other times if events or circumstances indicate it is more likely than not that the asset is impaired. Our indefinite life intangibles include our FCC licenses and XM trademark. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, established an option to first perform a qualitative assessment to determine whether it is more likely than not that an asset is 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 quantitative impairment test is not required. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. We completed qualitative assessments during the fourth quarter of 2013 and 2012 and no impairments were recorded. We used independent appraisals in 2011 to determine the fair value of our FCC licenses and trademark using the Income and Relief from Royalty approaches, respectively, and no impairment was approximately $329,912recorded.

Other intangible assets with finite lives consists primarily of customer relationships, OEM relationships and $121,440, respectively.proprietary software acquired in business combinations, licensing agreements, and certain information technology related costs. These assets are amortized over their respective estimated useful lives to their estimated residual values and reviewed for

F-18
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

impairment under the provisions of ASC 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. No impairment was recorded to our intangible assets with finite lives in 2013, 2012 or 2011.
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 withfees, daily rental fleet programs;revenue and non-refundable activation and other fees; and the effects of rebates.fees. Revenue is recognized as it is realized or realizable and earned.
We recognize subscription fees as our services are provided. PrepaidAt the time of sale, vehicle owners purchasing or leasing a vehicle with a subscription fees are recorded as deferred revenueto our service typically receive between a three and amortized to revenue ratably over the term of the applicable subscription plan.
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.
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 Advertisingadvertising revenue. We pay certain third parties a percentage of Advertisingadvertising 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 are 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.
ASC 605,Revenue Recognition,provides guidance on how and when to recognize revenues for arrangements that may involve the delivery or performance of multiple products, servicesand/or rights to use assets.assets, such as in our bundled subscription plans. Revenue arrangements with multiple deliverables are required to be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Arrangement considerationConsideration must be allocated amongat the separate unitsinception of accountingthe arrangement to all deliverables based on their relative fair values.selling price, which has been determined using vendor specific objective evidence of the selling price to self-pay customers.
Revenue Share
We share a portion of our subscription revenues earned from subscribers with certain automakers. The terms of the revenue share agreements vary with each automaker, but are typically based upon the earned audio revenue as reported or gross billed audio revenue. Revenue share is recorded as an expense in our consolidated statements of comprehensive income and not as a reduction to revenue.
Programming Costs
Programming costs which are for a specified number of events are amortized on anevent-by-event basis; programming costs which are for a specified season or period are amortized over the season or period on a straight-


F-12

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
linestraight-line basis. We allocate a portion of certain programming costs which are related to sponsorship and marketing activities to salesSales and marketing expensesexpense on a straight-line basis over the term of the agreement.
Advertising Costs
Media is expensed when aired and advertising production costs are expensed as incurred. Market development funds consist of fixed and variable payments to reimburse retailers for the cost of advertising and other product awareness activities. Fixed market development funds are expensed over the periods specified in the applicable agreement; variable costs are expensed when the media is aired and production costs are expensed as incurred. During the years ended December 31, 2010, 20092013, 2012 and 2008,2011, we recorded advertising costs of $110,050, $128,784$178,364, $139,830 and $109,253,$116,694, respectively. These costs are reflected in Sales and marketing expense in our consolidated statements of operations.comprehensive income.

F-19
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock-Based Compensation(Dollar amounts in thousands, unless otherwise stated)

Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs incurred to acquire new subscribers and include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include a satellite radio and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain radios; commissions paid to automakers as incentives to purchase, install and activate radios; product warranty obligations; freight; and provisions for inventory allowance. Subscriber acquisition costs do not include advertising, loyalty payments to distributors and dealers of radios and revenue share payments to automakers and retailers of radios.
Subsidies paid to radio manufacturers and automakers are expensed upon installation, shipment, receipt of product or activation and are included in Subscriber acquisition costs because we are responsible for providing the service to the customers. Commissions paid to retailers and automakers are expensed upon either the sale or activation of radios. Chip sets that are shipped to radio manufacturers and held on consignment are recorded as inventory and expensed as Subscriber acquisition costs when placed into production by radio manufacturers. Costs for chip sets not held on consignment are expensed as Subscriber acquisition costs when the automaker confirms receipt.
We record product warranty obligations in accordance with ASC 460, Guarantees, which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. We warrant that certain products sold through our retail and direct to consumer distribution channels will perform in all material respects in accordance with specifications in effect at the time of the purchase of the products by the customer. The product warranty period on our products is 90 days from the purchase date for repair or replacement of components and/or products that contain defects of material or workmanship. We record a liability for costs that we expect to incur under our warranty obligations when the product is shipped from the manufacturer. Factors affecting the warranty liability include the number of units sold, historical experience, anticipated rates of claims and costs per claim. We periodically assess the adequacy of our warranty liability based on changes in these factors.
Research & Development Costs
Research and development costs are expensed as incurred and primarily include the cost of new product development, chip set design, software development and engineering. During the years ended December 31, 2013, 2012 and 2011, we recorded research and development costs of $50,564, $42,605 and $48,574, respectively. These costs are reported as a component of Engineering, design and development expense in our consolidated statements of comprehensive income.
Share-Based Compensation
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-vestedrestricted stock awards and units using the fair market value of the restricted shares of common stock on the day the award is granted.
Fair value as determined using the Black-Scholes-Merton model varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates. We estimateIn 2013, 2012 and 2011, we estimated 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 theover-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 awards and restricted stock units.
Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs incurred to acquire new subscribers and include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include a satellite radio and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain radios; commissions paid to retailers and automakers as incentives to purchase, install and activate radios; product warranty obligations; and provisions for inventory allowance. Subscriber acquisition costs do not include advertising, loyalty payments to distributors and dealers of radios and revenue share payments to automakers and retailers of radios.


F-13

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Subsidies paid to radio manufacturers and automakers are expensed upon installation, shipment, receipt of product or activation. Commissions paid to retailers and automakers are expensed upon either the sale or activation of radios. Chip sets that are shipped to radio manufacturers and held on consignment are recorded as inventory and expensed as Subscriber acquisition costs when placed into production by radio manufacturers. Costs for chip sets not held on consignment are expensed as Subscriber acquisition costs when the automaker confirms receipt.
We record product warranty obligations in accordance with ASC 460,Guarantees, which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. We warrant that certain products sold through our retail and direct to consumer distribution channels will perform in all material respects in accordance with specifications in effect at the time of the purchase of the products by the customer. The product warranty period on our products is 90 days from the purchase date for repair or replacement of componentsand/or products that contain defects of material or workmanship. We record a liability for costs that we expect to incur under our warranty obligations when the product is shipped from the manufacturer. Factors affecting the warranty liability include the number of units sold and historical and anticipated rates of claims and costs per claim. We periodically assess the adequacy of our warranty liability based on changes in these factors.
Research & Development Costs
Research and development costs are expensed as incurred and primarily include the cost of new product development, chip set design, software development and engineering. During the years ended December 31, 2010, 2009 and 2008, we recorded research and development costs of $40,043, $38,852 and $41,362, respectively. These costs are reported as a component of Engineering, design and development expense in our consolidated statements of operations.
Income 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

F-20
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

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.
As of December 31, 2013 and 2012, we maintained a valuation allowance of $7,831 and $9,835, respectively, relating to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations and acquired net operating losses that we are not more likely than not going to be able to utilize.
ASC 740Income Taxes,requires a company to first determine whether it is more-likely-than-notmore likely than not that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-notmore likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to uncertain tax positions in incomeIncome tax expense, net of amounts capitalized,(expense) benefit in our consolidated statementstatements of operations.
comprehensive income.
We report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific revenue-producing transaction between a seller and a customer in our consolidated statements of operations.comprehensive income.
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. As of December 31, 2013 and 2012, 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. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for input into valuation techniques as follows:

i.Level 1 input - unadjusted quoted prices in active markets for identical instrument;
ii.Level 2 input - observable market data for the same or similar instrument but not Level 1, including quoted prices for identical or similar assets or liabilities in markets that are active or not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
iii.Level 3 input - unobservable inputs developed using management's assumptions about the inputs used for pricing the asset or liability.
Level 2 inputs were utilized to fair value our 7% Exchangeable Senior Subordinated Notes due 2014 by using a binomial lattice model with inputs derived from observable market data. As of December 31, 2013, $466,815 was recorded to Sirius XM's consolidated balance sheet in Current maturities of long-term debt for the fair value of our 7% Exchangeable Senior Subordinated Notes due 2014 in excess of the carrying amount, as the notes are exchangeable into shares of Holdings' common stock. Changes in fair value are recorded in Loss on fair value of debt and equity instruments within Sirius XM's consolidated statements of comprehensive income. We recognized $466,815 in Loss on fair value of debt and equity instruments during the year endedDecember 31, 2013. The additional fair value in excess of the carrying amount of this instrument is eliminated in Holdings' consolidated balance sheets and statements of comprehensive income.
We used Level 2 observable inputs, including the U.S. spot LIBOR curve and other available market data, to fair value the derivative associated with the share repurchase agreement with Liberty Media. The fair value of the derivative associated with the share repurchase agreement with Liberty Media was $15,702 as of December 31, 2013 and is recorded in Holdings' consolidated balance sheet in Related party current liabilities, with changes in fair value recorded to Holdings' statements of comprehensive income. For a further discussion of this derivative, refer to Note 14.
We used Level 3 inputs to fair value the 8% convertible unsecured subordinated debentures issued by Sirius XM Canada. For a further discussion of this derivative, refer to Note 11.
Investments are periodically reviewed for impairment and an impairment is recorded whenever declines in fair value below carrying value are determined to be other than temporary. In making this determination, we consider, among other factors, the severity and duration of the decline as well as the likelihood of a recovery within a reasonable timeframe.

F-21
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)


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, 2013 and 2012, the carrying value of our debt at Holdings' was $3,601,595 and $2,435,220, respectively, and the fair value approximated $4,066,755 and $3,055,076, respectively. This excludes the additional fair value of our 7% Exchangeable Senior Subordinated Notes due 2014 recorded in Sirius XM's consolidated balance sheet as discussed above. The carrying value of our investment in Sirius XM Canada was $26,972 and $37,983 as of December 31, 2013 and 2012, respectively; the fair value approximated $432,200 and $290,900 as of December 31, 2013 and 2012, respectively.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss of $308 at December 31, 2013 was primarily comprised of the cumulative foreign currency translation adjustments related to our interest in Sirius XM Canada. During the years endedDecember 31, 2013, 2012 and 2011 we recorded a foreign currency translation adjustment of $(428), $49 and $(140) which is recorded net of taxes of $200, $48 and $11, respectively. In addition, during the year ended December 31, 2011, we recorded a loss on our XM Canada investment from the Canada Merger due to a foreign currency translation adjustment of $6,072.
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This standard was effective for interim and annual periods beginning after December 15, 2012 and is to be applied on a prospective basis. We adopted ASU 2013-02 and will disclose significant amounts reclassified out of accumulated other comprehensive income as such transactions arise. ASU 2013-02 affects financial statement presentation only and has no impact on our results of operations or consolidated financial statements.

