##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
 ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM _________ TO _______________
 Commission
    
    
    
    I.R.S. EmployerFile
    
    
    
    IdentificationNumber
    
    Exact name of Registrant As Specified in its Charter
    
    Number333-39178
    
    XM SATELLITE RADIO INC.
    
    52-1805102
 DELAWARE
(State or other jurisdiction of incorporation or organization)
 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)
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ
  (Class)
    
    (Outstanding as of April 30, 2010)XM SATELLITE RADIO INC.COMMON STOCK, $0.10 PAR VALUE(all shares are issued to Sirius XM Radio Inc.)
    
    125 SHARES




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##### 



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 INDEX TO FORM 10-Q
 Item No.
    
    DescriptionPART I  Financial InformationItem 1.
    
    Financial Statements:Unaudited Consolidated Statements of Operations for the three months ended March 31,
2010 and 2009
    
    
    1Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009
    
    
    2Unaudited Consolidated Statements of Stockholders Deficit as of March 31, 2010 and
Comprehensive Income for the three months ended March 31, 2010
    
    
    3Unaudited Consolidated Statements of Cash Flows for the three months ended March 31,
2010 and 2009
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3.
    
    Quantitative and Qualitative Disclosures About Material Risk
    
    
    44Item 4.
    
    Controls and Procedures
    
    
    44PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    45Item 1A.
    
    Risk Factors
    
    
    45Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3.
    
    Defaults Upon Senior Securities
    
    
    45Item 4.
    
    (Removed and Reserved)
    
    
    45Item 5.
    
    Other Information
    
    
    45Item 6.
    
    Exhibits
    
    
    45Signatures
    
    
    46EX-4.2EX-4.3EX-4.4EX-4.5EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three MonthsEnded March 31,(in thousands)
    
    2010
    
    2009Revenue:Subscriber revenue, including effects of rebates
    
    $
    305,012
    
    
    $
    287,466Advertising revenue, net of agency fees
    
    
    4,093
    
    
    
    4,520Equipment revenue
    
    
    10,258
    
    
    
    5,917Other revenue
    
    
    33,890
    
    
    
    4,331Total revenue
    
    
    353,253
    
    
    
    302,234Operating expenses (depreciation and amortization
shown separately below):Cost of services:Revenue share and royalties
    
    
    42,981
    
    
    
    49,682Programming and content
    
    
    28,275
    
    
    
    27,538Customer service and billing
    
    
    29,356
    
    
    
    34,139Satellite and transmission
    
    
    11,755
    
    
    
    14,770Cost of equipment
    
    
    4,499
    
    
    
    3,465Subscriber acquisition costs
    
    
    32,221
    
    
    
    26,250Sales and marketing
    
    
    26,051
    
    
    
    31,712Engineering, design and development
    
    
    5,230
    
    
    
    4,751General and administrative
    
    
    26,538
    
    
    
    31,752Depreciation and amortization
    
    
    37,469
    
    
    
    54,827Total operating expenses
    
    
    244,375
    
    
    
    278,886Income from operations
    
    
    108,878
    
    
    
    23,348Other income (expense):Interest expense, net of amounts capitalized
    
    
    (59,999
    )
    
    
    (67,911
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (8
    )
    
    
    (627
    )Loss on change in value of embedded derivatives
    
    
    (37,291
    )
    
    
    (58,203
    )Interest and investment loss
    
    
    (1,622
    )
    
    
    (6,409
    )Other income
    
    
    1,328
    
    
    
    386Total other expense
    
    
    (97,592
    )
    
    
    (132,764
    )Income (loss) before income taxes
    
    
    11,286
    
    
    
    (109,416
    )Income tax expense
    
    
    (629
    )
    
    
    (578
    )Net income (loss)
    
    $
    10,657
    
    
    $
    (109,994
    )
  1




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 March 31, 2010
    
    December 31, 2009(in thousands, except share and per share data)
    
    (unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    171,335
    
    
    $
    212,155Accounts receivable, net
    
    
    65,925
    
    
    
    60,042Inventory, net
    
    
    4,768
    
    
    
    4,016Prepaid expenses
    
    
    67,910
    
    
    
    75,199Related party current assets
    
    
    103,982
    
    
    
    103,479Deferred tax asset
    
    
    67,871
    
    
    
    64,641Other current assets
    
    
    3,025
    
    
    
    4,585Total current assets
    
    
    484,816
    
    
    
    524,117Property and equipment, net
    
    
    826,541
    
    
    
    799,405Restricted investments
    
    
    250
    
    
    
    250Deferred financing fees, net
    
    
    66,906
    
    
    
    68,571Intangible assets, net
    
    
    2,594,165
    
    
    
    2,611,461Related party long-term assets
    
    
    107,520
    
    
    
    111,730Other long-term assets
    
    
    8,149
    
    
    
    25,529Total assets
    
    $
    4,088,347
    
    
    $
    4,141,063LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued expenses
    
    $
    157,991
    
    
    $
    198,219Accrued interest
    
    
    48,669
    
    
    
    46,939Current portion of deferred revenue
    
    
    546,367
    
    
    
    506,441Current portion of deferred credit on executory contracts
    
    
    259,325
    
    
    
    252,831Current maturities of long-term debt
    
    
    9,463
    
    
    
    11,382Related party current liabilities
    
    
    136,875
    
    
    
    184,693Total current liabilities
    
    
    1,158,690
    
    
    
    1,200,505Deferred revenue
    
    
    145,916
    
    
    
    133,863Deferred credit on executory contracts
    
    
    716,197
    
    
    
    784,078Long-term debt
    
    
    1,542,218
    
    
    
    1,494,921Long-term related party debt
    
    
    158,595
    
    
    
    157,032Deferred tax liability
    
    
    919,197
    
    
    
    915,274Related party long-term liabilities
    
    
    26,599
    
    
    
    46,301Other long-term liabilities
    
    
    39,435
    
    
    
    38,851Total liabilities
    
    
    4,706,847
    
    
    
    4,770,825Commitments and contingencies (Note 12)Stockholders deficit:Common stock, par value $0.10; 1,000 shares authorized; 125 shares
issued and outstanding as of March 31, 2010 and December 31, 2009
    
    
    -
    
    
    
    -Accumulated other comprehensive loss, net of tax
    
    
    (5,976
    )
    
    
    (6,581
    )Additional paid-in capital
    
    
    6,060,660
    
    
    
    6,060,660Accumulated deficit
    
    
    (6,673,184
    )
    
    
    (6,683,841
    )Total stockholders deficit
    
    
    (618,500
    )
    
    
    (629,762
    )Total liabilities and stockholders deficit
    
    $
    4,088,347
    
    
    $
    4,141,063
  2




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE INCOME
 AccumulatedCommon Stock
    
    Other
    
    Additional
    
    
    
    
    
    TotalComprehensive
    
    Paid-in
    
    Accumulated
    
    Stockholders(in thousands, except share data)
    
    Shares
    
    Amount
    
    Loss
    
    Capital
    
    Deficit
    
    DeficitBalance at December 31, 2009
    
    
    100
    
    
    $
    -
    
    
    $
    (6,581
    )
    
    $
    6,060,660
    
    
    $
    (6,683,841
    )
    
    $
    (629,762
    )Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    10,657
    
    
    
    10,657Other comprehensive income:Unrealized gain on available-for-sale securities
    
    
    -
    
    
    
    -
    
    
    
    469
    
    
    
    -
    
    
    
    -
    
    
    
    469Foreign currency translation adjustment, net of
tax of $63
    
    
    -
    
    
    
    -
    
    
    
    136
    
    
    
    -
    
    
    
    -
    
    
    
    136Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,262Balance at March 31, 2010
    
    
    100
    
    
    $
    -
    
    
    $
    (5,976
    )
    
    $
    6,060,660
    
    
    $
    (6,673,184
    )
    
    $
    (618,500
    )
  3




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three MonthsEnded March 31,(in thousands)
    
    2010
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    10,657
    
    
    $
    (109,994
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    37,469
    
    
    
    54,827Non-cash interest expense
    
    
    14,758
    
    
    
    19,735Provision for doubtful accounts
    
    
    3,391
    
    
    
    4,356Amortization of deferred income related to equity method investment
    
    
    (2,194
    )
    
    
    (694
    )Loss on investments
    
    
    2,719
    
    
    
    6,937Loss on extinguishment of debt and credit facilities, net
    
    
    8
    
    
    
    627Share-based payment expense
    
    
    6,874
    
    
    
    10,863(Gain) loss on change in value of embedded derivatives
    
    
    37,291
    
    
    
    58,203Deferred income taxes
    
    
    629
    
    
    
    578Other non-cash purchase price adjustments
    
    
    (58,817
    )
    
    
    (41,150
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (9,274
    )
    
    
    (747
    )Inventory
    
    
    (752
    )
    
    
    1,367Related party assets
    
    
    3,080
    
    
    
    10,052Prepaid expenses and other current assets
    
    
    8,849
    
    
    
    7,786Other long-term assets
    
    
    6,460
    
    
    
    10,703Accounts payable and accrued expenses
    
    
    (19,176
    )
    
    
    (15,754
    )Accrued interest
    
    
    1,730
    
    
    
    (3,890
    )Deferred revenue
    
    
    49,409
    
    
    
    48,937Related party liabilities
    
    
    (71,326
    )
    
    
    (13,239
    )Other long-term liabilities
    
    
    585
    
    
    
    (8,444
    )Net cash provided by operating activities
    
    
    22,370
    
    
    
    41,059Cash flows from investing activities:Additions to property and equipment
    
    
    (69,235
    )
    
    
    (3,557
    )Sale of restricted and other investments
    
    
    9,450
    
    
    
    -Net cash used in investing activities
    
    
    (59,785
    )
    
    
    (3,557
    )Cash flows from financing activities:Payment of premiums on redemption of debt
    
    
    -
    
    
    
    (10,072
    )Repayment of long-term borrowings
    
    
    (3,405
    )
    
    
    (26,782
    )Debt issuance costs
    
    
    -
    
    
    
    (6,181
    )Net cash used in financing activities
    
    
    (3,405
    )
    
    
    (43,035
    )Net decrease in cash and cash equivalents
    
    
    (40,820
    )
    
    
    (5,533
    )Cash and cash equivalents at beginning of period
    
    
    212,155
    
    
    
    206,740Cash and cash equivalents at end of period
    
    $
    171,335
    
    
    $
    201,207Supplemental Disclosure of Cash and Non-Cash Flow InformationCash paid during the period for:Interest, net of amounts capitalized
    
    $
    40,029
    
    
    $
    50,407Non-cash investing and financing activities:Property acquired through capital leases
    
    
    -
    
    
    
    260Release of restricted investments
    
    
    -
    
    
    
    120,000
  4




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (1) Business
       (2) Principles of Consolidation and Basis of Presentation
 Principles of Consolidation
  Basis of Presentation
   5




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
   (3) Summary of Significant Accounting Policies
 Use of Estimates
   Recent Accounting Pronouncements
 Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance
 As Originally
    
    Retrospective
    
    As CurrentlyBalance Sheet Line Item:
    
