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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

THE SECURITIES EXCHANGE ACT OF 1934



For The Quarterly Period Ended June 30, 2005



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XM SATELLITE RADIO INC.

(Exact name of registrant as specified in its charter)



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Commission file number 333-39178



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



1500 Eckington
Place, NE

Washington, DC 20002-2194

(Address of principal executive offices) (Zip code)



202-380-4000

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ̈



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



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



|                              |  |                                                                         
|----------------------------- |  | ------------------------------------------------------------------------
|(Class)                       |  | (Outstanding as of June 30, 2005)                                       
|COMMON STOCK, $0.10 PAR VALUE |  | 125 SHARES (all of which are issued to XM Satellite Radio Holdings Inc.)



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##### Table of Contents



XM SATELLITE RADIO INC.
AND SUBSIDIARIES



INDEX



|                             |  |                                                                                                                                  |  |   
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | --
|                             |  | Page                                                                                                                            
|PART IFINANCIAL INFORMATION |  |                                                                                                                                 
|                             |  |                                                                                                                                 
|Item 1.                      |  | Financial Statements                                                                                                             |  |   
|                             |  |                                                                                                                                 
|                             |  | Unaudited Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2005 and 2004 |  | 4 
|                             |  |                                                                                                                                 
|                             |  | Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004                                      |  | 5 
|                             |  |                                                                                                                                 
|                             |  | Unaudited Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2005 and 2004                 |  | 6 
|                             |  |                                                                                                                                 
|                             |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                   |  | 7 
|                             |  |                                                                                                                                 
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                            |  | 18
|                             |  |                                                                                                                                 
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                                       |  | 36
|                             |  |                                                                                                                                 
|Item 4.                      |  | Controls and Procedures                                                                                                          |  | 37
|                             | 
|PART IIOTHER INFORMATION    |  |                                                                                                                                 
|                             |  |                                                                                                                                 
|Item 6.                      |  | Exhibits                                                                                                                         |  | 38
|                             |  |                                                                                                                                 
|Signatures                   |  |                                                                                                                                  |  | 44



2



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##### Table of Contents

EXPLANATORY NOTE



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



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



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##### Table of Contents

PART I: FINANCIAL INFORMATION



|Item 1: | Financial Statements
|------- | --------------------



XM SATELLITE RADIO INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three-Month and Six-Month Periods ended June 30, 2005 and 2004



|                                                                             |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------------- |  | -------------------------- | -------- | - | ------------------------ | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                             |  | Three months endedJune 30, |          |   | Six months endedJune 30, |  
|                                                                             |  | 2005                       |          |   | 2004                     |   |          | 2005 |  |   | 2004     |  
|                                                                             |  | (in thousands)             |         
|Revenue                                                                      |  | $                          | 125,472  |   |                          | $ | 52,982   |      |  | $ | 228,042  |   |  | $ | 95,947   |  
|Operating expenses:                                                          |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|Cost of revenue                                                              |  |                            | 95,560   |   |                          |   | 46,038   |      |  |   | 170,874  |   |  |   | 94,338   |  
|Research & development (excludes depreciation & amortization, shown below)   |  |                            | 6,993    |   |                          |   | 6,731    |      |  |   | 13,085   |   |  |   | 12,901   |  
|General & administrative (excludes depreciation & amortization, shown below) |  |                            | 10,503   |   |                          |   | 6,526    |      |  |   | 17,727   |   |  |   | 12,276   |  
|Marketing (excludes depreciation & amortization, shown below)                |  |                            | 103,796  |   |                          |   | 68,080   |      |  |   | 191,878  |   |  |   | 129,650  |  
|Depreciation & amortization                                                  |  |                            | 35,623   |   |                          |   | 39,210   |      |  |   | 67,339   |   |  |   | 78,344   |  
|                                                                             |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|Total operating expenses                                                     |  |                            | 252,475  |   |                          |   | 166,585  |      |  |   | 460,903  |   |  |   | 327,509  |  
|                                                                             |  |                            |          |  
|Operating loss                                                               |  |                            | (127,003 | ) |                          |   | (113,603 | )    |  |   | (232,861 | ) |  |   | (231,562 | )
|Other income (expense):                                                      |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|Interest income                                                              |  |                            | 653      |   |                          |   | 285      |      |  |   | 1,284    |   |  |   | 467      |  
|Interest expense                                                             |  |                            | (23,076  | ) |                          |   | (18,971  | )    |  |   | (42,631  | ) |  |   | (46,884  | )
|Other expense                                                                |  |                            | (8       | ) |                          |   | (34,956  | )    |  |   | (22      | ) |  |   | (35,124  | )
|                                                                             |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|Net loss before income taxes                                                 |  |                            | (149,434 | ) |                          |   | (167,245 | )    |  |   | (274,230 | ) |  |   | (313,103 | )
|                                                                             |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|Provision for deferred income taxes                                          |  |                            | (579     | ) |                          |   | (579     | )    |  |   | (1,158   | ) |  |   | (26,152  | )
|                                                                             |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  
|Net loss                                                                     |  | $                          | (150,013 | ) |                          | $ | (167,824 | )    |  | $ | (275,388 | ) |  | $ | (339,255 | )
|                                                                             |  |                            |          |   |                          |   |          |      |  |   |          |   |  |   |          |  



See accompanying notes
to unaudited condensed consolidated financial statements.



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##### Table of Contents

XM SATELLITE RADIO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2005 and December 31, 2004



|                                                                                          |  |                                                |            |   |                 |   |            |  
|----------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ---------- | - | --------------- | - | ---------- | -
|                                                                                          |  | June 30,2005                                   |            |   | December 312004 |  
|                                                                                          |  | (unaudited)                                    |            |   |                 |  
|                                                                                          |  | (in thousands, except shareand per share data) |           
|ASSETS                                                                                    |  |                                                |            |   |                 |   |            |  
|Current assets:                                                                           |  |                                                |            |   |                 |   |            |  
|Cash and cash equivalents                                                                 |  | $                                              | 77,415     |   |                 | $ | 202,521    |  
|Accounts receivable, net of allowance for doubtful accounts of $2,683 and $1,551          |  |                                                | 16,692     |   |                 |   | 20,182     |  
|Due from subsidiaries/affiliates                                                          |  |                                                | 1,067      |   |                 |   | 1,412      |  
|Due from related parties                                                                  |  |                                                | 11,867     |   |                 |   | 5,367      |  
|Related party prepaid expenses                                                            |  |                                                | 49,381     |   |                 |   | 31,160     |  
|Prepaid programming content                                                               |  |                                                | 51,297     |   |                 |   | 11,390     |  
|Prepaid and other current assets                                                          |  |                                                | 32,365     |   |                 |   | 17,417     |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Total current assets                                                                      |  |                                                | 240,084    |   |                 |   | 289,449    |  
|Restricted investments                                                                    |  |                                                | 457        |   |                 |   | 372        |  
|System under construction                                                                 |  |                                                | 6,190      |   |                 |   | 153,595    |  
|Property and equipment, net of accumulated depreciation of $522,763 and $456,063          |  |                                                | 612,389    |   |                 |   | 436,169    |  
|DARS license                                                                              |  |                                                | 141,252    |   |                 |   | 141,227    |  
|Intangibles, net of accumulated amortization of $6,324 and $5,698                         |  |                                                | 6,538      |   |                 |   | 7,164      |  
|Deferred financing fees, net of accumulated amortization of $17,191 and $14,192           |  |                                                | 33,774     |   |                 |   | 36,616     |  
|Related party prepaid expenses, net of current portion                                    |  |                                                | 22,388     |   |                 |   | 25,901     |  
|Prepaid and other assets, net of current portion                                          |  |                                                | 1,082      |   |                 |   | 1,823      |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Total assets                                                                              |  | $                                              | 1,064,154  |   |                 | $ | 1,092,316  |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                            |  |                                                |            |   |                 |   |            |  
|Current liabilities:                                                                      |  |                                                |            |   |                 |   |            |  
|Current portion of long-term debt                                                         |  | $                                              | 6,720      |   |                 | $ | 6,148      |  
|Accounts payable                                                                          |  |                                                | 58,936     |   |                 |   | 59,155     |  
|Accrued expenses                                                                          |  |                                                | 80,768     |   |                 |   | 86,196     |  
|Accrued network optimization expense                                                      |  |                                                | 1,382      |   |                 |   | 2,148      |  
|Due to related parties                                                                    |  |                                                | 54,102     |   |                 |   | 27,610     |  
|Accrued interest                                                                          |  |                                                | 5,580      |   |                 |   | 5,552      |  
|Deferred revenue                                                                          |  |                                                | 209,752    |   |                 |   | 114,951    |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Total current liabilities                                                                 |  |                                                | 417,240    |   |                 |   | 301,760    |  
|Long-term debt, net of current portion                                                    |  |                                                | 648,710    |   |                 |   | 615,943    |  
|Due to related parties, net of current portion                                            |  |                                                | 46,406     |   |                 |   | 38,911     |  
|Deferred revenue, net of current portion                                                  |  |                                                | 79,043     |   |                 |   | 37,396     |  
|Other non-current liabilities                                                             |  |                                                | 57,663     |   |                 |   | 54,724     |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Total liabilities                                                                         |  |                                                | 1,249,062  |   |                 |   | 1,048,734  |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Stockholders equity (deficit):                                                           |  |                                                |            |   |                 |   |            |  
|Common stock, par value $0.10: 3,000 shares authorized, 125 shares issued and outstanding |  |                                                |           |   |                 |   |           |  
|Additional paid-in-capital                                                                |  |                                                | 2,205,302  |   |                 |   | 2,158,402  |  
|Accumulated deficit                                                                       |  |                                                | (2,390,210 | ) |                 |   | (2,114,820 | )
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Total stockholders equity (deficit)                                                      |  |                                                | (184,908   | ) |                 |   | 43,582     |  
|                                                                                          |  |                                                |            |   |                 |   |            |  
|Commitments and contingencies                                                             |  |                                                |            |   |                 |   |            |  
|Total liabilities and stockholders equity (deficit)                                      |  | $                                              | 1,064,154  |   |                 | $ | 1,092,316  |  
|                                                                                          |  |                                                |            |   |                 |   |            |  



See accompanying notes
to unaudited condensed consolidated financial statements.



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##### Table of Contents

XM SATELLITE RADIO INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six-month Periods ended June 30, 2005 and 2004



|                                                                            |  |                           |          |   |      |   |          |  
|--------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                            |  | Six months ended June 30, |         
|                                                                            |  | 2005                      |          |   | 2004 |  
|                                                                            |  | (in thousands)            |         
|Cash flows from operating activities:                                       |  |                           |          |   |      |   |          |  
|Net loss                                                                    |  | $                         | (275,388 | ) |      | $ | (339,255 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                           |          |   |      |   |          |  
|Provision for doubtful accounts                                             |  |                           | 3,286    |   |      |   | 1,322    |  
|Depreciation and amortization                                               |  |                           | 67,339   |   |      |   | 78,344   |  
|Interest accretion expense                                                  |  |                           | 22,101   |   |      |   | 27,029   |  
|Net non-cash loss on conversion of notes                                    |  |                           |         |   |      |   | 24,665   |  
|Amortization of deferred financing fees and debt discount                   |  |                           | 8,054    |   |      |   | 10,592   |  
|Stock based compensation                                                    |  |                           | 1,972    |   |      |   | 965      |  
|Provision for deferred income taxes                                         |  |                           | 1,158    |   |      |   | 26,152   |  
|Other                                                                       |  |                           | 38       |   |      |   | 106      |  
|Changes in operating assets and liabilities:                                |  |                           |          |   |      |   |          |  
|Decrease in accounts receivable                                             |  |                           | 743      |   |      |   | 648      |  
|(Increase) decrease in due from related parties                             |  |                           | (6,500   | ) |      |   | 456      |  
|(Increase) in prepaid and other assets                                      |  |                           | (68,818  | ) |      |   | (902     | )
|Increase (decrease) in accounts payable and accrued expenses                |  |                           | (13,772  | ) |      |   | 4,788    |  
|Increase in amounts due related parties                                     |  |                           | 33,987   |   |      |   | 59,748   |  
|Increase in deferred revenue                                                |  |                           | 136,448  |   |      |   | 39,609   |  
|Increase in accrued interest                                                |  |                           | 28       |   |      |   | 2,211    |  
|                                                                            |  |                           |          |   |      |   |          |  
|Net cash used in operating activities                                       |  |                           | (89,324  | ) |      |   | (63,522  | )
|                                                                            |  |                           |          |   |      |   |          |  
|Cash flows from investing activities:                                       |  |                           |          |   |      |   |          |  
|Purchase of property and equipment                                          |  |                           | (19,590  | ) |      |   | (11,834  | )
|Additions to systems under construction                                     |  |                           | (54,993  | ) |      |   | (104,093 | )
|Net purchase/maturity of restricted investments                             |  |                           | (85      | ) |      |   | 118      |  
|                                                                            |  |                           |          |   |      |   |          |  
|Net cash used in investing activities                                       |  |                           | (74,668  | ) |      |   | (115,809 | )
|                                                                            |  |                           |          |   |      |   |          |  
|Cash flows from financing activities:                                       |  |                           |          |   |      |   |          |  
|Capital contributions                                                       |  |                           | 45,121   |   |      |   | 204,577  |  
|Proceeds from issuance of floating rate notes                               |  |                           |         |   |      |   | 200,000  |  
|Repayment of 12% senior secured notes                                       |  |                           |         |   |      |   | (70,000  | )
|Repayment of 14% senior secured notes                                       |  |                           |         |   |      |   | (13,028  | )
|Repayment of related party long-term debt                                   |  |                           |         |   |      |   | (81,194  | )
|Payments on related party credit facility                                   |  |                           |         |   |      |   | (71,425  | )
|Payments on other borrowings                                                |  |                           | (6,226   | ) |      |   | (3,104   | )
|Deferred financing costs                                                    |  |                           | (9       | ) |      |   | (4,750   | )
|                                                                            |  |                           |          |   |      |   |          |  
|Net cash provided by financing activities                                   |  |                           | 38,886   |   |      |   | 161,076  |  
|                                                                            |  |                           |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                   |  |                           | (125,106 | ) |      |   | (18,255  | )
|Cash and cash equivalents at beginning of period                            |  |                           | 202,521  |   |      |   | 90,219   |  
|                                                                            |  |                           |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                  |  | $                         | 77,415   |   |      | $ | 71,964   |  
|                                                                            |  |                           |          |   |      |   |          |  



See accompanying notes
to unaudited condensed consolidated financial statements.



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##### Table of Contents

XM SATELLITE RADIO INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(1) Nature of Business



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



(2) Principles of Consolidation and Basis of Presentation



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



In the Companys opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal
recurring entries, necessary for a fair presentation of the condensed consolidated financial position of XM Satellite Radio Inc. and its subsidiaries as of June 30, 2005; the results of operations for the three and six months ended June 30, 2005 and
2004; and cash flows for the six months ended June 30, 2005 and 2004. The results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the full year. The accompanying
condensed consolidated financial statements are unaudited and should be read in conjunction with the Companys 2004 consolidated financial statements, which are included in the Companys Annual Report on Form 10-K. Certain
reclassifications have been made to prior-period amounts to conform with the 2005 presentation.



(3) Stock-Based Compensation



At June 30, 2005, Holdings had two stock-based employee compensation plans in which the Company participates. The Company accounts for the plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure-An Amendment of FASB Statement No. 123. The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation. The fair value of options granted during the three month periods ended June 30, 2005 and 2004 was calculated using an assumed volatility of 39% and 106%, respectively.



|                                                                                                              |  |                             |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                              |  | Three months ended June 30, |         
|                                                                                                              |  | 2005                        |          |   | 2004 |  
|                                                                                                              |  | (amounts in thousands)      |         
|Net loss attributable to common stockholders, as reported                                                     |  | $                           | (150,013 | ) |      | $ | (167,824 | )
|Add: stock-based employee compensation expense included in net loss, net of tax                               |  |                             | 1,617    |   |      |   |         |  
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards |  |                             | (11,308  | ) |      |   | (7,893   | )
|                                                                                                              |  |                             |          |   |      |   |          |  
|Pro forma net loss                                                                                            |  | $                           | (159,704 | ) |      | $ | (175,717 | )
|                                                                                                              |  |                             |          |   |      |   |          |  
|                                                                                                              | 
|                                                                                                              |  | Six months ended June 30,   |         
|                                                                                                              |  | 2005                        |          |   | 2004 |  
|                                                                                                              |  | (amounts in thousands)      |         
|Net loss attributable to common stockholders, as reported                                                     |  | $                           | (275,388 | ) |      | $ | (339,255 | )
|Add: stock-based employee compensation expense included in net loss, net of tax                               |  |                             | 1,796    |   |      |   |         |  
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards |  |                             | (19,891  | ) |      |   | (15,626  | )
|                                                                                                              |  |                             |          |   |      |   |          |  
|Pro forma net loss                                                                                            |  | $                           | (293,483 | ) |      | $ | (354,881 | )
|                                                                                                              |  |                             |          |   |      |   |          |  



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##### Table of Contents

XM SATELLITE RADIO INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



In accordance with SFAS No. 123 (Revised 2004), Share Based Payment (SFAS No. 123R) and
the Securities and Exchange Commissions rule amending the compliance dates of SFAS No. 123R, we will begin to recognize compensation expense for equity-based compensation using the fair value method in 2006.



During March 2005, Holdings granted approximately 700,000 shares of
restricted common stock to key employees. The Company recorded deferred compensation of $21.4 million in connection with these shares of Holdings restricted common stock. Such deferred compensation is being amortized to expense over the three
year vesting period and is recorded as a component of Holdings equity. The restrictions on these shares lapse as vesting occurs.