(4)Earnings per Share

Holdings
We utilize the two-class method in calculating basic net income per Share (“EPS”)common share, as our Series B Preferred Stock was considered to be participating securities through January 18, 2013. On January 18, 2013, Liberty Media converted its remaining
6,250,100 outstanding shares of Series B Preferred Stock into 1,293,509,076 shares of common stock. Basic net income (loss) per common share is calculated usingby dividing the income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income (loss) per common shareadjusts the weighted average number of common shares outstanding for the potential dilution that could occur if common stock equivalents (convertible debt, and preferred stock, warrants, stock options, restricted stock awards and restricted stock units) were


F-14

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
exercised or converted into common stock, calculated using the treasury stock method. For the year ended December 31, 2010, common

Common stock equivalents of approximately 689,922,000365,177,000, 147,125,000 and 419,752,000 for the years endedDecember 31, 2013, 2012 and 2011, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive. Due to the net loss

F-22
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

 For the Years Ended December 31,
(in thousands, except per share data)2013 2012 2011
Numerator:     
Net income$377,215
 $3,472,702
  $426,961
Less:     
Allocation of undistributed income to Series B Preferred Stock(3,825) (1,084,895) (174,449)
Dividends paid to preferred stockholders—
 (64,675) —
Net income available to common stockholders for basic net income per common share$373,390
 $2,323,132
 $252,512
Add back:  

 

Allocation of undistributed income to Series B Preferred Stock3,825
 1,084,895
 174,449
Dividends paid to preferred stockholders—
 64,675
 —
Effect of interest on assumed conversions of convertible debt—
 38,500
 —
Net income available to common stockholders for diluted net income per common share$377,215
 $3,511,202
 $426,961
Denominator:  

 

Weighted average common shares outstanding for basic net income per common share6,227,646
 4,209,073
  3,744,606
Weighted average impact of assumed Series B Preferred Stock conversion63,789
 2,215,900
 2,586,977
Weighted average impact of assumed convertible debt—
 298,725
 —
Weighted average impact of other dilutive equity instruments93,356
 150,088
  169,239
Weighted average shares for diluted net income per common share6,384,791
 6,873,786
  6,500,822
Net income per common share:     
Basic$0.06
 $0.55
  $0.07
Diluted$0.06
 $0.51
  $0.07

Sirius XM
Net income per share for the years ended December 31, 2009 and 2008, common stock equivalentsSirius XM is not presented since Sirius XM is a wholly-owned subsidiary of approximately 3,381,905,000 and 787,000,000, respectively, were excluded from the calculation of diluted net loss per common share as the effect would have been anti-dilutive.Holdings.

             
  Years Ended December 31, 
(In thousands, except per share data) 2010  2009  2008 
 
Net income (loss) $43,055  $(352,038) $(5,316,910)
Preferred stock beneficial conversion feature  —   (186,188)  — 
             
Net income (loss) per common share: $43,055  $(538,226) $(5,316,910)
             
Average common shares outstanding-basic  3,693,259   3,585,864   2,169,489 
Dilutive effect of equity awards  2,697,812   —   — 
             
Average common shares outstanding-diluted  6,391,071   3,585,864   2,169,489 
             
Net income (loss) per common share            
Basic $0.01  $(0.15) $(2.45)
             
Diluted $0.01  $(0.15) $(2.45)
             
(5)Accounts Receivable, net
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds, certificates of deposit, in-transit credit card receipts and highly liquid investments with an original maturity of three months or less when purchased. Cash and cash equivalents are stated at fair market value.
Accounts Receivable

Accounts receivable, net, are stated at amounts due from customers net of an allowance for doubtful accounts. Our allowance for doubtful accounts considersis based upon our assessment of various factors. We consider historical experience, the age of amounts due,the receivable balances, current economic conditions and other factors that may affect the counterparty’s ability to pay. Bad debt expense is included in Customer service and billing expense in our consolidated statements of comprehensive income.

Accounts receivable, net, consists of the following:
         
  December 31,
  December 31,
 
  2010  2009 
 
Gross accounts receivable $131,880  $122,247 
Allowance for doubtful accounts  (10,222)  (8,667)
         
Total accounts receivable, net $121,658  $113,580 
         
 December 31,
2013		 December 31,
2012
Gross accounts receivable$113,015
 $117,853
Allowance for doubtful accounts(9,078) (11,711)
Total accounts receivable, net$103,937
 $106,142


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Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

Receivables from distributors include billed and unbilled amounts due from OEMs for radio services included in the sale or lease price of vehicles, as well as billed amounts due from retailers. We have not established an allowance for doubtful accounts for our receivables from distributors as we have historically not experienced any significant collection issues with OEMs. Receivables from distributors consist of the following:
         
  December 31,
  December 31,
 
  2010  2009 
 
Billed $30,456  $25,207 
Unbilled  37,120   23,531 
         
Total $67,576  $48,738 
         


F-15

SIRIUS XM RADIO INC. AND SUBSIDIARIES
 December 31,
2013		 December 31,
2012
Billed$38,532
  $53,057
Unbilled50,443
  51,368
Total$88,975
  $104,425
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(6)Inventory, net
Inventory

Inventory consists of finished goods, refurbished goods, chip sets and other raw material components used in manufacturing radios. Inventory is stated at the lower of cost determined on afirst-in, first-out basis, or market. We record an estimated allowance for inventory that is considered slow moving or obsolete or whose carrying value is in excess of net realizable value. The provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of equipment in our consolidated statements of operations.comprehensive income. The provision related to inventory consumed in our OEM and retail distribution channel is reported as a component of Subscriber acquisition costs in our consolidated statements of operations.comprehensive income.

Inventory, net, consists of the following:
         
  December 31,
  December 31,
 
  2010  2009 
 
Raw materials $18,181  $17,370 
Finished goods  24,492   19,704 
Allowance for obsolescence  (20,755)  (20,881)
         
Total inventory, net $21,918  $16,193 
         
Investments
 December 31,
2013		 December 31,
2012
Raw materials$12,358
 $17,717
Finished goods15,723
 23,779
Allowance for obsolescence(14,218) (16,159)
Total inventory, net$13,863
 $25,337

Marketable Securities — Marketable securities consist of certificates of deposit, auction rate certificates and investments in debt and equity securities of other entities. Our investment policy objectives are the preservation of capital, maintenance of liquidity to meet operating requirements and yield maximization. Marketable securities are classified asavailable-for-sale securities and carried at fair market value. Unrealized gains and losses onavailable-for-sale securities are included in Accumulated other comprehensive loss, net of tax, as a separate component of Stockholders’ equity (deficit). Realized gains and losses, dividends and interest income, including amortization of the premium or discount arising at purchase, are included in Interest and investment income. The specific-identification method is used to determine the cost of all securities and the basis by which amounts are reclassified from Accumulated other comprehensive loss into earnings.
We received proceeds from the sale or maturity of marketable securities of $9,456, $0 and $5,469 for the years ended December 31, 2010, 2009 and 2008, respectively. We recorded $425 of realized gains on marketable securities for the year ended December 31, 2010 and $473 of net unrealized gains on marketable securities for the year ended December 31, 2009.
Restricted Investments — Restricted investments consist of letters of credit, certificates of deposit, money market funds and interest-bearing accounts which are restricted as to their withdrawal. We received proceeds from the release of restricted investments of $60,400 for the year ended December 31, 2008.
Equity Method Investments — Investments in which we have the ability to exercise significant influence but not control are accounted for pursuant to the equity method of accounting. We recognize our proportionate share of earnings or losses of our affiliates as they occur as a component of Other (expense) income in our consolidated statements of operations. We evaluate our equity method investments for impairment whenever events, or changes in circumstances, indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value and the estimated fair values of our equity method investments is recognized as an impairment loss when the loss is deemed to be other than temporary.
Cost Method Investments — Investments in equity securities that do not have readily determinable fair values and in which we do not have a controlling interest or are unable to exert significant influence are recorded at cost.


F-16

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ASC 820,Fair Value Measurements and Disclosures,establishes a fair value hierarchy for input into valuation techniques as follows: i) Level 1 input — unadjusted quoted prices in active markets for identical instrument; ii) Level 2 input — observable market data for the same or similar instrument but not Level 1; and iii) Level 3 input — unobservable inputs developed using management’s assumptions about the inputs used for pricing the asset or liability. We use Level 3 inputs to fair value our investments in auction rate certificates issued by student loan trusts and the 8% convertible unsecured subordinated debentures issued by XM Canada. These investments are not material to our consolidated results of operations or financial position.
Investments are periodically reviewed for impairment and a write down is recorded whenever declines in fair value below carrying value are determined to be other than temporary. In making this determination, we consider, among other factors, the severity and duration of the decline as well as the likelihood of a recovery within a reasonable timeframe.
Property and Equipment
Property and equipment, including satellites, are stated at cost less accumulated depreciation and amortization. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives:
Satellite system(7)2 - 15 years
Terrestrial repeater network5 - 15 years
Broadcast studio equipment3 - 15 years
Capitalized software and hardware3 - 7 years
Satellite telemetry, tracking and control facilities3 - 17.5 years
Furniture, fixtures, equipment and other2 - 7 years
Building20 or 30 years
Leasehold improvementsLesser of useful life or remaining lease termGoodwill

We review long-lived assets, such as property and equipment, and purchased intangibles subject to amortization for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.
Goodwill and Other Intangible Assets
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 1st of each year, and an assessment is 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, an impairment loss will be recorded by the amount the carrying value exceeds the implied fair value.
The impairment test for other intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.


F-17

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)  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 1stthe fourth quarter of each year, and an assessment is performed at other times if eventsan event occurs or circumstances indicate it ischange that would more likely than not thatreduce the fair value of the asset below its carrying value. If the carrying value of goodwill exceeds its fair value, an impairment loss is impaired.recognized. At October 1, 2010the date of our annual assessment for 2013 and December 31, 2010,2012, 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,GoodwillGoodwill(“ASC350-20”). As a result of the acquisition of the connected vehicle business of Agero in November 2013, we recorded additional goodwill of $389,462 during the year ended December 31, 2013. No indicators of impairment were noted subsequent to our annual impairment assessment.

As of December 31, 2013, there were no changes in the carrying valueindicators of ourimpairment, and no impairment loss was recorded for goodwill during the years endedDecember 31, 20102013, 2012 and 2009. 2011. As of December 31, 2013, the cumulative balance of goodwill impairments recorded since the Merger was $4,766,190, which was recognized during the year ended December 31, 2008.

During 2008,the years endedDecember 31, 2013 and 2012, we reduced goodwill by $274 and $19,491, respectively, related to the subsequent exercise of certain stock options and vesting of certain restricted stock units that were recorded goodwillat fair value in connection with the amountMerger.