    Reported
    
    Adjustments
    
    ReportedDeferred financing fees, net
    
    $
    5,307
    
    
    $
    63,264
    
    
    $
    68,571Related party long-term assets,
net of current portion
    
    
    110,439
    
    
    
    1,291
    
    
    
    111,730Long-term debt
    
    
    1,502,349
    
    
    
    (7,428
    )
    
    
    1,494,921Long-term related party debt
    
    
    157,183
    
    
    
    (151
    )
    
    
    157,032Additional paid-in capital
    
    
    5,989,700
    
    
    
    70,960
    
    
    
    6,060,660Accumulated deficit
    
    
    (6,685,015
    )
    
    
    1,174
    
    
    
    (6,683,841
    )
    6




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Improving Disclosures about Fair Value
Measurements
 Subsequent Events
 Accounts Receivable
   March 31,
    
    December 31,2010
    
    2009Gross accounts receivable
    
    $
    70,825
    
    
    $
    65,399Allowance for doubtful accounts
    
    
    (4,900
    )
    
    
    (5,357
    )Total accounts receivable, net
    
    $
    65,925
    
    
    $
    60,042
 Inventory
   March 31,
    
    December 31,2010
    
    2009Raw materials
    
    $
    5,711
    
    
    $
    5,002Finished goods
    
    
    6,263
    
    
    
    4,975Allowance for obsolescence
    
    
    (7,206
    )
    
    
    (5,961
    )Total inventory, net
    
    $
    4,768
    
    
    $
    4,016
 Reclassifications
  7




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 (4) Intangible Assets
  March 31, 2010
    
    December 31, 2009Weighted Average
    
    Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingUseful Lives
    
    Value
    
    Amortization
    
    Value
    
    Value
    
    Amortization
    
    ValueIndefinite life intangible assetsFCC licenses
    
    Indefinite
    
    $
    2,000,000
    
    
    $
    -
    
    
    $
    2,000,000
    
    
    $
    2,000,000
    
    
    $
    -
    
    
    $
    2,000,000Trademark
    
    Indefinite
    
    
    250,000
    
    
    
    -
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    -
    
    
    
    250,000Definite life intangible assetsSubscriber relationships
    
    9 years
    
    $
    380,000
    
    
    $
    (105,170
    )
    
    $
    274,830
    
    
    $
    380,000
    
    
    $
    (91,186
    )
    
    $
    288,814Licensing agreements
    
    9.1 years
    
    
    75,000
    
    
    
    (16,360
    )
    
    
    58,640
    
    
    
    75,000
    
    
    
    (13,906
    )
    
    
    61,094Proprietary software
    
    6 years
    
    
    16,552
    
    
    
    (7,626
    )
    
    
    8,926
    
    
    
    16,552
    
    
    
    (6,823
    )
    
    
    9,729Developed technology
    
    10 years
    
    
    2,000
    
    
    
    (333
    )
    
    
    1,667
    
    
    
    2,000
    
    
    
    (283
    )
    
    
    1,717Leasehold interests
    
    7.4 years
    
    
    132
    
    
    
    (30
    )
    
    
    102
    
    
    
    132
    
    
    
    (25
    )
    
    
    107Total intangible assets
    
    
    
    
    
    $
    2,723,684
    
    
    $
    (129,519
    )
    
    $
    2,594,165
    
    
    $
    2,723,684
    
    
    $
    (112,223
    )
    
    $
    2,611,461
 Indefinite Life Intangible Assets
    st
 Definite Life Intangible Assets
   Year ending December 31,
    
    AmountRemaining 2010
    
    $
    48,6202011
    
    
    58,8502012
    
    
    53,4202013
    
    
    47,0972014
    
    
    38,619Thereafter
    
    
    97,559Total definite life intangible assets, net
    
    $
    344,165
 8




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 (5) Subscriber Revenue
   For the Three MonthsEnded March 31,2010
    
    
    2009Subscription fees
    
    $
    303,703
    
    
    $
    286,939Activation fees
    
    
    1,345
    
    
    
    569Effect of rebates
    
    
    (36
    )
    
    
    (42
    )Total subscriber revenue
    
    $
    305,012
    
    
    $
    287,466
 (6) Interest Costs
  For the Three MonthsEnded March 31,2010
    
    
    2009Interest costs charged to expense
    
    $
    59,999
    
    
    $
    67,911Interest costs capitalized
    
    
    10,870
    
    
    
    7,642Total interest costs incurred
    
    $
    70,869
    
    
    $
    75,553
  (7) Property and Equipment
  March 31,
    
    
    December 31,2010
    
    
    2009Satellite system
    
    $
    490,126
    
    
    $
    490,126Terrestrial repeater network
    
    
    41,594
    
    
    
    41,604Leasehold improvements
    
    
    7,250
    
    
    
    7,250Broadcast studio equipment
    
    
    8,226
    
    
    
    7,957Capitalized software and hardware
    
    
    54,542
    
    
    
    53,772Satellite telemetry, tracking and control facilities
    
    
    32,914
    
    
    
    32,877Furniture, fixtures, equipment and other
    
    
    27,550
    
    
    
    27,418Land
    
    
    38,100
    
    
    
    38,100Building
    
    
    53,851
    
    
    
    53,851Construction in progress
    
    
    270,001
    
    
    
    223,083Total property and equipment
    
    
    1,024,154
    
    
    
    976,038Accumulated depreciation and amortization
    
    
    (197,613
    )
    
    
    (176,633
    )Property and equipment, net
    
    $
    826,541
    
    
    $
    799,405
 9




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Satellites
   (8) Related Party Transactions
  Related party
    
    
    Related party
    
    
    Related party
    
    
    Related party
    
    
    Related partycurrent assets
    
    
    long-term assets
    
    
    current liabilities
    
    
    long-term liabilities
    
    
    long-term debtMarch 31,
    
    
    December 31,
    
    
    March 31,
    
    
    December 31,
    
    
    March 31,
    
    
    December 31,
    
    
    March 31,
    
    
    December 31,
    
    
    March 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Liberty Media
    
    $
    -
    
    
    $
    -
    
    
    $
    1,877
    
    
    $
    1,937
    
    
    $
    4,758
    
    
    $
    4,589
    
    
    $
    -
    
    
    $
    -
    
    
    $
    158,595
    
    
    $
    157,032XM Canada
    
    
    1,201
    
    
    
    1,011
    
    
    
    27,613
    
    
    
    24,429
    
    
    
    2,775
    
    
    
    2,775
    
    
    
    26,599
    
    
    
    28,793
    
    
    
    -
    
    
    
    -General Motors
    
    
    100,687
    
    
    
    99,554
    
    
    
    78,030
    
    
    
    85,364
    
    
    
    55,132
    
    
    
    93,107
    
    
    
    -
    
    
    
    17,508
    
    
    
    -
    
    
    
    -American Honda
    
    
    2,094
    
    
    
    2,914
    
    
    
    -
    
    
    
    -
    
    
    
    4,079
    
    
    
    3,841
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -SIRIUS
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    70,131
    
    
    
    80,381
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    $
    103,982
    
    
    $
    103,479
    
    
    $
    107,520
    
    
    $
    111,730
    
    
    $
    136,875
    
    
    $
    184,693
    
    
    $
    26,599
    
    
    $
    46,301
    
    
    $
    158,595
    
    
    $
    157,032
 Liberty Media
   March 31,
    
    
    December 31,2010
    
    
    200911.25% Senior Secured Notes due 2013
    
    $
    87,000
    
    
    $
    87,00013% Senior Notes due 2013
    
    
    76,000
    
    
    
    76,0007% Exchangeable Senior Subordinated Notes due 2014
    
    
    11,000
    
    
    
    11,000Total
    
    $
    174,000
    
    
    $
    174,000
  10




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XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM Canada
      For the Three MonthsEnded March 31,2010
    
    
    2009Amortization of XM Canada deferred income
    
    $
    694
    
    
    $
    694Subscriber and activation fees royalties
    
    
    2,347
    
    
    
    114Licensing fee revenue
    
    
    1,500
    
    
    
    1,500Advertising reimbursements
    
    
    333
    
    
    
    367Total revenue from XM Canada
    
    $
    4,874
    
    
    $
    2,675
 General Motors and American Honda
   11




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
   For the Three MonthsEnded March 31,2010
    
    
    2009General Motors
    
    $
    7,764
    
    
    $
    6,992American Honda
    
    
    2,887
    
    
    
    2,832Total
    
    $
    10,651
    
    
    $
    9,824
  For the Three Months Ended March 31,2010
    
    
    2009General
    
    
    American
    
    
    General
    
    
    AmericanMotors
    
    
    Honda
    
    
    Motors
    
    
    HondaSales and marketing
    
    $
    7,799
    
    
    $
    -
    
    
    $
    8,094
    
    
    $
    -Revenue share and royalties
    
    
    9,067
    
    
    
    1,831
    
    
    
    17,674
    
    
    
    1,435Subscriber acquisition costs
    
    
    10,487
    
    
    
    1,226
    
    
    
    9,261
    
    
    
    1,331Customer service and billing
    
    
    75
    
    
    
    -
    
    
    
    90
    
    
    
    -Interest expense, net of amounts capitalized
    
    
    1,421
    
    
    
    -
    
    
    
    336
    
    
    
    -Total
    
    $
    28,849
    
    
    $
    3,057
    
    
    $
    35,455
    
    
    $
    2,766
 SIRIUS
    12




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XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 (9) Investments
  March 31,
    
    
    December 31,2010
    
    
    2009Investment in XM Canada
    
    $
    -
    
    
    $
    2,390Investment in XM Canada debentures
    
    
    3,169
    
    
    
    2,970Auction rate certificates
    
    
    -
    
    
    
    8,556Restricted investments
    
    
    250
    
    
    
    250Total investments
    
    $
    3,419
    
    
    $
    14,166
 XM Canada
    For the Three MonthsEnded March 31,2010
    
    
    2009Share of XM Canada net loss
    
    $
    (3,151
    )
    
    $
    (3,903
    )Impairment of XM Canada
    
    
    -
    
    
    
    (3,034
    )Gain on sale of auction rate certificate
    
    
    425
    
    
    
    -Total
    
    $
    (2,726
    )
    
    $
    (6,937
    )
   13




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Auction Rate Certificates
  Restricted Investments
  (10) Fair Value
  Fair Value Measurements UsingQuoted Prices in Active
    
    
    
    
    
    
    SignificantMarkets for Identical
    
    
    Significant Other
    
    
    Unobservable(in thousands)
    
    Assets (Level 1)
    
    
    Observable Inputs (Level 2)
    
    
    Inputs (Level 3)
    
    
    Carrying ValueAssets:Host contract and embedded
derivatives
    
    
    N/A
    
    
    
    N/A
    
    
    $
    3,169
    
    
    $
    3,169Liabilities:Debt-related embedded derivatives
    
    $
    -
    
    
    $
    -
    
    
    $
    93,483
    
    
    $
    93,483
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Debentures and
    
    
    Debt-RelatedAuction Rate Securities
    
    Embedded Derivatives
    
    Embedded DerivativesBalance at December 31, 2009
    
    $
    8,556
    
    
    $
    2,970
    
    
    $
    56,192Total gains and losses (realized /unrealized)
    
