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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For The Quarterly Period Ended September 30, 2003



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XM SATELLITE RADIO INC.

(Exact name of registrant as specified in its charter)



Commission file number 333-39178



|Delaware                                                       |  | 52-1805102                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1500 Eckington
Place, NE

Washington, DC 20002-2194

(Address of principal executive offices) (Zip code)



202-380-4000

(Registrants telephone number, including area code)



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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  x    No ̈



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).     Yes ̈No   x



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 September 30, 2003)                                  
|----------------------------- |  | ------------------------------------------------------------------------
|COMMON STOCK, $0.10 PAR VALUE |  | 125 SHARES (all of which are issued to XM Satellite Radio Holdings Inc.)



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



INDEX



|PART IFINANCIAL INFORMATION |  |                                                                                                                                       
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|                             |  |                                                                                                                                       
|Item 1.                      |  | Financial Statements                                                                                                                  
|                             |  |                                                                                                                                       
|                             |  | Unaudited Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2003 and 2002
|                             |  |                                                                                                                                       
|                             |  | Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                                      
|                             |  |                                                                                                                                       
|                             |  | Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2003 and 2002                
|                             |  |                                                                                                                                       
|                             |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                        
|                             |  |                                                                                                                                       
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                 
|                             |  |                                                                                                                                       
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                                            
|                             |  |                                                                                                                                       
|Item 4.                      |  | Disclosure Controls and Procedures                                                                                                    
|                             | 
|PART IIOTHER INFORMATION    |  |                                                                                                                                       
|                             |  |                                                                                                                                       
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                                      



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EXPLANATORY NOTE



This quarterly report is filed by XM Satellite Radio Inc. (XM). Unless the context requires otherwise, the terms
we, our and us refer to XM and its subsidiaries. XM is a wholly-owned subsidiary of XM Satellite Radio Holdings Inc. (Holdings), which is separately filing a quarterly report with the SEC.



This quarterly report and all other reports and amendments filed by us
with the SEC can be accessed, free of charge, through our website at http://www.xmradio.com/investor/investor_financial_and_company.htmlon the same day that they are electronically filed with the SEC.



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##### Table of Contents

PART I: FINANCIAL INFORMATION



Item 1: Financial Statements



XM SATELLITE RADIO INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



Three-Month and Nine-month Periods ended September 30,
2003 and 2002



|                                                                               |  | Three months endedSeptember 30, |          |   | Nine months endedSeptember 30, |  
|------------------------------------------------------------------------------ |  | ------------------------------- | -------- | - | ------------------------------ | -
|                                                                               |  | 2003                            |          |   | 2002                           |  
|                                                                               |  | (in thousands)                  |         
|Revenue:                                                                       |  |                                 |          |   |                                |  
|Subscription revenue                                                           |  | $                               | 21,658   |   |                                | $
|Activation revenue                                                             |  |                                 | 520      |   |                                |  
|Equipment revenue                                                              |  |                                 | 3,565    |   |                                |  
|Net ad sales revenue                                                           |  |                                 | 963      |   |                                |  
|Other                                                                          |  |                                 | 207      |   |                                |  
|                                                                               |  |                                 |          |   |                                |  
|Total revenue                                                                  |  |                                 | 26,913   |   |                                |  
|                                                                               |  |                                 |          |   |                                |  
|Operating expenses:                                                            |  |                                 |          |   |                                |  
|Cost of revenue (excludes depreciation & amortization, shown below):           |  |                                 |          |   |                                |  
|Revenue share & royalties                                                      |  |                                 | 7,031    |   |                                |  
|Customer care & billing                                                        |  |                                 | 6,744    |   |                                |  
|Cost of equipment                                                              |  |                                 | 4,226    |   |                                |  
|Ad sales                                                                       |  |                                 | 758      |   |                                |  
|Satellite & terrestrial                                                        |  |                                 | 10,781   |   |                                |  
|Broadcast & operations                                                         |  |                                 | 5,669    |   |                                |  
|Programming & content                                                          |  |                                 | 5,525    |   |                                |  
|                                                                               |  |                                 |          |   |                                |  
|Total cost of revenue                                                          |  |                                 | 40,734   |   |                                |  
|Research & development (excludes depreciation and amortization, shown below)   |  |                                 | 4,016    |   |                                |  
|General & administrative (excludes depreciation and amortization, shown below) |  |                                 | 5,549    |   |                                |  
|Marketing (excludes depreciation and amortization, shown below)                |  |                                 | 38,208   |   |                                |  
|Depreciation & amortization                                                    |  |                                 | 39,178   |   |                                |  
|                                                                               |  |                                 |          |   |                                |  
|Total operating expenses                                                       |  |                                 | 127,685  |   |                                |  
|                                                                               |  |                                 |          |   |                                |  
|Operating loss                                                                 |  |                                 | (100,772 | ) |                                |  
|Other income (expense):                                                        |  |                                 |          |   |                                |  
|Interest income                                                                |  |                                 | 376      |   |                                |  
|Interest expense                                                               |  |                                 | (29,480  | ) |                                |  
|Other income (expense)                                                         |  |                                 | (4,370   | ) |                                |  
|                                                                               |  |                                 |          |   |                                |  
|Net loss                                                                       |  | $                               | (134,246 | ) |                                | $
|                                                                               |  |                                 |          |   |                                |  



See accompanying notes
to unaudited condensed consolidated financial statements.





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XM SATELLITE RADIO INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS



September 30, 2003 and December 31, 2002



|                                                                                                  |  | September 30,2003                |            |   | December 31,2002 |  
|------------------------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---------------- | -
|                                                                                                  |  | (unaudited)                      |            |   |                  |  
|                                                                                                  |  | (in thousands,except share data) |           
|ASSETS                                                                                            |  |                                  |            |   |                  |  
|Current assets:                                                                                   |  |                                  |            |   |                  |  
|Cash and cash equivalents                                                                         |  | $                                | 121,965    |   |                  | $
|Short Term Investments                                                                            |  |                                  |           |   |                  |  
|Restricted investments                                                                            |  |                                  | 2,262      |   |                  |  
|Accounts receivable, net of allowance for doubtful accounts of $529 and $241                      |  |                                  | 6,681      |   |                  |  
|Due from related parties                                                                          |  |                                  | 107,796    |   |                  |  
|Related party prepaid expenses                                                                    |  |                                  | 22,261     |   |                  |  
|Prepaid and other current assets                                                                  |  |                                  | 19,974     |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Total current assets                                                                              |  |                                  | 280,939    |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Other Assets:                                                                                     |  |                                  |            |   |                  |  
|Restricted investments, net of current portion                                                    |  |                                  | 406        |   |                  |  
|System under construction                                                                         |  |                                  | 20,993     |   |                  |  
|Property and equipment, net of accumulated depreciation and amortization of $273,231 and $156,400 |  |                                  | 707,681    |   |                  |  
|DARS license                                                                                      |  |                                  | 141,200    |   |                  |  
|Intangibles, net of accumulated amortization of $4,115 and $3,172                                 |  |                                  | 8,747      |   |                  |  
|Deferred financing fees, net of accumulated amortization of $7,079 and $2,474                     |  |                                  | 45,014     |   |                  |  
|Related party prepaid expenses, net of current portion                                            |  |                                  | 50,086     |   |                  |  
|Prepaid and other assets, net of current portion                                                  |  |                                  | 4,223      |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Total assets                                                                                      |  | $                                | 1,259,289  |   |                  | $
|                                                                                                  |  |                                  |            |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              |  |                                  |            |   |                  |  
|Current liabilities:                                                                              |  |                                  |            |   |                  |  
|Accounts payable                                                                                  |  | $                                | 28,169     |   |                  | $
|Accrued expenses                                                                                  |  |                                  | 42,778     |   |                  |  
|Accrued network optimization expenses                                                             |  |                                  | 4,296      |   |                  |  
|Current portion of long-term debt                                                                 |  |                                  | 5,534      |   |                  |  
|Due to related parties                                                                            |  |                                  | 2,755      |   |                  |  
|Accrued interest                                                                                  |  |                                  | 10,389     |   |                  |  
|Deferred revenue                                                                                  |  |                                  | 24,759     |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Total current liabilities                                                                         |  |                                  | 118,680    |   |                  |  
|Related party long-term debt, net of current portion                                              |  |                                  | 128,131    |   |                  |  
|Long-term debt, net of current portion                                                            |  |                                  | 518,331    |   |                  |  
|Due to related parties, net of current portion                                                    |  |                                  | 20,174     |   |                  |  
|Deferred revenue, net of current portion                                                          |  |                                  | 8,553      |   |                  |  
|Other non-current liabilities                                                                     |  |                                  | 16,188     |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Total liabilities                                                                                 |  |                                  | 810,057    |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Stockholders equity:                                                                             |  |                                  |            |   |                  |  
|Common stock, par value $0.10; 3,000 shares authorized, 125 shares issued and outstanding         |  |                                  |           |   |                  |  
|Additional paid-in capital                                                                        |  |                                  | 1,751,238  |   |                  |  
|Accumulated deficit                                                                               |  |                                  | (1,302,006 | ) |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Total stockholders equity                                                                        |  |                                  | 449,232    |   |                  |  
|                                                                                                  |  |                                  |            |   |                  |  
|Commitments and contingencies                                                                     |  |                                  |            |   |                  |  
|Total liabilities and stockholders equity                                                        |  | $                                | 1,259,289  |   |                  | $
|                                                                                                  |  |                                  |            |   |                  |  



See accompanying notes
to unaudited condensed consolidated financial statements.



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Nine-month Periods ended September 30, 2003 and 2002



|                                                                            |  | Nine months endedSeptember 30, |         
|--------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                            |  | 2003                           |         
|                                                                            |  | (in thousands)                 |         
|Cash flows from operating activities:                                       |  |                                |         
|Net loss                                                                    |  | $                              | (426,977
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |         
|Bad debt expense                                                            |  |                                | 1,041   
|Ad sales barter revenue                                                     |  |                                | (121    
|Depreciation and amortization                                               |  |                                | 118,033 
|Accretion of interest                                                       |  |                                | 32,130  
|Loss on disposal of computer software                                       |  |                                | 464     
|Non-cash loss on conversion of 14% senior secured notes                     |  |                                | 25,817  
|Amortization of deferred financing fees and debt discount                   |  |                                | 13,138  
|Non-cash stock-based compensation                                           |  |                                | 1,840   
|Changes in operating assets and liabilities:                                |  |                                |         
|(Increase) decrease in accounts receivable                                  |  |                                | (3,966  
|(Increase) decrease in due from related parties                             |  |                                | (6,125  
|(Increase) decrease in prepaid and other assets                             |  |                                | (12,381 
|Increase (decrease) in accounts payable and accrued expenses                |  |                                | 30,354  
|Increase (decrease) in amounts due to related parties                       |  |                                | 15,596  
|Increase (decrease) in deferred revenue                                     |  |                                | 21,015  
|Increase (decrease) in accrued interest                                     |  |                                | (3,897  
|                                                                            |  |                                |         
|Net cash used in operating activities                                       |  |                                | (194,039
|                                                                            |  |                                |         
|Cash flows from investing activities:                                       |  |                                |         
|Purchase of property and equipment                                          |  |                                | (9,637  
|Additions to system under construction                                      |  |                                | (2,017  
|Net purchase/maturity of restricted investments                             |  |                                | 22,750  
|Other investing activities                                                  |  |                                | 95      
|                                                                            |  |                                |         
|Net cash used in investing activities                                       |  |                                | 11,191  
|                                                                            |  |                                |         
|Cash flows from financing activities:                                       |  |                                |         
|Proceeds from sale of common stock and capital contribution                 |  |                                | 18,239  
|Proceeds from issuance of 12% senior secured notes                          |  |                                | 185,000 
|Proceeds from issuance of 10% convertible notes                             |  |                                | 103,732 
|Payment on capital lease obligations                                        |  |                                | (2,542  
|Payments for deferred financing costs                                       |  |                                | (6,342  
|                                                                            |  |                                |         
|Net cash provided by financing activities                                   |  |                                | 298,087 
|                                                                            |  |                                |         
|Net increase (decrease) in cash and cash equivalents                        |  |                                | 115,239 
|Cash and cash equivalents at beginning of period                            |  |                                | 6,726   
|                                                                            |  |                                |         
|Cash and cash equivalents at end of period                                  |  | $                              | 121,965 
|                                                                            |  |                                |         



See accompanying notes
to unaudited condensed consolidated financial statements.





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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(1) Nature of Business



XM Satellite Radio Inc.
(the Company), was incorporated on December 15, 1992 in the State of Delaware for the purpose of operating a digital audio radio service (DARS) under a license from the Federal Communications Commission (FCC). XM
Satellite Radio Holdings Inc. (the Parent) was formed as a holding company for the Company on May 16, 1997. The Companys satellites, Rock and Roll, were successfully launched on March 18, 2001 and May 8,
2001, respectively. The Company commenced commercial operations in two markets on September 25, 2001 and completed its national rollout on November 12, 2001.



(2) Principles of Consolidation and Basis of Presentation



The consolidated financial statements include the accounts of XM Satellite Radio Inc. and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.



In the Companys opinion,
the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring entries, necessary for a fair presentation of the consolidated financial position of XM Satellite Radio Inc. and its
subsidiaries as of September 30, 2003 and December 31, 2002, and the results of operations and cash flows for the three and nine months ended September 30, 2003 and 2002. The results of operations for the three and nine months ended September 30,
2003 are not necessarily indicative of the results that may be expected for the full year. The accompanying financial statements are unaudited and should be read in conjunction with the Companys 2002 consolidated financial statements, which
are included in the Companys Annual Report on Form 10-K. Certain reclassifications have been made to prior-period amounts to conform with the 2003 presentation, including the reclassification of ad sales expense and certain revenue share
payments to cost of revenue.



(3) Stock-Based Compensation



At September 30, 2003, the Company had two stock-based employee
compensation plans that provide for the issuance of options to purchase the Parents Class A common stock. The Company accounts for the plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations. The following table illustrates the effect on net income (loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.



|                                                                                                              |  | Three months endedSeptember 30, |         
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------
|                                                                                                              |  | 2003                            |         
|                                                                                                              |  | (amounts in thousands)          |         
|Net loss, as reported                                                                                         |  | $                               | (134,246
|Add: stock-based employee compensation expense included in net loss, net of tax                               |  |                                 |        
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards |  |                                 | (7,109  
|                                                                                                              |  |                                 |         
|Pro forma net loss                                                                                            |  | $                               | (141,355
|                                                                                                              |  |                                 |         
|                                                                                                              | 
|                                                                                                              |  | Nine months endedSeptember 30,  |         
|                                                                                                              |  | 2003                            |         
|                                                                                                              |  | (amounts in thousands)          |         
|Net loss, as reported                                                                                         |  | $                               | (426,977
|Add: stock-based employee compensation expense included in net loss, net of tax                               |  |                                 |        
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards |  |                                 | (21,124 
|                                                                                                              |  |                                 |         
|Pro forma net loss                                                                                            |  | $                               | (448,101
|                                                                                                              |  |                                 |         





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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(4) Recent Financing Transactions



(a) September 2003 Financing



Offering of shares of the Parents Class A common stock



On September 11, 2003, the Parent completed a public offering of 11,320,755
shares of its Class A common stock to Legg Mason Funds Management, Inc. , Legg Mason Capital Management, Inc., and another large institutional investor, each on behalf of its investment advisory clients. The offering resulted in gross proceeds of
$150 million to the Parent. The proceeds of the September 2003 financing transactions are held at the Parent and will be used to fund the operations of the Company on an as-needed basis.



(b) June 2003 Financing



Offering of 12% Senior Secured Notes due 2010



On June 17, 2003, the Company completed an offering of $175 million of its 12% Senior Secured Notes due June 15, 2010. In July 2003, an additional $10
million of these 12% senior secured notes due 2010 were issued pursuant to the over-allotment option. Interest on the notes is payable every six months in cash in arrears on December 15 and June 15, commencing on December 15, 2003. The notes are
guaranteed by the Parent and will rank equally in right of payment with all of the Companys other existing and future senior indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The Company
may, at its option, redeem the notes at declining redemption prices at any time on or after June 15, 2007. At any time on or prior to June 15, 2006, the Company may redeem a portion of the outstanding notes with the proceeds of certain equity
offerings as long as the redemption occurs within 90 days of the date of the closing of such equity offering and at least $100 million aggregate principal amount of notes remains outstanding after the redemption.



(c) January 2003 Financing



On January 28, 2003, the Company and the Parent completed (1) an exchange of
over $300 million of the $325 million aggregate principal amount of outstanding debt issued by the Company, (2) a restructuring of $250 million in payment obligations to General Motors Corporation (GM) due through 2006, and (3) a private
placement resulting in gross proceeds to the Company of $225 million.



14% Senior Secured Discount Notes Issued in Exchange



The Company accepted for exchange $300.2 million aggregate principal amount of the previously outstanding $325.0 million of the Companys 14% Senior Secured Notes due 2010 (Old Notes). For each $1,000 principal amount of
notes tendered for exchange, the tendering holder received:



| |  | $1,459 principal amount at maturity of 14% Senior Secured Discount Notes due 2009 (New Notes) issued by the Company and guaranteed by the Parent;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a warrant to purchase 85 shares of the Parents Class A common stock at an exercise price of $3.18 per share; and
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | $70 in cash.
| | - | ------------



The exercise price of each warrant may be paid either in cash or without the payment of cash by reducing the number of shares of the Parents Class A
common stock that would be obtainable upon the exercise of a warrant. The warrants are fully vested and expire December 31, 2009. The face value of the New Notes is reduced by a discount of $60,981,000 associated with the fair value of the related
warrants. The fair value of the warrants was calculated using a Black-Scholes based methodology. The face value of these notes is also reduced by an allocation of the unamortized discount on the Old Notes of $52,421,000. This exchange was accounted
for as a troubled debt restructuring, and therefore, the modification of terms has been accounted for prospectively from the time of the restructuring. The New Notes are reported on the Companys condensed consolidated balance sheet as of
September 30, 2003 as follows (in thousands).



|Face amount of notes at January 28, 2003                    |  | $ | 300,176  |  
|----------------------------------------------------------- |  | - | -------- | -
|Warrant discount at January 28, 2003                        |  |   | (113,402 | )
|                                                            |  |   |          |  
|Carrying amount at January 28, 2003                         |  |   | 186,774  |  
|Discount amortization / interest accretion (Jan.-Mar. 2003) |  |   | 4,156    |  
|Extinguishments (Jan.-Mar. 2003)                            |  |   | (9,990   | )
|                                                            |  |   |          |  
|Carrying amount on March 31, 2003                           |  |   | 180,940  |  
|Discount amortization / interest accretion (Apr.-Jun. 2003) |  |   | 9,452    |  
|Extinguishments (Apr.-Jun. 2003) (see Note 5)               |  |   | (30,974  | )
|                                                            |  |   |          |  
|Carrying amount at June 30, 2003                            |  |   | 159,418  |  
|                                                            |  |   |          |  
|Discount amortization / interest accretion (July-Sep. 2003) |  |   | 8,824    |  
|Extinguishments (July-Sep.2003)                             |  |   |         |  
|                                                            |  |   |          |  
|Carrying amount at September 30, 2003                       |  | $ | 168,242  |  
|                                                            |  |   |          |  



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Restructuring of GM Obligations



Under certain agreements with General Motors (GM) and its subsidiary, OnStar Corporation (OnStar),
the Company and the Parent issued to OnStar a 10% Senior Secured Convertible Note due December 31, 2009 with an aggregate principal amount of $89 million in lieu of the Companys obligation to make $115 million in guaranteed payments from 2003
to 2006 under the distribution agreement with OnStar Corporation. The Company and the Parent entered into a $100 million credit facility with General Motors and the Parent issued a warrant to General Motors to purchase 10 million shares of the
Parents Class A common stock at an exercise price of $3.18 per share. The warrant is fully vested and expires after five years. The Company determined that the fair value of the warrant was $25.2 million and the unamortized amount is included
in deferred financing fees on the Companys condensed consolidated balance sheet as of September 30, 2003. The fair value of the warrant was calculated using a Black-Scholes based methodology. The note issued to OnStar is convertible and the
warrant exercisable only to the extent General Motors would not beneficially own more than 19.9% of the Parents Class A common stock, unless the Company and General Motors otherwise agree and certain stockholder approvals are obtained.



OnStar will be able to convert the note into shares of the
Parents Class A common stock pursuant to a vesting schedule so that on each date prior to and including December 31, 2006 that the Company would have been obligated to make scheduled guaranteed payments under the distribution agreement, a pro
rata portion of the OnStar note corresponding to the scheduled guaranteed payment will become convertible at the option of OnStar at a conversion price equal to 90% of the fair market value of a share of the Parents Class A common stock
(calculated as described above) on the date of conversion; provided that, the conversion price will be not less than $5 per share nor greater than $10 per share during 2003, not less than $5 per share nor greater than $15 per share during 2004, and
not less than $5 per share nor greater than $20 per share thereafter.



General Motors provided the Company with a $100.0 million Senior Secured Credit Facility, maturing as late as December 2009, that enables the Company to make monthly draws to finance payments that become due under the Companys
distribution agreement with OnStar Corporation and other GM payments. The Company and the Parent are co-borrowers under this credit facility. The outstanding principal amount of all draws will be due December 31, 2009 and bear interest at the
applicable 90-day LIBOR rate plus 10%. The Company and the Parent will be able to make interest payments in shares of Class A common stock having an aggregate fair market value at the time of payment equal to the amount of interest due. The fair
market value will be based on the average daily trading prices of the Parents Class A common stock over the ten business days prior to the day the interest payment is due. The Company has the option to prepay all draws in whole or in part at
any time but will not be able to re-borrow any prepaid amounts. Beginning in 2005, the Company will be required to prepay the amount of any outstanding advances in an amount equal to the lesser of (i) 50% of the Companys excess cash and (ii)
the amount necessary to prepay the draws in full. In order to make draws under the credit facility, the Company is required to have a certain minimum number of subscribers that are not originated by GM and a minimum pre-marketing cash flow.



General Motors provided the Company with the ability to make
up to $35.0 million in future subscriber bounty payments (subscriber acquisition payments) that the Company may owe to OnStar under the distribution agreement in shares of the Parents Class A common stock, valued at fair market
value at the time of payment.



Private Placement of 10%
Senior Secured Discount Convertible Notes and Class A Common Stock



The Parent and the Company sold $210.0 million of 10% Senior Secured Discount Convertible Notes due December 31, 2009 to certain institutional and accredited investors, including some of its current investors. The Company and the Parent are
co-obligors on these new investor notes. At any time, a holder of new investor notes may convert all or part of the accreted value of its notes at a conversion price of $3.18 per share. The face value of the 10% senior secured discount convertible
notes is reduced by a discount of $2,842,000 associated with the fair value of the consideration provided to certain of these investors at the time of issuance. The face value of these notes is also reduced by a beneficial conversion feature of
$68,879,000. These notes are reported on the Companys condensed consolidated balance sheet as of September 30, 2003 as follows (in thousands).



|Face amount of notes at January 28, 2003                    |  | $ | 210,000 |  
|----------------------------------------------------------- |  | - | ------- | -
|Discount at January 28, 2003                                |  |   | (2,842  | )
|Beneficial conversion feature at January 28, 2003           |  |   | (68,879 | )
|                                                            |  |   |         |  
|Carrying amount at January 28, 2003                         |  |   | 138,279 |  
|Discount amortization/interest accretion (Jan.-Mar. 2003)   |  |   | 3,766   |  
|                                                            |  |   |         |  
|Carrying amount at March 31, 2003                           |  |   | 142,045 |  
|Discount amortization / interest accretion (Apr.-Jun. 2003) |  |   | 6,152   |  
|Extinguishments (Apr.-Jun. 2003)(see Note 5)                |  |   | (2,769  | )
|                                                            |  |   |         |  
|Carrying amount at June 30, 2003                            |  |   | 145,428 |  
|                                                            |  |   |         |  
|Discount amortization / interest accretion (July-Sep. 2003) |  |   | 6,097   |  
|Extinguishments (July-Sep. 2003)                            |  |   | (7,978  | )
|                                                            |  |   |         |  
|Carrying amount at September 30, 2003                       |  | $ | 143,547 |  
|                                                            |  |   |         |  



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The Company is not able to prepay or redeem the new investor notes as discussed in Note 6. Beginning
four years after the issuance of the new investor notes, the Parent will be able to convert all, but not less than all of the notes at the conversion price if: (i) shares of the Parents Class A common stock have traded on the Nasdaq
National Market or a national securities exchange for the previous 30 trading days at 200% of the conversion price, (ii) the Company reported earnings before interest income and expense, other income, taxes, depreciation (including amounts related
to research and development) and amortization greater than $0 for the immediately preceding quarterly period for which the Company reports its financial results, (iii) immediately following such conversion, the aggregate amount of the Parents
and its subsidiaries indebtedness is less than $250 million, and (iv) no shares of the Parents Series C preferred stock remain outstanding. The Parent has committed to refer (or may provide directly as described below) one of the
investors in the Companys January 2003 convertible notes offering to potential sources of freely tradable shares of the Parents Class A common stock for borrowing and hedging activities. To date its efforts have included identifying
other significant holders of the Parents Class A common stock who may be interested in entering into an arrangement with this investor. Should these referrals not result in this investor obtaining a stock loan, the Parent may issue up to 7.5
million shares of the Parents Class A common stock to this investor for a purchase price payable by an interest-bearing promissory note and concurrently enter into a repurchase/resale agreement with this investor at the same purchase price
with a repurchase or resale to occur after two years. The accounting impact of an issuance and then repurchase or resale will ultimately depend on how the transaction is structured. One of the members of the Companys board of directors is a
limited partner of this investor.



The Parent also sold $15.0
million of its Class A common stock at a per share purchase price of $2.70 to a private investor and issued a warrant to purchase 900,000 shares of its Class A common stock at an exercise price of $3.18 per share to R. Steven Hicks, who joined the
Companys board of directors in connection with these transactions. This warrant was valued at $2.3 million using a Black-Scholes based methodology, and the unamortized amount is included in deferred financing fees on the condensed consolidated
balance sheet as of September 30, 2003.



The proceeds of the
January 2003 financing transactions are held at the Parent and will be used to fund the operations of the Company on an as-needed basis.



(5) De-leveraging Transactions



During the nine-month period ended September 30, 2003, the Company and the Parent entered into agreements with certain holders of notes to exchange $83.2
million carrying value, or $116.0 million fully accreted face value at maturity, of the Companys notes, for 13,707,376 shares of the Parents Class A common stock. The Company recorded a loss of $25.8 million from these debt
extinguishments in other expense on the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2003. During the three-month period ended September 30, 2003, agreements were entered into with holders of notes
to exchange $11.4 million carrying value, or $14.4 million fully accreted face value at maturity, of their notes, for 3,934,480 shares of the Parents Class A common stock. The Company recorded a loss of $4.4 million from these debt
extinguishments in other income (expense) on the unaudited condensed consolidated statement of operations for the three months ended September 30, 2003.



