UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2012~~2013



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM __________ TO ________

COMMISSION FILE NUMBER 001-34295

SIRIUS XM RADIO INC.

(Exact name of registrant as specified in its charter)



Delaware		52-1700207
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1221 Avenue of the Americas, 36th Floor
New York, New York		10020
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 584-5100

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 of Regulation 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 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 Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



(Class)	(Outstanding as of October ~~25, 2012)~~22, 2013)
COMMON STOCK, $0.001 PAR VALUE	~~5,207,146,165~~6,135,513,195	SHARES

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q



Item No.	Description

	PART I — Financial Information

Item 1.	Financial Statements:

	~~Unaudited~~ Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012	1

	Consolidated Balance Sheets as of September 30, ~~2012 (Unaudited)~~2013 and December 31, ~~2011~~2012	2

	~~Unaudited~~ Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, ~~2012~~2013	3

	~~Unaudited~~ Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012	4

	Notes to ~~Unaudited~~ Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2426

Item 3.	Quantitative and Qualitative Disclosures About ~~Material Risk~~Market Risks	4847

Item 4.	Controls and Procedures	4847

	PART II — Other Information

Item 1.	Legal Proceedings	4847

Item 1A.	Risk Factors	4948

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4948

Item 3.	Defaults Upon Senior Securities	4948

Item 4.	Mine Safety Disclosures	4948

Item 5.	Other Information	49

Item 6.	Exhibits	49

	Signatures	50

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

~~UNAUDITED~~ CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands, except per share data)	2012			2011			2012			2011			2013			2012			2013			2012
Revenue:
Subscriber revenue	$	757,672		$	660,837		$	2,188,199		$	1,922,917		$	834,053		$	757,672		$	2,432,113		$	2,188,199
Advertising revenue, net of agency fees	20,426			18,810			59,881			53,595
Advertising revenue													21,918			20,426			63,886			59,881
Equipment revenue	17,813			15,504			51,183			48,392			17,989			17,813			54,588			51,183
Other revenue	71,449			67,399			210,362			205,882			87,549			71,449			248,430			210,362
Total revenue	867,360			762,550			2,509,625			2,230,786			961,509			867,360			2,799,017			2,509,625
Operating expenses:
Cost of services:
Revenue share and royalties	141,834			117,043			409,371			340,713			162,627			141,834			467,017			409,371
Programming and content	69,938			70,509			205,203			210,867			72,322			69,938			217,313			205,203
Customer service and billing	77,768			64,239			212,635			192,667			76,322			77,768			237,006			212,635
Satellite and transmission	18,319			19,681			53,980			57,238			19,853			18,319			59,041			53,980
Cost of equipment	6,345			5,888			19,301			19,894			5,340			6,345			17,809			19,301
Subscriber acquisition costs	112,418			107,279			348,014			317,711			125,457			112,418			371,560			348,014
Sales and marketing	60,676			55,210			176,457			154,471			75,638			60,676			209,594			176,457
Engineering, design and development	13,507			14,175			32,468			39,249			13,007			13,507			42,901			32,468
General and administrative	68,235			58,635			193,786			175,469			67,881			68,235			184,613			193,786
Depreciation and amortization	66,571			65,403			199,481			200,865			58,533			66,571			192,966			199,481
Total operating expenses	635,611			578,062			1,850,696			1,709,144			676,980			635,611			1,999,820			1,850,696
Income from operations	231,749			184,488			658,929			521,642			284,529			231,749			799,197			658,929
Other income (expense):
Interest expense, net of amounts capitalized	(70,035		)	(75,316		)	(219,777		)	(229,730		)	(54,629		)	(70,035		)	(150,531		)	(219,777		)
Loss on extinguishment of debt and credit facilities, net	(107,105		)	—			(132,726		)	(7,206		)	(107,971		)	(107,105		)	(124,348		)	(132,726		)
Interest and investment (loss) income	(321		)	292			(3,192		)	78,590
Interest and investment income (loss)													1,716			(321		)	3,648			(3,192		)
Other income (loss)	113			435			(637		)	2,235			407			113			909			(637		)
Total other expense	(177,348		)	(74,589		)	(356,332		)	(156,111		)	(160,477		)	(177,348		)	(270,322		)	(356,332		)
Income before income taxes	54,401			109,899			302,597			365,531			124,052			54,401			528,875			302,597
Income tax benefit (expense)	20,113			(5,714		)	3,013,860			(9,907		)
Income tax (expense) benefit													(61,158		)	20,113			(216,857		)	3,013,860
Net income	$	74,514		$	104,185		$	3,316,457		$	355,624		$	62,894		$	74,514		$	312,018		$	3,316,457
Realized loss on XM Canada investment foreign currency adjustment, net of tax	—			—			—			6,072
Foreign currency translation adjustment, net of tax	—			110			(38		)	187			(11		)	—			(292		)	(38		)
Comprehensive income	$	74,514		$	104,295		$	3,316,419		$	361,883
Total comprehensive income													$	62,883		$	74,514		$	311,726		$	3,316,419
Net income per common share:
Basic	$	0.01		$	0.02		$	0.52		$	0.06		$	0.01		$	0.01		$	0.05		$	0.52
Diluted	$	0.01		$	0.02		$	0.49		$	0.05		$	0.01		$	0.01		$	0.05		$	0.49
Weighted average common shares outstanding:
Basic	4,034,122			3,747,381			3,870,031			3,742,309			6,184,216			4,034,122			6,265,981			3,870,031
Diluted	6,577,654			6,507,370			6,848,230			6,500,819			6,287,353			6,577,654			6,446,082			6,848,230

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2012			December 31, 2011			September 30, 2013			December 31, 2012
(in thousands, except share and per share data)	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	556,270		$	773,990		$	716,784		$	520,945
Accounts receivable, net	102,963			101,705			102,778			106,142
Receivables from distributors	87,773			84,817			80,819			104,425
Inventory, net	35,823			36,711			14,242			25,337
Prepaid expenses	150,397			125,967			130,794			122,157
Related party current assets	8,221			14,702			11,141			13,167
Deferred tax asset	913,010			132,727			887,182			923,972
Other current assets	8,271			6,335			7,525			12,037
Total current assets	1,862,728			1,276,954			1,951,265			1,828,182
Property and equipment, net	1,601,363			1,673,919			1,542,887			1,571,922
Long-term restricted investments	3,973			3,973			5,718			3,999
Deferred financing fees, net	32,546			42,046			29,377			38,677
Intangible assets, net	2,532,455			2,573,638			2,482,367			2,519,610
Goodwill	1,815,673			1,834,856			1,815,365			1,815,365
Related party long-term assets	50,104			54,953			29,385			44,954
Long-term deferred tax asset	1,244,996			—			1,036,708			1,219,256
Other long-term assets	11,204			35,657			13,240			12,878
Total assets	$	9,155,042		$	7,495,996		$	8,906,312		$	9,054,843
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	514,479		$	543,193		$	528,173		$	587,652
Accrued interest	64,463			70,405			53,918			33,954
Current portion of deferred revenue	1,426,815			1,333,965			1,522,513			1,474,138
Current portion of deferred credit on executory contracts	275,567			284,108			3,904			207,854
Current maturities of long-term debt	4,326			1,623			489,492			4,234
Current maturities of long-term related party debt							49,383			—
Related party current liabilities	12,988			14,302			6,121			6,756
Total current liabilities	2,298,638			2,247,596			2,653,504			2,314,588
Deferred revenue	158,223			198,135			145,656			159,501
Deferred credit on executory contracts	6,243			218,199			2,339			5,175
Long-term debt	2,221,685			2,683,563			3,161,372			2,222,080
Long-term related party debt	208,742			328,788			10,948			208,906
Deferred tax liability	—			1,011,084
Related party long-term liabilities	19,660			21,741			16,884			18,966
Other long-term liabilities	85,676			82,745			80,941			86,062
Total liabilities	4,998,867			6,791,851			6,071,644			5,015,278
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2012 and December 31, 2011:
Series A convertible preferred stock; no shares issued and outstanding at September 30, 2012 and December 31, 2011	—			—
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at September 30, 2012 and December 31, 2011); 6,250,100 and 12,500,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	6			13
Common stock, par value $0.001; 9,000,000,000 shares authorized at September 30, 2012 and December 31, 2011; 5,192,364,730 and 3,753,201,929 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	5,192			3,753
Accumulated other comprehensive income, net of tax	33			71
Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2013 and December 31, 2012:
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share); 0 and 6,250,100 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively							—			6
Common stock, par value $0.001; 9,000,000,000 shares authorized; 6,134,596,655 and 5,262,440,085 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively							6,135			5,263
Accumulated other comprehensive (loss) income, net of tax							(172		)	120
Additional paid-in capital	10,618,579			10,484,400			8,828,077			10,345,566
Accumulated deficit	(6,467,635		)	(9,784,092		)	(5,999,372		)	(6,311,390		)
Total stockholders’ equity	4,156,175			704,145			2,834,668			4,039,565
Total liabilities and stockholders’ equity	$	9,155,042		$	7,495,996		$	8,906,312		$	9,054,843

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

~~UNAUDITED~~ CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Series A Convertible Preferred Stock			Convertible Perpetual Preferred Stock, Series B-1					Common Stock														Convertible Perpetual Preferred Stock, Series B-1					Common Stock											Treasury Stock
(in thousands, except share data)	Shares	Amount		Shares		Amount			Shares	Amount		Accumulated Other Comprehensive Income			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity		Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Income (Loss)			Additional Paid-in Capital			Shares		Amount			Accumulated Deficit			Total Stockholders’ Equity
Balance at December 31, 2011	—	$	—	12,500,000		$	13		3,753,201,929	$	3,753	$	71		$	10,484,400		$	(9,784,092	)	$	704,145
Balance at December 31, 2012																							6,250,100		$	6		5,262,440,085		$	5,263		$	120		$	10,345,566		—		$	—		$	(6,311,390	)	$	4,039,565
Comprehensive income, net of tax												(38		)				3,316,457			3,316,419		—		$	—		—		$	—		$	(292	)	$	—		—		$	—		$	312,018		$	311,726
Issuance of common stock to employees and employee benefit plans, net of forfeitures	—	—		—		—			1,385,591	1		—			3,010			—			3,011
Share-based payment expense	—	—		—		—			—	—		—			43,350			—			43,350		—		$	—		—		$	—		$	—		$	49,774		—		$	—		$	—		$	49,774
Exercise of stock options	—	—		—		—			144,309,526	144		—			89,106			—			89,250
Exercise of options and vesting of restricted stock units																							—		$	—		27,505,245		$	28		$	—		$	19,251		—		$	—		$	—		$	19,279
Minimum withholding taxes on net share settlement of stock-based compensation																							—		$	—		—		$	—		$	—		$	(28,413	)	—		$	—		$	—		$	(28,413	)
Conversion of preferred stock to common stock	—	—		(6,249,900	)	(7		)	1,293,467,684	1,294		—			(1,287		)	—			—		(6,250,100	)	$	(6	)	1,293,509,076		$	1,293		$	—		$	(1,287	)	—		$	—		$	—		$	—
Balance at September 30, 2012	—	$	—	6,250,100		$	6		5,192,364,730	$	5,192	$	33		$	10,618,579		$	(6,467,635	)	$	4,156,175
Conversion of Exchangeable Notes to common stock																							—		$	—		27,687,850		$	28		$	—		$	45,069		—		$	—		$	—		$	45,097
Common stock repurchased																							—		$	—		—		$	—		$	—		$	—		476,545,601		$	(1,602,360	)	$	—		$	(1,602,360	)
Common stock retired																							—		$	—		(476,545,601	)	$	(477	)	$	—		$	(1,601,883	)	(476,545,601	)	$	1,602,360		$	—		$	—
Balance at September 30, 2013																							—		$	—		6,134,596,655		$	6,135		$	(172	)	$	8,828,077		—		$	—		$	(5,999,372	)	$	2,834,668

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

~~UNAUDITED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands)	2012			2011			2013			2012
Cash flows from operating activities:
Net income	$	3,316,457		$	355,624		$	312,018		$	3,316,457
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	199,481			200,865			192,966			199,481
Non-cash interest expense, net of amortization of premium	30,786			29,211			16,506			30,786
Provision for doubtful accounts	24,953			26,209			28,571			24,953
Amortization of deferred income related to equity method investment	(2,082		)	(2,082		)	(2,082		)	(2,082		)
Loss on extinguishment of debt and credit facilities, net	132,726			7,206			124,348			132,726
Gain on merger of unconsolidated entities	—			(84,855		)
Loss on unconsolidated entity investments, net	4,014			10,259
(Gain) loss on unconsolidated entity investments, net							(2,831		)	4,014
Dividend received from unconsolidated entity investment							17,707			—
Loss on disposal of assets	567			269			128			567
Share-based payment expense	46,361			37,574			49,774			46,361
Deferred income taxes	(3,017,021		)	7,214			219,184			(3,017,021		)
Other non-cash purchase price adjustments	(220,336		)	(203,630		)	(206,786		)	(220,336		)
Distribution from investment in unconsolidated entity	—			4,849
Changes in operating assets and liabilities:
Accounts receivable	(26,211		)	(1,456		)	(25,207		)	(26,211		)
Receivables from distributors	(2,956		)	(12,358		)	23,606			(2,956		)
Inventory	888			(14,278		)	11,095			888
Related party assets	6,905			30,300			2,077			6,905
Prepaid expenses and other current assets	(26,367		)	(11,028		)	(6,665		)	(26,367		)
Other long-term assets	24,454			23,969			(363		)	24,454
Accounts payable and accrued expenses	(27,384		)	(100,502		)	(58,680		)	(27,384		)
Accrued interest	(5,940		)	6,472			19,964			(5,940		)
Deferred revenue	52,777			19,653			34,530			52,777
Related party liabilities	(1,314		)	696			(635		)	(1,314		)
Other long-term liabilities	2,774			(1,547		)	(4,968		)	2,774
Net cash provided by operating activities	513,532			328,634			744,257			513,532

Cash flows from investing activities:
Additions to property and equipment	(73,546		)	(115,065		)	(118,235		)	(73,546		)
Release of restricted investments	—			250
Return of capital from investment in unconsolidated entity	—			10,117
Purchases of restricted and other investments							(1,719		)	—
Net cash used in investing activities	(73,546		)	(104,698		)	(119,954		)	(73,546		)

Cash flows from financing activities:
Proceeds from exercise of stock options	89,250			9,045			21,819			89,250
Long-term borrowings, net of costs	393,687			—
Taxes paid in lieu of shares issued for stock-based compensation							(27,913		)	—
Proceeds from long-term borrowings and revolving credit facility, net of costs							2,532,137			393,687
Payment of premiums on redemption of debt	(100,615		)	(5,020		)	(116,410		)	(100,615		)
Repayment of long-term borrowings	(914,028		)	(210,060		)
Repayment of long-term borrowings and revolving credit facility							(1,085,737		)	(914,028		)
Repayment of related party long-term borrowings	(126,000		)	—			(150,000		)	(126,000		)
Common stock repurchased and retired							(1,602,360		)	—
Net cash used in financing activities	(657,706		)	(206,035		)	(428,464		)	(657,706		)
Net (decrease) increase in cash and cash equivalents	(217,720		)	17,901
Net increase (decrease) in cash and cash equivalents							195,839			(217,720		)
Cash and cash equivalents at beginning of period	773,990			586,691			520,945			773,990
Cash and cash equivalents at end of period	$	556,270		$	604,592		$	716,784		$	556,270

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

~~UNAUDITED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS - ~~Continued~~(Continued)

(UNAUDITED)


	For the Nine Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2012		2011		2013		2012
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized	$	188,997	$	235,096	$	109,476	$	188,997
Non-cash investing and financing activities:
Capital lease obligations incurred to acquire assets					8,870		12,781
Conversion of Series B preferred stock to common stock	1,294		—		1,293		1,294
Capital lease obligations incurred to acquire assets	12,781		—
Common stock issuance upon exercise of warrants	—		7
Conversion of 7% Exchangeable Notes to common stock, net of debt issuance and deferred financing costs					45,097		—
Goodwill reduced for the exercise and vesting of certain stock awards	19,183		—		—		19,183

See accompanying notes to the unaudited consolidated financial statements.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)


(1)	Business & Basis of Presentation

Business

We broadcast our music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services in the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive ~~certain of our~~ music and other channels, plus new features such as SiriusXM On Demand and MySXM, over the Internet, including through applications for mobile devices. We have agreements with every major automaker (“OEMs”) to offer satellite radios as ~~factory-~~factory or dealer-installed equipment in their ~~vehicles.~~vehicles from which we acquire a majority of our subscribers. We also acquire subscribers through ~~the sale or lease~~marketing campaigns to owners of ~~previously owned vehicles with~~ factory-installed satellite ~~radios. We~~radios that are not currently subscribing to our services. Additionally, we distribute our satellite radios through retail locations nationwide and 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-term~~longer 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 Internet radio, Backseat TV, data, traffic 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~~or previously owned vehicles. The length of these ~~prepaid~~trial subscriptions varies but is typically three to twelve months. ~~In many cases, we~~We 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 ~~their~~new vehicles.


~~(2)~~	~~Summary of Significant Accounting Policies~~

On August 14, 2013, we entered into a Stock Purchase Agreement with Agero, Inc. ("Agero"), pursuant to which we agreed to acquire the connected vehicle business of Agero for an aggregate purchase price of approximately $530,000 in cash. Agero's connected vehicle business is a leader in implementing the next generation of connected vehicle services. The business offers a portfolio of location-based services through two-way wireless connectivity, including safety, security, convenience, maintenance and data services and remote vehicle diagnostics. The transaction is expected to close in the fourth quarter of 2013 subject to the expiration or early termination of the Hart-Scott-Rodino antitrust waiting period and other customary closing conditions.

Liberty Media Corporation beneficially owned as of September 30, 2013, 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 and Barnes & Noble, and minority equity investments in Time Warner, Inc. and Viacom.

Principles of Consolidation

The accompanying consolidated financial statements of Sirius XM Radio Inc. and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission ~~("SEC"~~(“SEC”) for interim financial reporting. ~~Accordingly, these interim~~Certain information and footnote disclosures normally included in the financial statements ~~do not include all~~presented in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

Basis of ~~the information and footnotes required by GAAP for complete~~Presentation

Certain numbers in our prior period consolidated financial ~~statements.~~statements have been reclassified to conform to our current period presentation. All significant intercompany transactions have been eliminated in consolidation.

~~Basis of Presentation~~

In the opinion of management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of September 30, ~~2012~~2013 and for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 have been made.

Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year endedDecember 31, ~~2011~~2012, which was filed with the SEC on February ~~9, 2012.~~6, 2013.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, ~~2012~~2013 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events refer to Note 17.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the 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 unaudited consolidated financial statements include assessments of asset impairment, depreciable lives of our satellites, share-based payment expense and ~~valuation allowances against deferred tax assets.~~income taxes.

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

~~Income Taxes~~

~~Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.~~

Deferred income taxes represent 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 reporting period, 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 or maintained 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.

ASC 740, Income Taxes, requires a company to first determine whether it is more 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 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 Income tax expense in our unaudited consolidated statements of 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 ourselves and a customer in our unaudited consolidated statements of comprehensive income.


(2)	Summary of Significant Accounting Policies

Fair Value of Financial 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 September 30, ~~2012~~2013 and December 31, ~~2011~~2012, the carrying value of our debt was $~~2,434,753~~3,711,195 and $~~3,013,974~~2,435,220, ~~respectively;~~respectively, and the fair value approximated $~~2,973,312~~4,304,922 and $~~3,506,546~~3,055,076, respectively. The carrying value of our investment in Sirius XM Canada was $28,589 and $37,983 as of September 30, 2013 and December 31, 2012, respectively; the fair value approximated $385,000 and $290,900 as of September 30, 2013 and December 31, 2012, respectively.