    
    425
    
    
    
    34
    
    
    
    37,291Included in other comprehensive income
    
    
    469
    
    
    
    165
    
    
    
    -Sale of assets
    
    
    (9,450
    )
    
    
    -
    
    
    
    -Balance at March 31, 2010
    
    $
    -
    
    
    $
    3,169
    
    
    $
    93,483
  14




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XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 (11) Debt
  ConversionPrice (per
    
    
    March 31,
    
    
    December 31,SIRIUS share)
    
    
    2010
    
    
    200910% Senior PIK Secured Notes due 2011 (a)
    
    
    N/A
    
    
    
    113,685
    
    
    
    113,685Less: discount
    
    
    
    
    
    
    (6,500
    )
    
    
    (7,711
    )11.25% Senior Secured Notes due 2013 (b)
    
    
    N/A
    
    
    
    525,750
    
    
    
    525,750Less: discount
    
    
    
    
    
    
    (30,398
    )
    
    
    (32,259
    )13% Senior Notes due 2013 (c)
    
    
    N/A
    
    
    
    778,500
    
    
    
    778,500Less: discount
    
    
    
    
    
    
    (72,610
    )
    
    
    (76,602
    )9.75% Senior Notes due 2014 (d)
    
    
    N/A
    
    
    
    5,260
    
    
    
    5,2607% Exchangeable Senior Subordinated Notes due
2014 (e)
    
    $
    1.875
    
    
    
    550,000
    
    
    
    550,000Less: discount
    
    
    
    
    
    
    (257,793
    )
    
    
    (263,784
    )Other debt:Capital leases
    
    
    N/A
    
    
    
    10,899
    
    
    
    14,304Embedded derivatives (f)
    
    
    
    
    
    
    93,483
    
    
    
    56,192Total debt
    
    
    
    
    
    
    1,710,276
    
    
    
    1,663,335Less: current maturities
    
    
    
    
    
    
    9,463
    
    
    
    11,382Total long-term
    
    
    
    
    
    
    1,700,813
    
    
    
    1,651,953Less: related party
    
    
    
    
    
    
    158,595
    
    
    
    157,032Total long-term, excluding related party
    
    
    
    
    $
    

    1,542,218
    
    
    $
    1,494,921
 (a) 10% Senior PIK Secured Notes due 2011
    (b) 11.25% Senior Secured Notes due 2013
  (c) 13% Senior Notes due 2013
  15




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XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 (d) 9.75% Senior Notes due 2014
   (e) 7% Exchangeable Senior Subordinated Notes due 2014
   (f) Embedded Derivatives
   Covenants and Restrictions
    16




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XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 (12) Commitments and Contingencies
  Remaining(in thousands)
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    TotalLong-term debt obligations
    
    $
    7,977
    
    
    $
    116,580
    
    
    $
    27
    
    
    $
    1,304,250
    
    
    $
    555,260
    
    
    $
    -
    
    
    $
    1,984,094Cash interest payments
    
    
    160,703
    
    
    
    209,826
    
    
    
    199,365
    
    
    
    169,791
    
    
    
    38,756
    
    
    
    -
    
    
    
    778,441Lease obligations
    
    
    16,389
    
    
    
    8,436
    
    
    
    5,134
    
    
    
    2,804
    
    
    
    2,228
    
    
    
    1,492
    
    
    
    36,483Satellite and transmission
    
    
    46,467
    
    
    
    2,826
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    8,635
    
    
    
    57,928Programming and content
    
    
    43,574
    
    
    
    111,131
    
    
    
    101,015
    
    
    
    20,678
    
    
    
    10,350
    
    
    
    4,000
    
    
    
    290,748Satellite performance incentive payments
    
    
    3,762
    
    
    
    4,695
    
    
    
    5,030
    
    
    
    5,392
    
    
    
    5,784
    
    
    
    37,048
    
    
    
    61,711Marketing and distribution
    
    
    10,078
    
    
    
    9,271
    
    
    
    9,034
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    1,500
    
    
    
    35,883Other
    
    
    4,890
    
    
    
    395
    
    
    
    53
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,338Total
    
    $
    293,840
    
    
    $
    463,160
    
    
    $
    319,658
    
    
    $
    1,505,915
    
    
    $
    615,378
    
    
    $
    52,675
    
    
    $
    3,250,626
 Long-term debt obligations.
 Cash interest payments.
 Satellite and transmission.
 Programming and content.
 Marketing and distribution.
 Satellite incentive payments.
 Operating lease obligations.
 17




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Other.
  Legal Proceedings
 FCC Merger Order.
 Advanced Recording Functionality Disputes/Atlantic Recording Corporation, BMG Music, Capital
Records, Inc., Elektra Entertainment Group Inc., Interscope Records, Motown Record Company, L.P.,
Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records, Inc. and Warner Bros. Records
Inc. v. XM Satellite Radio Inc.
  Other Matters
 (13) Condensed Consolidating Financial Information
   Basis of Presentation
   18




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.
    
    
    Inc.
    
    
    LLC
    
    
    LLC
    
    
    LLC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Radio Inc.Revenue
    
    $
    353,239
    
    
    $
    -
    
    
    $
    -
    
    
    $
    2,583
    
    
    $
    330
    
    
    $
    -
    
    
    $
    (2,899
    )
    
    $
    353,253Cost of services
    
    
    116,863
    
    
    
    3
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    116,866Subscriber acquisition costs
    
    
    32,221
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    32,221Sales and marketing
    
    
    26,051
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    26,051Engineering, design and development
    
    
    5,230
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,230General and administrative
    
    
    28,202
    
    
    
    185
    
    
    
    2
    
    
    
    277
    
    
    
    73
    
    
    
    -
    
    
    
    (2,201
    )
    
    
    26,538Depreciation and amortization
    
    
    36,859
    
    
    
    -
    
    
    
    -
    
    
    
    508
    
    
    
    102
    
    
    
    -
    
    
    
    -
    
    
    
    37,469Total operating expenses
    
    
    245,426
    
    
    
    188
    
    
    
    2
    
    
    
    785
    
    
    
    175
    
    
    
    -
    
    
    
    (2,201
    )
    
    
    244,375Income (loss) from operations
    
    
    107,813
    
    
    
    (188
    )
    
    
    (2
    )
    
    
    1,798
    
    
    
    155
    
    
    
    -
    
    
    
    (698
    )
    
    
    108,878Other income (expense):Interest expense, net of amounts
capitalized
    
    
    (74,486
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    14,487
    
    
    
    (59,999
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (8
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (8
    )Gain (loss) on change in value of
embedded derivative
    
    
    (37,291
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (37,291
    )Other income (expense)
    
    
    14,680
    
    
    
    46,038
    
    
    
    2,824
    
    
    
    -
    
    
    
    -
    
    
    
    14,403
    
    
    
    (78,239
    )
    
    
    (294
    )Net income (loss) before
income taxes
    
    
    10,708
    
    
    
    45,850
    
    
    
    2,822
    
    
    
    1,798
    
    
    
    155
    
    
    
    14,403
    
    
    
    (64,450
    )
    
    
    11,286Benefit from (provision for)
income taxes
    
    
    (51
    )
    
    
    (578
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (629
    )Net income (loss)
    
    $
    10,657
    
    
    $
    45,272
    
    
    $
    2,822
    
    
    $
    1,798
    
    
    $
    155
    
    
    $
    14,403
    
    
    $
    (64,450
    )
    
    $
    10,657
 19




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2009
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.
    
    
    Inc.
    
    
    LLC
    
    
    LLC
    
    
    LLC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Radio Inc.Revenue
    
    $
    302,234
    
    
    $
    -
    
    
    $
    -
    
    
    $
    2,569
    
    
    $
    332
    
    
    $
    -
    
    
    $
    (2,901
    )
    
    $
    302,234Cost of services
    
    
    129,478
    
    
    
    -
    
    
    
    9
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    107
    
    
    
    129,594Subscriber acquisition costs
    
    
    26,250
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    26,250Sales and marketing
    
    
    31,712
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    31,712Engineering, design and development
    
    
    4,751
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    4,751General and administrative
    
    
    33,663
    
    
    
    -
    
    
    
    -
    
    
    
    312
    
    
    
    85
    
    
    
    -
    
    
    
    (2,308
    )
    
    
    31,752Depreciation and amortization
    
    
    52,290
    
    
    
    -
    
    
    
    1,999
    
    
    
    401
    
    
    
    137
    
    
    
    -
    
    
    
    -
    
    
    
    54,827Total operating expenses
    
    
    278,144
    
    
    
    -
    
    
    
    2,008
    
    
    
    713
    
    
    
    222
    
    
    
    -
    
    
    
    (2,201
    )
    
    
    278,886Income (loss) from operations
    
    
    24,090
    
    
    
    -
    
    
    
    (2,008
    )
    
    
    1,856
    
    
    
    110
    
    
    
    -
    
    
    
    (700
    )
    
    
    23,348Other income (expense):Interest expense, net of amounts
capitalized
    
    
    (82,519
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (161
    )
    
    
    14,769
    
    
    
    (67,911
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (627
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (627
    )Loss on change in value of embedded
derivative
    
    
    (58,203
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (58,203
    )Other income (expense)
    
    
    7,843
    
    
    
    43,054
    
    
    
    2,902
    
    
    
    -
    
    
    
    -
    
    
    
    14,608
    
    
    
    (74,430
    )
    
    
    (6,023
    )Net (loss) income before
income taxes
    
    
    (109,416
    )
    
    
    43,054
    
    
    
    894
    
    
    
    1,856
    
    
    
    110
    
    
    
    14,447
    
    
    
    (60,361
    )
    
    
    (109,416
    )Provision for (benefit from) income taxes
    
    
    (578
    )
    
    
    (578
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    578
    
    
    
    (578
    )Net (loss) income
    
    $
    (109,994
    )
    
    $
    42,476
    
    
    $
    894
    
    
    $
    1,856
    
    
    $
    110
    
    
    $
    14,447
    
    
    $
    (59,783
    )
    
    $
    (109,994
    )
 20




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES  UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2010
 XM
    
    XM 1500
    
    XM
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    
    
    
    Equipment
    
    Eckington
    
    Investment
    
    Other
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.
    
    XM Radio Inc.
    