F-24
Table of $6,601,046 and we recorded an impairment charge of $4,766,190.


F-18

ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

(5)  (8)Intangible Assets

IntangibleWe recorded intangible assets consistedat fair value related to the Merger that were formerly held by XM Satellite Radio Holdings Inc. In November 2013, we recorded intangible assets at fair value as a result of the acquisition of the connected vehicle business of Agero. Our intangible assets include 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, 2013 December 31, 2012
 
Weighted Average
Useful Lives
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
Due to the Merger:             
Indefinite life intangible assets:             
FCC licensesIndefinite $2,083,654
 $—
 $2,083,654
 $2,083,654
 $—
 $2,083,654
TrademarkIndefinite 250,000
 —
 250,000
 250,000
 —
 250,000
Definite life intangible assets:             
Subscriber relationships9 years 380,000
 (271,372) 108,628
 380,000
 (233,317) 146,683
Licensing agreements9.1 years 45,289
 (19,604) 25,685
 78,489
 (44,161) 34,328
Proprietary software6 years 16,552
 (13,384) 3,168
 16,552
 (12,777) 3,775
Developed technology10 years 2,000
 (1,083) 917
 2,000
 (883) 1,117
Leasehold interests7.4 years 132
 (96) 36
 132
 (79) 53
Due to connected vehicle business of Agero:             
Definite life intangible assets:             
OEM relationships15 years $220,000
 $(2,444) $217,556
 $—
 $—
 $—
Proprietary software10 years 10,663
 (245) 10,418
 —
 —
 —
Total intangible assets  $3,008,290
 $(308,228) $2,700,062
 $2,810,827
 $(291,217) $2,519,610

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 Licensesatellite licenses Expiration Year
year
SIRIUS FM-1 satellite 2017
SIRIUS FM-2 satellite 2017
SIRIUS FM-3 satellite 2017
SIRIUS FM-4 ground spare satelliteFM-5 2017
SIRIUS FM-5 satelliteFM-6 (1)
 2017
XM-1 satellite 2014
XM-2 satellite 2014
XM-3 satellite 20132021
XM-4 satellite 2014
XM-5 satellite 2018
(1)
The FCC license for our FM-6 satellite will be issued for a period of eight years, beginning on the date we certify to the FCC that the satellite has been successfully placed into orbit and that the operations of the satellite fully conform to the terms and conditions of the space station radio authorization.

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


F-25
Table of ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

In connection with the Merger, $250,000$250,000 of the purchase price was allocated to the XM trademark. As of December 31, 2010,2013, 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 1stthe fourth quarter of each year. An assessment is madeperformed at other times if eventsan event occurs or changes in circumstances indicatechange that it iswould more likely than not thatreduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets have been impaired. At October 1, 2010 and December 31, 2010,exceeds its fair value, an impairment loss is recognized. As of the date of our annual assessment for 2013, our qualitative impairment assessment of fair value of our indefinite intangible assets indicated that such assets substantially exceeded itstheir carrying value and therefore was not at risk of impairment.

There were no indicators of impairment, and no impairment loss was recorded for intangible assets with indefinite lives during the years endedDecember 31, 2013, 2012 and 2011.

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. The fair value of the OEM relationships and proprietary software acquired in November 2013 are being amortized over their estimated weighted average useful lives of 15 and 10 years, respectively.

Amortization expense for all definite life intangible assets was $65,915, $76,587$50,011, $53,620 and $35,789$59,050 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively. In 2013, we retired $33,200 in gross carrying value of definite life intangible assets related to licensing agreements that were fully amortized.

Expected amortization expense for each of the fiscal years 2014 through December 31, 20152018 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
2014  $55,016
2015  51,700
2016  48,545
2017  34,882
2018  19,463
Thereafter  156,802
Total definite life intangible assets, net  $366,408

(6)  (9)Subscriber RevenueInterest 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 capitalizecapitalized a portion of the interest on funds borrowed to financeas part of the construction costscost of constructing our satellites and related launch vehicles forvehicles. We capitalized interest associated with our FM-6 satellite and XM-5 satellites.related launch vehicle during 2011 through its placement into operation in the fourth quarter 2013. We also incurincurred 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,
 2013 2012 2011
Interest costs charged to expense$204,671
 $265,321
 $304,938
Interest costs capitalized26,445
 31,982
 33,522
Total interest costs incurred$231,116
 $297,303
 $338,460

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$21,698, $35,924 and $(2,689)$39,515 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively.


F-26
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

(8)  (10)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 
         
 December 31,
2013		 December 31,
2012
Satellite system$2,407,423
 $1,943,537
Terrestrial repeater network109,367
 112,482
Leasehold improvements46,173
 44,938
Broadcast studio equipment59,020
 55,823
Capitalized software and hardware298,267
 232,753
Satellite telemetry, tracking and control facilities63,944
 62,734
Furniture, fixtures, equipment and other67,275
 76,028
Land38,411
 38,411
Building58,662
 57,816
Construction in progress103,148
 417,124
Total property and equipment3,251,690
 3,041,646
Accumulated depreciation and amortization(1,657,116) (1,469,724)
Property and equipment, net$1,594,574
 $1,571,922

Construction in progress consists of the following:
         
  December 31,
  December 31,
 
  2010  2009 
 
Satellite system $262,744  $398,425 
Terrestrial repeater network  19,239   19,396 
Other  15,788   12,722 
         
Construction in progress $297,771  $430,543 
         
 December 31,
2013		 December 31,
2012
Satellite system$11,879
  $376,825
Terrestrial repeater network30,078
  17,224
Capitalized software39,924
 18,083
Other21,267
  4,992
Construction in progress$103,148
  $417,124

Depreciation and amortization expense on property and equipment was $207,367, $232,863$203,303, $212,675 and $167,963$208,830 for the years ended December 31, 2010, 20092013, 2012 and 2008,2011, respectively. We retired property and equipment which included our SIRIUS FM-4 satellite, withof $16,039, $5,251 and $12,158 and recognized a cost basisloss on the disposal of $155,000assets of $351, $657 and $269 during the yearyears ended December 31, 2010.2013, 2012 and 2011, respectively.


F-21


F-27
Table of ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

Satellites
SatellitesWe currently own a fleet of ten orbiting satellites. The chart below provides certain information on these satellites:
We own four orbiting satellites and one spare satellite, FM-4, for use
Satellite Designation Year Delivered 
Estimated End of
Depreciable Life
FM-1* 2000 2013
FM-2* 2000 2013
FM-3 2000 2015
FM-5 2009 2024
FM-6 2013 2028
XM-1* 2001 2013
XM-2* 2001 2013
XM-3 2005 2020
XM-4 2006 2021
XM-5 2010 2025
* Satellite was fully depreciated as of December 31, 2013 but is still in the SIRIUS system. These satellites are of the Loral FS-1300 model series. Space Systems/Loral is constructing a sixth satellite for use in this system. We have an agreement with International Launch Services to launch this satellite on a Proton rocket.operation.

During the fourth quarter of 2010, we recorded an other than temporary impairment charge of $56,100 to Restructuring, impairments, and related costs in the statement of operations for FM-4, a ground spare satellite held in storage since 2002. We determined that the probability of launching FM-4 is remote due to the launch of XM-5 in the fourth quarter of 2010 and our business plan.
We own five orbiting satellites for use in the Sirius system and five orbiting satellites for use in the XM system. Four of these satellites were manufactured by Boeing Satellite Systems International, Inc., and one wassix were manufactured by Space Systems/Loral.

During the yearyears ended December 31, 2010,2013, 2012 and 2011, we capitalized expenditures, including interest, of $63,880$87,061, $32,893 and expenditures of $184,727$81,189, respectively, related to the construction of our satellitesFM-6 satellite and related launch vehicles for FM-6vehicle, which was launched and XM-5.placed into operation in the fourth quarter of 2013.

(9)  (11)Related Party Transactions

We had the following related party transaction balances at December 31, 20102013 and 2009:2012:
                                         
  Related party
  Related Party
  Related Party
  Related Party
  Related Party
 
  Current Assets  Long-Term Assets  Current Liabilities  Long-Term Liabilities  Long-Term Debt 
  2010  2009  2010  2009  2010  2009  2010  2009  2010  2009 
 
Liberty Media $—  $—  $1,571  $1,974  $9,765  $8,523  $—  $—  $325,907  $263,579 
SIRIUS Canada  5,613   2,327   —   —   1,805   —   —   —   —   — 
XM Canada  1,106   1,011   28,591   24,429   4,275   2,775   24,517   28,793   —   — 
General Motors  —   99,995   —   85,364   —   93,107   —   17,508   —   — 
American Honda  —   2,914   —   —   —   3,841   —   —   —   — 
                                         
Total $6,719  $106,247  $30,162  $111,767  $15,845  $108,246  $24,517  $46,301  $325,907  $263,579 
                                         
Neither General Motors nor American Honda is considered a related party following May 27, 2010, the date on which the individuals nominated by General Motors and American Honda, respectively, ceased to be members of our board of directors.
 Related party current assets Related party long-term assets Related party current liabilities Related party long-term liabilities Related party debt
 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Liberty Media$278
 $—
 $—
 $757
 $15,766
 $3,980
 $—
 $—
 $10,959
 $208,906
Sirius XM Canada8,867
 13,167
 27,619
 44,197
 4,554
 2,776
 16,337
 18,966
 —
 —
M-Way—
 —
 2,545
 —
 —
 —
 —
 —
 —
 —
Total$9,145
 $13,167
 $30,164
 $44,954
 $20,320
 $6,756
 $16,337
 $18,966
 $10,959
 $208,906

Liberty Media

In February and March 2009, we entered into several transactions to borrow up to $530,000 from Liberty Media Corporation and its affiliates. All of these loans were repaid in 2009.

As part of the transactions with Liberty Media, in February 2009, we entered into an Investment Agreementinvestment agreement (the “Investment Agreement”) with an affiliate of Liberty Media Corporation, Liberty Radio, LLC, (collectively, “Liberty Media”).an indirect wholly-owned subsidiary of Liberty Media. Pursuant to the Investment Agreement, in March 2009 we issued to Liberty Radio, LLC 12,500,000 shares of our Convertible Perpetual Preferred Stock, Series BB-1 (the “Series B Preferred Stock”), with a liquidation preference of $0.001$0.001 per share in partial consideration for certainthe loan investments. Liberty Media has representatives on our board of directors.
The Series B Preferred Stock iswas convertible into 2,586,976,000approximately 40% of our outstanding shares of common stock (after giving effect to such conversion).