(4) Financing Transactions



Long-Term Debt



The following table presents a summary of the debt activity for the six-month period ended June 30, 2005 (in thousands):



|                                                       |  |                  |         |   |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  |   |         |  
|------------------------------------------------------ |  | ---------------- | ------- | - | -------------------- | - | -------------------- |  | ---------------- | ----- | ----------------- | - | ------ | ------------ | - | ------ | - |  | - | ------- | -
|                                                       |  | December31, 2004 |         |   | Issuances /Additions |   | DiscountAmortization |  | AccretedInterest |       | PrincipalPayments |   |        | June 30,2005 |  
|14% senior secured notes - original issue due 2010     |  | $                | 22,824  |   |                      | $ |                     |  | $                |      |                   | $ |       |              | $ |       |   |  | $ | 22,824  |  
|Less: discount                                         |  |                  | (3,367  | ) |                      |   |                     |  |                  | 205   |                   |   |       |              |   |       |   |  |   | (3,162  | )
|14% senior secured notes due 2009                      |  |                  | 162,897 |   |                      |   |                     |  |                  |      |                   |   | 11,403 |              |   |       |   |  |   | 174,300 |  
|Less: discount                                         |  |                  | (44,284 | ) |                      |   |                     |  |                  | 1,799 |                   |   |       |              |   |       |   |  |   | (42,485 | )
|12% senior secured notes due 2010                      |  |                  | 115,000 |   |                      |   |                     |  |                  |      |                   |   |       |              |   |       |   |  |   | 115,000 |  
|10% senior secured discount convertible notes due 2009 |  |                  | 213,958 |   |                      |   |                     |  |                  |      |                   |   | 10,698 |              |   |       |   |  |   | 224,656 |  
|Less: discount                                         |  |                  | (53,897 | ) |                      |   |                     |  |                  | 3,050 |                   |   |       |              |   |       |   |  |   | (50,847 | )
|Floating rate notes due 2009                           |  |                  | 200,000 |   |                      |   |                     |  |                  |      |                   |   |       |              |   |       |   |  |   | 200,000 |  
|Notes payable                                          |  |                  | 2,773   |   |                      |   | 5                    |  |                  |      |                   |   |       |              |   | (2,771 | ) |  |   | 7       |  
|Capital leases                                         |  |                  | 6,187   |   |                      |   | 12,405               |  |                  |      |                   |   |       |              |   | (3,455 | ) |  |   | 15,137  |  
|                                                       |  |                  |         |   |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  |   |         |  
|Total                                                  |  | $                | 622,091 |   |                      | $ | 12,410               |  | $                | 5,054 |                   | $ | 22,101 |              | $ | (6,226 | ) |  | $ | 655,430 |  
|                                                       |  |                  |         |   |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  |   |         |  
|Less: current installments                             |  |                  | (6,148  | ) |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  |   | (6,720  | )
|                                                       |  |                  |         |   |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  |   |         |  
|Long-term debt, excluding current installments         |  | $                | 615,943 |   |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  | $ | 648,710 |  
|                                                       |  |                  |         |   |                      |   |                      |  |                  |       |                   |   |        |              |   |        |   |  |   |         |  



Offering of
shares of Class A common stock



In June 2005, Holdings
sold 9,668,063 shares of its Class A common stock resulting in net proceeds of approximately $300 million.



(5) Commitments and Contingencies



(a) DARS License



The Companys DARS license is valid for eight years upon successful launch and orbital insertion of the satellites and can be extended by the FCC. The DARS license requires that the Company comply with a construction and launch
schedule specified by the FCC for each of the first two authorized satellites, which has occurred. The FCC has the authority to revoke the authorizations and in connection with such revocation could exercise its authority to rescind the
Companys license. The Company believes that the exercise of such authority to rescind the license is unlikely. If necessary, the Company could seek FCC authority to launch additional satellites for use in its system, which management believes
would likely be approved. In February 2004, the Company applied to the FCC for authority to launch and operate XM-3 and XM-4 and to collocate XM-1 with XM-2 at the 115 West Longitude orbital location. The FCC granted this application in January
2005. In February 2005, XM-3 was successfully launched into orbit. During April 2005, XM-1 was successfully collocated with XM-2 in its orbital slot. Additionally, the FCC has not yet issued final rules permitting the Company to deploy its
terrestrial repeaters to fill gaps in satellite coverage. The Company is operating its repeaters on a non-interference basis pursuant to a grant of special temporary authority from the FCC. This grant originally expired March 18, 2002. However, on
March 11, 2002, the Company applied for an extension of this special temporary authority and the Company can continue to operate its terrestrial repeaters pursuant to the special temporary authority pending a final determination on this extension
request. This authority is currently being challenged by operators of terrestrial wireless systems who have asserted that the Companys repeaters may



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XM SATELLITE RADIO INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



cause interference. The Company believes it is not likely that an FCC order would materially impact the terrestrial repeater system design currently in
operation.



In June 2005, Canadian Satellite Radio
(CSR), XMs joint venture partner in Canada, was granted a license from the Canadian Radio-television and Telecommunications Commission (CRTC) to provide satellite radio service in Canada. The conditions of the license
are currently under review by XM and CSR.



(b) Satellite
System



Satellite Deployment Plan. The Company
launched its first two satellites, XM-1 and XM-2 prior to the commencement of commercial operations in the first half of 2001. These satellites suffer from a progressive solar array power degradation issue that is common to the first six Boeing 702
class satellites in orbitXM-1 and XM-2 were the fifth and sixth Boeing 702s launched. In February 2005, the Company launched XM-3. XM-3 was placed into one of the Companys orbital slots and beginning in April 2005 is being used to
transmit the XM service. During the second quarter, the Company collocated XM-1 with XM-2 in the other orbital slot. The Company has a fourth satellite (XM-4) under construction; this satellite will be available for launch in early 2006. The Company
intends to launch XM-4 in the second half of 2006, subject to launch vehicle availability. This schedule is designed to mitigate risks attendant to on-ground storage of the satellite for an extended period and to give the Company time to react to
any launch or other problems that may be encountered with XM-4. The plan to move up the launch date is subject to launch vehicle availability and other business priorities. During the second quarter, XM entered into a contract to construct a spare
satellite (XM-5) expected to be completed by the end of 2007 for use as a ground spare or to be available for launch in the event there is a launch or early operations failure of XM-4.



With this plan and continued monitoring of the power degradation situation in XM-1 and XM-2, the Company believes it will be
able to launch additional satellites prior to the time the solar array output power degradation issue might cause the Companys broadcast signal strength to fall below minimum acceptable levels.



Satellite Insurance Settlements  XM-1 and XM-2. The Company had
secured launch and in-orbit insurance policies with a large group of insurers (both U.S. and foreign) providing coverage for losses relating to XM-1 and XM-2 where such losses arise from an occurrence within the first five years after launch. Under
these policies, the aggregate sum insured in the event of constructive total loss of both satellites equaled $400 million ($200 million per satellite), and lesser amounts would be payable in the event of a partial loss. In the event of constructive
total loss, the amount of recovery would be reduced by any salvage value, which could include a percentage of the revenues from the Companys continuing use of the satellites. In September 2001, the Company notified its insurers of a
progressive solar array power degradation problem noted above and, in February 2003, the Company filed Proofs of Loss with its insurers.



In July 2004, the Company reached agreement with insurers covering 80 percent of the aggregate sum insured at a settlement rate equal to 44.5 percent of
the proportionate amount covered by each of these insurers, representing a total recovery of approximately $142 million from these insurers. This settlement resolves any issues about the amount of loss sustained, includes a waiver by the settling
insurance companies of any reductions based on salvage value, terminates any further risk to the settling insurers under the policies and ends any other rights the settling insurers might have with regard to XM-1 and XM-2 or revenues generated by
the Companys continuing use of those satellites. The Company has collected all amounts due under the settlement. The portion of the insurance proceeds related to claim payments was recorded as a reduction to the carrying values of XM-1 and
XM-2.



In August 2004, the Company filed for arbitration to
collect the remaining 20 percent of the sum insured utilizing the third-party dispute resolution procedures under the policy. Any amounts received from this arbitration proceeding will be recorded as a reduction to the carrying values of XM-1 and
XM-2.



Satellite Contract and Other CostsXM-1, XM-2,
XM-3 and XM-4. As of June 30, 2005, the Company had paid approximately $642.9 million, including financing charges and interest under the satellite contract related to XM-1, XM-2, XM-3, and XM-4. The Company originally entered into its satellite
contract in March 1998 with Boeing Satellite Systems International, Inc. (BSS), and has subsequently amended the contract, including in July 2003, December 2003, December 2004, January 2005 and July 2005. Under the satellite contract,
BSS has delivered three satellites in-orbit, XM-1, XM-2 and XM-3, supplied ground equipment and software used in the XM Radio system and provided certain launch and operations support services.



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In February 2005 the Company launched its XM-3 satellite. XM-3 was modified to correct the solar array
degradation issues experienced by XM-1 and XM-2, as well as to optimize XM-3 for the specific orbital slot into which it has been placed. The payload of XM-3 is owned by the Company, and the bus of XM-3 is owned by Holdings. As of June 30, 2005,
with respect to XM-3, the Company has deferred payment of construction costs of $15 million at an interest rate of 8 percent through January 2007. BSS has the right to earn performance incentive payments of up to $25.9 million, excluding interest,
based on the in-orbit performance of XM-3 over its design life of fifteen years.



Satellite InsuranceXM-3. The Company acquired launch and in-orbit insurance in January 2005 in connection with the launch of XM-3. The in-orbit insurance is for a one year period from February 2005
through February 2006.



Satellite Contract and Other
CostsXM-4. Holdings has committed in its satellite contract with BSS, as amended in July 2003, and by a separate August 2003 contract with Sea Launch Company, LLC (Sea Launch), to acquire from BSS a fourth satellite, XM-4
(which should be available for launch in early 2006) and from Sea Launch the associated launch services for the satellite. The fixed prices for XM-4 and the associated launch services total $186.5 million, excluding in-orbit performance
incentives and financing charges on certain amounts deferred prior to launch. As of June 30, 2005, satellite construction costs aggregating approximately $130.3 million were incurred, of which $23 million were paid, $3.0 million are due in 2005 and
$104.3 million are deferred until first quarter 2006. Interest accrues monthly at a rate of 10.75 percent per annum and is being paid on a current basis, pursuant to the December 2003 amendment, which extended the deferral into early 2006 (unless
the satellite is launched earlier). Most of the remaining portion of the fixed costs for XM-4 and the associated launch services are payable during construction with the last payment due one month following launch.



After launch of XM-4, BSS has the right to earn performance incentive
payments of up to $12 million, plus interest, over the first twelve years of in-orbit life, up to $7.5 million for high performance during the first fifteen years of in-orbit life, and up to $10 million for continued high performance across the five
year period beyond the fifteen year design life.



Satellite
Contract and Option for Associated Launch ServicesXM-5.In June 2005, Holdings awarded a contract to Space Systems/Loral (SS/L) for the design and construction of its fifth satellite, XM-5. Construction of XM-5 is expected to
be completed by the end of 2007.



SS/Ls parent, Loral
Space & Communications Ltd., recently announced that the U.S. Bankruptcy Court for the Southern District of New York has confirmed its Chapter 11 Plan of Reorganization and currently expects that, after satisfying customary regulatory
and certain other conditions, including obtaining FCC approval, its Plan of Reorganization will become effective and the company will emerge from chapter 11 early in the fourth quarter of 2005. The Bankruptcy Court has approved XMs
contract with SS/L for the design and construction of XM-5.



Satellite ContractWarrant to BSS. Pursuant to the Companys satellite contract for XM-4, it issued a warrant to BSS in July 2003 to purchase 500,000 shares of its Class A common stock at $13.524 per share. The fair value
of these warrants was determined to be $5.8 million using a Black-Scholes based methodology and is included in System Under Construction.



Satellite ContractWarrant to SS/L. Pursuant to the Holdings satellite contract for XM-5, it issued a warrant to SS/L to purchase
400,000 shares of its Class A common stock at $32.42 per share. The fair value of this warrant was determined to be approximately $4.9 million using a Black-Scholes based methodology and is included in System Under Construction.



(c) GM Distribution Agreement



The Company has a long-term distribution agreement with OnStar, a subsidiary
of General Motors. During the term of the agreement, which expires twelve years from the commencement date of the Companys commercial operations, GM has agreed to distribute the service to the exclusion of other S-band satellite digital radio
services.The Company will also have a non-exclusive right to arrange for the installation of XM radios included in OnStar systems in non-GM vehicles that are sold for use in the United States. The agreement was amended in June 2002 and
January 2003 to clarify certain terms in the agreement, including extending the dates when certain initial payments are due to GM and confirming the date of the Companys commencement of commercial operations, and to provide that the Company
may make certain payments to GM in the form of indebtedness or shares of the Companys Class A common stock. The Companys total cash payment obligations were not increased. The Company has significant annual fixed payment obligations to
GM. As a result of the June 2002 amendment, the Company commenced recognizing these fixed payment obligations for the period ending through November 2005, which approximate $63.6 million, on a straight-line basis. However, due to the January 2003
amendment to the Distribution Agreement and GMs roll out plans which demonstrated a likelihood of GM exceeding minimum installation targets, in 2003 the Company began prospectively recognizing these fixed payments due under the Distribution
Agreement, which approximate $397.3 million, on a straight-line basis through September 2013, the remaining term of the agreement. The Company issued a 10% Senior Secured Discount Convertible Notes due 2009 with an aggregate principal amount of
$89.0 million, to OnStar in lieu of making these fixed payments to OnStar for amounts otherwise due in 2003 through 2006. The fixed payments due to be paid in years 2007, 2008 and 2009 are $80.7 million, $106.7 million and $132.9 million,
respectively. In February 2004, the Company completed the redemption of the note through repayment of a portion with cash and GMs conversion of a portion of the principal amount into the Companys Class A common stock. As of June 30,
2005,



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##### Table of Contents

the Company has $22.3 million of current prepaid expense to related party and $11.1 million of non-current prepaid expense to related party in connection
with the guaranteed fixed payments.



In order to encourage the
broad installation of XM radios in GM vehicles, the Company has agreed to subsidize a portion of the cost of XM radios, and to make incentive payments to GM when the owners of GM vehicles with installed XM radios become subscribers to the
Companys service. The Company must also share with GM a percentage of the subscription revenue attributable to GM vehicles with installed XM radios, which percentage increases until there are more than eight million GM vehicles with installed
XM radios (at which point the percentage remains constant). During the second quarter of 2004, a clarification was agreed to by XM and OnStar relating to the implementation of certain aspects of revenue sharing contained within the distribution
agreement. Accordingly, the revenue share expense is recognized as the related subscription revenue is earned. As of June 30, 2005, the Company has $22.1 million of current prepaid expense to related party and $8.8 million of non-current prepaid
expense to related party in connection with this revenue sharing arrangement. As part of the agreement, OnStar provides certain call-center related services directly to XM subscribers who are also OnStar customers and the Company must reimburse
OnStar for these XM-related call center services. The agreement is subject to renegotiation at any time based upon the installation of radios that are compatible with a common receiver platform or capable of receiving Sirius Satellite Radios
service. The agreement is subject to renegotiation if as of November 2005, and at two-year intervals thereafter, GM does not achieve and maintain specified installation levels of GM vehicles capable of receiving the Companys service. The
specified installation level of 1,240,000 units by November 2005 was achieved in 2004. The specified installation levels in future years will increase by the lesser of 600,000 units per year or amounts proportionate to target market shares in the
satellite digital radio service market. There can be no assurances as to the outcome of any such renegotiations. GMs exclusivity obligations will discontinue if, by November 2005 and at two-year intervals thereafter, the Company fails to
achieve and maintain specified minimum market share levels in the satellite digital radio service market. For the six month periods ended June 30, 2005 and 2004 the Company incurred total costs of $98.5 million and $82.1 million, respectively, under
the distribution agreement.



(d) Holdings



During the three and six-month periods ended June 30,
2005, Holdings provided funding to the Company of $15.0 and $50.0 million, respectively.



In August 2001, the Companys facility lease for its corporate headquarters was amended and Holdings became the Companys new landlord. For the three-month periods ended June 30, 2005 and 2004, the Company
incurred costs relating to the rental of office space from Holdings of $1.3 million and $1.1 million, respectively. For the six-month periods ended June 30, 2005 and 2004, the Company incurred costs relating to the rental of office space from
Holdings of $2.4 million and $2.3 million, respectively.