    Leasing LLC
    
    LLC
    
    LLC
    
    Subsidiaries
    
    Eliminations
    
    Radio Inc.Current assets:Cash and cash equivalents
    
    $
    163,585
    
    
    $
    -
    
    
    $
    21
    
    
    $
    6,732
    
    
    $
    997
    
    
    $
    -
    
    
    $
    -
    
    
    $
    171,335Accounts receivable, net
    
    
    65,925
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    65,925Due from subsidiaries/affiliates
    
    
    20,564
    
    
    
    826,288
    
    
    
    69,197
    
    
    
    49,035
    
    
    
    5,062
    
    
    
    801,251
    
    
    
    (1,771,397
    )
    
    
    -Inventory, net
    
    
    4,768
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    4,768Prepaid expenses
    
    
    67,910
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    67,910Related party current assets
    
    
    90,836
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    13,146
    
    
    
    103,982Deferred tax asset
    
    
    67,871
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    67,871Other current assets
    
    
    3,395
    
    
    
    -
    
    
    
    56
    
    
    
    236
    
    
    
    -
    
    
    
    -
    
    
    
    (662
    )
    
    
    3,025Total current assets
    
    
    484,854
    
    
    
    826,288
    
    
    
    69,274
    
    
    
    56,003
    
    
    
    6,059
    
    
    
    801,251
    
    
    
    (1,758,913
    )
    
    
    484,816Property and equipment, net
    
    
    757,474
    
    
    
    -
    
    
    
    -
    
    
    
    56,650
    
    
    
    12,417
    
    
    
    -
    
    
    
    -
    
    
    
    826,541Investment in subsidiaries/affiliates
    
    
    3,055,795
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,055,795
    )
    
    
    -Restricted investments
    
    
    250
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    250Deferred financing fees, net
    
    
    66,906
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    66,906Intangible assets, net
    
    
    594,165
    
    
    
    2,000,000
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,594,165Related party long-term assets
    
    
    107,520
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    107,520Other long-term assets
    
    
    6,112
    
    
    
    -
    
    
    
    -
    
    
    
    2,037
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    8,149Total assets
    
    $
    5,073,076
    
    
    $
    2,826,288
    
    
    $
    69,274
    
    
    $
    114,690
    
    
    $
    18,476
    
    
    $
    801,251
    
    
    $
    (4,814,708
    )
    
    $
    4,088,347Current liabilities:Accounts payable and accrued expenses
    
    $
    204,967
    
    
    $
    -
    
    
    $
    105
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    (47,081
    )
    
    $
    157,991Accrued interest
    
    
    48,669
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    48,669Due to subsidiaries/affiliates
    
    
    1,695,767
    
    
    
    -
    
    
    
    2,527
    
    
    
    5,187
    
    
    
    -
    
    
    
    12,556
    
    
    
    (1,716,037
    )
    
    
    -Current portion of deferred revenue
    
    
    546,367
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    546,367Current portion of deferred credit
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -on executory contracts
    
    
    259,325
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    259,325Current maturities of long-term debt
    
    
    9,463
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    9,463Current maturities of long-term
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -related party debt
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Related party current liabilities
    
    
    129,469
    
    
    
    3
    
    
    
    46
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    7,357
    
    
    
    136,875Total current liabilities
    
    
    2,894,027
    
    
    
    3
    
    
    
    2,678
    
    
    
    5,187
    
    
    
    -
    
    
    
    12,556
    
    
    
    (1,755,761
    )
    
    
    1,158,690Deferred revenue
    
    
    145,916
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    145,916Deferred credit on executory
contracts
    
    
    716,197
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    716,197Long-term debt
    
    
    1,542,218
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,542,218Long-term related party debt
    
    
    158,595
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    158,595Deferred tax liability
    
    
    164,121
    
    
    
    755,076
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    919,197Related party long-term liability
    
    
    26,599
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    26,599Other long-term liabilities
    
    
    43,901
    
    
    
    -
    
    
    
    -
    
    
    
    (1,315
    )
    
    
    -
    
    
    
    -
    
    
    
    (3,151
    )
    
    
    39,435Total liabilities
    
    
    5,691,574
    
    
    
    755,079
    
    
    
    2,678
    
    
    
    3,872
    
    
    
    -
    
    
    
    12,556
    
    
    
    (1,758,912
    )
    
    
    4,706,847Commitments and contingenciesStockholders equity (deficit):Capital stock
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Accumulated other comprehensive loss
    
    
    (5,976
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (5,976
    )Additional paid-in-capital
    
    
    6,060,660
    
    
    
    1,781,641
    
    
    
    57,853
    
    
    
    99,348
    
    
    
    17,615
    
    
    
    691,811
    
    
    
    (2,648,268
    )
    
    
    6,060,660Retained earnings (deficit)
    
    
    (6,673,182
    )
    
    
    289,568
    
    
    
    8,743
    
    
    
    11,470
    
    
    
    861
    
    
    
    96,884
    
    
    
    (407,528
    )
    
    
    (6,673,184
    )Total stockholders equity (deficit)
    
    
    (618,498
    )
    
    
    2,071,209
    
    
    
    66,596
    
    
    
    110,818
    
    
    
    18,476
    
    
    
    788,695
    
    
    
    (3,055,796
    )
    
    
    (618,500
    )Total liabilities and stockholders
equity (deficit)
    
    $
    5,073,076
    
    
    $
    2,826,288
    
    
    $
    69,274
    
    
    $
    114,690
    
    
    $
    18,476
    
    
    $
    801,251
    
    
    $
    (4,814,708
    )
    
    $
    4,088,347
 21




---



##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2009
 XM
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    
    
    
    
    Equipment
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.
    
    
    XM Radio Inc.
    
    
    Leasing LLC
    
    
    LLC
    
    
    LLC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Radio Inc.Current assets:Cash and cash equivalents
    
    $
    205,638
    
    
    $
    -
    
    
    $
    16
    
    
    $
    5,615
    
    
    $
    886
    
    
    $
    -
    
    
    $
    -
    
    
    $
    212,155Accounts receivable, net
    
    
    60,042
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    60,042Due from subsidiaries/affiliates
    
    
    44,316
    
    
    
    784,768
    
    
    
    63,941
    
    
    
    48,768
    
    
    
    6,216
    
    
    
    774,293
    
    
    
    (1,722,302
    )
    
    
    -Inventory, net
    
    
    4,016
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    4,016Prepaid expenses
    
    
    75,199
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    75,199Related party current assets
    
    
    103,479
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    103,479Deferred tax asset
    
    
    64,641
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    64,641Other current assets
    
    
    4,325
    
    
    
    -
    
    
    
    64
    
    
    
    196
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    4,585Total current assets
    
    
    561,656
    
    
    
    784,768
    
    
    
    64,021
    
    
    
    54,579
    
    
    
    7,102
    
    
    
    774,293
    
    
    
    (1,722,302
    )
    
    
    524,117Property and equipment, net
    
    
    729,729
    
    
    
    -
    
    
    
    -
    
    
    
    57,157
    
    
    
    12,519
    
    
    
    -
    
    
    
    -
    
    
    
    799,405Investment in subsidiaries/affiliates
    
    
    2,991,341
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (2,991,341
    )
    
    
    -Restricted investments
    
    
    250
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    250Deferred financing fees, net
    
    
    68,571
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    68,571Intangible assets, net
    
    
    611,461
    
    
    
    2,000,000
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    2,611,461Related party long-term assets
    
    
    111,730
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    111,730Other long-term assets
    
    
    23,478
    
    
    
    -
    
    
    
    -
    
    
    
    2,051
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    25,529Total assets
    
    $
    5,098,216
    
    
    $
    2,784,768
    
    
    $
    64,021
    
    
    $
    113,787
    
    
    $
    19,621
    
    
    $
    774,293
    
    
    $
    (4,713,643
    )
    
    $
    4,141,063Current liabilities:Accounts payable and accrued expenses
    
    $
    241,981
    
    
    $
    -
    
    
    $
    105
    
    
    $
    295
    
    
    $
    72
    
    
    $
    -
    
    
    $
    (44,234
    )
    
    $
    198,219Accrued interest
    
    
    46,939
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    46,939Due to subsidiaries/affiliates
    
    
    1,671,720
    
    
    
    -
    
    
    
    -
    
    
    
    4,810
    
    
    
    714
    
    
    
    -
    
    
    
    (1,677,244
    )
    
    
    -Current portion of deferred revenue
    
    
    506,441
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    506,441Current portion of deferred credit
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -on executory contracts
    
    
    252,831
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    252,831Current maturities of long-term debt
    
    
    11,382
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    11,382Current maturities of long-term
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -related party debt
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Related party current liabilities
    
    
    180,667
    
    
    
    -
    
    
    
    143
    
    
    
    977
    
    
    
    516
    
    
    
    -
    
    
    
    2,390
    
    
    
    184,693Total current liabilities
    
    
    2,911,961
    
    
    
    -
    
    
    
    248
    
    
    
    6,082
    
    
    
    1,302
    
    
    
    -
    
    
    
    (1,719,088
    )
    
    
    1,200,505Deferred revenue
    
    
    133,863
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    133,863Deferred credit on executory
contracts
    
    
    784,078
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    784,078Long-term debt
    
    
    1,494,921
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,494,921Long-term related party debt
    
    
    157,032
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    157,032Deferred tax liability
    
    
    156,442
    
    
    
    758,832
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    915,274Related party long-term liability
    
    
    46,301
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    46,301Other long-term liabilities
    
    
    43,379
    
    
    
    -
    
    
    
    -
    
    
    
    (1,315
    )
    
    
    -
    
    
    
    -
    
    
    
    (3,213
    )
    
    
    38,851Total liabilities
    
    
    5,727,977
    
    
    
    758,832
    
    
    
    248
    
    
    
    4,767
    
    
    
    1,302
    
    
    
    -
    
    
    
    (1,722,301
    )
    
    
    4,770,825Commitments and contingenciesStockholders equity (deficit):Capital stock
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Accumulated other comprehensive loss
    
    
    (6,581
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (6,581
    )Additional paid-in-capital
    
    
    6,060,659
    
    
    
    1,781,641
    
    
    
    57,853
    
    
    
    99,348
    
    
    
    17,615
    
    
    
    691,811
    
    
    
    (2,648,267
    )
    
    
    6,060,660Retained earnings (deficit)
    
    
    (6,683,839
    )
    
    
    244,295
    
    
    
    5,920
    
    
    
    9,672
    
    
    
    704
    
    
    
    82,482
    
    
    
    (343,075
    )
    
    
    (6,683,841
    )Total stockholders equity (deficit)
    
    
    (629,761
    )
    
    
    2,025,936
    
    
    
    63,773
    
    
    
    109,020
    
    
    
    18,319
    
    
    
    774,293
    
    
    
    (2,991,342
    )
    
    
    (629,762
    )Total liabilities and stockholders
equity (deficit)
    
    $
    5,098,216
    
    
    $
    2,784,768
    
    
    $
    64,021
    
    
    $
    113,787
    
    
    $
    19,621
    
    
    $
    774,293
    
    
    $
    (4,713,643
    )
    
    $
    4,141,063
 22




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
 XM Satellite
    
    
    
    
    
    
    XM Equipment
    
    
    XM 1500
    
    
    XM Investment
    
    
    Other
    
    
    
    
    
    
    Consolidated XM(in thousands)
    
    Radio Inc.
    
    
    XM Radio Inc.
    