Accumulated Other Comprehensive Income

(Loss)

Accumulated other comprehensive ~~income~~loss of $33172 at ~~September 30, 2012~~ iswas primarily comprised of the cumulative foreign currency translation adjustments related to our interest in Sirius XM Canada. During the three months ended September 30, ~~2012, we recorded a foreign currency translation adjustment of~~ $0 ~~and during the~~ ~~nine months endedSeptember 30, 2012~~2013, we recorded a foreign currency translation adjustment loss of $3811, net of a tax benefit of $3715; during the nine months endedSeptember 30, 2013, we recorded a foreign currency translation adjustment loss of $292, net of a tax benefit of $155.

Recent Accounting Pronouncements

In ~~May 2011,~~February 2013, the FASB issued ~~Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial~~ASU 2013-02, Comprehensive Income (Topic 220), Reporting ~~Standards (Topic 820) — Fair Value Measurement (“ASU 2011-04”)~~of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to require an entity to provide ~~a consistent definition~~information about the amounts reclassified out of ~~fair value and ensure~~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 ~~the fair value measurement and disclosure requirements~~ are ~~similar between U.S.~~not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements.that provide additional detail about those amounts. This standard iswas effective for interim and annual periods beginning after December 15, ~~2011~~2012 and is to be applied on a prospective basis. We adopted ASU ~~2011-04 as of January 1, 2012~~2013-02 and ~~the impact was not material to our unaudited consolidated financial statements.~~

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (“ASU 2011-05”), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in single continuous statements of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must bewill disclose significant amounts reclassified

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

to net income. This standard is effective for interim and annual periods beginning after December 15, 2011 and is to be applied retrospectively. The FASB has deferred the requirement to present reclassification adjustments for each component out of accumulated other comprehensive income in both net income and other comprehensive income. Companies are required to either present amounts reclassified out of other comprehensive income on the face of the financial statements or disclose those amounts in the notes to the financial statements. During the deferral period, there is no requirement to separately present or disclose the reclassification adjustments into net income. The effective date of this deferral will be consistent with the effective date ofas such transactions arise. ASU ~~2011-05. We adopted ASU 2011-05 as of January 1, 2012 and disclosed comprehensive income in our unaudited consolidated statements of comprehensive income. ASU 2011-05~~2013-02 affects financial statement presentation only and has no impact on our results of operations or unaudited consolidated financial statements.

In July 2012, the FASB issued Accounting Standards Update 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). The guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not the fair value of the asset exceeds its carrying amount, the company would not be required to perform a quantitative impairment test. If the qualitative assessment does not support the fair value of the asset, then a quantitative assessment is performed. ASU 2012-02 provides for public entities for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We early adopted ASU 2012-02 and will perform a qualitative assessment to determine whether our indefinite-lived intangible assets are impaired as of October 1, 2012, our annual impairment testing date.


(3)	Earnings per Share

We utilize the two-class method ofin calculating basic net income per common share, as our Series B Preferred Stock ~~are~~was considered to be participating ~~securities.~~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 per common share is calculated ~~using~~by dividing the income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income 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~~ and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method.

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

Common stock equivalents of approximately ~~451,577,000~~323,615,000 and ~~417,427,000~~451,577,000 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and ~~144,014,000~~354,938,000 and ~~407,649,000~~144,014,000 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in thousands, except per share data) 2012 2011 2012 2011
Net income $ 74,514
   $ 104,185
$ 3,316,457
$ 355,624
Less:
Allocation of income to Series B Preferred Stock (27,825 ) (42,550 ) (1,309,647 ) (145,355 )
Net income available to common stockholders for basic net income per common share 46,689
61,635
2,006,810
210,269
Add back:
Allocation of income to Series B Preferred Stock 27,825
42,550
1,309,647
145,355
Effect of interest on assumed conversions of convertible debt —
—
28,875
—
Net income available to common stockholders for diluted net income per common share $ 74,514
$ 104,185
$ 3,345,332
$ 355,624
Weighted average common shares outstanding for basic net income per common share 4,034,122
   3,747,381
3,870,031
3,742,309
Weighted average impact of assumed Series B Preferred Stock conversion 2,404,143
2,586,977
2,525,588
2,586,977
Weighted average impact of assumed convertible debt —
—
293,333
—
Weighted average impact of other dilutive equity instruments 139,389
   173,012
159,278
171,533
Total shares for diluted net income per common share 6,577,654
   6,507,370
6,848,230
6,500,819
Net income per common share

Basic $ 0.01
   $ 0.02
$ 0.52
$ 0.06
Diluted $ 0.01
   $ 0.02
$ 0.49
$ 0.05

We identified and corrected an immaterial error affecting the historical presentation of basic earnings per share. The adjustment reflects the Series B Preferred Stock held by an affiliate of Liberty Media as participating securities as the holder of such preferred stock may participate in dividends and distributions ratably with holders of our common stock on an as-converted basis. Net income per common share-basic for the ~~three and nine months endedSeptember 30, 2011~~ ~~was previously reported as~~ ~~$0.03~~ ~~and~~ ~~$0.10, respectively, and has been adjusted to be~~ ~~$0.02~~ ~~and~~ ~~$0.06~~ ~~for the~~ ~~three and nine months endedSeptember 30, 2011, respectively. The effects of the error were not material to any previously reported quarterly or annual period. The related corrections are reflected in the applicable prior periods.~~

~~In September 2012, Liberty Media converted~~ ~~6,249,900~~ ~~shares of the Series B Preferred Stock into~~ ~~1,293,467,684~~ ~~shares of common stock.~~



	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
(in thousands, except per share data)	2013		2012			2013			2012
Numerator:
Net income	$	62,894	$	74,514		$	312,018		$	3,316,457
Less:
Allocation of undistributed income to Series B Preferred Stock	—		(27,825		)	(4,190		)	(1,309,647		)
Net income available to common stockholders for basic net income per common share	$	62,894	$	46,689		$	307,828		$	2,006,810
Add back:
Allocation of undistributed income to Series B Preferred Stock	—		27,825			4,190			1,309,647
Effect of interest on assumed conversions of convertible debt	—		—			—			28,875
Net income available to common stockholders for diluted net income per common share	$	62,894	$	74,514		$	312,018		$	3,345,332
Denominator:
Weighted average common shares outstanding for basic net income per common share	6,184,216		4,034,122			6,265,981			3,870,031
Weighted average impact of assumed Series B Preferred Stock conversion	—		2,404,143			85,286			2,525,588
Weighted average impact of assumed convertible debt	—		—			—			293,333
Weighted average impact of other dilutive equity instruments	103,137		139,389			94,815			159,278
Weighted average shares for diluted net income per common share	6,287,353		6,577,654			6,446,082			6,848,230
Net income per common share:
Basic	$	0.01	$	0.01		$	0.05		$	0.52
Diluted	$	0.01	$	0.01		$	0.05		$	0.49


(4)	Accounts Receivable, net

Accounts receivable, net, are stated at amounts due from customers net of an allowance for doubtful accounts. Our allowance for doubtful accounts ~~considers~~is based upon our assessment of various factors. We consider historical experience, the age of ~~certain~~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 unaudited consolidated statements of comprehensive income.

Accounts receivable, net, consists of the following:


	September 30, 2012			December 31, 2011			September 30, 2013			December 31, 2012
Gross accounts receivable	$	113,423		$	111,637		$	114,300		$	117,853
Allowance for doubtful accounts	(10,460		)	(9,932		)	(11,522		)	(11,711		)
Total accounts receivable, net	$	102,963		$	101,705		$	102,778		$	106,142

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(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 our OEMs. Receivables from distributors consist of the following:


	September 30, 2012		December 31, 2011		September 30, 2013		December 31, 2012
Billed	$	45,187	$	44,618	$	30,583	$	53,057
Unbilled	42,586		40,199		50,236		51,368
Total	$	87,773	$	84,817	$	80,819	$	104,425


(5)	Inventory, net

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 a first-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 unaudited consolidated statements of 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 unaudited consolidated statements of comprehensive income.

Inventory, net, consists of the following:


	September 30, 2012			December 31, 2011			September 30, 2013			December 31, 2012
Raw materials	$	20,781		$	24,134		$	12,505		$	17,717
Finished goods	30,951			28,007			16,800			23,779
Allowance for obsolescence	(15,909		)	(15,430		)	(15,063		)	(16,159		)
Total inventory, net	$	35,823		$	36,711		$	14,242		$	25,337


(6)	Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. ~~We perform an~~Our annual impairment assessment is performed as of ~~October 1st~~the fourth quarter of each year, ~~to determine if goodwill is impaired. An~~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. If the carrying value of goodwill exceeds its fair value, an impairment loss is recognized.

As of September 30, ~~2012~~2013, there were no indicators of impairment, and no impairment loss was recorded for goodwill during the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012.

During the nine months endedSeptember 30, 2012, with the release of the deferred income tax valuation allowance, we reduced goodwill by $19,183 related to the subsequent exercise of certain stock options and vesting of certain restricted stock units that were recorded at fair value in connection with the July 2008 merger between our wholly owned subsidiary, Vernon Merger Corporation, and XM Satellite Radio Holdings Inc. ~~(the "Merger"~~(“the Merger”). As of September 30, 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.

109

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)


(7)	Intangible Assets

As a result of the Merger, certain intangible assets formerly held by XM Satellite Radio Holdings Inc. were recorded at fair value. Intangible assets ~~consisted~~consist of the following:


		September 30, 2012							December 31, 2011								September 30, 2013							December 31, 2012
	Weighted Average Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Indefinite life intangible assets:
FCC licenses	Indefinite	$	2,083,654	$	—		$	2,083,654	$	2,083,654	$	—		$	2,083,654	Indefinite	$	2,083,654	$	—		$	2,083,654	$	2,083,654	$	—		$	2,083,654
Trademark	Indefinite	250,000		—			250,000		250,000		—			250,000		Indefinite	250,000		—			250,000		250,000		—			250,000
Definite life intangible assets:
Subscriber relationships	9 years	380,000		(223,185		)	156,815		380,000		(191,201		)	188,799		9 years	380,000		(262,217		)	117,783		380,000		(233,317		)	146,683
Licensing agreements	9.1 years	78,489		(41,658		)	36,831		78,897		(34,145		)	44,752		9.1 years	78,289		(51,682		)	26,607		78,489		(44,161		)	34,328
Proprietary software	6 years	16,552		(12,622		)	3,930		16,552		(11,507		)	5,045		6 years	16,552		(13,236		)	3,316		16,552		(12,777		)	3,775
Developed technology	10 years	2,000		(833		)	1,167		2,000		(683		)	1,317		10 years	2,000		(1,033		)	967		2,000		(883		)	1,117
Leasehold interests	7.4 years	132		(74		)	58		132		(61		)	71		7.4 years	132		(92		)	40		132		(79		)	53
Total intangible assets		$	2,810,827	$	(278,372	)	$	2,532,455	$	2,811,235	$	(237,597	)	$	2,573,638		$	2,810,627	$	(328,260	)	$	2,482,367	$	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 satellite licenses		Expiration year
SIRIUS FM-1		2017
SIRIUS FM-2		2017
SIRIUS FM-3		2017
SIRIUS FM-5		2017
SIRIUS FM-6 ⁽¹⁾
XM-1		2014
XM-2		2014
XM-3		~~2013~~2021
XM-4		2014
XM-5		2018


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

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

In connection with the Merger, $250,000 of the purchase price was allocated to the XM trademark. As of September 30, ~~2012~~2013, there were no legal, regulatory or contractual limitations associated with the XM trademark.

~~We will perform an~~Our annual impairment assessment of our indefinite intangible assets is performed as of ~~October 1st~~the fourth quarter of each ~~year to determine if the fair value is less than the carrying amount.~~year. 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. If the carrying value of the intangible assets exceeds its fair value, an

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

impairment loss is recognized. As of September 30, ~~2012~~2013, there were no indicators of impairment, and no impairment loss was recorded for intangible assets with indefinite lives during the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012.

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

Definite Life Intangible Assets

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

Amortization expense for all definite life intangible assets was $~~13,198~~12,107 and $~~14,570~~13,198 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and $~~40,775~~37,043 and $~~44,833~~40,775 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively.

Expected amortization expense for the remaining period in ~~2012~~,2013, each of the fiscal years ~~2013~~2014 through ~~2016~~2017 and for periods thereafter is as follows:


Year ending December 31,	Amount		Amount
2012	$	12,851
2013	47,330
2013 (remaining)			$	10,278
2014	38,852		38,877
2015	37,526		35,561
2016	31,932		32,546
2017			19,582
Thereafter	30,310		11,869
Total definite life intangible assets, net	$	198,801	$	148,713


(8)	Interest Costs

We capitalized a portion of the interest on funds borrowed ~~to finance~~as part of the ~~construction costs~~cost of constructing our satellites and related launch vehicle. We are currently capitalizing the interest associated with our FM-6 satellite and related launch ~~vehicle. We~~vehicle and will continue to ~~capitalize the interest~~do so until the ~~launch of our FM-6 satellite.~~satellite is placed into operation. We also incur interest costs on ~~all of~~ our debt instruments and on our satellite incentive agreements. The following is a summary of our interest costs:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011		2013		2012		2013		2012
Interest costs charged to expense	$	70,035	$	75,316	$	219,777	$	229,730	$	54,629	$	70,035	$	150,531	$	219,777
Interest costs capitalized	8,005		8,906		24,087		24,224		7,915		8,005		23,923		24,087
Total interest costs incurred	$	78,040	$	84,222	$	243,864	$	253,954	$	62,544	$	78,040	$	174,454	$	243,864

Included in interest costs incurred is non-cash interest expense, consisting of amortization related to original issue discounts, premiums and deferred financing fees of $~~9,755~~5,574 and $~~9,977~~9,755 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and $~~30,786~~16,506 and $~~29,211~~30,786 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively.

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NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)


(9)	Property and Equipment

Property and equipment, net, consists of the following:


	September 30, 2012			December 31, 2011			September 30, 2013			December 31, 2012
Satellite system	$	1,943,537		$	1,943,537		$	1,943,537		$	1,943,537
Terrestrial repeater network	109,993			112,440			112,516			112,482
Leasehold improvements	44,588			43,455			46,070			44,938
Broadcast studio equipment	55,414			53,903			57,717			55,823
Capitalized software and hardware	215,067			193,301			257,419			232,753
Satellite telemetry, tracking and control facilities	62,270			60,539			63,790			62,734
Furniture, fixtures, equipment and other	74,684			60,283			66,345			76,028
Land	38,411			38,411			38,411			38,411
Building	57,415			57,185			58,011			57,816
Construction in progress	416,267			372,508			511,715			417,124
Total property and equipment	3,017,646			2,935,562			3,155,531			3,041,646
Accumulated depreciation and amortization	(1,416,283		)	(1,261,643		)	(1,612,644		)	(1,469,724		)
Property and equipment, net	$	1,601,363		$	1,673,919		$	1,542,887		$	1,571,922

Construction in progress consists of the following:


	September 30, 2012		December 31, 2011		September 30, 2013		December 31, 2012
Satellite system	$	369,156	$	343,932	$	431,513	$	376,825
Terrestrial repeater network	19,267		19,194		24,888		17,224
Other	27,844		9,382		55,314		23,075
Construction in progress	$	416,267	$	372,508	$	511,715	$	417,124

Depreciation ~~and amortization~~ expense on property and equipment was $~~53,373~~46,426 and $~~50,833~~53,373 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and $~~158,706~~155,923 and $~~156,032~~158,706 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively.

~~Satellites~~We retired property and equipment of $13,130 and $4,633 and recognized a loss on disposal of assets of $128 and $567 during the nine months endedSeptember 30, 2013 and 2012, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

Satellites

We currently own a fleet of nine orbiting satellites. The chart below provides certain information on these satellites:


Satellite Designation	Year Delivered	Estimated End of Depreciable Life	Year Delivered	Estimated End of Depreciable Life
FM-1	2000	2013
FM-2	2000	2013
FM-1*			2000	2013
FM-2*			2000	2013
FM-3	2000	2015	2000	2015
FM-5	2009	2024	2009	2024
XM-1	2001	2013
XM-2	2001	2013
XM-1*			2001	2013
XM-2*			2001	2013
XM-3	2005	2020	2005	2020
XM-4	2006	2021	2006	2021
XM-5	2010	2025	2010	2025

* Satellite was fully depreciated as of September 30, 2013 but is still in operation.

We own four orbiting satellites for use in the Sirius system. We own five orbiting satellites for use in the XM system.

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

Four of these satellites were manufactured by Boeing Satellite Systems International, Inc., and five were manufactured by Space Systems/Loral.

During the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, we capitalized expenditures, including interest, of $~~8,219~~28,608 and $~~16,875~~8,219, respectively, and $~~25,224~~44,982 and $~~67,576~~25,224 during the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, related to the construction of our FM-6 satellite and related launch vehicle.


(10)	Related Party Transactions

We had the following related party balances at September 30, ~~2012~~2013 and December 31, ~~2011~~2012:


	Related party current assets				Related party long-term assets				Related party current liabilities				Related party long-term liabilities				Related party long-term debt				Related party current assets				Related party long-term assets				Related party current liabilities				Related party long-term liabilities				Related party debt
	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Liberty Media	$	—	$	—	$	837	$	1,212	$	8,408	$	9,722	$	—	$	—	$	208,742	$	328,788	$	—	$	—	$	405	$	757	$	1,845	$	3,980	$	—	$	—	$	60,331	$	208,906
Sirius XM Canada	8,221		14,702		49,267		53,741		4,580		4,580		19,660		21,741		—		—		11,141		13,167		28,980		44,197		4,276		2,776		16,884		18,966		—		—
Total	$	8,221	$	14,702	$	50,104	$	54,953	$	12,988	$	14,302	$	19,660	$	21,741	$	208,742	$	328,788	$	11,141	$	13,167	$	29,385	$	44,954	$	6,121	$	6,756	$	16,884	$	18,966	$	60,331	$	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 Agreement~~investment 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 B-1 (the “Series B Preferred Stock”), with a liquidation preference of $0.001 per share in partial consideration for ~~certain~~the loan investments. ~~Liberty Media has representatives on~~The Series B Preferred Stock was convertible into approximately 40% of our ~~board~~outstanding shares of ~~directors.~~ common stock (after giving effect to such conversion).

In September 2012, Liberty ~~Media~~Radio, LLC converted 6,249,900 shares of the Series B Preferred Stock into 1,293,467,684 shares of our common stock. ~~As of October 25, 2012,~~In January 2013, the Federal Communications Commission granted Liberty Media ~~owned approximately~~approval to acquire de jure control of us, and Liberty Radio, LLC converted its remaining Series B Preferred Stock into ~~1,904,291,000~~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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(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 as of September 30, 2013.

Two current Liberty Media executives and one Liberty Media director are members of our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Liberty Media has advised us that as of September 30, ~~2012~~2013 and December 31, ~~2011~~2012~~, respectively,~~ it also owned the following:


	September 30, 2012		December 31, 2011		September 30, 2013		December 31, 2012
7% Exchangeable Senior Subordinated Notes due 2014					$	11,000	$	11,000
8.75% Senior Notes due 2015	$	150,000	$	150,000	—		150,000
9.75% Senior Secured Notes due 2015	—		50,000
13% Senior Notes due 2013	—		76,000
7% Exchangeable Senior Subordinated Notes due 2014	11,000		11,000
7.625% Senior Notes due 2018	50,000		50,000		50,000		50,000
Total principal debt	211,000		337,000		61,000		211,000
Less: discounts	2,258		8,212		669		2,094
Total carrying value of debt	$	208,742	$	328,788	$	60,331	$	208,906

During the three months ended September 30, ~~2012~~2013, we redeemed ~~Liberty Media's~~ $~~50,000~~150,000 of our ~~9.75%~~ ~~Senior Secured Notes due 2015 and~~ ~~$76,000~~ of ~~13%~~8.75% Senior Notes due ~~2013~~2015 held by Liberty Media as part of the redemption of these Notes in their entirety. For a discussion of subsequent events refer to Note 17.