In September 2012, Liberty Radio, LLC converted 6,249,900 shares of the Series B Preferred Stock into 1,293,467,684 shares of our common stock. In January 2013, the Federal Communications Commission granted Liberty Media has agreed notapproval to acquire more than 49.9%de jure control of us, and Liberty Radio, LLC converted its remaining Series B Preferred Stock into 1,293,509,076 shares of our common stock. In addition, Liberty Media, indirectly through its subsidiaries, purchased an additional 50,000,000 shares of our common stock. As a result of these conversions of Series B Preferred Stock and additional

F-28
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

purchases of shares of our common stock, Liberty Media beneficially owned, directly and indirectly, over 50% of our outstanding common stock prior to March 2012, except thatas of December 31, 2013.

Two current Liberty Media may acquire more than 49.9%executives and one Liberty Media director are members of our outstandingboard of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

On October 9, 2013, we entered into an agreement with Liberty Media to repurchase $500,000 of our common stock at any time after March 2011 pursuantfrom Liberty Media. Pursuant to any cash tender offer for allthat agreement with Liberty Media, we repurchased $160,000 of our common stock from Liberty Media as of December 31, 2013. On January 23, 2014, we entered into an amendment to the outstandingagreement with Liberty Media to defer the previously scheduled $240,000 repurchase of shares of our common stock from Liberty Media from January 27, 2014 to April 25, 2014, the date of the final purchase installment under the agreement. As a result of this deferral, we expect to repurchase $340,000 of our shares of common stock from Liberty Media on April 25, 2014 at a price of $3.66 per share. We entered into this amendment at the request of the Special Committee of our board of directors that arehas been formed to review and evaluate the Liberty Media proposal. See “Note 1 - Recent Developments.”

On January 3, 2014, Holdings' Board of Directors received a non-binding letter from Liberty Media proposing a transaction pursuant to which all outstanding shares of common stock of Holdings not beneficially owned by Liberty Media or its affiliates at a price per share greater than the closing price of the common stock on the trading day preceding the earlier of the public announcement or commencement of such tender offer. The Investment Agreement also provides for certain other standstill provisions during the three year period ending in March 2012.


F-22

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We accounted for the Series B Preferred Stock by recording a $227,716 increase 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.
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 loanswould be converted into the Amended and Restated Credit Agreement, dated asright to receive 0.0760 of March 6, 2009.a new non-voting share of Liberty Media, LLC, purchased $100,000 aggregate principal amountSeries C common stock. Holdings' Board of such loans from the existing lenders. In June 2009, XM usedDirectors has formed a portion of the net proceeds from the sale of its 11.25% Senior Secured Notes due 2013Special Committee to extinguish the Amended and Restated Credit Agreement.consider Liberty Media’s proposal.

Liberty Media has advised us that as of December 31, 20102013 and 2009, respectively,2012 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,
2013		 December 31,
2012
7% Exchangeable Senior Subordinated Notes due 2014$11,000
  $11,000
8.75% Senior Notes due 2015—
  150,000
7.625% Senior Notes due 2018—
  50,000
Total principal debt11,000
  211,000
Less: discounts41
  2,094
Total carrying value of debt$10,959
  $208,906

During the year endedDecember 31, 2013, we redeemed $150,000 of the 11.25%our 8.75% Senior Secured Notes due 20132015 and purchased $50,000 of theour 7.625% Senior Notes due 2018 at issuance.held by Liberty Media as part of the redemption of these Notes in their entirety.

As of December 31, 20102013 and 2009,2012, we recorded $9,765$64 and $8,523,$3,980, 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$13,514, $30,931 and $79,640$35,681 for the years ended December 31, 20102013, 2012 and 2009,2011, respectively.
SIRIUS Canada
In 2005, we entered into a license and services The fair value of the derivative associated with the share repurchase agreement with SIRIUS Canada. PursuantLiberty Media was $15,702 as of December 31, 2013 and is recorded in Holdings' consolidated balance sheet in Related party current liabilities, with changes in fair value recorded to such agreement, SIRIUS is reimbursed for certain costs incurred to provide SIRIUS Canada service, including certain costs incurredHoldings' statements of comprehensive income.


F-23


F-29
Table of ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED 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., the former parent company of XM Canada, and Sirius Canada completed a transaction to combine their operations ("the Canada Merger"). In January 2013, Canadian Satellite Radio Holdings Inc. changed its name to Sirius XM Canada Holdings Inc. The combined company operates as Sirius XM Canada.
We own approximately 46,700,000 Class A shares on a converted basis of Sirius XM Canada Holdings Inc. representing a 37.5% 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, 2013 and 2012:
 December 31,
2013		 December 31,
2012
Deferred programming costs and accrued interest$2,782
 $4,350
Dividends receivable—
 6,176
Chip set and other services reimbursement2,387
 2,641
Fair value of host contract of debenture3,641
 —
Fair value of embedded derivative of debenture57
 —
Total$8,867
  $13,167

We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs. Sirius XM Canada declared dividends of $6,176 during the productionyear ended December 31, 2012 which were not paid until 2013.

We hold an investment in CAD $4,000 face value of 8% convertible unsecured subordinated debentures issued by Sirius XM Canada for which the embedded conversion feature is bifurcated from the host contract. As of December 31, 2013, the debentures are classified as a Related party current asset since they are expected to be redeemed by Sirius XM Canada during the first quarter of 2014. 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 (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 distributioninvestment income.

Related party long-term asset balances attributable to Sirius XM Canada consisted of radios,the following:    
 December 31,
2013		 December 31,
2012
Non-interest bearing note, principal$376
 $404
Fair value of host contract of debenture—
 3,877
Fair value of embedded derivative of debenture—
 9
Investment balance*
26,972
 37,983
Deferred programming costs and other receivables271
 1,924
Total$27,619
  $44,197
* The investment balance included equity method goodwill and intangible assets of $26,161 and $27,615 as well as information technology support costs. In consideration for the rights granted pursuant to this licenseof December 31, 2013 and services agreement, we have the right to receive2012, respectively.

We 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 SIRIUSnon-interest bearing note issued by Sirius XM Canada. Our investmentinterest in SIRIUSSirius XM Canada is primarily non-voting shares which carry an 8% cumulative dividend.
We recordedaccounted for under the following revenue from SIRIUS Canada. Royalty incomeequity 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 incomethan temporary decline below carrying value. Equity method intangible assets are amortized over their respective useful lives, which is includedrecorded in Interest and investment income (loss) in our consolidated statementsincome.

Sirius XM Canada declared quarterly dividends of operations:
             
  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$16,796 and dividend income were utilized to absorb a portion of our share of net losses generated by SIRIUS Canada$7,749 during the years endedDecember 31, 20102013 and 2009. Total costs that have been or will be reimbursed by SIRIUS2012, respectively, which were recorded as a reduction to our investment balance in Sirius XM Canada.

F-30
Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)


Related party liabilities attributable to Sirius XM Canada forconsisted of the years ended December 31, 2010, 2009 and 2008 were $12,185, $11,031 and $14,973, respectively.following:
XM Canada
 December 31,
2013		 December 31,
2012
Deferred revenue for NHL licensing fees$1,500
 $—
Carrying value of deferred revenue18,966
 21,742
Deferred revenue for software licensing fees and other425
 —
Total$20,891
  $21,742

In 2005, XM entered into agreements to provide XM Canada, now Sirius XM Canada, with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year-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 a10-yearten-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,
 2013 2012 2011 *
Royalty income$35,411
 $31,368
 $13,735
Amortization of Sirius XM Canada deferred income2,776
 2,776
 1,388
Licensing fee revenue5,012
 4,500
 3,000
Advertising and other reimbursements3,001
 833
 417
Streaming revenue2,735
 —
 —
Total revenue from Sirius XM Canada$48,935
 $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 in our consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net income was $7,319, $554 and $1,081 for the years ended December 31, 20102013, 2012 and 2009, the carrying value of deferred revenue2011, respectively. We recorded amortization expense related to XM Canada was $28,792the equity method intangible assets of $1,454, $974 and $31,568,$1,556 for the years ended December 31, 2013, 2012 and 2011, respectively.

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

In 2005, we entered into a Cdn$45,000 standby credit facilitylicense and services agreement with Sirius Canada. Pursuant to XMsuch agreement, we were reimbursed for certain costs incurred to provide Sirius Canada which can be utilizedservice, 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 purchase terrestrial repeaters or finance royaltythis license and activation fees payable to us. The facility matures on December 31, 2012 and bears interest at 17.75% per annum. We haveservices agreement, we had the right to convert unpaid principal amounts into Class A subordinate voting sharesreceive a royalty equal to a percentage of XM Canada atSirius Canada’s gross revenues based on subscriber levels (ranging between 5% and 15%) and the pricenumber of Cdn$16.00 per share. AsCanadian-specific channels made available to Sirius Canada.


F-31
Table 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 of a $9,607 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.Contents
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
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- 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 in our consolidated statements of comprehensive income:
 For the Year Ended December 31,
 2011 *
Royalty income$9,945
Dividend income460
Total revenue from Sirius Canada$10,405
* 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 for the year endedDecember 31, 2011.

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

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

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 
             
General Motors and American Honda
 For the Year Ended December 31,
 2011 *
Amortization of XM Canada deferred income$1,388
Subscriber and activation fee royalties5,483
Licensing fee revenue3,000
Advertising reimbursements833
Total revenue from XM Canada$10,704
We have a long-term distribution agreement with General Motors Company (“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 service. We subsidize a portion of the cost of satellite radios and makes incentive payments to GM when the owners of GM vehicles with factory- or 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 for audio and data transmissions to owners of enabled GM vehicles, regardless of whether the owner is a subscriber. 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 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 bandwidth available to American Honda. American 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 of a Honda or Acura vehicle that becomes a self-paying subscriber and shares 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 
             
*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 
                         
*GM and American Honda were considered related parties through May 27, 2010.
(10)  Investments
Our investments consist of the following:
         
  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 investmentscombined with Sirius Canada 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
June 2011.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share of net earnings or losses of the Canadian Entities isXM Canada was recorded to Interest and investment income (loss) in our consolidated statements of operations. As it relates to XM Canada, this is donecomprehensive income on a one month lag. We evaluateOur share of XM Canada’s net loss was $6,045 for 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 excessyear endedDecember 31, 2011.

M-Way
As part of the carrying valueacquisition of our investmentsthe connected vehicle business of Agero in advances to and commitments to such entity is recorded to Interest and investment income (loss)November 2013, we acquired a 30% ownership in our consolidated statements 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 and 2009, we recorded $149 and $543, respectively, ofM-Way Solutions GmbH ("M-Way"), 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, forGerman mobile software solutions provider, which the embedded conversion feature is bifurcated from the host contract. The host contract is accounted for at fair value as anavailable-for-sale security with changes in fair valueutilizing the equity method of accounting. We have 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 of the host contract and embedded derivative related to our$2,545 investment in M-Way in Related party long-term assets on our consolidated balance sheet. We also acquired an option to purchase the debentures was $3,302 and $11, respectively. Asremaining 70% ownership of December 31, 2009, the carrying values of the host contract and embedded derivative related to our investmentM-Way which expires in the debentures was $2,961 and $9, respectively.2017.