(6) Supplemental
Cash Flows Disclosures



The Company paid $17.5 million and
$13.5 million for interest, of which $5.1 million and $7.0 million was capitalized, during the six-month periods ended June 30, 2005 and 2004, respectively. Additionally, the Companys financial results include the following non-cash financing
and investing activities (in thousands):



|                                         |  |                                  |        |      |   |       
|---------------------------------------- |  | -------------------------------- | ------ | ---- | - | ------
|                                         |  | Six-month periods endingJune 30,
|                                         |  | 2005                             |        | 2004
|Property acquired through capital leases |  | $                                | 12,405 |      | $ | 6,347 
|Issuance of notes for accrued expenses   |  |                                  | 5      |      |   | 50,566
|Conversion of debt to equity             |  |                                  |       |      |   | 50,833
|Discount on debt securities              |  |                                  |       |      |   | 10,315



(7) Unaudited Condensed
Consolidating Financial Information



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



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2005

(in thousands)



|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|------------------------------------- |  | --------------------- | -------- | - | ----------------------- | - | ----- | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ----------------------------- | - | -------- | ------------------------------------ |  | - | ------------ | - |  | ------------------------------------------- | ----- | - |  | - | ------- | - |  | - | -------- | -
|                                      |  | XMSatelliteRadio Inc. |          |   | XM EquipmentLeasing LLC |   |       | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XM SatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated XMSatellite RadioHoldings Inc. |      
|Revenue                               |  | $                     | 125,472  |   |                         | $ | 2,632 |                               |  | $ | 16,478       |   |  | $                                  | (19,110 | ) |                               | $ | 125,472  |                                      |  | $ |             |   |  | $                                           | 2,235 |   |  | $ | (2,253  | ) |  | $ | 125,454  |  
|Cost of revenue                       |  |                       | 95,439   |   |                         |   | 8     |                               |  |   |             |   |  |                                    | 113     |   |                               |   | 95,560   |                                      |  |   |             |   |  |                                             | 245   |   |  |   | (1,605  | ) |  |   | 94,200   |  
|Research & development                |  |                       | 6,993    |   |                         |   |      |                               |  |   |             |   |  |                                    |        |   |                               |   | 6,993    |                                      |  |   |             |   |  |                                             |      |   |  |   |        |   |  |   | 6,993    |  
|General & administrative              |  |                       | 10,503   |   |                         |   |      |                               |  |   |             |   |  |                                    |        |   |                               |   | 10,503   |                                      |  |   | 302          |   |  |                                             | 143   |   |  |   | (125    | ) |  |   | 10,823   |  
|Marketing                             |  |                       | 103,796  |   |                         |   |      |                               |  |   |             |   |  |                                    |        |   |                               |   | 103,796  |                                      |  |   |             |   |  |                                             |      |   |  |   |        |   |  |   | 103,796  |  
|Depreciation & amortization           |  |                       | 32,114   |   |                         |   | 3,509 |                               |  |   |             |   |  |                                    |        |   |                               |   | 35,623   |                                      |  |   | 767          |   |  |                                             | 347   |   |  |   |        |   |  |   | 36,737   |  
|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|Total operating expenses              |  |                       | 248,845  |   |                         |   | 3,517 |                               |  |   |             |   |  |                                    | 113     |   |                               |   | 252,475  |                                      |  |   | 1,069        |   |  |                                             | 735   |   |  |   | (1,730  | ) |  |   | 252,549  |  
|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|Operating income (loss)               |  |                       | (123,373 | ) |                         |   | (885  | )                             |  |   | 16,478       |   |  |                                    | (19,223 | ) |                               |   | (127,003 | )                                    |  |   | (1,069       | ) |  |                                             | 1,500 |   |  |   | (523    | ) |  |   | (127,095 | )
|Other income (expense):               |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|Interest income                       |  |                       | 653      |   |                         |   | 140   |                               |  |   | 14,648       |   |  |                                    | (14,788 | ) |                               |   | 653      |                                      |  |   | 4,352        |   |  |                                             | 73    |   |  |   |        |   |  |   | 5,078    |  
|Interest expense                      |  |                       | (37,724  | ) |                         |   |      |                               |  |   | (140         | ) |  |                                    | 14,788  |   |                               |   | (23,076  | )                                    |  |   | (1,180       | ) |  |                                             | (220  | ) |  |   |        |   |  |   | (24,476  | )
|Other income (expense)                |  |                       | 10,431   |   |                         |   |      |                               |  |   |             |   |  |                                    | (10,439 | ) |                               |   | (8       | )                                    |  |   | (148,721     | ) |  |                                             |      |   |  |   | 149,182 |   |  |   | 453      |  
|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|Net income (loss) before income taxes |  |                       | (150,013 | ) |                         |   | (745  | )                             |  |   | 30,986       |   |  |                                    | (29,662 | ) |                               |   | (149,434 | )                                    |  |   | (146,618     | ) |  |                                             | 1,353 |   |  |   | 148,659 |   |  |   | (146,040 | )
|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|Provision for deferred income taxes   |  |                       |         |   |                         |   |      |                               |  |   | (579         | ) |  |                                    |        |   |                               |   | (579     | )                                    |  |   |             |   |  |                                             |      |   |  |   |        |   |  |   | (579     | )
|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  
|Net income (loss)                     |  | $                     | (150,013 | ) |                         | $ | (745  | )                             |  | $ | 30,407       |   |  | $                                  | (29,662 | ) |                               | $ | (150,013 | )                                    |  | $ | (146,618     | ) |  | $                                           | 1,353 |   |  | $ | 148,659 |   |  | $ | (146,619 | )
|                                      |  |                       |          |   |                         |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                             |       |   |  |   |         |   |  |   |          |  



XM SATELLITE RADIO
INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005

(in thousands)



|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|------------------------------------- |  | --------------------- | -------- | - | --------------------- | - | ------ | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ----------------------------- | - | -------- | ------------------------------------ |  | - | ------------ | - |  | ------------------------------------------ | ----- | - |  | - | ------- | - |  | - | -------- | -
|                                      |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasingLLC |   |        | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XM SatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldings Inc. |      
|Revenue                               |  | $                     | 228,042  |   |                       | $ | 5,264  |                               |  | $ | 32,191       |   |  | $                                  | (37,455 | ) |                               | $ | 228,042  |                                      |  | $ |             |   |  | $                                          | 4,386 |   |  | $ | (4,409  | ) |  | $ | 228,019  |  
|Cost of revenue                       |  |                       | 170,633  |   |                       |   | 17     |                               |  |   |             |   |  |                                    | 224     |   |                               |   | 170,874  |                                      |  |   |             |   |  |                                            | 679   |   |  |   | (3,040  | ) |  |   | 168,513  |  
|Research & development                |  |                       | 13,085   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                               |   | 13,085   |                                      |  |   |             |   |  |                                            |      |   |  |   |        |   |  |   | 13,085   |  
|General & administrative              |  |                       | 17,727   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                               |   | 17,727   |                                      |  |   | 446          |   |  |                                            | 182   |   |  |   | (238    | ) |  |   | 18,117   |  
|Marketing                             |  |                       | 191,878  |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                               |   | 191,878  |                                      |  |   |             |   |  |                                            |      |   |  |   |        |   |  |   | 191,878  |  
|Depreciation & amortization           |  |                       | 60,320   |   |                       |   | 7,019  |                               |  |   |             |   |  |                                    |        |   |                               |   | 67,339   |                                      |  |   | 767          |   |  |                                            | 695   |   |  |   |        |   |  |   | 68,801   |  
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Total operating expenses              |  |                       | 453,643  |   |                       |   | 7,036  |                               |  |   |             |   |  |                                    | 224     |   |                               |   | 460,903  |                                      |  |   | 1,213        |   |  |                                            | 1,556 |   |  |   | (3,278  | ) |  |   | 460,394  |  
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Operating income (loss)               |  |                       | (225,601 | ) |                       |   | (1,772 | )                             |  |   | 32,191       |   |  |                                    | (37,679 | ) |                               |   | (232,861 | )                                    |  |   | (1,213       | ) |  |                                            | 2,830 |   |  |   | (1,131  | ) |  |   | (232,375 | )
|Other income (expense):               |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Interest income                       |  |                       | 1,284    |   |                       |   | 279    |                               |  |   | 29,135       |   |  |                                    | (29,414 | ) |                               |   | 1,284    |                                      |  |   | 7,696        |   |  |                                            | 122   |   |  |   |        |   |  |   | 9,102    |  
|Interest expense                      |  |                       | (71,766  | ) |                       |   |       |                               |  |   | (279         | ) |  |                                    | 29,414  |   |                               |   | (42,631  | )                                    |  |   | (1,634       | ) |  |                                            | (236  | ) |  |   |        |   |  |   | (44,501  | )
|Other income (expense)                |  |                       | 20,695   |   |                       |   |       |                               |  |   |             |   |  |                                    | (20,717 | ) |                               |   | (22      | )                                    |  |   | (271,369     | ) |  |                                            | 1,426 |   |  |   | 272,376 |   |  |   | 2,411    |  
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Net income (loss) before income taxes |  |                       | (275,388 | ) |                       |   | (1,493 | )                             |  |   | 61,047       |   |  |                                    | (58,396 | ) |                               |   | (274,230 | )                                    |  |   | (266,520     | ) |  |                                            | 4,142 |   |  |   | 271,245 |   |  |   | (265,363 | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Provision for deferred income taxes   |  |                       |         |   |                       |   |       |                               |  |   | (1,158       | ) |  |                                    |        |   |                               |   | (1,158   | )                                    |  |   |             |   |  |                                            |      |   |  |   |        |   |  |   | (1,158   | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Net income (loss)                     |  | $                     | (275,388 | ) |                       | $ | (1,493 | )                             |  | $ | 59,889       |   |  | $                                  | (58,396 | ) |                               | $ | (275,388 | )                                    |  | $ | (266,520     | ) |  | $                                          | 4,142 |   |  | $ | 271,245 |   |  | $ | (266,521 | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  



12



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2004



|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|------------------------------------- |  | --------------------- | -------- | - | --------------------- | - | ----- | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ----------------------------- | - | -------- | ------------------------------------ |  | ------------ | -------- | - | ------------------------------------------ | - | ----- |  | - | ------- | - |  | - | -------- | -
|                                      |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasingLLC |   |       | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XM SatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  | Eliminations |          |   | ConsolidatedXM SatelliteRadioHoldings Inc. |  
|Revenue                               |  | $                     | 52,982   |   |                       | $ | 2,629 |                               |  | $ | 7,874        |   |  | $                                  | (10,503 | ) |                               | $ | 52,982   |                                      |  | $            |         |   |                                            | $ | 2,256 |  | $ | (2,256  | ) |  | $ | 52,982   |  
|Cost of revenue                       |  |                       | 45,918   |   |                       |   | 10    |                               |  |   |             |   |  |                                    | 110     |   |                               |   | 46,038   |                                      |  |              |         |   |                                            |   | 498   |  |   | (1,531  | ) |  |   | 45,005   |  
|Research & development                |  |                       | 6,731    |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                               |   | 6,731    |                                      |  |              |         |   |                                            |   |      |  |   |        |   |  |   | 6,731    |  
|General & administrative              |  |                       | 6,526    |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                               |   | 6,526    |                                      |  |              | 272      |   |                                            |   |      |  |   | (271    | ) |  |   | 6,527    |  
|Marketing                             |  |                       | 68,080   |   |                       |   |      |                               |  |   |             |   |  |                                    |        |   |                               |   | 68,080   |                                      |  |              |         |   |                                            |   |      |  |   |        |   |  |   | 68,080   |  
|Depreciation & amortization           |  |                       | 35,771   |   |                       |   | 3,439 |                               |  |   |             |   |  |                                    |        |   |                               |   | 39,210   |                                      |  |              |         |   |                                            |   | 347   |  |   |        |   |  |   | 39,557   |  
|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|Total operating expenses              |  |                       | 163,026  |   |                       |   | 3,449 |                               |  |   |             |   |  |                                    | 110     |   |                               |   | 166,585  |                                      |  |              | 272      |   |                                            |   | 845   |  |   | (1,802  | ) |  |   | 165,900  |  
|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|Operating income (loss)               |  |                       | (110,044 | ) |                       |   | (820  | )                             |  |   | 7,874        |   |  |                                    | (10,613 | ) |                               |   | (113,603 | )                                    |  |              | (272     | ) |                                            |   | 1,411 |  |   | (454    | ) |  |   | (112,918 | )
|Other income (expense):               |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|Interest income                       |  |                       | 285      |   |                       |   | 126   |                               |  |   | 14,608       |   |  |                                    | (14,734 | ) |                               |   | 285      |                                      |  |              | 779      |   |                                            |   | 22    |  |   |        |   |  |   | 1,086    |  
|Interest expense                      |  |                       | (48,348  | ) |                       |   |      |                               |  |   | (252         | ) |  |                                    | 29,629  |   |                               |   | (18,971  | )                                    |  |              | (345     | ) |                                            |   | 91    |  |   |        |   |  |   | (19,225  | )
|Other income (expense)                |  |                       | (9,717   | ) |                       |   | 48    |                               |  |   |             |   |  |                                    | (25,287 | ) |                               |   | (34,956  | )                                    |  |              | (166,256 | ) |                                            |   |      |  |   | 166,754 |   |  |   | (34,458  | )
|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|Net income (loss) before income taxes |  |                       | (167,824 | ) |                       |   | (646  | )                             |  |   | 22,230       |   |  |                                    | (21,005 | ) |                               |   | (167,245 | )                                    |  |              | (166,094 | ) |                                            |   | 1,524 |  |   | 166,300 |   |  |   | (165,515 | )
|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|Provision for deferred income taxes   |  |                       |         |   |                       |   |      |                               |  |   | (579         | ) |  |                                    |        |   |                               |   | (579     | )                                    |  |              |         |   |                                            |   |      |  |   |        |   |  |   | (579     | )
|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  
|Net income (loss)                     |  | $                     | (167,824 | ) |                       | $ | (646  | )                             |  | $ | 21,651       |   |  | $                                  | (21,005 | ) |                               | $ | (167,824 | )                                    |  | $            | (166,094 | ) |                                            | $ | 1,524 |  | $ | 166,300 |   |  | $ | (166,094 | )
|                                      |  |                       |          |   |                       |   |       |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |              |          |   |                                            |   |       |  |   |         |   |  |   |          |  



XM SATELLITE RADIO
INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2004



|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|------------------------------------- |  | --------------------- | -------- | - | --------------------- | - | ------ | ----------------------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - | ----------------------------- | - | -------- | ------------------------------------ |  | - | ------------ | - |  | ------------------------------------------ | ----- | - |  | - | ------- | - |  | - | -------- | -
|                                      |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasingLLC |   |        | XMSRNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio Inc. |         |   | XM SatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedXM SatelliteRadioHoldings Inc. |      
|Revenue                               |  | $                     | 95,948   |   |                       | $ | 5,254  |                               |  | $ | 14,041       |   |  | $                                  | (19,296 | ) |                               | $ | 95,947   |                                      |  | $ |             |   |  | $                                          | 4,090 |   |  | $ | (4,090  | ) |  | $ | 95,947   |  
|Cost of revenue                       |  |                       | 94,099   |   |                       |   | 18     |                               |  |   |             |   |  |                                    | 221     |   |                               |   | 94,338   |                                      |  |   |             |   |  |                                            | 1,098 |   |  |   | (2,702  | ) |  |   | 92,734   |  
|Research & development                |  |                       | 12,901   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                               |   | 12,901   |                                      |  |   |             |   |  |                                            |      |   |  |   |        |   |  |   | 12,901   |  
|General & administrative              |  |                       | 12,276   |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                               |   | 12,276   |                                      |  |   | 272          |   |  |                                            | 35    |   |  |   | (191    | ) |  |   | 12,392   |  
|Marketing                             |  |                       | 129,650  |   |                       |   |       |                               |  |   |             |   |  |                                    |        |   |                               |   | 129,650  |                                      |  |   |             |   |  |                                            |      |   |  |   |        |   |  |   | 129,650  |  
|Depreciation & amortization           |  |                       | 71,387   |   |                       |   | 6,957  |                               |  |   |             |   |  |                                    |        |   |                               |   | 78,344   |                                      |  |   |             |   |  |                                            | 694   |   |  |   |        |   |  |   | 79,038   |  
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Total operating expenses              |  |                       | 320,313  |   |                       |   | 6,975  |                               |  |   |             |   |  |                                    | 221     |   |                               |   | 327,509  |                                      |  |   | 272          |   |  |                                            | 1,827 |   |  |   | (2,893  | ) |  |   | 326,715  |  
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Operating income (loss)               |  |                       | (224,365 | ) |                       |   | (1,721 | )                             |  |   | 14,041       |   |  |                                    | (19,517 | ) |                               |   | (231,562 | )                                    |  |   | (272         | ) |  |                                            | 2,263 |   |  |   | (1,197  | ) |  |   | (230,768 | )
|Other income (expense):               |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Interest income                       |  |                       | 467      |   |                       |   | 252    |                               |  |   | 29,377       |   |  |                                    | (29,629 | ) |                               |   | 467      |                                      |  |   | 1,654        |   |  |                                            | 44    |   |  |   |        |   |  |   | 2,165    |  
|Interest expense                      |  |                       | (76,261  | ) |                       |   |       |                               |  |   | (252         | ) |  |                                    | 29,629  |   |                               |   | (46,884  | )                                    |  |   | (406         | ) |  |                                            | (56   | ) |  |   |        |   |  |   | (47,346  | )
|Other income (expense)                |  |                       | (39,095  | ) |                       |   | 48     |                               |  |   |             |   |  |                                    | 3,923   |   |                               |   | (35,124  | )                                    |  |   | (337,149     | ) |  |                                            |      |   |  |   | 338,201 |   |  |   | (34,072  | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Net income (loss) before income taxes |  |                       | (339,254 | ) |                       |   | (1,421 | )                             |  |   | 43,166       |   |  |                                    | (15,594 | ) |                               |   | (313,103 | )                                    |  |   | (336,173     | ) |  |                                            | 2,251 |   |  |   | 337,004 |   |  |   | (310,021 | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Provision for deferred income taxes   |  |                       |         |   |                       |   |       |                               |  |   | (26,152      | ) |  |                                    |        |   |                               |   | (26,152  | )                                    |  |   |             |   |  |                                            |      |   |  |   |        |   |  |   | (26,152  | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  
|Net income (loss)                     |  | $                     | (339,254 | ) |                       | $ | (1,421 | )                             |  | $ | 17,014       |   |  | $                                  | (15,594 | ) |                               | $ | (339,255 | )                                    |  | $ | (336,173     | ) |  | $                                          | 2,251 |   |  | $ | 337,004 |   |  | $ | (336,173 | )
|                                      |  |                       |          |   |                       |   |        |                               |  |   |              |   |  |                                    |         |   |                               |   |          |                                      |  |   |              |   |  |                                            |       |   |  |   |         |   |  |   |          |  