As of September 30, ~~2012~~2013 and December 31, ~~2011~~2012, we recorded $~~8,408~~1,845 and $~~9,722~~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 $~~8,242~~3,619 and $~~8,934~~8,242 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and $~~26,260~~12,978 and $~~26,718~~26,260 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively.

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

Sirius XM Canada

In June 2011, Canadian Satellite Radio Holdings Inc. (“CSR”), the parent company of XM Canada, and Sirius Canada completed a transaction to combine their operations (“the Canada Merger”). The combined company operates as Sirius XM Canada. We own approximately 46,700,000 Class A shares on a converted basis of ~~CSR,~~Sirius XM Canada Holdings Inc., the parent company of Sirius XM Canada, representing a ~~38.0%~~37.6% equity interest and a 25.0% voting ~~interest, and hold a non-interest bearing note, in a principal amount of~~ ~~$410, issued by CSR.~~interest.

We ~~also~~had the following Related party current asset balances attributable to Sirius XM Canada at September 30, 2013 and December 31, 2012:



	September 30, 2013		December 31, 2012
Deferred programming costs and accrued interest	$	3,390	$	4,350
Dividends receivable	—		6,176
Chip set and other services reimbursement	4,069		2,641
Fair value of host contract of debenture	3,682		—
Fair value of embedded derivative of debenture	—		—
Total	$	11,141	$	13,167

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

We hold an investment in ~~Cdn~~CAD $4,000 face value of 8% convertible unsecured subordinated debentures issued by ~~CSR,~~Sirius XM Canada Holdings, Inc., for which the embedded conversion feature is bifurcated from the host contract. As of September 30, 2013, the debentures are classified as a Related party current asset since they mature in September 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 investment ~~loss. As~~income (loss).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

Related party long-term asset balances attributable to Sirius XM Canada consisted of the following:



	September 30, 2013		December 31, 2012
Non-interest bearing note, principal	$	391	$	404
Fair value of host contract of debenture	—		3,877
Fair value of embedded derivative of debenture	—		9
Investment balance*	28,589		37,983
Deferred programming costs and accrued interest	—		1,924
Total	$	28,980	$	44,197

* The investment balance includes equity method goodwill and intangible assets of $26,524 and $27,615 as of September 30, ~~2012, the carrying values of the host contract and embedded derivative related to our investment in the debentures was~~ ~~$3,747~~2013 and ~~$16~~December 31, 2012, respectively. ~~As of~~ ~~December 31, 2011, the carrying values of the host contract and embedded derivative related to our investment in the debentures was~~ ~~$3,490~~ ~~and~~ $0~~, respectively. The carrying values of the host contract and embedded derivative are recorded in Related party long-term assets.~~

We hold a non-interest bearing note issued by Sirius XM Canada Holdings Inc. Our interest in Sirius XM Canada is accounted for under the equity method. The excess of the cost of our ownership interest in the equity of Sirius XM Canada over our share of the net assets is recognized as goodwill and intangible assets and is included in the carrying amount of our investment. Equity method goodwill is not amortized. We periodically evaluate this investment to determine if there has been an other than temporary decline below carrying value. Equity method intangible assets are amortized over their respective useful lives, which is recorded in Interest and investment ~~loss. As~~income (loss).

In July 2013, Sirius XM Canada declared a quarterly cash dividend of CAD ~~September 30, 2012~~$0.1050, per Class A share and CAD $0.0350 per Class B share for shareholders of record on July 22, 2013. We received $4,727 and $12,209 of quarterly dividends which were recorded as a reduction of our investment balance in Sirius XM Canada ~~was approximately~~ ~~$42,107~~, ~~$27,978~~ ~~of which represents equity method goodwill and intangible assets, and was recorded in Related party long-term assets. As of~~ ~~December 31, 2011, our investment balance in Sirius XM Canada was approximately~~ ~~$45,061~~, ~~$28,589~~ ~~of which represented equity method goodwill and intangible assets, and was recorded in Related party long-term assets.~~

~~We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs. As of~~ ~~September 30, 2012~~ ~~and~~ ~~December 31, 2011, amounts due for these costs totaled~~ ~~$5,046~~ ~~and~~ ~~$7,404, respectively, and is reported as Related party current assets.~~

~~As of~~ ~~September 30, 2012, amounts due from Sirius XM Canada also included~~ ~~$6,162~~ ~~attributable to deferred programming costs and accrued interest,~~ ~~$2,987~~ ~~of which is reported as Related party long-term assets. As of~~ ~~December 31, 2011, amounts due from Sirius XM Canada included~~ ~~$7,280~~ ~~attributable to deferred programming costs and accrued interest,~~ ~~$4,780~~ ~~of which was reported as Related party long-term assets.~~

~~As of~~ ~~September 30, 2012~~ ~~and~~ ~~December 31, 2011, the amounts due to Sirius XM Canada totaled~~ ~~$1,804~~ ~~and~~ ~~$1,804, respectively, and is reported as Related party current liabilities.~~

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2012 2011 2012 2011
Royalty income $ 7,924
$ 6,468
$ 23,425
$ 6,468
Amortization of Sirius XM Canada deferred income 694
694
2,082
694
Licensing fee revenue 1,500
1,500
4,500
1,500
Advertising reimbursements —
—
833
—
Total revenue from Sirius XM Canada $ 10,118
$ 8,662
$ 30,840
$ 8,662

Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment loss in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net loss was ~~$182~~for the three ~~months endedSeptember 30, 2012~~and ~~$3,403~~ ~~for the~~ nine months ended September 30, ~~2012~~2013~~. We recorded amortization expense related to equity method intangible assets of~~ ~~$363~~ ~~for the~~ ~~three months endedSeptember 30, 2012~~ ~~and~~ ~~$611~~ ~~for the~~ ~~nine months endedSeptember 30, 2012. Our share of Sirius XM Canada's net loss was~~ ~~$4,214~~ ~~for the~~ ~~three and~~

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

~~nine months endedSeptember 30, 2011~~., respectively.

~~Sirius Canada~~

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

In 2005, we entered into a license and services agreement with Sirius Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred to provide Sirius Canada service, including certain costs incurred for the production and distribution of radios, as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, we have the right to receive 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~~Related party liabilities attributable to Sirius ~~Canada.~~

~~We recorded~~XM Canada consisted of the following revenue from Sirius Canada. Royalty income is included in other revenue and dividend income is included in Interest and investment loss in our unaudited consolidated statements of comprehensive income:following:

For the Nine Months Ended September 30,
2011
Royalty income $ 9,945
Dividend income 460
Total revenue from Sirius Canada $ 10,405

~~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~~ ~~nine months endedSeptember 30, 2011~~.

Our share of net earnings or losses of Sirius Canada was recorded to Interest and investment loss in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius Canada’s net loss was ~~$9,717~~ ~~for the~~ ~~nine months endedSeptember 30, 2011. The payments received from Sirius Canada in excess of carrying value were~~ ~~$6,748~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~.

~~XM Canada~~

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



	September 30, 2013		December 31, 2012
Deferred revenue for NHL licensing fees	$	1,500	$	—
Carrying value of deferred revenue	19,660		21,742
Total	$	21,160	$	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 ~~year~~-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 for the rights to broadcast and market National Hockey League (“NHL”) games for a ten ~~year~~-year term. We recognize these payments on a gross basis as a principal obligor pursuant to the provisions of ASC 605, Revenue ~~Recognition.~~Recognition. The estimated fair value of deferred revenue from XM Canada as of the Merger date was approximately $34,000, which is amortized on a straight-line basis through 2020, the end of the expected term of the agreements. ~~As of~~ ~~September 30, 2012~~ ~~and~~ ~~December 31, 2011, the carrying value of deferred revenue related to this agreement was~~ ~~$22,436~~ ~~and~~ ~~$24,517, respectively.~~

~~The Cdn~~ ~~$45,000~~ ~~standby credit facility we extended to XM Canada was paid and terminated as a result of the Canada Merger. We received~~ ~~$38,815~~ ~~in cash upon payment of this facility. As a result of the repayment of the credit facility and completion of the Canada Merger, we released a~~ ~~$15,649~~ ~~valuation allowance related to the absorption of our share of the net loss from our investment in XM Canada as of June 21, 2011.~~

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NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

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

For the Nine Months Ended September 30,
2011
Amortization of XM Canada deferred income $ 1,388
Subscriber and activation fee royalties 5,483
Licensing fee revenue 3,000
Advertising reimbursements 833
Total revenue from XM Canada $ 10,704



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2013		2012		2013		2012
Royalty income	$	8,611	$	7,924	$	26,081	$	23,425
Amortization of Sirius XM Canada deferred income	694		694		2,082		2,082
Licensing fee revenue	1,170		1,500		3,512		4,500
Advertising and other reimbursements	194		—		2,305		833
Total revenue from Sirius XM Canada	$	10,669	$	10,118	$	33,980	$	30,840

Our share of net earnings or losses of Sirius XM Canada isare recorded to Interest and investment ~~loss~~income (loss) in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net ~~loss~~income (loss) was $~~6,045~~1,813 and $(182) for the three months endedSeptember 30, 2013 and 2012, respectively, and $3,922 and $(3,403) for the nine months ended September 30, ~~2011~~2013. and 2012, respectively. We recorded amortization expense related to the equity method intangible assets of $364 and $363 for the three months endedSeptember 30, 2013 and 2012, respectively, and $1,091 and $611 for the nine months endedSeptember 30, 2013 and 2012, respectively.

(11) Investments

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 September 30, ~~2012~~2013 and December 31, ~~2011~~2012, our Long-term restricted investments were $~~3,973~~$5,718. and $3,999, respectively. During the three months endedSeptember 30, 2013, a new letter of credit for $1,719 associated with additional office space was issued for our benefit.

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NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

(12) Debt

Our debt consists of the following:


	Conversion Price (per share)		September 30, 2012			December 31, 2011			Conversion Price (per share)		September 30, 2013			December 31, 2012
7% Exchangeable Senior Subordinated Notes due 2014									$	1.841	$	502,370		$	550,000
Less: discount											(2,374		)	(4,112		)
8.75% Senior Notes due 2015	N/A		800,000			800,000			N/A		—			800,000
Less: discount			(7,754		)	(9,753		)
9.75% Senior Secured Notes due 2015	N/A		—			257,000
Less: discount			—			(8,356		)
13% Senior Notes due 2013	N/A		—			778,500
Less: discount			—			(39,504		)
7% Exchangeable Senior Subordinated Notes due 2014	$	1.875	550,000			550,000
Less: discount			(4,591		)	(5,956		)			—			(7,056		)
7.625% Senior Notes due 2018	N/A		700,000			700,000			N/A		539,551			700,000
Less: discount			(9,970		)	(10,898		)			(6,661		)	(9,647		)
4.25% Senior Notes due 2020									N/A		500,000			—
Less: discount											(5,366		)	—
5.875% Senior Notes due 2020									N/A		650,000			—
Less: discount											(7,296		)	—
5.75% Senior Notes due 2021									N/A		600,000			—
Less: discount											(5,644		)	—
5.25% Senior Notes due 2022	N/A		400,000			—			N/A		400,000			400,000
Less: discount			(5,935		)	—					(5,473		)	(5,826		)
4.625% Senior Notes due 2023									N/A		500,000			—
Less: discount											(5,459		)	—
Senior Secured Revolving Credit Facility									N/A		40,000			—
Other debt:
Capital leases	N/A		13,003			2,941			N/A		17,547			11,861
Total debt			2,434,753			3,013,974					3,711,195			2,435,220
Less: total current maturities non-related party			4,326			1,623
Less: total current maturities*											538,875			4,234
Total long-term			2,430,427			3,012,351					3,172,320			2,430,986
Less: related party			208,742			328,788
Less: long-term related party											10,948			208,906
Total long-term, excluding related party			$	2,221,685		$	2,683,563				$	3,161,372		$	2,222,080

~~8.75%~~*This balance includes $49,383 ~~Senior Notes due 2015~~in related party current maturities.

~~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 guarantee our obligations under the~~ ~~8.75%~~ ~~Notes on a senior unsecured basis.~~


	7% Exchangeable Senior Subordinated Notes due 2014

In August 2008, we issued $550,000 aggregate principal amount of 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”). The Exchangeable Notes are senior subordinated obligations and rank junior in right of payment to our existing and future senior debt and equally in right of payment with our existing and future senior subordinated debt. Substantially all of our domestic wholly-owned subsidiaries ~~have guaranteed~~guarantee our obligations under the Exchangeable 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 Exchangeable Notes, which is equivalent to an approximate exchange price of $1.841 per share of common stock. 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~~

In connection with the ~~option of~~fundamental change that occurred on January 17, 2013 and 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~~subsequent offer that was made to ~~an approximate exchange price of~~ ~~$1.875~~ ~~per share of common stock. If a~~each holder of the Exchangeable Notes ~~elects to exchange~~on February 1, 2013, $47,630 in principal amount of the notes in connection with a corporate transaction that constitutes a fundamental change, the exchange rate will be increased by an additional number of shares of common stock determined by the applicable Indenture.Exchangeable Notes were

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(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

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. No loss was recognized as a result of the exchange.

During the three and nine months endedSeptember 30, 2013 and the three months ended September 30, 2012 ~~and~~ ~~three and nine months endedSeptember 30, 2011~~, the common stock reserved for ~~exchange~~conversion in connection with the Exchangeable Notes were considered to be anti-dilutive in our calculation of diluted net income per share. During the nine months ended September 30, 2012, the Exchangeable Notes were considered to be dilutive.

7.625% Senior Notes due 2018

In October 2010, we issued $700,000 aggregate principal amount of 7.625% Senior Notes due 2018 (the “7.625% Notes”). Interest is payable semi-annually in arrears on May 1 and November 1 of each year at a rate of 7.625% per annum.

During the three and nine months endedSeptember 30, 2013, we purchased $59,799 and $160,449, respectively, in aggregate principal amount of the 7.625% Notes for an aggregate purchase price, including premium and interest, of $66,782 and $179,351, respectively. We recognized an aggregate loss on the extinguishment of these 7.625% Notes of $6,908 and $19,530, during the three and nine months endedSeptember 30, 2013, respectively, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.

On September 25, 2013, we called for the redemption of the remaining $539,551 outstanding principal balance of the 7.625% Notes on October 25, 2013. The 7.625% Notes have been classified as a current liability within our unaudited consolidated balance sheet as of September 30, 2013. For a discussion of subsequent events refer to Note 17.

4.25% Senior Notes due 2020

In May 2013, we issued $500,000 aggregate principal amount of 4.25% Senior Notes due 2020 (the “4.25% Notes”). Interest is payable semi-annually in arrears on May 15 and November 15 of each year at a rate of 4.25% per annum. The 4.25% Notes mature on ~~November 1, 2018~~May 15, 2020. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the ~~7.625%~~4.25% ~~Notes.~~Notes on a senior unsecured basis. The 4.25% Notes were issued for $494,375, resulting in an aggregate original issuance discount of $5,625.

5.875% Senior Notes due 2020

In September 2013, we issued $650,000 aggregate principal amount of 5.875% Senior Notes due 2020 (the "5.875% Notes"). Interest is payable semi-annually in arrears on April 1 and October 1 of each year at a rate of 5.875% per annum. The 5.875% Notes mature on October 1, 2020. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 5.875% Notes on a senior unsecured basis. The 5.875% Notes were issued for $642,688, resulting in an aggregate original issuance discount of $7,312.

5.75% Senior Notes due 2021

In August 2013, we issued $600,000 aggregate principal amount of 5.75% Senior Notes due 2021 (the "5.75% Notes"). Interest is payable semi-annually in arrears on February 1 and August 1 of each year at a rate of 5.75% per annum. The 5.75% Notes mature on August 1, 2021. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 5.75% Notes on a senior unsecured basis. The 5.75% Notes were issued for $594,263, resulting in an aggregate original issuance discount of $5,737.

5.25% Senior Notes due 2022

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

~~Retired Debt Instruments~~

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

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(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

~~9.75%~~4.625% Senior ~~Secured~~ Notes due ~~2015~~2023

In ~~August 2009,~~May 2013, we issued $~~257,000~~500,000 aggregate principal amount of ~~9.75%~~4.625% Senior ~~Secured~~ Notes due ~~September 1, 2015~~2023 (the “~~9.75%~~4.625% Notes”). Interest is payable semi-annually in arrears on May 15 and November 15 of each year at a rate of 4.625% per annum. The ~~9.75%~~4.625% Notes mature on May 15, 2023. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 4.625% Notes on a senior unsecured basis. The 4.625% Notes were issued for $~~244,292~~494,375, resulting in an aggregate original issuance discount of $~~12,708~~5,625.

Senior Secured Revolving Credit Facility

In December 2012, we entered into a five-year Senior Secured Revolving Credit Facility (the “Credit Facility”) with a syndicate of financial institutions for $1,250,000. Our obligations under the Credit Facility are guaranteed by certain of our material domestic subsidiaries and are secured by a lien on substantially all of our assets and the assets of our material domestic subsidiaries. Borrowings under the Credit Facility are used for working capital and other general corporate purposes, including dividends, 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. We are also required to pay a variable fee on the average daily unused portion of the Credit Facility which is currently 0.35% per annum and is payable on a quarterly basis. The Credit Facility contains customary covenants, including a maintenance covenant, and events of default. The Credit Facility contains incremental facilities which would allow us to increase or obtain new commitments and/or incur new term loans, subject to the terms of the Credit Facility.

As of September 30, 2013, $1,210,000 was available for future borrowing under the Credit Facility. Our outstanding borrowings under the Credit Facility are classified as Long-term debt within our unaudited consolidated balance sheet as of September 30, 2013 due to the long-term maturity of this debt.

Retired Debt

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”). The 8.75% Notes were issued for $786,000, resulting in an aggregate original issuance discount of $14,000. The 8.75% Notes would have matured on April 1, 2015. Substantially all of our domestic wholly-owned subsidiaries guaranteed our obligations under the ~~9.75%~~8.75% ~~Notes. The~~ Notes on a senior unsecured basis.

During the three and nine months endedSeptember 30, 2013, we purchased $770,987 and $800,000, respectively, in aggregate principal amounts of the 8.75% Notes for an aggregate purchase price, including premium and interest, of $894,883 and $927,860, respectively. We recognized an aggregate loss on the extinguishment of the 8.75% Notes of $101,063 and $104,818 during the three and nine months endedSeptember 30, 2013, respectively, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.

9.75% Senior Secured Notes ~~and related guarantees were secured by first-priority liens on substantially all of our assets and the assets of the guarantors.~~due 2015

During the three and nine months ended September 30, 2012, we purchased $186,112 and $257,000, respectively, ~~in aggregate principal amounts~~ of ~~the~~our then outstanding 9.75% Senior Secured Notes (the “9.75% Notes”) for an aggregate purchase price, ~~inclusive of~~including interest, of $204,258 and $281,698, respectively. We recognized an aggregate loss on the extinguishment of ~~the~~these 9.75% Notes of $14,352 and $22,184 during the three and nine months ended September 30, 2012, respectively, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.