    
    Leasing LLC
    
    
    Eckington LLC
    
    
    LLC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Satellite Radio Inc.Balance at December 31,
2009
    
    $
    (629,761
    )
    
    $
    2,025,936
    
    
    $
    63,773
    
    
    $
    109,020
    
    
    $
    18,319
    
    
    $
    774,293
    
    
    $
    (2,991,342
    )
    
    $
    (629,762
    )Net income (loss)
    
    
    10,657
    
    
    
    45,272
    
    
    
    2,822
    
    
    
    1,798
    
    
    
    155
    
    
    
    14,403
    
    
    
    (64,450
    )
    
    
    10,657Other comprehensive loss:Unrealized gain on available-for-sale
securities
    
    
    469
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    469Foreign currency
translation
adjustment
    
    
    136
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    136Comprehensive income
(loss)
    
    
    11,262
    
    
    
    45,272
    
    
    
    2,822
    
    
    
    1,798
    
    
    
    155
    
    
    
    14,403
    
    
    
    (64,450
    )
    
    
    11,262Balance at March 31, 2010
    
    $
    (618,499
    )
    
    $
    2,071,208
    
    
    $
    66,595
    
    
    $
    110,818
    
    
    $
    18,474
    
    
    $
    788,696
    
    
    $
    (3,055,792
    )
    
    $
    (618,500
    )
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
 XMEquipment
    
    
    XM 1500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    XM Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.
    
    
    Inc.
    
    
    LLC
    
    
    LLC
    
    
    LLC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Radio Inc.Net cash provided by (used in)
operating activities
    
    $
    21,137
    
    
    $
    -
    
    
    $
    5
    
    
    $
    1,117
    
    
    $
    111
    
    
    $
    -
    
    
    $
    -
    
    
    $
    22,370Cash flows from investing activities:Additions to property and
equipment
    
    
    (69,235
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (69,235
    )Sale of restricted and other
investments
    
    
    9,450
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    9,450Net cash (used in) provided by
investing activities
    
    
    (59,785
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (59,785
    )Cash flows from financing activities:Repayment of long-term borrowings
    
    
    (3,405
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,405
    )Net cash provided by (used in)
financing activities
    
    
    (3,405
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,405
    )Net increase (decrease) in cash
and cash equivalents
    
    
    (42,053
    )
    
    
    -
    
    
    
    5
    
    
    
    1,117
    
    
    
    111
    
    
    
    -
    
    
    
    -
    
    
    
    (40,820
    )Cash and cash equivalents at
beginning of period
    
    
    205,638
    
    
    
    -
    
    
    
    16
    
    
    
    5,615
    
    
    
    886
    
    
    
    -
    
    
    
    -
    
    
    
    212,155Cash and cash equivalents at
end of period
    
    $
    163,585
    
    
    $
    -
    
    
    $
    21
    
    
    $
    6,732
    
    
    $
    997
    
    
    $
    -
    
    
    $
    -
    
    
    $
    171,335
 23




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009
 XMEquipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    XM 1500
    
    
    XM Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.
    
    
    Inc.
    
    
    LLC
    
    
    Eckington LLC
    
    
    LLC
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Radio Inc.Net cash provided by (used in)
operating activities
    
    $
    41,515
    
    
    $
    -
    
    
    $
    (1
    )
    
    $
    (462
    )
    
    $
    7
    
    
    $
    -
    
    
    $
    -
    
    
    $
    41,059Cash flows from investing activities:Additions to property and
equipment
    
    
    (3,557
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,557
    )Net cash used in
investing activities
    
    
    (3,557
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,557
    )Cash flows from financing activities:Repayment of long-term borrowings
    
    
    (26,782
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (26,782
    )Payment of premiums on
redemption of debt
    
    
    (10,072
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (10,072
    )Debt issuance costs
    
    
    (6,181
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (6,181
    )Net cash used in
financing activities
    
    
    (43,035
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (43,035
    )Net increase (decrease) in cash
and cash equivalents
    
    
    (5,077
    )
    
    
    -
    
    
    
    (1
    )
    
    
    (462
    )
    
    
    7
    
    
    
    -
    
    
    
    -
    
    
    
    (5,533
    )Cash and cash equivalents at
beginning of period
    
    
    205,861
    
    
    
    -
    
    
    
    15
    
    
    
    760
    
    
    
    104
    
    
    
    -
    
    
    
    -
    
    
    
    206,740Cash and cash equivalents at
end of period
    
    $
    200,784
    
    
    $
    -
    
    
    $
    14
    
    
    $
    298
    
    
    $
    111
    
    
    $
    -
    
    
    $
    -
    
    
    $
    201,207
 24




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (All dollar amounts referenced in this Item 2 are in thousands, unless otherwise stated.)
 Special Note Regarding Forward-Looking Statements
   
    
    general economic conditions, which have adversely affected our business;
    
    our dependence upon automakers, many of which have experienced a dramatic drop in sales,
and other third parties, such as manufacturers and distributors of satellite radios,
retailers and programming providers;
    
    the substantial indebtedness of XM;
    
    the useful life of our satellites, which have experienced component failures including,
with respect to a number of satellites, failures on their solar arrays, and, in certain
cases, are not insured; and
    
    our competitive position versus other forms of audio entertainment including terrestrial
radio, HD radio, Internet radio, mobile phones, iPods and other MP3 devices, and emerging
next-generation networks and technologies.
  Executive Summary
    25




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##### Table of Contents



Unaudited Actual and Pro Forma Information
  Unaudited Actual Subscribers.
 26




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##### Table of Contents



Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    
    2009Beginning subscribers
    
    
    9,749,100
    
    
    
    9,850,741Gross subscriber additions
    
    
    796,355
    
    
    
    700,949Deactivated subscribers
    
    
    (758,421
    )
    
    
    (895,628
    )Net additions
    
    
    37,934
    
    
    
    (194,679
    )Ending subscribers
    
    
    9,787,034
    
    
    
    9,656,062Retail
    
    
    3,507,574
    
    
    
    4,122,682OEM
    
    
    6,160,553
    
    
    
    5,441,161Rental
    
    
    118,907
    
    
    
    92,219Ending subscribers
    
    
    9,787,034
    
    
    
    9,656,062Retail
    
    
    (151,930
    )
    
    
    (196,950
    )OEM
    
    
    172,405
    
    
    
    (1,563
    )Rental
    
    
    17,459
    
    
    
    3,834Net additions
    
    
    37,934
    
    
    
    (194,679
    )Self-pay
    
    
    9,051,214
    
    
    
    8,991,178Paid promotional
    
    
    735,820
    
    
    
    664,884Ending subscribers
    
    
    9,787,034
    
    
    
    9,656,062Self-pay
    
    
    11,192
    
    
    
    (104,401
    )Paid promotional
    
    
    26,742
    
    
    
    (90,278
    )Net additions
    
    
    37,934
    
    
    
    (194,679
    )Daily weighted average number of subscribers
    
    
    9,757,244
    
    
    
    9,727,153
 Subscribers.
 Unaudited Pro Forma Metrics.
 Unaudited Pro FormaFor the Three Months EndedMarch 31,2010
    
    
    2009Average self-pay monthly churn (1)(7)
    
    
    2.0
    %
    
    
    2.1
    %Conversion rate (2)(7)
    
    
    45.5
    %
    
    
    47.4
    %ARPU (3)(7)
    
    $
    11.69
    
    
    $
    10.58SAC, as adjusted, per gross subscriber addition (4)(7)
    
    $
    55
    
    
    $
    49Customer service and billing expenses, as adjusted,
per average subscriber (5)(7)
    
    $
    0.99
    
    
    $
    1.16Total revenue
    
    $
    360,032
    
    
    $
    320,735Free cash flow (6)(7)
    
    $
    (37,415
    )
    
    $
    37,502Adjusted income from operations (8)
    
    $
    98,391
    
    
    $
    53,658Net income (loss)
    
    $
    15,627
    
    
    $
    (45,582
    )
 27




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##### Table of Contents



Average Self-pay Monthly Churn.
 Conversion Rate.
 ARPU.
 SAC, As Adjusted, Per Gross Subscriber Addition.
 Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber.
 Free Cash Flow.
 Adjusted Income from Operations.
 28




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##### Table of Contents



Unaudited Pro Forma Results of Operations.
 Pro FormaFor the Three Months EndedMarch 31,(in thousands)
    
    2010
    
    
    2009Revenue:Subscriber revenue, including effects of rebates
    
    $
    309,978
    
    
    $
    304,155Advertising revenue, net of agency fees
    
    
    4,093
    
    
    
    4,520Equipment revenue
    
    
    10,258
    
    
    
    5,917Other revenue
    
    
    35,703
    
    
    
    6,143Total revenue
    
    
    360,032
    
    
    
    320,735Operating expenses:Revenue share and royalties
    
    
    68,336
    
    
    
    70,477Programming and content
    
    
    42,602
    
    
    
    44,899Customer service and billing
    
    
    29,088
    
    
    
    33,733Satellite and transmission
    
    
    11,729
    
    
    
    14,486Cost of equipment
    
    
    4,499
    
    
    
    3,465Subscriber acquisition costs
    
    
    49,887
    
    
    
    36,892Sales and marketing
    
    
    28,361
    
    
    
    33,848Engineering, design and development
    
    
    4,753
    
    
    
    3,794General and administrative
    
    
    22,386
    
    
    
    25,483Depreciation and amortization
    
    
    18,782
    
    
    
    23,943Share-based payment expense
    
    
    7,875
    
    
    
    12,184Total operating expenses
    
    
    288,298
    
    
    
    303,204Income (loss) from operations
    
    
    71,734
    
    
    
    17,531Other expense
    
    
    (55,478
    )
    
    
    (62,535
    )Income (loss) before income taxes
    
    
    16,256
    
    
    
    (45,004
    )Income tax expense
    
    
    (629
    )
    
    
    (578
    )Net income (loss)
    
    $
    15,627
    
    
    $
    (45,582
    )
 Highlights for the Three Months Ended March 31, 2010
  29




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##### Table of Contents



Unaudited Actual Information
  Unaudited Actual Metrics.
 Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    
    2009Average self-pay monthly churn (1)(7)
    
    
    2.0
    %
    
    
    2.1
    %Conversion rate (2)(7)
    
    
    45.5
    %
    
    
    47.4
    %ARPU (7)(10)
    
    $
    11.53
    
    
    $
    10.01SAC, as adjusted, per gross subscriber addition (7)(11)
    
    $
    33
    
    
    $
    34Customer service and billing expenses, as adjusted,
per average subscriber (7)(12)
    
    $
    0.99
    
    
    $
    1.16Total revenue
    
    $
    353,253
    
    
    $
    302,234Free cash flow (7)(13)
    
    $
    (37,415
    )
    
    $
    37,502Adjusted income from operations (14)
    
    $
    153,221
    
    
    $
    89,038Net income (loss)
    
    $
    10,657
    
    
    $
    (109,994
    )
 
 Note:
    
    See pages 38 through 44 for footnotes. Average Self-pay Monthly Churn.
 Conversion Rate.
 30