(12)Investments

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, resulting in a gain of $425 in the year ended December 31, 2010.
Long Term Restricted Investments
Restricted investments relate to reimbursement obligations under letters of credit issued for the benefit of lessors of our office space. As of December 31, 20102013 and 2009,2012, our Long-term restricted investments were $3,396$5,718 and $3,400,$3,999, respectively. During the year endedDecember 31, 2013, a new letter of credit for $1,719 associated with additional office space was issued for the benefit of a lessor.


F-27



F-32
Table of ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

(11)  (13)
Debt

Our debt consistsSirius XM is the sole issuer 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 aggregate principal amount of 8.75% Senior Notes due 2015 (the “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. The 8.75% Notes were issued for $786,000, resulting in an aggregate original issuance discount of $14,000. Substantially all of our domestic wholly-owned subsidiaries guaranteedebt, other than our obligations under the 8.75% Notes on a senior unsecured basis.
(e) 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”). 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)
(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, XM issued $550,000 aggregate principal amount of 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”). The Exchangeable Notes are senior subordinated obligations2014. Our debt as of December 31, 2013 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. The Exchangeable Notes are exchangeable at any time at the option2012 consisted of the holder into shares of our common stock at an initial exchange rate of 533.3333 shares of common stock per $1,000 principal amount of Exchangeable Notes, which is equivalent to an approximate exchange price of $1.875 per share of common stock.following:
             Carrying balance at December 31,
Issuer Issued Debt Maturity Date Interest Payable Principal Amount 2013 2012 (h)
Sirius XM and Holdings
(a)(b)
 August 2008 7% Exchangeable 
Senior Subordinated Notes (the "Exchangeable Notes")		 December 1, 2014 semi-annually on June 1 and December 1 $502,370
 $500,481
 $545,888
Sirius XM
(a)(c)(d)		 March 2010 
8.75% Senior Notes
(the "8.75% Notes")
 April 1, 2015 semi-annually on April 1 and October 1 800,000
 —
 792,944
Sirius XM
(a)(c)(e)		 October 2010 
7.625% Senior Notes
(the "7.625% Notes")
 November 1, 2018 semi-annually on May 1 and November 1 700,000
 —
 690,353
Sirius XM
(a)(c)		 May 2013 
4.25% Senior Notes
(the "4.25% Notes")
 May 15, 2020 semi-annually on May 15 and November 15 500,000
 494,809
 —
Sirius XM
(a)(c)		 September 2013 
5.875% Senior Notes
(the "5.875% Notes")
 October 1, 2020 semi-annually on April 1 and October 1 650,000
 642,914
 —
Sirius XM
(a)(c)		 August 2013 
5.75% Senior Notes
(the "5.75% Notes")
 August 1, 2021 semi-annually on February 1 and August 1 600,000
 594,499
 —
Sirius XM
(a)(c)		 August 2012 
5.25% Senior Notes
(the "5.25% Notes")
 August 15, 2022 semi-annually on February 15 and August 15 400,000
 394,648
 394,174
Sirius XM
(a)(c)		 May 2013 
4.625% Senior Notes
(the "4.625% Notes")
 May 15, 2023 semi-annually on May15 and November 15 500,000
 494,653
 —
Sirius XM
(f)		 December 2012 Senior Secured Revolving Credit Facility (the "Credit Facility") December 5, 2017 variable fee paid quarterly 1,250,000
 460,000
 —
Sirius XM Various Capital leases Various n/a  n/a
 19,591
 11,861
Total Debt 3,601,595
 2,435,220
Less: total current maturities (g) 507,774
 4,234
Total long-term 3,093,821
 2,430,986
Less: long-term related party —
 208,906
Total long-term, excluding related party $3,093,821
 $2,222,080
(k) (a)7.625% SeniorThe carrying balance of the Notes due 2018are net of the remaining unamortized original issue discount.
(b)
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 guarantee our obligations under these Notes on a senior subordinated basis. The Exchangeable Notes are exchangeable at any time at the option of the holder into shares of our common stock at an exchange rate of 543.1372 shares of common stock per $1,000 principal amount of the notes, which is equivalent to an approximate exchange price of $1.841 per share of common stock. In connection with the fundamental change that occurred on January 17, 2013 and the subsequent offer that was made to each holder of the Exchangeable Notes on February 1, 2013, $47,630 in principal amount of the Exchangeable Notes were converted resulting in the issuance of 27,687,850 shares of our common stock. As a result of this conversion, we retired $47,630 in principal amount of the Exchangeable Notes and recognized a proportionate share of unamortized discount and deferred financing fees of $2,533 to Additional paid-in capital for the year endedDecember 31, 2013. No loss was recognized as a result of the conversion. During the year endedDecember 31, 2013, the common stock reserved for conversion in connection with the Exchangeable Notes were considered to be anti-dilutive in our calculation of diluted net income per share. During the year ended2012, the Exchangeable Notes were considered to be dilutive.
(c)Substantially all of our domestic wholly-owned subsidiaries have guaranteed these notes.
(d)
During the year endedDecember 31, 2013, we purchased $800,000 in aggregate principal amount of the 8.75% Notes for an aggregate purchase price, including premium and interest, of $927,860. We recognized an aggregate loss on the extinguishment of the 8.75% Notes of $104,818 during the year endedDecember 31, 2013, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.
(e)
During the year endedDecember 31, 2013, we purchased $700,000 in aggregate principal amount of the 7.625% Notes for an aggregate purchase price, including premium and interest, of $797,830. We recognized an aggregate loss on the extinguishment of the 7.625% Notes of $85,759 during the year endedDecember 31, 2013, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.
(f)
In December 2012, Sirius XM entered into a five-year Credit Facility with a syndicate of financial institutions for $1,250,000. Sirius XM's obligations under the Credit Facility are guaranteed by certain of its material domestic subsidiaries and are secured by a lien on substantially all of Sirius XM's assets and the assets of its material domestic subsidiaries. Borrowings under the Credit

F-33
Table of Contents
In October 2010, XM issued $700,000 aggregate principal amount of 7.625% Senior Notes due 2018 (the “7.625% Senior 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
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

$489,065 aggregate principal amount of the 11.25% Notes. The 7.625% Senior Notes mature on November 1, 2018. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 7.625% Senior Notes.
Expired Credit Arrangements
LM Term LoanFacility are used for working capital and LM Purchase Money Loan
In February 2009, SIRIUS entered into a Credit Agreement (the “LM Credit Agreement”) with Liberty Media Corporation, as administrative agent and collateral agent. The LM Credit Agreement provided for a $250,000 term loan (“LM Term Loan”) and $30,000 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. The proceeds of the LM Term Loan were used (i) to repay at maturity our outstanding 2.5% Convertible Notes due February 17, 2009 and (ii) forother general corporate purposes, including related transaction costs.
In August 2009, SIRIUS used net proceeds fromdividends, financing of acquisitions and share repurchases. Interest on borrowings is payable on a quarterly basis and accrues at a rate based on LIBOR plus an applicable rate. Sirius XM is also required to pay a variable fee on the sale of its 9.75% Notes to extinguish the LM Term Loan and LM Purchase Money Loan. We recorded an aggregate loss on extinguishment of the LM Term Loan and LM Purchase Money Loan of $134,520 consisting primarily of the unamortized discount, deferred financing fees and unaccretedaverage daily unused portion of the repayment premium to LossCredit Facility which is currently 0.35% per annum and is payable on extinguishmenta quarterly basis. As of December 31, 2013, $790,000 was available for future borrowing under the Credit Facility. Sirius XM's outstanding borrowings under the Credit Facility are classified as Long-term debt and credit facilities, net, inwithin our consolidated statements of operations.
Amended and Restated Credit Agreement due 2011
In March 2009, XM amended and restated the $100,000 Senior Secured Term Loan due 2009, datedbalance sheet as of June 26, 2008,December 31, 2013 due to the long-term maturity of this debt.
(g)
This balance includes $10,959 in related party current maturities as of December 31, 2013.
(h)
During the year endedDecember 31, 2012, we purchased $257,000 of our then outstanding 9.75% Senior Secured Notes due 2015 (the "9.75% Notes") for an aggregate purchase price, including interest, of $281,698. We recognized an aggregate loss on the extinguishment of the 9.75% Notes of $22,184 during the year endedDecember 31, 2012, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net. During the year endedDecember 31, 2012, we purchased $778,500 of our then outstanding 13% Senior Notes due 2013 (the "13% Notes") for an aggregate purchase price, including interest, of $879,133. We recognized an aggregate loss on the extinguishment of these 13% Notes of $110,542 during the year endedDecember 31, 2012, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.

The following table reconciles total current debt held at Holdings to the total current and the $250,000 Senior Secured Revolving Credit Facility due 2009, datedlong-term debt held at Sirius XM 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 lenders.December 31, 2013:
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 recorded an aggregate 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 on extinguishment of debt and credit facilities, net, in our consolidated statements of operations.
   Carrying amount at December 31, 2013
Total current debt at Holdings $507,774
Additional fair value associated with the Exchangeable Notes (a)
 466,815
Total current debt at Sirius XM $974,589
Total long-term debt $3,093,821
Total debt at Sirius XM $4,068,410
(a)
In connection with our corporate reorganization in November 2013, the Exchangeable Notes were amended such that the settlement of the conversion feature is into shares of Holdings' common stock and Holdings and Sirius XM became co-obligors with respect to the Exchangeable Notes. As of December 31, 2013, $466,815 was recorded to Sirius XM's consolidated balance sheet in Current maturities of long-term debt for the fair value of the Exchangeable Notes in excess of the carrying amount. Changes in fair value are recorded in Loss on fair value of debt and equity instruments within Sirius XM's consolidated statements of comprehensive income. We recognized $466,815 in Loss on fair value of debt and equity instruments during the year endedDecember 31, 2013. The additional fair value in excess of the carrying amount of this instrument is eliminated in Holdings' consolidated balance sheets and statements of comprehensive income.

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 requiresThe Exchangeable Notes require compliance with certain covenants that restrict ourHoldings' and Sirius XM's ability to, among other things, (i) enter into certain transactions with affiliates and (ii) merge or consolidate with another person.

Under the Credit Facility, Sirius XM must comply with a maintenance covenant that it not exceed a total leverage ratio, calculated as total consolidated debt to consolidated operating cash flow, of 5.0 to 1.0. The Credit Facility and the 5.25% Notes generally require compliance with certain covenants that restrict Sirius XM's ability to, among other things, (i) incur additional indebtedness unless our consolidated leverage ratio would be no greater than 6.00 to 1.00 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 ourSirius XM's 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 as an unrestricted
The 4.25% Notes, 4.625% Notes, 5.75% Notes and 5.875% Notes are subject to covenants that, among other things, limit Sirius XM's ability and the ability of its subsidiaries to create certain liens; enter into sale/leaseback transactions; and merge or consolidate. In addition, each of these indentures restricts Sirius XM's non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiary for purposesguaranteeing each such series of compliance with the covenants contained in our debt instruments through January 12, 2011.Notes on a pari passu basis.