13% Senior Notes due 2013

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

During the three and nine months ended September 30, 2012, we purchased $681,517 and $778,500, respectively, ~~in aggregate principal amounts~~ of ~~the~~our then outstanding 13% Senior Notes due 2013 (the “13% Notes”) for an aggregate purchase price, ~~inclusive of~~including interest, of $765,907 and $879,133, respectively. We recognized an aggregate loss on the extinguishment of ~~the~~these 13% Notes of $92,753 and $110,542, during the three and nine months ended September 30, 2012, respectively, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net.

~~3.25%~~ ~~Convertible Notes due 2011~~

~~In February 2011, we purchased~~ ~~$94,148~~ ~~of our then outstanding~~ ~~3.25%~~ ~~Convertible Notes due 2011 (the "3.25%~~ ~~Notes") at prices between~~ ~~100.75%~~ ~~and~~ ~~100.94%~~ ~~of the principal amount plus accrued interest. We recognized a loss on extinguishment of debt for the~~ ~~3.25%~~ ~~Notes of~~ ~~$2,291~~ ~~for the~~ ~~nine months endedSeptember 30, 2011, which consisted primarily of cash premiums paid, unamortized discount and deferred financing fees. The remainder of the~~ ~~3.25%~~ ~~Notes was paid upon maturity in the fourth quarter of 2011.~~

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NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

~~11.25%~~ ~~Senior Secured Notes due 2013~~

~~In January 2011, we purchased the remaining portion of our outstanding~~ ~~11.25%~~ ~~Senior Secured Notes due 2013 for an aggregate purchase price of~~ ~~$40,376. A loss from extinguishment of debt of~~ ~~$4,915~~ ~~associated with this purchase was recorded during the~~ ~~nine months endedSeptember 30, 2011~~.

Covenants and Restrictions

Under the Credit Facility, we must comply with a maintenance covenant that we not exceed a total leverage ratio, calculated as total consolidated debt to consolidated operating cash flow, of 5.0 to 1.0. Our ~~debt~~7.625% Notes and our 5.25% Notes generally ~~requires~~require compliance with certain covenants that restrict our ability to, among other things, (i) incur additional ~~indebtedness unless our consolidated leverage would be no greater than~~ ~~6.0~~ ~~times consolidated operating cash flow after the incurrence of the~~ indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.

Our 4.25% Notes, 4.625% Notes, 5.75% Notes and 5.875% Notes are subject to covenants that, among other things, (i) limit our ability and the ability of our subsidiaries to (x) create certain liens; and (y) enter into sale/leaseback transactions; and (ii) limit our ability to merge or consolidate. The indentures relating to our 4.25% Notes, 4.625% Notes, 5.75% Notes and 5.875% Notes restrict our non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiary guaranteeing each such series of 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 to grace periods where applicable. If an event of default occurs and is continuing, our debt could become immediately due and payable.

At September 30, ~~2012~~2013 and December 31, ~~2011~~2012, we were in compliance with our debt covenants.


(13)	Stockholders’ Equity

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

We were authorized to issue up to 9,000,000,000 shares of common stock as of September 30, ~~2012~~2013 and December 31, ~~2011~~2012. There were ~~5,192,364,730~~6,134,596,655 and ~~3,753,201,929~~5,262,440,085 shares of common stock issued and outstanding as of September 30, ~~2012~~2013 and December 31, ~~2011~~2012, respectively.

As of September 30, ~~2012~~2013, approximately ~~1,954,599,000~~574,620,000 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

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

As of September 30, 2013, $397,640 remained available for purchase under our stock repurchase program approved in December 2012. For a discussion of subsequent events refer to Note 17.

Share Lending Arrangements

To facilitate the offering of the Exchangeable Notes, we entered into share lending agreements with Morgan Stanley Capital Services Inc. ~~(“MS”)~~ and UBS AG London Branch ~~(“UBS”)~~ in July ~~2008, under which we~~2008. 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. During the third quarter of 2009, MS~~were returned to us ~~60,000,000~~ ~~shares~~as of ~~our common stock borrowed. In~~ October 2011, MS and ~~UBS returned~~ the ~~remaining~~ ~~202,400,000~~ ~~shares loaned. The returned shares were retired upon receipt and removed from outstanding common stock. The~~ share lending agreements ~~have been~~were terminated. ~~Under GAAP, the borrowed shares were not considered outstanding for the purpose of computing and reporting our net income (loss) per common share.~~

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 $~~3,139~~3,178 and $~~1,276~~3,139, respectively, for the three months ended

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

September 30, ~~2012~~2013 and ~~2011~~2012, and $9,484 and $9,181 ~~and~~ ~~$6,727~~, respectively, for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012., respectively. As of September 30, 2013, the unamortized balance of the debt issuance costs was $15,962, with $15,612 recorded in Deferred financing fees, net, and $350 recorded in Long-term related party assets. As of December 31, 2012, the unamortized balance of the debt issuance costs was $~~30,873~~27,652, with $~~30,256~~27,099 recorded in ~~deferred~~Deferred financing fees, net, and $~~617~~ ~~recorded in Long-term related party assets. As of~~ ~~December 31, 2011, the unamortized balance of the debt issuance costs was~~ ~~$40,054, with~~ ~~$39,253~~ ~~recorded in deferred financing fees, net, and~~ ~~$801~~553 recorded in Long-term related party assets. These costs will continue to be amortized until the debt is terminated.

~~In January 2004, Sirius Satellite Radio Inc. signed a~~ ~~seven-year agreement with a sports programming provider which expired in February 2011. Upon execution~~ A portion of ~~this agreement, Sirius delivered~~ ~~15,173,070~~ ~~shares of common stock valued at~~ ~~$40,967~~ ~~to that programming provider. These shares of common stock were subject to transfer restrictions which lapsed over time. We~~the unamortized debt issuance costs was recognized ~~share-based payment expense associated with these shares of~~ ~~$1,568~~ induring the nine months ended September 30, ~~2011~~2013. in connection with the conversion of the Exchangeable Notes.

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

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

We were authorized to issue up to 50,000,000 shares of undesignated preferred stock as of September 30, ~~2012~~2013 and December 31, ~~2011. There were~~ no ~~shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) issued and outstanding as of~~ ~~September 30,~~ 2012 ~~and~~ ~~December 31, 2011~~., respectively.

There were 6,250,100 ~~and~~ ~~12,500,000~~ shares of Series B Preferred Stock issued and outstanding as of ~~September 30,~~December 31, 2012 ~~and~~ ~~December 31, 2011, respectively.~~held by Liberty Media. In ~~September 2012,~~January 2013, Liberty Media converted ~~6,249,900~~its remaining shares of the Series B Preferred Stock into ~~1,293,467,684~~1,293,509,076 shares of ~~common stock. The Series B Preferred Stock is convertible into shares of our common stock at the rate of~~ ~~206.9581409~~ ~~shares of common stock for each share of Series B Preferred Stock, representing approximately~~ ~~20%~~ 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 of shares of our common stock into which such shares of Series B Preferred Stock are convertible. Liberty Radio LLC will also receive dividends and distributions ratably with our common stock, on an as-converted basis. With respect to dividend rights, the Series B Preferred Stock ranks evenly with our common stock and each other class or series of our equity securities not expressly provided as ranking senior to the Series B Preferred Stock. With respect to liquidation rights, the Series B Preferred Stock ranks evenly with each other class or series of our equity securities not expressly provided as ranking senior to the Series B Preferred Stock, and ranks senior to our common stock.

Warrants

We have issued warrants to purchase shares of our common stock in connection with distribution, programming and satellite purchase agreements. As of September 30, ~~2012~~2013 and December 31, ~~2011~~2012, approximately ~~22,506,000~~18,455,000 warrants to acquire an equal number of shares of common stock were outstanding and fully vested. ~~These warrants~~Warrants were ~~excluded from the~~included in our calculation of diluted net income per common share as the effect was dilutive for the three and nine months endedSeptember 30, 2013. They were excluded from the calculation for the three and nine months endedSeptember 30, 2012 as the effect would have been anti-dilutive. The warrants expire at various times through 2015. At September 30, ~~2012~~2013 and December 31, ~~2011~~2012, the weighted average exercise price of outstanding warrants was $~~2.63~~2.55 per share. We did not incur warrant related expenses during the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012.

~~In February 2011, Daimler AG exercised~~ ~~16,500,000~~ ~~warrants to purchase shares of common stock on a net settlement basis, resulting in the issuance of~~ ~~7,122,951~~ ~~shares of our common stock.~~


(14)	Benefit Plans

We recognized share-based payment expense of $~~17,492~~19,762 and $~~13,983~~17,492 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and $~~46,361~~49,774 and $~~36,006~~46,361 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively.

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, 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 September 30, ~~2012~~2013, approximately ~~142,977,000~~85,319,000 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 continue to vest.~~

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO ~~UNAUDITED~~ CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

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 Three Months Ended September 30,		For the Nine Months Ended September 30,		For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2012	2011	2012	2011	2013	2012	2013	2012
Risk-free interest rate	0.8%	1.1%	0.8%	1.1%	1.5%	0.8%	1.4%	0.8%
Expected life of options — years	5.06	5.27	5.13	5.27	4.73	5.06	4.72	5.13
Expected stock price volatility	49%	68%	53%	68%	47%	49%	48%	53%
Expected dividend yield	0%	0%	0%	0%	0%	0%	0%	0%

There were no options granted to third parties during the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012. We do not intend to pay regular dividends on our common stock. Accordingly, the dividend yield percentage used in the Black-Scholes-Merton option value is zero for all periods.

The following table summarizes stock option activity under our share-based ~~payment~~ plans for the nine months ended September 30, ~~2012~~2013 (options in thousands):


	Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Options		Weighted- Average Exercise Price (1)		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2011	439,580		$	1.25
Outstanding as of December 31, 2012								274,512		$	1.92
Granted	57,776		$	2.52				54,368		$	3.58
Exercised	(144,310	)	$	0.62				(47,311	)	$	1.41
Forfeited, cancelled or expired	(8,217	)	$	3.26				(4,934	)	$	1.74
Outstanding as of September 30, 2012	344,829		$	1.68	6.82	$	384,883
Exercisable, September 30, 2012	125,959		$	2.08	5.33	$	134,226
Outstanding as of September 30, 2013								276,635		$	2.34	7.24	$	455,071
Exercisable as of September 30, 2013								120,836		$	2.21	5.46	$	232,449


(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 28, 2012 special cash dividend.

The weighted average grant date fair value of options granted during the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 was $~~1.08~~1.48 and $~~1.04~~1.08, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 was $~~237,521~~104,785 and $~~10,011~~237,521, respectively. Beginning in July 2013, we transitioned to a net-settlement method from a cashless option exercise method for stock options. During the three months endedSeptember 30, 2013, the approximate number of shares which were issued in the market as a result of stock option exercises was 27,313,000.

We recognized share-based payment expense associated with stock options of $~~16,660~~18,860 and $~~13,201~~16,660 for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively, and $~~43,350~~48,661 and $~~33,098~~43,350 for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively.

The following table summarizes the restricted stock unit activity under our share-based plans for the nine months endedSeptember 30, 2013 (shares in thousands):



	Shares		Grant Date Fair Value
Nonvested as of December 31, 2012	429		$	3.25
Granted	6,475		$	3.58
Vested	(192	)	$	3.27
Forfeited	(37	)	$	3.61
Nonvested as of September 30, 2013	6,675		$	3.56

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

The weighted average grant date fair value of restricted stock units granted during the nine months endedSeptember 30, 2013 was $3.58. The total intrinsic value of restricted stock units that vested during the nine months endedSeptember 30, 2013 was $605. There were no ~~grants, exercises, forfeitures, cancellations or expirations of our shares of restricted stock or~~ restricted stock units granted to third parties during the three and nine months ended September 30, 2013 and 2012. ~~As of~~ ~~September 30, 2012, we had~~ ~~421~~ ~~awards of nonvested restricted stock and restricted stock units outstanding which have a weighted average grant date fair value of~~ ~~$1.46~~. These represent shares issued to members of the board of directors as part of our former director compensation program. The shares will vest on the first anniversary of the date the applicable person ceases to be a director.

We recognized share-based payment expense associated with restricted stock units ~~and shares of restricted stock~~ of $0 ~~for the~~ ~~three months endedSeptember 30, 2012~~ ~~and~~ ~~2011~~902 and $01,113 ~~and~~ ~~$543~~ ~~for~~during the three and nine months ended September 30, ~~2012~~ ~~and~~ ~~2011~~2013, respectively.

Total unrecognized compensation costs related to unvested share-based payment awards for stock options, ~~and~~ restricted stock units and shares granted to employees and members of our board of directors at September 30, ~~2012~~2013 and December 31, ~~2011~~2012, net of estimated forfeitures, ~~was~~were $~~146,028~~178,345 and $~~129,983~~129,010, respectively. The total unrecognized compensation costs at September 30, ~~2012~~2013 are expected to be recognized over a weighted-average period of ~~three~~3 years.

401(k) Savings Plan

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

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

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 cash which is used to purchase shares of our common stock on the open market. During the three and nine months endedSeptember 30, 2013, we contributed approximately $944 and $3,331, respectively, to the Sirius XM Plan in fulfillment of our matching obligation. During the three and nine months endedSeptember 30, 2012, employer matching contributions were made in the form of shares of our common stock. Employer matching contributions under the Sirius XM Plan vest at a rate of 33.33% for each year of employment and are fully vested after three years of employment for all current and future contributions. Share-based payment expense resulting from the matching contribution to the Sirius XM Plan ~~was~~ ~~$832~~ ~~and~~ ~~$782~~for the three ~~months endedSeptember 30, 2012~~and ~~2011, respectively, and~~ ~~$3,011~~ ~~and~~ ~~$2,365~~ ~~for the~~ nine months ended September 30, 2012 was $832and ~~2011~~$3,011, respectively.

We may also elect to contribute to the profit sharing portion of the Sirius XM Plan based upon the total eligible compensation of eligible participants. These additional contributions in the form of shares of common stock are determined by the compensation committee of our board of directors. Employees are only eligible to receive profit-sharing contributions during any year in which they are employed on the last day of the year. We did not contribute to the profit sharing portion of the Sirius XM Plan in 2011 and we do not plan to contribute in 2012.


(15)	Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of September 30, ~~2012~~2013:


	2012		2013		2014		2015		2016		Thereafter		Total		2013		2014		2015		2016		2017		Thereafter		Total
Long-term debt obligations	$	1,146	$	4,234	$	553,406	$	803,355	$	862	$	1,100,000	$	2,463,003	$	540,605	$	508,911	$	6,593	$	3,359	$	40,000	$	2,650,000	$	3,749,468
Cash interest payments	81,084		184,360		183,116		109,483		74,381		231,700		864,124		60,895		179,741		143,596		143,403		144,103		537,875		1,209,613
Satellite and transmission	3,675		55,106		14,927		13,157		3,597		19,154		109,616		35,812		29,123		13,871		4,321		3,404		20,334		106,865
Programming and content	44,719		201,146		171,456		163,409		13,388		1,125		595,243		45,565		237,143		212,880		92,278		72,800		168,483		829,149
Marketing and distribution	7,887		18,417		11,588		5,377		3,117		692		47,078		6,276		22,252		14,166		9,301		6,650		12,775		71,420
Satellite incentive payments	2,435		11,804		12,542		11,658		12,529		79,959		130,927		2,117		12,377		11,478		12,311		13,259		69,066		120,608
Operating lease obligations	9,403		38,017		31,947		34,572		24,501		224,861		363,301		9,763		36,994		41,790		35,593		29,357		247,016		400,513
Other	9,278		39,607		15,712		1,790		188		—		66,575		19,227		34,243		9,072		2,879		829		390		66,640
Total(1)	$	159,627	$	552,691	$	994,694	$	1,142,801	$	132,563	$	1,657,491	$	4,639,867
Total (1)															$	720,260	$	1,060,784	$	453,446	$	303,445	$	310,402	$	3,705,939	$	6,554,276


(1)	The table does not include our reserve for uncertain tax positions, which at September 30, ~~2012~~2013 totaled $~~1,565~~1,432, as the specific timing of any cash payments cannot be projected with reasonable certainty.

Long-term debt obligations. Long-term debt obligations include principal payments on outstanding debt and capital lease obligations.

Cash interest payments. Cash interest payments include interest due on outstanding debt and capital lease payments through maturity.

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

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

Programming and content. We have entered into various programming agreements. Under the terms of these agreements, our 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 vehicles they manufacture. In addition, in the event certain new products are not shipped by a distributor to its customers within 90 days of the distributor’s receipt of goods, we have agreed to purchase and take title to the product.

Satellite incentive payments. Boeing Satellite Systems International, Inc., the manufacturer of four of XM’s in-orbit satellites, may be entitled to future in-orbit performance payments with respect to two of XM’s satellites. As of September 30, ~~2012~~2013, we have accrued $~~27,506~~27,075 related to contingent in-orbit performance payments for our XM-3 and XM-4 satellites based

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~~SIRIUS XM RADIO INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Dollar amounts in thousands, unless otherwise stated)~~

on expected operating performance over their fifteen-year design life. Boeing may also be entitled to an additional $10,000 if our XM-4 satellite continues to operate above baseline specifications during the five years beyond the satellite’s fifteen-year design life.

Space Systems/Loral, ~~the~~a manufacturer of ~~two~~ of our in-orbit satellites, may be entitled to future in-orbit performance payments. As of September 30, ~~2012~~2013, we have accrued $~~9,193~~6,993 and $~~21,450~~21,787 related to contingent performance payments for our FM-5 and XM-5 satellites, respectively, based on their expected operating performance over their fifteen-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.

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. A Multistate Working Group of 32 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 Attorneys General of the State of Florida and the State of New York. We are cooperating with these investigations and believe our consumer practices comply with all applicable federal and state laws and regulations.

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

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SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(UNAUDITED)

(Dollar amounts in thousands, unless otherwise stated)

(16) Income Taxes

Income tax (expense) benefit ~~(expense)~~ for the three months ended September 30, ~~2012~~2013 and ~~2011~~2012 was $~~20,113~~(61,158) and $~~(5,714)~~20,113, respectively, and $(216,857) and $3,013,860, for the nine months endedSeptember 30, 2013 and 2012, respectively.

We estimate our annual effective tax rate for the year ending December 31, 2013 will be 38.4%. Our effective tax rates for the three and nine months endedSeptember 30, 2013 were 49.2% and 41.0%, respectively, after factoring in changes in state tax rates, changes to certain state net operating loss limitations and return to provision adjustments during the three months endedSeptember 30, 2013.

For the three months endedSeptember 30, 2012, we did not have any federal income tax expense as it was offset by a corresponding release of the valuation allowances related to our deferred tax assets. The income tax benefit of $3,013,860 recognized in the nine months ended September 30, 2012 ~~and~~ ~~2011~~ ~~was~~ ~~$3,013,860~~ ~~and~~ ~~$(9,907), respectively.~~

~~For~~ ~~three months endedSeptember 30, 2012, we recorded a~~ ~~$24,000~~ ~~discrete income tax benefit related~~relates to the ~~release~~reversal of the deferred tax valuation allowance for net operating losses we no longer expect to realize against income for the remainder of 2012. We now expect to realize this benefit after 2012. This benefit is due to a decrease in estimated income for 2012 as result of the loss on extinguishment of debt that was recorded during the ~~three months endedSeptember 30, 2012. Including the~~ ~~$24,000~~ ~~discrete item recorded in the quarter, for the~~ ~~nine months endedSeptember 30, 2012~~ ~~we have recorded in aggregate a discrete benefit of~~ ~~$3,013,000~~ ~~for the release of significantly~~substantially all of our deferred income tax valuation allowance. As of September 30, 2013, there remains a valuation allowance related to ~~net operating losses that will be realized after 2012.~~

~~The remaining deferred tax asset valuation allowance as of~~ ~~September 30, 2012~~ ~~of approximately~~ ~~$71,700~~ ~~relates to deferred tax assets we expect to realize as a result of pre-tax income anticipated during the fourth quarter of 2012 of~~ ~~$64,200~~ ~~and~~ deferred tax assets of $~~7,500~~6,125 that are not likely to be realized due to certain state net operating loss limitations.