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##### Table of Contents



ARPU.
  SAC, As Adjusted, Per Gross Subscriber Addition.
  Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber.
  Free Cash Flow.
 Adjusted Income from Operations.
 Unaudited Actual Results of Operations.
 Total Revenue
 Subscriber Revenue
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, subscriber revenue
was $305,012 and $287,466, respectively, an increase of 6%, or $17,546. The increase was
attributable to additional Best of programming sales, rate increases on
multi-subscription and internet packages and higher average subscribers.
 31




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##### Table of Contents



For the Three MonthsEnded March 31,2010

    
    2009Subscription fees
    
    $
    303,703
    
    
    $
    286,939Activation fees
    
    
    1,345
    
    
    
    569Effect of rebates
    
    
    (36
    )
    
    
    (42
    )Total subscriber revenue
    
    $
    305,012
    
    
    $
    287,466
  Advertising Revenue.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, net advertising
revenue was $4,093 and $4,520, respectively, which represents a decrease of 9%, or $427.
The decrease was driven by the expiration of a long-term agreement.
  Equipment Revenue.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, equipment revenue
was $10,258 and $5,917, respectively, an increase of 73%, or $4,341. The increase was
primarily driven by increased OEM installations and aftermarket production.
  Other Revenue.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, other revenue was
$33,890 and $4,331, respectively, an increase of 682%, or $29,559. The increase was
primarily due to the introduction of the U.S. Music Royalty Fee in the third quarter of
2009.
  Operating Expenses
 Revenue Share and Royalties.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, revenue share and
royalties were $42,981 and $49,682, respectively, a decrease of 13% or $6,701. This
decrease was primarily attributable to the effect of purchase price accounting and a
decrease in the revenue share rate with an automaker, offset by an increase in our
revenues and an increase in the statutory royalty rate due for the performance of sound
recordings.
 32




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##### Table of Contents



Programming and Content.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, programming and
content expenses were $28,275 and $27,538, respectively, an increase of 3%, or $737. The
increase was primarily attributable to the effect of purchase price accounting and
personnel costs, partially offset by savings on various content agreements and
production costs.
  Customer Service and Billing.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, customer service
and billing expenses were $29,356 and $34,139, respectively, a decrease of 14%, or
$4,783. The decrease was primarily due to lower call center expenses as a result of
moving calls to lower cost locations.
  Satellite and Transmission.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, satellite and
transmission expenses were $11,755 and $14,770, respectively, a decrease of 20%, or
$3,015. The decrease was primarily due to lower personnel costs, consulting expenses and
repeater maintenance expenses.
  Cost of Equipment.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, cost of equipment
was $4,499 and $3,465, respectively, an increase of 30%, or $1,034. The increase was
primarily attributed to component sales to manufacturers and distributors.
  33




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##### Table of Contents



Subscriber Acquisition Costs.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, subscriber
acquisition costs were $32,221 and $26,250, respectively, an increase of 23%, or $5,971.
This increase was primarily driven by higher OEM installations and increased gross
subscriber additions, partially offset by the effect of purchase price accounting, lower
OEM hardware subsidies and lower aftermarket acquisition costs.
  Sales and Marketing.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, sales and marketing
expenses were $26,051 and $31,712, respectively, a decrease of 18%, or $5,661. This
decrease was primarily attributable to lower cooperative marketing, event marketing and
third party distribution support expenses and the effect of purchase price accounting,
partially offset by increased personnel costs and consumer advertising.
  Engineering, Design and Development.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, engineering, design
and development expenses were $5,230 and $4,751, respectively, an increase of 10%, or
$479. This increase was primarily due to higher personnel costs.
  General and Administrative.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, general and
administrative expenses were $26,538 and $31,752, respectively, a decrease of 16%, or
$5,214. This decrease was the result of lower legal, consulting, accounting and office
costs, partially offset by increased personnel costs.
  Other Income (Expense)
 Interest Expense, Net of Amounts Capitalized.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, interest expense
was $59,999 and $67,911, respectively, a decrease of 12%, or $7,912. The decrease was
primarily a result of increased interest capitalized in connection with the satellite
and launch vehicle construction and decreased deferred financing fee amortization.
 34




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##### Table of Contents



Loss on Extinguishment of Debt and Credit Facilities, Net.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, loss on
extinguishment of debt and credit facilities, net was $8 and $627, respectively.
 Loss on change in value of embedded derivative.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, we recorded a loss
on change in value of embedded derivative of $37,291 and $58,203, respectively, a
decrease of 36%, or $20,912. As a result of the Merger, we recorded derivative
liabilities reflecting the fair value of the embedded derivative as of the Merger date.
During the three months ended March 31, 2010 and 2009, the SIRIUS stock price increased
resulting in an increased fair value and a loss on the change in value of the
derivative.
 Interest and Investment Income (Loss).
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, interest and
investment loss was $1,622 and $6,409, respectively, a decrease of 75%, or $4,787. The
decrease was primarily attributable to the absence of an impairment recognized on XM
Canada during the three months ended March 31, 2010 and a decrease in our share of XM
Canadas net loss, partially offset by a higher average cash balance.
 Income Taxes
 Income Tax Expense.
 
    
    Three Months: For the three months ended March 31, 2010 and 2009, income tax expense
was $629 and $578, respectively.
 Liquidity and Capital Resources
 Cash Flows for the Three Months Ended March 31, 2010 Compared with the Three Months Ended March 31,
2009
  For the Three MonthsEnded March 31,2010
    
    
    2009
    
    
    2010 vs. 2009Net cash provided by operating
activities
    
    $
    22,370
    
    
    $
    41,059
    
    
    $
    (18,689
    )Net cash used in investing activities
    
    
    (59,785
    )
    
    
    (3,557
    )
    
    
    (56,228
    )Net cash used in financing activities
    
    
    (3,405
    )
    
    
    (43,035
    )
    
    
    39,630Net decrease in cash and cash
equivalents
    
    
    (40,820
    )
    
    
    (5,533
    )
    
    
    (35,287
    )Cash and cash equivalents at
beginning of period
    
    
    212,155
    
    
    
    206,740
    
    
    
    5,415Cash and cash equivalents at end of
period
    
    $
    171,335
    
    
    $
    201,207
    
    
    $
    (29,872
    )
 35




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##### Table of Contents



Cash Flows Provided by Operating Activities
 
    
    Three Months: Net cash provided by operating activities decreased $18,689, to
$22,370, for the three months ended March 31, 2010 from $41,059 for the three months
ended March 31, 2009. The decrease was primarily the result of pay-downs of related
party liabilities deferred in 2009 and employee bonus payments in the 2010 quarter where
no bonus payments were made in the 2009 quarter, partially offset by growth in earnings
and non-cash operating activities of $48,497.
 Cash Flows Used in Investing Activities
 
    
    Three Months: Net cash used in investing activities increased $56,228, to $59,785,
for the three months ended March 31, 2010 from $3,557 for the three months ended March
31, 2009. The increase was primarily the result of an increase of $65,678 in capital
expenditures primarily for our satellite and launch vehicle, partially offset by $9,450
in proceeds from the sale of available-for-sale securities.
  Cash Flows Used in Financing Activities
 
    
    Three Months: Net cash used in financing activities decreased $39,630, to $3,405, for
the three months ended March 31, 2010 from $43,035 for the three months ended March 31,
2009. The decrease in cash used in financing activities was primarily due to a decrease
of $23,377 in debt payments and a decrease in payments of premiums on redemption of debt
of $10,072.
 Financings and Capital Requirements
  Future Liquidity and Capital Resource Requirements
     36




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##### Table of Contents



Debt
Covenants
   Off-Balance Sheet Arrangements
  Contractual Cash Commitments
  Related Party Transactions
  Critical Accounting Policies and Estimates
  37




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Footnotes to Results of Operations
 (1)
    
    Average self-pay monthly churn represents the monthly average of self-pay deactivations by
the quarter divided by the average self-pay subscriber balance for the quarter.
 (2)
    
    We measure the percentage of vehicle owners and lessees that receive our service and convert
to self-paying after the initial promotion period. We refer to this as the conversion rate.
At the time of sale, vehicle owners and lessees generally receive a three month prepaid trial
subscription and we receive a subscription fee from the OEM. Promotional periods generally
include the period of trial service plus 30 days to handle the receipt and processing of
payments. We measure conversion rate three months after the period in which the trial service
ends. Based on our experience it may take up to 90 days after the trial service ends for
vehicle owners and lessees to respond to our marketing communications and become self-paying
subscribers.
 (3)
    
    ARPU is derived from total earned subscriber revenue, net advertising revenue and other
subscription-related revenue divided by the number of months in the period, divided by the
daily weighted average number of subscribers for the period. Other subscription-related
revenue includes amounts recognized on account of the U.S. Music Royalty Fee instituted in
July 2009. See footnote 9 for a reconciliation of the pro forma amounts to their respective
GAAP amounts. ARPU is calculated as follows (in thousands, except for subscriber and per
subscriber amounts):
 Unaudited Pro FormaFor the Three Months EndedMarch 31,2010
    
    
    2009Subscriber revenue
    
    $
    309,978
    
    
    $
    304,155Net advertising revenue
    
    
    4,093
    
    
    
    4,520Other subscription-related revenue
    
    
    28,254
    
    
    
    -Total subscriber, net advertising and other
subscription-related revenue
    
    $
    342,325
    
    
    $
    308,675Daily weighted average number of subscribers
    
    
    9,757,244
    
    
    
    9,727,153ARPU
    
    $
    11.69
    
    
    $
    10.58
 (4)
    
    SAC, as adjusted, per gross subscriber addition is derived from subscriber acquisition
costs and margins from the direct sale of radios and accessories, divided by the number of
gross subscriber additions for the period. See footnote 9 for a reconciliation of the pro
forma amounts to their respective GAAP amounts. SAC, as adjusted, per gross subscriber
addition is calculated as follows (in thousands, except for subscriber and per subscriber
amounts):
 Unaudited Pro FormaFor the Three Months EndedMarch 31,2010
    
    
    2009Subscriber acquisition costs
    
    $
    49,887
    
    
    $
    36,892Less: margin from direct sales of radios
and accessories
    
    
    (5,759
    )
    
    
    (2,452
    )SAC, as adjusted
    
    $
    44,128
    
    
    $
    34,440Gross subscriber additions
    
    
    796,355
    
    
    
    700,949SAC, as adjusted, per gross subscriber addition
    
    $
    55
    
    
    $
    49
 (5)
    
    Customer service and billing expenses, as adjusted, per average subscriber is derived from
total customer service and billing expenses, excluding share-based payment expense, divided by
the number of months in the period, divided by the daily weighted average number of
subscribers for the period. See footnote 9 for a reconciliation of the pro forma amounts to
their respective GAAP amounts. Customer service and billing expenses, as adjusted, per average
subscriber is calculated as follows (in thousands, except for subscriber and per subscriber
amounts):
 38




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##### Table of Contents



Unaudited Pro FormaFor the Three Months EndedMarch 31,2010
    
    2009Customer service and billing expenses
    
    $
    29,450
    
    
    $
    34,256Less: share-based payment expense
    
    
    (362
    )
    
    
    (523
    )Customer service and billing expenses, as adjusted
    
    $
    29,088
    
    
    $
    33,733Daily weighted average number of subscribers
    
    
    9,757,244
    
    
    