(6) Long-Term Debt



Long-term debt at September 30, 2003 and December 31, 2002 consisted of the following (in thousands):



|                                                                            |  | September 30,2003 |         |   | December 31,2002 |  
|--------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | -
|14% senior secured notesoriginal issue due 2010                            |  | $                 | 22,824  |   |                  | $
|Less: unamortized discount on 14% senior secured notes due 2010             |  |                   | (3,808  | ) |                  |  
|14% senior secured notes due 2009                                           |  |                   | 245,057 |   |                  |  
|Add: accretion of interest on 14% senior secured notes                      |  |                   | 8,577   |   |                  |  
|Less: unamortized discount on 14% senior secured notes due 2009             |  |                   | (85,392 | ) |                  |  
|12% senior secured notes due 2010                                           |  |                   | 185,000 |   |                  |  
|10% senior secured discount convertible notes                               |  |                   | 203,328 |   |                  |  
|Add: accretion of interest on 10% senior secured discount convertible notes |  |                   | 5,069   |   |                  |  
|Less: unamortized discount on 10% senior secured discount convertible notes |  |                   | (64,850 | ) |                  |  
|Notes payable                                                               |  |                   | 4,025   |   |                  |  
|Related party long-term debt                                                |  |                   | 128,131 |   |                  |  
|Capital leases                                                              |  |                   | 4,035   |   |                  |  
|                                                                            |  |                   |         |   |                  |  
|Total debt                                                                  |  | $                 | 651,996 |   |                  | $
|Less current installments                                                   |  |                   | (5,534  | ) |                  |  
|                                                                            |  |                   |         |   |                  |  
|Long-term debt, excluding current installments                              |  | $                 | 646,462 |   |                  | $
|                                                                            |  |                   |         |   |                  |  



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(a) 14% Senior Secured Notes



On March 15, 2000, the Company closed a private placement of 325,000 units,
each unit consisting of $1,000 principal amount of Old Notes and one warrant to purchase 8.024815 shares of the Parents Class A common stock at a price of $49.50 per share. The Company realized net proceeds of $191,500,000, excluding
$123,000,000 used to acquire securities that will be used to pay interest payments due under the notes for the first three years. The $325,000,000 face value of the notes was offset by a discount of $65,746,000 associated with the fair value of the
related warrants. In January 2003, the Parent completed an exchange of 300,176 Old Notes for $437,956,784 principal amount at maturity of New Notes, warrants to purchase 25,514,960 shares of the Parents Class A common stock at a price of $3.18
per share and $21,012,320 in cash. The face value of the New Notes was offset by a discount of $60,981,000 associated with the fair value of the related warrants isssued by the Parent. The face value of these notes is also reduced by a discount of
$52,421,000 associated with the allocation of the discount on the Old Notes. As of September 30, 2003 and December 31, 2002, the Company had amortized $13,409,000 and $8,644,000 of the discount, respectively. During the nine months ended September
30, 2003, the Company also extinguished $2,000,000 principal amount at maturity, of Old Notes plus accrued interest and $65,483,000 carrying value, or $94,208,000 fully accreted face value at maturity, of New Notes by issuing 8,448,500 shares of the
Parents Class A common stock.



(b) 12%
Senior Secured Notes



On June 17, 2003, the Company sold
$175,000,000 of 12% senior secured notes due June 15, 2010 to certain institutional and accredited investors, including some of its current investors. In July 2003, an additional $10 million of these 12% senior secured notes due 2010 were issued
pursuant to the over-allotment option.



(c)
10% Senior Secured Discount Convertible Notes



On January 28,
2003, the Company and the Parent sold $210,000,000 of 10% senior secured discount convertible notes due December 31, 2009 to certain institutional and accredited investors, including some of its current investors. The $210,000,000 face value of the
notes was offset by a discount of $2,842,000 associated with the fair value of the consideration provided to certain of these investors at the time of issuance. In connection with this transaction, the Company also recognized a beneficial conversion
feature of $68,879,000. During the nine months ended September 30, 2003, the Company and the Parent also exchanged $15,654,000 carrying value, or $19,829,000 principal amount at maturity, of 10% senior secured discount convertible notes due 2009 by
issuing 5,258,876 shares of the Parents Class A common stock. The Company recorded the discount of $4,795,000 attributable to the beneficial conversion of these exchanged notes to interest expense during the nine-month period ended September
30, 2003. The Parent may require conversion on or after January 28, 2007 of all of the notes into shares of the Parents Class A common stock at a conversion price of $3.18 per share. The holders of the notes may convert their notes into the
Parents Class A common stock at any time prior to maturity.



(d) Notes
Payable



The Company has established notes payable for credit
facilities to vendors for the deferral of up to $6,000,000 in amounts owed. These notes are payable in 2004 and 2005 and accrue interest at 6%. As of September 30, 2003, the balance due on these credit facilities was $4,025,000. The Parent also
issued warrants in connection with these notes. The fair value of these warrants is $169,000 and is included in deferred financing fees.



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(e) Related Party Notes



On January 28, 2003, the Company and the Parent issued to Onstar, a subsidiary of GM, a 10% senior secured convertible note due December 31, 2009 with an
aggregate principal amount of $89,042,000 in lieu of the Companys obligation to make $115,000,000 in guaranteed payments from 2003 to 2006 under the distribution agreement with Onstar. GM also provided the Company with the ability to make up
to $35,000,000 in future subscriber acquisition payments that the Company may owe to Onstar under the distribution agreement in shares of the Parents Class A common stock and provided the Company with a $100,000,000 credit facility agreement.
As of September 30, 2003, the Company has incurred $39,089,000 in payments due to Onstar which is reported in marketing expenses on the Companys unaudited condensed consolidated statement of operations for the three- and nine-month periods
ended September 30, 2003. Of this amount, $32,297,000 has been drawn from the credit facility and $6,792,000 relates to subscriber acquisition payments due to Onstar that may be paid in the Parents Class A common stock.



(7) Liquidity



The Company is devoting its efforts to market its digital audio radio service and to increase its subscriber base. This
effort involves substantial risk and future operating results will be subject to significant business, economic, regulatory, technical, and competitive uncertainties and contingencies. The Company commenced commercial operations in the fourth
quarter of 2001 and has an accumulated deficit of $1.3 billion. On January 28, 2003, the Company and the Parent completed a $475 million financing, which included $225 million of new funds and $250 million of payment deferrals and a line of credit.
Additionally, on June 17, 2003, the Company completed a $185 million financing of 12% senior secured notes, of which $10 million were issued in July 2003, pursuant to the over-allotment option. On September 11, 2003, the Parent completed a public
offering of 11,320,755 shares of its Class A common stock. The offering resulted in gross proceeds of $150 million to the Parent. The total amount of equity and debt raised by the Company and the Parent through September 30, 2003 is $2.4 billion.
Provided that the Company meets the revenue, expense and cash flow projections of its business plan, the Company expects to be fully funded and will not need to raise additional financing to continue operations or to fund the construction and launch
of XM-3 and the construction of XM-4. We may need to raise additional funding for the launch of XM-4 depending on the amount and timing of insurance proceeds and other factors. The Company is dependent on the Parent to meet certain of its funding
requirements, and the Parent has indicated that it presently intends to fund the Companys ongoing business operations.



(8) Revenue Recognition



The Company derives revenue primarily from basic and premium subscription and activation fees as well as advertising, direct sales of equipment and
royalties.



Revenue from subscribers, which is generally billed
in advance, consists of (i) fixed charges for service, which are recognized as the service is provided and (ii) non-refundable activation fees that are recognized ratably over the estimated 40-month life of the customer relationship. Direct
activation costs are expensed as incurred. Promotions for free or discounted activation or service are treated as a reduction to revenue during the period of the promotion. Rebates to subscribers are recorded as reductions to revenue when claimed.



The Company recognizes advertising revenue from sales of
advertisements in the period in which the advertisement is broadcast. Agency commissions are presented as a reduction to revenue in the unaudited condensed consolidated statement of operations. Advertising revenue for the three months ended
September 30, 2003 and 2002 included advertisements sold in exchange for goods and services (barter) recorded at fair value. Revenue from barter transactions is recognized when advertisements are broadcast. Merchandise or services received are
charged to expense when received or used. Barter transactions are not significant to the Companys unaudited condensed consolidated results of operations.



Equipment revenue is recognized at the time of shipment of the equipment. Royalty revenue is recognized when earned.



(9) Related Party Transactions



The Company had the following amounts due from related parties at September
30, 2003 and December 31, 2002 (in thousands):



|       |  | September 30,2003 |         | December 31,2002
|------ |  | ----------------- | ------- | ----------------
|GM     |  | $                 | 7,573   |                 
|Honda  |  |                   | 30      |                 
|Parent |  |                   | 100,193 |                 
|       |  |                   |         |                 
|       |  | $                 | 107,796 |                 
|       |  |                   |         |                 



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The Company had the following amount as related party prepaid expense at September 30, 2003 and
December 31, 2002 (in thousands):



|   |  | September 30,2003 |        | December 31,2002
|-- |  | ----------------- | ------ | ----------------
|GM |  | $                 | 72,347 |                 
|   |  |                   |        |                 



The Company had the
following amounts outstanding to related parties at September 30, 2003 and December 31, 2002 (in thousands):



|              |  | September 30,2003 |        | December 31,2002
|------------- |  | ----------------- | ------ | ----------------
|GM            |  | $                 | 21,041 |                 
|Hughes        |  |                   | 92     |                 
|DIRECTV, Inc. |  |                   |       |                 
|Clear Channel |  |                   | 1,796  |                 
|              |  |                   |        |                 
|              |  | $                 | 22,929 |                 
|              |  |                   |        |                 



The Company had the
following related party debt at September 30, 2003 and December 31, 2002 (in thousands):



|   |  | September 30,2003 |         | December 31,2002
|-- |  | ----------------- | ------- | ----------------
|GM |  | $                 | 128,131 |                 



Beginning in the
fourth quarter of 2002, the Company engaged in activities with GM and Honda to jointly promote XM service subscriptions to new car buyers. At September 30, 2003, there were 189,311 subscribers in promotional periods (ranging from three months to one
year in duration) paid for by the vehicle manufacturers. These subscriptions are included in the Companys three-months and nine-months subscriber total. Revenues earned from related parties, primarily from these subscriptions, are as follows
(in thousands):



|      |  | Three months ended
|----- |  | ------------------
|      |  | September 30,2003 
|GM    |  | $                 
|Honda |  |                   
|      |  |                   
|      |  | $                 
|      |  |                   



|      |  | Nine months ended
|----- |  | -----------------
|      |  | September 30,2003
|GM    |  | $                
|Honda |  |                  
|      |  |                  
|      |  | $                
|      |  |                  



The Company has relied
upon certain related parties for technical marketing and other services during the three months and nine months ended September 30, 2003 and 2002. Total costs incurred in transactions with related parties are as follows (in thousands):



|                                   |  | Three months ended September 30, 2003
|---------------------------------- |  | -------------------------------------
|                                   |  | GM                                   
|Terrestrial repeater network       |  | $                                    
|Terrestrial repeater site leases   |  |                                      
|Customer care & billing operations |  |                                      
|Marketing                          |  |                                      
|Broadcast and operations           |  |                                      



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



|                                   |  | Three months endedSeptember 30, 2002
|---------------------------------- |  | ------------------------------------
|                                   |  | GM                                  
|Terrestrial repeater network       |  | $                                   
|Terrestrial repeater site leases   |  |                                     
|Customer care & billing operations |  |                                     
|Marketing                          |  |                                     
|Broadcast and operations           |  |                                     



|                                   |  | Nine months endedSeptember 30, 2003
|---------------------------------- |  | -----------------------------------
|                                   |  | GM                                 
|Terrestrial repeater network       |  | $                                  
|Terrestrial repeater site leases   |  |                                    
|Customer care & billing operations |  |                                    
|Marketing                          |  |                                    
|Broadcast and operations           |  |                                    



|                                   |  | Nine months endedSeptember 30, 2002
|---------------------------------- |  | -----------------------------------
|                                   |  | GM                                 
|Terrestrial repeater network       |  | $                                  
|Terrestrial repeater site leases   |  |                                    
|Customer care & billing operations |  |                                    
|Marketing                          |  |                                    
|Broadcast and operations           |  |                                    



(a) GM



In 1999, the Company established a distribution
agreement with GM (see note 10(f)). Under the terms of the agreement, GM distributes the XM Radio Service in various models of its vehicles. This agreement was amended in June 2002 and January 2003.



(b) Hughes



In 1999, the Company entered into a terrestrial repeater manufacturing
agreement with Hughes (see note 10(d)).



(c) DIRECTV



In 1999, the Company entered into a consulting
services agreement with DIRECTV. The agreement provides for DIRECTV professionals to aid the Companys efforts in establishing its customer care center and billing operations on a time and materials basis.



(d) Clear Channel



Pursuant to an operational assistance agreement with Clear Channel
Communications, the Company receives programming service. In addition, in 2000, the Company entered into a sponsorship agreement with SFX Marketing, now Clear Channel Entertainment, to advertise and promote the Companys service at Clear
Channel Entertainment events and venues. Since 2000, Premiere Radio Networks, a subsidiary of Clear Channel Communications has served as one of the Companys ad sales representatives. Under separate agreements, the Company also runs
advertisements on a spot and network basis on radio stations owned by Clear Channel Communications. In addition, the Company leases sites for its terrestrial repeaters from Clear Channel Communications.



(e) LCCI



In 1999, the Company entered into the LCCI Services Contract (see note
10(d)), and LCCI also provides certain ongoing consulting engineering work for the Company relating to the terrestrial repeater network on a time and materials basis. LCCI ceased to be a related party in 2002.



(f) Parent



During the nine-month period ended September 30, 2003, the Parent provided
funding to the Company of $18.2 million and also provided non-cash capital contribution of $32.2 million in deferred financing fees and $68.9 million in discounts associated with the



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



issuance of the Companys 10% senior secured discount convertible notes. For the nine-month period ended September 30, 2003, the Company incurred costs
relating to the rental of office space with the Parent of $3.2 million of which $1.1 million was incurred during the three months ended September 30, 2003.



(10) Commitments and Contingencies



(a) DARS License and Regulatory Matters



The Companys DARS license is valid for eight years upon successful launch and orbital insertion of the satellites and can be extended by the
Company. The DARS license requires that the Company comply with a construction and launch schedule specified by the FCC for each of the two authorized satellites, which has occurred. The FCC has the authority to revoke the authorizations and in
connection with such revocation could exercise its authority to rescind the Companys license. The Company believes that the exercise of such authority to rescind the license is unlikely. If necessary, the Company could seek FCC authority to
launch additional satellites for use in its system, which management believes would likely be approved. Additionally, the FCC has not yet issued final rules permitting the Company to deploy its terrestrial repeaters to fill gaps in satellite
coverage. The Company is operating its repeaters on a non-interference basis pursuant to a grant of special temporary authority from the FCC. This grant originally expired March 18, 2002. However, on March 11, 2002, the Company applied for an
extension of this special temporary authority and the Company can continue to operate its terrestrial repeaters pursuant to the special temporary authority pending a final determination on this extension request. This authority is currently being
challenged by operators of terrestrial wireless systems who have asserted that the Companys repeaters may cause interference. The Company believes it is not likely that an FCC order would materially impact the terrestrial repeater system
design currently in operation.



The Company has entered into a
Memorandum of Agreement contemplating the establishment of a joint venture entity that would be authorized to provide the XM service in Canada. This entity has begun the process of seeking authority from the Canadian government to provide satellite
radio service in Canada. The Company anticipates that the joint venture, once established, would be independently financed and would not require the Company to commit capital to the venture.



(b) Technology Licenses



Effective January 1, 1998, the Company entered into a technology licensing
agreement with Motient and WorldSpace Management Corporation (WorldSpace MC) by which as compensation for certain licensed technology then under development to be used in the XM Radio System, the Company pays certain amounts to
WorldSpace MC; $5 million of such amounts have been deferred and are to be paid, plus interest, over the next five years through the end of 2008. The actual amounts to be incurred under this agreement are dependent upon further development of the
technology, which is at the Companys option. The agreement includes provisions for sharing certain costs related to the further development of technology and for royalty payments from the Company to WorldSpace MC.



(c) Satellite System



As of September 30, 2003, the Company had paid approximately $474.8 million
under the satellite contracts related to Rock and Roll, XM-3 and XM-4, including $659,000 in incentives and interest related thereto.



XM Rock and XM Roll



Under the Companys satellite contract (originally entered into in March 1998, as amended to date), Boeing Satellite Systems (BSS) has
delivered two satellites in orbit (Rock and Roll), provided ground equipment and software used in the XM Radio system and certain launch and operations support services. The contract also provides for in-orbit performance
incentives to be earned depending on the performance of the in-orbit satellites over their useful lives. The incentives under the satellite contract associated with Rock and Roll could total up to $25,000,000 (excluding
interest).



The Company owns Rock and
Roll.



Payment Deferrals on XM Rock
and XM Roll



The Company and BSS have deferred
$16,350,000 of in-orbit incentive payments (included in the $25,000,000 set forth above) relating to the Companys two existing satellites, Rock and Roll, with the principal amount (to the extent earned and still capable
of being earned) payable on December 5, 2006. After December 5, 2006, BSS must repay the Company any portion of the principal paid representing incentive amounts that are not earned on a current basis. Incentive payment amounts are earned (and
expensed through operations) on a daily basis for each day that a satellite meets or exceeds its applicable performance specifications. The deferred amounts bear interest at the rate of 8%, compounded annually, payable quarterly in arrears.





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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



XM-3



The Companys ground spare satellite (XM-3) has been partially constructed to date, and is currently undergoing modifications to correct the solar
array degradation issues experienced by Rock and Roll, as well as other changes discussed below. The payload of XM-3 is owned by the Company, and the bus of XM-3 is owned by the Parent. Through September 30, 2003, with
respect to XM-3, the Company has deferred $15 million (at an interest rate of 8%) through December 5, 2006 and borrowed back $35 million from Boeing Capital Corporation (BCC) that is to be repaid by the Parent prior to launch of XM-3.



On May 22, 2003, the Company and BSS amended the satellite
contract so as to set the launch period for its ground spare satellite, XM-3, for the three-month period commencing October 15, 2004. In addition to the modifications to address the solar anomaly as noted below, BSS will make certain alterations to
optimize XM-3 for the specific orbital slot into which it will be launched. The aggregate cost of the launch, the optimization for the specific orbital slot and certain pre-launch services is approximately $100,000,000, of which approximately
$2,000,000 must be paid during the fourth quarter of 2003, and the balance in 2004, with nearly half being paid just prior to the launch. In addition, any unearned Rock and Roll incentives (of the $25,000,000 described above)
will be rolled over to XM-3 and the Parent must repay its existing $35,000,000 loan from BCC prior to the XM-3 launch; the Company also will need to acquire and pay for launch and in-orbit insurance in connection with this launch. The cost of launch
and in-orbit insurance in connection with this launch is subject to market prices and conditions at the time such insurance is obtained.



XM-4



The Parent has committed (by further amendment to the satellite contract, with such amendment dated July 31, 2003, and by a separate contract with Sea
Launch Company, LLC (Sea Launch), dated August 5, 2003) to acquire from BSS a fourth satellite (XM-4), which shall be available for shipment to the launch services provider no later than October 31, 2005, and associated
launch services from Sea Launch. The Parent will own XM-4. The fixed prices for XM-4 and the associated launch services total $186,500,000 plus interest on deferred amounts and excluding in-orbit performance incentives. Following initial payments of
$3,000,000 in 2003, payments aggregating over $100,000,000 are deferred with interest accruing monthly at a rate of 12.75% per annum. Of the aggregate deferral, $10 million is payable in October 2004 (of the total of approximately $13,000,000 of
payments anticipated to be made in 2004) and the balance, including all accrued and unpaid interest, in January 2005; the remaining portion of the fixed prices for XM-4 and the associated launch services are payable prior to launch. The Parent also
issued a warrant to BSS to purchase 500,000 shares of the Parents Class A Common Stock at $13.524 per share. The fair value of these warrants was determined to be $5,790,000 using a Black-Scholes based methodology. After launch of XM-4, BSS
has the right to earn incentive payments of $12,000,000 over the first twelve years of in-orbit life, an additional $7,500,000 for performance above specification during the first 15 years of in-orbit life, and an additional $10,000,000 for
continued high performance across the five year period beyond the 15 year design life. The Parent has also obtained a fixed price option to acquire a fifth satellite from BSS on pricing and incentive terms similar to those applicable to XM-4. If
XM-3 is launched successfully and operates satisfactorily, the Parent may elect, under the above contracts, to defer launch of XM-4 and, as a result, approximately $50,000,000 in payments could be deferred until 2007.



Satellite Insurance and System Risk Mitigation.



In the first quarter of 2003, the Company filed the proofs of loss for
constructive total loss claims on both its satellites with its insurance carriers for the aggregate sum insured (less applicable salvage), relating to a progressive degradation problem with the solar array output power of Boeing 702 class
satellites, including Rock and Roll, identified to its insurers in September 2001. The Company has launch and in-orbit insurance policies that provide coverage to it for a total, constructive total, or partial loss of each of
its satellites where such loss arises from an occurrence within the first five years after launch (both satellites were launched during the first half of 2001). The aggregate sum insured in the event of the total or constructive total loss of both
satellites is $400 million ($200 million per satellite). During the third quarter of 2003, the Company received letters from its insurers rejecting its proofs of loss and denying its claims. The Company subsequently provided to the insurers its
reasons why the insurers position is factually incorrect and unsupported under the terms of its policies. By letter dated November 7, 2003, the insurers advised that they are not in a position to change the decisions stated in their prior
letter. The Company anticipates continuing correspondence and meetings with individual and groups of insurers to resolve this matter and will proceed with negotiations, arbitration or litigation as necessary to recover the losses. The Company
continues to believe that it will ultimately receive insurance payments adequate to launch its spare satellite and fund a portion of XM-4, although there can be no assurance as to the amount of any insurance proceeds, or that any insurance proceeds
will be received in a timely manner.



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



In light of the progressive degradation noted above, the Company plans to launch its ground spare
satellite (XM-3) into one orbital slot by year-end 2004, and operate Rock and Roll collocated in the other orbital slot. In 2007, the Company plans to launch XM-4 to replace the collocated Rock and
Roll. In this way, the Company will have replacement satellites in orbit and operating prior to the times Rock and Roll can no longer provide full service, or half service in collocated mode.



Since the solar array power degradation issue is common to the first six
Boeing 702 class satellites now in orbit, the manufacturer and the Company are closely watching the progression of the problem, including data from a satellite that has been in orbit longer than either of the Companys two satellites by
approximately 15 and 17 months, respectively. With this advance visibility of performance levels, a firm launch commitment for a spare satellite in the fourth quarter of 2004, the ability to provide full service for an extended period of time with
Rock and Roll collocated in one orbital slot and the spare located in the other slot (which would allow partial use of the existing satellites through the first quarter of 2008), firm commitments to build a fourth satellite
and provide launch services therefor, and various mitigation actions to extend the full or partial use of the existing satellites, the Company believes that it will be able to launch additional satellites prior to the time the solar array power
problem might cause the broadcast signal strength to fall below minimum acceptable levels.



Based on the consistency of the degradation trends (with no substantial improvement to date) and continuing analyses by BSS and the Company, the Companys management adjusted the estimated useful lives of its
in-orbit satellites, with effect from September 2002, to the period running through first quarter 2008 (approximately 6.75 years from launch). The Companys management will continue to monitor this situation carefully and may re-adjust the
estimated useful lives of its in-orbit satellites based on future information. The Company has not recorded an impairment, due to its forecasted cash flows (which are sufficient to recover the system assets); however, should the Company reduce or
not meet its forecasted cash flows or reduce further the estimated useful lives of the satellites, it may be required to record an impairment (which may be substantial) at that time. The Company has not adjusted the estimated useful lives of its
spacecraft control facilities, as it believes these facilities will continue to be of use in its system.



(d) Terrestrial Repeater System Contracts



As of September 30, 2003, the Company had incurred aggregate costs of approximately $267,634,000 for its terrestrial repeater system. These costs covered
the capital costs of the design, development and installation of a system of terrestrial repeaters to cover approximately 60 cities and metropolitan areas. In August 1999, the Company signed a contract with LCCI calling for engineering and site
preparation. As of September 30, 2003, the Company had paid $128,356,000 under this contract. There are no further payments due under the LCCI contract. The Company also entered into a contract effective October 22, 1999 with Hughes for the design,
development and manufacture of the terrestrial repeaters; there are no further payments due under this contract except those related to ongoing out-of-warranty repairs. The Company has paid $114,063,000 under this contract as of September 30, 2003
and has an additional liability recorded of $92,000 at September 30, 2003.



(e) Accrued Network Optimization Expenses



As a result of the planned reduction of the number of terrestrial repeater sites, the Company recognized a charge of $919,000 during the three-month period ended September 30, 2003 compared to $1,400,000 during the
three-month period ended September 30, 2002 and a charge of $4,003,000 during the nine-month period ended September 30, 2003 compared to $3,025,000 during the nine-month period ended September 30, 2002. At September 30, 2003, the Company had
recorded a lease termination accrual of $4,296,000 that represents an estimate of the costs to terminate the remaining 84 leases based on managements judgment, advice of lease consultants, and on-going negotiations with landlords. The
liability also includes the estimated costs to deconstruct the existing sites, which are based upon quotes from contractors. This amount could vary significantly from the actual amount incurred, depending primarily on the Companys ability to
negotiate lease termination settlements.



Accrued network
optimization expenses at September 30, 2003 and December 31, 2002 consisted of the following (in thousands):



|Balance at December 31, 2002                           |  | $ | 2,201  |  
|------------------------------------------------------ |  | - | ------ | -
|Add: additional charges recognized (Jan.  Sept. 2003) |  |   | 4,003  |  
|Less: payments made (Jan.  Sept. 2003)                |  |   | (1,908 | )
|                                                       |  |   |        |  
|Balance at September 30, 2003                          |  | $ | 4,296  |  
|                                                       |  |   |        |  



(f) GM
Distribution Agreement



The Company has a long-term
distribution agreement with OnStar, a subsidiary of GM. During the term of the agreement, which expires 12 years from the commencement date of the Companys commercial operations, GM has agreed to distribute the service to the exclusion of
other S-band satellite digital radio services.The Company will also have a non-exclusive right to arrange for the installation of



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



XM radios included in OnStar systems in non-GM vehicles that are sold for use in the United States. The agreement was amended in June 2002 and January 2003
to clarify certain terms in the agreement, including extending the dates when certain initial payments are due to GM and confirming the date of the Companys commencement of commercial operations, and to provide that the Company may make
certain payments to GM in the form of indebtedness or shares of the Parents Class A common stock. The Companys total cash payment obligations were not increased. The Company has significant annual, fixed payment obligations to GM. As a
result of the June 2002 amendment, the Company commenced recognizing these fixed payment obligations for the period ending through November 2005, which approximate $63.6 million, on a straight-line basis. However, due to the January 2003 amendment
to the Distribution Agreement and GMs current roll out plans which indicate a likelihood of GM exceeding minimum installation targets, the Company is now prospectively recognizing these fixed payments due through September 2013, which
approximate $397.3 million, on a straight-line basis. The Company issued a 10% Senior Secured Convertible Note due 2009 with an aggregate principal amount of $89,042,387 to OnStar in lieu of making these fixed payments to OnStar for amounts
otherwise due in 2003 through 2006. The Company has recorded $22.3 million of current prepaid expense to related party and $50.0 million of non-current prepaid expense to related party in the condensed consolidated balance sheet at September 30,
2003.