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.

(17) Subsequent Events

Share Repurchase Programs

On October 9, 2013, our board of directors approved an additional $2,000,000 common stock repurchase program. Shares of our 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.

Pursuant to this approval and as part of our share repurchase program, on October 9, 2013, we entered into an agreement to repurchase $500,000 of our common stock from Liberty Media through April 2014. Subject to the terms of the agreement with Liberty Media, shares are expected to be purchased in three installments, $130,000 in November 2013, $270,000 in January 2014 and $100,000 in April 2014. We may, with the consent of Liberty Media, elect to accelerate the purchase and sale of all or any portion of the shares expected to be purchased on any such repurchase date.

Upon consummation of our common stock repurchases from Liberty Media, we will have repurchased shares of our common stock for an aggregate purchase price of approximately $2,100,000.

Debt Redemption

On October 25, 2013, we will redeem $539,551 in principal amount of our remaining outstanding 7.625% Notes for an approximate purchase price of $618,000, including premium and accrued interest, which will result in the recognition of a Loss on extinguishment of debt and credit facilities, net, of approximately $66,000.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All dollar amounts referenced in this Item 2 are in thousands, unless otherwise stated)

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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time, particularly the risk factors described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 and “Management’s Discussion and Analysis of Financial Condition and Results or Operations” herein and in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012.

Among the significant factors that could cause our actual results to differ materially from those expressed in the forward-looking statements are:

we face substantial competition and that competition is likely to increase over time;

our business depends in large part upon automakers;

general economic conditions can affect our business;

failure of our satellites would significantly damage our business;

our ability to attract and retain subscribers at a profitable level in the future is uncertain;

royalties for music rights have increased and may ~~increase;~~continue to do so in the future;

~~failure~~our business could be adversely affected if we fail to ~~comply with FCC requirements could damage our business;~~attract and retain qualified executive officers;

the unfavorable outcome of pending or future litigation could have a material adverse effect;

we may not realize the benefits of acquisitions or other strategic initiatives, including the acquisition of Agero’s connected vehicle business;

rapid technological and industry changes could adversely impact our services;

failure of third parties to perform could adversely affect our business;

changes in consumer protection laws and their enforcement could damage our business;

failure to comply with FCC requirements could damage our business;

other existing or future government laws and regulations could harm our business;

interruption or failure of our information technology and communication systems could negatively impact our results and brand;

if we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer;

we may from time to time modify our business plan, and these changes could adversely affect us and our financial condition;

our ~~substantial~~ indebtedness could adversely affect our operations and could limit our ability to react to changes in the economy or our industry;

our broadcast studios, terrestrial repeater networks, satellite uplink facilities or other ground facilities could be damaged by natural catastrophes or terrorist activities;

~~electromagnetic interference~~our principal stockholder has significant influence over our management and over actions requiring stockholder approval and its interests may differ from ~~others could damage our business;~~the interests of other holders of common stock;

we are a "controlled company" within the meaning of the NASDAQ listing rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements; and

our business may be impaired by third-party intellectual property ~~rights; and~~

~~Liberty Media Corporation has significant influence over our business and affairs and its interest may differ from ours.~~rights.

Because the risk factors referred to above could cause actual results or outcomes 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 as of the date on which it is made, and we undertake 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 occurrence 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

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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.

~~Table Of Contents~~

Executive Summary

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

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

As of September 30, ~~2012~~2013, we had ~~23,365,383~~25,582,066 subscribers of which ~~19,041,519~~20,670,333 were self-pay subscribers and ~~4,323,864~~4,911,733 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 for subscriptions included in the sale or lease price of a vehicle; certain radios activated ~~radios in~~for daily rental fleet ~~vehicles; certain~~programs; subscribers to our Internet ~~services;~~services who do not also have satellite radio subscriptions; and certain subscribers to our weather, traffic, data and Backseat TV ~~data, traffic, and weather~~ services.

Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or monthly basis. We offer discounts for prepaid and long-term subscription plans, as well as discounts for multiple ~~subscriptions on each platform.~~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 Internet radio, Backseat TV, data, traffic 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~~vehicles or previously owned vehicles. The length of these ~~prepaid~~trial subscriptions varies but is typically three to twelve months. ~~In many cases, we~~We 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 ~~their~~new vehicles.

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

Our board of directors has approved a corporate reorganization that will create a new holding company structure. Sirius XM Radio Inc., its business operations and its subsidiaries, will operate as a wholly owned subsidiary of the new holding company, called Sirius XM Holdings Inc. The business operations of our company - Sirius XM Radio Inc. - and its subsidiaries will not change as a result of the reorganization. Outstanding shares of our common stock will be automatically converted, on a share for share basis, into identical shares of common stock of Sirius XM Holdings Inc. The certificate of incorporation, the bylaws, the executive officers and the board of directors of the new holding company will be the same as those of our company in effect immediately prior to the reorganization. The common stock of the holding company will

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continue to be listed on the NASDAQ Global Select Market. We expect to consummate this reorganization prior to December 31, 2013.

~~Table Of Contents~~

Results of Operations

Set forth below are our results of operations for the three and nine months ended September 30, ~~2012~~2013 compared with the three and nine months ended September 30, ~~2011~~2012.

Unaudited 2012 vs 2011 Change 2012 vs 2011 Change

For the Three Months Ended September 30, For the Nine Months Ended September 30, Three Months Nine Months

2012 2011 2012 2011 Amount
% Amount
%
Revenue:

Subscriber revenue $ 757,672
$ 660,837
$ 2,188,199
$ 1,922,917
$ 96,835

15 % $ 265,282

14 %
Advertising revenue, net of agency fees 20,426
18,810
59,881
53,595
1,616

9 % 6,286

12 %
Equipment revenue 17,813
15,504
51,183
48,392
2,309

15 % 2,791

6 %
Other revenue 71,449
67,399
210,362
205,882
4,050

6 % 4,480

2 %
Total revenue 867,360
762,550
2,509,625
2,230,786
104,810

14 % 278,839

12 %
Operating expenses:

Cost of services:

Revenue share and royalties 141,834
117,043
409,371
340,713
24,791

21 % 68,658

20 %
Programming and content 69,938
70,509
205,203
210,867
(571 )
(1 )% (5,664 )
(3 )%
Customer service and billing 77,768
64,239
212,635
192,667
13,529

21 % 19,968

10 %
Satellite and transmission 18,319
19,681
53,980
57,238
(1,362 )
(7 )% (3,258 )
(6 )%
Cost of equipment 6,345
5,888
19,301
19,894
457

8 % (593 )
(3 )%
Subscriber acquisition costs 112,418
107,279
348,014
317,711
5,139

5 % 30,303

10 %
Sales and marketing 60,676
55,210
176,457
154,471
5,466

10 % 21,986

14 %
Engineering, design and development 13,507
14,175
32,468
39,249
(668 )
(5 )% (6,781 )
(17 )%
General and administrative 68,235
58,635
193,786
175,469
9,600

16 % 18,317

10 %
Depreciation and amortization 66,571
65,403
199,481
200,865
1,168

2 % (1,384 )
(1 )%
Total operating expenses 635,611
578,062
1,850,696
1,709,144
57,549

10 % 141,552

8 %
Income from operations 231,749
184,488
658,929
521,642
47,261

26 % 137,287

26 %
Other income (expense):

Interest expense, net of amounts capitalized (70,035 ) (75,316 ) (219,777 ) (229,730 ) 5,281

7 % 9,953

4 %
Loss on extinguishment of debt and credit facilities, net (107,105 ) —
(132,726 ) (7,206 ) (107,105 )
nm
(125,520 )
nm
Interest and investment (loss) income (321 ) 292
(3,192 ) 78,590
(613 )
(210 )% (81,782 )
(104 )%
Other income (loss) 113
435
(637 ) 2,235
(322 )
(74 )% (2,872 )
(129 )%
Total other expense (177,348 ) (74,589 ) (356,332 ) (156,111 ) (102,759 )
(138 )% (200,221 )
(128 )%
Income before income taxes 54,401
109,899
302,597
365,531
(55,498 )
(50 )% (62,934 )
(17 )%
Income tax benefit (expense) 20,113
(5,714 ) 3,013,860
(9,907 ) 25,827

nm
3,023,767

nm
Net income $ 74,514
$ 104,185
$ 3,316,457
$ 355,624
$ (29,671 )
(28 )% $ 2,960,833

833 %

~~nm - not meaningful~~



	Unaudited												2013 vs 2012 Change					2013 vs 2012 Change
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						Three Months					Nine Months
	2013			2012			2013			2012			Amount			%		Amount			%
Revenue:
Subscriber revenue	$	834,053		$	757,672		$	2,432,113		$	2,188,199		$	76,381		10	%	$	243,914		11	%
Advertising revenue	21,918			20,426			63,886			59,881			1,492			7	%	4,005			7	%
Equipment revenue	17,989			17,813			54,588			51,183			176			1	%	3,405			7	%
Other revenue	87,549			71,449			248,430			210,362			16,100			23	%	38,068			18	%
Total revenue	961,509			867,360			2,799,017			2,509,625			94,149			11	%	289,392			12	%
Operating expenses:
Cost of services:
Revenue share and royalties	162,627			141,834			467,017			409,371			20,793			15	%	57,646			14	%
Programming and content	72,322			69,938			217,313			205,203			2,384			3	%	12,110			6	%
Customer service and billing	76,322			77,768			237,006			212,635			(1,446		)	(2	)%	24,371			11	%
Satellite and transmission	19,853			18,319			59,041			53,980			1,534			8	%	5,061			9	%
Cost of equipment	5,340			6,345			17,809			19,301			(1,005		)	(16	)%	(1,492		)	(8	)%
Subscriber acquisition costs	125,457			112,418			371,560			348,014			13,039			12	%	23,546			7	%
Sales and marketing	75,638			60,676			209,594			176,457			14,962			25	%	33,137			19	%
Engineering, design and development	13,007			13,507			42,901			32,468			(500		)	(4	)%	10,433			32	%
General and administrative	67,881			68,235			184,613			193,786			(354		)	(1	)%	(9,173		)	(5	)%
Depreciation and amortization	58,533			66,571			192,966			199,481			(8,038		)	(12	)%	(6,515		)	(3	)%
Total operating expenses	676,980			635,611			1,999,820			1,850,696			41,369			7	%	149,124			8	%
Income from operations	284,529			231,749			799,197			658,929			52,780			23	%	140,268			21	%
Other income (expense):
Interest expense, net of amounts capitalized	(54,629		)	(70,035		)	(150,531		)	(219,777		)	15,406			22	%	69,246			32	%
Loss on extinguishment of debt and credit facilities, net	(107,971		)	(107,105		)	(124,348		)	(132,726		)	(866		)	(1	)%	8,378			6	%
Interest and investment income (loss)	1,716			(321		)	3,648			(3,192		)	2,037			635	%	6,840			214	%
Other income (loss)	407			113			909			(637		)	294			260	%	1,546			243	%
Total other expense	(160,477		)	(177,348		)	(270,322		)	(356,332		)	16,871			10	%	86,010			24	%
Income before income taxes	124,052			54,401			528,875			302,597			69,651			128	%	226,278			75	%
Income tax (expense) benefit	(61,158		)	20,113			(216,857		)	3,013,860			(81,271		)	(404	)%	(3,230,717		)	(107	)%
Net income	$	62,894		$	74,514		$	312,018		$	3,316,457		$	(11,620	)	(16	)%	$	(3,004,439	)	(91	)%

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Our results of operations discussed below include the impact of purchase price accounting adjustments associated with 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 are detailed in our Adjusted Revenues and Operating Expenses tables on pages 41 through 45 of our glossary.

Total Revenue

Subscriber Revenue includes subscription, activation and other fees.

For the three months endedSeptember 30, ~~2012~~2013 and ~~2011~~2012, subscriber revenue was $~~757,672~~834,053 and $~~660,837~~757,672, respectively, an increase of ~~15%~~10%, or $~~96,835~~76,381. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, subscriber revenue was $~~2,188,199~~2,432,113 and $~~1,922,917~~2,188,199, respectively, an increase of ~~14%~~11%, or $~~265,282~~243,914. These increases were primarily attributable to ~~a 9% increase~~increases 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 rate, and an increase in ~~sales of~~subscriptions to premium services, including ~~Premier packages,~~ data services, premier channels and ~~internet~~Internet streaming. ~~The increase was~~These increases were partially offset by subscription discounts offered through customer acquisition and retention ~~programs.~~programs, and an increasing number of lifetime subscription plans that have reached full revenue recognition.

We expect subscriber revenues to grow based on the growth of our subscriber base, promotions, ~~rebates offered to subscribers and corresponding take-rates,~~subscription plan mix, ~~subscription prices~~ and identification of additional revenue streams from subscribers.

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

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, advertising revenue was $~~20,426~~21,918 and $~~18,810~~20,426, respectively, an increase of 9%7%, or $~~1,616~~1,492. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, advertising revenue was $~~59,881~~63,886 and $~~53,595~~59,881, respectively, an increase of ~~12%~~7%, or $~~6,286~~4,005. These increases were primarily due to a greater number of ~~advertising~~ spots sold and broadcast, ~~as well as the~~and increases in the rates charged per spot.

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

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

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, equipment revenue was $~~17,813~~17,989 and $~~15,504~~17,813, respectively, an increase of ~~15%~~1%, or $~~2,309~~176. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, equipment revenue was $~~51,183~~54,588 and $~~48,392~~51,183, respectively, an increase of 6%7%, or $~~2,791~~3,405. These increases were driven by ~~royalties from~~ higher OEM production, ~~partially offset by lower~~the mix of royalty eligible radios and, to a lesser extent, improved aftermarket ~~and direct to consumer sales.~~subsidies.

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

Other Revenue includes amounts earned from subscribers for the U.S. Music Royalty Fee, revenue from our Canadian affiliate and ancillary revenues.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, other revenue was $~~71,449~~87,549 and $~~67,399~~71,449, respectively, an increase of 6%23%, or $~~4,050~~16,100. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, other revenue was $~~210,362~~248,430 and $~~205,882~~210,362, respectively, an increase of 2%18%, or $~~4,480~~38,068. These ~~increases~~increases were driven by ~~revenues from~~ the U.S. Music Royalty Fee as ~~the number of subscribers~~our subscriber base increased and subscribers on the 12.5% rate increased. The increase was also partially driven by higher royalty revenue from Sirius XM ~~Canada.~~Canada, as a result of growth in its self-pay subscriber base.

~~Other revenue is dependent upon the U.S. Music Royalty Fee and the royalty from our Canadian affiliate.~~ We expect other revenue to increase as our subscriber base drives higher U.S. Music Royalty Fees as more subscribers migrate to the higher rate and as the performance of our Canadian affiliate improves.

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Operating Expenses

Revenue Share and Royalties include distribution and content provider revenue share, advertising revenue share, and broadcast and web streaming royalties. Advertising revenue share is recognized in revenue share and royalties in the period in which the advertising is broadcast.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, revenue share and royalties were $~~141,834~~162,627 and $~~117,043~~141,834, respectively, an increase of ~~21%~~15%, or $~~24,791~~20,793, and increased as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, revenue share and royalties were $~~409,371~~467,017 and $~~340,713~~409,371, respectively, an increase of ~~20%~~14%, or $~~68,658~~57,646, and increased as a percentage of total revenue. These increases were

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primarily attributable to greater revenues subject to royalty and/or revenue sharing arrangements and a 7%12.5% increase in the statutory royalty rate for the performance of sound recordings, partially offset by an increase in the benefit to earnings from the amortization of deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger.

We expect our revenue share and royalty costs to increase as our revenues ~~grow. Under~~grow, our royalty rates increase and as a result of the ~~terms of~~above noted discontinued deferred credits on executory contracts associated with the Merger. As determined by the Copyright Royalty Board's decision, we paid royalties of ~~8.0%~~9.0% and ~~7.5%~~8.0% of gross revenues, subject to certain exclusions, for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, ~~respectively. The Copyright Royalty Board~~respectively, and will ~~issue a decision on future royalty rates~~pay 9.5% in December 2012. The deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger are expected to provide increasing benefits to revenue share and royalties through the expiration of the acquired executory contracts in 2013.2014.

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

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, programming and content expenses were $~~69,938~~72,322 and $~~70,509~~69,938, respectively, a ~~decrease~~an increase of 1%3%, or $~~571~~2,384, ~~and~~but decreased as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, programming and content expenses were $~~205,203~~217,313 and $~~210,867~~205,203, respectively, a ~~decrease~~an increase of 3%6%, or $~~5,664~~12,110, ~~and~~but decreased as a percentage of total revenue. These ~~decrease~~increases in expenses were primarily due to ~~savings in content agreements, partially offset by increases in personnel costs and~~ reductions in the benefit to earnings from purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired programming executory ~~contracts.~~contracts and increased personnel costs.

Excluding the impact from purchase accounting adjustments, based on our current programming offerings, we expect our programming and content expenses to ~~decrease~~fluctuate as ~~agreements expire~~we offer additional programming, and ~~are renewed~~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 will be amortized by the end of 2013.

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

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, customer service and billing expenses were $~~77,768~~76,322 and $~~64,239~~77,768, respectively, an ~~increase~~a decrease of ~~21%~~2%, or $~~13,529~~1,446, and ~~increased~~decreased as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, customer service and billing expenses were $~~212,635~~237,006 and $~~192,667~~212,635, respectively, an increase of ~~10%~~11%, or $~~19,968~~24,371, but remained flat as a percentage of total revenue. ~~These~~ ~~increases were~~The decrease in expenses for the three month period was primarily ~~due to longer average handle time per call, higher contact rates~~driven by lower spend on customer service agents and ~~higher technology costs.~~lower bad debt expense. The increase in expense for the nine month period was ~~partially offset by fewer calls per~~primarily due to efforts to improve our customer service experience, resulting in higher spend on customer service agents, staffing and training, higher subscriber ~~lower~~volume driving increased subscriber contacts, increased bad debt expense and ~~lower third party collection~~higher technology costs.

We expect our customer service and billing expenses to increase as our subscriber base ~~grows.~~grows and as we continue to improve the customer service experience for our subscribers.

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

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, satellite and transmission expenses were $~~18,319~~19,853 and $~~19,681~~18,319, respectively, a ~~decrease~~an increase of 7%8%, or $~~1,362~~1,534, ~~and~~but ~~decreased~~remained flat as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, satellite and transmission expenses were $~~53,980~~59,041 and $~~57,238~~53,980, respectively, a ~~decrease~~an increase of 6%9%, or $~~3,258~~5,061, ~~and~~but ~~decreased~~remained flat as a percentage of total revenue. These ~~decrease~~increases were primarily due to ~~a reduction in in-orbit satellite insurance expense.~~increased costs associated with our streaming operations.

We expect overall satellite and transmission expenses to increase ~~following the~~as we enhance our Internet-based service and add functionality, expand our terrestrial repeater network, launch of our FM-6 satellite and ~~as we add enhanced Internet-based service and functionality.~~incur in-orbit insurance costs.

Cost of Equipment includes 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.