13



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2005



|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------ |  | ---------------------- | ---------- | - | ---------------------- | - | ------ | ------------------------------ |  | ------------ | ------- |  | ---------------------------------- | ---------- | - | ----------------------------- | - | ---------- | ------------------------------------ |  | ------------ | ---------- | - | ----------------------------------------- | - | ------ |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                       |  | XM SatelliteRadio Inc. |            |   | XMEquipmentLeasing LLC |   |        | XMSR Non-GuarantorSubsidiaries |  | Eliminations |         |  | ConsolidatedXM SatelliteRadio Inc. |            |   | XM SatelliteRadioHoldingsInc. |   |            | XM HoldingsNon-GuarantorSubsidiaries |  | Eliminations |            |   | ConsolidatedXM SatelliteRadioHoldingsInc. |  
|Current assets:                                                                                        |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Cash and cash equivalents                                                                              |  | $                      | 77,394     |   |                        | $ | 21     |                                |  | $            |        |  | $                                  |           |   |                               | $ | 77,415     |                                      |  | $            | 840,469    |   |                                           | $ | 12,493 |  | $ |           |   |  | $ | 930,377    |  
|Accounts receivable, net                                                                               |  |                        | 16,647     |   |                        |   |       |                                |  |              | 45      |  |                                    |           |   |                               |   | 16,692     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 16,692     |  
|Due from subsidiaries/affiliates                                                                       |  |                        | 4,069      |   |                        |   | 42,445 |                                |  |              | 622,574 |  |                                    | (668,021   | ) |                               |   | 1,067      |                                      |  |              |           |   |                                           |   | 2,427  |  |   | (3,494     | ) |  |   |           |  
|Due from related parties                                                                               |  |                        | 11,867     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 11,867     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 11,867     |  
|Related party prepaid expenses                                                                         |  |                        | 49,381     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 49,381     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 49,381     |  
|Prepaid programming content                                                                            |  |                        | 51,297     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 51,297     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 51,297     |  
|Prepaid and other current assets                                                                       |  |                        | 32,179     |   |                        |   | 186    |                                |  |              |        |  |                                    |           |   |                               |   | 32,365     |                                      |  |              | 1,595      |   |                                           |   | 643    |  |   | (1,286     | ) |  |   | 33,317     |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total current assets                                                                                   |  |                        | 242,834    |   |                        |   | 42,652 |                                |  |              | 622,619 |  |                                    | (668,021   | ) |                               |   | 240,084    |                                      |  |              | 842,064    |   |                                           |   | 15,563 |  |   | (4,780     | ) |  |   | 1,092,931  |  
|Restricted investments                                                                                 |  |                        | 457        |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 457        |                                      |  |              |           |   |                                           |   | 4,049  |  |   |           |   |  |   | 4,506      |  
|System under construction                                                                              |  |                        | 6,190      |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 6,190      |                                      |  |              | 157,611    |   |                                           |   |       |  |   |           |   |  |   | 163,801    |  
|Property and equipment, net                                                                            |  |                        | 562,851    |   |                        |   | 49,538 |                                |  |              |        |  |                                    |           |   |                               |   | 612,389    |                                      |  |              | 56,979     |   |                                           |   | 29,510 |  |   | (5,099     | ) |  |   | 693,779    |  
|Investment in subsidiary/affiliates                                                                    |  |                        | 801,627    |   |                        |   |       |                                |  |              |        |  |                                    | (801,627   | ) |                               |   |           |                                      |  |              | (138,737   | ) |                                           |   |       |  |   | 138,737    |   |  |   |           |  
|DARS license & intangibles, net                                                                        |  |                        | 6,563      |   |                        |   |       |                                |  |              | 141,227 |  |                                    |           |   |                               |   | 147,790    |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 147,790    |  
|Related party prepaid expenses                                                                         |  |                        | 22,388     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 22,388     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 22,388     |  
|Deferred financing costs, prepaid & other assets, net of accumulated ammortization and current portion |  |                        | 34,856     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 34,856     |                                      |  |              | 28,027     |   |                                           |   | 3,423  |  |   | (20,494    | ) |  |   | 45,812     |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total assets                                                                                           |  | $                      | 1,677,766  |   |                        | $ | 92,190 |                                |  | $            | 763,846 |  | $                                  | (1,469,648 | ) |                               | $ | 1,064,154  |                                      |  | $            | 945,944    |   |                                           | $ | 52,545 |  | $ | 108,364    |   |  | $ | 2,171,007  |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Current liabilities:                                                                                   |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Current portion of long-term debt                                                                      |  | $                      | 6,720      |   |                        | $ |       |                                |  | $            |        |  | $                                  |           |   |                               | $ | 6,720      |                                      |  | $            |           |   |                                           | $ | 408    |  | $ |           |   |  | $ | 7,128      |  
|Accounts payable                                                                                       |  |                        | 58,936     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 58,936     |                                      |  |              | 4,386      |   |                                           |   | 87     |  |   |           |   |  |   | 63,409     |  
|Accrued expenses                                                                                       |  |                        | 80,624     |   |                        |   | 144    |                                |  |              |        |  |                                    |           |   |                               |   | 80,768     |                                      |  |              | 7          |   |                                           |   | 178    |  |   | (441       | ) |  |   | 80,512     |  
|Accrued XM-4 liability                                                                                 |  |                        |           |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   |           |                                      |  |              | 104,300    |   |                                           |   |       |  |   |           |   |  |   | 104,300    |  
|Accrued network optimization expenses                                                                  |  |                        | 1,382      |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 1,382      |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 1,382      |  
|Due to subsidiary/affiliates                                                                           |  |                        | 642,231    |   |                        |   | 1,612  |                                |  |              | 24,158  |  |                                    | (668,001   | ) |                               |   |           |                                      |  |              | 2,427      |   |                                           |   | 1,204  |  |   | (3,631     | ) |  |   |           |  
|Due to related parties                                                                                 |  |                        | 54,102     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 54,102     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 54,102     |  
|Accrued interest                                                                                       |  |                        | 5,580      |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 5,580      |                                      |  |              | 583        |   |                                           |   | 167    |  |   |           |   |  |   | 6,330      |  
|Deferred revenue                                                                                       |  |                        | 209,752    |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 209,752    |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 209,752    |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total current liabilities                                                                              |  |                        | 1,059,327  |   |                        |   | 1,756  |                                |  |              | 24,158  |  |                                    | (668,001   | ) |                               |   | 417,240    |                                      |  |              | 111,703    |   |                                           |   | 2,044  |  |   | (4,072     | ) |  |   | 526,915    |  
|Long-term debt, net of current portion                                                                 |  |                        | 648,710    |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 648,710    |                                      |  |              | 400,000    |   |                                           |   | 32,605 |  |   |           |   |  |   | 1,081,315  |  
|Due to related parties, net of current portion                                                         |  |                        | 46,406     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 46,406     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 46,406     |  
|Deferred revenue, net of current portion                                                               |  |                        | 79,043     |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 79,043     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 79,043     |  
|Other non-current liabilities                                                                          |  |                        | 29,188     |   |                        |   |       |                                |  |              | 28,475  |  |                                    |           |   |                               |   | 57,663     |                                      |  |              | 48,941     |   |                                           |   |       |  |   | (54,576    | ) |  |   | 52,028     |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total liabilities                                                                                      |  |                        | 1,862,674  |   |                        |   | 1,756  |                                |  |              | 52,633  |  |                                    | (668,001   | ) |                               |   | 1,249,062  |                                      |  |              | 560,644    |   |                                           |   | 34,649 |  |   | (58,648    | ) |  |   | 1,785,707  |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Stockholders equity (deficit):                                                                        |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Capital stock                                                                                          |  |                        |           |   |                        |   |       |                                |  |              |        |  |                                    |           |   |                               |   |           |                                      |  |              | 2,279      |   |                                           |   |       |  |   |           |   |  |   | 2,279      |  
|Additional paid-in-capital                                                                             |  |                        | 2,205,301  |   |                        |   | 97,019 |                                |  |              | 433,036 |  |                                    | (530,054   | ) |                               |   | 2,205,302  |                                      |  |              | 2,762,431  |   |                                           |   | 2,288  |  |   | (2,207,590 | ) |  |   | 2,762,431  |  
|Retained earnings (deficit)                                                                            |  |                        | (2,390,209 | ) |                        |   | (6,585 | )                              |  |              | 278,177 |  |                                    | (271,593   | ) |                               |   | (2,390,210 | )                                    |  |              | (2,379,410 | ) |                                           |   | 15,608 |  |   | 2,374,602  |   |  |   | (2,379,410 | )
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total stockholders equity (deficit)                                                                   |  |                        | (184,908   | ) |                        |   | 90,434 |                                |  |              | 711,213 |  |                                    | (801,647   | ) |                               |   | (184,908   | )                                    |  |              | 385,300    |   |                                           |   | 17,896 |  |   | 167,012    |   |  |   | 385,300    |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Commitments and contingencies                                                                          |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total liabilities and stockholders equity (deficit)                                                   |  | $                      | 1,677,766  |   |                        | $ | 92,190 |                                |  | $            | 763,846 |  | $                                  | (1,469,648 | ) |                               | $ | 1,064,154  |                                      |  | $            | 945,944    |   |                                           | $ | 52,545 |  | $ | 108,364    |   |  | $ | 2,171,007  |  
|                                                                                                       |  |                        |            |   |                        |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  



14



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##### Table of Contents

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2004



|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- | - | --------------------- | - | ------ | ------------------------------ |  | ------------ | ------- |  | ---------------------------------- | ---------- | - | ----------------------------- | - | ---------- | ------------------------------------ |  | ------------ | ---------- | - | ----------------------------------------- | - | ------ |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                      |  | XM SatelliteRadio Inc. |            |   | XMEquipmentLeasingLLC |   |        | XMSR Non-GuarantorSubsidiaries |  | Eliminations |         |  | ConsolidatedXM SatelliteRadio Inc. |            |   | XM SatelliteRadioHoldingsInc. |   |            | XM HoldingsNon-GuarantorSubsidiaries |  | Eliminations |            |   | ConsolidatedXM SatelliteRadioHoldingsInc. |  
|Current assets:                                                                                       |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Cash and cash equivalents                                                                             |  | $                      | 202,474    |   |                       | $ | 47     |                                |  | $            |        |  | $                                  |           |   |                               | $ | 202,521    |                                      |  | $            | 506,250    |   |                                           | $ | 9,096  |  | $ |           |   |  | $ | 717,867    |  
|Accounts receivable, net                                                                              |  |                        | 20,138     |   |                       |   |       |                                |  |              | 44      |  |                                    |           |   |                               |   | 20,182     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 20,182     |  
|Due from subsidiaries/affiliates                                                                      |  |                        | 4,188      |   |                       |   | 36,677 |                                |  |              | 561,248 |  |                                    | (600,701   | ) |                               |   | 1,412      |                                      |  |              |           |   |                                           |   | 436    |  |   | (1,848     | ) |  |   |           |  
|Due from related parties                                                                              |  |                        | 5,367      |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 5,367      |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 5,367      |  
|Related party prepaid expenses                                                                        |  |                        | 31,160     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 31,160     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 31,160     |  
|Prepaid programming content                                                                           |  |                        | 11,390     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 11,390     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 11,390     |  
|Prepaid and other current assets                                                                      |  |                        | 17,231     |   |                       |   | 186    |                                |  |              |        |  |                                    |           |   |                               |   | 17,417     |                                      |  |              | 1,734      |   |                                           |   | 332    |  |   | (1,286     | ) |  |   | 18,197     |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total current assets                                                                                  |  |                        | 291,948    |   |                       |   | 36,910 |                                |  |              | 561,292 |  |                                    | (600,701   | ) |                               |   | 289,449    |                                      |  |              | 507,984    |   |                                           |   | 9,864  |  |   | (3,134     | ) |  |   | 804,163    |  
|Restricted investments                                                                                |  |                        | 372        |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 372        |                                      |  |              |           |   |                                           |   | 4,120  |  |   |           |   |  |   | 4,492      |  
|System under construction                                                                             |  |                        | 153,595    |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 153,595    |                                      |  |              | 175,760    |   |                                           |   |       |  |   |           |   |  |   | 329,355    |  
|Property and equipment, net                                                                           |  |                        | 379,612    |   |                       |   | 56,557 |                                |  |              |        |  |                                    |           |   |                               |   | 436,169    |                                      |  |              |           |   |                                           |   | 30,263 |  |   | (5,099     | ) |  |   | 461,333    |  
|Investment in subsidiary/affiliates                                                                   |  |                        | 743,231    |   |                       |   |       |                                |  |              |        |  |                                    | (743,231   | ) |                               |   |           |                                      |  |              | 84,575     |   |                                           |   |       |  |   | (84,575    | ) |  |   |           |  
|DARS license & intangibles, net                                                                       |  |                        | 7,164      |   |                       |   |       |                                |  |              | 141,227 |  |                                    |           |   |                               |   | 148,391    |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 148,391    |  
|Related party prepaid expenses                                                                        |  |                        | 25,901     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 25,901     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 25,901     |  
|Deferred financing costs, prepaid & other assets, net of accumulated amortization and current portion |  |                        | 38,439     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 38,439     |                                      |  |              | 7,355      |   |                                           |   | 3,521  |  |   | (1,315     | ) |  |   | 48,000     |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total assets                                                                                          |  | $                      | 1,640,262  |   |                       | $ | 93,467 |                                |  | $            | 702,519 |  | $                                  | (1,343,932 | ) |                               | $ | 1,092,316  |                                      |  | $            | 775,674    |   |                                           | $ | 47,768 |  | $ | (94,123    | ) |  | $ | 1,821,635  |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Current liabilities:                                                                                  |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Current portion of long-term debt                                                                     |  | $                      | 6,148      |   |                       | $ |       |                                |  | $            |        |  | $                                  |           |   |                               | $ | 6,148      |                                      |  | $            |           |   |                                           | $ | 408    |  | $ |           |   |  | $ | 6,556      |  
|Accounts payable                                                                                      |  |                        | 59,155     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 59,155     |                                      |  |              | 731        |   |                                           |   | 100    |  |   |           |   |  |   | 59,986     |  
|Accrued expenses                                                                                      |  |                        | 86,041     |   |                       |   | 155    |                                |  |              |        |  |                                    |           |   |                               |   | 86,196     |                                      |  |              | 22         |   |                                           |   | 182    |  |   | (441       | ) |  |   | 85,959     |  
|Accrued XM-4 liability                                                                                |  |                        |           |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   |           |                                      |  |              | 100,100    |   |                                           |   |       |  |   |           |   |  |   | 100,100    |  
|Accrued network optimization expenses                                                                 |  |                        | 2,148      |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 2,148      |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 2,148      |  
|Due to subsidiary/affiliates                                                                          |  |                        | 575,418    |   |                       |   | 1,385  |                                |  |              | 23,878  |  |                                    | (600,681   | ) |                               |   |           |                                      |  |              | 1,628      |   |                                           |   | 358    |  |   | (1,986     | ) |  |   |           |  
|Due to related parties                                                                                |  |                        | 27,610     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 27,610     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 27,610     |  
|Accrued interest                                                                                      |  |                        | 5,552      |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 5,552      |                                      |  |              | 8,427      |   |                                           |   | 167    |  |   |           |   |  |   | 14,146     |  
|Deferred revenue                                                                                      |  |                        | 114,951    |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 114,951    |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 114,951    |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total current liabilities                                                                             |  |                        | 877,023    |   |                       |   | 1,540  |                                |  |              | 23,878  |  |                                    | (600,681   | ) |                               |   | 301,760    |                                      |  |              | 110,908    |   |                                           |   | 1,215  |  |   | (2,427     | ) |  |   | 411,456    |  
|Long-term debt, net of current portion                                                                |  |                        | 615,943    |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 615,943    |                                      |  |              | 300,000    |   |                                           |   | 32,798 |  |   |           |   |  |   | 948,741    |  
|Due to related parties, net of current portion                                                        |  |                        | 38,911     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 38,911     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 38,911     |  
|Deferred revenue, net of current portion                                                              |  |                        | 37,396     |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   | 37,396     |                                      |  |              |           |   |                                           |   |       |  |   |           |   |  |   | 37,396     |  
|Other non-current liabilities                                                                         |  |                        | 27,407     |   |                       |   |       |                                |  |              | 27,317  |  |                                    |           |   |                               |   | 54,724     |                                      |  |              | 28,603     |   |                                           |   |       |  |   | (34,359    | ) |  |   | 48,968     |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total liabilities                                                                                     |  |                        | 1,596,680  |   |                       |   | 1,540  |                                |  |              | 51,195  |  |                                    | (600,681   | ) |                               |   | 1,048,734  |                                      |  |              | 439,511    |   |                                           |   | 34,013 |  |   | (36,786    | ) |  |   | 1,485,472  |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Stockholders equity (deficit):                                                                       |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Capital stock                                                                                         |  |                        |           |   |                       |   |       |                                |  |              |        |  |                                    |           |   |                               |   |           |                                      |  |              | 2,142      |   |                                           |   |       |  |   |           |   |  |   | 2,142      |  
|Additional paid-in-capital                                                                            |  |                        | 2,158,402  |   |                       |   | 97,018 |                                |  |              | 433,036 |  |                                    | (530,054   | ) |                               |   | 2,158,402  |                                      |  |              | 2,446,910  |   |                                           |   | 2,289  |  |   | (2,160,691 | ) |  |   | 2,446,910  |  
|Retained earnings (deficit)                                                                           |  |                        | (2,114,820 | ) |                       |   | (5,091 | )                              |  |              | 218,288 |  |                                    | (213,197   | ) |                               |   | (2,114,820 | )                                    |  |              | (2,112,889 | ) |                                           |   | 11,466 |  |   | 2,103,354  |   |  |   | (2,112,889 | )
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total stockholders equity (deficit)                                                                  |  |                        | 43,582     |   |                       |   | 91,927 |                                |  |              | 651,324 |  |                                    | (743,251   | ) |                               |   | 43,582     |                                      |  |              | 336,163    |   |                                           |   | 13,755 |  |   | (57,337    | ) |  |   | 336,163    |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Commitments and contingencies                                                                         |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  
|Total liabilities and stockholders equity (deficit)                                                  |  | $                      | 1,640,262  |   |                       | $ | 93,467 |                                |  | $            | 702,519 |  | $                                  | (1,343,932 | ) |                               | $ | 1,092,316  |                                      |  | $            | 775,674    |   |                                           | $ | 47,768 |  | $ | (94,123    | ) |  | $ | 1,821,635  |  
|                                                                                                      |  |                        |            |   |                       |   |        |                                |  |              |         |  |                                    |            |   |                               |   |            |                                      |  |              |            |   |                                           |   |        |  |   |            |   |  |   |            |  