In order to encourage the broad installation of XM
radios in GM vehicles, the Company has agreed to subsidize a portion of the cost of XM radios, and to make incentive payments to GM when the owners of GM vehicles with installed XM radios become subscribers to the Companys service. The Company
must also share with GM a percentage of the subscription revenue attributable to GM vehicles with installed XM radios, which percentage increases until there are more than 8 million GM vehicles with installed XM radios. The Company will also make
available to GM bandwidth on its system. As part of the agreement, OnStar provides certain call-center related services directly to XM subscribers who are also OnStar customers and the Company must reimburse OnStar for these XM-related call center
services. The agreement is subject to renegotiation at any time based upon the installation of radios that are compatible with a unified standard or capable of receiving Sirius Satellite Radios service. The agreement is subject to
renegotiation if as of November 2005, and at two-year intervals thereafter, GM does not achieve and maintain specified installation levels of GM vehicles capable of receiving the Companys service, starting with 1,240,000 units by November
2005, and thereafter increasing by the lesser of 600,000 units per year and amounts proportionate to target market shares in the satellite digital radio service market. There can be no assurances as to the outcome of any such renegotiations. General
Motors exclusivity obligations will discontinue if, by November 2005 and at two-year intervals thereafter, the Company fails to achieve and maintain specified minimum market share levels in the satellite digital radio service market. Prior to
2001, the Company had not incurred any costs under the distribution agreement. As of September 30, 2003 and 2002, the Company paid $25.3 million and $4.9 million, respectively, and incurred total costs of $103.3 million and $16.8 million,
respectively, under the distribution agreement.



(g)
Joint Development Agreement



Under the terms of a
joint development agreement with Sirius Radio, the other holder of an FCC satellite radio license, each party is obligated to fund one half of the development cost for a unified standard for satellite radios. During the three-month periods ended
September 30, 2003 and 2002, the Company incurred costs of $93,000 and $0 respectively, and $260,000 during the nine-month period ended September 30, 2003 compared to $0 during the nine-month period ended September 30, 2002, respectively in relation
to this agreement. The costs related to the joint development agreement are being expensed as incurred in research and development. The Company is currently unable to determine the expenditures necessary to complete this process, but they may be
significant.



(h) Sales, Marketing and Distribution
Agreements



The Company has entered into various joint
sales, marketing and distribution agreements. Under the terms of these agreements, the Company is obligated to provide incentives, subsidies and commissions to other entities that may include fixed payments, per-unit radio and subscriber amounts and
revenue sharing arrangements. The amount of these operational, promotional, subscriber acquisition, joint development, and manufacturing costs related to these agreements cannot be estimated, but are expected to be substantial future costs. During
the three-month periods ended September 30, 2003 and 2002, the Company incurred costs of $10.8 million and $11.9 million respectively, and during the nine-month periods ended September 30, 2003 and 2002, the Company incurred costs of $31.6 million
and $39.1 million, respectively, in relation to these agreements excluding the GM distribution agreement. The amount of these costs will vary in future years, but is expected to increase during the rest of the year as the number of subscribers and
revenue increase.



(i) Programming Agreements



The Company has entered into various programming
agreements. Under the terms of these agreements, the Company is obligated to provide payments to other entities that may include fixed payments, advertising commitments and revenue sharing arrangements. During the three-month periods ended September
30, 2003 and 2002, the Company incurred costs of $3.1 million and $4.0 million respectively, and during the nine-month periods ended September 30, 2003 and 2002, the Company incurred costs of $12.7 million and $16.7 million, respectively, in
relation to these agreements. The amount of these costs will vary in future years, but is expected to increase as the number of subscribers and advertising revenue increase. The amount of the costs related to these agreements cannot be estimated,
but are expected to be substantial future costs.





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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(j) Royalty Agreements



The Company has entered into fixed and variable payment agreements with performance rights organizations that expire as late
as 2006. During the three-month periods ended September 30, 2003 and 2002, the Company incurred costs of $2.2 million and $395,000 respectively, and during the nine-month periods ended September 30, 2003 and 2002, the Company incurred costs of $6.9
million and $867,000, respectively, in relation to these agreements.



(k) Warrants



Sony Warrant



In February 2000, the Company issued a warrant to
Sony exercisable for shares of the Parents Class A common stock. The warrant would have vested, if at all, at the time that the Company reached its one-millionth subscriber, and the number of shares underlying the warrant would have been
determined by the percentage of XM Radios that had a Sony brand name as of the vesting date. If Sony had achieved its maximum performance target, the warrant would have been exercisable for 2% of the total number of shares of the Parents Class
A common stock on a fully-diluted basis. The exercise price of the Sony warrant would have equaled 105% of fair market value of the Class A common stock on the vesting date, determined based upon the 20-day trailing average. At September 30, 2003,
it was evident that Sony would not achieve the minimum performance target, which included the percentage of XM radios that have a Sony brand name as of the time XM reached its one-millionth subscriber, and therefore, none of the warrants would vest.
The Company reversed the non-cash compensation expense that had been recorded related to these warrants. During the three-month periods ended September 30, 2003 and 2002, the Company incurred costs of $(8.2) million and $(62,000) respectively, and
during the nine-month periods ended September 30, 2003 and 2002, the Company incurred costs of $(339,000) and $86,000, respectively, related to these warrants.



CNBC Warrant



In May 2001, the Company granted a warrant to purchase 90,000 shares of Class A common stock consisting of three 30,000 share tranches to purchase shares
at $26.50 per share, which expire in 11, 12, and 13 years, respectively. The warrants began to vest on September 25, 2001 when the Company reached its commercial launch and became or will be vested on September 1, 2002, 2003, and 2004, respectively.
During the three-month periods ended September 30, 2003 and 2002, the Company incurred costs of $284,000 and $(46,000) respectively, and during the nine-month periods ended September 30, 2003 and 2002, the Company incurred costs of $667,000 and
$(11,000), respectively, in non-cash compensation expense related to these warrants.



(l) Service Providers



The Company has entered into agreements with service providers for customer care functions to subscribers of its service. Employees of the service provider have access to the Companys customer care systems to establish customer
accounts, activate radios, update program and account information and respond to general inquiries from subscribers. The Company pays its service provider an hourly rate for each customer care representative supporting its subscribers. During the
three-month periods ended September 30, 2003 and 2002, the Company incurred costs of $3.6 million and $2.1 million respectively, and during the nine-month periods ended September 30, 2003 and 2002, the Company incurred costs of $9.4 million and $5.4
million, respectively, in relation to these agreements.



(11) Supplemental
Cash Flows Disclosures



The Company paid $47,233,000 and
$46,029,000 for interest (net of amounts capitalized) during the nine-month periods ended September 30, 2003 and 2002, respectively. Additionally, the Company incurred the following non-cash financing and investing activities (in thousands):



|                                                  |  | Nine-month periodsending September 30,
|------------------------------------------------- |  | --------------------------------------
|                                                  |  | 2003                                  
|Accrued system milestone payments                 |  | $                                     
|Issuance of note for prepaid expenses             |  |                                       
|Issuance of notes for accrued expenses            |  |                                       
|Property acquired through capital leases          |  |                                       
|Use of deposit/escrow for capital lease agreement |  |                                       
|Completed broadcast facilities                    |  |                                       
|Proceeds of note issuance held at Parent          |  |                                       
|Deferred financing fees paid by Parent            |  |                                       
|Discount on debt securities                       |  |                                       
|Conversion of debt to equity in Parent            |  |                                       
|Non-cash capitalized interest                     |  |                                       



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The Parent issued warrants and made cash payments on the Companys behalf for deferred financing
fees and as part of the Companys debt issuance. These items are treated as capital contributions and aggregated $32.2 million for deferred financing fees and $68.9 million value allocated to the warrants issued in connection with the
Companys new debt agreements.



(12) Recent Accounting Pronouncements



The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003, and SFAS No. 143 does not have a material impact on the financial statements. The Companys asset retirement obligations are
limited to deconstruction of its terrestrial repeater sites. SFAS No. 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. When a new liability is recorded, the
Company will capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement.



In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of
such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback
transactions. The Company recorded losses of $4.4 million and $25.8 million during the three months and nine months ended September 30, 2003, respectively from the early retirement of debt with a carrying value including accrued interest of $83.2
million. The loss is reported in other income (expense) in the unaudited condensed consolidated statement of operations for the three- and nine-month periods ended September 30, 2003.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when incurred at fair value. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of SFAS No. 146 may have an effect on the timing of future restructuring charges taken, if and when they occur.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. The disclosures required by SFAS
No. 148 are included in note 3 to these unaudited condensed consolidated financial statements.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.This Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31,
2003. This Interpretation may have an impact on the accounting for future investments, if any, made by the Company.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
No. 150 addresses the classification and measurement of mandatorially redeemable freestanding financial instruments, including those that comprise more than one option or forward contract, and requires an issuer to classify certain instruments as
liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period after June 15, 2003. The adoption of SFAS No. 150 has not had a
material effect on the classification and measurement of the Companys financing transactions but may have an effect on the classification and measurement of future mandatorially redeemable financing transactions, if and when they occur.



The Emerging Issues Task Force issued EITF No. 00-21,
Revenue Arrangements with Multiple Deliverables addressing the allocation of revenue among products and services in bundled sales arrangements. EITF 00-21 is effective for arrangements entered into in fiscal periods after June 15, 2003. Based
on the Companys current sales and marketing programs, the Company does not anticipate the application of the new pronouncement will have a material impact on the Companys financial statements. However, the Companys sales and
marketing programs may change over time and the Company will continue to evaluate the applicability of EITF 00-21 as it relates to sales of service and hardware. This new pronouncement has no impact on the economics of the Companys sales and
marketing programs, but it may impact the timing and classification of revenue reported within the financial statements and may have a corresponding impact on the Average Revenue per Subscriber (ARPU). As a result of this new
pronouncement, the Company recognized a lower subscriber ARPU for the period.



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XM SATELLITE RADIO INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(13) Unaudited Condensed Consolidating Financial Information



The Company has certain series of debt securities outstanding that are
guaranteed by the Parent and by the Companys subsidiary, XM Equipment Leasing LLC, which owns certain terrestrial repeaters. Accordingly, the Company provides the following unaudited condensed consolidating financial information.



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XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES UNAUDITED CONDENSED

CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2003



|                            |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasingLLC |   |        | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XMSatelliteRadioHoldingsInc. |   |          | XMHoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldings Inc. |      
|--------------------------- |  | --------------------- | -------- | - | --------------------- | - | ------ | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ---------------------------- | - | -------- | ----------------------------------- |  | - | ------------ | - |  | ------------------------------------------ | -----
|Revenue:                    |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Subscription revenue        |  | $                     | 21,658   |   |                       | $ |       |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 21,658   |                                     |  | $ |             |   |  | $                                          |     
|Equipment revenue           |  |                       | 3,565    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 3,565    |                                     |  |   |             |   |  |                                            |     
|Activation                  |  |                       | 520      |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 520      |                                     |  |   |             |   |  |                                            |     
|Net ad sales                |  |                       | 963      |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 963      |                                     |  |   |             |   |  |                                            |     
|Other revenue               |  |                       | 207      |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 207      |                                     |  |   |             |   |  |                                            |      
|Intercompany revenue        |  |                       |         |   |                       |   | 1,803  |                               |  |   | 3,421        |   |  |                                    | (5,224  | ) |                              |   |         |                                     |  |   |             |   |  |                                            | 1,834
|                            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Total revenue               |  | $                     | 26,913   |   |                       | $ | 1,803  |                               |  | $ | 3,421        |   |  | $                                  | (5,224  | ) |                              | $ | 26,913   |                                     |  | $ |             |   |  | $                                          | 1,834
|Operating expenses:         |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Cost of revenue:            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Revenue share & royalties   |  | $                     | 7,031    |   |                       | $ |       |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 7,031    |                                     |  | $ |             |   |  | $                                          |     
|Cost of equipment           |  |                       | 4,226    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 4,226    |                                     |  |   |             |   |  |                                            |     
|Ad sales                    |  |                       | 758      |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 758      |                                     |  |   |             |   |  |                                            |     
|Customer care & billing     |  |                       | 6,744    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 6,744    |                                     |  |   |             |   |  |                                            |     
|Satellite & terrestrial     |  |                       | 15,996   |   |                       |   | 9      |                               |  |   |             |   |  |                                    | (5,224  | ) |                              |   | 10,781   |                                     |  |   |             |   |  |                                            |     
|Broadcast & operations      |  |                       | 5,669    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 5,669    |                                     |  |   | 51           |   |  |                                            | 3    
|Programming & content       |  |                       | 5,525    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 5,525    |                                     |  |   |             |   |  |                                            |     
|                            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Cost of revenue             |  | $                     | 45,949   |   |                       |   | 9      |                               |  | $ |             |   |  | $                                  | (5,224  | ) |                              | $ | 40,734   |                                     |  | $ | 51           |   |  | $                                          | 3    
|Research & development      |  |                       | 4,016    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 4,016    |                                     |  |   |             |   |  |                                            |     
|General & administrative    |  |                       | 5,402    |   |                       |   |       |                               |  |   | 1            |   |  |                                    | 146     |   |                              |   | 5,549    |                                     |  |   | 17           |   |  |                                            | 103  
|Marketing                   |  |                       | 38,208   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 38,208   |                                     |  |   |             |   |  |                                            |     
|Depreciation & amortization |  |                       | 35,711   |   |                       |   | 3,467  |                               |  |   |             |   |  |                                    |        |   |                              |   | 39,178   |                                     |  |   |             |   |  |                                            | 348  
|                            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Total operating expenses    |  | $                     | 129,286  |   |                       | $ | 3,476  |                               |  | $ | 1            |   |  | $                                  | (5,078  | ) |                              | $ | 127,685  |                                     |  | $ | 68           |   |  | $                                          | 454  
|                            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Operating income (loss)     |  | $                     | (102,373 | ) |                       | $ | (1,673 | )                             |  | $ | 3,420        |   |  | $                                  | (146    | ) |                              | $ | (100,772 | )                                   |  | $ | (68          | ) |  | $                                          | 1,380
|Other income (expense):     |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Interest income             |  | $                     | 376      |   |                       | $ | 6      |                               |  | $ | 14,648       |   |  | $                                  | (14,654 | ) |                              | $ | 376      |                                     |  | $ | 431          |   |  | $                                          | 21   
|Interest expense            |  |                       | (44,128  | ) |                       |   |       |                               |  |   | (6           | ) |  |                                    | 14,654  |   |                              |   | (29,480  | )                                   |  |   | (643         | ) |  |                                            | (261 
|Other income (expense)      |  |                       | 11,879   |   |                       |   |        |                               |  |   |             |   |  |                                    | (16,249 | ) |                              |   | (4,370   | )                                   |  |   | (133,168     | ) |  |                                            |     
|                            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      
|Net income (loss)           |  | $                     | (134,246 | ) |                       | $ | (1,667 | )                             |  | $ | 18,062       |   |  | $                                  | (16,395 | ) |                              | $ | (134,246 | )                                   |  | $ | (133,448     | ) |  | $                                          | 1,140
|                            |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                            |      



(Certain totals may not
add due to the effect of rounding)



22



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2002



|                            |  | XMSatelliteRadioInc. |          |   | XMEquipmentLeasingLLC |   | XMSR Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XMSatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldingsInc. |       
|--------------------------- |  | -------------------- | -------- | - | --------------------- | - | ------------------------------ |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ---------------------------- | - | -------- | ------------------------------------ |  | - | ------------ | - |  | ----------------------------------------- | ------
|Revenue:                    |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Subscription revenue        |  | $                    | 4,775    |   |                       | $ |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 4,775    |                                      |  | $ |             |   |  | $                                         |      
|Equipment revenue           |  |                      |         |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   |         |                                      |  |   |             |   |  |                                           |      
|Activation                  |  |                      | 144      |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 144      |                                      |  |   |             |   |  |                                           |      
|Net ad sales                |  |                      | 603      |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 603      |                                      |  |   |             |   |  |                                           |      
|Other revenue               |  |                      | 30       |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 30       |                                      |  |   |             |   |  |                                           |       
|Intercompany revenue        |  |                      |         |   |                       |   | 2,387                          |  |   | 856          |   |  |                                    | (3,243  | ) |                              |   |         |                                      |  |   |             |   |  |                                           | 1,834
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Total revenue               |  | $                    | 5,552    |   |                       | $ | 2,387                          |  | $ | 856          |   |  | $                                  | (3,243  | ) |                              | $ | 5,552    |                                      |  | $ |             |   |  | $                                         | 1,834 
|Operating expenses:         |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Cost of revenue:            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Revenue share & royalties   |  | $                    | 1,146    |   |                       | $ |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 1,146    |                                      |  | $ |             |   |  | $                                         |      
|Cost of equipment           |  |                      |         |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   |         |                                      |  |   |             |   |  |                                           |      
|Ad sales                    |  |                      | 748      |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 748      |                                      |  |   |             |   |  |                                           |      
|Customer care & billing     |  |                      | 4,236    |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 4,236    |                                      |  |   |             |   |  |                                           |      
|Satellite & terrestrial     |  |                      | 14,172   |   |                       |   | 74                             |  |   |             |   |  |                                    | (3,243  | ) |                              |   | 11,003   |                                      |  |   |             |   |  |                                           |      
|Broadcast & operations      |  |                      | 6,860    |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 6,860    |                                      |  |   | 334          |   |  |                                           | 151   
|Programming & content       |  |                      | 6,081    |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 6,081    |                                      |  |   |             |   |  |                                           |      
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Cost of revenue             |  | $                    | 33,243   |   |                       | $ | 74                             |  | $ |             |   |  | $                                  | (3,243  | ) |                              | $ | 30,074   |                                      |  | $ | 334          |   |  | $                                         | 151   
|Research & development      |  |                      | 4,182    |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 4,182    |                                      |  |   |             |   |  |                                           |      
|General & administrative    |  |                      | 5,148    |   |                       |   |                               |  |   |             |   |  |                                    | 72      |   |                              |   | 5,220    |                                      |  |   | 38           |   |  |                                           | 103   
|Marketing                   |  |                      | 34,380   |   |                       |   |                               |  |   |             |   |  |                                    |        |   |                              |   | 34,380   |                                      |  |   |             |   |  |                                           |      
|Depreciation & amortization |  |                      | 26,175   |   |                       |   | 2,079                          |  |   |             |   |  |                                    |        |   |                              |   | 28,254   |                                      |  |   |             |   |  |                                           | 346   
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Total operating expenses    |  | $                    | 103,128  |   |                       | $ | 2,153                          |  | $ |             |   |  | $                                  | (3,171  | ) |                              | $ | 102,110  |                                      |  | $ | 372          |   |  | $                                         | 600   
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Operating income (loss)     |  | $                    | (97,576  | ) |                       | $ | 234                            |  | $ | 856          |   |  | $                                  | (72     | ) |                              | $ | (96,558  | )                                    |  | $ | (372         | ) |  | $                                         | 1,234 
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Other income (expense):     |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Interest income             |  | $                    | 542      |   |                       | $ | 76                             |  | $ | 13,961       |   |  | $                                  | (14,021 | ) |                              | $ | 558      |                                      |  | $ | 707          |   |  | $                                         | 6     
|Interest expense            |  |                      | (26,982  | ) |                       |   |                               |  |   | (72          | ) |  |                                    | 14,021  |   |                              |   | (13,033  | )                                    |  |   | (2,162       | ) |  |                                           | (602  
|Other income (expense)      |  |                      | 14,983   |   |                       |   |                                |  |   |              |   |  |                                    | (14,983 | ) |                              |   |         |                                      |  |   | (107,819     | ) |  |                                           |      
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       
|Net income (loss)           |  | $                    | (109,033 | ) |                       | $ | 310                            |  | $ | 14,745       |   |  | $                                  | (15,055 | ) |                              | $ | (109,033 | )                                    |  | $ | (109,646     | ) |  | $                                         | 638   
|                            |  |                      |          |   |                       |   |                                |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                           |       



(Certain totals may not
add due to the effect of rounding)



23



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003



|                            |  | XMSatelliteRadioInc. |          |   | XMEquipmentLeasingLLC |   |        | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XMSatelliteRadioHoldingsInc. |   |          | XMHoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldingsInc. |       
|--------------------------- |  | -------------------- | -------- | - | --------------------- | - | ------ | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ---------------------------- | - | -------- | ----------------------------------- |  | - | ------------ | - |  | ----------------------------------------- | ------
|Revenue:                    |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Subscription revenue        |  | $                    | 49,365   |   |                       | $ |       |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 49,365   |                                     |  | $ |             |   |  | $                                         |      
|Equipment revenue           |  |                      | 4,752    |   |                       |   |       |                               |  |   | 422          |   |  |                                    |        |   |                              |   | 5,174    |                                     |  |   |             |   |  |                                           |      
|Activation                  |  |                      | 1,209    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 1,209    |                                     |  |   |             |   |  |                                           |      
|Net ad sales                |  |                      | 2,010    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 2,010    |                                     |  |   |             |   |  |                                           |      
|Other revenue               |  |                      | 528      |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 528      |                                     |  |   |             |   |  |                                           |       
|Intercompany revenue        |  |                      |         |   |                       |   | 7,891  |                               |  |   | 7,754        |   |  |                                    | (15,645 | ) |                              |   |         |                                     |  |   |             |   |  |                                           | 5,503 
|                            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Total revenue               |  | $                    | 57,864   |   |                       | $ | 7,891  |                               |  | $ | 8,176        |   |  | $                                  | (15,645 | ) |                              | $ | 58,286   |                                     |  | $ |             |   |  | $                                         | 5,503 
|Operating expenses:         |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Cost of revenue:            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Revenue share & royalties   |  | $                    | 16,510   |   |                       | $ |       |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 16,510   |                                     |  | $ |             |   |  | $                                         |      
|Cost of equipment           |  |                      | 6,505    |   |                       |   |       |                               |  |   | 689          |   |  |                                    |        |   |                              |   | 7,194    |                                     |  |   |             |   |  |                                           |      
|Ad sales                    |  |                      | 1,755    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 1,755    |                                     |  |   |             |   |  |                                           |      
|Customer care & billing     |  |                      | 17,378   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 17,378   |                                     |  |   |             |   |  |                                           |      
|Satellite & terrestrial     |  |                      | 48,969   |   |                       |   | 29     |                               |  |   |             |   |  |                                    | (15,645 | ) |                              |   | 33,353   |                                     |  |   |             |   |  |                                           |      
|Broadcast & operations      |  |                      | 18,065   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 18,065   |                                     |  |   | 975          |   |  |                                           | 3     
|Programming & content       |  |                      | 15,575   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 15,575   |                                     |  |   |             |   |  |                                           |      
|                            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Cost of revenue             |  | $                    | 124,757  |   |                       | $ | 29     |                               |  | $ | 689          |   |  | $                                  | (15,645 | ) |                              | $ | 109,830  |                                     |  | $ | 975          |   |  | $                                         | 3     
|Research & development      |  |                      | 9,402    |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                              |   | 9,402    |                                     |  |   |             |   |  |                                           |      
|General & administrative    |  |                      | 20,228   |   |                       |   |       |                               |  |   | 3            |   |  |                                    | 397     |   |                              |   | 20,628   |                                     |  |   |             |   |  |                                           | 103   
|Marketing                   |  |                      | 126,534  |   |                       |   |        |                               |  |   |             |   |  |                                    |        |   |                              |   | 126,534  |                                     |  |   |             |   |  |                                           |      
|Depreciation & amortization |  |                      | 107,480  |   |                       |   | 10,553 |                               |  |   |             |   |  |                                    |        |   |                              |   | 118,033  |                                     |  |   |             |   |  |                                           | 1,041 
|                            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Total operating expenses    |  | $                    | 388,401  |   |                       | $ | 10,582 |                               |  | $ | 692          |   |  | $                                  | (15,248 | ) |                              | $ | 384,427  |                                     |  | $ | 975          |   |  | $                                         | 1,147 
|                            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Operating income (loss)     |  | $                    | (330,537 | ) |                       | $ | (2,691 | )                             |  | $ | 7,484        |   |  | $                                  | (397    | ) |                              | $ | (326,141 | )                                   |  | $ | (975         | ) |  | $                                         | 4,356 
|Other income (expense):     |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Interest income             |  | $                    | 506      |   |                       | $ | 301    |                               |  | $ | 43,783       |   |  | $                                  | (44,084 | ) |                              | $ | 506      |                                     |  | $ | 1,347        |   |  | $                                         | 100   
|Interest expense            |  |                      | (119,248 | ) |                       |   |       |                               |  |   | (301         | ) |  |                                    | 44,084  |   |                              |   | (75,465  | )                                   |  |   | (4,167       | ) |  |                                           | (1,440
|Other income (expense)      |  |                      | 22,302   |   |                       |   | (14    | )                             |  |   | (13          | ) |  |                                    | (48,152 | ) |                              |   | (25,877  | )                                   |  |   | (417,791     | ) |  |                                           | (165  
|                            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       
|Net income (loss)           |  | $                    | (426,977 | ) |                       | $ | (2,404 | )                             |  | $ | 50,953       |   |  | $                                  | (48,549 | ) |                              | $ | (426,977 | )                                   |  | $ | (421,586     | ) |  | $                                         | 2,851 
|                            |  |                      |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                     |  |   |              |   |  |                                           |       



(Certain totals may not
add due to the effect of rounding)