    9,727,153Customer service and billing expenses, as adjusted, per average subscriber
    
    $
    0.99
    
    
    $
    1.16
 (6)
    
    Free cash flow is calculated as follows (in thousands):
 Unaudited Pro FormaFor the Three Months EndedMarch 31,2010
    
    2009Net cash provided by operating activities
    
    $
    22,370
    
    
    $
    41,059Additions to property and equipment
    
    
    (69,235
    )
    
    
    (3,557
    )Restricted and other investment activity
    
    
    9,450
    
    
    
    -Free cash flow
    
    $
    (37,415
    )
    
    $
    37,502
 (7)
    
    Average self-pay monthly churn; conversion rate; ARPU; SAC, as adjusted, per gross
subscriber addition; customer service and billing expenses, as adjusted, per average
subscriber; and free cash flow are not measures of financial performance under GAAP. We
believe these non-GAAP financial measures provide meaningful supplemental information
regarding our operating performance and are used by us for budgetary and planning purposes;
when publicly providing our business outlook; as a means to evaluate period-to-period
comparisons; and to compare our performance to that of our competitors. We believe that
investors also use our current and projected metrics to monitor the performance of our
business and to make investment decisions.We believe the exclusion of share-based payment expense in our calculations of customer service
and billing expenses, as adjusted, per average subscriber is useful given the significant
variation in expense that can result from changes in the fair market value of SIRIUS common
stock, the effect of which is unrelated to the operational conditions that give rise to
variations in the components of our subscriber acquisition costs and customer service and
billing expenses.These non-GAAP financial measures are used in addition to and in conjunction with results
presented in accordance with GAAP. These non-GAAP financial measures may be susceptible to
varying calculations; may not be comparable to other similarly titled measures of other
companies; and should not be considered in isolation, as a substitute for, or superior to
measures of financial performance prepared in accordance with GAAP.
 (8)
    
    We refer to net income (loss) before interest and investment income (loss); interest expense,
net of amounts capitalized; income tax expense; loss on extinguishment of debt and credit
facilities, net; other expense (income); restructuring, impairments and related costs;
depreciation and amortization; and share-based payment expense as adjusted income (loss) from
operations. Adjusted income (loss) from operations is not a measure of financial performance
under GAAP. We believe adjusted income (loss) from operations is a useful measure of our
operating performance. We use adjusted income (loss) from operations for budgetary and
planning purposes; to assess the relative profitability and on-going performance of our
consolidated operations; to compare our performance from period-to-period; and to compare our
performance to that of our competitors. We also believe adjusted income (loss) from operations
is useful to investors to compare our operating performance to the performance of other
communications, entertainment and media companies. We believe that investors use current and
projected adjusted income (loss) from operations to estimate our current or prospective
enterprise value and to make investment decisions.Because we fund and build-out our satellite radio system through the periodic raising and
expenditure of large amounts of capital, our results of operations reflect significant charges
for interest and depreciation expense. We believe adjusted income (loss) from operations
provides useful information about the operating performance of our business apart from the
costs associated with our capital structure and physical plant. The exclusion of interest and
depreciation and amortization expense is
useful given fluctuations in interest rates and significant variation in depreciation and
amortization expense that can result from
 39




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##### Table of Contents



the amount and timing of capital expenditures and
potential variations in estimated useful lives, all of which can vary widely across different
industries or among companies within the same industry. We believe the exclusion of taxes is
appropriate for comparability purposes as the tax positions of companies can vary because of
their differing abilities to take advantage of tax benefits and because of the tax policies of
the various jurisdictions in which they operate. We believe the exclusion of restructuring,
impairments and related costs is useful given the non-recurring nature of these expenses. We
also believe the exclusion of share-based payment expense is useful given the significant
variation in expense that can result from changes in the fair market value of Sirius common
stock. To compensate for the exclusion of taxes, other expense (income), depreciation and
amortization and share-based payment expense, we separately measure and budget for these items.
 There are material limitations associated with the use of adjusted income (loss) from
operations in evaluating our company compared with net loss, which reflects overall financial
performance, including the effects of taxes, other (income) expense, depreciation and
amortization, restructuring, impairments and related costs and share-based payment expense. We
use adjusted income (loss) from operations to supplement GAAP results to provide a more
complete understanding of the factors and trends affecting the business than GAAP results
alone. Investors that wish to compare and evaluate our operating results after giving effect
for these costs, should refer to net loss as disclosed in our consolidated statements of
operations. Since adjusted income (loss) from operations is a non-GAAP financial measure, our
calculation of adjusted income (loss) from operations may be susceptible to varying
calculations; may not be comparable to other similarly titled measures of other companies; and
should not be considered in isolation, as a substitute for, or superior to measures of
financial performance prepared in accordance with GAAP.
 See footnote 9 for a reconciliation of the pro forma amounts to their respective GAAP amounts.
The reconciliation of the pro forma unadjusted net loss to the pro forma adjusted income (loss)
from operations is calculated as follows (in thousands):
 Unaudited Pro FormaFor the Three Months EndedMarch 31,2010
    
    2009Reconciliation of Net income (loss) to Adjusted income from operations:Net income (loss)
    
    $
    15,627
    
    
    $
    (45,582
    )Add back Net income (loss) items excluded from Adjusted income from operations:Income tax expense
    
    
    629
    
    
    
    578Interest expense, net of amounts capitalized
    
    
    55,176
    
    
    
    55,885Loss on extinguishment of debt and credit facilities, net
    
    
    8
    
    
    
    627Interest and investment loss
    
    
    1,622
    
    
    
    6,409Other income
    
    
    (1,328
    )
    
    
    (386
    )Income from operations
    
    
    71,734
    
    
    
    17,531Depreciation and amortization
    
    
    18,782
    
    
    
    23,943Share-based payment expense
    
    
    7,875
    
    
    
    12,184Adjusted income from operations
    
    $
    98,391
    
    
    $
    53,658
 There are material limitations associated with the use of pro forma unadjusted results of
operations in evaluating our company compared with our GAAP results of operations, which
reflects overall financial performance. We use pro forma unadjusted results of operations to
supplement GAAP results to provide a more complete understanding of the factors and trends
affecting the business than GAAP results alone. Investors that wish to compare and evaluate our
operating results after giving effect for these costs, should refer to results of operations as
disclosed in our consolidated statements of operations. Since pro forma unadjusted results of
operations is a non-GAAP financial measure, our calculations may not be comparable to other
similarly titled measures of other companies; and should not be considered in isolation, as a
substitute for, or superior to measures of financial performance prepared in accordance with
GAAP.
 40




---



##### Table of Contents



(9)
    
    The following tables reconcile our GAAP results of operations to our non-GAAP pro forma
unadjusted results of operations:
 Unaudited For the Three Months Ended March 31, 2010Purchase Price
    
    
    Allocation of Share-As Reported
    
    
    Accounting
    
    
    based Payment
    
    
    Pro Forma(in thousands)
    
    
    
    
    
    Adjustments
    
    ExpenseRevenue:Subscriber revenue, including effects of rebates
    
    $
    305,012
    
    
    $
    4,966
    
    
    $
    -
    
    
    $
    309,978Advertising revenue, net of agency fees
    
    
    4,093
    
    
    
    -
    
    
    
    -
    
    
    
    4,093Equipment revenue
    
    
    10,258
    
    
    
    -
    
    
    
    -
    
    
    
    10,258Other revenue
    
    
    33,890
    
    
    
    1,813
    
    
    
    -
    
    
    
    35,703Total revenue
    
    
    353,253
    
    
    
    6,779
    
    
    
    -
    
    
    
    360,032Operating expenses (depreciation and
amortization shown separately below) (1)Cost of services:Revenue share and royalties
    
    
    42,981
    
    
    
    25,355
    
    
    
    -
    
    
    
    68,336Programming and content
    
    
    28,275
    
    
    
    15,147
    
    
    
    (820
    )
    
    
    42,602Customer service and billing
    
    
    29,356
    
    
    
    94
    
    
    
    (362
    )
    
    
    29,088Satellite and transmission
    
    
    11,755
    
    
    
    323
    
    
    
    (349
    )
    
    
    11,729Cost of equipment
    
    
    4,499
    
    
    
    -
    
    
    
    -
    
    
    
    4,499Subscriber acquisition costs
    
    
    32,221
    
    
    
    17,666
    
    
    
    -
    
    
    
    49,887Sales and marketing
    
    
    26,051
    
    
    
    3,525
    
    
    
    (1,215
    )
    
    
    28,361Engineering, design and development
    
    
    5,230
    
    
    
    186
    
    
    
    (663
    )
    
    
    4,753General and administrative
    
    
    26,538
    
    
    
    314
    
    
    
    (4,466
    )
    
    
    22,386Depreciation and amortization
    
    
    37,469
    
    
    
    (18,687
    )
    
    
    -
    
    
    
    18,782Share-based payment expense
    
    
    -
    
    
    
    -
    
    
    
    7,875
    
    
    
    7,875Total operating expenses
    
    
    244,375
    
    
    
    43,923
    
    
    
    -
    
    
    
    288,298Income (loss) from operations
    
    
    108,878
    
    
    
    (37,144
    )
    
    
    -
    
    
    
    71,734Other income (expense)Interest expense, net of amounts capitalized
    
    
    (59,999
    )
    
    
    4,823
    
    
    
    -
    
    
    
    (55,176
    )Loss on extinguishment of debt and credit
facilities, net
    
    
    (8
    )
    
    
    -
    
    
    
    -
    
    
    
    (8
    )Loss on change in value of embedded derivatives
    
    
    (37,291
    )
    
    
    37,291
    
    
    
    -
    
    
    
    -Interest and investment loss
    
    
    (1,622
    )
    
    
    -
    
    
    
    -
    
    
    
    (1,622
    )Other income
    
    
    1,328
    
    
    
    -
    
    
    
    -
    
    
    
    1,328Total other (expense) income
    
    
    (97,592
    )
    
    
    42,114
    
    
    
    -
    
    
    
    (55,478
    )Income before income taxes
    
    
    11,286
    
    
    
    4,970
    
    
    
    -
    
    
    
    16,256Income tax expense
    
    
    (629
    )
    
    
    -
    
    
    
    -
    
    
    
    (629
    )Net income
    
    $
    10,657
    
    
    $
    4,970
    
    
    $
    -
    
    
    $
    15,627(1) Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content
    
    $
    660
    
    
    $
    160
    
    
    $
    -
    
    
    $
    820Customer service and billing
    
    
    268
    
    
    
    94
    
    
    
    -
    
    
    
    362Satellite and transmission
    
    
    247
    
    
    
    102
    
    
    
    -
    
    
    
    349Sales and marketing
    
    
    1,070
    
    
    
    145
    
    
    
    -
    
    
    
    1,215Engineering, design and development
    
    
    477
    
    
    
    186
    
    
    
    -
    
    
    
    663General and administrative
    
    
    4,152
    
    
    
    314
    
    
    
    -
    
    
    