15



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XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005



|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|----------------------------------------------------------------- |  | --------------------- | -------- | - | --------------------- | - | --- | ------------------------------ |  | ------------ | - | ---------------------------------- | - | - | ---------------------------- | - | -------- | ------------------------------------ |  | - | ------------ | - | ----------------------------------------- | - | ------ | - |  | - | - |  | - | -------- | -
|                                                                  |  | XMSatelliteRadio Inc. |          |   | XMEquipmentLeasingLLC |   |     | XMSR Non-GuarantorSubsidiaries |  | Eliminations |   | ConsolidatedXM SatelliteRadio Inc. |   |   | XMSatelliteRadioHoldingsInc. |   |          | XM HoldingsNon-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedXM SatelliteRadioHoldingsInc. |  
|Net cash provided by (used in) operating activities               |  | $                     | (89,298  | ) |                       | $ | (26 | )                              |  | $            |  |                                    | $ |  |                              | $ | (89,324  | )                                    |  | $ | 407          |   |                                           | $ | 3,617  |   |  | $ |  |  | $ | (85,300  | )
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Cash flows from investing activities:                             |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Purchase of plant and equipment                                   |  |                       | (19,590  | ) |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | (19,590  | )                                    |  |   | 59           |   |                                           |   |       |   |  |   |  |  |   | (19,531  | )
|Additions to system under construction                            |  |                       | (54,993  | ) |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | (54,993  | )                                    |  |   | (27,481      | ) |                                           |   |       |   |  |   |  |  |   | (82,474  | )
|Net purchase/maturity of restricted investments                   |  |                       | (85      | ) |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | (85      | )                                    |  |   | 71           |   |                                           |   |       |   |  |   |  |  |   | (14      | )
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Net cash used in investing activities                             |  |                       | (74,668  | ) |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | (74,668  | )                                    |  |   | (27,351      | ) |                                           |   |       |   |  |   |  |  |   | (102,019 | )
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Cash flows from financing activities:                             |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Proceeds from sale of common stock, net and capital contributions |  |                       |         |   |                       |   |    |                                |  |              |  |                                    |   |  |                              |   |         |                                      |  |   | 308,668      |   |                                           |   |       |   |  |   |  |  |   | 308,668  |  
|Capital contributions from Holdings                               |  |                       | 45,121   |   |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | 45,121   |                                      |  |   | (45,121      | ) |                                           |   |       |   |  |   |  |  |   |         |  
|Proceeds from issuance of 1.75% convertible senior notes          |  |                       |         |   |                       |   |    |                                |  |              |  |                                    |   |  |                              |   |         |                                      |  |   | 100,000      |   |                                           |   |       |   |  |   |  |  |   | 100,000  |  
|Payments on other borrowings                                      |  |                       | (6,226   | ) |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | (6,226   | )                                    |  |   |             |   |                                           |   | (193   | ) |  |   |  |  |   | (6,419   | )
|Deferred financing costs                                          |  |                       | (9       | ) |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | (9       | )                                    |  |   | (2,384       | ) |                                           |   | (27    | ) |  |   |  |  |   | (2,420   | )
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Net cash provided by (used in) financing activities               |  |                       | 38,886   |   |                       |   |    |                                |  |              |  |                                    |   |  |                              |   | 38,886   |                                      |  |   | 361,163      |   |                                           |   | (220   | ) |  |   |  |  |   | 399,829  |  
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents              |  |                       | (125,080 | ) |                       |   | (26 | )                              |  |              |  |                                    |   |  |                              |   | (125,106 | )                                    |  |   | 334,219      |   |                                           |   | 3,397  |   |  |   |  |  |   | 212,510  |  
|Cash and cash equivalents at beginning of period                  |  |                       | 202,474  |   |                       |   | 47  |                                |  |              |  |                                    |   |  |                              |   | 202,521  |                                      |  |   | 506,250      |   |                                           |   | 9,096  |   |  |   |  |  |   | 717,867  |  
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  
|Cash and cash equivalents at end of period                        |  | $                     | 77,394   |   |                       | $ | 21  |                                |  | $            |  |                                    | $ |  |                              | $ | 77,415   |                                      |  | $ | 840,469      |   |                                           | $ | 12,493 |   |  | $ |  |  | $ | 930,377  |  
|                                                                  |  |                       |          |   |                       |   |     |                                |  |              |   |                                    |   |   |                              |   |          |                                      |  |   |              |   |                                           |   |        |   |  |   |   |  |   |          |  



16



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XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2004



|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|----------------------------------------------------------------- |  | ----------------------- | -------- | - | ------------------------ | - | -------------------------------- |  | ------------ | - |  | ------------------------------------ | --- | - | ------------------------------- | - | -------- | -------------------------------------- |  | - | ------------ | - | --------------------------------------------- | - | ----- | - |  | - | - |  | - | -------- | -
|                                                                  |  | XM Satellite Radio Inc. |          |   | XM Equipment Leasing LLC |   | XMSR Non- Guarantor Subsidiaries |  | Eliminations |   |  | Consolidated XM Satellite Radio Inc. |     |   | XM Satellite Radio HoldingsInc. |   |          | XM Holdings Non- GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated XM Satellite Radio Holdings Inc. |  
|Net cash provided by (used in) operating activities               |  | $                       | (63,549  | ) |                          | $ | 12                               |  | $            |  |  | $                                    | 15  |   |                                 | $ | (63,522  | )                                      |  | $ | 2,530        |   |                                               | $ | 2,772 |   |  | $ |  |  | $ | (58,220  | )
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Cash flows from investing activities :                            |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Purchase of plant and equipment                                   |  |                         | (11,834  | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (11,834  | )                                      |  |   | 203          |   |                                               |   |      |   |  |   |  |  |   | (11,631  | )
|Additions to system under construction                            |  |                         | (104,093 | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (104,093 | )                                      |  |   | (14,350      | ) |                                               |   |      |   |  |   |  |  |   | (118,443 | )
|Net purchase/maturity of restricted investments                   |  |                         | 118      |   |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | 118      |                                        |  |   | (37          | ) |                                               |   |      |   |  |   |  |  |   | 81       |  
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Net cash used in investing activities                             |  |                         | (115,809 | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (115,809 | )                                      |  |   | (14,184      | ) |                                               |   |      |   |  |   |  |  |   | (129,993 | )
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Cash flows from financing activities :                            |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Proceeds from sale of common stock, net and capital contributions |  |                         |         |   |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   |         |                                        |  |   | 225,357      |   |                                               |   |      |   |  |   |  |  |   | 225,357  |  
|Capital contributions from Holdings                               |  |                         | 204,577  |   |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | 204,577  |                                        |  |   | (204,577     | ) |                                               |   |      |   |  |   |  |  |   |         |  
|Proceeds from issuance of floating rate notes                     |  |                         | 200,000  |   |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | 200,000  |                                        |  |   |             |   |                                               |   |      |   |  |   |  |  |   | 200,000  |  
|Repayment of 12% senior secured notes                             |  |                         | (70,000  | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (70,000  | )                                      |  |   |             |   |                                               |   |      |   |  |   |  |  |   | (70,000  | )
|Repayment of 14% senior secured notes                             |  |                         | (13,028  | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (13,028  | )                                      |  |   |             |   |                                               |   |      |   |  |   |  |  |   | (13,028  | )
|Repayment of related party long term-debt                         |  |                         | (81,194  | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (81,194  | )                                      |  |   |             |   |                                               |   |      |   |  |   |  |  |   | (81,194  | )
|Repayment of loan                                                 |  |                         |         |   |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   |         |                                        |  |   | (35,000      | ) |                                               |   |      |   |  |   |  |  |   | (35,000  | )
|Payments on related party credit facility                         |  |                         | (71,425  | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (71,425  | )                                      |  |   |             |   |                                               |   |      |   |  |   |  |  |   | (71,425  | )
|Payments on other borrowings                                      |  |                         | (3,104   | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (3,104   | )                                      |  |   |             |   |                                               |   | (341  | ) |  |   |  |  |   | (3,445   | )
|Deferred financing costs                                          |  |                         | (4,750   | ) |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | (4,750   | )                                      |  |   | (64          | ) |                                               |   |      |   |  |   |  |  |   | (4,814   | )
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Net cash provided by (used in) financing activities               |  |                         | 161,076  |   |                          |   |                                 |  |              |  |  |                                      |    |   |                                 |   | 161,076  |                                        |  |   | (14,284      | ) |                                               |   | (341  | ) |  |   |  |  |   | 146,451  |  
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents              |  |                         | (18,282  | ) |                          |   | 12                               |  |              |  |  |                                      | 15  |   |                                 |   | (18,255  | )                                      |  |   | (25,938      | ) |                                               |   | 2,431 |   |  |   |  |  |   | (41,762  | )
|Cash and cash equivalents at beginning of period                  |  |                         | 90,234   |   |                          |   |                                 |  |              |  |  |                                      | (15 | ) |                                 |   | 90,219   |                                        |  |   | 326,349      |   |                                               |   | 1,739 |   |  |   |  |  |   | 418,307  |  
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  
|Cash and cash equivalents at end of period                        |  | $                       | 71,952   |   |                          | $ | 12                               |  | $            |  |  | $                                    |    |   |                                 | $ | 71,964   |                                        |  | $ | 300,411      |   |                                               | $ | 4,170 |   |  | $ |  |  | $ | 376,545  |  
|                                                                  |  |                         |          |   |                          |   |                                  |  |              |   |  |                                      |     |   |                                 |   |          |                                        |  |   |              |   |                                               |   |       |   |  |   |   |  |   |          |  



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(8) Subsequent Events



On July 13, 2005, XM announced an agreement to acquire WCS Wireless for 5.5 million shares of XMs Class A common stock. The principal assets of WCS
Wireless are wireless spectrum licenses in geographic areas covering 163 million people throughout the United States, including 15 of the top 20 metropolitan markets. XM and WCS Wireless expect to close the transaction before the end of the year
subject to necessary governmental approvals.



On July 19, 2005,
XM announced the purchase for cash of $25 million of the common stock of WorldSpace, Inc., a leading satellite radio provider for Asia, Europe, the Middle East and Africa. In addition, XM received a warrant to purchase $37.5 million of additional
WorldSpace, Inc. common stock, subject to operational vesting conditions.



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



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in Managements Discussion and Analysis of Financial Condition and Results of
Operations and other sections herein, including statements regarding the development of our business, the markets for our services, our anticipated capital expenditures, and other similar statements are forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) which can be identified as any statement that does not relate strictly to historical or current facts. Forward-looking statements use such words as plans,
expects, will, will likely result, are expected to, will continue, is anticipated, estimate, project, believes, anticipates,
intends, may, should, continue, seek, could and other similar reasonable expressions. Although we believe that our expectations are based on reasonable assumptions, we can give
no assurance that our expectations will be achieved. The important factors that could cause actual results to differ materially from those in the forward-looking statements herein (the Cautionary Statements) include, without limitation,
the key factors that have a direct bearing on our future results of operations. These are our significant expenditures and losses, unproven market for our service, health of our satellites, potential need for additional financing, substantial
indebtedness, as well as other risks referenced from time to time in filings with the SEC, including our Form 10-K, filed March 30, 2005 and Holdings Current Report on Form 8-K filed on August 5, 2005. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake any obligation to release publicly any revisions to such forward-looking
statements to reflect the occurrence of unanticipated events.



The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included herewith, and with our Managements Discussion and Analysis of Financial Condition and
Results of Operations and audited consolidated financial statements and notes thereto for the three-year period ended December 31, 2004, included in our Annual Report on Form 10-K.



This quarterly report on Form 10-Q is filed by XM Satellite Radio Inc. (Inc. or the Company). XM
Satellite Radio Holdings Inc. (XM or Holdings) is filing separately. The principal differences between the financial condition of Holdings and Inc., are:



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



| |  |  | XM-3 is owned by the Company, except for the B702 bus portion thereof; XM-5, XM-4 and the B702 bus portion of XM-3 are owned by Holdings;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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Overview



The highlights for our three- and six-month period ended June 30, 2005 include the following:



| |  |  | growing the XM business to over 4.4 million subscribers at quarter end, including over 647 thousand new subscribers added during the three months ended June 30, 2005;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announced an increase in our monthly rate from $9.99 to $12.95, effective April 2ndand simultaneously offered subscribers an opportunity to lock-in the lower rate by signing up for one of our multi-year payment plans;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the continued development of innovative retail products at attractive price points and broad OEM factory-installed penetration across numerous vehicle models;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | launching the dedicated 24/7 Major League Baseball channel, including the MLB Home Plate channel and live play-by-play channels, as well as expanding our talk content and our sports
programming line-up with the Indy Car Series and the PGA Tour channel and announcing a Hispanic sports channel to include World Cup coverage;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ending June 30, 2005, with a recurring subscription revenue run rate of $496 million per year;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | continuing to grow our gross margin (calculated as revenues less variable costs, which include revenue share & royalties, customer care & billing operations, cost of
merchandise & ad sales) during the three months and six months ended June 30, 2005 while reducing our costs to acquire each new subscriber; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Holdings sold 9,668,063 shares of its Class A common stock in June 2005 resulting in net proceeds of $300 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------



The key metrics we use to monitor our business growth and
our operational results are: ending subscribers, Average Monthly Subscription Revenue Per Subscriber (ARPU), Subscriber Acquisition Costs (SAC), Cost Per Gross Addition (CPGA) and EBITDA, presented as follows:



|                                                                                           |  |                             |           |   |      |   |           |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                           |  | Three Months ended June 30, |          
|                                                                                           |  | 2005                        |           |   | 2004 |  
|Net Subscriber Additions                                                                   |  |                             | 647,226   |   |      |   | 418,449   |  
|Aftermarket, OEM & Other Subscribers                                                       |  |                             | 3,807,224 |   |      |   | 1,705,191 |  
|Subscribers in OEM Promotional Periods(1)                                                  |  |                             | 565,929   |   |      |   | 374,930   |  
|XM Activated Vehicles with Rental Car Companies(2)                                         |  |                             | 44,337    |   |      |   | 20,231    |  
|                                                                                           |  |                             |           |   |      |   |           |  
|Total Ending Subscribers(1)(2)(3)                                                          |  |                             | 4,417,490 |   |      |   | 2,100,352 |  
|                                                                                           |  |                            
|Average Monthly Subscription Revenue Per Subscriber(4)                                     |  | $                           | 9.35      |   |      | $ | 8.63      |  
|Average Monthly Subscription Revenue Per Aftermarket, OEM & Other Subscriber(4)            |  | $                           | 9.84      |   |      | $ | 9.26      |  
|Average Monthly Subscription Revenue Per Subscriber in OEM Promotional Periods(4)          |  | $                           | 5.63      |   |      | $ | 5.78      |  
|Average Monthly Subscription Revenue per XM Activated Vehicle with Rental Car Companies(4) |  | $                           | 9.74      |   |      | $ | 9.23      |  
|Subscriber Acquistion Costs (SAC)(5)                                                       |  | $                           | 50        |   |      | $ | 57        |  
|Cost Per Gross Addition (CPGA)(6)                                                          |  | $                           | 98        |   |      | $ | 101       |  
|                                                                                           |  |                            
|EBITDA (in thousands)(7)                                                                   |  | $                           | (91,388   | ) |      | $ | (109,349  | )

---

|(1) | OEM promotional periods typically range from three months to one year in duration and a portion is paid for by the vehicle manufacturers. At the time of sale, vehicle owners
generally receive a 3-month trial subscription and are included in OEM Promotional Subscribers. XM generally receives payment for two months of the 3-month trial subscription from the vehicle manufacturer. Promotional periods generally include the
period of trial service plus 30 days to handle the receipt and processing of payments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Rental car activity commenced in late June 2003.
|--- | ------------------------------------------------



|(3) | Ending subscribers We consider subscribers to be those who are receiving and have agreed to pay for our satellite audio service, either by credit card or by
invoice, including those that are currently in promotional periods paid in part by vehicle manufacturers, as well as XM activated radios in vehicles for which we have a contractual right to receive payment for the use of our satellite audio service.
Radios that are revenue generating are counted individually as
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19



---

##### Table of Contents

| | subscribers. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Average Monthly Subscription Revenue per SubscriberPlease see definition and further discussion under Average Monthly Subscription Revenue Per Subscriber on page 23.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | SACPlease see definition and further discussion under Subscriber Acquisition Costson page 26.
|--- | ----------------------------------------------------------------------------------------------



|(6) | CPGAPlease see definition and further discussion under Cost Per Gross Additionon page 26.
|--- | ------------------------------------------------------------------------------------------



|(7) | EBITDAPlease see definition and further discussion under EBITDA on page 27.
|--- | ----------------------------------------------------------------------------



Holdings and Inc. raised $3.6 billion of equity and debt net proceeds from inception through June 2005 from investors and
strategic partners to fund our operations. In January 2005, Holdings raised $98 million of net funds from the exercise of an over-allotment option on our 1.75% convertible senior notes due 2009. In June 2005, Holdings raised approximately $300
million of net funds from the issuance of 9,668,063 shares of its Class A common stock. Holdings and we expect to use the net proceeds from this offering for working capital and general corporate purposes, which may include launch payments for XM-4
in mid to late 2006, construction payments for XM-5, payments for third-party programming, repayment of debt and other strategic initiatives. Provided that we meet the revenue, expense and cash flow projections of our business plan, we expect to be
fully funded with no need to raise additional financing to continue operations. Our business plan is based on estimates regarding expected future costs and expected revenue. Our costs may exceed or our revenues may fall short of our estimates, our
estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to seek additional financing to continue implementing our current business plan. Our business plan
contemplates the use of cash on hand and cash to be received from insurance settlements to fund the construction and launch of XM-4.