24



---

##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002



|                            |  | XMSatelliteRadioInc. |          |   | XMEquipmentLeasingLLC |   |       | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XMSatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldings Inc. |       
|--------------------------- |  | -------------------- | -------- | - | --------------------- | - | ----- | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ---------------------------- | - | -------- | ------------------------------------ |  | - | ------------ | - |  | ------------------------------------------ | ------
|Revenue:                    |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Subscription revenue        |  | $                    | 8,987    |   |                       | $ |      |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 8,987    |                                      |  | $ |             |   |  | $                                          |      
|Equipment revenue           |  |                      |         |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   |         |                                      |  |   |             |   |  |                                            |      
|Activation                  |  |                      | 271      |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 271      |                                      |  |   |             |   |  |                                            |      
|Net ad sales                |  |                      | 1,691    |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 1,691    |                                      |  |   |             |   |  |                                            |      
|Other revenue               |  |                      | 226      |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 226      |                                      |  |   |             |   |  |                                            |       
|Intercompany revenue        |  |                      |         |   |                       |   | 7,142 |                               |  |   | 1,694        |   |  |                                    | (8,836  | ) |                              |   |         |                                      |  |   |             |   |  |                                            | 5,503 
|                            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Total revenue               |  | $                    | 11,175   |   |                       | $ | 7,142 |                               |  | $ | 1,694        |   |  | $                                  | (8,836  | ) |                              | $ | 11,175   |                                      |  | $ |             |   |  | $                                          | 5,503 
|Operating expenses:         |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Cost of revenue:            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Revenue share & royalties   |  | $                    | 2,591    |   |                       | $ |      |                               |  | $ |             |   |  | $                                  |        |   |                              | $ | 2,591    |                                      |  | $ |             |   |  | $                                          |      
|Cost of equipment           |  |                      |         |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   |         |                                      |  |   |             |   |  |                                            |      
|Ad sales                    |  |                      | 1,306    |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 1,306    |                                      |  |   |             |   |  |                                            |      
|Customer care & billing     |  |                      | 10,669   |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 10,669   |                                      |  |   |             |   |  |                                            |      
|Satellite & terrestrial     |  |                      | 42,401   |   |                       |   | 104   |                               |  |   |             |   |  |                                    | (8,836  | ) |                              |   | 33,669   |                                      |  |   |             |   |  |                                            |      
|Broadcast & operations      |  |                      | 17,674   |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 17,674   |                                      |  |   | 334          |   |  |                                            | 151   
|Programming & content       |  |                      | 19,578   |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 19,578   |                                      |  |   |             |   |  |                                            |      
|                            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Cost of revenue             |  | $                    | 94,219   |   |                       | $ | 104   |                               |  | $ |             |   |  | $                                  | (8,836  | ) |                              | $ | 85,487   |                                      |  | $ | 334          |   |  | $                                          | 151   
|Research & development      |  |                      | 8,917    |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 8,917    |                                      |  |   |             |   |  |                                            |      
|General & administrative    |  |                      | 16,837   |   |                       |   |      |                               |  |   | 15           |   |  |                                    | 72      |   |                              |   | 16,924   |                                      |  |   | 118          |   |  |                                            | 353   
|Marketing                   |  |                      | 126,328  |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                              |   | 126,328  |                                      |  |   |             |   |  |                                            |      
|Depreciation & amortization |  |                      | 67,030   |   |                       |   | 7,542 |                               |  |   |             |   |  |                                    |        |   |                              |   | 74,572   |                                      |  |   |             |   |  |                                            | 1,039 
|                            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Total operating expenses    |  | $                    | 313,331  |   |                       | $ | 7,646 |                               |  | $ | 15           |   |  | $                                  | (8,764  | ) |                              | $ | 312,228  |                                      |  | $ | 452          |   |  | $                                          | 1,543 
|                            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Operating income (loss)     |  | $                    | (302,156 | ) |                       | $ | (504  | )                             |  | $ | 1,679        |   |  | $                                  | (72     | ) |                              | $ | (301,053 | )                                    |  | $ | (452         | ) |  | $                                          | 3,960 
|Other income (expense):     |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Interest income             |  | $                    | 2,042    |   |                       | $ | 158   |                               |  | $ | 38,197       |   |  | $                                  | (38,160 | ) |                              | $ | 2,237    |                                      |  | $ | 2,270        |   |  | $                                          | 48    
|Interest expense            |  |                      | (76,649  | ) |                       |   | (216  | )                             |  |   | (132         | ) |  |                                    | 38,160  |   |                              |   | (38,837  | )                                    |  |   | (6,734       | ) |  |                                            | (1,857
|Other income (expense)      |  |                      | 39,443   |   |                       |   |      |                               |  |   |             |   |  |                                    | (39,110 | ) |                              |   | 333      |                                      |  |   | (334,185     | ) |  |                                            | (320  
|                            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       
|Net income (loss)           |  | $                    | (337,320 | ) |                       | $ | (562  | )                             |  | $ | 39,744       |   |  | $                                  | (39,182 | ) |                              | $ | (337,320 | )                                    |  | $ | (339,101     | ) |  | $                                          | 1,831 
|                            |  |                      |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                              |   |          |                                      |  |   |              |   |  |                                            |       



(Certain totals may not
add due to the effect of rounding.)



25



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2003 (IN THOUSANDS)



|                                                    |  | XMSatelliteRadio Inc. |            |   | XMEquipmentLeasingLLC |   |        | XMSRNon-GuarantorSubsidiaries |  | Eliminations |         |  | ConsolidatedXM SatelliteRadio Inc. |            |   | XMSatelliteRadioHoldingsInc. |   |            | XMHoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldings Inc. |       
|--------------------------------------------------- |  | --------------------- | ---------- | - | --------------------- | - | ------ | ----------------------------- |  | ------------ | ------- |  | ---------------------------------- | ---------- | - | ---------------------------- | - | ---------- | ----------------------------------- |  | - | ------------ | - |  | ------------------------------------------ | ------
|Current assets:                                     |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Cash and cash equivalents                           |  | $                     | 121,965    |   |                       | $ |       |                               |  | $            |         |  | $                                  |           |   |                              | $ | 121,965    |                                     |  | $ | 332,860      |   |  | $                                          | 1,807 
|Short-term investments                              |  |                       |           |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   |           |                                     |  |   |             |   |  |                                            |      
|Restricted investments                              |  |                       | 2,262      |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 2,262      |                                     |  |   |             |   |  |                                            |      
|Accounts receivable net                             |  |                       | 6,681      |   |                       |   |       |                               |  |              |         |  |                                    |           |   |                              |   | 6,681      |                                     |  |   |             |   |  |                                            |      
|Due from related parties                            |  |                       | 7,603      |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 7,603      |                                     |  |   |             |   |  |                                            |      
|Due from subsidiaries / affiliates                  |  |                       | 97,270     |   |                       |   | 24,144 |                               |  |              | 428,232 |  |                                    | (449,453   | ) |                              |   | 100,193    |                                     |  |   | 457,957      |   |  |                                            | 7,772 
|Related party prepaid expenses                      |  |                       | 22,261     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 22,261     |                                     |  |   |             |   |  |                                            |      
|Prepaid and other current assets                    |  |                       | 19,316     |   |                       |   |       |                               |  |              | 658     |  |                                    |           |   |                              |   | 19,974     |                                     |  |   | 45           |   |  |                                            | 91    
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Total current assets                                |  | $                     | 277,358    |   |                       | $ | 24,144 |                               |  | $            | 428,890 |  | $                                  | (449,453   | ) |                              | $ | 280,939    |                                     |  | $ | 790,862      |   |  | $                                          | 9,670 
|Restricted investments net of current portion       |  |                       | 406        |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 406        |                                     |  |   |             |   |  |                                            | 3,643 
|System under construction                           |  |                       | 20,993     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 20,993     |                                     |  |   | 59,463       |   |  |                                            |      
|Property and equipment net                          |  |                       | 638,694    |   |                       |   | 74,086 |                               |  |              |        |  |                                    | (5,099     | ) |                              |   | 707,681    |                                     |  |   |             |   |  |                                            | 31,951
|Investment in subsidiary / affiliates               |  |                       | 654,644    |   |                       |   |       |                               |  |              |        |  |                                    | (654,644   | ) |                              |   |           |                                     |  |   | 469,798      |   |  |                                            |      
|DARS license & intangibles net                      |  |                       | 8,747      |   |                       |   |       |                               |  |              | 141,200 |  |                                    |           |   |                              |   | 149,947    |                                     |  |   |             |   |  |                                            |      
|Goodwill net                                        |  |                       |           |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   |           |                                     |  |   |             |   |  |                                            |      
|Related party ppd expenses net of current portion   |  |                       | 50,086     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 50,086     |                                     |  |   |             |   |  |                                            |      
|Other assets net                                    |  |                       | 49,237     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 49,237     |                                     |  |   | 1,231        |   |  |                                            | 1,630 
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Total assets                                        |  | $                     | 1,700,165  |   |                       | $ | 98,230 |                               |  | $            | 570,090 |  | $                                  | (1,109,196 | ) |                              | $ | 1,259,289  |                                     |  | $ | 1,321,354    |   |  | $                                          | 46,894
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Current liabilities:                                |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Accounts payable                                    |  |                       | 28,169     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 28,169     |                                     |  |   | 222          |   |  |                                            |      
|Accrued expenses                                    |  |                       | 46,937     |   |                       |   | 137    |                               |  |              |        |  |                                    |           |   |                              |   | 47,074     |                                     |  |   | 7            |   |  |                                            |      
|Current portion of related party long-term debt     |  |                       |           |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   |           |                                     |  |   |             |   |  |                                            |      
|Current portion of other long-term debt             |  |                       | 5,534      |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 5,534      |                                     |  |   |             |   |  |                                            | 437   
|Due to subsidiaries / affiliates                    |  |                       | 441,013    |   |                       |   | 2,569  |                               |  |              | 4,672   |  |                                    | (448,254   | ) |                              |   |           |                                     |  |   | 561,531      |   |  |                                            | 4,002 
|Due to related parties                              |  |                       | 2,755      |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 2,755      |                                     |  |   |             |   |  |                                            |      
|Accrued interest                                    |  |                       | 10,389     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 10,389     |                                     |  |   | 743          |   |  |                                            | 189   
|Deferred revenue                                    |  |                       | 24,759     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 24,759     |                                     |  |   |             |   |  |                                            |      
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Total current liabilities                           |  | $                     | 559,556    |   |                       | $ | 2,706  |                               |  | $            | 4,672   |  | $                                  | (448,254   | ) |                              | $ | 118,680    |                                     |  | $ | 562,503      |   |  | $                                          | 4,628 
|Related party long-term debt net of current portion |  |                       | 128,131    |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 128,131    |                                     |  |   |             |   |  |                                            |      
|Long-term debt net of current portion               |  |                       | 518,331    |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 518,331    |                                     |  |   | 93,182       |   |  |                                            | 27,786
|Due to related parties net of current portion       |  |                       | 20,174     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 20,174     |                                     |  |   |             |   |  |                                            |      
|Deferred revenue net of current portion             |  |                       | 8,553      |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 8,553      |                                     |  |   |             |   |  |                                            |      
|Other non-current liabilities                       |  |                       | 16,188     |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   | 16,188     |                                     |  |   | 13,600       |   |  |                                            | (1,315
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Total liabilities                                   |  |                       | 1,250,933  |   |                       |   | 2,706  |                               |  |              | 4,672   |  |                                    | (448,254   | ) |                              |   | 810,057    |                                     |  |   | 669,285      |   |  |                                            | 31,099
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Stockholders (deficit) equity:                     |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Capital stock                                       |  |                       |           |   |                       |   |       |                               |  |              |        |  |                                    |           |   |                              |   |           |                                     |  |   | 1,608        |   |  |                                            |      
|Paid in capital                                     |  |                       | 1,751,238  |   |                       |   | 97,019 |                               |  |              | 433,036 |  |                                    | (530,055   | ) |                              |   | 1,751,238  |                                     |  |   | 1,958,033    |   |  |                                            | 8,347 
|Retained earnings                                   |  |                       | (1,302,006 | ) |                       |   | (1,495 | )                             |  |              | 132,382 |  |                                    | (130,887   | ) |                              |   | (1,302,006 | )                                   |  |   | (1,307,572   | ) |  |                                            | 7,448 
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Total stockholders equity                          |  | $                     | 449,232    |   |                       | $ | 95,524 |                               |  | $            | 565,418 |  | $                                  | (660,942   | ) |                              | $ | 449,232    |                                     |  | $ | 652,069      |   |  | $                                          | 15,795
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       
|Total liabilities & stockholders (deficit) equity  |  | $                     | 1,700,165  |   |                       | $ | 98,230 |                               |  | $            | 570,090 |  | $                                  | (1,109,196 | ) |                              | $ | 1,259,289  |                                     |  | $ | 1,321,354    |   |  | $                                          | 46,894
|                                                    |  |                       |            |   |                       |   |        |                               |  |              |         |  |                                    |            |   |                              |   |            |                                     |  |   |              |   |  |                                            |       



(Certain totals may not
add due to the effect of rounding.)



26



---

##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2002 (IN THOUSANDS)



|                                                   |  | XMSatelliteRadio Inc. |           |   | XMEquipmentLeasingLLC |   | XMSRNon-GuarantorSubsidiaries |  | Eliminations |         |  | ConsolidatedXM SatelliteRadio Inc. |            |   | XMSatelliteRadioHoldingsInc. |   |           | XMHoldings Non- GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldings Inc. |       
|-------------------------------------------------- |  | --------------------- | --------- | - | --------------------- | - | ----------------------------- |  | ------------ | ------- |  | ---------------------------------- | ---------- | - | ---------------------------- | - | --------- | ------------------------------------- |  | - | ------------ | - |  | ------------------------------------------ | ------
|Current assets:                                    |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Cash and cash equivalents                          |  | $                     | 6,348     |   |                       | $ | 159                           |  | $            | 219     |  | $                                  |           |   |                              | $ | 6,726     |                                       |  | $ | 24,370       |   |  | $                                          | 1,722 
|Short-term investments                             |  |                       |          |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   |          |                                       |  |   | 9,997        |   |  |                                            |      
|Restricted investments                             |  |                       | 25,014    |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 25,014    |                                       |  |   |             |   |  |                                            |      
|Accounts receivable, net                           |  |                       | 3,551     |   |                       |   |                              |  |              | 205     |  |                                    |           |   |                              |   | 3,756     |                                       |  |   |             |   |  |                                            |      
|Due from related parties                           |  |                       | 1,478     |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 1,478     |                                       |  |   |             |   |  |                                            |      
|Due from subsidiaries/affiliates                   |  |                       | 6,863     |   |                       |   | 13,879                        |  |              | 382,722 |  |                                    | (403,464   | ) |                              |   |          |                                       |  |   | 177,911      |   |  |                                            | 3,602 
|Prepaid and other current assets                   |  |                       | 9,311     |   |                       |   |                              |  |              | 1,051   |  |                                    |           |   |                              |   | 10,362    |                                       |  |   |              |   |  |                                            |      
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Total current assets                               |  | $                     | 52,565    |   |                       | $ | 14,038                        |  | $            | 384,197 |  | $                                  | (403,464   | ) |                              | $ | 47,336    |                                       |  | $ | 212,278      |   |  | $                                          | 5,324 
|Restricted investments, net of current portion     |  |                       | 1,673     |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 1,673     |                                       |  |   |             |   |  |                                            | 3,055 
|System under construction                          |  |                       | 18,558    |   |                       |   |                              |  |              |        |  |                                    |            |   |                              |   | 18,558    |                                       |  |   | 36,458       |   |  |                                            |      
|Property and equipment, net                        |  |                       | 735,426   |   |                       |   | 84,220                        |  |              |        |  |                                    | (4,680     | ) |                              |   | 814,966   |                                       |  |   |             |   |  |                                            | 32,970
|Investment in subsidiary/affiliates                |  |                       | 780,745   |   |                       |   |                              |  |              |        |  |                                    | (780,745   | ) |                              |   |          |                                       |  |   | 468,856      |   |  |                                            |      
|DARS license & intangibles, net                    |  |                       | 9,690     |   |                       |   |                              |  |              | 144,042 |  |                                    |           |   |                              |   | 153,732   |                                       |  |   |             |   |  |                                            |      
|Goodwill, net                                      |  |                       |          |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   |          |                                       |  |   |             |   |  |                                            |      
|Other assets, net                                  |  |                       | 8,082     |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 8,082     |                                       |  |   | 6,143        |   |  |                                            | 1,248 
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Total assets                                       |  | $                     | 1,606,739 |   |                       | $ | 98,258                        |  | $            | 528,239 |  | $                                  | (1,188,889 | ) |                              | $ | 1,044,347 |                                       |  | $ | 723,735      |   |  | $                                          | 42,597
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Current liabilities:                               |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Accounts payable                                   |  | $                     | 36,141    |   |                       | $ | 1                             |  | $            |        |  | $                                  |           |   |                              | $ | 36,142    |                                       |  | $ | 3,820        |   |  | $                                          | 44    
|Accrued expenses                                   |  |                       | 616,516   |   |                       |   | 329                           |  |              | 13,794  |  |                                    | (576,516   | ) |                              |   | 54,123    |                                       |  |   | 11,366       |   |  |                                            | 2,167 
|Current portion of long-term debt                  |  |                       | 3,408     |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 3,408     |                                       |  |   |             |   |  |                                            | 437   
|Due to related parties                             |  |                       | 13,410    |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 13,410    |                                       |  |   |             |   |  |                                            |      
|Accrued interest                                   |  |                       | 14,286    |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 14,286    |                                       |  |   | 2,181        |   |  |                                            | 184   
|Deferred revenue                                   |  |                       | 9,925     |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 9,925     |                                       |  |   |             |   |  |                                            |      
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Total current liabilities                          |  | $                     | 693,686   |   |                       | $ | 330                           |  | $            | 13,794  |  | $                                  | (576,516   | ) |                              | $ | 131,294   |                                       |  | $ | 17,367       |   |  | $                                          | 2,832 
|Long term debt, net of current portion             |  |                       | 270,347   |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 270,347   |                                       |  |   | 114,057      |   |  |                                            | 28,136
|Due to related parties, net of current portion     |  |                       | 10,618    |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 10,618    |                                       |  |   |             |   |  |                                            |      
|Deferred revenue, net of current portion           |  |                       | 2,372     |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 2,372     |                                       |  |   |             |   |  |                                            |      
|Other non-current liabilities                      |  |                       | 15,190    |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   | 15,190    |                                       |  |   |             |   |  |                                            | (1,315
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Total liabilities                                  |  | $                     | 992,213   |   |                       | $ | 330                           |  | $            | 13,794  |  | $                                  | (576,516   | ) |                              | $ | 429,821   |                                       |  | $ | 131,424      |   |  | $                                          | 29,653
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Stockholders (deficit) equity:                    |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Capital Stock                                      |  |                       |          |   |                       |   |                              |  |              |        |  |                                    |           |   |                              |   |          |                                       |  |   | 1,036        |   |  |                                            |      
|Paid In Capital                                    |  |                       | 1,489,555 |   |                       |   | 97,019                        |  |              | 433,036 |  |                                    | (530,055   | ) |                              |   | 1,489,555 |                                       |  |   | 1,477,261    |   |  |                                            | 8,347 
|Retained Earnings                                  |  |                       | (875,029  | ) |                       |   | 909                           |  |              | 81,409  |  |                                    | (82,318    | ) |                              |   | (875,029  | )                                     |  |   | (885,986     | ) |  |                                            | 4,597 
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|                                                   |  | $                     | 614,526   |   |                       | $ | 97,928                        |  | $            | 514,445 |  | $                                  | (612,373   | ) |                              | $ | 614,526   |                                       |  | $ | 592,311      |   |  | $                                          | 12,944
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       
|Total liabilities & stockholders (deficit) equity |  | $                     | 1,606,739 |   |                       | $ | 98,258                        |  | $            | 528,239 |  | $                                  | (1,188,889 | ) |                              | $ | 1,044,347 |                                       |  | $ | 723,735      |   |  | $                                          | 42,597
|                                                   |  |                       |           |   |                       |   |                               |  |              |         |  |                                    |            |   |                              |   |           |                                       |  |   |              |   |  |                                            |       



(Certain totals may not
add due to the effect of rounding.)



27



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XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003



|                                                            |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasing LLC |   |      | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedXM SatelliteRadio Inc. |   |   | XM SatelliteRadioHoldings Inc. |   |          | XMHoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedXM SatelliteRadioHoldingsInc. |  
|----------------------------------------------------------- |  | --------------------- | -------- | - | ---------------------- | - | ---- | ----------------------------- |  | - | ------------ | - | ---------------------------------- | - | - | ------------------------------ | - | -------- | ----------------------------------- |  | - | ------------ | - | ----------------------------------------- | -
|Net cash provided by (used in) operating activities         |  | $                     | (193,661 | ) |                        | $ | (159 | )                             |  | $ | (219         | ) |                                    | $ |  |                                | $ | (194,039 | )                                   |  | $ | (1,270       | ) |                                           | $
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Cash flows from investing activities:                       |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Purchase of plant and equipment                             |  |                       | (9,637   | ) |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | (9,637   | )                                   |  |   |             |   |                                           |  
|Additions to system under construction                      |  |                       | (2,017   | ) |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | (2,017   | )                                   |  |   | (2,000       | ) |                                           |  
|Net purchase/maturity of short-term investments             |  |                       |         |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   |         |                                     |  |   |             |   |                                           |  
|Net purchase/maturity of restricted investments             |  |                       | 22,750   |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | 22,750   |                                     |  |   |             |   |                                           |  
|Other investing activities                                  |  |                       | 95       |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | 95       |                                     |  |   | 9902         |   |                                           |  
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Net cash provided (used in) investing activities            |  | $                     | 11,191   |   |                        | $ |     |                               |  | $ |             |   |                                    | $ |  |                                | $ | 11,191   |                                     |  | $ | 7,902        |   |                                           | $
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Cash flows from financing activities:                       |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Proceeds from sale of common stock and capital contribution |  |                       | 18,239   |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | 18,239   |                                     |  |   | 217,444      |   |                                           |  
|Proceeds from issuance of 10% Series A Convertible Note     |  |                       | 103,732  |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | 103,732  |                                     |  |   | 106,268      |   |                                           |  
|Proceeds from issuance of 12% Series A Convertible Note     |  |                       | 185,000  |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | 185,000  |                                     |  |   |             |   |                                           |  
|Repayment of 7.75% convertible notes                        |  |                       |         |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   |         |                                     |  |   | (6,723       | ) |                                           |  
|Other financing activities                                  |  |                       |         |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   |         |                                     |  |   |             |   |                                           |  
|Payments on capital lease obligations and mortgage          |  |                       | (2,542   | ) |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | (2,542   | )                                   |  |   |             |   |                                           |  
|Buyback of Series B preferred stock                         |  |                       |         |   |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   |         |                                     |  |   | (10,162      | ) |                                           |  
|Payments for deferred financing costs                       |  |                       | (6,342   | ) |                        |   |     |                               |  |   |             |   |                                    |   |  |                                |   | (6,342   | )                                   |  |   | (4,969       | ) |                                           |  
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Net cash provided by (used in) financing activities         |  | $                     | 298,087  |   |                        | $ |     |                               |  | $ |             |   |                                    | $ |  |                                | $ | 298,087  |                                     |  | $ | 301,858      |   |                                           | $
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Net increase (decrease) in cash and cash equivalents        |  | $                     | 115,617  |   |                        |   | (159 | )                             |  |   | (219         | ) |                                    |   |  |                                |   | 115,239  |                                     |  |   | 308,490      |   |                                           |  
|Cash and cash equivalents at beginning of period            |  |                       | 6,348    |   |                        |   | 159  |                               |  |   | 219          |   |                                    |   |  |                                |   | 6,726    |                                     |  |   | 24,370       |   |                                           |  
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  
|Cash and cash equivalents at end of period                  |  | $                     | 121,965  |   |                        | $ |     |                               |  | $ |             |   |                                    | $ |  |                                | $ | 121,965  |                                     |  | $ | 332,860      |   |                                           | $
|                                                            |  |                       |          |   |                        |   |      |                               |  |   |              |   |                                    |   |   |                                |   |          |                                     |  |   |              |   |                                           |  



(Certain totals may not
add due to the effect of rounding.)



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002



|                                                                 |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasingLLC |   | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedXM SatelliteRadio Inc. |   |   | XM SatelliteRadioHoldingsInc. |   |          | XMHoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedXM SatelliteRadioHoldingsInc. |  
|---------------------------------------------------------------- |  | --------------------- | -------- | - | --------------------- | - | ----------------------------- |  | - | ------------ | - | ---------------------------------- | - | - | ----------------------------- | - | -------- | ----------------------------------- |  | - | ------------ | - | ----------------------------------------- | -
|Net cash provided by (used in) operating activities              |  | $                     | (185,770 | ) |                       | $ | 171                           |  | $ | (65,783      | ) |                                    | $ |  |                               | $ | (251,382 | )                                   |  | $ | (10,130      | ) |                                           | $
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Cash flows from investing activities:                            |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Purchase of plant and equipment                                  |  |                       | (33,152  | ) |                       |   |                              |  |   |             |   |                                    |   |  |                               |   | (33,152  | )                                   |  |   | 15           |   |                                           |  
|Additions to system under construction                           |  |                       | (32,818  | ) |                       |   |                              |  |   |             |   |                                    |   |  |                               |   | (32,818  | )                                   |  |   |             |   |                                           |  
|Net purchase/maturity of restricted investments                  |  |                       | 45,500   |   |                       |   |                              |  |   |             |   |                                    |   |  |                               |   | 45,500   |                                     |  |   |             |   |                                           |  
|Other investing activities                                       |  |                       | 10,831   |   |                       |   |                              |  |   |             |   |                                    |   |  |                               |   | 10,831   |                                     |  |   | (37,154      | ) |                                           |  
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Net cash provided by (used in) investing activities              |  | $                     | (9,639   | ) |                       | $ |                              |  | $ |             |   |                                    | $ |  |                               | $ | (9,639   | )                                   |  | $ | (37,139      | ) |                                           | $
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Cash flows from financing activities:                            |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Proceeds from sale of common stock and capital contribution      |  |                       |         |   |                       |   |                              |  |   |             |   |                                    |   |  |                               |   |         |                                     |  |   | 158,604      |   |                                           |  
|Other financing activities                                       |  |                       |         |   |                       |   |                              |  |   |             |   |                                    |   |  |                               |   |         |                                     |  |   |             |   |                                           |  
|Payments on capital lease obligations and mortgage               |  |                       | (1,813   | ) |                       |   |                              |  |   |             |   |                                    |   |  |                               |   | (1,813   | )                                   |  |   |             |   |                                           |  
|Payments for deferred financing costs                            |  |                       |         |   |                       |   |                              |  |   |             |   |                                    |   |  |                               |   |         |                                     |  |   |             |   |                                           |  
|Capital contribution from parent through transfer of liabilities |  |                       | 200,466  |   |                       |   |                              |  |   |             |   |                                    |   |  |                               |   | 200,466  |                                     |  |   | (200,466     | ) |                                           |  
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Net cash provided by (used in) financing activities              |  | $                     | 198,653  |   |                       | $ |                              |  | $ |             |   |                                    | $ |  |                               | $ | 198,653  |                                     |  | $ | (41,862      | ) |                                           | $
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Net increase (decrease) in cash and cash equivalents             |  | $                     | 3,244    |   |                       | $ | 171                           |  | $ | (65,783      | ) |                                    | $ |  |                               | $ | (62,368  | )                                   |  | $ | (89,131      | ) |                                           | $
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Cash and cash equivalents at beginning of period                 |  | $                     | (4,019   | ) |                       | $ | 10                            |  | $ | 66,377       |   |                                    | $ |  |                               | $ | 62,368   |                                     |  | $ | 119,264      |   |                                           | $
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  
|Cash and cash equivalents at end of period                       |  | $                     | (775     | ) |                       | $ | 181                           |  | $ | 594          |   |                                    | $ |  |                               | $ |         |                                     |  | $ | 30,133       |   |                                           | $
|                                                                 |  |                       |          |   |                       |   |                               |  |   |              |   |                                    |   |   |                               |   |          |                                     |  |   |              |   |                                           |  



(Certain totals may not
add due to the effect of rounding.)