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For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, cost of equipment was $~~6,345~~5,340 and $~~5,888~~6,345, respectively, an ~~increase~~a decrease of 8%16%, or $~~457~~1,005, and ~~remained flat~~decreased ~~as a percentage of total revenue but decreased~~ as a percentage of equipment revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, cost of equipment was $~~19,301~~17,809 and $~~19,894~~19,301, respectively, a decrease of 3%8%, or $~~593~~1,492, and ~~remained flat~~decreased ~~as a percentage of total revenue and decreased~~ as a percentage of equipment revenue. ~~The~~ ~~increase~~These decreases were primarily due to lower average cost per product sold and lower inventory reserves, partially offset by higher direct to consumer volume for the ~~three month period was driven by the mix of radios with higher average costs sold,~~current periods compared to the prior ~~year. The decrease in the nine month period was primarily due to lower direct to consumer sales, partially offset by higher inventory reserves and radios sold with higher average costs.~~year periods.

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

Subscriber Acquisition Costs include 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 vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain 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 or revenue share payments to automakers and retailers of satellite radios.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, subscriber acquisition costs were $~~112,418~~125,457 and $~~107,279~~112,418, respectively, an increase of 5%12%, or $~~5,139~~13,039, ~~and~~but ~~decreased~~remained flat as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, subscriber acquisition costs were $~~348,014~~371,560 and $~~317,711~~348,014, respectively, an increase of ~~10%~~7%, or $~~30,303~~23,546, but decreased as a percentage of total revenue. These increases were 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~~lower benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the Merger.

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

Sales and Marketing includes 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.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, sales and marketing expenses were $~~60,676~~75,638 and $~~55,210~~60,676, respectively, an increase of ~~10%~~25%, or $~~5,466~~14,962, and ~~remained flat~~increased as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, sales and marketing expenses were $~~176,457~~209,594 and $~~154,471~~176,457, respectively, an increase of ~~14%~~19%, or $~~21,986~~33,137, and ~~remained flat~~increased as a percentage of total revenue. These increases were primarily due to additional subscriber communications and retention programs associated with a greater number of subscribers and promotional ~~trials, and higher OEM cooperative marketing.~~trials.

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~~Sales~~We anticipate that sales and marketing expenses will increase as ~~we launch seasonal advertising~~changes in certain contractual marketing agreements become effective and ~~promotional initiatives to attract new subscribers, and launch and~~as we expand programs to retain our existing subscribers, ~~and~~ win-back former subscribers, and attract new subscribers. ~~The impact of purchase price accounting adjustments associated with~~We expect the ~~Merger attributable to the amortization of the deferred credit on acquired sales and marketing contracts will continue to decline,~~increase in ~~absolute amount and as a percentage of reported~~ sales and marketing costs ~~through 2013.~~to be partially offset by the impact of the expiration of the acquired executory contracts noted above.

Engineering, Design and Development includes 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.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, engineering, design and development expenses were $~~13,507~~13,007 and $~~14,175~~13,507, respectively, a decrease of 5%4%, or $~~668~~500, and decreased as a percentage of total revenue. For

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the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, engineering, design and development expenses were $~~32,468~~42,901 and $~~39,249~~32,468, respectively, a ~~decrease~~an increase of ~~17%~~32%, or $~~6,781~~10,433, ~~and~~but ~~decreased~~remained flat as a percentage of total revenue. The ~~decrease~~ ~~for the~~ three month period decrease was primarily driven ~~primarily~~ by lower ~~product development costs.~~costs related to enhanced subscriber features and functionality for our service. The ~~decrease~~increase for the nine month period was ~~due to a reversal of certain non-recurring engineering charges, partially offset~~driven primarily by higher product development costs, costs related to ~~the development of~~ enhanced subscriber features and functionality for our service, and ~~higher personnel costs.~~by the reversal of certain non-recurring engineering charges that were recorded in the second quarter of 2012.

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

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

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, general and administrative expenses were $~~68,235~~67,881 and $~~58,635~~68,235, respectively, an ~~increase~~a decrease of ~~16%~~1%, or $~~9,600~~354, and ~~remained flat~~decreased as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, general and administrative expenses were $~~193,786~~184,613 and $~~175,469~~193,786, respectively, an ~~increase~~a decrease of ~~10%~~5%, or $~~18,317~~9,173, ~~but~~and ~~remained flat~~decreased as a percentage of total revenue. These ~~increase~~decreases were primarily due to ~~higher~~lower legal and personnel costs ~~including~~and share-based payment ~~expenses, and legal costs, partially offset by lower litigation settlement charges.~~expense.

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

Depreciation and Amortization represents 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.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, depreciation and amortization expense was $~~66,571~~58,533 and $~~65,403~~66,571, respectively, an ~~increase~~a decrease of 2%12%, or $~~1,168~~8,038, and decreased as a percentage of total revenue. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, depreciation and amortization expense was $~~199,481~~192,966 and $~~200,865~~199,481, respectively, a decrease of 1%3%, or $~~1,384~~6,515, and decreased as a percentage of total revenue. ~~The~~These ~~increase~~decrease ~~for the three month period was primarily~~s were due to ~~additional assets placed in-service, partially offset by reductions in the amortization of subscriber relationships and depreciation recognized on assets placed in-service as~~ certain ~~assets reached~~satellites reaching the end of their estimated service ~~lives. The decrease for the nine month period was driven~~lives, partially offset by ~~reductions in the amortization of subscriber relationships and depreciation recognized on~~additional assets placed ~~in-service as certain assets reached the end of their estimated service lives.~~in-service.

We expect depreciation ~~expenses~~expense to ~~increase~~decrease in future periods ~~as we launch our FM-6 satellite, which will be partially offset by~~due to reduced amortization associated with the stepped-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 the launch of our FM-6 satellite.

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.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, interest expense was $~~70,035~~54,629 and $~~75,316~~70,035, respectively, a decrease of 7%22%, or $~~5,281~~15,406. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, interest expense was $~~219,777~~150,531 and $~~229,730~~219,777, respectively, a decrease of 4%32%, or $~~9,953~~69,246. These decreases were primarily due to ~~a lower average outstanding debt balance and an improvement in the mix of outstanding debt with~~ lower interest rates.

Following the launch of our FM-6 satellite, the capitalization of interest expense related to the construction of our satellites and related launch vehicles will be eliminated, until we begin replacing satellites in our fleet. As a result, weWe expect interest expense to increase ~~offset partially by the reduction~~in future periods as we issue new debt and as total debt outstanding increases.

Table of ~~our outstanding debt due to retirements at maturity, redemptions and repurchases.~~Contents

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

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For the three months ended September 30, 2013 and 2012, loss on extinguishment of debt and credit facilities, net, was $107,971 and $107,105, respectively, an increase of $866. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, loss on extinguishment of debt and credit facilities, net, was $~~132,726~~124,348 and $~~7,206~~132,726, respectively, an ~~increase~~a decrease of $~~125,520~~8,378. During the three months endedSeptember 30, 2013, a $107,971 loss was recorded on the redemption of our 7.625% Senior Notes due 2018 and our 8.75% Senior Notes due 2015. During the nine months endedSeptember 30, 2013, a $124,348 loss 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 three months ended September 30, 2012, a $107,105 loss was recorded on the repayment of our 13% Senior Notes due 2013 and our 9.75% Senior Secured Notes due 2015. During the nine months ended September 30, 2012, a $132,726 loss was recorded on the partial repayment of our 13% Senior Notes due 2013 and our 9.75% Senior Secured Notes due 2015. ~~During the~~ ~~nine months endedSeptember 30, 2011, a~~ ~~$7,206~~ ~~loss was incurred on the repayment of our 11.25% Senior Secured Notes due 2013 and the partial repayment of our 3.25% Convertible Notes due 2011.~~

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

For the three months ended September 30, ~~2012~~2013, interest and investment income was $1,716 compared to a loss ~~was~~of $(321) ~~compared to interest and investment income of~~in the ~~$292~~2012 ~~for the same period in~~ ~~2011~~.period. For the nine months ended September 30, ~~2012~~2013, interest and investment income was $3,648 compared to a loss ~~was~~of $(3,192) ~~compared to~~in the 2012 period. The interest and investment income of ~~$78,590~~for ~~the same period in~~ ~~2011. The interest and investment losses for both the three and nine month periods of 2012 were~~2013 was primarily due to ~~losses on~~ our share of Sirius XM Canada's net ~~loss.~~income, partially offset by the amortization expense related to our equity method intangible assets. The interest and investment ~~gain~~loss for ~~the three month period of 2011~~2012 was primarily ~~due to income from~~the result of our ~~interests in~~share of Sirius XM ~~Canada. The interest and investment gain for the nine month period of 2011 was primarily due to the realized~~Canada's net ~~gain from the Canada Merger~~loss in ~~the second quarter of 2011.~~that period.

Income Taxes

Income Tax (Expense) Benefit ~~(Expense)~~ includes the change in our deferred tax assets, foreign withholding taxes and current federal and state tax expenses.

For the three months endedSeptember 30, 2013 income tax expense was $(61,158) and for the three months endedSeptember 30, 2012 income tax benefit was $20,113. For the nine months endedSeptember 30, 2013income tax expense was$(216,857) and for the nine months endedSeptember 30, 2012 income tax benefit was $3,013,860. We estimate that our annual effective tax rate for the year ending December 31, 2013 will be 38.4%. Our effective tax rates for the three and nine months endedSeptember 30, 2013 were 49.2% and 41.0%, respectively, after factoring in changes in state tax rates, changes to certain state net operating loss limitations and return to provision adjustments during the three months endedSeptember 30, 2013. In 2012, we did not have any federal income tax expense as it was offset by a corresponding release of the valuation allowances related to deferred tax assets. During the first nine months of 2012, the income tax provision included an aggregate discrete benefit of approximately $3,013,000 related to the reversal of substantially all of our deferred income tax valuation allowance, the change in our deferred tax liability related to the difference in accounting for our FCC licenses, which are amortized over 15 years for tax purposes but not amortized for book purposes in accordance with GAAP, foreign withholding taxes on royalty income, and the effect of changes in certain state laws related to the utilization of net operating losses ("NOLs").allowance.

~~For the~~ ~~three months endedSeptember 30, 2012, income tax benefit was~~ ~~$20,113~~ ~~compared to income tax expense of~~ ~~$(5,714)~~ ~~for the same period in~~ ~~2011. For the~~ ~~nine months endedSeptember 30, 2012, income tax benefit was~~ ~~$3,013,860~~ ~~compared to income tax expense of~~ ~~$(9,907)~~ ~~for the same period in~~ ~~2011. For~~ ~~three months endedSeptember 30, 2012, we recorded a~~ ~~$24,000~~ discrete income tax benefit related to the release of the deferred tax valuation allowance for net operating losses we no longer expect to realize against income for the remainder of 2012. We now expect to realize this benefit after 2012. This benefit is due to a decrease in estimated income for 2012 as result of the loss on extinguishment of debt that was recorded during the ~~three months endedSeptember 30, 2012. Including the~~ ~~$24,000~~ ~~discrete item recorded in the quarter, for the~~ ~~nine months endedSeptember 30, 2012~~ ~~we have recorded in aggregate a discrete benefit of~~ ~~$3,013,000~~ ~~for the release of significantly all of our deferred tax valuation allowance related to net operating losses that will be realized after 2012.~~

~~The remaining deferred tax asset valuation allowance as of~~ ~~September 30, 2012~~ ~~of approximately~~ ~~$71,700~~ ~~relates to deferred tax assets we expect to realize as a result of pre-tax income anticipated during the fourth quarter of 2012 of~~ ~~$64,200~~ ~~and deferred tax assets of~~ ~~$7,500~~ ~~that are not likely to be realized due to certain state net operating loss limitations.~~

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Subscriber Data

The following table contains subscriber data for the three and nine months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively:


		Unaudited								Unaudited
		For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2012		2011		2012		2011		2013		2012		2013		2012
Beginning subscribers		22,919,462		21,016,175		21,892,824		20,190,964		25,068,988		22,919,462		23,900,336		21,892,824
Gross subscriber additions		2,421,586		2,138,131		7,064,282		6,369,846		2,561,175		2,421,586		7,726,577		7,064,282
Deactivated subscribers		(1,975,665	)	(1,804,448	)	(5,591,723	)	(5,210,952	)	(2,048,097	)	(1,975,665	)	(6,044,847	)	(5,591,723	)
Net additions		445,921		333,683		1,472,559		1,158,894		513,078		445,921		1,681,730		1,472,559
Ending subscribers		23,365,383		21,349,858		23,365,383		21,349,858		25,582,066		23,365,383		25,582,066		23,365,383

Self-pay		19,041,519		17,534,310		19,041,519		17,534,310		20,670,333		19,041,519		20,670,333		19,041,519
Paid promotional		4,323,864		3,815,548		4,323,864		3,815,548		4,911,733		4,323,864		4,911,733		4,323,864
Ending subscribers		23,365,383		21,349,858		23,365,383		21,349,858		25,582,066		23,365,383		25,582,066		23,365,383

Self-pay		370,553		364,004		1,132,777		847,511		372,597		370,553		1,100,059		1,132,777
Paid promotional		75,368		(30,321	)	339,782		311,383		140,481		75,368		581,671		339,782
Net additions		445,921		333,683		1,472,559		1,158,894		513,078		445,921		1,681,730		1,472,559

Daily weighted average number of subscribers	Daily weighted average number of subscribers	23,008,693		21,107,540		22,519,544		20,688,641		25,267,241		23,008,693		24,646,938		22,519,544

Average self-pay monthly churn		2.0	%	1.9	%	1.9	%	1.9	%	1.8	%	2.0	%	1.8	%	1.9	%

New vehicle consumer conversion rate		44	%	44	%	45	%	45	%	44	%	44	%	44	%	45	%
Note: See pages 40 through 47 for glossary.

Subscribers. At September 30, ~~2012~~2013, we had ~~23,365,383~~25,582,066 subscribers, an increase of ~~2,015,525~~2,216,683 subscribers, or 9%, from the ~~21,349,858~~23,365,383 subscribers as of September 30, ~~2011~~2012.

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, net additions were ~~445,921~~513,078 and ~~333,683~~445,921, respectively, an increase of ~~34%~~15%, or ~~112,238~~67,157. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, net additions were ~~1,472,559~~1,681,730 and ~~1,158,894~~1,472,559, respectively, an increase of ~~27%~~14%, or ~~313,665~~209,171. The ~~improvements were due to the~~ increase in gross subscriber additions ~~primarily resulting from~~for the three month period of 139,589 was due to higher new vehicle shipments and light vehicle sales, ~~as well as an increase in~~along with higher used vehicle 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.~~trials. The increase in ~~deactivations~~deactivated subscribers of 72,432 was ~~primarily~~ due to an increase in paid promotional trial deactivations ~~stemming~~driven by the growth of paid trials. The year to date increase in gross subscriber additions of 662,295 was due to higher new vehicle shipments and light vehicle sales, along with higher used vehicle conversions from unpaid promotional trials. The increase in deactivated subscribers of 453,124 was due to an increase in paid promotional trial deactivations driven by the growth of paid trials ~~along with growth in~~and increased self-pay deactivations from our larger subscriber base.

Average Self-pay Monthly Churn is derived by dividing the monthly average of self-pay deactivations for ~~the~~a quarter by the average self-pay subscriber balance for ~~the~~a quarter. (See accompanying glossary on pages 40 through 47 for more details.)

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, our average self-pay monthly churn rate was ~~2.0%~~1.8% and ~~1.9%~~2.0%, respectively. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, our average self-pay monthly churn rate was 1.8% and 1.9%., respectively. Average self-pay monthly churn decreased due to a higher mix of existing subscribers migrating to paid trials in new vehicles rather than deactivating as a result of trading in or selling their previous vehicle.

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New Vehicle Consumer Conversion Rate is 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. The metric excludes rental and fleet vehicles. (See accompanying glossary on pages 40 through 47 for more details).

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, the new vehicle consumer conversion rate was

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44%. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, the new vehicle consumer conversion rate was 44% and 45%., respectively. The decrease in the new vehicle consumer conversion rate for the nine month periods was due to the mix of sales among OEMs.

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; free cash flow; and adjusted EBITDA. These measures 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 our investment in Sirius XM Canada, the recognition of subscriber revenues not recognized in purchase price accounting and the elimination of the earnings benefit of deferred credits on executory contracts, which are primarily attributable to third party arrangements with an OEM and certain programming providers.

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

Free cash flow is a metric that our management and board of directors use to evaluate the cash generated by our operations, net of capital expenditures and other investment activity. In a capital intensive business, with significant historical and current investments in satellites, we look at our operating cash flow, net of these investing cash outflows, to determine cash available for future subscriber acquisition and capital expenditures, to repurchase or retire debt, to acquire other companies and to evaluate our ability to return capital to stockholders. We believe free cash flow is an indicator of the long-term financial stability of our business. Free cash flow, which is reconciled to “Net cash provided by ~~(used in)~~ operating activities”, is a ~~non-GAAP~~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~~Restricted and other investment ~~activity”~~activity from "Net cash provided by ~~(used in)~~ operating activities" from the unaudited 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. We believe investors use our current and projected adjusted EBITDA to estimate our current or prospective enterprise value and to make investment decisions. By providing these Non-GAAP financial measures, together with the reconciliations to the most directly comparable GAAP measure, we believe we are enhancing investors' 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. Please refer to the glossary (pages 40 through 47) for a further discussion of such Non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure.

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The following table contains our key operating metrics based on our ~~unaudited~~ adjusted results of operations for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, respectively:


	Unaudited Adjusted								Unaudited Adjusted
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except for per subscriber amounts)	2012		2011		2012		2011		2013		2012		2013		2012
ARPU	$	12.14	$	11.66	$	11.96	$	11.57	$	12.29	$	12.14	$	12.21	$	11.96
SAC, per gross subscriber addition	$	51	$	55	$	55	$	55	$	52	$	51	$	52	$	55
Customer service and billing expenses, per average subscriber	$	1.12	$	1.01	$	1.04	$	1.03	$	1.00	$	1.12	$	1.06	$	1.04
Free cash flow	$	195,207	$	75,377	$	439,986	$	223,936	$	245,262	$	195,207	$	624,303	$	439,986
Adjusted EBITDA	$	244,617	$	197,288	$	689,873	$	563,741	$	295,742	$	244,617	$	840,589	$	689,873

Note: See pages 40 through 47 for a reconciliation to GAAP in the accompanying glossary.

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. ~~(See~~(For a reconciliation to GAAP see the accompanying glossary on pages 40 through 47 for more details.)

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, ARPU was $~~12.14~~12.29 and $~~11.66~~12.14, respectively. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, ARPU was $~~11.96~~12.21 and $~~11.57~~11.96, respectively. ~~These increases were~~The increase in each period 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 ~~sales of~~subscriptions to premium services, ~~including Premier packages, data services and streaming,~~ partially offset by ~~an increase in subscriber~~subscription discounts offered through customer acquisition and retention programs, ~~the number of subscribers on promotional~~and lifetime subscription plans ~~and a decrease in the contribution from the U.S. Music Royalty Fee due to the December 2010 reduction in the rate.~~that have reached full revenue recognition.

SAC, Per Gross Subscriber Addition, is derived from subscriber acquisition costs and margins from the 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 glossary on pages 40 through 47 for more details.)

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, SAC, per gross subscriber addition, was $5152 and $5551, respectively. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, SAC, per gross subscriber addition, was $52 and $55., respectively. The ~~decrease in~~increase for the three month period was primarily due to ~~improved~~higher OEM ~~subsidy rates per vehicle, partially offset by higher subsidies related~~installation volume and migrations of self-pay subscribers to ~~increased~~paid trials. The decrease for the nine month period was primarily due to lower OEM installations ~~occurring in advance of acquiring the subscriber.~~relative to gross subscriber additions.