    4,466Total share-based payment expense
    
    $
    6,874
    
    
    $
    1,001
    
    
    $
    -
    
    
    $
    7,875
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##### Table of Contents



Unaudited For the Three Months Ended March 31, 2009Purchase Price
    
    
    Allocation of Share-As Reported
    
    
    Accounting
    
    
    based Payment
    
    
    Pro Forma(in thousands)
    
    
    
    
    
    Adjustments
    
    
    ExpenseRevenue:Subscriber revenue, including effects of rebates
    
    $
    287,466
    
    
    $
    16,689
    
    
    $
    -
    
    
    $
    304,155Advertising revenue, net of agency fees
    
    
    4,520
    
    
    
    -
    
    
    
    -
    
    
    
    4,520Equipment revenue
    
    
    5,917
    
    
    
    -
    
    
    
    -
    
    
    
    5,917Other revenue
    
    
    4,331
    
    
    
    1,812
    
    
    
    -
    
    
    
    6,143Total revenue
    
    
    302,234
    
    
    
    18,501
    
    
    
    -
    
    
    
    320,735Operating expenses (depreciation and
amortization shown separately below) (1)Cost of services:Revenue share and royalties
    
    
    49,682
    
    
    
    20,795
    
    
    
    -
    
    
    
    70,477Programming and content
    
    
    27,538
    
    
    
    18,890
    
    
    
    (1,529
    )
    
    
    44,899Customer service and billing
    
    
    34,139
    
    
    
    117
    
    
    
    (523
    )
    
    
    33,733Satellite and transmission
    
    
    14,770
    
    
    
    327
    
    
    
    (611
    )
    
    
    14,486Cost of equipment
    
    
    3,465
    
    
    
    -
    
    
    
    -
    
    
    
    3,465Subscriber acquisition costs
    
    
    26,250
    
    
    
    10,642
    
    
    
    -
    
    
    
    36,892Sales and marketing
    
    
    31,712
    
    
    
    3,658
    
    
    
    (1,522
    )
    
    
    33,848Engineering, design and development
    
    
    4,751
    
    
    
    301
    
    
    
    (1,258
    )
    
    
    3,794General and administrative
    
    
    31,752
    
    
    
    472
    
    
    
    (6,741
    )
    
    
    25,483Depreciation and amortization
    
    
    54,827
    
    
    
    (30,884
    )
    
    
    -
    
    
    
    23,943Share-based payment expense
    
    
    -
    
    
    
    -
    
    
    
    12,184
    
    
    
    12,184Total operating expenses
    
    
    278,886
    
    
    
    24,318
    
    
    
    -
    
    
    
    303,204Income (loss) from operations
    
    
    23,348
    
    
    
    (5,817
    )
    
    
    -
    
    
    
    17,531Other income (expense)Interest expense, net of amounts capitalized
    
    
    (67,911
    )
    
    
    12,026
    
    
    
    -
    
    
    
    (55,885
    )Loss on extinguishment of debt and credit
facilities, net
    
    
    (627
    )
    
    
    -
    
    
    
    -
    
    
    
    (627
    )Loss on change in value of embedded derivatives
    
    
    (58,203
    )
    
    
    58,203
    
    
    
    -
    
    
    
    -Interest and investment loss
    
    
    (6,409
    )
    
    
    -
    
    
    
    -
    
    
    
    (6,409
    )Other income
    
    
    386
    
    
    
    -
    
    
    
    -
    
    
    
    386Total other (expense) income
    
    
    (132,764
    )
    
    
    70,229
    
    
    
    -
    
    
    
    (62,535
    )(Loss) income before income taxes
    
    
    (109,416
    )
    
    
    64,412
    
    
    
    -
    
    
    
    (45,004
    )Income tax expense
    
    
    (578
    )
    
    
    -
    
    
    
    -
    
    
    
    (578
    )Net (loss) income
    
    $
    (109,994
    )
    
    $
    64,412
    
    
    $
    -
    
    
    $
    (45,582
    )(1) Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content
    
    $
    1,398
    
    
    $
    131
    
    
    $
    -
    
    
    $
    1,529Customer service and billing
    
    
    406
    
    
    
    117
    
    
    
    -
    
    
    
    523Satellite and transmission
    
    
    504
    
    
    
    107
    
    
    
    -
    
    
    
    611Sales and marketing
    
    
    1,329
    
    
    
    193
    
    
    
    -
    
    
    
    1,522Engineering, design and development
    
    
    957
    
    
    
    301
    
    
    
    -
    
    
    
    1,258General and administrative
    
    
    6,269
    
    
    
    472
    
    
    
    -
    
    
    
    6,741Total share-based payment expense
    
    $
    10,863
    
    
    $
    1,321
    
    
    $
    -
    
    
    $
    12,184
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##### Table of Contents



(10)
    
    ARPU is calculated as follows (in thousands, except for subscriber and per subscriber
amounts):
 Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    2009Subscriber revenue
    
    $
    305,012
    
    
    $
    287,466Net advertising revenue
    
    
    4,093
    
    
    
    4,520Other subscription-related revenue
    
    
    28,254
    
    
    
    -Total subscriber, net advertising and other
subscription-related revenue
    
    $
    337,359
    
    
    $
    291,986Daily weighted average number of subscribers
    
    
    9,757,244
    
    
    
    9,727,153ARPU
    
    $
    11.53
    
    
    $
    10.01
 (11)
    
    SAC, as adjusted, per gross subscriber addition is calculated as follows (in thousands,
except for subscriber and per subscriber amounts):
 Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    2009Subscriber acquisition costs
    
    $
    32,221
    
    
    $
    26,250Less: margin from direct sales of radios
and accessories
    
    
    (5,759
    )
    
    
    (2,452
    )SAC, as adjusted
    
    $
    26,462
    
    
    $
    23,798Gross subscriber additions
    
    
    796,355
    
    
    
    700,949SAC, as adjusted, per gross subscriber addition
    
    $
    33
    
    
    $
    34
 (12)
    
    Customer service and billing expenses, as adjusted, per average subscriber is calculated as follows
(in thousands, except for subscriber and per subscriber amounts):
 Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    2009Customer service and billing expenses
    
    $
    29,356
    
    
    $
    34,139Less: share-based payment expense
    
    
    (268
    )
    
    
    (406
    )Customer service and billing expenses, as adjusted
    
    $
    29,088
    
    
    $
    33,733Daily weighted average number of subscribers
    
    
    9,757,244
    
    
    
    9,727,153Customer service and billing expenses, as adjusted,
per average subscriber
    
    $
    0.99
    
    
    $
    1.16
 (13)
    
    Free cash flow is calculated as follows (in thousands):
 Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    2009Net cash provided by operating activities
    
    $
    22,370
    
    
    $
    41,059Additions to property and equipment
    
    
    (69,235
    )
    
    
    (3,557
    )Restricted and other investment activity
    
    
    9,450
    
    
    
    -Free cash flow
    
    $
    (37,415
    )
    
    $
    37,502
 43




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##### Table of Contents



(14)
    
    Adjusted income from operations is calculated as follows (in thousands):
 Unaudited ActualFor the Three Months EndedMarch 31,2010
    
    2009Reconciliation of Net income (loss) to Adjusted income
from operations:Net income (loss)
    
    $
    10,657
    
    
    $
    (109,994
    )Add back Net income (loss) items excluded from Adjusted
income
from operations:Income tax expense
    
    
    629
    
    
    
    578Interest expense, net of amounts capitalized
    
    
    59,999
    
    
    
    67,911Loss on extinguishment of debt and credit facilities, net
    
    
    8
    
    
    
    627Loss on change in value of embedded derivatives
    
    
    37,291
    
    
    
    58,203Interest and investment loss
    
    
    1,622
    
    
    
    6,409Other income
    
    
    (1,328
    )
    
    
    (386
    )Income from operations
    
    
    108,878
    
    
    
    23,348Depreciation and amortization
    
    
    37,469
    
    
    
    54,827Share-based payment expense
    
    
    6,874
    
    
    
    10,863Adjusted income from operations
    
    $
    153,221
    
    
    $
    89,038
 
 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
    
 ITEM 4 CONTROLS AND PROCEDURES
 Controls and Procedures
  44




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  45




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##### Table of Contents



SIGNATURES
 th
 XM Satellite Radio Inc.By:
    /s/ David J. FrearDavid J. FrearTreasurer
(Principal Financial Officer and
Principal Accounting Officer) 46




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    
    Description3.1
    
    
    
    
    Certificate of Ownership and Merger, dated April 14,
2010 (incorporated by reference to XM Satellite Radio
Inc.s Current Report on Form 8-K filed on April 16,
2010).3.2
    
    
    
    
    Restated Certificate of Incorporation of XM Satellite
Radio Inc. (incorporated by reference to XM Satellite
Radio Inc.s Registration Statement on Form S-4, File
No. 333-39178).4.1
    
    
    
    
    Supplemental Indenture, dated April 14, 2010, among XM
Satellite Radio Holdings Inc., XM Satellite Radio
Inc., certain subsidiaries thereof and U.S. Bank
National Association, as trustee, relating to the
Senior PIK Secured Notes due 2011 (incorporated by
reference to XM Satellite Radio Inc.s Current Report
on Form 8-K filed on April 16, 2010).4.2
    
    
    
    
    Supplemental Indenture, dated April 14, 2010, among XM
Satellite Radio Inc., certain subsidiaries thereof and
U.S. Bank National Association, as trustee, relating
to the 11.25% Senior Secured Notes due 2013 (filed
herewith).4.3
    
    
    
    
    Third Supplemental Indenture, dated April 14, 2010,
among XM Satellite Radio Inc., certain subsidiaries
thereof and the Bank of New York Mellon, as trustee,
relating to the 13% Senior Notes due 2013 (filed
herewith).4.4
    
    
    
    
    Supplemental Indenture, dated April 14, 2010, among XM
Satellite Radio Inc., certain subsidiaries thereof and
the Bank of New York Mellon, as trustee, relating to
the 7% Exchangeable Senior Subordinated Notes due 2014
(filed herewith).4.5
    
    
    
    
    Fourth Supplemental Indenture, dated April 14, 2010,
among XM Satellite Radio Inc., certain subsidiaries
thereof and the Bank of New York Mellon, as trustee,
relating to the 9.75% Senior Notes due 2014 (filed
herewith).4.6
    
    
    
    
    Collateral Agreement, dated as of December 31, 2009,
by and among XM Satellite Radio Holdings Inc., XM
Satellite Radio Inc., certain subsidiaries thereof,
and U.S. Bank National Association, as collateral
agent, relating to the 11.25% Senior Secured Notes due
2013 (incorporated by reference to XM Satellite Radio
Holdings Inc.s Current Report on Form 8-K filed on
January 6, 2010).31.1
    
    
    
    
    Certificate of Mel Karmazin, President of XM Satellite
Radio Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).31.2
    
    
    
    
    Certificate of David J. Frear, Treasurer of XM
Satellite Radio Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).32.1
    
    
    
    
    Certificate of Mel Karmazin, President and David J.
Frear, Treasurer of XM Satellite Radio Inc., pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).