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



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in Managements Discussion and Analysis of Financial Condition and Results of Operations and other sections
herein, including statements regarding the development of our business, the markets for our services, our anticipated capital expenditures, and other similar statements are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) which can be identified as any statement that does not relate strictly to historical or current facts. Forward-looking statements use such words as plans, expects, will,
will likely result, are expected to, will continue, is anticipated, estimate, project, believes, anticipates, intends, may,
should, continue, seek, could and other similar reasonable expressions. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations
will be achieved. The important factors that could cause actual results to differ materially from those in the forward-looking statements herein (the Cautionary Statements) include, without limitation, the key factors that have a direct
bearing on our future results of operations. These are our significant expenditures and losses, unproven market for our service; health of our satellites; potential need for additional financing, substantial indebtedness, as well as other risks
referenced from time to time in filings with the SEC, including our Form 10-K, filed April 2, 2003, our Form 8-K, filed on June 3, 2003, our Form S-4, filed July 3, 2003, and our Form S-4A filed August 8, 2003. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake any obligation to release publicly any revisions to such forward-looking
statements to reflect the occurrence of unanticipated events.



The following discussion and analysis should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and Notes thereto included herewith, and with our Managements Discussion and Analysis of Financial
Condition and Results of Operations and audited consolidated financial statements and notes thereto for the three-year period ended December 31, 2002, included in our Annual Report on Form 10-K.



This quarterly report on Form 10-Q is filed by XM Satellite Radio Inc.
(XM). XM Satellite Radio Holdings Inc. (Holdings) is filing separately. The principal differences between the financial condition of Holdings and XM, which are not significant in amount, are:



| |  | the ownership by Holdings of the corporate headquarters building since August 2001, and the lease of the building from Holdings by XM;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | the presence at Holdings of additional indebtedness not guaranteed by XM; and
| | - | -----------------------------------------------------------------------------



| |  | the existence of cash balances at Holdings.
| | - | -------------------------------------------



Accordingly, the results of operations for XM and its subsidiaries are substantially the same as the results for Holdings and its subsidiaries discussed
above except that XM incurs:



| |  | additional rent, less depreciation and amortization expense and less other income, in each case principally related to XMs rental of its corporate headquarters from Holdings,
which are intercompany transactions that have been eliminated in the Holdings financial statements;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | less interest expense principally related to the additional indebtedness at Holdings; and
| | - | -----------------------------------------------------------------------------------------



| |  | less interest income because of the additional cash balances at Holdings.
| | - | -------------------------------------------------------------------------



Introduction



XM was incorporated in Delaware in 1992 and Holdings became a holding company for XM in early 1997. We emerged from the development stage in the fourth
quarter of 2001, following the commencement of our service in two test markets on September 25, 2001 and nationwide launch on November 12, 2001. Accordingly, the results for the quarter ended September 30, 2002 reflect limited commercial operations
and the direct comparison of the results of operations for the quarters ended September 30, 2003 and 2002 may not be meaningful with respect to revenue and various other line items. As of September 30, 2003, we had 929,648 subscribers.



Holdings and we have raised $2.4 billion of equity and debt net proceeds
through September 30, 2003 from investors and strategic partners to fund our operations. This includes $225 million of gross funds raised in the January 2003 financing transactions and $185 million of gross funds raised in the June 2003 offering (of
which $10 million was raised in July 2003 from the exercise of an over-allotment option). The January 2003 financing transactions also included $250 million of payment deferrals and a line of credit. Provided that we meet the revenue, expense and
cash flow projections of our business plan, we expect to be fully funded and will not need to raise additional financing to continue operations or to fund the construction and launch of XM-3 and the construction of XM-4. We may need to raise
additional funding depending on the amount and timing of the receipt of the insurance proceeds.



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We will continue to incur operating losses until we substantially increase the number of our subscribers
and develop a stream of cash flow sufficient to cover operating costs. We also have significant outstanding contracts and commercial commitments that need to be paid in cash or through credit facilities over the next several years, including to fund
subsidies and distribution costs, particularly under our arrangement with General Motors, programming costs, repayment of long-term debt, lease payments and service payments, as further described below under the heading Liquidity and Capital
ResourcesContractual Obligations and Commercial Commitments. Our ability to become profitable also depends upon other factors identified below under the heading Liquidity and Capital ResourcesFuture Operating and Capital
Resource Requirements.



Results of Operations



To better explain our performance during 2003 and on an on-going basis, we
have expanded the number of revenue and expense categories to better reflect the drivers of the business. Descriptions for expanded revenue and expense categories are outlined below.



Subscription Revenue



Subscription includes fees from basic and premium service net of subscription-related promotions.



Activation Revenue



Activation includes amortization of subscription activation fees over the
estimated average life of a subscriber.



Equipment Revenue



Equipment includes revenue from XMs direct sales of
radios and other related equipment.



Net Ad Sales Revenue



Net Ad Sales includes revenue from sales of
advertisements and programming sponsorships to advertisers on the XM network, net of agency commissions.



Cost of Revenue



Costs of Revenue are those expenses directly related to the generation of subscriber and advertising revenue and have variable and fixed components. Cost
of Equipment, Revenue Share & Royalties, along with Customer Care & Billing tend to fluctuate along with increases and decreases in revenues and/or subscribers. Satellite & Terrestrial, Broadcast & Operations and Programming &
Content are not expected to fluctuate directly with changes in revenue and/or subscribers. Ad Sales, which includes internal and external costs directly associated with selling advertisements on the XM network, tends to fluctuate with increases and
decreases in advertising revenue.



Research &
Development



Research & Development is a discretionary
expense used primarily to drive new product development and radio component and radio unit cost reductions.



General & Administrative



General & Administrative expenses include legal, human resources, accounting and other overhead costs.



Marketing



Marketing includes: Retention & Support, which are those indirect costs
that are not associated with gaining a subscriber and are not expected to fluctuate directly with changes in revenue and/or subscribers; Subsidies & Distribution, which includes commissions to radio manufacturers and distribution partners that
are based on the number of radios manufactured or the number of new subscribers added in the period (these costs have previously been referred to as Subscriber Acquisition Costs or SAC); Marketing, which are those
discretionary costs including advertising, media and events, as well as marketing materials for retail and automotive dealer points of presence. Amortization of the GM Liability includes the straight-line accounting treatment of the fixed obligation
to General Motors. We consider subscriber acquisition costs to include radio manufacturer subsidies, certain sales, activation and installation



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commissions, and subscriber product- and hardware-related incentives and promotions. Subscriber acquisition costs also include the negative margins on
equipment sales. (Subscriber acquisition costs do not include ongoing loyalty payments to retailers and distribution partners, payments under revenue sharing arrangements with radio manufacturers and distributors and certain guaranteed payments to
General Motors.) We consider Cost Per Gross Addition (CPGA) to include the amounts in SAC, as well as advertising, media and marketing expenses, except for retention and support and amortization of GM liability.



EBITDA



Net loss before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in
our business as EBITDA. EBITDA is not a measure of financial performance under generally accepted accounting principles. As a result of regulatory changes, EBITDA now includes Other Income (Expense). We believe EDITDA is often a useful
measure of a companys operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and completed the build-out of our system through the raising and
expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance
of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to
similarly titled measures of other companies. EBITDA does not purport to represent operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements
as an indicator of our performance.



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Three-Month and Nine-month Periods ended September 30, 2003 and 2002



|                                                                                |  | Three months endedSeptember 30,        |          |   | Nine months endedSeptember 30, |  
|------------------------------------------------------------------------------- |  | -------------------------------------- | -------- | - | ------------------------------ | -
|                                                                                |  | 2003                                   |          |   | 2002                           |  
|                                                                                |  | (in thousands, except subscriber data) |         
|Revenue:                                                                        |  |                                        |          |   |                                |  
|Subscription                                                                    |  | $                                      | 21,658   |   |                                | $
|Activation                                                                      |  |                                        | 520      |   |                                |  
|Equipment                                                                       |  |                                        | 3,565    |   |                                |  
|Net ad sales                                                                    |  |                                        | 963      |   |                                |  
|Other                                                                           |  |                                        | 207      |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Total revenue                                                                   |  |                                        | 26,913   |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Operating expenses:                                                             |  |                                        |          |   |                                |  
|Cost of revenue (excludes depreciation & amortization, shown below):            |  |                                        |          |   |                                |  
|Revenue share & royalties                                                       |  |                                        | 7,031    |   |                                |  
|Customer care & billing                                                         |  |                                        | 6,744    |   |                                |  
|Cost of equipment                                                               |  |                                        | 4,226    |   |                                |  
|Ad sales                                                                        |  |                                        | 758      |   |                                |  
|Satellite & terrestrial                                                         |  |                                        | 10,781   |   |                                |  
|Broadcast & operations:                                                         |  |                                        |          |   |                                |  
|Broadcast                                                                       |  |                                        | 1,902    |   |                                |  
|Operations                                                                      |  |                                        | 3,767    |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Total broadcast & operations                                                    |  |                                        | 5,669    |   |                                |  
|Programming & content                                                           |  |                                        | 5,525    |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Total cost of revenue                                                           |  |                                        | 40,734   |   |                                |  
|Research & development (excludes depreciation and amortization, shown below)    |  |                                        | 4,016    |   |                                |  
|General & administrative (excludes depreciation and amortization, shown below): |  |                                        | 5,549    |   |                                |  
|Marketing (excludes depreciation and amortization, shown below):                |  |                                        |          |   |                                |  
|Retention and support                                                           |  |                                        | (5,950   | ) |                                |  
|Subsidies and distribution                                                      |  |                                        | 21,727   |   |                                |  
|Advertising and marketing                                                       |  |                                        | 13,119   |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Marketing                                                                       |  |                                        | 28,896   |   |                                |  
|Amortization of GM liability                                                    |  |                                        | 9,312    |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Total marketing                                                                 |  |                                        | 38,208   |   |                                |  
|Depreciation & amortization                                                     |  |                                        | 39,178   |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Total operating expenses                                                        |  |                                        | 127,685  |   |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Operating loss                                                                  |  |                                        | (100,772 | ) |                                |  
|Interest income                                                                 |  |                                        | 376      |   |                                |  
|Interest expense                                                                |  |                                        | (29,480  | ) |                                |  
|Other income (expense)                                                          |  |                                        | (4,370   | ) |                                |  
|                                                                                |  |                                        |          |   |                                |  
|Net loss                                                                        |  | $                                      | (134,246 | ) |                                | $
|                                                                                |  |                                        |          |   |                                |  
|EBITDA (1)                                                                      |  | $                                      | (65,964  | ) |                                | $
|XM subscriptions (end of period) (2)                                            |  |                                        | 929,648  |   |                                |  

---

|(1) | Net loss before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as EBITDA. EBITDA is not a measure
of financial performance under generally accepted accounting principles. We believe EBITDA is often a useful measure of a companys operating performance and is a significant basis used by our management to measure the operating performance of
our business. Because we have funded and completed the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest
expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the
bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as
those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | We consider subscribers to be those who are receiving and have agreed to pay for our service, either by credit card or by invoice, including those that are currently in promotional
periods, as well as XM activated radios in vehicles for which we have a contractual right to receive payment for the use of our service. Radios that are revenue generating are counted individually as subscribers.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                |  | Three months EndedSeptember 30, |         
|----------------------------------------------- |  | ------------------------------- | --------
|                                                |  | 2003                            |         
|Reconciliation of Net Loss to EBITDA            |  |                                 |         
|Net loss as reported                            |  | $                               | (134,246
|Add back non-EBITDA items included in net loss: |  |                                 |         
|Interest income                                 |  |                                 | (376    
|Interest expense                                |  |                                 | 29,480  
|Depreciation & amortization                     |  |                                 | 39,178  
|                                                |  |                                 |         
|EBITDA                                          |  | $                               | (65,964 
|                                                |  |                                 |         
|                                                | 
|                                                |  | Nine months EndedSeptember 30,  |         
|                                                |  | 2003                            |         
|Reconciliation of Net Loss to EBITDA            |  |                                 |         
|Net loss as reported                            |  | $                               | (426,977
|Add back non-EBITDA items included in net loss: |  |                                 |         
|Interest income                                 |  |                                 | (506    
|Interest expense                                |  |                                 | 75,465  
|Depreciation & amortization                     |  |                                 | 118,033 
|                                                |  |                                 |         
|EBITDA                                          |  | $                               | (233,985
|                                                |  |                                 |         



Three months Ended
September 30, 2003 Compared With Three months Ended September 30, 2002



Revenue



Revenue. Our revenue consists
of subscription fees, activation charges, limited direct sales of radios, advertising sales, and revenue earned from royalties. During the three-month period ended September 30, 2003, we recognized $26.9 million in total revenue, compared to $5.6
million during the three-month period ended September 30, 2002, an increase of $21.3 million. During the three-month period ended September 30, 2003, subscription related revenues comprised over 95% of our total revenues. As of September 30, 2003,
we had 929,648 subscribers, compared to 201,554 at September 30, 2002, an increase of 728,094 subscribers. Our subscribers include 189,311 subscribers in OEM promotional periods (typically ranging from three months to one-year in duration) paid for
by the vehicle manufacturers. At the time of sale, vehicle owners generally receive a 3-month trial subscription and are included in OEM promotional subscribers. XM generally receives two months of the 3-month trial subscription from the vehicle
manufacturer. The number of subscribers electing to continue with the XM service beyond the initial OEM promotional period, the conversion rate, has ranged from 65% - 80% over the past year and averaged approximately 75% for the three-month period
ended September 30, 2003. Beginning in late September 2003, XM began an auto activation program whereby XM-enabled radios in new vehicles manufactured by General Motors and Honda are activated to receive the XM service as a subscriber at the time of
the sale to the vehicle purchaser. We cannot predict how this auto activation program will impact our overall conversion rate. However, we expect that, over time, the auto activation program will increase the number of subscribers provided by our
OEM distribution channel. Our conversion rate may fluctuate from period to period, and we expect that the effectiveness of our sales and marketing activities as well as the method of initial activation will impact our conversion rate. Our
subscribers also include 19,092 XM activated vehicles with rental car companies. There are 6,898 2003 model year XM activated vehicles for which we receive payments based on the use of XM service. Customers are charged $2.99 per day per vehicle for
use of the XM service in 2003 model year vehicles, on which XM receives a revenue share. There are 12,194 2004 model year XM activated vehicles for which we receive $10 per month. Additionally, 62,015 family plan subscriptions at a multi-unit rate
of $6.99 per radio per month are included in our total subscriber count. We consider subscribers to be those who are receiving and have agreed to pay for our service, either by credit card or by invoice, including those who are currently in
promotional periods, as well as XM activated vehicles for which we have a contractual right to receive payment for the use of our service. Radios that are revenue generating are counted individually as subscribers. We expect revenue to increase as
we continue to add subscribers and to attract additional advertisers.



Subscription Revenue. Subscription revenue was $21.7 million during the three-month period ended September 30, 2003, compared to $4.8 million during the three-month period ended September 30, 2002, an increase of $16.9 million.
Subscription revenue consists



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primarily of our monthly subscription fees charged to consumers, commercial establishments and fleets, which are recognized as the service is provided.
Revenues received from vehicle manufacturers for promotional service programs are included in subscription revenue. At the time of sale, vehicle owners generally receive a three-month trial subscription and are included in OEM promotional
subscribers. We generally receive payment for two months of the three-month trial subscription period from the vehicle manufacturer. For the three months ended September 30, 2003, subscriber revenue includes $2.4 million from related parties for
subscription fees paid under certain promotional agreements. Subscription revenue also includes revenues from premium service. Our subscriber arrangements are cancelable, without penalty. Promotions and discounts are treated as a reduction to
revenue during the period of the promotion. Sales incentives, consisting of rebates to subscribers, offset revenue. Average monthly subscription revenue per subscriber (ARPU) was approximately $8.84 during the three-month period ended September 30,
2003, and $9.54 during the three-month period ended September 30, 2002, of which all of the subscribers were aftermarket, OEM and other subscribers. ARPU from our aftermarket, OEM and other subscribers was $9.51 during the three-month period ended
September 30, 2003. ARPU from our OEM promotional subscribers was $6.39 during the three-month period ended September 30, 2003. ARPU from our rental car fleet subscribers was $4.66 during the three-month period ended September 30, 2003. ARPU from
our family plan subscribers was $6.90 for the three-month period ended September 30, 2003. Average monthly subscription revenue per subscriber is derived from the total of earned subscription revenue (net of promotions and rebates) divided by the
monthly weighted average number of subscribers for the period reported. Average monthly revenue per subscriber is a measure of operational performance and not a measure of financial performance under generally accepted accounting principles.



Activation Revenue. Activation revenue is comprised of
one-time activation charges billed to customers. Activation fees are non-refundable, and are recognized on a pro-rata basis over the estimated 40-month life of the subscriber relationship. We expect this estimate to be further refined in the future
as additional historical data becomes available. During the three-month period ended September 30, 2003, we recognized $520,000 in activation revenue compared to $144,000 during the three-month period ended September 30, 2002, an increase of
$376,000 due to an increase in subscribers. We expect activation revenue to increase as we increase subscribers.



Equipment Revenue. Equipment revenue is comprised of revenues from any direct sales of radios. Through September 30, 2003, the direct sales of
radios have generally been for promotional purposes. During the three-month period ended September 30, 2003, we recognized $3.6 million in equipment revenue compared to $0 during the three-month period ended September 30, 2002. We expect revenue
from the sale of equipment to increase proportionately with the increase in direct sales of equipment by XM.



Net Ad Sales Revenue. Advertising revenue consists of sales of advertisements and program sponsorships on the XM network to advertisers that are
recognized in the period in which they are broadcast. Advertising revenue includes advertising aired in exchange for goods and services (barter), which is recorded at fair value. Advertising revenue is presented net of national agency commissions in
the unaudited condensed consolidated statements of operations, which is consistent with industry practice. During the three-month period ended September 30, 2003, we recognized $963,000 in net advertising revenue compared to $603,000 during the
three-month period ended September 30, 2002. These amounts are net of agency commissions, which were $148,000 during the three-month period ended September 30, 2003, compared to $73,000 during the three-month period ended September 30, 2002. The
increase in net advertising revenue is due primarily to increased demand for advertising on the XM network that results from our subscriber growth, listenership and audience reach. During the three-month period ended September 30, 2003, we
recognized $96,000 in advertising barter revenue compared to $188,000 during the three-month period ended September 30, 2002.



Other Revenue. Other revenue earned during the three-month period ended September 30, 2003 consists of royalty revenue from certain tuners
manufactured during 2003. We recognized $207,000 of other revenue during the three-month period ended September 30, 2003 compared with $30,000 during the three-month period ended September 30, 2002.



Operating Expenses



Total Operating Expenses. Total operating expenses were $127.7 million during the three-month period ended September
30, 2003 compared to $102.1 million during the three-month period ended September 30, 2002, an increase of $25.6 million or 25%. The increase was due primarily to an increase in cost of revenue of $10.7 million attributable to increased sales, an
increase in marketing expenses of $3.8 million and an increase in depreciation and amortization of $10.9 million resulting from a reduction in the useful life of our satellites.



Cost of Revenue. Cost of revenue includes costs of radios associated with radio sales, revenue share & royalties,
customer care & billing costs, satellite & terrestrial operating costs, cost of broadcast and operations, programming & content and costs directly associated with the sales of advertising. These combined costs were $40.7 million during
the three-month period ended September 30, 2003, up from $30.0 million during the three-month period ended September 30, 2002, an increase of $10.7 million or 36%.



Cost of Equipment. During the three-month period ended September 30, 2003, we incurred $4.2 million
relating to promotional radios and radio kits that we sold directly to subscribers, compared to $0 during the three-month period ended September 30, 2002. The cost of equipment will increase as we increase the direct sales of equipment.



Revenue Share & Royalties. Revenue share &
royalties includes royalties paid to radio technology providers, revenue share payments to content providers, revenue share payments to certain retailers and OEM partners, and performance rights obligations to composers, artists, and copyright
owners for public performances of their creative works broadcast on XM. These costs were $7.0 million during the three-month period ended September 30, 2003 compared to $1.1 million during the three-month period ended



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September 30, 2002. This increase of $5.9 million was a result of our growth in subscriber base and revenues along with completion of negotiations for
performance rights royalties. These total costs will increase with subscriber growth. The revenue share percentage for GM increases as the number of XM enabled GM vehicles increases.



Ad Sales. Ad sales expense was $758,000 during the three-month period ended September 30, 2003
compared to $748,000 during the three-month period ended September 30, 2002, an increase of $10,000. The increase in ad sales expense is due primarily to an increase in staffing and marketing costs to support ad sales growth.



Customer Care & Billing. Customer care &
billing operations expense includes expenses from outsourced customer care functions and was $6.7 million during the three-month period ended September 30, 2003, compared with $4.2 million during the three-month period ended September 30, 2002, an
increase of $2.5 million or 60%. This increase resulted from the increase in the number of subscribers. Customer care & billing operations expense will continue to increase as we continue to add subscribers.



Satellite & Terrestrial. Satellite &
terrestrial includes telemetry, tracking and control of our two satellites, in-orbit satellite insurance and incentive payments, satellite uplink, and all costs associated with operating our terrestrial repeater network such as power, maintenance
and lease payments. These expenses were $10.8 million during the three-month period ended September 30, 2003, compared with $11.0 million during the three-month period ended September 30, 2002, a decrease of $0.2 million or 2%. This decrease
primarily resulted from a reduction in the costs incurred for the termination and deconstruction of terrestrial repeater sites no longer required in our existing network.



Broadcast & Operations



Broadcast. Broadcast expenses include costs associated with the management and maintenance of the
systems, software, hardware, production and performance studios used in the creation and distribution of XM-original and third party content. The advertising trafficking (scheduling and insertion) functions are also included. Broadcast costs were
$1.9 million during the three-month period ended September 30, 2003, compared to $2.5 million during the three-month period ended September 30, 2002, a decrease of $0.6 million or 24%. The decrease is due primarily to a decrease in systems expense
relating to maintenance and general support. However, broadcast costs are expected to increase in future periods with enhancements to and maintenance of the broadcast systems infrastructure.



Operations. Operations, which includes facilities and
information technology expense, was $3.8 million during the three-month period ended September 30, 2003, compared with $4.3 million during the three-month period ended September 30, 2002, a decrease of $0.5 million or 12%. The decrease in operations
expense during the three-month ended September 30, 2003 is due primarily to a reduction in general operating expenses.



Programming & Content. Programming & content includes the creative and production costs associated with our 101 channels of
XM-original and third party content. This includes costs of programming staff and fixed payments for third party content. Programming & content expense was $5.5 million during the three-month period ended September 30, 2003, compared with $6.1
million during the three-month period ended September 30, 2002, a decrease of $0.6 million or 10%. The decrease is due primarily to decreases in payroll and payroll related costs from a reduction in headcount which occurred in November 2002.



Research & Development. Research & development
includes the costs of new product development, chipset design, and engineering. These combined expenses were $4.0 million during the three-month period ended September 30, 2003, compared with $4.2 million during the three-month period ended
September 30, 2002, a decrease of $0.2 million or 5%. The decrease in research and development expense is due primarily to certain contractual milestones related to chipset development that were met in third quarter 2002. Research and development
expenses will increase as we accelerate the development of future telematics applications and new products, including interoperable radios.



General & Administrative. General & administrative expense was $5.5 million during the three-month period ended September 30, 2003,
compared with $5.2 million during the three-month period ended September 30, 2002, an increase of $0.3 million or 6%. The increase in general and administrative expense primarily resulted from an increase in director and officer insurance premiums.



Marketing. Marketing includes the costs of retention
& support, subsidies & distribution, advertising & marketing, and amortization of our liability to GM. These combined costs were $38.2 million during the three-month period ended September 30, 2003, compared to $34.4 million during the
three-month period ended September 30, 2002, an increase of $3.8 million or 11%. Marketing expense increased primarily due to increases in subsidies & distribution of $7.9 million and amortization of GM liability of $5.1 million, offset by
decreases in retention and support of $8.6 million and advertising and marketing of $0.6 million.



Retention & Support. Retention & support consists primarily of marketing related overhead expenses. During the three-month
period ended September 30, 2003, these costs were $(5.9) million compared to $2.7 million during the three-month period ended September 30, 2002, a decrease of $8.6 million. The decrease is due primarily to the reversal of a non-cash stock
compensation charge of $8.2 million that had been recorded relating to the Sony warrants. In September 2003, it was evident that Sony would not achieve



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the minimum performance target required for the vesting of its warrants, which included the percentage of XM Radios that have a Sony brand name as of the
time XM reached its one-millionth subscriber. Therefore, the non-cash compensation charges recorded in relation to these warrants were reversed.



Subsidies & Distribution. We currently provide incentives and subsidies for the manufacture, purchase, installation and
activation of XM radios to attract and retain our manufacturing and distribution partners. Our subsidy and distribution costs are significant and totaled approximately $21.7 million during the three-month period ended September 30, 2003, compared
with $13.8 million during the three-month period ended September 30, 2002, an increase of $7.9 million or 57% due primarily to the increase in subscribers, new activations, and GM vehicles equipped with XM radios. Subsidies and distribution will
increase as the number of XM radios that are manufactured, installed and activated increase.



Subscriber Acquisition Costs. We consider subscriber acquisition costs to include radio manufacturer subsidies, certain sales,
activation and installation commissions, and subscriber product- and hardware-related incentives and promotions. These costs are represented in Subsidies & Distribution. The negative margins from equipment sales are also included in subscriber
acquisition costs. Subscriber acquisition costs do not include ongoing loyalty payments to retailers and distribution partners, payments under revenue sharing arrangements with radio manufacturers and distributors and certain guaranteed payments to
General Motors. During the three-month periods ended September 30, 2003 and 2002, we incurred expenses of $21.1 million and $11.8 million, respectively, related to subscriber acquisition costs. Our average subscriber acquisition cost was $76 during
the three-month period ended September 30, 2003.



Advertising & Marketing. Activities comprising these expenses include media, advertising, events and direct marketing programs. Advertising & marketing costs were $13.1 million during the three-month period ended September
30, 2003 compared with $13.7 million during the three-month period ended September 30, 2002, a decrease of $0.6 million or 4%. The decrease is due to our decreased purchase of consumer advertising media.