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 glossary on pages 40 through 47 for more details.)

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, customer service and billing expenses, per average subscriber, were $~~1.12~~1.00 and $~~1.01~~1.12, respectively. ~~These increases were primarily due to longer average handle time per call, higher contact rates and higher technology costs.~~ For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, customer service and billing expenses, per average subscriber, were $~~1.04~~1.06 and $~~1.03~~1.04, respectively. The decrease for the three month period was primarily due to lower spend for agent staffing and training. The increase for the nine month period was primarily due to higher spend to increase agent staffing and training, increased bad debt expense and higher technology costs.

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Free Cash Flow includes the net cash provided by operations, additions to property and equipment, ~~merger related costs and restricted~~ and other investing activity. ~~(See~~(For a reconciliation to GAAP see the accompanying glossary on pages 40 through 47 for more details.)

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, free cash flow was $~~195,207~~245,262 and $~~75,377~~195,207, respectively, an increase of ~~$119,830~~.$50,055. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, free cash flow was $~~439,986~~624,303 and $~~223,936~~439,986, respectively, an increase of ~~$216,050~~.$184,317. The increases were primarily driven by higher net cash provided by operating activities resulting from improved operating performance, ~~driving higher adjusted EBITDA~~lower interest payments, and higher collections from subscribers and distributors, ~~as well as a decrease in~~

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~~capital expenditures resulting from lower satellite and related launch vehicle construction costs. The increase in the nine month period was~~ partially offset by payments related to the expected launch of our FM-6 satellite and the purchase of certain long lead parts for a ~~decrease in restricted and other investing activities driven by the 2011 return of capital resulting from the Canada Merger.~~future satellite.

Adjusted EBITDA. EBITDA is defined as net income ~~(loss)~~ before interest and investment income (loss) ~~income;~~; interest expense, net of amounts capitalized; income tax benefit (expense) and depreciation and amortization. Adjusted EBITDA removes the impact of other income and expense, losses on extinguishment of debt as well as certain other charges, such as goodwill impairment; ~~restructuring, impairments and related costs;~~ certain purchase price accounting adjustments and share-based payment expense. ~~(See~~(For a reconciliation to GAAP see the accompanying glossary on pages 40 through 47 for more ~~details):~~details.)

For the three months ended September 30, ~~2012~~2013 and ~~2011~~2012, adjusted EBITDA was $~~244,617~~295,742 and $~~197,288~~244,617, respectively, an increase of ~~24%~~21%, or ~~$47,329~~.$51,125. For the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012, adjusted EBITDA was $~~689,873~~840,589 and $~~563,741~~689,873, respectively, an increase of 22%, or $~~126,132~~150,716. 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.~~base and the increase in certain of our subscription rates. The increase in expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues, higher ~~subscriber acquisition costs related to increased gross subscriber additions and subsidies related to increased OEM installations, and higher~~ sales and marketing costs related to subscriber communications and ~~cooperative~~retention marketing, ~~partially offset~~and higher subscriber acquisition costs. The increase in expenses included in adjusted EBITDA for the nine month period was also driven by ~~lower programming~~higher customer service and ~~content costs.~~billing costs related to increased agent training and staffing as well as higher subscriber volume.

Liquidity and Capital Resources

Cash Flows for the Nine Months Ended September 30, ~~2012~~2013 Compared with the Nine Months Ended September 30, ~~2011~~2012

As of September 30, ~~2012~~2013 and December 31, ~~2011~~2012, we had $~~556,270~~716,784 and $~~773,990~~520,945, respectively, of cash and cash equivalents. The following table presents a summary of our cash flow activity for the periods set forth below:


	For the Nine Months Ended September 30,									For the Nine Months Ended September 30,
	2012			2011			2012 vs. 2011			2013			2012			2013 vs. 2012
Net cash provided by operating activities	$	513,532		$	328,634		$	184,898		$	744,257		$	513,532		$	230,725
Net cash used in investing activities	(73,546		)	(104,698		)	31,152			(119,954		)	(73,546		)	(46,408		)
Net cash used in financing activities	(657,706		)	(206,035		)	(451,671		)	(428,464		)	(657,706		)	229,242
Net (decrease) increase in cash and cash equivalents	(217,720		)	17,901			(235,621		)
Net increase (decrease) in cash and cash equivalents										195,839			(217,720		)	413,559
Cash and cash equivalents at beginning of period	773,990			586,691			187,299			520,945			773,990			(253,045		)
Cash and cash equivalents at end of period	$	556,270		$	604,592		$	(48,322	)	$	716,784		$	556,270		$	160,514

Cash Flows Provided by Operating Activities

Cash flows provided by operating activities increased by $~~184,898~~230,725 to$744,257 for the nine months endedSeptember 30, 2013 from $513,532 for the nine months ended September 30, 2012 ~~from~~.

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 various vendors to service, maintain and acquire subscribers, general corporate expenditures, and compensation and related costs.

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Cash provided by operating activities consists of net income adjusted for certain non-cash items, including depreciation, amortization, loss on extinguishment of debt, share-based payment expense, deferred income taxes and other non-cash purchase price adjustments.

~~$328,634~~The adjustments for the ~~nine months endedSeptember 30, 2011. The primary driver of our operating cash flow growth has been improvements in profitability.~~

~~Our net income was~~ ~~$3,316,457~~ ~~and~~ ~~$355,624~~ ~~for~~non-cash items increased from the nine months ended September 30, 2012 ~~and~~ ~~2011, respectively. Excluding the~~ ~~$3,013,000~~ ~~non-cash deferred tax valuation allowance reversal, our increase in net income was primarily driven by an increase in our subscriber revenues of~~ ~~$265,282, or~~ ~~14%, for~~to the nine months ended September 30, ~~2012~~, attributable to a 9% increase in daily weighted average subscribers, an increase in certain of our subscription rates beginning in January 2012, and an increase in sales of premium services, including Premier packages, data services and streaming. Our growth in revenue was partially offset by an increase in our operating expenses of ~~$141,552, or~~ 8%~~. The increase in operating expenses was primarily driven by higher revenue share and royalties expenses associated with growth in revenues, higher subscriber acquisition costs related to a~~ ~~11%~~2013 ~~increase in gross subscriber additions and subsidies related to increased OEM installations, and higher sales and marketing costs related to subscriber communications and cooperative marketing.~~

~~Net non-cash adjustments to net income were~~ ~~$(2,800,551)~~ ~~and~~ ~~$33,089~~ ~~for the~~ ~~nine months endedSeptember 30, 2012~~ ~~and~~ ~~2011, respectively. Significant components of non-cash expenses, and their impact on~~

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~~cash flows from operating activities, include the following:~~

For the Nine Months Ended September 30,
2012 2011
Depreciation and amortization $ 199,481
$ 200,865
Loss on extinguishment of debt and credit facilities, net 132,726
7,206
Gain on merger of unconsolidated entities —
(84,855 )
Share-based payment expense 46,361
37,574
Deferred income taxes (3,017,021 ) 7,214
Other non-cash purchase price adjustments (220,336 ) (203,630 )

~~Depreciation and amortization expense is expected to increase in future periods as we recognize depreciation expense upon the completion and launch of our FM-6 satellite.~~

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

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

Share-based payment expense is expected to increase in future periods as we grant equity awards to our employees and directors. Compensation expense for share-based awards is recorded in the financial statements based on the fair value of the underlying equity awards.

Deferred income taxes includes a benefit related to a reversal of substantially all of our deferred income tax valuation allowance as the cumulative positive evidence outweighed the historical negative evidence regarding the likelihood that our$3,013,000 non-cash deferred tax ~~asset will be realized.~~

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

~~Changes in operating assets and liabilities reduced operating cash flows for the~~ ~~nine months endedSeptember 30, 2012~~ ~~and~~ ~~2011~~ by ~~$2,374~~ ~~and~~ ~~$60,079~~, respectively. As we continue to grow our subscriber and revenue base, we expect that deferred revenue and amounts due from customers and distributors will continue to increase. Amounts payable to vendors are also expected to increase as our business grows. The timing of payments to vendors and related parties are based on contractual commitments.allowance reversal during 2012.

Cash Flows Used in Investing Activities

Cash flows used ~~for~~in investing activities consists ~~primarily~~ of capital expenditures for property and equipment. We will continue to incur significant costs to improve our terrestrial repeater network and broadcast and administrative infrastructure. In addition, we will continue to incur capital expenditures associated with our FM-6 satellite. ~~After the launch of our~~Our FM-6 satellite ~~we anticipate no significant~~is scheduled to launch during the fourth quarter of 2013. We have ordered certain long lead parts and may take other actions that would accelerate the build of a replacement satellite ~~capital expenditures for several years until it becomes necessary~~if FM-6 is not able to ~~replace satellites~~commence in ~~our fleet.~~orbit operations following its launch.

The ~~decrease~~increase in cash flows used ~~for~~in investing activities was primarily due to ~~lower~~ satellite launch-related payments, an increase in spending to enhance our terrestrial repeater network, and ~~related launch vehicle construction costs related to our FM-6~~the purchase of certain long lead parts for a future satellite.

Cash Flows Used in Financing Activities

Cash flows used in financing activities ~~have generally been the result~~consists of the issuance and repayment of long-term debt and related party debt, ~~and~~ cash proceeds from exercise of stock ~~options.~~options and 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, construct and launch new satellites and invest in other infrastructure improvements.

Cash flows used in financing activities in ~~2012~~2013 were primarily due to the ~~repayment~~repurchase of approximately 476,545,601 shares of common stock under our share repurchase program for $1,602,360, and the ~~remaining balance~~redemption of $800,000 of our 8.75% Senior Notes due 2015 and the repurchase of $160,449 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 the nine months ended September 30, 2012 were due to the repurchase of $778,500 of our 13%

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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 ~~our~~ 5.25% Senior Notes due 2022 and the exercise of stock ~~options during the~~ options.~~nine months endedSeptember 30, 2012~~. The cash flows used in financing activities in 2011 were the result of the repayment of the remaining balance of our 11.25% Senior Secured Notes due 2013 and the partial repayment of our 3.25% Convertible Notes due 2011.

~~Financings and Capital Requirements~~

We have historically financed our operations through the sale of debt and equity securities. The Certificate of Designations for our Series B-1 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

On August 14, 2013, we entered into a definitive agreement to acquire the connected vehicle services business of Agero for approximately $530,000 in cash. We expect that this transaction will close during the fourth quarter 2013 and that it will be funded through the use of cash on hand and cash generated by borrowings under our Credit Facility.

We have entered into various agreements to design, construct and launch our satellites in the normal course of business. As disclosed in Note 15 to our unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q, as of September 30, ~~2012~~2013, we expect to incur satellite and transmission related expenditures of approximately $~~3,675~~35,812 for the remainder of ~~2012~~2013 and $~~55,106~~29,123 in ~~2013,~~2014, the majority of which is attributable to the ~~construction and~~ expected launch of our FM-6 satellite, and ~~related launch vehicle in 2013 and~~ an additional $~~50,835~~41,930 thereafter.

On September 25, 2013, we called for redemption the remaining $539,551 outstanding principal balance of our 7.625% Notes on October 25, 2013. For a discussion of subsequent events refer to Note 17 to our unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Based upon our current business plans, we ~~believe that we have sufficient cash, cash equivalents and marketable securities to cover our estimated short-term and long-term funding needs. 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 able~~have sufficient cash and cash equivalents as well as debt capacity to ~~generate sufficient revenues~~cover our estimated short-term and long-term funding needs, stock repurchases and strategic opportunities. For a discussion of our Credit Facility, refer to ~~meet~~Note 12 to our ~~cash requirements.~~unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

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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.

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, our operations are affected by the FCC order approving the Merger, which imposed certain conditions upon, among other things, our program offerings.~~

Stock Repurchase Program

During the nine months endedSeptember 30, 2013, we repurchased 476,545,601 shares of our common stock for $1,602,360, including fees and commissions, on the open market and in privately negotiated transactions. Liberty Media did not participate in the common stock repurchases during the nine months endedSeptember 30, 2013. All common stock repurchases settled and were retired as of September 30, 2013. As of September 30, 2013, $397,640 remained available for purchase under our stock repurchase program approved in December 2012. We expect to fund future repurchases through a combination of cash on hand, cash generated by operations and future borrowings.

Upon consummation of our common stock repurchases from Liberty Media, we will have repurchased shares of our common stock for an aggregate purchase price of approximately $2,100,000.

Debt Covenants

~~The~~Our indentures and the agreement governing our ~~debt~~Credit Facility include restrictive covenants. As of September 30, ~~2012~~2013, we were in compliance with the indentures and the agreement governing our ~~debt covenants.~~Credit Facility. For a discussion of our “Debt Covenants”, refer to Note 12 to our unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not have any significant off-balance sheet arrangements other than those disclosed in Note 15 to our unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Cash Commitments

For a discussion of our “Contractual Cash Commitments,” refer to Note 15 to our unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

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Related Party Transactions

For a discussion of “Related Party Transactions,” refer to Note 10 to our unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

We have been engaged in discussion with Liberty Media to explore possible transactions with respect to its ownership interest in us, although we have not reached agreement with respect to a specific transaction that would be mutually beneficial to both our common and preferred stockholders. There is no assurance that these discussions will result in any specific action or transaction. We do not expect to disclose developments with respect to these discussions.

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Critical Accounting Policies and Estimates

For a discussion of our “Critical Accounting Policies and Estimates,” refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 ~~and Note 2~~. There have been no material changes to our ~~unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.~~

~~Income Taxes.~~critical accounting policies and estimates since ~~The cumulative positive evidence outweighed the historical negative evidence regarding the likelihood that our deferred tax asset would be realized. As a result, we released~~ ~~$3,013,000~~ ~~of the valuation allowance established against deferred tax assets during the~~ ~~nine months endedSeptember 30,~~December 31, 2012.

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Glossary

Adjusted EBITDA - EBITDA is defined as net income before interest and investment ~~loss;~~income (loss); interest expense, net of amounts capitalized; income tax expense and depreciation and amortization. We adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt as well as certain other charges discussed below. This measure is one of the primary Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii) base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP financial performance measure that excludes (if applicable): (i) certain adjustments as a result of the purchase price accounting for the Merger, (ii) ~~goodwill impairment, (iii) restructuring, impairments, and related costs, (iv)~~ depreciation and amortization and ~~(v)~~(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 believe the exclusion of restructuring, impairments and related costs is useful given the nature of these expenses.~~ We also believe the exclusion of share-based payment expense is useful given the significant variation in expense that can result from changes in the fair value as determined using the Black-Scholes-Merton model which varies based on assumptions used for the expected life, expected stock price volatility and risk-free interest rates.

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

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	Unaudited												Unaudited
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011			2013			2012			2013			2012
Net income (GAAP):	$	74,514		$	104,185		$	3,316,457		$	355,624		$	62,894		$	74,514		$	312,018		$	3,316,457
Add back items excluded from Adjusted EBITDA:
Purchase price accounting adjustments:
Revenues (see pages 42-45)	1,854			2,292			5,599			8,951			1,813			1,854			5,438			5,599
Operating expenses (see pages 42-45)	(73,049		)	(68,878		)	(220,497		)	(205,472		)	(68,895		)	(73,049		)	(206,786		)	(220,497		)
Share-based payment expense, net of purchase price accounting adjustments	17,492			13,983			46,361			37,755
Share-based payment expense (GAAP)													19,762			17,492			49,774			46,361
Depreciation and amortization (GAAP)	66,571			65,403			199,481			200,865			58,533			66,571			192,966			199,481
Interest expense, net of amounts capitalized (GAAP)	70,035			75,316			219,777			229,730			54,629			70,035			150,531			219,777
Loss on extinguishment of debt and credit facilities, net (GAAP)	107,105			—			132,726			7,206			107,971			107,105			124,348			132,726
Interest and investment loss (income) (GAAP)	321			(292		)	3,192			(78,590		)
Other loss (income) (GAAP)	(113		)	(435		)	637			(2,235		)
Income tax (benefit) expense (GAAP)	(20,113		)	5,714			(3,013,860		)	9,907
Interest and investment (income) loss (GAAP)													(1,716		)	321			(3,648		)	3,192
Other (income) loss (GAAP)													(407		)	(113		)	(909		)	637
Income tax expense (benefit) (GAAP)													61,158			(20,113		)	216,857			(3,013,860		)
Adjusted EBITDA	$	244,617		$	197,288		$	689,873		$	563,741		$	295,742		$	244,617		$	840,589		$	689,873

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 three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012:

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	Unaudited For the Three Months Ended September 30, 2012									Unaudited For the Three Months Ended September 30, 2013
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted		As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	757,672	$	41	$	—		$	757,713	$	834,053	$	—	$	—		$	834,053
Advertising revenue, net of agency fees	20,426		—		—			20,426
Advertising revenue										21,918		—		—			21,918
Equipment revenue	17,813		—		—			17,813		17,989		—		—			17,989
Other revenue	71,449		1,813		—			73,262		87,549		1,813		—			89,362
Total revenue	$	867,360	$	1,854	$	—		$	869,214	$	961,509	$	1,813	$	—		$	963,322
Operating expenses
Cost of services:
Revenue share and royalties	141,834		37,199		—			179,033		$	162,627	$	41,942	$	—		$	204,569
Programming and content	69,938		10,431		(1,736		)	78,633		72,322		2,008		(2,232		)	72,098
Customer service and billing	77,768		—		(512		)	77,256		76,322		—		(647		)	75,675
Satellite and transmission	18,319		—		(938		)	17,381		19,853		—		(1,076		)	18,777
Cost of equipment	6,345		—		—			6,345		5,340		—		—			5,340
Subscriber acquisition costs	112,418		21,712		—			134,130		125,457		20,342		—			145,799
Sales and marketing	60,676		3,707		(2,931		)	61,452		75,638		4,603		(3,871		)	76,370
Engineering, design and development	13,507		—		(1,753		)	11,754		13,007		—		(2,177		)	10,830
General and administrative	68,235		—		(9,622		)	58,613		67,881		—		(9,759		)	58,122
Depreciation and amortization (a)	66,571		—		—			66,571		58,533		—		—			58,533
Share-based payment expense	—		—		17,492			17,492		—		—		19,762			19,762
Total operating expenses	$	635,611	$	73,049	$	—		$	708,660	$	676,980	$	68,895	$	—		$	745,875

(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 three months ended September 30, 2012 was $13,000.
(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 three months ended September 30, 2013 was $12,000.										(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 three months ended September 30, 2013 was $12,000.

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	Unaudited For the Three Months Ended September 30, 2011									Unaudited For the Three Months Ended September 30, 2012
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted		As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	660,837	$	479	$	—		$	661,316	$	757,672	$	41	$	—		$	757,713
Advertising revenue, net of agency fees	18,810		—		—			18,810
Advertising revenue										20,426		—		—			20,426
Equipment revenue	15,504		—		—			15,504		17,813		—		—			17,813
Other revenue	67,399		1,813		—			69,212		71,449		1,813		—			73,262
Total revenue	$	762,550	$	2,292	$	—		$	764,842	$	867,360	$	1,854	$	—		$	869,214
Operating expenses
Cost of services:
Revenue share and royalties	117,043		32,293		—			149,336		$	141,834	$	37,199	$	—		$	179,033
Programming and content	70,509		12,034		(1,275		)	81,268		69,938		10,431		(1,736		)	78,633
Customer service and billing	64,239		—		(402		)	63,837		77,768		—		(512		)	77,256
Satellite and transmission	19,681		—		(735		)	18,946		18,319		—		(938		)	17,381
Cost of equipment	5,888		—		—			5,888		6,345		—		—			6,345
Subscriber acquisition costs	107,279		20,620		—			127,899		112,418		21,712		—			134,130
Sales and marketing	55,210		3,931		(2,165		)	56,976		60,676		3,707		(2,931		)	61,452
Engineering, design and development	14,175		—		(1,291		)	12,884		13,507		—		(1,753		)	11,754
General and administrative	58,635		—		(8,115		)	50,520		68,235		—		(9,622		)	58,613
Depreciation and amortization (a)	65,403		—		—			65,403		66,571		—		—			66,571
Share-based payment expense ~~(b)~~	—		—		13,983			13,983		—		—		17,492			17,492
Total operating expenses	$	578,062	$	68,878	$	—		$	646,940	$	635,611	$	73,049	$	—		$	708,660

(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 three months ended September 30, 2011 was $15,000.