We will continue to incur operating losses until we substantially increase the number of our subscribers. We are focused on increasing subscribers and
scaling our business while managing growth and containing costs. We also have significant outstanding contracts and commercial commitments that need to be paid in cash or through credit facilities over the next several years, including to fund
subsidies and distribution costs as well as revenue share arrangements, under which our payments increase as our revenues increase under the terms of those agreements, particularly under our arrangement with General Motors, programming costs,
including Major League Baseball, repayment of long-term debt, lease payments and service payments. Our ability to become profitable also depends upon other factors identified below under the heading Liquidity and Capital ResourcesFuture
Operating Liquidity and Capital Resource Requirements.



Inc. was incorporated in Delaware in 1992 and Holdings became a holding company in early 1997. We emerged from the development stage in the fourth quarter of 2001 following the commencement of our service in two test markets on September
25, 2001 and nationwide launch on November 12, 2001.



20



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##### Table of Contents

Results of Operations

Three-Month and Six-Month Periods ended June 30, 2005 and 2004



|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------------ |  | --------------------------- | --------- | - | ------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                               |  | Three months ended June 30, |           |   | Six months ended June 30, |  
|                                                                               |  | 2005                        |           |   | 2004                      |   |           | 2005 |  |   | 2004      |  
|                                                                               |  |                             |           |   | (in thousands)            |   |           |      | 
|Revenue                                                                        |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Subscription                                                                   |  | $                           | 113,379   |   |                           | $ | 48,643    |      |  | $ | 206,360   |   |  | $ | 88,404    |  
|Activation                                                                     |  |                             | 2,313     |   |                           |   | 1,058     |      |  |   | 4,337     |   |  |   | 1,925     |  
|Merchandise                                                                    |  |                             | 3,798     |   |                           |   | 1,054     |      |  |   | 6,915     |   |  |   | 1,733     |  
|Net ad sales                                                                   |  |                             | 4,363     |   |                           |   | 1,407     |      |  |   | 7,488     |   |  |   | 2,397     |  
|Other revenue                                                                  |  |                             | 1,619     |   |                           |   | 820       |      |  |   | 2,942     |   |  |   | 1,488     |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Total revenue                                                                  |  |                             | 125,472   |   |                           |   | 52,982    |      |  |   | 228,042   |   |  |   | 95,947    |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Operating expenses:                                                            |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Cost of revenue (excludes depreciation and amortization, shown below):         |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Revenue shares & royalties                                                     |  |                             | 21,071    |   |                           |   | 10,479    |      |  |   | 40,197    |   |  |   | 25,957    |  
|Customer care & billing operations                                             |  |                             | 18,488    |   |                           |   | 8,975     |      |  |   | 33,868    |   |  |   | 16,060    |  
|Cost of merchandise                                                            |  |                             | 7,496     |   |                           |   | 1,771     |      |  |   | 10,583    |   |  |   | 3,366     |  
|Ad sales                                                                       |  |                             | 1,800     |   |                           |   | 1,357     |      |  |   | 3,867     |   |  |   | 2,644     |  
|Satellite & terrestrial                                                        |  |                             | 10,480    |   |                           |   | 9,822     |      |  |   | 19,190    |   |  |   | 19,233    |  
|Broadcast & operations:                                                        |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Broadcast                                                                      |  |                             | 4,053     |   |                           |   | 2,437     |      |  |   | 7,629     |   |  |   | 5,099     |  
|Operations                                                                     |  |                             | 7,643     |   |                           |   | 4,081     |      |  |   | 13,471    |   |  |   | 7,639     |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Total broadcast & operations                                                   |  |                             | 11,696    |   |                           |   | 6,518     |      |  |   | 21,100    |   |  |   | 12,738    |  
|Programming & content                                                          |  |                             | 24,529    |   |                           |   | 7,116     |      |  |   | 42,069    |   |  |   | 14,340    |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Total cost of revenue                                                          |  |                             | 95,560    |   |                           |   | 46,038    |      |  |   | 170,874   |   |  |   | 94,338    |  
|Research & development (excludes depreciation and amortization, shown below)   |  |                             | 6,993     |   |                           |   | 6,731     |      |  |   | 13,085    |   |  |   | 12,901    |  
|General & administrative (excludes depreciation and amortization, shown below) |  |                             | 10,503    |   |                           |   | 6,526     |      |  |   | 17,727    |   |  |   | 12,276    |  
|Marketing (excludes depreciation and amortization, shown below)                |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Retention & support                                                            |  |                             | 5,080     |   |                           |   | 3,125     |      |  |   | 9,599     |   |  |   | 5,923     |  
|Subsidies & distribution                                                       |  |                             | 48,532    |   |                           |   | 35,303    |      |  |   | 96,626    |   |  |   | 70,083    |  
|Advertising & marketing                                                        |  |                             | 40,872    |   |                           |   | 20,339    |      |  |   | 67,028    |   |  |   | 35,019    |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Marketing                                                                      |  |                             | 94,484    |   |                           |   | 58,767    |      |  |   | 173,253   |   |  |   | 111,025   |  
|Amortization of GM liability                                                   |  |                             | 9,312     |   |                           |   | 9,313     |      |  |   | 18,625    |   |  |   | 18,625    |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Total marketing                                                                |  |                             | 103,796   |   |                           |   | 68,080    |      |  |   | 191,878   |   |  |   | 129,650   |  
|Depreciation & amortization                                                    |  |                             | 35,623    |   |                           |   | 39,210    |      |  |   | 67,339    |   |  |   | 78,344    |  
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Total operating expenses                                                       |  |                             | 252,475   |   |                           |   | 166,585   |      |  |   | 460,903   |   |  |   | 327,509   |  
|Operating loss                                                                 |  |                             | (127,003  | ) |                           |   | (113,603  | )    |  |   | (232,861  | ) |  |   | (231,562  | )
|Interest income                                                                |  |                             | 653       |   |                           |   | 285       |      |  |   | 1,284     |   |  |   | 467       |  
|Interest expense                                                               |  |                             | (23,076   | ) |                           |   | (18,971   | )    |  |   | (42,631   | ) |  |   | (46,884   | )
|Other expense                                                                  |  |                             | (8        | ) |                           |   | (34,956   | )    |  |   | (22       | ) |  |   | (35,124   | )
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Net loss before income taxes                                                   |  |                             | (149,434  | ) |                           |   | (167,245  | )    |  |   | (274,230  | ) |  |   | (313,103  | )
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Provision for deferred income taxes                                            |  |                             | (579      | ) |                           |   | (579      | )    |  |   | (1,158    | ) |  |   | (26,152   | )
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|Net loss                                                                       |  | $                           | (150,013  | ) |                           | $ | (167,824  | )    |  | $ | (275,388  | ) |  | $ | (339,255  | )
|                                                                               |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|EBITDA(1)                                                                      |  | $                           | (91,388   | ) |                           | $ | (109,349  | )    |  | $ | (165,544  | ) |  | $ | (188,342  | )
|XM subscriptions (end of period)(2)                                            |  |                             | 4,417,490 |   |                           |   | 2,100,352 |      |  |   | 4,417,490 |   |  |   | 2,100,352 |  

---

|(1) | Net loss before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as
EBITDA. EBITDA is not a measure of financial performance under generally accepted accounting principles. Consistent with regulatory requirements, EBITDA includes Other Income. We believe EBITDA is often a useful measure of a
companys operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and completed the build-out of our system through the raising and expenditure of
large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA, which excludes this information, provides helpful information about the
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

| | operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of
the bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as
those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance. The reconciliation of net loss to EBITDA is as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                |  |                            |          |   |      |   |          |  
|----------------------------------------------- |  | -------------------------- | -------- | - | ---- | - | -------- | -
|                                                |  | Three Months endedJune 30, |         
|                                                |  | 2005                       |          |   | 2004 |  
|Reconciliation of Net Loss to EBITDA            |  |                            |          |   |      |   |          |  
|Net loss as reported                            |  | $                          | (150,013 | ) |      | $ | (167,824 | )
|Add back non-EBITDA items included in net loss: |  |                            |          |   |      |   |          |  
|Interest income                                 |  |                            | (653     | ) |      |   | (285     | )
|Interest expense                                |  |                            | 23,076   |   |      |   | 18,971   |  
|Depreciation & amortization                     |  |                            | 35,623   |   |      |   | 39,210   |  
|Provision for deferred income taxes             |  |                            | 579      |   |      |   | 579      |  
|                                                |  |                            |          |   |      |   |          |  
|EBITDA                                          |  | $                          | (91,388  | ) |      | $ | (109,349 | )
|                                                |  |                            |          |   |      |   |          |  
|                                                | 
|                                                |  | Six Months endedJune 30,   |         
|                                                |  | 2005                       |          |   | 2004 |  
|Reconciliation of Net Loss to EBITDA            |  |                            |          |   |      |   |          |  
|Net loss as reported                            |  | $                          | (275,388 | ) |      | $ | (339,255 | )
|Add back non-EBITDA items included in net loss: |  |                            |          |   |      |   |          |  
|Interest income                                 |  |                            | (1,284   | ) |      |   | (467     | )
|Interest expense                                |  |                            | 42,631   |   |      |   | 46,884   |  
|Depreciation & amortization                     |  |                            | 67,339   |   |      |   | 78,344   |  
|Provision for deferred income taxes             |  |                            | 1,158    |   |      |   | 26,152   |  
|                                                |  |                            |          |   |      |   |          |  
|EBITDA                                          |  | $                          | (165,544 | ) |      | $ | (188,342 | )
|                                                |  |                            |          |   |      |   |          |  



|(2) | We consider subscribers to be those who are receiving and have agreed to pay for our satellite audio service, either by credit card or by invoice, including those that are currently
in promotional periods paid in part by vehicle manufacturers, as well as XM activated radios in vehicles for which we have a contractual right to receive payment for the use of our satellite audio service. Radios that are revenue generating are
counted individually as subscribers. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Three Months Ended June 30, 2005 Compared With Three Months Ended June 30, 2004



XM Satellite Radio Inc. and Subsidiaries



Revenue



Revenue. Our revenue consists of subscription fees for our satellite audio service, activation charges, limited
direct sales of radios and merchandise, net ad sales, and revenue from ancillary services. In the three months ended June 30, 2005, we recognized $125.5 million in total revenue, compared to $53.0 million in the three months ended June 30, 2004, an
increase of $72.5 million. During the three months ended June 30, 2005, subscription revenue comprised 90.4 percent of our total revenues.



Subscribers. As of June 30, 2005, we had 4,417,490 subscribers, compared to 2,100,352 at June 30, 2004, an increase of 2,317,138
subscribers. Subscribers for the quarter ended June 30, 2005 include 2,513,390 retail, 1,859,763 OEM and 44,337 car rental subscribers. Our subscribers include 3,807,224 self-paying subscribers, 565,929 subscribers in OEM promotional periods
(typically ranging from three months to one-year in duration) paid in part by the vehicle manufacturers and 44,337 XM activated vehicles with rental car companies. Additionally, 658,313 family plan subscriptions at a multi-unit rate of $6.99 per
radio per month are included in our total subscriber count. We consider subscribers to be those who are receiving and have agreed to pay for our satellite audio service, either by credit card or by invoice, including those who are currently in
promotional periods paid for by vehicle manufacturers, as well as XM activated vehicles for which we have a contractual right to receive payment for the use of our satellite audio service. Radios that are revenue generating are counted individually
as subscribers.



22



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##### Table of Contents

OEM Promotional Subscribers. OEM Promotional Subscribers are subscribers who have
either a portion or all of their subscription fee paid for by an OEM for a fixed period following the initial purchase or lease of the vehicle. Currently, at the time of sale, vehicle owners generally receive a three-month prepaid trial
subscription. XM generally receives two months of the three-month trial subscription from the vehicle manufacturer. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. The
automated activation program provides activated XM radios on dealer lots for test drives. GM and Honda generally indicate the inclusion of three months free of XM service on the window sticker of XM-enabled vehicles. Under the auto-activation
programs, subscribers are included in our OEM promotional subscriber count from the time of vehicle purchase or lease, through the period of trial service plus an additional 30 days. We measure the success of these programs based on the percentage
that elect to receive the XM service and convert to self-paying subscribers after the initial promotion periodwe refer to this as the conversion rate. 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 subscribers to respond to our marketing communications. The conversion rate for the three months ended June 30, 2005 was 57.6 percent.



XM Activated Vehicles with Rental Car Companies. Our
subscribers also include 44,337 activated vehicles with rental car companies. For the initial model year 2003 XM-enabled rental vehicles, XM receives payments based on the use of XM service. Customers are charged $2.99 per day per vehicle for use of
the XM service, on which XM receives a revenue share. For subsequent model year 2004 and later vehicles, XM generally receives $10 per subscription per month.



Subscription Revenue.Subscription revenue was $113.4 million for the three months ended June 30, 2005 compared to $48.6 million for the three
months ended June 30, 2004, an increase of $64.8 million. Subscription revenue consists primarily of our monthly subscription fees for our satellite audio service charged to consumers, commercial establishments and fleets, which are recognized as
the service is provided. Revenues received from vehicle manufacturers for promotional service programs are included in subscription revenue. At the time of sale, vehicle owners generally receive a three-month trial subscription and are included in
OEM promotional subscribers. Beginning in 2004, a standard promotion of three months free was placed on the window sticker of all XM-enabled GM vehicles. We generally receive payment for two months of the three-month trial subscription period from
the vehicle manufacturer. For the three months ended June 30, 2005, subscription revenue included $7.9 million from related parties for subscription fees paid under certain promotional agreements, compared with $5.9 million for the three months
ended June 30, 2004. Our subscriber arrangements are generally cancelable without penalty. Promotions and discounts are treated as a reduction to revenue during the period of the promotion. Sales incentives, consisting of rebates to subscribers,
offset revenue. Discounts on equipment sold with service are allocated to equipment and service based on relative fair value. In February 2005, we announced that we were expanding our basic service package and that the monthly subscription price for
our basic service increased to $12.95 from $9.99 beginning in April 2005. Existing customers could lock in a discounted rate by signing up for a pre-paid plan of up to five years prior to mid-April 2005. The expanded basic service now includes the
internet service XM Radio Online (previously $3.99 per month) and the High Voltage Channel (previously $1.99 per month), both of which were premium services prior to this change.



Average Monthly Subscription Revenue Per Subscriber. Average monthly subscription revenue per
subscriber (ARPU) was $9.35 and $8.63 for the three months ended June 30, 2005 and 2004, respectively. ARPU from our aftermarket, OEM and other subscribers was $9.84 for the three months ended June 30, 2005, compared to $9.26 the three months ended
June 30, 2004. The difference from our retail rates of $12.95 and $9.99 for the three months ended June 30, 2005 and 2004, respectively, is due primarily to multi-year prepayment plan and family plan discounts. ARPU from our OEM promotional
subscribers was $5.63 for the three months ended June 30, 2005, compared to $5.78 for the three months ended June 30, 2004. OEM promotional subscribers were not subject to the rate increase. The decrease in ARPU is due to the timing of when
subscribers were activated during the quarter. ARPU from our rental car fleet subscribers was $9.74 and $9.23 for the three months ended June 30, 2005 and 2004, respectively. Our rental car fleet subscribers were not subject to the rate increase
discussed above. Average monthly subscription revenue per subscriber is derived from the total of earned subscription revenue (net of promotions and rebates) divided by the monthly weighted average number of subscribers for the period reported.
Average monthly revenue per subscriber is a measure of operational performance and not a measure of financial performance under generally accepted accounting principles. Average monthly subscription revenue per subscriber will fluctuate based on
promotions implemented in 2005, as well as the adoption rate of multiyear prepayment plans, multi-radio discount plans (such as the family plan) and premium services. We expect that average monthly revenue per subscriber will increase in 2005 as
more subscribers are added and converted to the new rate. The increase in the monthly subscription price is effective for all billing cycles on or after April 2, 2005, and therefore, will be implemented over time.



Activation Revenue. Activation revenue is comprised of one-time
activation charges billed to customers. Activation fees are non-refundable, and are recognized on a pro-rata basis over the estimated 40-month life of the subscriber relationship. This estimate may be further refined in the future as additional
historical data becomes available. During the three months ended June 30, 2005, we recognized $2.3 million in activation revenue compared to $1.1 million in the three



23



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months ended June 30, 2004, an increase of $1.2 million due to an increase in subscribers. The growth in activation revenue will be impacted by the amount of
discounts given as a result of the competitive environment, as well as changes, if any, in the estimated life of the subscriber relationship.



Merchandise Revenue. Merchandise revenue is comprised of revenues from direct sales of radios and XM merchandise. Through December 31, 2004, the
direct sales of radios have generally been for promotional purposes. During the three months ended June 30, 2005, we recognized $3.8 million in merchandise revenue compared to $1.1 million during the three months ended June 30, 2004. We expect
revenue from the sale of merchandise to increase with the increase in direct sales promotional activities as well as XM-owned kiosk sales.