Cost Per Gross Addition. We consider CPGA to include
the amounts in SAC, as well as advertising, media and most marketing expenses. In our financial statements, SAC costs are captured in the Subsidies & Distribution and the negative margins from equipment sales, while CPGA costs are primarily
captured by the combination of the Subsidies & Distribution, Advertising & Marketing, plus the negative margins from equipment sales. CPGA does not include marketing staff and subscriber communication costs (included in Retention &
Support) or the amortization of the GM guaranteed payments (included in Amortization of GM Liability). During the three months ended September 30, 2003 and 2002, we incurred expenses of $35.9 million and $27.4 million, respectively. CPGA for the
three-month period ended September 30, 2003 and 2002 was $127 and $385, respectively. The decline in CPGA for the three-month period ended September 30, 2003 as compared to the three-month period ended September 30, 2002 is due to the combined
impacts of the decline in advertising and marketing expenses as well as the increase in the number of new subscribers during the quarter.



Amortization of GM Liability. These costs include the amortization of annual fixed guaranteed payment commitments to General Motors, aggregating to
$439.0 million, under our long-term distribution agreement with the OnStar division of GM providing for the installation of XM radios in GM vehicles. Amortization of the GM liability was $9.3 million for the three-month period ended September 30,
2003, compared with $4.3 million for the three-month period ended September 30, 2002. The distribution agreement was amended in June 2002 and then again in January 2003, as described under the captions Liquidity and Capital
ResourcesCapital Resources and Financing. As a result of the January 2003 amendment and GMs current roll out plans, commencing in February 2003 we began recognizing the fixed annual payments due through September 2013, which
approximate $397.3 million, on a straight-line basis. In January 2003, we expensed the pro rata portion of the fixed payment that was based on the June 2002 amendment to the agreement.



Depreciation & Amortization. Depreciation & amortization expense was $39.2 million during the three-month
period ended September 30, 2003, compared with $28.3 million during the three-month period ended September 30, 2002, an increase of $10.9 million or 39%. The increase in depreciation and amortization expense primarily resulted from the reduction in
the useful lives of our in-orbit satellites from 17.5 years to 6.75 years during the third quarter of 2002 due to a solar array output power anomaly.



Interest Income. Interest income was $376,000 during the three-month period ended September 30, 2003, compared with $558,000 during the three-month
period ended September 30, 2002, a decrease of $182,000 or 33%. The decrease was the result of lower yields on our investments due to market conditions.



Interest Expense. We recorded interest expense of $29.5 million and $13.0 million during the three-month periods ended September 30, 2003 and 2002,
respectively. The increase in interest expense is due to an increase in debt outstanding from the January 2003 and June 2003 financing transactions as well as a charge of $3.5 million to interest expense attributable to the beneficial conversion
feature on the exchange of $11.4 million carrying value, or $14.4 million principal amount at maturity, of our 10% senior secured discount convertible notes due 2009.



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Other Income (Expense), net. Other income (expense), net was $(4.4) million during the three-month
period ended September 30, 2003, compared with $0 during the three-month period ended September 30, 2002, a decrease of $4.4 million. The expense resulted primarily from losses of $4.4 million from the retirement of debt with a carrying value
including accrued interest of $11.4 million



Net Loss.
Net loss during the three-month period ended September 30, 2003 was $134.2 million, compared with $109.0 million for the three-month period ended 2002, an increase of $25.2 million or 23%. The increase primarily reflects the increases in interest
expense and depreciation and amortization expense.



EBITDA. Net loss before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as EBITDA. EBITDA is not a measure of financial performance under generally
accepted accounting principles. EBITDA during the three-month period ended September 30, 2003 was $(66.0) million, compared with $(68.3) million during the three-month period ended September 30, 2002. The improvement in our EBITDA reflects our
growth and margin improvement, as well as the decline in our subscriber acquisition costs and costs per gross addition. We believe EDITDA is often a useful measure of a companys operating performance and is a significant basis used by our
management to measure the operating performance of our business. Because we have funded and completed the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges
for depreciation, amortization and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital
structure. EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating
activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance. The reconciliation of net loss to EBITDA is as follows:



|                                                |  | Three months EndedSeptember 30, |         
|----------------------------------------------- |  | ------------------------------- | --------
|                                                |  | 2003                            |         
|Net loss as reported                            |  | $                               | (134,246
|Add back non-EBITDA items included in net loss: |  |                                 |         
|Interest income                                 |  |                                 | (376    
|Interest expense                                |  |                                 | 29,480  
|Depreciation & amortization                     |  |                                 | 39,178  
|                                                |  |                                 |         
|EBITDA                                          |  | $                               | (65,964 
|                                                |  |                                 |         



Nine months
Ended September 30, 2003 Compared With Nine months Ended September 30, 2002



Revenue. Our revenue consists of subscription fees, activation charges, limited direct sales of radios, advertising sales, and revenue earned from royalties. During the nine-month period ended September 30,
2003, we recognized $58.3 million in total revenue, compared to $11.2 million during the nine-month period ended September 30, 2002, an increase of $47.1 million. During the nine-month period ended September 30, 2003, subscription related revenues
comprised over 95% of our total revenues. As of September 30, 2003, we had 929,648 subscribers, compared to 201,554 at September 30, 2002, an increase of 728,094 subscribers. Our subscribers include 189,311 subscribers in OEM promotional periods
(typically ranging from three months to one-year in duration) paid for by the vehicle manufacturers. At the time of sale, vehicle owners generally receive a 3-month trial subscription and are included in OEM promotional subscribers. XM generally
receives two months of the 3-month trial subscription from the vehicle manufacturer. The number of subscribers electing to continue with the XM service beyond the initial OEM promotional period, the conversion rate, has ranged from 65% - 80% over
the past year. Beginning in late September 2003, XM began an auto activation program whereby XM-enabled radios in new vehicles manufactured by General Motors and Honda are activated to receive the XM service as a subscriber at the time of the sale
to the vehicle purchaser. We cannot predict how this auto activation program will impact our overall conversion rate. However, we expect that, over time, the auto activation program will increase the number of subscribers provided by our OEM
distribution channel. Our conversion rate may fluctuate from period to period, and we expect that the effectiveness of our sales and marketing activities as well as the method of initial activation will impact our conversion rate. Our subscribers
also include 19,092 XM activated vehicles with rental car companies. There are 6,898 2003 model year XM activated vehicles for which we receive payments based on the use of XM service. Customers are charged $2.99 per day per vehicle for use of the
XM service in 2003 model year vehicles, on which XM receives a revenue share. There are 12,194 2004 model year XM activated vehicles for which we receive $10 per month. Additionally, 62,015 family plan subscriptions at a multi-unit rate of $6.99 per
radio per month are included in our total subscriber count. We consider subscribers to be those who are receiving and have agreed to pay for our service, either by credit card or by invoice, including those who are currently in promotional periods,
as well as XM activated vehicles for which we have a contractual right to receive payment for the use of our service. Radios that are revenue generating are counted individually as subscribers. We expect revenue to increase as we continue to add
subscribers and to attract additional advertisers.



Subscription Revenue. Subscription revenue was $49.4 million during the nine-month period ended September 30, 2003, compared to $9.0 million during the nine-month period ended September 30, 2002, an increase of $40.4 million.
Subscription revenue consists primarily of our monthly subscription fees charged to consumers, commercial establishments and fleets, which are recognized as the service is provided. Revenues received from vehicle manufacturers for promotional
service programs are included in subscription revenue. At the



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time of sale, vehicle owners generally receive a three-month trial subscription and are included in OEM promotional subscribers. We generally receive payment
for two months of the three-month trial subscription period from the vehicle manufacturer. For the nine months ended September 30, 2003, subscriber revenue includes $4.8 million from related parties for subscription fees paid under certain
promotional agreements. Subscription revenue also includes revenues from premium service. Our subscriber arrangements are cancelable, without penalty. Promotions and discounts are treated as a reduction to revenue during the period of the promotion.
Sales incentives, consisting of rebates to subscribers, offset revenue. Average monthly subscription revenue per subscriber (ARPU) was approximately $9.11 during the nine-month period ended September 30, 2003, and $9.37 during the nine-month period
ended September 30, 2002, of which all of the subscribers were aftermarket, OEM and other subscribers. Average monthly subscription revenue per subscriber is derived from the total of earned subscription revenue (net of promotions and rebates)
divided by the monthly weighted average number of subscribers for the period reported. Average monthly revenue per subscriber is a measure of operational performance and not a measure of financial performance under generally accepted accounting
principles.



Activation Revenue. Activation revenue is
comprised of one-time activation charges billed to customers. Activation fees are non-refundable, and are recognized on a pro-rata basis over the estimated 40-month life of the subscriber relationship. We expect this estimate to be further refined
in the future as additional historical data becomes available. During the nine-month period ended September 30, 2003, we recognized $1.2 million in activation revenue compared to $271,000 during the nine-month period ended September 30, 2002, an
increase of $0.9 million due to the increase in subscribers. We expect activation revenue to increase as we increase subscribers.



Equipment Revenue. Equipment revenue is comprised of revenues from any direct sales of radios. Through September 30, 2003, the direct sales of
radios have generally been for promotional purposes. During the nine-month period ended September 30, 2003, we recognized $5.2 million in equipment revenue compared to $0 during the nine-month period ended September 30, 2002. We expect revenue from
the sale of equipment to increase proportionately with the increase in direct sales of equipment by XM.



Net Ad Sales Revenue. Advertising revenue consists of sales of advertisements and program sponsorships on the XM network to advertisers that are
recognized in the period in which they are broadcast. Advertising revenue includes advertising aired in exchange for goods and services (barter), which is recorded at fair value. Advertising revenue is presented net of national agency commissions in
the unaudited condensed consolidated statements of operations, which is consistent with industry practice. During the nine-month period ended September 30, 2003, we recognized $2.0 million in net advertising revenue compared to $1.7 million during
the nine-month period ended September 30, 2002. These amounts are net of agency commissions, which were $321,000 during the nine-month period ended September 30, 2003, compared to $234,000 during the nine-month period ended September 30, 2002. The
increase in net advertising revenue is due primarily to increased demand for advertising on the XM network that results from our subscriber growth, listenership and audience reach. During the nine-month period ended September 30, 2003, we recognized
$121,000 in advertising barter revenue, compared to $353,000 during the nine-month period ended September 30, 2002.



Other Revenue. Other revenue earned during the nine-month period ended September 30, 2003 consists of royalty revenue from certain tuners
manufactured during 2003. We recognized $528,000 of other revenue during the nine-month period ended September 30, 2003 compared with $226,000 during the nine-month period ended September 30, 2002.



Operating Expenses



Total Operating Expenses. Total operating expenses were $384.4 million during the nine-month period ended September
30, 2003 compared to $312.2 million during the nine-month period ended September 30, 2002, an increase of $72.2 million or 23%. The increase was due primarily to an increase in cost of revenue of $24.3 million attributable to increased sales, an
increase in general and administrative expenses of $3.7 million and an increase in depreciation and amortization of $43.5 million resulting from a reduction in the useful life of our satellites.



Cost of Revenue. Cost of revenue includes costs of radios associated
with radio sales, revenue share & royalties, customer care & billing costs, satellite & terrestrial operating costs, cost of broadcast and operations, programming & content and costs directly associated with the sales of advertising.
These combined costs were $109.8 million during the nine-month period ended September 30, 2003, up from $85.5 million during the nine-month period ended September 30, 2002, an increase of $24.3 million or 28%.



Cost of Equipment. During the nine-month period ended
September 30, 2003, we incurred $7.2 million relating to promotional radios and radio kits that we sold directly to subscribers, compared to $0 during the nine-month period ended September 30, 2002. The cost of equipment will increase as we increase
the direct sales of equipment.



Revenue
Share & Royalties. Revenue share & royalties includes royalties paid to radio technology providers, revenue share payments to content providers, revenue share payments to certain retailers and OEM partners, and performance rights
obligations to composers, artists, and copyright owners for public performances of their creative works broadcast on XM. These costs were $16.5 million during the nine-month period ended September 30, 2003 compared to $2.6 million during the
nine-month period ended September 30, 2002. This increase of $13.9 million was a result of our growth in subscriber base and revenues along with completion of negotiations for performance rights royalties. These total costs will increase with
subscriber growth. The percentage of revenue that is shared with GM increases as the number of XM enabled GM vehicles increases.



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Ad Sales. Ad sales expense was $1.8 million during the nine-month period ended
September 30, 2003 compared to $1.3 million during the nine-month period ended September 30, 2002, an increase of $0.5 million. The increase in ad sales expense is due primarily to an increase in staffing and marketing costs to support ad sales
growth.



Customer Care & Billing.
Customer care & billing operations expense includes expenses from outsourced customer care functions and was $17.4 million during the nine-month period ended September 30, 2003, compared with $10.7 million during the nine-month period ended
September 30, 2002, an increase of $6.7 million or 63%. This increase resulted from the increase in the number of subscribers. Customer care & billing operations expense will continue to increase as we continue to add subscribers.



Satellite & Terrestrial. Satellite &
terrestrial includes telemetry, tracking and control of our two satellites, in-orbit satellite insurance and incentive payments, satellite uplink, and all costs associated with operating our terrestrial repeater network such as power, maintenance
and lease payments. These expenses were $33.4 million during the nine-month period ended September 30, 2003, compared with $33.7 million during the nine-month period ended September 30, 2002, a decrease of $0.3 million. This decrease primarily
resulted from a reduction in the costs associated with maintaining and operating the terrestrial repeater network.



Broadcast & Operations



Broadcast. Broadcast expenses include costs associated with the management and maintenance of the systems, software, hardware,
production and performance studios used in the creation and distribution of XM-original and third party content. The advertising trafficking (scheduling and insertion) functions are also included. Broadcast costs were $6.4 million during the
nine-month period ended September 30, 2003, compared to $5.9 million during the nine-month period ended September 30, 2002, an increase of $0.5 million or 8%. The increase is due primarily to increased systems expense relating to maintenance and
general support.



Operations.
Operations, which includes facilities and information technology expense, was $11.7 million for both the nine-month period ended September 30, 2003 $11.8 million for the nine-month period ended September 30, 2002 respectively. We expect operations
to remain constant.



Programming &
Content. Programming & content includes the creative and production costs associated with our 101 channels of XM-original and third party content. This includes costs of programming staff and fixed payments for third party content.
Programming & content expense was $15.6 million during the nine-month period ended September 30, 2003, compared with $19.6 million during the nine-month period ended September 30, 2002, a decrease of $4.0 million or 20%. The decrease is due
primarily to decreases in payroll and payroll-related costs from a reduction in headcount which occurred in November 2002.



Research & Development. Research & development includes the costs of new product development, chipset design, and engineering. These
combined expenses were $9.4 million during the nine-month period ended September 30, 2003, compared with $8.9 million during the nine-month period ended September 30, 2002, an increase of $0.5 million or 6%. The increase in research and development
expense is due primarily to increased activities in new product development and costs associated with the redeployment of certain personnel to research and development. Research and development expenses will continue to increase as we accelerate the
development of future telematics applications and new products, including interoperable radios.



General & Administrative. General & administrative expense was $20.6 million during the nine-month period ended September 30, 2003,
compared with $16.9 million during the nine-month period ended September 30, 2002, an increase of $3.7 million or 22%. The increase in general & administrative expense primarily resulted from an increase in director and officer insurance
premiums.



Marketing. Marketing includes the costs of
retention & support, subsidies & distribution, advertising & marketing, and amortization of our liability to GM. These combined costs were $126.5 million during the nine-month period ended September 30, 2003, compared to $126.3 million
during the nine-month period ended September 30, 2002, an increase of $0.2 million, or 0.2%. Marketing expense increased due primarily to an increase in subsidies and distribution of $17.4 million and an increase of the amortization of the GM
liability of $16.9 million offset by a decrease in advertising and marketing of $31.9 million and a decrease in retention and support of $2.3 million.



Retention & Support. Retention & support consists primarily of marketing-related overhead expenses. During the nine-month
period ended September 30, 2003, these costs were $6.4 million compared to $8.6 million during the nine-month period ended September 30, 2002, a decrease of $2.2 million. The decrease is due primarily to the reversal of a non-cash stock compensation
charge of $8.2 million that had been recorded relating to the Sony warrants, offset by an increase in marketing support expenses. In September 2003, it was evident that Sony would not achieve the minimum performance target required for the vesting
of its warrants, which included the percentage of XM Radios that have a Sony brand name as of the time XM reached its one-millionth subscriber. Therefore, the non-cash compensation charges recorded in relation to these warrants were reversed.



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Subsidies & Distribution. We currently provide incentives and subsidies for
the manufacture, purchase, installation and activation of XM radios to attract and retain our manufacturing and distribution partners. Our subsidy and distribution costs are significant and totaled approximately $53.0 million during the nine-month
period ended September 30, 2003, compared with $35.6 million during the nine-month period ended September 30, 2002, an increase of $17.4 million or 49% due primarily to the increase in subscribers, new activations, and GM vehicles equipped with XM
radios. Subsidies and distribution will increase as the number of XM radios that are manufactured, installed and activated increase.



Subscriber Acquisition Costs. We consider subscriber acquisition costs to include radio manufacturer subsidies, certain sales,
activation and installation commissions, and subscriber product- and hardware-related incentives and promotions. These costs are represented in Subsidies & Distribution and the negative margins from equipment sales. Subscriber acquisition costs
do not include ongoing loyalty payments to retailers and distribution partners, payments under revenue sharing arrangements with radio manufacturers and distributors and certain guaranteed payments to General Motors. During the nine-month periods
ended September 30, 2003 and 2002, we incurred expenses of $51.4 million and $35.3 million, respectively, related to subscriber acquisition costs. Our average subscriber acquisition cost was $77 during the nine-month period ended September 30, 2003.



Advertising & Marketing.
Activities comprising these expenses include media, advertising, events and direct marketing programs. Advertising & marketing costs were $40.9 million during the nine-month period ended September 30, 2003 compared with $72.8 million during the
nine-month period ended September 30, 2002, a decrease of $31.9 million or 44%. The decrease is due to our decreased purchase of consumer advertising media.



Cost Per Gross Addition. We consider CPGA to include the amounts in SAC, as well as advertising, media and most marketing expenses.
In our financial statements, SAC costs are captured in the Subsidies & Distribution and the negative margins from equipment sales, while CPGA costs are captured by the combination of the Subsidies & Distribution, Advertising & Marketing,
plus the negative margins from equipment sales. CPGA does not include marketing staff and subscriber communication costs (included in Retention & Support) or the amortization of the GM guaranteed payments (included in Amortization of GM
Liability). During the nine months ended September 30, 2003 and 2002, we incurred expenses of $96.9 million and $108.1 million, respectively. CPGA for the nine-month period ended September 30, 2003 and 2002 was $145 and $590, respectively. The
decline in CPGA for the nine-month period ended September 30, 2003 as compared to the nine-month period ended September 30, 2002 is due to the combined impacts of the decline in advertising and marketing expenses as well as the increase in the
number of new subscribers during the quarter.



Amortization
of GM Liability. These costs include the amortization of annual fixed guaranteed payment commitments to General Motors, aggregating to $439 million, under our long-term distribution agreement with the OnStar division of GM providing for the
installation of XM radios in GM vehicles. Amortization of the GM liability was $26.3 million for the nine-month period ended September 30, 2003, compared with $9.3 million for the nine-month period ended September 30, 2002. The distribution
agreement was amended in June 2002 and then again in January 2003, as described under the captions Liquidity and Capital ResourcesCapital Resources and Financing. As a result of the January 2003 amendment and GMs current roll
out plans, commencing in February 2003 we began recognizing the fixed annual payments due through September 2013, which approximate $397.3 million, on a straight-line basis. In January 2003, we expensed the pro rata portion of the fixed payment that
was based on the June 2002 amendment to the agreement.



Depreciation & Amortization. Depreciation & amortization expense was $118.0 million during the nine-month period ended September 30, 2003, compared with $74.6 million during the nine-month period ended September 30, 2002, an
increase of $43.4 million or 58%. The increase in depreciation and amortization expense primarily resulted from the reduction in the useful lives of our in-orbit satellites from 17.5 years to 6.75 years during the third quarter of 2002 due to a
solar array output power anomaly.



Interest Income.
Interest income was $506,000 during the nine-month period ended September 30, 2003, compared with $2.2 million during the nine-month period ended September 30, 2002, a decrease of $1.7 million or 77%. The decrease was the result of lower yields on
our investments due to market conditions.



Interest
Expense. We recorded interest expense of $75.5 million and $38.8 million during the nine-month periods ended September 30, 2003 and 2002, respectively. The increase in interest expense is due to an increase in debt outstanding from the January
2003 and June 2003 financing transactions, as well as a charge of $4.8 million to interest expense attributable to the beneficial conversion feature on the exchange of $15.7 million carrying value, or $19.8 million principal amount at maturity of
our 10% senior secured discount convertible notes due 2009.



Other Income (Expense), net. Other income (expense), net was $(25.9) million during the nine-month period ended September 30, 2003, compared with $333,000 during the nine-month period ended September 30, 2002, a decrease of $26.2
million. The expense resulted primarily from losses of $25.8 million from the retirement of debt with a carrying value including accrued interest of $83.2 million.



Net Loss. Net loss during the nine-month period ended September 30, 2003 was $427.0 million, compared with $337.3
million for the nine-month period ended 2002, an increase of $89.7 million or 27%. The increase primarily reflects the losses recorded in other expense from our deleveraging transactions, increases in interest expense and increases in operating
expenses, primarily depreciation and amortization expense, offset in part by the growth in our revenue.



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EBITDA. Net loss before interest income, interest expense, income taxes, depreciation and
amortization is commonly referred to in our business as EBITDA. EBITDA is not a measure of financial performance under generally accepted accounting principles. EBITDA during the nine-month period ended September 30, 2003 was $(234.0)
million, compared with $(226.1) million during the nine-month period ended September 30, 2002. The increased loss is due primarily to losses recorded from the de-leveraging transactions. We believe EDITDA is often a useful measure of a
companys operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and completed the build-out of our system through the raising and expenditure of
large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our
business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly
titled measures of other companies. EBITDA does not purport to represent operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an
indicator of our performance. The reconciliation of net loss to EBITDA is as follows:



|                                                |  | Nine months EndedSeptember 30, |         
|----------------------------------------------- |  | ------------------------------ | --------
|                                                |  | 2003                           |         
|Net loss as reported                            |  | $                              | (426,977
|Add back non-EBITDA items included in net loss: |  |                                |         
|Interest income                                 |  |                                | (506    
|Interest expense                                |  |                                | 75,465  
|Depreciation & amortization                     |  |                                | 118,033 
|                                                |  |                                |         
|EBITDA                                          |  | $                              | (233,985
|                                                |  |                                |         



Liquidity and Capital Resources



At September 30, 2003, we had total cash and cash
equivalents of $122.0 million, which excludes $2.7 million of restricted investments, and working capital of $162.3 million. Cash and cash equivalents increased $115.2 million during the nine months ended September 30, 2003. The increase resulted
from $298.1 million provided by financing activities and $11.2 million provided by investing activities, offset by $194.0 million used in operating activities. The proceeds from financing activities resulted primarily from a private placement in
January 2003 that resulted in the issuance of our 10% Senior Secured Discount Convertible Notes that yielded gross proceeds of $210 million and the issuance of our 12% Senior Secured Notes that yielded gross proceeds of $185 million. The financing
activities completed during the year are more fully discussed below. Investing activities consisted primarily of proceeds provided from the maturity of restricted investments. Cash flows used in operating activities includes the net loss of $427.0
million and the net cash used by our operating assets and liabilities, offset in part by non-cash expenses included in the net loss.



By comparison, at September 30, 2002 we had cash, cash equivalents and short-term investments of $0, which excludes $24.7 million of restricted
investments, and working capital of $(37.3) million. Cash and cash equivalents decreased $62.4 million during the nine months ended September 30, 2002. This decrease reflects $251.4 million cash used in operations, $9.6 million cash used in
investing activities, and $198.7 million provided by financing activities during the nine-month period ended September 30, 2002. Cash flow used in operations during the nine-month period ended September 30, 2002 reflected commercial operations.
Investing activities consisted primarily of capital expenditures for infrastructure and system completion.



Holdings and we have raised $2.4 billion of equity and debt net proceeds from inception through September 30, 2003 from investors and strategic partners
to fund our operations. This includes $225 million of gross funds raised in the January 2003 financing transactions, $185 million of gross funds raised in the June 2003 transaction, of which $10 million was raised in July 2003 from the exercise of
the over-allotment option, and gross proceeds of $150 million from the public offering of 11,320,755 shares of the Parents Class A common stock. The January 2003 financing transactions also included $250 million of payment deferrals and a line
of credit. Although a significant portion of the proceeds from the January financing transactions are held by Holdings, we have entered into an agreement with Holdings under which Holdings has agreed to contribute funds to us as needed to fund our
operations. Provided that we meet the revenue, expense and cash flow projections of our business plan, we expect to be fully funded and will not need to raise additional financing to continue operations or to fund the construction and launch of XM-3
and the construction of XM-4. We may need to raise additional funding for the launch of XM-4 depending on the amount and timing of insurance proceeds and other factors.



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September 2003 Financing Transaction



On September 11, 2003, the Parent completed a public offering of 11,320,755
shares of its Class A Common Stock to Legg Mason Funds Management, Inc., Legg Mason Capital Management, Inc. and another large institutional investor, each on behalf of its investment advisory clients. This offering resulted in gross proceeds of
$150 million. We expect that all or a significant portion of the net proceeds may be used for funding for the construction of XM-4, our new ground spare satellite, if insurance proceeds are not received in a timely manner. We expect to otherwise use
the proceeds for working capital and general corporate purposes, which may include the repurchase or pre-payment of outstanding debt.



June 2003 Financing Transactions



On June 17, 2003, the Company completed an offering of $175 million of 12% Senior Secured Notes due June 15, 2010. Interest on the notes is payable every
six months in cash in arrears on December 15 and June 15, commencing on December 15, 2003. The notes, which are the Companys senior secured obligations, are guaranteed by the Parent and will rank equally in right of payment with all of the
Companys other existing and future senior indebtedness and senior in right of payment to all of the Companys existing and future subordinated indebtedness. The Company may, at its option, redeem the notes at declining redemption prices
at any time on or after June 15, 2007. At any time on or prior to June 15, 2006, the Company may redeem a portion of the outstanding notes with the proceeds of certain equity offerings as long as the redemption occurs within 90 days of the date of
the closing of such equity offering and at least $100 million aggregate principal amount of notes remains outstanding after the redemption. In July 2003, an additional $10 million of these 12% senior secured notes due 2010 were issued pursuant to
the over-allotment option. We expect to use the proceeds from the June 2003 financing transaction to fund the construction and launch of XM-3, if insurance proceeds are not received in a timely manner. We expect to otherwise use the proceeds for
working capital and general corporate purposes, which may include the repurchase or pre-payment of outstanding debt.