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

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Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

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, 2010,2013 and 2012, we were in compliance with our debt covenants.

(12) (14)Stockholders’ Equity

Common Stock, Holdings, par value $0.001$0.001 per share
As a result of our corporate reorganization in November 2013, all of the outstanding shares of Sirius XM's common stock were converted, on a share for share basis, into identical shares of common stock of Holdings. The certificate of incorporation, the bylaws, the executive officers and the board of directors of Holdings are the same as those of Sirius XM in effect immediately prior to the reorganization.

We were authorized to issue up to 9,000,000,000 shares of common stock as of December 31, 20102013 and 2009.2012. There were 3,933,195,1126,096,220,526 and 3,882,659,0875,262,440,085 shares of common stock issued and outstanding as of December 31, 20102013 and 2009,2012, respectively.

As of December 31, 2010,2013, approximately 3,361,345,000562,534,000 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.

Stock Repurchase Program
Since December 2012, our board of directors has approved $4,000,000 for repurchases of our common stock. Our board of directors did not establish an end date for this stock repurchase program. Shares of common stock may be purchased from time to time on the open market and in privately negotiated transactions, including transactions with Liberty Media and its affiliates.
        
On October 9, 2013, we entered into an agreement with Liberty Media to repurchase $500,000 of our common stock from Liberty Media. Pursuant to the agreement with Liberty Media, we repurchased $160,000 of our common stock from Liberty Media as of December 31, 2013. On January 23, 2014, we entered into an amendment to the agreement with Liberty Media to defer the previously scheduled $240,000 repurchase of shares of our common stock from Liberty Media from January 27, 2014 to April 25, 2014, the date of the final purchase installment under the agreement. As a result of this deferral, we expect to repurchase $340,000 of our shares of common stock from Liberty Media on April 25, 2014 at a price of $3.66 per share. We entered into this amendment at the request of the Special Committee of our board of directors that has been formed to review and evaluate the Liberty Media proposal. See “Note 1 - Recent Developments.”
The share repurchase agreement was transferred from Sirius XM to Holdings' effective November 15, 2013. Commitments under the share repurchase agreement are accounted for at fair value as a derivative, with changes in fair value recorded in Loss on change in value of derivatives within Holdings' consolidated statements of comprehensive income. Prior to November 15, 2013, changes in fair value were recorded to Loss on fair value of debt and equity instruments in Sirius XM's consolidated statements of comprehensive income.

We recognized $20,393 to Loss on change in value of derivatives in Holdings' consolidated statement of comprehensive income during the year endedDecember 31, 2013 for the share repurchase agreement, net of a $2,713 gain recognized to Loss on fair value of debt and equity instruments in Sirius XM's consolidated statements of comprehensive income.

During the year endedDecember 31, 2013, we repurchased 520,257,866 shares of our common stock for $1,762,360, including fees and commissions, on the open market and in privately negotiated transactions, including transactions with Liberty Media. All common stock repurchases were settled and retired as of December 31, 2013.
As of December 31, 2013, $2,237,640 remained available for purchase under our stock repurchase program.


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

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 we2008. All loaned MS and UBS an aggregate of 262,400,000 shares of our common stock in exchange for a fee of $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 were retired upon receipt. As of December 31, 2010 and 2009, there were 202,400,000 shares loaned under the facilities.
Under each 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 relate 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. Under GAAP, the borrowed shares are not considered outstanding for the purpose of computing and reporting our net income (loss) per common share. The accounting method may change if, due to a default by either UBS or MS (or Morgan Stanley, as guarantor), the borrowed shares, or the equivalent value of those shares, will not be returned to us as required underof October 2011 and the share lending agreements.agreements were terminated.


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SIRIUS XM RADIO INC. AND SUBSIDIARIES
We recorded interest expense related to the amortization of the costs associated with the share lending arrangement and other issuance costs for our Exchangeable Notes of $12,745, $12,402 and $11,189 for the years endedDecember 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, the unamortized balance of the debt issuance costs was $12,701, with $12,423 recorded in Other current assets and $278 recorded in Related party current assets in our consolidated balance sheet. 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. These costs will continue to be amortized until the debt is terminated. A portion of the unamortized debt issuance costs was recognized during the year endedDecember 31, 2013 in connection with conversions of the Exchangeable Notes.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Common Stock, Sirius XM, par value $0.001 per share
In January 2004, SIRIUS signed a seven-year agreement with a sports programming provider. Upon execution of this agreement, SIRIUS delivered 15,173,070Due to our corporate reorganization in November 2013, 1,000 shares of common stock valued at $40,967 to that programming provider. These shareswere authorized, issued and outstanding, and are owned by Holdings as of common stock are subject to transfer restrictions which lapse over time. We recognized share-based payment expense associated with these shares of $5,852 in the years ended December 31, 2010, 2009 and 2008. As of December 31, 2010, there was a $1,568 remaining balance of 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.2013.

Preferred Stock, Holdings, 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, 20102013 and 2009.2012, respectively.

There were zero and 24,808,9596,250,100 shares of Series A ConvertibleB Preferred Stock (“Series A Preferred Stock”) issued and outstanding as of December 31, 2010 and 2009, respectively.2012 held by Liberty Media. In September 2010, the holder of the Series A Preferred StockJanuary 2013, Liberty Media converted the 24,808,959 outstandingits remaining shares into an equal number of shares of our common stock.
There were 12,500,000 shares of Convertible Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), issued and outstanding as of December 31, 2010 and 2009. 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% of our 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 ofinto 1,293,509,076 shares of our common stock into which each such Series B Preferred Stock share is 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 senior to our common stock. In 2009, we accounted for the issuance of Series B Preferred Stock by recording a $227,716 increase 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.

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 our common stock in connection with distribution, and programming agreements,and satellite purchase agreements and certain debt issuances.agreements. As of December 31, 2010,2013 and 2012, approximately 42,421,00018,455,000 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 uponwere included in our calculation of diluted net income per common share as the achievement of milestones andeffect was dilutive for the year endedDecember 31, 2013. The warrants expire at various times through 2015. At December 31, 2013 and 2012, the weighted average exercise price of outstanding warrants was $2.55 per share. We incurreddid not incur warrant related expense of $0, $2,522 and $1,865 forexpenses during the years endedDecember 31, 2010, 2009 and 2008, respectively.2013, 2012 or 2011.


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SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
               
  Average
    Number of Warrants Outstanding 
  Exercise
  Expiration
 December 31, 
  Price  Date 2010  2009 
(Warrants in thousands)           
 
NFL $2.50  March 2015  16,718   16,718 
DaimlerChrysler AG  1.04  May 2012  16,500   16,500 
RadioShack  —  December 2010  —   4,000 
Ford  3.00  October 2012  4,000   4,000 
Lehman Warrants  15.00  March 2011 - April 2011  1,575   2,100 
Warrants associated with XM Holdings Debt  —  March 2010  —   325 
Space Systems/Loral  7.05  December 2011  1,840   1,840 
Other distributors and programming providers  3.00  June 2014  1,788   1,788 
               
Total $2.66     42,421   47,271 
               
Rights Plan
     Number of Warrants Outstanding
     December 31,
(warrants in thousands)Average Exercise Price Expiration Date 2013 2012
NFL$2.50 March 2015 16,667
 16,667
Other distributors and programming providers$3.00 June 2014 1,788
 1,788
Total    18,455
 18,455
    
In April 2009, our board of directors adoptedOctober 2012, 4,000,000 warrants held by a rights plan. The terms of the rights and the rights plan are set forth in a Rights Agreement dated as of April 29, 2009 (the “Rights Plan”). The Rights Plan is intended to act as a deterrent to any person or group acquiring 4.9% or more of our outstanding common stock (assuming for purposes of this calculation that all of our outstanding convertible preferred stock is converted into common stock) without the approval of our board of directors. The Rights Plan will continue in effect until August 1, 2011, unless it is terminated or redeemed earlier by our board of directors.distributor expired.

(13)  (15)BenefitsBenefit Plans

We recognized share-based payment expense of $54,585, $65,607$68,876, $63,822 and $79,668$51,622 for the years endedDecember 31, 2010, 20092013, 2012 and 2008,2011, respectively. We did not realize any income tax benefits from share-based benefits plans during the year ended December 31, 2010, 2009 and 2008 as a result


F-36
Table of the full valuation allowance that is maintained for substantially all net deferred tax assets.Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

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. The 2009 Plan provides for the grant of stock options, restricted stock awards, 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, 2010,2013, approximately 268,255,00082,806,000 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

F-34

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Talent Option Plan. No further awards may be made under these plans. Outstandingplans and all outstanding awards under these plans are being continued.fully vested.

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,
 2013 2012 2011
Risk-free interest rate1.4% 0.8% 1.1%
Expected life of options — years4.73 5.06 5.27
Expected stock price volatility47% 49% 68%
Expected dividend yield0% 0% 0%

We do not intend to pay regular dividends on our common stock. Accordingly, the range of assumptionsdividend yield percentage used to computein the fairBlack-Scholes-Merton option value of options granted to third parties, other than non-employee members of our board of directors:is 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 yearyears endedDecember 31, 2010.2013, 2012 and 2011.


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F-37
Table of ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

The following table summarizes stock option activity under our share-based payment plans for the years endedDecember 31, 2010, 20092013, 2012 and 2008 (shares2011 (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 at the beginning of January 1, 2011401,870
 $1.32
    
Granted77,450
 $1.80
    
Exercised(13,300) $0.87
    
Forfeited, cancelled or expired(26,440) $4.15
    
Outstanding as of December 31, 2011439,580
 $1.25
    
Granted58,626
 $2.53
    
Exercised(214,199) $0.59
    
Forfeited, cancelled or expired(9,495) $3.09
    
Outstanding as of December 31, 2012274,512
 $1.92
    
Granted57,228
 $3.59
    
Exercised(61,056) $1.31
    
Forfeited, cancelled or expired(6,445) $2.02
    
Outstanding as of December 31, 2013264,239
 $2.42
 7.12 $327,398
Exercisable as of December 31, 2013114,278
 $2.26
 5.29 $179,549
(1)The weighted-average exercise price for options outstanding as of December 28, 2012 were adjusted in 2012 to reflect the reduction to the exercise price related to the December 2012 special cash dividend.

The weighted average grant date fair value of options granted during the years endedDecember 31, 2010, 20092013, 2012 and 20082011 was $0.67, $0.36$1.48, $1.09 and $1.27,$1.04, respectively. The total intrinsic value of stock options exercised during the years endedDecember 31, 2010, 20092013, 2012 and 20082011 was $13,261, $0$142,491, $399,794 and $127.$13,408, respectively. In July 2013, we transitioned to a net-settlement method from a cashless option exercise method for stock options. During the year endedDecember 31, 2013, the number of shares which were issued in the market as a result of stock option exercises was 32,649,857.