Net Ad Sales Revenue. Advertising revenue consists of sales of advertisements and program sponsorships on the XM network to advertisers that are
recognized in the period in which they are broadcast. Advertising revenue includes advertising aired in exchange for goods and services (barter), which is recorded at fair value. Advertising revenue is presented net of agency commissions in the
results of operations, which is consistent with industry practice. In the three-month period ended June 30, 2005, we recognized $4.4 million in net advertising revenue compared to $1.4 million during the three-month period ended June 30, 2004. These
amounts are net of agency commissions, which were $0.6 million during the three-month period ended June 30, 2005, compared to $0.2 million during the three-month period ended June 30, 2004. The increase in net advertising revenue is due primarily to
a net increase in the number of advertisers from the increased demand for advertising on the XM network that results from our subscriber growth, listenership and audience reach. During the three-month periods ended June 30, 2005 and 2004, we
recognized $0.2 million in advertising barter revenue. For the three-month period June 30, 2005, advertising revenue included $0.6 million from sales of advertisements to related parties compared with $0.2 million in the three-month period ended
June 30, 2004.



Other Revenue. Other revenue earned
during the three-month period ended June 30, 2005 consists primarily of revenue from ancillary services, including production recording services, weather data services, streaming only and NavTraffic only services. We recognized $1.6 million of other
revenue during the three-month period ended June 30, 2005 compared with $0.8 million during the three-month period ended June 30, 2004. The increase is due to increases in production recording services and weather revenue.



Operating Expenses



Total Operating Expenses. Total operating expenses were $252.5 million for the three-month period ended June 30, 2005
compared to $166.6 million in the three-month period ended June 30, 2004, an increase of $85.9 million. The increase was due to an increase in cost of revenue of $49.6 million, an increase in marketing expenses of $35.7 million, an increase of $4.0
million in general & administrative expense, offset in part by a decrease of $3.6 million in depreciation & amortization.



Cost of Revenue. Cost of revenue includes revenue share & royalties, customer care & billing costs, costs of radios associated with direct
sales of radios, costs directly associated with sales of advertising, satellite & terrestrial operating costs, as well as costs related to broadcast & operations and programming & content. These combined costs were $95.6 million for the
three-month period ended June 30, 2005, up from $46.0 million in the three-month period ended June 30, 2004, an increase of $49.6 million.



Revenue Share & Royalties. Revenue share & royalties includes performance rights obligations to composers, artists, and
copyright owners for public performances of their creative works broadcast on XM, and royalties paid to radio technology providers and revenue share expenses associated with manufacturing and distribution partners and content providers. These costs
were $21.1 million in the three-month period ended June 30, 2005 compared to $10.5 million in the three-month period ended June 30, 2004. This increase of $10.6 million was a result of our growth in subscriber base and revenues. We expect these
total costs to continue to increase as subscriber growth continues.



Customer Care & Billing Operations. Customer care & billing operations expense includes expenses from outsourced customer care functions as well as internal IT costs associated with front office
applications. These expenses were $18.5 million during the three-month period ended June 30, 2005, compared with $9.0 million during the three-month period ended June 30, 2004, an increase of $9.5 million. This increase was primarily driven by the
increase in subscriber call volumes and transaction processing fees resulting from the growth in subscribers and the implementation of the April 2, 2005 rate increase. We expect customer care & billing operations expense in total to continue to
increase as we continue to add subscribers, but we expect the average cost per subscriber to decrease.



Cost of Merchandise. During the three-month period ended June 30, 2005, we expensed $7.5 million relating to promotional radios, radio kits and XM
merchandise that we sold directly to subscribers, compared to $1.8 million in the three-month period ended June 30, 2004. The increase in cost of merchandise is due primarily to the free radios distributed as part of our Buy One Get One Free
promotion during the three months ended June 30, 2005. We expect



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the cost of merchandise to continue to increase during 2005 as we complete the fulfillment of the Buy One Get One Free promotion and continue to increase
direct sales of merchandise.



Ad Sales.
Ad sales expense was $1.8 million in the three-month period ended June 30, 2005 compared to $1.4 million in the three-month period ended June 30, 2004, an increase of $0.4 million. The increase in ad sales expense is due to an increase in
commissions associated with the growth in net ad sales revenue along with an increase in staffing and marketing costs to support ad sales growth. We expect ad sales costs to increase in support of expected advertising revenue growth.



Satellite & Terrestrial. Satellite &
terrestrial includes: telemetry, tracking and control of our three satellites, in-orbit satellite insurance and incentive payments, satellite uplink, and all costs associated with operating our terrestrial repeater network such as power, maintenance
and lease payments. These expenses were $10.5 million in the three-month period ended June 30, 2005, compared with $9.8 million in the three-month period ended June 30, 2004, an increase of $0.7 million. The increase is driven by the increased costs
for satellite insurance due to the launch of our XM-3 satellite in February 2005. Satellite & Terrestrial expense is expected to increase in future periods due to the operation of a third satellite which was placed in operation in April 2005.



Broadcast & Operations



Broadcast. Broadcast expenses include costs
associated with the management and maintenance of the systems, software, hardware, production and performance studios used in the creation and distribution of XM-original and third party content. The advertising trafficking (scheduling and
insertion) functions are also included. Broadcast costs were $4.1 million for the three-month period ended June 30, 2005, compared to $2.4 million in the three-month period ended June 30, 2004, an increase of $1.7 million. The increase is primarily
due to increased costs associated with enhancements to and maintenance of the broadcast systems infrastructure. Broadcast costs are expected to increase with new content initiatives.



Operations. Operations, which includes facilities and information technology expense, was $7.6
million in the three-month period ended June 30, 2005, compared with $4.1 million in the three-month period ended June 30, 2004, an increase of $3.5 million. The increase is mainly due to an increase in the general operating costs associated with
the corporate facility and infrastructure.



Programming & Content. Programming & content includes the creative, production and license costs associated with our over 150 channels of XM-original and third party content. This includes costs of programming staff and fixed
payments for third party content. Programming & content expense was $24.5 million during the three-month period ended June 30, 2005, compared with $7.1 million during the three-month period ended June 30, 2004, an increase of $17.4 million. The
increase is due to staffing and content related expenses in support of programming initiatives launched subsequent to the second quarter of 2004, including Major League Baseball (MLB), Opie and Anthony, XM Public Radio and Instant Traffic and
Weather. Programming and content expenses are expected to increase in future periods as a result of programming initiatives. We launched our MLB programming in mid-February 2005. We paid $50 million for the 2005 season and will pay $60 million per
season thereafter. Our MLB seasons run for the twelve month period beginning in February each year.



Research & Development. Research & development includes the costs of new product development, chipset design, and engineering. These
combined expenses were $7.0 million in the three-month period ended June 30, 2005, compared with $6.7 million in the three-month period ended June 30, 2004, an increase of $0.3 million. For the three-month period ended June 30, 2005, research and
development expense included $1.3 million of costs relating to the development of future telematics applications associated with a related party compared with $2.1 million during the three-month period ended June 30, 2004. Research and development
expenses are expected to increase as we accelerate the development of future telematics applications and new products, including interoperable radios.



General & Administrative. General & administrative expense was $10.5 million during the three-month period ended June 30, 2005, as compared
with $6.5 million during the three-month period ended June 30, 2004, an increase of $4.0 million. The increase in general & administrative expense is primarily due to an increase in professional fees and an increase in payroll and payroll
related costs associated with the increase in headcount to support the growth of our business.



Marketing. Marketing includes the costs of retention & support, subsidies & distribution, advertising & marketing, and amortization of our liability to GM. These combined costs were $103.8 million
for the three-month period ended June 30, 2005, compared to $68.1 million in the three-month period ended June 30, 2004, an increase of $35.7 million. Marketing expense increased primarily due to increases in subsidies & distribution of $13.2
million and advertising & marketing of $20.6 million.



Retention & Support. Personnel-related expenses comprise the majority of retention and support in 2005. In the three-month period ended June 30, 2005, these costs were $5.1 million compared to $3.1 million in the three-month



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period ended June 30, 2004, an increase of $2.0 million. The increase in retention and support expense is primarily due to an increase in payroll and payroll
related costs associated with the increase in headcount to support the growth of our business.



Subsidies & Distribution. We currently provide incentives and subsidies for the manufacture, purchase, installation and
activation of XM radios to attract and retain our manufacturing and distribution partners. Our subsidy & distribution costs are significant and totaled approximately $48.5 million during the three-month period ended June 30, 2005, compared with
$35.3 million during the three-month period ended June 30, 2004, an increase of $13.2 million. This increase is primarily due to the increase in new activations and GM vehicles equipped with XM radios. Subsidy and distribution expense will increase
as the number of XM radios that are manufactured, installed and activated increase; however, we expect that the cost per new subscriber may fluctuate from period to period based on the timing of promotions and contracts.



Subscriber Acquisition Costs. We consider subscriber
acquisition costs to include radio manufacturer subsidies, certain sales, activation and installation commissions, and hardware-related promotions. These costs are reported in subsidies & distribution. The negative margins from equipment sales
are also included in subscriber acquisition costs. Subscriber acquisition costs do not include on-going loyalty payments to retailers and distribution partners, payments under revenue sharing arrangements with radio manufacturers and distributors
and certain guaranteed payments to GM. During the three months ended June 30, 2005 and 2004 we incurred SAC expenses of $47.9 million and $31.8 million, respectively. SAC for the three months ended June 30, 2005 and 2004 was $50 and $57,
respectively. The decline in SAC for the three-month period ended June 30, 2005 as compared to the three month period ended 2004 is due to the combined impacts of the decline in manufacturer subsidies and the increase in the number of activations.
The timing of promotions and new contracts may cause SAC to fluctuate from period to period. We expect SAC to decline in 2005 as compared to 2004.



Advertising & Marketing. Activities comprising these expenses include media, advertising, events and direct marketing programs.
Advertising & marketing costs were $40.9 million during the three-month period ended June 30, 2005, compared with $20.3 million during the three-month period ended June 30, 2004, an increase of $20.6 million. The increase is primarily due to our
increased retail marketing and media advertising expenses.



Cost Per Gross Addition. We consider CPGA to include the amounts in SAC, as well as advertising, media and other discretionary marketing expenses. In our condensed consolidated financial statements, SAC costs
are captured in Subsidies & Distribution and the negative margins from equipment sales, while CPGA costs are primarily captured by the combination of subsidies & distribution, advertising & marketing, plus the negative margins from
equipment sales. CPGA does not include marketing staff (included in Retention & Support) or the amortization of the GM guaranteed payments (included in Amortization of GM Liability). During the three-month periods ended June 30, 2005, and 2004,
we incurred CPGA expenses of $93.2 million and $56.3 million, respectively. CPGA for the three-month periods ended June 30, 2005 and 2004 was $98 and $101, respectively. CPGA declined for the three-month period ended June 30, 2005 as compared to the
three-month period ended June 30, 2004 primarily due to the combined impacts of subscriber additions increasing at a faster rate than our discretionary advertising and marketing expenses as well as the change in the mix of subscribers acquired. The
timing of our media campaigns and discretionary advertising spending may cause CPGA to fluctuate from period to period. The costs to acquire subscribers vary by distribution channel, and a change in the mix of subscribers from higher cost
distribution channels to lower cost distribution channels will have a favorable impact on CPGA. We expect CPGA to decline in 2005 as compared to 2004.



Amortization of GM Liability. These costs include the amortization of annual fixed guaranteed payment commitments to GM, aggregating to $439.0
million, under our long-term distribution agreement with the OnStar division of GM providing for the installation of XM radios in GM vehicles. Amortization of the GM liability was $9.3 million for the three-month periods ended June 30, 2005 and
2004.



Depreciation & Amortization. Depreciation
& amortization expense was $35.6 million during the three-month period ended June 30, 2005, compared with $39.2 million during the three-month period ended June 30, 2004, a decrease of $3.6 million. The decrease was primarily due to lower
depreciation on XM-1 and XM-2 as a result of recording approximately $134 million of insurance proceeds as a reduction to the carrying values of our satellites in August 2004 (See Liquidity and Capital ResourcesFuture Operating
Liquidity and Capital Resource Requirements below) partially offset by increased depreciation related to XM-3 which was placed into service in April 2005 with a useful life of 15 years.



Interest Income. Interest income was $0.7 million during the
three-month period ended June 30, 2005, compared with $0.3 million during the three-month period ended June 30, 2004, an increase of $0.4 million. The increase was primarily



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attributable to higher average balances of cash and cash equivalents in the three-month period ended June 30, 2005 as well as higher yields on our
investments due to market conditions.



Interest Expense.
Interest expense was $23.1 million during the three-month period ended June 30, 2005, compared with $19.0 million during the three-month period ended June 30, 2004, an increase of $4.1 million. The increase in interest expense is primarily due to
lower capitalized interest related to XM-3 which was placed in service in April 2005.



Other Expense. Other expense was $8 thousand during the three-month period ended June 30, 2005, compared with other expense of $35.0 million during the three-month period ended June 30, 2004, an improvement of
$35.0 million. Other expense for the three-month period ended June 30, 2005 consists primarily of losses on foreign currency. Included in the three-month period ended June 30, 2004 were losses of $35.0 million from the retirement of debt.



Provision for Deferred Income Taxes.We recorded a
provision for deferred income taxes expense of $0.6 million during the three-month periods ended June 30, 2005 and 2004.



Net Loss. Net loss for the three-month period ended June 30, 2005 was $150.0 million, compared with $167.8 million for the three-month period ended
June 30, 2004, a decrease of $17.8 million. The decrease is due primarily to losses of $35.0 million from the retirement of debt recorded during the three-month period ended June 30, 2004, partially offset by an increase in our operating loss of
$13.4 million for the three months ended June 30, 2005.



EBITDA. Net loss before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as EBITDA. EBITDA is not a measure of financial performance under generally
accepted accounting principles. EBITDA during the three-month period ended June 30, 2005 was $(91.4) million, compared with $(109.3) million during the three-month period ended June 30, 2004. The decreased loss reflects our revenue growth and margin
improvement as well as a decline in the costs to acquire each new subscriber, offset in part by an increase in operating costs as a result of our subscriber growth. Consistent with regulatory requirements, EBITDA includes Other Income (Expense). We
believe EBITDA is often a useful measure of a companys operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and completed the build-out of our
system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA, which excludes this information, provides helpful information
about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of EBITDA
may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an
alternative to those measurements as an indicator of our performance. The reconciliation of net loss to EBITDA is as follows (in thousands):



|                                                |  |                             |          |   |      |   |          |  
|----------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                |  | Three Months ended June 30, |         
|                                                |  | 2005                        |          |   | 2004 |  
|Reconciliation of Net Loss to EBITDA            |  |                             |          |   |      |   |          |  
|Net loss as reported                            |  | $                           | (150,013 | ) |      | $ | (167,824 | )
|Add back non-EBITDA items included in net loss: |  |                             |          |   |      |   |          |  
|Interest income                                 |  |                             | (653     | ) |      |   | (285     | )
|Interest expense                                |  |                             | 23,076   |   |      |   | 18,971   |  
|Depreciation & amortization                     |  |                             | 35,623   |   |      |   | 39,210   |  
|Provision for deferred income taxes             |  |                             | 579      |   |      |   | 579      |  
|                                                |  |                             |          |   |      |   |          |  
|EBITDA                                          |  | $                           | (91,388  | ) |      | $ | (109,349 | )
|                                                |  |                             |          |   |      |   |          |  



Six Months Ended
June 30, 2005 Compared With Six Months Ended June 30, 2004



XM Satellite Radio Inc. and Subsidiaries



Revenue



Revenue. Our revenue consists of subscription fees
for our satellite audio service, activation charges, limited direct sales of radios and merchandise, net ad sales and revenue from ancillary services. In the six months ended June 30, 2005, we recognized $228.0 million in total revenue, compared to
$95.9 million in the six months ended June 30, 2004, an increase of $132.1 million. During the six months ended June 30, 2005, subscription revenue comprised 90.5 percent of our total revenues.



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Subscribers. As of June 30, 2005, we had 4,417,490 subscribers, compared to
2,100,352 at June 30, 2004, an increase of 2,317,138 subscribers. Subscribers for the quarter ended June 30, 2005 include 2,513,390 retail, 1,859,763 OEM and 44,337 car rental subscribers. Our subscribers include 3,807,224 self-paying subscribers,
565,929 subscribers in OEM promotional periods (typically ranging from three months to one-year in duration) paid in part by the vehicle manufacturers and 44,337 XM activated vehicles with rental car companies. Additionally, 658,313 family plan
subscriptions at a multi-unit rate of $6.99 per radio per month are included in our total subscriber count. We consider subscribers to be those who are receiving and have agreed to pay for our satellite audio service, either by credit card or by
invoice, including those who are currently in promotional periods paid for by vehicle manufacturers, as well as XM activated vehicles for which we have a contractual right to receive payment for the use of our satellite audio service. Radios that
are revenue generating are counted individually as subscribers.



OEM Promotional Subscribers. OEM Promotional Subscribers are subscribers who have either a portion or all of their subscription fee paid for by an OEM for a fixed period following the initial purchase or lease
of the vehicle. Currently, at the time of sale, vehicle owners generally receive a three-month prepaid trial subscription. XM generally receives two months of the three-month trial subscription from the vehicle manufacturer. Promotional periods
generally include the period of trial service plus 30 days to handle the receipt and processing of payments. The automated activation program provides activated XM radios on dealer lots for test drives. GM and Honda generally indicate the inclusion
of three months free of XM service on the window sticker of XM-enabled vehicles. Under the auto-activation programs, subscribers are included in our OEM promotional subscriber count from the time of vehicle purchase or lease, through the period of
trial service plus an additional 30 days. We measure the success of these programs based on the percentage that elect to receive the XM service and convert to self-paying subscribers after the initial promotion periodwe refer to this as the
conversion rate. 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 subscribers to respond to our marketing
communications.



XM Activated Vehicles with
Rental Car Companies. Our subscribers also include 44,337 activated vehicles with rental car companies. For the initial model year 2003 XM-enabled rental vehicles, XM receives payments based on the use of XM service. Customers are charged $2.99
per day per vehicle for use of the XM service, on which XM receives a revenue share. For subsequent model year 2004 and later vehicles, XM generally receives $10 per subscription per month.