January 2003 Financing Transactions



In January 2003, we and Holdings completed a private placement of $279.3 million aggregate principal amount at maturity of our 10% Senior Secured Discount
Convertible Notes due December 31, 2009, which yielded gross proceeds of $210.0 million, and a private placement of 5,555,556 shares of Holdings Class A common stock, which yielded gross proceeds of $15.0 million. Concurrently with these
transactions, we completed an exchange offer in which we exchanged $300.2 million aggregate principal amount of our previously outstanding 14% Senior Secured Notes due 2010 for $438.0 million aggregate principal amount at maturity ($300.2 million
accreted value as of March 15, 2003) of 14% Senior Secured Discount Notes due 2009, cash and warrants to purchase Holdings Class A common stock.



In January 2003, General Motors provided us with a $100.0 million Senior Secured Credit Facility, maturing as late as December 2009, that enables us to
make monthly draws to finance payments that become due under our distribution agreement with OnStar Corporation and other GM payments. We and Holdings are co-borrowers under this credit facility. The outstanding principal amount of all draws will be
due December 31, 2009 and bear interest at the applicable 90-day LIBOR rate plus 10%. We will be able to make interest payments in shares of Holdings Class A common stock having an aggregate fair market value at the time of payment equal to
the amount of interest due. The fair market value will be based on the average daily trading prices of Holdings Class A common stock over the ten business days prior to the day the interest payment is due. We have the option to prepay all
draws in whole or in part at any time but will not be able to re-borrow any prepaid amounts. Beginning in 2005, we will be required to prepay the amount of any outstanding advances in an amount equal to the lesser of (i) 50% of our excess cash and
(ii) the amount necessary to prepay the draws in full. In order to make draws under the credit facility, we are required to have a certain minimum number of subscribers that are not originated by GM and a minimum pre-marketing cash flow.



In January 2003, we issued a 10% Senior Secured Convertible Note due
December 31, 2009 in the amount of $89.0 million to General Motors subsidiary, OnStar Corporation. The note was provided in lieu of our obligation to make $115 million in guaranteed payments to OnStar under the distribution agreement from 2003
to 2006. The note becomes convertible at the holders option on a quarterly basis through 2006, at 90% of the then fair market value of Holdings Class A common stock but subject to a $5.00 per share minimum and escalation maximum (up to
$20 per share) for each fiscal year. Interest would be payable in cash or shares of Holdings Class A common stock, at our option, at fair market value at the time of payment.



In January 2003, General Motors provided us with the ability to satisfy up to $35.0 million in future subscriber acquisition
payments (subscriber acquisition payments) that we may owe to OnStar under the distribution agreement in shares of Holdings Class A common stock, valued at fair market value at the time of payment.



De-leveraging Transactions



We and Holdings entered into agreements with certain holders of notes to
exchange $83.2 million carrying value, or $116.0 million fully accreted face value at maturity, of the Companys notes, for 13,707,376 shares of Holdings Class A common stock. As a result of these de-leveraging transactions, we have
eliminated $2.1 million carrying value ($2.0 million face amount at maturity) of our 14% Senior Secured Notes due 2010, $65.5 million carrying value ($94.2million face amount at maturity) of our 14% Senior Secured Discount Notes due 2009 issued in
January 2003, and $15.7 million carrying value ($19.8 million face amount at maturity) of our 10% Senior Secured Discount Convertible Notes due 2009.



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Provided that we meet the revenue, expense and cash flow projections of our business plan, we expect to
be fully funded and will not need to raise additional financing to continue operations or to fund the construction and launch of XM-3 and the construction of XM-4. We may need to raise additional funding for the launch of XM-4 depending on the
amount and timing of insurance proceeds and other factors.



Future Operating
and Capital Resource Requirements



Our funding
requirements are based on our current business plan, which in turn is based on our operating experience to date and our available resources. We are pursuing a business plan designed to increase subscribers and revenues while reducing or maintaining
subscriber acquisition costs and avoiding large expenditures to the extent practicable. Our plan contemplates our focusing on the new automobile market where we have relationships with automobile manufacturers, the continuing introduction of
lower-priced and more user-friendly radio technology in the retail aftermarket and the use of our most productive distribution channels. We have also maintained a lower level of spending on advertising and kept our workforce streamlined.



Provided that we meet the revenue, expense and cash flow projections of
our business plan, we expect to be fully funded and will not need to raise additional financing to continue operations. Our business plan is based on estimates regarding expected future costs and expected revenue. Our costs may exceed or our
revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to seek additional financing to continue implementing
our current business plan.



Our business plan contemplates the
use of cash on hand to fund the construction and launch of XM-3 and the construction of XM-4. We may need to raise additional funding for the launch of XM-4 depending on the amount and timing of the receipt of the insurance proceeds with respect to
Rock and Roll.



In the first quarter of
2003, we filed the proofs of loss for constructive total loss claims on both our satellites with our insurance carriers for the aggregate sum insured (less applicable salvage), relating to a progressive degradation problem with the solar array
output power of Boeing 702 class satellites, including Rock and Roll, identified to our insurers in September 2001. We have launch and in-orbit insurance policies that provide coverage to us for a total, constructive total,
or partial loss of each of our satellites where such loss arises from an occurrence within the first five years after launch (both satellites were launched during the first half of 2001). The aggregate sum insured in the event of the total or
constructive total loss of both satellites is $400 million ($200 million per satellite). During the third quarter of 2003, we received letters from our insurers rejecting our proofs of loss and denying our claims. We subsequently provided to the
insurers our reasons why their position is factually incorrect and unsupported under the terms of our policies. By letter dated November 7, 2003, the insurers advised that they are not in a position to change the decisions stated in their prior
letter. We anticipate continuing correspondence and meetings with individual and groups of insurers to resolve this matter and will proceed with negotiations, arbitration or litigation as necessary to recover the losses. We continue to believe that
we will ultimately receive insurance payments adequate to launch our spare satellite and fund a portion of XM-4, although there can be no assurance as to the amount of any insurance proceeds, or that any insurance proceeds will be received in a
timely manner.



In light of the progressive degradation noted
above, we plan to launch our ground spare satellite (XM-3) into one orbital slot by year-end 2004, and operate Rock and Roll collocated in the other orbital slot. In 2007, we plan to launch XM-4 to replace the collocated
Rock and Roll. In this way, we will have replacement satellites in orbit and operating prior to the times Rock and Roll can no longer provide full service, or half service in collocated mode. Our
commitments regarding XM-3 and XM-4 are described under Capital Expenditures below.



Since the solar array power degradation issue is common to the first six Boeing 702 class satellites now in orbit, the manufacturer and we are closely
watching the progression of the problem, including data from a satellite that has been in orbit longer than either of our two satellites by approximately 15 and 17 months, respectively. With this advance visibility of performance levels, a firm
launch commitment for our spare satellite in the fourth quarter of 2004, the ability to provide full service for an extended period of time with Rock and Roll collocated in one orbital slot and the spare located in the other
slot (which would allow partial use of the existing satellites through the first quarter of 2008), firm commitments to build a fourth satellite and provide launch services therefor, and various mitigation actions to extend the full or partial use of
the existing satellites, we believe that we will be able to launch additional satellites prior to the time the solar array power problem might cause the broadcast signal strength to fall below minimum acceptable levels.



Based on the consistency of the degradation trends (with no substantial
improvement to date) and continuing analyses by BSS and us, our management adjusted the estimated useful lives of our in-orbit satellites, with effect from September 2002, to the period running through



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first quarter 2008 (approximately 6.75 years from launch). Our management will continue to monitor this situation carefully and may re-adjust the estimated
useful lives of our in-orbit satellites based on future information. We have not recorded any impairment due to our forecasted cash flows (which are sufficient to recover the system assets); however, should we reduce or not meet our forecasted cash
flows or reduce further the estimated useful lives of the satellites, we may be required to record an impairment (which may be substantial) at that time. We have not adjusted the estimated useful lives of our spacecraft control facilities, as we
believe that these facilities will continue to be of use in our system, as XM-3 and, if necessary, XM-4 are launched.



We plan to seek additional financing for the launch of XM-4 to the extent needed. In addition, we may seek additional financing to undertake initiatives
not contemplated by our current business plan or obtain additional cushion against possible shortfalls. We may pursue a range of different sizes or types of financing as opportunities arise, particularly the sale of additional equity securities. We
have and may continue to take advantage of opportunities to reduce our level of indebtedness and preferred stock in exchange for issuing common or other equity securities, if these transactions can be completed on favorable terms.



In the event of unfavorable future developments, such as adverse developments
in the debt and equity market of the type experienced during much of 2001 and 2002, we may not be able to raise additional funds on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future
market conditions; our success or lack of success in developing, implementing and marketing our satellite radio service; our future creditworthiness; and restrictions contained in agreements with our investors or lenders. Additional financings could
increase our level of indebtedness or result in further dilution to our equity holders. If we fail to obtain necessary financing on a timely basis, a number of adverse effects could occur, or we may have to revise our business plan.



Contractual Obligations and Commercial Commitments



We are obligated to make significant payments under a variety of contracts
and other commercial arrangements, including the following:



Service Providers. We have entered into agreements with service providers for customer care functions to subscribers of our service. Employees of this service provider have access to our customer care systems to establish customer
accounts, activate radios, update program and account information and respond to general inquiries from subscribers. We pay an hourly rate for each customer care representative supporting our subscribers. During the nine months ended September 30,
2003 and 2002, we incurred $9.4 million and $5.4 million, respectively, in relation to these agreements, of which $3.6 million and $2.1 million was incurred during the three months ended September 30, 2003 and 2002, respectively.



Programming Agreements. We have also entered into various long-term
programming agreements. Under the terms of these agreements, we are obligated to provide payments to other entities that may include fixed payments, advertising commitments and revenue sharing arrangements. During the nine months ended September 30,
2003 and 2002, we incurred $12.7 million and $16.7 million, respectively, in relation to these agreements, of which $3.1 million and $4.0 million was incurred during the three months ended September 30, 2003 and 2002, respectively. The amount of
these costs will vary in future years, but is expected to increase as the number of subscribers and advertising revenue increase. The amount of the costs related to these agreements cannot be estimated, but are expected to be substantial future
costs. Of these amounts, $232,000 and $234,000, respectively, are included in Revenue Share & Royalties, and $5.6 million and $8.7 million, respectively are included in Programming and Content and $6.9 million and $7.7 million, respectively, are
included in Advertising & Marketing for the nine-month periods ended September 30, 2003 and 2002, respectively.



Royalty Agreements. We have entered into fixed and variable payment agreements with performance rights organizations that expire as late as 2006.
During the nine months ended September 30, 2003 and 2002, we incurred $6.9 million and $867,000, respectively, in relation to these agreements, of which $2.2 million and $395,000 was incurred during the three months ended September 30, 2003 and
2002, respectively.



Marketing & Distribution
Agreements. We have entered into various joint sales, marketing and distribution agreements. Under the terms of these agreements, we are obligated to provide incentives, subsidies and commissions to other entities that may include fixed
payments, per-unit radio and subscriber amounts and revenue sharing arrangements. As previously described, we subsidize the manufacture of certain component parts of XM radios in order to provide attractive pricing to our customers. The subsidies
are generally charged to expense when the radios are manufactured or shipped from the factory. Consequently, the expense is most often recognized in advance of when revenue, if any, is realized. The amount of these operational, promotional,
subscriber acquisition, joint development, and manufacturing costs related to these agreements cannot be estimated, but are expected to be substantial future costs. During the nine months ended September 30, 2003 and 2002, we incurred $31.6 million
and $39.1 million, respectively, of which $10.8 million and $11.9 million was incurred during the three months ended September 30, 2003 and 2002, respectively, in relation to these agreements excluding expenses related to GM.



General Motors Distribution Agreement. We have significant payment
obligations under our distribution agreement with General Motors. During the term of the agreement, which expires 12 years from the commencement date of our commercial operations, GM has agreed to distribute the service to the exclusion of other
S-band satellite digital radio services. We will also have a non-exclusive right to



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arrange for the installation of XM radios included in OnStar systems in non-GM vehicles that are sold for use in the United States. The agreement was amended
in June 2002 and January 2003 to clarify certain terms in the agreement, including extending the dates when certain initial payments are due to GM and confirming the date of our commencement of commercial operations, and to provide that we may make
certain payments to GM in the form of indebtedness or shares of Holdings Class A common stock. XMs total cash payment obligations were not increased. We have significant annual, fixed payment obligations to GM. As a result of the June
2002 amendment, we commenced recognizing these fixed payment obligations for the period ending through November 2005, which approximate $63.6 million, on a straight-line basis. However, due to the January 2003 amendment to the Distribution Agreement
and GMs current roll out plans which demonstrate a likelihood that GM will exceed minimum installation targets, in 2003 we are now prospectively recognizing these fixed payments due through September 2013, which approximate $397.3 million, on
a straight-line basis. We have issued a 10% Senior Secured Convertible Note due 2009 with an aggregate principal amount of $89.0 million to OnStar in lieu of making these fixed payments to OnStar for amounts otherwise due in 2003 through 2006.



In order to encourage the broad installation of XM radios in
GM vehicles, we have agreed to subsidize a portion of the cost of XM radios, and to make incentive payments to GM when the owners of GM vehicles with installed XM radios become subscribers for our service. We must also share with GM a percentage of
the subscription revenue attributable to GM vehicles with installed XM radios, which percentage increases until there are more than 8 million GM vehicles with installed XM radios (at which point the percentage remains constant). We will also make
available to GM bandwidth on our system. As part of the agreement, OnStar provides certain call-center related services directly to XM subscribers who are also OnStar customers and XM must reimburse OnStar for these XM-related call center services.
The agreement is subject to renegotiation at any time based upon the installation of radios that are compatible with a unified standard or capable of receiving Sirius Satellite Radios services. The agreement is subject to renegotiation at any
time based upon the installation of radios that are compatible with a unified standard or capable of receiving Sirius Satellite Radios service. The agreement is subject to renegotiation if, as of November 2005, and at two-year intervals
thereafter, GM does not achieve and maintain specified installation levels of GM vehicles capable of receiving our service, starting with 1,240,000 units by November 2005, and thereafter increasing by the lesser of 600,000 units per year and amounts
proportionate to target market shares in the satellite digital radio service market. There can be no assurances as to the outcome of any such renegotiations. General Motors exclusivity obligations will discontinue if, by November 2005 and at
two-year intervals thereafter, we fail to achieve and maintain specified minimum market share levels in the satellite digital radio service market (we are currently in excess of the minimum market share levels). Prior to 2001, we had not incurred
any costs under the distribution agreement. As of September 30, 2003 and 2002, we had paid $25.3 million and $4.9 million, respectively, and incurred total costs of $103.3 million and $16.8 million, respectively, under the distribution agreement.



Satellite Contracts. We have entered into contractual
agreements for our satellites that are more fully described under the heading Capital Expenditures.



Non-Cash Stock-Based Expense



We incurred non-cash compensation charges of approximately $2.4 million and $0.7 million during the nine months ended September 30, 2003 and 2002,
respectively. These charges relate to stock options granted to employees, consultants, talent and vendors, and warrants granted to vendors. Additional compensation charges may result depending upon the market value of Holdings Class A common
stock at each balance sheet date.



Related Party Transactions



We developed strategic relationships with certain
companies that were instrumental in the construction and development of our system. In connection with our granting to them of large supply contracts, some of these strategic companies have become large investors in us and have been granted rights
to designate directors or observers to our board of directors. The negotiation of these supply contracts and investments primarily occurred at or prior to the time these companies became related parties.



We are a party to a long-term distribution agreement with the OnStar division
of General Motors that provides for the installation of XM radios in General Motors vehicles, as further described above under the heading Liquidity and Capital ResourcesContractual Obligations and Commercial Commitments. In
connection with the development of our terrestrial repeater network, we are a party to a contract with Hughes Electronics Corporation and were under a contract with LCC International (LCCI), as further described under the heading
Liquidity and Capital ResourcesCapital Expenditures. DIRECTV has provided consulting services in connection with the development of our customer care center and billing operations. We have agreements with OnStar, Clear Channel
Communications, DIRECTV, and American Honda to make available use of our bandwidth. We have a sponsorship agreement with Clear Channel Entertainment to advertise our service at Clear Channel Entertainment concerts and venues. Premiere Radio
Networks, a subsidiary of Clear Channel Communications, is our advertising sales representative. We also run advertisements on a spot and network basis on radio stations owned by Clear Channel, and lease sites for our terrestrial repeaters from
Clear Channel Communications.



As of September 30, 2003, the
Company is engaged in activities with GM and Honda to jointly promote new car buyers to subscribe to the XM service. At September 30, 2003, there were 189,311 subscribers in promotional periods (ranging from three-months to one year in duration)
paid for by the vehicle manufacturers. These subscriptions are included in the Companys three months and nine months subscriber total. Subscriber revenues from these activities are recorded as related party revenue.



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General Motors is one of our largest shareholders and Chester A. Huber, Jr., the president of OnStar, is
a member of our board of directors. Hughes Electronics is one of our largest shareholders and is a subsidiary of General Motors. Jack Shaw, a member of our board of directors, is Chief Executive Officer of Hughes Electronics Corporation. Dr.
Rajendra Singh, who was a member of our board of directors until May 23, 2002, is a member of the board of directors of LCCI and controls the largest shareholder of LCCI. LCCI ceased to be a related party of ours during 2002. DIRECTV, a subsidiary
of Hughes Electronics, was a holder of our Series C preferred stock during 2002. Randall Mays, a member of our board of directors, is Executive Vice President and Chief Financial Officer of Clear Channel Communications. Thomas G. Elliott, a member
of our board of directors, is Executive Vice President, Automobile Operations of American Honda Motor Company. Gary Parsons, the chairman of our board of directors, was until May 1, 2002 chairman of the board of directors of Motient, a significant
early investor and formerly our controlling stockholder. Mr. Parsons no longer serves on Motients board of directors and Motient is no longer a significant stockholder of ours.



We are a wholly-owned subsidiary of Holdings. During the nine-month period ended September 30, 2003, Holdings provided
funding of $18.2 million to us and also provided non-cash capital contribution of $32.2 million in deferred financing fees and $68.9 million in discounts associated with the issuance of our 10% Senior Secured Discount Convertible Notes due 2009.



We are also party to a lease agreement for the lease of office
space from Holdings. During the nine-month period ended September 30, 2003, we had incurred costs of $3.2 million in relation to this lease agreement.



We earned the following revenue in connection with the sale of XM service to related parties described above (in thousands):



|      |  | Three months ended
|----- |  | ------------------
|      |  | September 30,2003 
|GM    |  | $                 
|Honda |  |                   
|      |  |                   
|      |  | $                 
|      |  |                   
|      | 
|      |  | Nine months ended 
|      |  | September 30,2003 
|GM    |  | $                 
|Honda |  |                   
|      |  |                   
|      |  | $                 
|      |  |                   



We have incurred the
following costs in transactions with the related parties described above (in thousands):



|                                   |  | Three months ended September 30, 2003
|---------------------------------- |  | -------------------------------------
|                                   |  | GM                                   
|Terrestrial repeater network       |  | $                                    
|Terrestrial repeater site leases   |  |                                      
|Customer care & billing operations |  |                                      
|Marketing                          |  |                                      
|Broadcast and operations           |  |                                      



|                                   |  | Three months ended September 30, 2002
|---------------------------------- |  | -------------------------------------
|                                   |  | GM                                   
|Terrestrial repeater network       |  | $                                    
|Terrestrial repeater site leases   |  |                                      
|Customer care & billing operations |  |                                      
|Marketing                          |  |                                      
|Broadcast and operations           |  |                                      



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|                                   |  | Nine months ended September 30, 2003
|---------------------------------- |  | ------------------------------------
|                                   |  | GM                                  
|Terrestrial repeater network       |  | $                                   
|Terrestrial repeater site leases   |  |                                     
|Customer care & billing operations |  |                                     
|Marketing                          |  |                                     
|Broadcast and operations           |  |                                     



|                                   |  | Nine months ended June 30, 2002
|---------------------------------- |  | -------------------------------
|                                   |  | GM                             
|Terrestrial repeater network       |  | $                              
|Terrestrial repeater site leases   |  |                                
|Customer care & billing operations |  |                                
|Marketing                          |  |                                
|Broadcast and operations           |  |                                



Capital Expenditures



As of September 30, 2003, the Company had paid
approximately $474.8 million under the satellite contracts related to Rock and Roll, XM-3 and XM-4, including $0.7 million in incentives and interest relating thereto.



Satellite Contract  Rock and Roll. Under
our satellite contract (originally entered into in March 1998, as amended to date), Boeing Satellite Systems (BSS) has delivered two satellites in orbit (Rock and Roll), provided ground equipment and software used
in the XM Radio system and certain launch and operations support services. The contract also provides for in-orbit performance incentives to be earned depending on the performance of the satellites over their useful lives. The incentives under the
satellite contract associated with Rock and Roll could total up to $25 million (excluding interest).



In light of the progressive degradation noted above, we plan to launch our ground spare satellite (XM-3) into one orbital slot by year-end 2004, and
operate Rock and Roll collocated in the other orbital slot. In 2007 we plan to launch XM-4 to replace the collocated Rock and Roll. In this way, we will have replacement satellites in orbit and
operating prior to the times Rock and Roll can no longer provide full service, or half service in collocated mode.



We own Rock and Roll.



Satellite Contract  Payment Deferrals on Rock and Roll. BSS and we have deferred $16.4 million of in-orbit incentive
payments (included in the $25 million set forth above) relating to our two existing satellites, Rock and Roll, with the principal amount (to the extent earned and still capable of being earned) payable on December 5, 2006.
After December 5, 2006, BSS must repay us any portion of the principal paid representing incentive amounts that are not earned on a current basis. Incentive payment amounts are earned (and expensed through operations) on a daily basis for each day
that a satellite meets or exceeds its applicable performance specifications. The deferred amounts bear interest at the rate of 8%, compounded annually, payable quarterly in arrears.



Satellite Contract  XM-3. Our ground spare satellite (XM-3) has been partially constructed to date, and is
currently undergoing modifications to correct the solar array degradation issues experienced by Rock and Roll, as well as other changes discussed below. The payload of XM-3 is owned by us, and the bus of XM-3 is owned by
Holdings. Through September 30, 2003, with respect to XM-3, we have deferred $15 million (at an interest rate of 8%) through December 5, 2006 and Holdings borrowed back $35 million from Boeing Capital Corporation (BCC) that is to be
repaid by Holdings prior to launch of XM-3.



On May 22, 2003,
BSS and we amended the satellite contract so as to set the launch period for its ground spare satellite, XM-3, for the three-month period commencing October 15, 2004. In addition to the modifications to address the solar anomaly as noted above, BSS
will make certain alterations to optimize XM-3 for the specific orbital slot into which it will be launched. The aggregate cost of the launch, the optimization for the specific orbital slot and certain pre-launch services is approximately $100
million, of which approximately $2 million must be paid during the fourth quarter of 2003, and the balance in 2004, with nearly half being paid just prior to the launch. In addition, any unearned Rock and Roll incentives (of
the $25,000,000 described above) will be rolled over to XM-3 and Holdings must repay the existing $35 million loan from BCC prior to the launch of XM-3; we also will need to acquire and pay for launch and in-orbit insurance in connection with this
launch. The cost of launch and in-orbit insurance in connection with this launch is subject to market prices and conditions at the time such insurance is obtained.



Satellite Contract  XM-4.



Holdings has committed (by further amendment to the satellite contract, with such amendment dated July 31, 2003, and by a
separate contract with Sea Launch Company, LLC (Sea Launch), dated August 5, 2003) to acquire from BSS a fourth satellite



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(XM-4), which shall be available for shipment to the launch services provider no later than October 31, 2005, and associated launch services from
Sea Launch. Holdings will own XM-4. The fixed prices for XM-4 and the associated launch services total $186.5 million plus interest on deferred amounts and excluding in-orbit performance incentives. Following initial payments of $3 million in 2003,
payments aggregating over $100 million are deferred with interest accruing monthly at a rate of 12.75% per annum. $10 million of the aggregate deferral is payable in October 2004 (of the total of approximately $13 million of payments anticipated to
be made in 2004) and the balance, including all accrued and unpaid interest, in January 2005; the remaining portion of the fixed prices for XM-4 and the associated launch services are payable prior to launch. Holdings also issued a warrant to BSS to
purchase 500,000 shares of their Class A Common Stock at $13.524 per share. The fair value of these warrants was determined to be $5.8 million using a Black-Scholes based methodology. After launch of XM-4, BSS has the right to earn incentive
payments of $12 million over the first twelve years of in-orbit life, an additional $7.5 million for performance above specification during the first 15 years of in-orbit life, and an additional $10 million for continued high performance across the
five year period beyond the 15 year design life. We have also obtained a fixed price option to acquire a fifth satellite from BSS on pricing and incentive terms similar to those applicable to XM-4. If XM-3 is launched successfully and operates
satisfactorily, we may elect, under the above contracts, to defer launch of XM-4 and, as a result, approximately $50 million in payments could be deferred until 2007.



Terrestrial Repeater System. As of September 30, 2003, we incurred aggregate costs of approximately $267.6 million
for a terrestrial repeater system. These costs covered the capital cost of the design, development and installation of a system of terrestrial repeaters to cover approximately 60 cities and metropolitan areas. In August 1999, we signed a contract
with LCCI for engineering and site preparation. As of September 30, 2003, we had paid $128.4 million under this contract. There are no further payments due under the LCCI contract. We also entered into a contract effective October 22, 1999, with
Hughes Electronics Corporation for the design, development and manufacture of the terrestrial repeaters; there are no further payments due under this contract except those related to ongoing out-of-warranty repairs. As of September 30, 2003, we had
paid $114.1 million under this contract and recorded an additional liability of $92,000.



Ground Segment. As of September 30, 2003, we incurred aggregate ground segment costs of approximately $134.2 million. These costs were related to the satellite control facilities, programming production studios
and various other equipment and facilities.



Joint
Development Agreement Funding Requirements. The costs related to our agreement with Sirius Radio for joint development of a unified standard for satellite radios are being expensed as incurred in research & development. During the nine-month
period ended September 30, 2003, we incurred $0.3 million compared to no expense during the nine-month period ended September 30, 2002. We expect this expense to increase steadily this year; each party is obligated to fund one half of the
development cost for a unified standard for satellite radios.