We recognized share-based payment expense associated with stock options of $44,833, $46,080$66,231, $60,299 and $49,148$48,038 for the years endedDecember 31, 2010, 20092013, 2012 and 2008,2011, respectively.


F-36


F-38
Table of ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

The following table summarizes the nonvested restricted stock award and restricted stock unit activity under our share-based payment plans for the years endedDecember 31, 2010, 20092013, 2012 and 20082011 (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, 20112,397
 $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, 2011421
 $1.46
Granted8
 $—
Vested restricted stock awards—
 $—
Vested restricted stock units—
 $—
Forfeited—
 $—
Nonvested as of December 31, 2012429
 $3.25
Granted6,873
 $3.59
Vested restricted stock units(192) $3.27
Forfeited(126) $3.61
Nonvested as of December 31, 20136,984
 $3.58

The total intrinsic value of restricted stock and restricted stock units that vested during the years endedDecember 31, 2010, 20092013, 2012 and 20082011 was $3,927, $45,827$605, $0 and $21,451,$3,178, respectively. The weighted average grant date fair value of restricted stock units granted during the year endedDecember 31, 2013 was $3.59.

We recognized share-based payment expense associated with restricted stock unitsawards and shares of restricted stock units of $7,397, $16,632$2,645, $0 and $21,813 for$543 during the years endedDecember 31, 2010, 20092013, 2012 and 2008,2011, respectively.

No restricted stock awards or restricted stock units were granted in 2011. 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 in 2012. There were no restricted stock units granted to third parties during the years endedDecember 31, 2013, 2012 and 2011.

Total unrecognized compensation costs related to unvested share-based payment awards for stock options, andrestricted stock awards, restricted stock units and shares granted to employees and members of our board of directors at December 31, 20102013 and 2009,2012, net of estimated forfeitures, was $108,170were $164,292 and $114,068,$129,010, respectively. The weighted-average period over which thetotal unrecognized compensation expense for these awards iscosts at December 31, 2013 are expected to be recognized is three years asover a weighted-average period of December 31, 2010.3 years.

401(k) Savings Plan
We sponsor the Sirius XM RadioHoldings Inc. 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, in the form ofcash which is used to purchase shares of our common stock.stock on the open market. 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 fromDuring the matching contribution to the plans was $2,356, $2,895 and $2,735 for the yearsyear ended December 31, 2010, 2009 and 2008, respectively.


F-37

2013SIRIUS XM RADIO INC. AND SUBSIDIARIES
we contributed
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)$4,181
We may also elect to contribute to the profit sharing portion of the Sirius XM Plan based uponin fulfillment of our matching obligation. During the total eligible compensation of eligible participants. These additionalyears ended December 31, 2012 and 2011, employer matching contributions were made in the form of shares of our common stock, are determined by the compensation committeeresulting in share-based payment expense of our board$3,523 and $3,041, respectively.


F-39
Table of directors. Employees are only eligible to receive profit-sharing contributions during any year in which they are employed on the last day of the year. Profit-sharing contribution expense was $0, $0 and $6,610 for the years ended December 31, 2010, 2009 and 2008, respectively.Contents
(14)  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
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- 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(Dollar amounts 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.thousands, unless otherwise stated)
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)  (16)Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of December 31, 2010:2013:
                             
  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 
                             
 2014 2015 2016 2017 2018 Thereafter Total
Debt obligations$509,663
 $7,359
 $4,140
 $460,799
 $—
 $2,650,000
 $3,631,961
Cash interest payments187,905
 152,440
 152,255
 152,699
 138,063
 399,813
 1,183,175
Satellite and transmission37,849
 13,993
 4,321
 3,404
 3,992
 16,524
 80,083
Programming and content245,069
 218,373
 96,737
 72,837
 60,150
 108,333
 801,499
Marketing and distribution32,578
 15,332
 9,951
 6,700
 6,173
 6,639
 77,373
Satellite incentive payments11,511
 11,439
 12,290
 13,212
 14,212
 55,398
 118,062
Operating lease obligations38,181
 43,053
 36,860
 30,475
 28,825
 221,626
 399,020
Other41,021
 9,989
 3,209
 851
 367
 —
 55,437
Total (1)
$1,103,777
 $471,978
 $319,763
 $740,977
 $251,782
 $3,458,333
 $6,346,610

(1)Includes capital lease obligations.
(2)
The table does not include our reserve for uncertain taxes,tax positions, which at December 31, 20102013 totaled $942,$1,432, as the specific timing of any cash payments relating to this obligation cannot be projected with reasonable certainty.

Long-term debtDebt obligations.  Long-term debtDebt 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.


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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 mayour obligations include fixed payments, advertising commitments and revenue sharing arrangements. Our future revenue sharing costs are dependent upon many factors and are difficult to estimate; therefore, they are not included in our minimum contractual cash commitments.

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 new 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’sour 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, we have accrued $28,605 related to contingent in-orbit performance payments for satellites used in the XM system, XM-3 and XM-4, based on the expected operating performance overexceeding 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-yearfifteen-year design life.
 
Space Systems/Loral, the manufacturer of six of our in-orbit satellites, may be entitled to future in-orbit performance payments. As of December 31, 2010, we have accrued $12,565 and $21,450 relatedpayments with respect to contingent performance payments forthree satellites, XM-5, FM-5 and XM-5, respectively,FM-6, based on their expected operating performance overexceeding their fifteen-yearfifteen-year design life.

Operating lease obligations.We have entered into both 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 ended December 31, 2010, 20092013, 2012 and 20082011 was $36,652, $44,374$39,228, $37,474 and $40,378,$34,143, respectively.


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Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

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
State Consumer Investigations.Investigations. A Multistate Working Group of 2832 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 AttorneyAttorneys General of the State of Florida. In addition, in September 2010, the Attorney General ofFlorida 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. v. Sirius XM Radio Inc.  A subscriber, Carl Blessing, filed a lawsuit 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 of directors breached its duty of loyalty to the corporation. The action names as defendants Sirius XM and fifteen individuals — all directors or former directors of Sirius XM. This lawsuit has been stayed pending resolution of the Blessing litigation.
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.

(16)  (17)Subsequent EventsIncome Taxes

MergerHoldings
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 current 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 current foreign income tax provision is primarily related to a reimbursement of XM Satellite Radio Inc.foreign withholding taxes on royalty income between us and Sirius XM Radio Inc.our Canadian affiliate.
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., togetherHoldings files a consolidated federal income tax return with its subsidiaries, as an unrestricted subsidiary under the agreements governing our indebtedness.
Repurchase of 11.25% Notes
The remainderwholly-owned subsidiaries. Income tax expense (benefit) attributable to Holdings consisted of the 11.25% Notesfollowing:
 For the Years Ended December 31,
 2013
2012
2011
Current taxes:     
Federal$—
 $—
 $—
State5,359
 1,319
 3,229
Foreign(5,269) 2,265
 2,741
Total current taxes90
 3,584
 5,970
Deferred taxes:     
Federal211,044
 (2,729,823) 3,991
State48,743
 (271,995) 4,273
Total deferred taxes259,787
 (3,001,818) 8,264
Total income tax expense (benefit)$259,877
 $(2,998,234) $14,234


F-41
Table 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

ContentsSIRIUS XM RADIO INC. AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)- Continued
(Dollar amounts in thousands, unless otherwise stated)

The following table indicates the significant elements contributing to the difference between the federal tax expense (benefit) at the statutory rate and at our effective rate:
 For the Years Ended December 31,
 2013
2012 2011
Federal tax expense, at statutory rate$222,982
 $166,064
 $154,418
State income tax expense, net of federal benefit19,031
 16,606
 15,751
State income rate changes8,666
 2,251
 3,851
Non-deductible expenses9,545
 477
 457
Change in valuation allowance(4,228) (3,195,651) (166,452)
Other, net3,881
 12,019
 6,209
Income tax expense (benefit)$259,877
 $(2,998,234) $14,234

RepurchaseThe tax effects of 3.25% Notes
In February 2011, $94,148temporary differences that give rise to significant portions of the 3.25% Notesdeferred tax assets and deferred tax liabilities are presented below:
 For the Years Ended December 31,
 2013
2012
Deferred tax assets:   
Net operating loss carryforwards$2,207,583
 $2,493,239
GM payments and liabilities1,984
 80,742
Deferred revenue606,430
 511,700
Severance accrual388
 46
Accrued bonus25,830
 23,798
Expensed costs capitalized for tax22,679
 26,569
Loan financing costs664
 428
Investments45,078
 39,915
Stock based compensation71,794
 64,636
Other31,735
 34,705
Total deferred tax assets3,014,165
 3,275,778
Deferred tax liabilities:   
Depreciation of property and equipment(188,675) (185,007)
FCC license(778,152) (772,550)
Other intangible assets(233,983) (165,227)
Total deferred tax liabilities(1,200,810) (1,122,784)
Net deferred tax assets before valuation allowance1,813,355
 2,152,994
Valuation allowance(7,831) (9,835)
Total net deferred tax asset$1,805,524
 $2,143,159
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. The net deferred tax assets are primarily related to gross net operating loss carryforwards of approximately $5,828,461. In addition to the gross book net operating loss carryforwards, we have $702,187 of excess share-based compensation deductions that will not be realized until we utilize the $5,828,461 of net operating losses, resulting in an approximate gross operating loss carryforward on our tax return of $6,530,648.
For the year ended December 31, 2012, our deferred tax asset valuation allowance decreased by $3,350,905in response to cumulative positive evidence in 2012 which outweighed the historical negative evidence from our emergence from

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Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

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. As of December 31, 2013, the deferred tax asset valuation allowance of $7,831 relates to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations and acquired net operating losses that we are not more likely than not going to utilize. These net operating loss carryforwards expire on various dates beginning in 2017 and ending in 2028.
As a result of the acquisition of the connected vehicle business of Agero, we established net current deferred tax assets of $767 and net non-current deferred tax liabilities of $78,127. The net non-current deferred tax liabilities are primarily due to intangible assets and the acquired separate return limitation year net operating losses of $4,340; of which $2,224 remain fully valued.
As of December 31, 2013 and 2012, the gross liability for an aggregate purchase priceincome taxes associated with uncertain state tax positions was $1,432. If recognized, $1,432 of $96,041. A loss from extinguishmentunrecognized 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 debtDecember 31, 2013 will significantly increase or decrease during the twelve-month period ending December 31, 2014; however, various events could cause our current expectations to change in the future. Should our position with respect to the majority of $1,079 willthese uncertain tax positions be upheld, the effect would be recorded in the first quarterour 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 sharesincome tax provision. Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of CSR representingincome tax expense. We have recorded interest expense of $40 and $55 for the years ended December 31, 2013 and 2012, 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:
 2013 2012
Balance, beginning of year$1,432
 $1,432
Additions for tax positions from prior years—
 —
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
The increased ownership in us by Liberty Media to over 50% of our outstanding common stock did not create a change of control under Section 382 of the Internal Revenue Code.