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

Programming and content	$	1,275	$	—	$	—		$	1,275
Customer service and billing	402		—		—			402
Satellite and transmission	735		—		—			735
Sales and marketing	2,165		—		—			2,165
Engineering, design and development	1,291		—		—			1,291
General and administrative	8,115		—		—			8,115
Total share-based payment expense	$	13,983	$	—	$	—		$	13,983
(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 three months ended September 30, 2012 was $13,000.										(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 three months ended September 30, 2012 was $13,000.

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	Unaudited For the Nine Months Ended September 30, 2012									Unaudited For the Nine Months Ended September 30, 2013
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted		As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	2,188,199	$	161	$	—		$	2,188,360	$	2,432,113	$	—	$	—		$	2,432,113
Advertising revenue, net of agency fees	59,881		—		—			59,881
Advertising revenue										63,886		—		—			63,886
Equipment revenue	51,183		—		—			51,183		54,588		—		—			54,588
Other revenue	210,362		5,438		—			215,800		248,430		5,438		—			253,868
Total revenue	$	2,509,625	$	5,599	$	—		$	2,515,224	$	2,799,017	$	5,438	$	—		$	2,804,455
Operating expenses
Cost of services:
Revenue share and royalties	409,371		108,069		—			517,440		$	467,017	$	122,534	$	—		$	589,551
Programming and content	205,203		32,565		(4,342		)	233,426		217,313		6,965		(5,513		)	218,765
Customer service and billing	212,635		—		(1,327		)	211,308		237,006		—		(1,628		)	235,378
Satellite and transmission	53,980		—		(2,411		)	51,569		59,041		—		(2,753		)	56,288
Cost of equipment	19,301		—		—			19,301		17,809		—		—			17,809
Subscriber acquisition costs	348,014		69,328		—			417,342		371,560		64,365		—			435,925
Sales and marketing	176,457		10,535		(7,343		)	179,649		209,594		12,922		(10,114		)	212,402
Engineering, design and development	32,468		—		(4,467		)	28,001		42,901		—		(5,458		)	37,443
General and administrative	193,786		—		(26,471		)	167,315		184,613		—		(24,308		)	160,305
Depreciation and amortization (a)	199,481		—		—			199,481		192,966		—		—			192,966
Share-based payment expense	—		—		46,361			46,361		—		—		49,774			49,774
Total operating expenses	$	1,850,696	$	220,497	$	—		$	2,071,193	$	1,999,820	$	206,786	$	—		$	2,206,606

(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 nine months ended September 30, 2012 was $41,000.
(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 nine months ended September 30, 2013 was $37,000.										(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 nine months ended September 30, 2013 was $37,000.

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	Unaudited For the Nine Months Ended September 30, 2011									Unaudited For the Nine Months Ended September 30, 2012
(in thousands)	As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted		As Reported		Purchase Price Accounting Adjustments		Allocation of Share-based Payment Expense			Adjusted
Revenue:
Subscriber revenue	$	1,922,917	$	3,513	$	—		$	1,926,430	$	2,188,199	$	161	$	—		$	2,188,360
Advertising revenue, net of agency fees	53,595		—		—			53,595
Advertising revenue										59,881		—		—			59,881
Equipment revenue	48,392		—		—			48,392		51,183		—		—			51,183
Other revenue	205,882		5,438		—			211,320		210,362		5,438		—			215,800
Total revenue	$	2,230,786	$	8,951	$	—		$	2,239,737	$	2,509,625	$	5,599	$	—		$	2,515,224
Operating expenses
Cost of services:
Revenue share and royalties	340,713		93,359		—			434,072		$	409,371	$	108,069	$	—		$	517,440
Programming and content	210,867		36,645		(4,745		)	242,767		205,203		32,565		(4,342		)	233,426
Customer service and billing	192,667		18		(1,077		)	191,608		212,635		—		(1,327		)	211,308
Satellite and transmission	57,238		313		(1,867		)	55,684		53,980		—		(2,411		)	51,569
Cost of equipment	19,894		—		—			19,894		19,301		—		—			19,301
Subscriber acquisition costs	317,711		64,086		—			381,797		348,014		69,328		—			417,342
Sales and marketing	154,471		10,961		(5,654		)	159,778		176,457		10,535		(7,343		)	179,649
Engineering, design and development	39,249		31		(3,407		)	35,873		32,468		—		(4,467		)	28,001
General and administrative	175,469		59		(21,005		)	154,523		193,786		—		(26,471		)	167,315
Depreciation and amortization (a)	200,865		—		—			200,865		199,481		—		—			199,481
Share-based payment expense ~~(b)~~	—		—		37,755			37,755		—		—		46,361			46,361
Total operating expenses	$	1,709,144	$	205,472	$	—		$	1,914,616	$	1,850,696	$	220,497	$	—		$	2,071,193

(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 nine months ended September 30, 2011 was $45,000.

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

Programming and content	$	4,718	$	27	$	—		$	4,745
Customer service and billing	1,059		18		—			1,077
Satellite and transmission	1,848		19		—			1,867
Sales and marketing	5,627		27		—			5,654
Engineering, design and development	3,376		31		—			3,407
General and administrative	20,946		59		—			21,005
Total share-based payment expense	$	37,574	$	181	$	—		$	37,755
(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 nine months ended September 30, 2012 was $41,000.										(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 nine months ended September 30, 2012 was $41,000.

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

~~Table Of Contents~~


	Unaudited								Unaudited
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011		2013		2012		2013		2012
Subscriber revenue (GAAP)	$	757,672	$	660,837	$	2,188,199	$	1,922,917	$	834,053	$	757,672	$	2,432,113	$	2,188,199
Add: net advertising revenue (GAAP)	20,426		18,810		59,881		53,595
Add: advertising revenue (GAAP)									21,918		20,426		63,886		59,881
Add: other subscription-related revenue (GAAP)	60,095		58,168		176,569		174,341		75,999		60,095		211,784		176,569
Add: purchase price accounting adjustments	41		479		161		3,513		—		41		—		161
	$	838,234	$	738,294	$	2,424,810	$	2,154,366	$	931,970	$	838,234	$	2,707,783	$	2,424,810

Daily weighted average number of subscribers	23,008,693		21,107,540		22,519,544		20,688,641		25,267,241		23,008,693		24,646,938		22,519,544

ARPU	$	12.14	$	11.66	$	11.96	$	11.57	$	12.29	$	12.14	$	12.21	$	11.96

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.

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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												Unaudited
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011			2013			2012			2013			2012
Customer service and billing expenses (GAAP)	$	77,768		$	64,239		$	212,635		$	192,667		$	76,322		$	77,768		$	237,006		$	212,635
Less: share-based payment expense, net of purchase price accounting adjustments	(512		)	(402		)	(1,327		)	(1,077		)
Add: purchase price accounting adjustments	—			—			—			18
	77,256			63,837			211,308			191,608
Less: share-based payment expense													(647		)	(512		)	(1,628		)	(1,327		)
													$	75,675		$	77,256		$	235,378		$	211,308
Daily weighted average number of subscribers	23,008,693			21,107,540			22,519,544			20,688,641			25,267,241			23,008,693			24,646,938			22,519,544

Customer service and billing expenses, per average subscriber	$	1.12		$	1.01		$	1.04		$	1.03		$	1.00		$	1.12		$	1.06		$	1.04

~~Table Of Contents~~

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												Unaudited
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011			2013			2012			2013			2012
Cash Flow information
Net cash provided by operating activities	$	219,809		$	115,144		$	513,532		$	328,634		$	302,236		$	219,809		$	744,257		$	513,532
Net cash used in investing activities	(24,602		)	(39,767		)	(73,546		)	(104,698		)	$	(56,974	)	$	(24,602	)	$	(119,954	)	$	(73,546	)
Net cash used in financing activities	(507,267		)	888			(657,706		)	(206,035		)	$	(180,247	)	$	(507,267	)	$	(428,464	)	$	(657,706	)
Free Cash Flow
Net cash provided by operating activities	$	219,809		$	115,144		$	513,532		$	328,634		$	302,236		$	219,809		$	744,257		$	513,532
Additions to property and equipment	(24,602		)	(39,767		)	(73,546		)	(115,065		)	(55,255		)	(24,602		)	(118,235		)	(73,546		)
Restricted and other investment activity	—			—			—			10,367
Purchases of restricted and other investments													(1,719		)	—			(1,719		)	—
Free cash flow	$	195,207		$	75,377		$	439,986		$	223,936		$	245,262		$	195,207		$	624,303		$	439,986

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

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

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	Unaudited												Unaudited
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011			2013			2012			2013			2012
Subscriber acquisition costs (GAAP)	$	112,418		$	107,279		$	348,014		$	317,711		$	125,457		$	112,418		$	371,560		$	348,014
Less: margin from direct sales of radios and accessories (GAAP)	(11,468		)	(9,616		)	(31,882		)	(28,498		)	(12,649		)	(11,468		)	(36,779		)	(31,882		)
Add: purchase price accounting adjustments	21,712			20,620			69,328			64,086			20,342			21,712			64,365			69,328
	$	122,662		$	118,283		$	385,460		$	353,299		$	133,150		$	122,662		$	399,146		$	385,460

Gross subscriber additions	2,421,586			2,138,131			7,064,282			6,369,846			2,561,175			2,421,586			7,726,577			7,064,282

SAC, per gross subscriber addition	$	51		$	55		$	55		$	55		$	52		$	51		$	52		$	55

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

As of September 30, ~~2012~~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 as available-for-sale. These securities are consistent with the investment objectives incontained within our investment policy. The basic objectives of our investment policy are ~~the preservation of~~preserving capital, maintaining sufficient liquidity to meet operating requirements and maximizing yield.

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

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

As of September 30, ~~2012~~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 in Rule 13a-15(e) and 15d-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 September 30, ~~2012~~2013.

There has been no change in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended September 30, ~~2012~~2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. 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. A Multistate Working Group of 3132 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.

~~Carl Blessing et al. v. Sirius XM Radio Inc~~. We have settled the case titled Carl Blessing et al. v. Sirius XM Radio Inc. and the settlement has been approved by the United States District Court for the Southern District of New York. Appeals have been filed by 11 individuals seeking to overturn the settlement.

In December 2009, Carl Blessing, a subscriber, filed a lawsuit against us in the United States District Court for the Southern District of New York. Mr. Blessing and several other plaintiffs purported 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 Internet service. The suit claimed that the pricing changes showed that our merger with XM lessened competition or led to a monopoly in violation of the Clayton Act and that the merger led to monopolization in violation of the Sherman Act. Earlier the Court dismissed the plaintiffs' claims for breach of contract and granted our motion for summary judgment as to various state law claims.

As part of the settlement, we agreed to: not raise the price of our basic satellite radio service or other programming packages or our Internet services; not increase our US Music Royalty Fee; and not decrease our multi-radio discount prior to January 1, 2012. Existing subscribers were also permitted to renew their current subscription plans at current rates prior to December 31, 2011. Former subscribers who terminated their subscriptions after July 29, 2009 are entitled to receive, at their election, either: one month of our basic satellite radio service or one month of our Internet service, at no charge. We also paid the costs of providing notice to the plaintiff class and reimbursed counsel for the plaintiffs for ~~$13 million~~ ~~of their fees and expenses.~~

~~One Twelve, Inc. and Don Buchwald v. Sirius XM Radio Inc. In March 2011, One Twelve, Inc., Howard Stern's~~

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production company, and Don Buchwald, Stern's agent, commenced an action against us in the Supreme Court of the State of New York, County of New York. The action alleged that, upon the Merger, we failed to honor our obligations under the performance-based compensation provisions of our prior agreement dated October 2004 with One Twelve and Buchwald, as agent; One Twelve and Buchwald each assert a claim of breach of contract. In April 2012, the Court granted our motion for summary judgment and dismissed with prejudice the suit. The Court found the agreement unambiguous. One Twelve and Buchwald have appealed this decision.

Other Matters. 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, actions filed by~~ basis;

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former ~~employees,~~employees; parties to contracts or ~~leases,~~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 1A. RISK FACTORS~~


ITEM 1A.	RISK FACTORS

~~There~~Other than as set forth below, there have been no material changes to the risk factors previously disclosed in response to Part I,1, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012.

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 acquisitions, including the acquisition of Agero’s connected vehicle business, depends on 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 from other business concerns, and undisclosed or potential legal liabilities of acquired businesses or assets.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 September 30, 2013:

~~Not applicable.~~Issuer Purchases of Equity Securities



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 (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2013 - July 31, 2013	45,873,000	$	3.58	45,873,000	$	691,788,284
August 1, 2013 - August 31, 2013	44,710,645	$	3.72	44,710,645	$	525,454,159
September 1, 2013 - September 30, 2013	33,393,321	$	3.83	33,393,321	$	397,639,899
Total	123,976,966	$	3.70	123,976,966	$	397,639,899


(1)	These amounts include fees and commissions associated with the shares repurchased.

(2)

On December 6, 2012, we announced that our board of directors approved a $2.0 billion common stock repurchase program. 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 or in privately negotiated transactions. The size and timing of these purchases will be based on a number of factors, including price and business and market conditions. We have repurchased shares of our common stock on the open market and in privately negotiated transactions. On October 9, 2013, our board of directors approved an additional $2 billion common stock repurchase program. Shares of our 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. Pursuant to this approval and as part of our share repurchase program, on October 9, 2013, we entered into an agreement with Liberty Media to repurchase $500 million of our common stock from Liberty Media through April 2014. Subject to the terms of the agreement with Liberty Media, shares are expected to be purchased in three installments, $130 million in November 2013, $270 million in January 2014 and $100 million in April 2014.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

~~Not applicable.~~

None.

ITEM 6. EXHIBITS

See Exhibit Index attached hereto.

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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 1st day of November 2012.~~authorized.




SIRIUS XM RADIO INC.
~~By:~~	~~/s/ David J. Frear~~
By:	~~David~~/s/ DAVID J. ~~Frear~~FREAR
	David J. Frear
	Executive Vice President and
	Chief Financial Officer
	(~~Duly Authorized Officer and~~ Principal Financial Officer)

October 24, 2013

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EXHIBIT INDEX



Exhibit		Description
~~4.1~~
4.1		Indenture, dated as of August ~~13, 2012,~~1, 2013, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee, relating to the ~~5.25%~~5.75% Senior Notes due ~~2022~~2021 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August ~~14, 2012)~~1, 2013).

4.2		Indenture, dated as of September 24, 2013, among the Company, 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 4.2 to the Company's Current Report on Form 8-K filed on September 25, 2013).

31.1		Certificate of ~~Mel Karmazin,~~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 ~~Mel Karmazin,~~James E. Meyer, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certificate of David J. Frear, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101.1		The following financial information from our Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2012~~2013 formatted in eXtensible Business Reporting Language (XBRL): (i) ~~Unaudited~~ Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2012~~2013 and ~~2011;~~2012; (ii) Consolidated Balance Sheets as of September 30, ~~2012~~2013 (Unaudited) and December 31, ~~2011;~~2012; (iii) ~~Unaudited~~ Consolidated ~~Statement~~Statements of Stockholders' Equity (Unaudited) for the nine months ended September 30, ~~2012;~~2013; (iv) ~~Unaudited~~ Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, ~~2012~~2013 and ~~2011;~~2012; and (v) Notes to ~~Unaudited~~ Consolidated Financial ~~Statements.~~Statements (Unaudited).

	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.

____________________

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.

51E-1



	For the Nine Months Ended September 30,
	2011
Amortization of XM Canada deferred income	$	1,388
Subscriber and activation fee royalties	5,483
Licensing fee revenue	3,000
Advertising reimbursements	833
Total revenue from XM Canada	$	10,704



	Unaudited												2012 vs 2011 Change					2012 vs 2011 Change
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						Three Months					Nine Months
	2012			2011			2012			2011			Amount			%		Amount			%
Revenue:
Subscriber revenue	$	757,672		$	660,837		$	2,188,199		$	1,922,917		$	96,835		15	%	$	265,282		14	%
Advertising revenue, net of agency fees	20,426			18,810			59,881			53,595			1,616			9	%	6,286			12	%
Equipment revenue	17,813			15,504			51,183			48,392			2,309			15	%	2,791			6	%
Other revenue	71,449			67,399			210,362			205,882			4,050			6	%	4,480			2	%
Total revenue	867,360			762,550			2,509,625			2,230,786			104,810			14	%	278,839			12	%
Operating expenses:
Cost of services:
Revenue share and royalties	141,834			117,043			409,371			340,713			24,791			21	%	68,658			20	%
Programming and content	69,938			70,509			205,203			210,867			(571		)	(1	)%	(5,664		)	(3	)%
Customer service and billing	77,768			64,239			212,635			192,667			13,529			21	%	19,968			10	%
Satellite and transmission	18,319			19,681			53,980			57,238			(1,362		)	(7	)%	(3,258		)	(6	)%
Cost of equipment	6,345			5,888			19,301			19,894			457			8	%	(593		)	(3	)%
Subscriber acquisition costs	112,418			107,279			348,014			317,711			5,139			5	%	30,303			10	%
Sales and marketing	60,676			55,210			176,457			154,471			5,466			10	%	21,986			14	%
Engineering, design and development	13,507			14,175			32,468			39,249			(668		)	(5	)%	(6,781		)	(17	)%
General and administrative	68,235			58,635			193,786			175,469			9,600			16	%	18,317			10	%
Depreciation and amortization	66,571			65,403			199,481			200,865			1,168			2	%	(1,384		)	(1	)%
Total operating expenses	635,611			578,062			1,850,696			1,709,144			57,549			10	%	141,552			8	%
Income from operations	231,749			184,488			658,929			521,642			47,261			26	%	137,287			26	%
Other income (expense):
Interest expense, net of amounts capitalized	(70,035		)	(75,316		)	(219,777		)	(229,730		)	5,281			7	%	9,953			4	%
Loss on extinguishment of debt and credit facilities, net	(107,105		)	—			(132,726		)	(7,206		)	(107,105		)	nm		(125,520		)	nm
Interest and investment (loss) income	(321		)	292			(3,192		)	78,590			(613		)	(210	)%	(81,782		)	(104	)%
Other income (loss)	113			435			(637		)	2,235			(322		)	(74	)%	(2,872		)	(129	)%
Total other expense	(177,348		)	(74,589		)	(356,332		)	(156,111		)	(102,759		)	(138	)%	(200,221		)	(128	)%
Income before income taxes	54,401			109,899			302,597			365,531			(55,498		)	(50	)%	(62,934		)	(17	)%
Income tax benefit (expense)	20,113			(5,714		)	3,013,860			(9,907		)	25,827			nm		3,023,767			nm
Net income	$	74,514		$	104,185		$	3,316,457		$	355,624		$	(29,671	)	(28	)%	$	2,960,833		833	%

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