Long-term debt. We have raised funds from issuing long-term debt on several occasions.



| |  | In March 2000, XM issued $325.0 million aggregate principal amount of 14% Senior Secured Notes due 2010. Following our January 2003 financing, less than $25 million of these notes
remained outstanding. Principal on the 14% Senior Secured Notes due 2010 is payable at maturity, while interest is payable semi-annually.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On January 28, 2003, we completed a three-part financing.
| | - | ---------------------------------------------------------



| |  |  | We and Holdings issued $279.3 million aggregate principal amount at maturity of 10% Senior Secured Discount Convertible Notes in a private placement. Principal on the 10% Senior
Secured Discount Convertible Notes is payable at maturity, while interest accretes until January 1, 2006 and is thereafter payable semi-annually in cash or, at our option, in additional notes. If all of the interest is paid in additional notes,
these notes would aggregate $412.6 million when they come due in 2009. Through September 30, 2003, we have extinguished $15.7 million carrying value, or $19.8 million face amount at maturity, of these notes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We and Holdings issued to OnStar $89.0 million in aggregate principal amount of a 10% Senior Secured Convertible Note due December 31, 2009 in lieu of our obligation to make $115
million in guaranteed payments from 2003 to 2006 under the General Motors distribution agreement. Principal on the OnStar note is payable at maturity, while interest, which is due semi-annually, is payable at our option in shares of Holdings
Class A common stock.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We and Holdings completed an exchange of $300.2 million aggregate principal amount of the 14% Senior Secured Notes due 2010 for $438.0 million aggregate principal amount at maturity
($300.2 million accreted value as of March 15, 2003) of 14% Senior Secured Discount Notes due 2009, cash and warrants to purchase shares of Holdings Class A common stock. Principal on the 14% Senior Secured Discount Notes due 2009 is payable
at maturity, while interest accretes until December 31, 2005 and is thereafter payable semi-annually. Through May 6, 2003, we have extinguished $65.5 million carrying value, or $94.2 million face amount at maturity, of these notes.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | In June 2003, we issued $185.0 million aggregate principal amount of 12% Senior Secured Notes due 2010, $10 million of which were issued in July 2003, pursuant to the overallotment
option. Principal on the 14% Senior Secured Notes due 2010 is payable at maturity, while interest is payable semi-annually.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Based on the various terms of our long-term debt, our ability to redeem any long-term debt is limited. We have and may continue to take advantage of
opportunities to reduce our level of indebtedness in exchange for issuing equity securities, if these transactions can be completed on favorable terms.



The following table represents our contractual obligations as of September 30, 2003:



|                             |  | Payments Due by Period
|---------------------------- |  | ----------------------
|Contractual Obligations      |  | October December2003 
|                             |  | (In thousands)        
|GM Distribution Agreement(1) |  | $                     
|GM Credit Facility(1)        |  |                       
|GM Note(1)                   |  |                       
|Other long-term debt (1)     |  |                       
|Capital Lease Obligations    |  |                       
|Operating Lease Obligations  |  |                       
|                             |  |                       
|At September 30, 2003        |  | $                     
|Post-September 30, 2003:     |  |                       
|XM-3 (2)                     |  |                       
|XM-4 (2)(3)                  |  |                       
|                             |  |                       
|Total                        |  | $                     
|                             |  |                       

---

|(1) | The above amounts do not include interest, which in some cases is variable in amount.
|--- | -------------------------------------------------------------------------------------

|(2) | Excludes financing charges, in-orbit incentives and launch insurance, and assumes launch of XM-4 in 2007.
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | XM-4 is an obligation of Holdings and not of the Company, but it has been included above for completeness.
|--- | ----------------------------------------------------------------------------------------------------------



We expect our $100 million credit facility with General Motors, which may be
payable prior to maturity based on cash flows, to become payable as early as 2006. The long-term debt payments due in 2008 and beyond include the maturity of our remaining outstanding $22.8 million of 14% Senior Secured Notes, which come due in
2010, the maturity of our $343.5 million aggregate principal amount at maturity of 14% Senior Secured Discount Notes, which come due in 2009, the maturity of our $259.3 million aggregate principal amount at maturity of 10% Senior Secured Discount
Convertible Notes, which come due in 2009 and the maturity of our $185.0 million aggregate principal amount at maturity of 12% Senior Secured Notes due 2010.



Recent Accounting Pronouncements



We adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, effective January
1, 2003, and SFAS No. 143 does not have a material impact on the financial statements. Our asset retirement obligations are limited to deconstruction of its terrestrial repeater sites. SFAS No. 143 requires entities to record the fair value of a
legal liability for an asset retirement obligation in the period in which it is incurred. When a new liability is recorded, we will capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. The
liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or
loss upon settlement.



In April 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require
sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. We recorded losses of $4.4 million and $25.8 million during the three- months and nine months ended September 30, 2003,
respectively, from the early retirement of debt with a carrying value including accrued interest of $83.2 million. The loss is reported in other income (expense) in the unaudited condensed consolidated statement of operations for the three- and
nine-month periods ended September 30, 2003.



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In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when incurred at fair value. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 may have an effect on the timing of future restructuring charges taken, if and when they occur.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. The disclosures required by SFAS No. 148 are included in note 3 to
the unaudited condensed consolidated financial statements.



In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.This Interpretation addresses the consolidation by business enterprises of variable interest entities as
defined in the Interpretation. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. This Interpretation may have
an impact on the accounting for future investments, if any, made by the Company.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 addresses the classification and measurement of
mandatorially redeemable freestanding financial instruments, including those that comprise more than one option or forward contract, and requires an issuer to classify certain instruments as liabilities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period after June 15, 2003. The adoption of SFAS No. 150 has not had a material effect on the classification and measurement of
our financing transactions but may have an effect on the classification and measurement of future mandatorially redeemable financing transactions, if and when they occur.



The Emerging Issues Task Force issued EITF No. 00-21, Revenue Arrangements with Multiple Deliverables addressing the
allocation of revenue among products and services in bundled sales arrangements. EITF 00-21 is effective for arrangements entered into in fiscal periods after June 15, 2003. Based on our current sales and marketing programs, we do not anticipate the
application of the new pronouncement will have a material impact on our financial statements. However, our sales and marketing programs may change over time and we will continue to evaluate the applicability of EITF 00-21 as it relates to sales of
service and hardware. This new pronouncement has no impact on the economics of our sales and marketing programs, but it may impact the timing and classification of revenue reported within the financial statements and may have a corresponding impact
on the Average Revenue per Subscriber (ARPU). As a result of this new pronouncement, the Company recognized a lower subscriber ARPU for the period.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As of September 30, 2003, we do not have any derivative financial instruments and do not intend to use derivatives. We do not hold or issue any
free-standing derivatives. We invest our cash in short-term commercial paper, investment-grade corporate and government obligations and money market funds. Our long-term debt includes fixed interest rates and the fair market value of the debt is
sensitive to changes in interest rates. We run the risk that market rates will decline and the required payments will exceed those based on current market rates. Under our current policies, we do not use interest rate derivative instruments to
manage our exposure to interest rate fluctuations. Included in our related party long-term debt owed to GM is a balance of $128.1 million, of which $6.8 million may be converted to shares of Holdings Class A Common Stock under our distribution
agreement with OnStar and $32.3 million will be drawn under our Senior Secured Credit Facility with GM. This facility also has a variable interest rate. A change of one percentage point in the interest rate applicable to this $32.3 million of
variable rate debt at September 30, 2003 would result in a fluctuation of approximately $0.3 million in our annual interest expense. Additionally, we believe that our exposure to interest rate risk is not material to our results of operations.



ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES.



Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2003. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective. During the quarterly period ended September 30, 2003, no changes were made in our internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II: OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K.



(a) Exhibits:



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|3.1^        |  | Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc.                                                                                                                                                                                                                                                                                             
|            | 
|3.2         |  | Amended and Restated Bylaws of XM Satellite Radio Holdings Inc. (incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).                                                                                                                                                                                      
|            | 
|3.3         |  | Restated Certificate of Incorporation of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                                          
|            | 
|3.4         |  | Amended and Restated Bylaws of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                                                    
|            | 
|3.5         |  | Certificate of Amendment of Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc. (incorporated by reference to Amendment No. 1 to Holdings Registration
Statement on Form S-3, File No. 333-89132).                                                                                                                                             
|            | 
|3.6         |  | Certificate of Amendment of Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc. (incorporated by reference to Holdings Annual Report on Form 10-K,
filed with the SEC on March 31, 2003).                                                                                                                                                      
|            | 
|4.1         |  | Form of Certificate for Holdings Class A common stock (incorporated by reference to Exhibit 3 to Holdings Registration Statement on Form 8-A, filed with the SEC on
September 23, 1999).                                                                                                                                                                            
|            | 
|4.2         |  | Form of Certificate for Holdings 8.25% Series B Convertible Redeemable Preferred Stock (incorporated by reference to Holdings Registration Statement on Form S-1, File
No. 333-93529).                                                                                                                                                                              
|            | 
|4.3         |  | Certificate of Designation Establishing the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of Holdings 8.25% Series B Convertible
Redeemable Preferred Stock due 2012 (incorporated by reference to Holdings Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the SEC on March 16, 2000).
|            | 
|4.4         |  | Intentionally left blank.                                                                                                                                                                                                                                                                                                                                             
|            | 
|4.5         |  | Warrant Agreement, dated March 15, 2000, between XM Satellite Radio Holdings Inc. as Issuer and United States Trust Company of New York as Warrant Agent (incorporated by reference
to Holdings Registration Statement on Form S-1, File No. 333-39176).                                                                                                             
|            | 
|4.6         |  | Warrant Registration Rights Agreement, dated March 15, 2000, between XM Satellite Radio Holdings Inc. and Bear, Stearns & Co., Inc., Donaldson, Lufkin and Jenrette Securities
Corporation, Salomon Smith Barney Inc. and Lehman Brothers Inc. (incorporated by reference to Holdings Registration Statement on Form S-1, File No. 333-39176).                       
|            | 
|4.7         |  | Form of Warrant (incorporated by reference to Holdings Registration Statement on Form S-1, File No. 333-39176).                                                                                                                                                                                                                                                      
|            | 
|4.8         |  | Certificate of Designation Establishing the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of the 8.25% Series C Convertible Redeemable Preferred Stock
due 2012 (incorporated by reference to Holdings Registration Statement on Form S-1, File No. 333-39176).                                                                          
|            | 
|4.9         |  | Form of Certificate for Holdings 8.25% Series C Convertible Redeemable Preferred Stock (incorporated by reference to the Registrants Registration Statement on Form
S-1, File No. 333-39176).                                                                                                                                                                       
|            | 
|4.10        |  | Indenture, dated as of March 15, 2000, between XM Satellite Radio Inc. and United States Trust Company of New York (incorporated by reference to XMs Registration Statement
on Form S-4, File No. 333-39178).                                                                                                                                                        



52



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##### Table of Contents

|4.11 |  | Registration Rights Agreement, dated March 15, 2000, between XM Satellite Radio Inc. and Bear, Stearns & Co. Inc., Donaldson, Lufkin and Jenrette Securities Corporation,
Salomon Smith Barney Inc. and Lehman Brothers Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                     
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|4.12 |  | Form of 14% Senior Secured Note of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                                                                                       
|     | 
|4.13 |  | Security Agreement, dated March 15, 2000, between XM Satellite Radio Inc. and United States Trust Company of New York (incorporated by reference to XMs Registration
Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                            
|     | 
|4.14 |  | Pledge Agreement, dated March 15, 2000, between XM Satellite Radio Inc. and United States Trust Company of New York (incorporated by reference to XMs Registration Statement
on Form S-4, File No. 333-39178).                                                                                                                                                                                              
|     | 
|4.15 |  | Indenture, dated March 6, 2001, between XM Satellite Radio Holdings Inc. and United States Trust Company of New York (incorporated by reference to Holdings annual report on
Form 10-K for the year ended December 31, 2000, filed with the SEC on March 15, 2001).                                                                                                                                         
|     | 
|4.16 |  | Supplemental Indenture, dated as of November 15, 2001, by and between XM Satellite Radio Inc. and The Bank of New York (successor to United States Trust Company of New York)
(incorporated by reference to Holdings Current Report on Form 8-K, filed with the SEC on December 6, 2001).                                                                                                                   
|     | 
|4.17 |  | Form of 7.75% convertible subordinated note (incorporated by reference to Holdings annual report on Form 10-K for the year ended December 31, 2000, filed with the SEC on
March 15, 2001).                                                                                                                                                                                                                  
|     | 
|4.18 |  | Customer Credit Agreement, dated as of December 5, 2001, between Holdings and Boeing Capital Services Corporation (incorporated by reference to Holdings Current Report on
Form 8-K, filed with the SEC on December 6, 2001).                                                                                                                                                                               
|     | 
|4.19 |  | Security Agreement, dated as of December 5, 2001, between Holdings and Boeing Capital Services Corporation (incorporated by reference to Holdings Current Report on Form 8-K,
filed with the SEC on December 6, 2001).                                                                                                                                                                                      
|     | 
|4.20 |  | Rights Agreement, dated as of August 2, 2002, between Holdings and Equiserve Trust Company as Rights Agent (incorporated by reference to Holdings Current Report on Form 8-K,
filed with the SEC on August 2, 2002).                                                                                                                                                                                        
|     | 
|4.21 |  | Indenture, dated as of January 28, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York, as trustee
(incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                          
|     | 
|4.22 |  | Security Agreement, dated as of January 28, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC, and The Bank of New York (incorporated
by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                            
|     | 
|4.23 |  | Amended and Restated Security Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and The Bank of New York (incorporated by reference to Holdings
Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                  
|     | 
|4.24 |  | Intercreditor and Collateral Agency Agreement (General Security Agreement), dated as of January 28, 2003, by and among the Noteholders named therein, The Bank of New York, as
trustee, General Motors Corporation, OnStar Corporation and The Bank of New York, as collateral agent (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).             
|     | 
|4.25 |  | Intercreditor and Collateral Agency Agreement (FCC License Subsidiary Pledge Agreement), dated as of January 28, 2003, by and among the Noteholders named therein, The Bank of New
York, as trustee, General Motors Corporation, OnStar Corporation and The Bank of New York, as collateral agent (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).
|     | 
|4.26 |  | Warrant Agreement, dated as of January 28, 2003, between XM Satellite Radio Holdings Inc. and The Bank of New York (incorporated by reference to Holdings Current Report on
Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                               



53



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##### Table of Contents

|4.27   |  | Amended and Restated Amendment No. 1 to Rights Agreement, dated as of January 22, 2003, by and among XM Satellite Radio Holdings Inc. and Equiserve Trust Company, N.A.
(incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|4.28   |  | Form of 10% Senior Secured Convertible Note due 2009 (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29,
2003).                                                                                                                                                                                     
|       | 
|4.29   |  | Form of 10% Senior Secured Discount Convertible Note due 2009 (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29,
2003).                                                                                                                                                                            
|       | 
|4.30   |  | Global 14% Senior Secured Discount Note due 2009 (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                                         
|       | 
|4.31   |  | Global Common Stock Purchase Warrant (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                                                     
|       | 
|4.32   |  | Common Stock Purchase Warrant issued to General Motors Corporation (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29,
2003).                                                                                                                                                                       
|       | 
|4.33   |  | Common Stock Purchase Warrant issued to R. Steven Hicks (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29,
2003).                                                                                                                                                                                  
|       | 
|4.34   |  | Second Supplemental Indenture, dated as of December 23, 2002, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New
York, as trustee (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 15, 2003).                                      
|       | 
|4.35   |  | Third Supplemental Indenture, dated January 27, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York, as
trustee (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                     
|       | 
|4.36   |  | Indenture, dated as of June 17, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and The Bank of New York, as trustee (incorporated by reference to XMs
Registration Statement on Form S-4, File No. 333-106823).                                                                                                              
|       | 
|4.37   |  | Registration Rights Agreement, dated as of June 17, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and Bear, Stearns & Co. Inc. (incorporated by
reference to XMs Registration Statement on Form S-4, File No. 333-106823).                                                                                                  
|       | 
|4.38   |  | Form of 12% Senior Secured Note due 2010 (incorporated by reference to Exhibit A to Exhibit 4.36 hereof).                                                                                                                                                                                                                                            
|       | 
|4.39   |  | First Supplemental Indenture, dated as of June 12, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York
(incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-106823).                                                                      
|       | 
|4.40   |  | First Amendment to Security Agreement, dated as of June 12, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of
New York (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-106823).                                                             
|       | 
|4.41   |  | Warrant to purchase XM Satellite Radio Holdings Inc. Class A Common Stock, dated July 31, 2003, issued to Boeing Satellite Systems International, Inc. (incorporated by reference
to Holdings Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).                                            
|       | 
|10.1** |  | Third Amended and Restated Shareholders and Noteholders Agreement, dated as of June 16, 2003, by and among XM Satellite Radio Holdings Inc. and certain shareholders and
noteholders named therein (incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).
|       | 
|10.2   |  | Second Amended and Restated Registration Rights Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Holdings Inc. and certain shareholders and noteholders
named therein (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                            



54



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##### Table of Contents

|10.3^  |   |  | Note Purchase Agreement, dated June 7, 1999, by and between XM Satellite Radio Holdings Inc., XM Satellite Radio Inc., Clear Channel Communications, Inc., DIRECTV Enterprises,
Inc., General Motors Corporation, Telcom-XM Investors, L.L.C., Columbia XM Radio Partners, LLC, Madison Dearborn Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P., and Special Advisors Fund I, LLC (including form of Series A
subordinated convertible note of XM Satellite Radio Holdings Inc. attached as Exhibit A thereto).
|------ | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  
|10.4^  | * |  | Technology Licensing Agreement by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., WorldSpace Management Corporation and American Mobile Satellite Corporation,
dated as of January 1, 1998, amended by Amendment No. 1 to Technology Licensing Agreement, dated June 7, 1999.                                                                                                                                                                                                                                    
|       |  
|10.5   |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.6   |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.7^  | * |  | Amended and Restated Agreement by and between XM Satellite Radio Inc. and ST Microelectronics Srl, dated September 27, 1999.                                                                                                                                                                                                                                                                                                                                                                                                          
|       |  
|10.8   | * |  | Second Amended and Restated Distribution Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Holdings Inc., XM Satellite Radio Inc. and OnStar Corporation, a
division of General Motors Corporation (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                                                 
|       |  
|10.9^  | * |  | Operational Assistance Agreement, dated as of June 7, 1999, between XM Satellite Radio Inc. and DIRECTV, INC.                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  
|10.10^ | * |  | Operational Assistance Agreement, dated as of June 7, 1999, between XM Satellite Radio Inc. and Clear Channel Communication, Inc.                                                                                                                                                                                                                                                                                                                                                                                                     
|       |  
|10.11^ | * |  | Operational Assistance Agreement, dated as of June 7, 1999, between XM Satellite Radio Inc. and TCM, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |  
|10.12  |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.13  |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.14  |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.15  |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.16  |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.17^ |   |  | Form of Indemnification Agreement between XM Satellite Radio Holdings Inc. and each of its directors and executive officers.                                                                                                                                                                                                                                                                                                                                                                                                          
|       |  
|10.18  |   |  | 1998 Shares Award Plan (incorporated by reference to Holdings Registration Statement on Form S-8, File No. 333-106827).                                                                                                                                                                                                                                                                                                                                                                                                              
|       |  
|10.19^ |   |  | Form of Employee Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  
|10.20^ | * |  | Firm Fixed Price Contract #001 between XM Satellite Radio Inc. and the Fraunhofer Gesellschaft zur Foderung Der angewandten Forschung e.V., dated July 16, 1999.                                                                                                                                                                                                                                                                                                                                                                      
|       |  
|10.21^ | * |  | Contract for Engineering and Construction of Terrestrial Repeater Network System by and between XM Satellite Radio Inc. and LCC International, Inc., dated August 18,
1999.                                                                                                                                                                                                                                                                                                                                                           
|       |  
|10.22  |   |  | Employee Stock Purchase Plan (incorporated by reference to Holdings Registration Statement on Form S-8, File No. 333-106827).                                                                                                                                                                                                                                                                                                                                                                                                        
|       |  
|10.23^ |   |  | Non-Qualified Stock Option Agreement between Gary Parsons and XM Satellite Radio Holdings Inc., dated July 16, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |  
|10.24^ |   |  | Non-Qualified Stock Option Agreement between Hugh Panero and XM Satellite Radio Holdings Inc., dated July 1, 1998, as amended.                                                                                                                                                                                                                                                                                                                                                                                                        



55



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|10.25^ |  | Form of Director Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                                                                                       
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.26  |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                       
|       | 
|10.27  |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                       
|       | 
|10.28* |  | Contract for the Design, Development and Purchase of Terrestrial Repeater Equipment by and between XM Satellite Radio Inc. and Hughes Electronics Corporation, dated February 14,
2000 (incorporated by reference to Holdings Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the SEC on March 16, 2000).
|       | 
|10.29* |  | Joint Development Agreement, dated February 16, 2000, between XM Satellite Radio Inc. and Sirius Satellite Radio Inc. (incorporated by reference to Holdings quarterly report
on Form 10-Q for the quarter ended March 31, 2000, filed with the SEC on May 12, 2000).                                                                       
|       | 
|10.30  |  | XM Satellite Radio Holdings Inc. Talent Option Plan (incorporated by reference to Holdings Registration Statement on Form S-8, File No. 333-65022).                                                                                                                                                                                         
|       | 
|10.31  |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                       
|       | 
|10.32  |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                       
|       | 
|10.33  |  | Loan and Security Agreement, dated as of August 24, 2001, by and between Fremont Investment & Loan and XM 1500 Eckington LLC (incorporated by reference to Holdings
quarterly report on Form 10-Q for the quarter ended September 30, 2001, filed with the SEC on November 13, 2001).                                                       
|       | 
|10.34  |  | Limited Recourse Obligations Guaranty, dated as of August 24, 2001, by XM Satellite Radio Holdings Inc. in favor of Fremont Investment & Loan (incorporated by reference to
Holdings quarterly report on Form 10-Q for the quarter ended September 30, 2001, filed with the SEC on November 13, 2001).                                      
|       | 
|10.35  |  | Assignment and Novation Agreement, dated as of December 5, 2001, between Holdings, XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by
reference to Holdings Current Report on Form 8-K filed with the SEC on December 6, 2001).                                                                       
|       | 
|10.36* |  | Third Amended and Restated Satellite Purchase Contract for In-Orbit Delivery, dated as of May 15, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International
Inc. (incorporated by reference to Amendment No. 1 to Holdings Registration Statement on Form S-3, File No. 333-89132).                                  
|       | 
|10.37* |  | Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated as of December 5, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc.
(incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on December 6, 2001).                                                
|       | 
|10.38  |  | Note Purchase Agreement, dated as of December 21, 2002, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and OnStar Corporation (incorporated by reference to
Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                            
|       | 
|10.39  |  | Amendment No. 1 to Note Purchase Agreement, dated as of January 16, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and OnStar Corporation
(incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                          
|       | 
|10.40  |  | Amended and Restated Note Purchase Agreement, dated as of June 16, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and certain investors named therein
(incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).       
|       | 
|10.41  |  | Amendment No. 1 to Note Purchase Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and certain investors named
therein (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                             



56



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|10.42 |    |  | Amended and Restated Director Designation Agreement, dated as of February 1, 2003, by and among XM Satellite Radio Holdings Inc. and the shareholders and noteholders named therein
(incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15, 2003).                                                    
|----- | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |   
|10.43 |    |  | GM/DIRECTV Director Designation Agreement, dated as of January 28, 2003, among XM Satellite Radio Holdings Inc., General Motors Corporation and DIRECTV Enterprises LLC
(incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                     
|      |   
|10.44 |    |  | Clear Channel Director Designation Agreement, dated as of January 28, 2003, among XM Satellite Radio Holdings Inc. and Clear Channel Investments, Inc (incorporated by reference to
Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                       
|      |   
|10.45 |    |  | Amended and Restated Assignment and Use Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and XM Radio Inc. (incorporated by reference to Holdings
Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                          
|      |   
|10.46 |    |  | Agreements not to convert, dated as of January 28, 2003, among XM Satellite Radio Holdings Inc. and certain noteholders named therein (incorporated by reference to Holdings
Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                       
|      |   
|10.47 |    |  | Credit Agreement, dated as of January 28, 2003, among XM Satellite Radio Inc., as a borrower, and XM Satellite Radio Holdings Inc., as a borrower, and General Motors Corporation,
as lender (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                
|      |   
|10.48 |    |  | Voting Agreement, dated as of December 21, 2002, among the shareholders named therein (incorporated by reference to Holdings Current Report on Form 8-K filed with the SEC on
January 29, 2003).                                                                                                                                                                                       
|      |   
|10.49 |    |  | Employment Agreement, dated as of June 21, 2002, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Joseph J. Euteneuer (incorporated by reference to
Holdings Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2002).                                                                                                                           
|      |   
|10.50 |    |  | Form of Employment Agreement, dated as of March 20, 2003, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Hugh Panero (incorporated by reference to
Holdings Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15, 2003).                                                                                        
|      |   
|10.51 |    |  | Form of Employment Agreement, dated as of March 20, 2003, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Gary Parsons (incorporated by reference to
Holdings Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15, 2003).                                                                                       
|      |   
|10.52 |    |  | Form of Executive Stock Option Agreement (incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May
15, 2003).                                                                                                                                                                                               
|      |   
|10.53 | ** |  | Amended and Restated Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated May 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings
Inc. and Boeing Satellite Systems International, Inc. (incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).
|      |   
|10.54 | ** |  | July 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated July 31, 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and
Boeing Satellite Systems International, Inc. (incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).      
|      |   
|10.55 | ** |  | Contract for Launch Services, dated August 5, 2003, between Sea Launch Limited Partnership and XM Satellite Radio Holdings Inc. (incorporated by reference to Holdings
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).                                                                                                      
|      |   
|10.56 |    |  | Amendment No. 1 to Amended and Restated Director Designation Agreement, dated as of September 9, 2003, by and among XM Satellite Radio Holdings Inc. and the shareholders and
noteholders named therein (incorporated by reference to Holdings Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).                                                                



57



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|31.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                           
|     | 
|32.1 |  | Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

---

|^ | Incorporated by reference to Holdings Registration Statement on Form S-1, File No. 333-83619.
|- | ----------------------------------------------------------------------------------------------

|* | Pursuant to the Commissions Orders Granting Confidential Treatment under Rule 406 of the Securities Act of 1933 or Rule 24(b)-2 under the Securities Exchange Act of 1934,
certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Confidential treatment has been requested for portions of this document.
|-- | ------------------------------------------------------------------------



(b) Reports on Form 8-K.



None.



58



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                  |  |  |  | XM SATELLITE RADIO INC.                                                                                              
|----------------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------
|                  |  |  |  | (Registrant)                                                                                                         
|                  |  | 
|November 14, 2003 |  |  |  | By:     /s/ Hugh Panero                                                                                              
|                  |  |  |  | Hugh Panero President and
Chief Executive Officer (principal executive officer)                                      
|                  |  | 
|                  |  |  |  | XM SATELLITE RADIO INC.                                                                                              
|                  |  |  |  | (Registrant)                                                                                                         
|                  |  | 
|November 14, 2003 |  |  |  | By:     /s/ Joseph J. Euteneuer                                                                                      
|                  |  |  |  | Joseph J. Euteneuer Executive
Vice President and Chief Financial Officer (principal financial and accounting officer)



59