Sirius XM

Sirius XM and its wholly-owned subsidiaries are included in the consolidated federal income tax returns of Holdings. However, due to the differences in the Income before income taxes balances between Holdings and Sirius XM in our consolidated statements of comprehensive income, the following table shows the significant elements contributing to the difference between the federal tax expense (benefit) at the statutory rate and at Sirius XM's effective rate:

 For the Years Ended December 31,
 2013 2012 2011
Federal tax expense, at statutory rate$67,684
 $166,064
 $154,418
State income tax expense, net of federal benefit4,467
 16,606
 15,751
State income rate changes8,666
 2,251
 3,851
Non-deductible expenses699
 477
 457
Change in valuation allowance(4,228) (3,195,651) (166,452)
Fair value of debt instrument178,704
 —
 —
Other, net3,885
 12,019
 6,209
Income tax expense (benefit)$259,877
 $(2,998,234) $14,234



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Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollar amounts in thousands, unless otherwise stated)

(18)    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) $— 
 Sirius XM Holdings Inc.
 For the Three Months Ended
 March 31 June 30 September 30 December 31
2013       
Total revenue$897,398
 $940,110
 $961,509
 $1,000,078
Cost of services$(330,257) $(331,465) $(336,464) $(396,304)
Income from operations$246,931
 $267,736
 $284,529
 $245,357
Net income$123,602
 $125,522
 $62,894
 $65,197
Net income per common share--basic (1)
$0.02
 $0.02
 $0.01
 $0.01
Net income per common share--diluted (1)
$0.02
 $0.02
 $0.01
 $0.01
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)
$0.02
 $0.49
 $0.01
 $0.02
Net income per common share--diluted (1)
$0.02
 $0.48
 $0.01
 $0.02

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


F-43

Schedule
 Sirius XM Radio Inc.
 For the Three Months Ended
 March 31 June 30 September 30 December 31
2013 (1)
       
Total revenue$897,398
 $940,110
 $961,509
 $1,000,078
Cost of services$(330,257) $(331,465) $(336,464) $(396,304)
Income from operations$246,931
 $267,736
 $284,529
 $245,357
Net income (loss) attributable to Sirius XM's sole stockholder$123,602
 $125,522
 $62,894
 $(378,512)
2012 (1)

 
 
 
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 attributable to Sirius XM's sole stockholder$107,774
 $3,134,170
 $74,514
 $156,244

(1)Net income per share for Sirius XM is not presented since Sirius XM is a wholly-owned subsidiary of Holdings.



F-44
Table of Contents
SIRIUS XM RADIOHOLDINGS INC. AND SUBSIDIARIES

Schedule II —- Schedule of Valuation and Qualifying Accounts

Holdings and Sirius XM:

                 
        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       
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
2013       
Allowance for doubtful accounts$11,711
 39,016
 (41,649) $9,078
Deferred tax assets—valuation allowance$9,835
 (4,228) 2,224
 $7,831



F-45
Table of Contents

EXHIBIT INDEX

(1)Exhibit
Description

2.1
Certificate of Ownership and Merger, dated as of January 12, 2011, merging XM Satellite Radio Inc. with and into Sirius XM Radio Inc. (incorporated by reference to Exhibit 3.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on January 12, 2011).
2.2
Agreement and Plan of Merger, dated as of November 14, 2013, by and among Sirius XM Radio Inc., Sirius XM Holdings Inc. and Sirius XM Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013).
3.1
Amended and Restated Certificate of Incorporation of Sirius XM Holdings Inc. (incorporated by reference to Exhibit 3.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013).
3.2
Amended and Restated By-Laws of Sirius XM Holdings Inc. (incorporated by reference to Exhibit 3.2 to Holdings Current Report on Form 8-K filed on November 15, 2013).
3.3
Amended and Restated Certificate of Incorporation of Sirius XM Radio Inc., as amended (filed herewith).
3.4
Amended and Restated By-Laws of Sirius XM Radio Inc., as amended (filed herewith).
3.5
Certificate of Elimination of Series A Convertible Preferred Stock, Convertible Perpetual Preferred Stock, Series B-1, Convertible Perpetual Non-Voting Preferred Stock, Series B-2, and Series C Junior Preferred Stock of Sirius XM Radio Inc. (incorporated by reference to Exhibit 3.3 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013).
4.1
Form of certificate for shares of Sirius XM Holdings Inc.’s common stock (filed herewith).
4.2
Indenture, dated as of August 1, 2008, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC, XM Radio Inc., Sirius Satellite Radio Inc. 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 Sirius XM Radio Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
4.3
Registration Rights Agreement, dated as of August 1, 2008, among Sirius Satellite Radio Inc., XM Satellite Radio Inc., 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 Sirius XM Radio Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
4.4
Supplemental Indenture, dated as of 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 Exhibit 4.4 to XM Satellite Radio Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
4.5
Supplemental Indenture, dated as of January 12, 2011, by and among XM Satellite Radio Inc., Sirius XM Radio Inc., the guarantors named therein 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 Sirius XM Radio Inc.’s Current Report on Form 8-K filed on January 12, 2011).
4.6
Supplemental Indenture, dated as of November 15, 2013, among Sirius XM Radio Inc., Sirius XM Holdings Inc., the guarantors named therein and The Bank of New York Mellon, as Trustee, relating to the 7% Exchangeable Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013).
4.7
Indenture, dated as of August 13, 2012, among Sirius XM Radio Inc., the guarantors thereto and U.S. Bank National Association, as trustee, relating to Sirius XM Radio Inc.’s 5.25% Senior Notes due 2022 (incorporated by reference to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on August 14, 2012).
4.8
Indenture, dated as of May 16, 2013, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 4.25% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on May 20, 2013).

E-1
Table of Contents

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
Indenture, dated as of May 16, 2013, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 4.625% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on May 20, 2013).
4.10
Indenture, dated as of August 1, 2013, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 5.75% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on August 1, 2013).
4.11
Indenture, dated as of September 24, 2013, among Sirius XM Radio Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on September 25, 2013).
4.12
Form of Common Stock Purchase Warrant, dated as of January 27, 2009, issued by Sirius XM Radio Inc. to NFL Enterprises LLC (incorporated by reference to Exhibit 4.48 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008).
4.13
Sirius XM Holdings Inc.’s Assumption of NFL Enterprises LLC Warrant, dated as of November 15, 2013 (filed herewith).
4.14
Investment Agreement, dated as of February 17, 2009, between Sirius XM Radio Inc. and Liberty Radio LLC (incorporated by reference to Exhibit 4.55 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008).
4.15
Assignment and Assumption of Investment Agreement among Sirius XM Radio Inc., Sirius XM Holdings Inc. and Liberty Radio LLC, dated as of November 15, 2013 (filed herewith).
10.1
Credit Agreement, dated as of December 5, 2012, among Sirius XM Radio Inc., JPMorgan Chase Bank, N.A. as administrative agent, and the other agents and lenders party thereto (incorporated by reference to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on December 10, 2012).
**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 (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 Inc., XM Satellite Radio Holdings 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 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated May 22, 2003, among XM Satellite Radio Inc., 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).
**10.8
Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated July 31, 2003, among XM Satellite Radio Inc., 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
Table of Contents

Exhibit
Description
**10.9
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).
10.10
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).
*10.11
Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to Sirius XM Radio Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
*10.12
Form of Stock Option Agreement between CD Radio Inc. and each Optionee (incorporated by reference to Exhibit 10.16.2 to Sirius XM Radio Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
*10.13
CD Radio Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 4.4 to CD Radio Inc.’s Registration Statement on Form S-8 (File No. 333-65473)).
*10.14
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).
*10.15
Form of Non-Qualified Stock Option Agreement pursuant to the XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to XM Satellite Radio Holdings Inc.’s Current Report on Form 8-K filed June 1, 2007).
*10.16
Form of Restricted Stock Agreement pursuant to the XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to XM Satellite Radio Holdings Inc.’s Current Report on Form 8-K filed June 1, 2007).

*10.17
Sirius XM Radio 401(k) Savings Plan, January 1, 2009 Restatement (incorporated by reference to Exhibit 10.30 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009).
*10.18
Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 4.9 to Sirius XM Radio Inc.’s Registration Statement on Form S-8 (File No. 333- 160386)).
*10.19
Form of Director Non-Qualified Stock Option Agreement pursuant to the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.34 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011).
*10.20
Form of Non-Qualified Stock Option Agreement pursuant to the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.35 to Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011).
*10.21
Employment Agreement, dated as of July 21, 2011, between Sirius XM Radio Inc. and David J. Frear (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on July 22, 2011).
*10.22
Employment Agreement, dated as of August 23, 2011, between Sirius XM Radio Inc. and Dara F. Altman (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed on August 24, 2011).
*10.23
Form of Option Award Agreement between Sirius XM Radio Inc. and James E. Meyer (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed October 16, 2009).
*10.24
Employment Agreement, dated as of April 29, 2013, between Sirius XM Radio Inc. and James E. Meyer (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K dated April 30, 2013).
*10.25
Employment Agreement, dated as of July 22, 2013, between Sirius XM Radio Inc. and Scott A. Greenstein (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K dated July 23, 2013).
*10.26
Form of Option Award Agreement between Sirius XM Radio Inc. and Patrick L. Donnelly (incorporated by reference to Exhibit 10.1 to Sirius XM Radio Inc.’s Current Report on Form 8-K filed January 15, 2010).

E-3
Table of Contents

Exhibit
Description
*10.27
Employment Agreement, dated as of January 10, 2014, between Sirius XM Radio Inc. and Patrick L. Donnelly (incorporated by reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on January 14, 2014).
*10.28
Assignment and Assumption Agreement, dated as of November 15, 2013, among Sirius XM Holdings Inc. and Sirius XM Radio Inc. (incorporated by reference to Exhibit 10.1 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013).
*10.29
Omnibus Amendment, dated November 15, 2013, to the XM Satellite Radio Holdings Inc. Talent Option Plan, the XM Satellite Radio Holdings Inc. 1998 Shares Award Plan, as amended, the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan, the XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan and the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan and their Related Stock Option Agreements, Restricted Stock Agreements and Restricted Stock Unit Agreements (incorporated by reference to Exhibit 10.2 to Sirius XM Holdings Inc.’s Current Report on Form 8-K filed on November 15, 2013).
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 Sirius XM Holdings Inc. and Sirius XM Radio Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011; (ii) Consolidated Balance Sheets as of December 31, 2013 and 2012; (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011; and (v) Combined Notes to Consolidated Financial Statements.
 ____________________
       * This document has been identified as a management contract or compensatory plan or arrangement.
**    ** Pursuant to the 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

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.


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