Subscription Revenue.Subscription revenue was $206.4 million for the
six months ended June 30, 2005 compared to $88.4 million for the six months ended June 30, 2004, an increase of $118.0 million. Subscription revenue consists primarily of our monthly subscription fees for our satellite audio service charged to
consumers, commercial establishments and fleets, which are recognized as the service is provided. Revenues received from vehicle manufacturers for promotional service programs are included in subscription revenue. At the time of sale, vehicle owners
generally receive a three-month trial subscription and are included in OEM promotional subscribers. Beginning in 2004, a standard promotion of three months free was placed on the window sticker of all XM-enabled GM vehicles. We generally receive
payment for two months of the three-month trial subscription period from the vehicle manufacturer. For the six-month period ended June 30, 2005, subscription revenue included $14.2 million from related parties for subscription fees paid under
certain promotional agreements, compared with $11.5 million for the six-months ended June 30, 2004. Our subscriber arrangements are generally cancelable without penalty. Promotions and discounts are treated as a reduction to revenue during the
period of the promotion. Sales incentives, consisting of rebates to subscribers, offset revenue. Discounts on equipment sold with service are allocated to equipment and service based on relative fair value. In February 2005, we announced that we are
expanding our basic service package and that the monthly subscription price for our basic service increased to $12.95 from $9.99 beginning in April 2005. Existing customers could lock in a discounted rate by signing up for a pre-paid plan of up to
five years prior to mid-April 2005. The expanded basic service now includes the internet service XM Radio Online (previously $3.99 per month) and the High Voltage Channel (previously $1.99 per month), both of which were premium services prior to
this change.



Activation Revenue. Activation revenue is
comprised of one-time activation charges billed to customers. Activation fees are non-refundable, and are recognized on a pro-rata basis over the estimated 40-month life of the subscriber relationship. This estimate may be further refined in the
future as additional historical data becomes available. During the six months ended June 30, 2005, we recognized $4.3 million in activation revenue compared to $1.9 million in the six months ended June 30, 2004, an increase of $2.4 million due to an
increase in subscribers. The growth in activation revenue will be impacted by the amount of discounts given as a result of the competitive environment, as well as changes, if any, in the estimated life of the subscriber relationship.



Merchandise Revenue. Merchandise revenue is comprised of revenues from
direct sales of radios and XM merchandise. Through December 31, 2004, the direct sales of radios have generally been for promotional purposes. During the six months ended June 30, 2005, we recognized $6.9 million in merchandise revenue compared to
$1.7 million during the six months ended June 30, 2004. We



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expect revenue from the sale of merchandise to increase proportionately with the increase in direct sales promotional activities as well as XM-owned kiosk
sales.



Net Ad Sales Revenue. Advertising revenue
consists of sales of advertisements and program sponsorships on the XM network to advertisers that are recognized in the period in which they are broadcast. Advertising revenue includes advertising aired in exchange for goods and services (barter),
which is recorded at fair value. Advertising revenue is presented net of agency commissions in the results of operations, which is consistent with industry practice. In the six-month period ended June 30, 2005, we recognized $7.5 million in net
advertising revenue compared to $2.4 million during the six-month period ended June 30, 2004. These amounts are net of agency commissions, which were $1.0 million during the six-month period ended June 30, 2005, compared to $0.3 million during the
six-month period ended June 30, 2004. The increase in net advertising revenue is due primarily to a net increase in the number of advertisers from the increased demand for advertising on the XM network that results from our subscriber growth,
listenership and audience reach. During the six-month period ended June 30, 2005, we recognized $0.5 million in advertising barter revenue compared to $0.4 million during the six-month period ended June 30, 2004. For the six-month period June 30,
2005, advertising revenue included $1.1 million from sales of advertisements to related parties compared with $0.4 million in the six-month period ended June 30, 2004.



Other Revenue. Other revenue earned during the six-month period ended June 30, 2005 consists primarily of revenue
from ancillary services, including production recording services, weather data services, streaming only and NavTraffic only services. We recognized $2.9 million of other revenue during the six-month period ended June 30, 2005 compared with $1.5
million during the six-month period ended June 30, 2004. The increase is due to increases in production recording services and weather revenue.



Operating Expenses



Total Operating Expenses. Total operating expenses were $460.9 million for the six-month period ended June 30, 2005 compared to $327.5 million in
the six-month period ended June 30, 2004, an increase of $133.4 million. The increase was due to an increase in cost of revenue of $76.6 million, an increase in marketing expenses of $62.3 million, an increase of $5.4 million in general &
administrative expense, offset in part by a decrease of $11.0 million in depreciation & amortization.



Cost of Revenue. Cost of revenue includes revenue share & royalties, customer care & billing costs, costs of radios associated with direct
sales of radios, costs directly associated with sales of advertising, satellite & terrestrial operating costs, as well as costs related to broadcast & operations and programming & content. These combined costs were $170.9 million for the
six-month period ended June 30, 2005, up from $94.3 million in the six-month period ended June 30, 2004, an increase of $76.6 million.



Revenue Share & Royalties. Revenue share & royalties includes performance rights obligations to composers, artists, and
copyright owners for public performances of their creative works broadcast on XM, and royalties paid to radio technology providers and revenue share expenses associated with manufacturing and distribution partners and content providers. These costs
were $40.2 million in the six-month period ended June 30, 2005 compared to $26.0 million in the six-month period ended June 30, 2004. This increase of $14.2 million was a result of our growth in subscriber base and revenues. We expect these total
costs to continue to increase as subscriber growth continues.



Customer Care & Billing Operations. Customer care & billing operations expense includes expenses from outsourced customer care functions as well as internal IT costs associated with front office
applications. These expenses were $33.9 million during the six-month period ended June 30, 2005, compared with $16.1 million during the six-month period ended June 30, 2004, an increase of $17.8 million. This increase was primarily driven by the
increase in subscriber call volumes and transaction processing fees resulting from the growth in subscribers. We expect customer care & billing operations expense in total to continue to increase as we continue to add subscribers, but we expect
the average cost per subscriber to decrease.



Cost of Merchandise. During the six-month period ended June 30, 2005, we expensed $10.6 million relating to promotional radios, radio kits and XM merchandise that we sold directly to subscribers, compared to $3.4 million in the
six-month period ended June 30, 2004. The increase in cost of merchandise is due primarily to the free radios distributed as part of our Buy One Get One Free promotion during the three months ended June 30, 2005. We expect the cost of merchandise to
continue to increase during 2005 as we complete the fulfillment of the Buy One Get One Free promotion and continue to increase direct sales of merchandise.



Ad Sales. Ad sales expense was $3.9 million in the six-month period ended June 30, 2005 compared to $2.6 million in the six-month
period ended June 30, 2004, an increase of $1.3 million. The increase in ad sales expense is due primarily to an increase in commissions associated with the growth in net ad sales revenue along with an increase in staffing and marketing costs to
support ad sales growth. We expect ad sales costs to increase in support of expected advertising revenue growth.



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Satellite & Terrestrial. Satellite & terrestrial includes: telemetry,
tracking and control of our three satellites, in-orbit satellite insurance and incentive payments, satellite uplink, and all costs associated with operating our terrestrial repeater network such as power, maintenance and lease payments. These
expenses were $19.2 million in the six-month periods ended June 30, 2005 and 2004. Satellite & Terrestrial expense is expected to increase in future periods due to the operation of a third satellite which was placed in operation in April 2005.



Broadcast & Operations



Broadcast. Broadcast expenses include costs
associated with the management and maintenance of the systems, software, hardware, production and performance studios used in the creation and distribution of XM-original and third party content. The advertising trafficking (scheduling and
insertion) functions are also included. Broadcast costs were $7.6 million for the six-month period ended June 30, 2005, compared to $5.1 million in the six-month period ended June 30, 2004, an increase of $2.5 million. The increase is primarily due
to increased costs associated with enhancements to and maintenance of the broadcast systems infrastructure. Broadcast costs are expected to increase with new content initiatives.



Operations. Operations, which includes facilities and information technology expense, was $13.5
million in the six-month period ended June 30, 2005, compared with $7.6 million in the six-month period ended June 30, 2004, an increase of $5.9 million. The increase is mainly due to an increase in the general operating costs associated with the
corporate facility and infrastructure.



Programming & Content. Programming & content includes the creative, production and license costs associated with our over 150 channels of XM-original and third party content. This includes costs of programming staff and fixed
payments for third party content. Programming & content expense was $42.1 million during the six-month period ended June 30, 2005, compared with $14.3 million during the six-month period ended June 30, 2004, an increase of $27.8 million. The
increase is due to staffing and content related expenses in support of programming initiatives launched subsequent to the second quarter of 2004, including Major League Baseball (MLB), Opie and Anthony, XM Public Radio and Instant Traffic and
Weather. Programming and content expenses are expected to increase in future periods as a result of programming initiatives. We launched our MLB programming in mid-February 2005. We paid $50 million for the 2005 season and will pay $60 million per
season thereafter. Our MLB seasons run for the twelve month period beginning in February each year.



Research & Development. Research & development includes the costs of new product development, chipset design, and engineering. These
combined expenses were $13.1 million in the six-month period ended June 30, 2005, compared with $12.9 million in the six-month period ended June 30, 2004, an increase of $0.2 million. For the six-month period ended June 30, 2005, research and
development expense included $2.5 million of costs relating to the development of future telematics applications associated with a related party compared with $4.6 million during the six-month period ended June 30, 2004. Research and development
expenses are expected to increase as we accelerate the development of future telematics applications and new products, including interoperable radios.



General & Administrative. General & administrative expense was $17.7 million during the six-month period ended June 30, 2005, as compared
with $12.3 million during the six-month period ended June 30, 2004, an increase of $5.4 million. The increase in general & administrative expense is primarily due to an increase in professional fees and an increase in payroll and payroll related
costs associated with the increase in headcount to support the growth of our business.



Marketing. Marketing includes the costs of retention & support, subsidies & distribution, advertising & marketing, and amortization of our liability to GM. These combined costs were $191.9 million
for the six-month period ended June 30, 2005, compared to $129.7 million in the six-month period ended June 30, 2004, an increase of $62.2 million. Marketing expense increased primarily due to increases in subsidies & distribution of $26.5
million and advertising & marketing of $32.0 million.



Retention & Support. Personnel-related expenses comprise the majority of retention and support in 2005. In the six-month period ended June 30, 2005, these costs were $9.6 million compared to $5.9 million in
the six-month period ended June 30, 2004, an increase of $3.7 million. The increase in retention and support expense is primarily due to an increase in payroll and payroll related costs associated with the increase in headcount to support the growth
of our business.



Subsidies &
Distribution. We currently provide incentives and subsidies for the manufacture, purchase, installation and activation of XM radios to attract and retain our manufacturing and distribution partners. Our subsidy & distribution costs are
significant and totaled approximately $96.6 million during the six-month period ended June 30, 2005, compared with $70.1 million during the six-month period ended June 30, 2004, an increase of $26.5 million. This increase is primarily due to the
increase in new activations and GM vehicles equipped with XM



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radios. Subsidy and distribution expense will increase as the number of XM radios that are manufactured, installed and activated increase; however, we expect
that the cost per new subscriber may fluctuate from period to period based on the timing of promotions and contracts.



Advertising & Marketing. Activities comprising these expenses include media, advertising, events and direct marketing programs.
Advertising & marketing costs were $67.0 million during the six-month period ended June 30, 2005, compared with $35.0 million during the six-month period ended June 30, 2004, an increase of $32.0 million. The increase is primarily due to our
increased retail marketing and media advertising expenses.



Amortization of GM Liability. These costs include the amortization of annual fixed guaranteed payment commitments to GM, aggregating to $439.0 million, under our long-term distribution agreement with the OnStar division of GM
providing for the installation of XM radios in GM vehicles. Amortization of the GM liability was $18.6 million for the six-month periods ended June 30, 2005 and 2004.



Depreciation & Amortization. Depreciation & amortization expense was $67.3 million during the six-month
period ended June 30, 2005, compared with $78.3 million during the six-month period ended June 30, 2004, a decrease of $11.0 million. The decrease was primarily due to lower depreciation on XM-1 and XM-2 as a result of recording approximately $134
million of insurance proceeds as a reduction to the carrying values of our satellites in August 2004 (See Liquidity and Capital ResourcesFuture Operating Liquidity and Capital Resource Requirements below) partially offset by
increased depreciation related to XM-3 which was placed into service in April 2005.



Interest Income. Interest income was $1.3 million during the six-month period ended June 30, 2005, compared with $0.5 million during the six-month period ended June 30, 2004, an increase of $0.8 million. The
increase was primarily attributable to higher yields on our investments due to market conditions.



Interest Expense. Interest expense was $42.6 million during the six-month period ended June 30, 2005, compared with $46.9 million during the
six-month period ended June 30, 2004, a decrease of $4.3 million. The decrease in interest expense is primarily due to the de-leveraging of higher interest rate debt by the issuance of new debt offset by lower capitalized interest related to XM-3
which was placed in service in April 2005.



Other
Expense. Other expense was $22 thousand during the six-month period ended June 30, 2005, compared with other expense of $35.1 million during the six-month period ended June 30, 2004, an improvement of $35.1 million. Other expense for the
six-month period ended June 30, 2005 consists primarily of losses related to foreign currency of $17 thousand and losses on disposed property of $5 thousand. Included in the six-month period ended June 30, 2004 was a loss of $35.0 million from the
retirement of debt.



Provision for Deferred Income Taxes.We recorded a provision for deferred income taxes expense of $1.2 million and $26.2 during the six-month periods ended June 30, 2005 and 2004, respectively. During the three months ended March 31, 2004, we recorded a deferred tax liability
related to indefinite lived assets that are amortized and deducted for tax purposes but are not amortized under generally accepted accounting principles. During the second quarter of 2004 and the first half of 2005, we recorded tax expense related
to the amortization of the indefinite lived assets for tax purposes. We will continue to incur tax expense as the indefinite lived assets are amortized for tax purposes over the next 12 years.



Net Loss. Net loss for the six-month period ended June 30, 2005 was
$275.4 million, compared with $339.3 million for the six-month period ended June 30, 2004, a decrease of $63.9 million. The decrease primarily reflects the decrease in the provision for deferred income taxes and the recording of $35.0 million in
losses from the retirement of debt during the six months ended June 30, 2004.



EBITDA. Net loss before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as EBITDA. EBITDA is not a measure of financial
performance under generally accepted accounting principles. EBITDA during the six-month period ended June 30, 2005 was $(165.5) million, compared with $(188.3) million during the six-month period ended June 30, 2004. The decreased loss reflects our
revenue growth and margin improvement as well as a decline in the costs to acquire each new subscriber, offset in part by an increase in operating costs as a result of our subscriber growth. Consistent with regulatory requirements, EBITDA includes
Other Income (Expense). We believe EBITDA is often a useful measure of a companys operating performance and is a significant basis used by our management to measure the operating performance of our business. Because we have funded and
completed the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. EBITDA, which excludes this
information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. EBITDA is frequently used as one of the bases for comparing businesses in our
industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport



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to represent operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative
to those measurements as an indicator of our performance. The reconciliation of net loss to EBITDA is as follows (in thousands):



|                                                |  |                           |          |   |      |   |          |  
|----------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                |  | Six Months ended June 30, |         
|                                                |  | 2005                      |          |   | 2004 |  
|Reconciliation of Net Loss to EBITDA            |  |                           |          |   |      |   |          |  
|Net loss as reported                            |  | $                         | (275,388 | ) |      | $ | (339,255 | )
|Add back non-EBITDA items included in net loss: |  |                           |          |   |      |   |          |  
|Interest income                                 |  |                           | (1,284   | ) |      |   | (467     | )
|Interest expense                                |  |                           | 42,631   |   |      |   | 46,884   |  
|Depreciation & amortization                     |  |                           | 67,339   |   |      |   | 78,344   |  
|Provision for deferred income taxes             |  |                           | 1,158    |   |      |   | 26,152   |  
|                                                |  |                           |          |   |      |   |          |  
|EBITDA                                          |  | $                         | (165,544 | ) |      | $ | (188,342 | )
|                                                |  |                           |          |   |      |   |          |  



Liquidity and Capital Resources



Overview



At June 30, 2005, we had total cash and cash equivalents of $77.4 million
and a working capital deficit of $(177.2) million. Cash and cash equivalents decreased $125.1 million during the six months ended June 30, 2005. The decrease resulted from $89.3 million used by operating activities and $74.7 million used in
investing activities, partially offset by $38.9 million provided by financing activities. The proceeds from financing activities resulted primarily from the contribution of $50.0 million from Holdings. Investing activities consisted primarily of
capital expenditures for the construction and launch of XM-3 and the construction of XM-4, computer systems infrastructure and broadcast facilities, and the construction of the backup uplink facility. Cash flows used in operating activities includes
the net loss of $275.4 million, offset in part by the net cash provided by our operating assets and liabilities and the non-cash expenses included in the net loss. Cash flows used in operating activities included nearly $70 million of prepayments
for programming and other operating expenses.



The weighted
average payment plans that our subscribers have elected result in 9.3 months of advance billing. Annual and multi-year prepayment plans provide significant cash flows for us. During the six months ended June 30, 2005, the increase in deferred
revenue provided $136.4 million of cash from operations.



By
comparison, at June 30, 2004, we had total cash and cash equivalents of $72.0 million, and working capital deficit of $(48.9) million. Cash and cash equivalents decreased $18.3 million during the six months ended June 30, 2004. The decrease resulted
from $63.5 million used in operating activities and $115.8 million used in investing activities, offset by $161.1 million provided by financing activities. The proceeds from financing activities resulted from capital contributions of $204.6 million
from Holdings primarily relating to the issuance of 7.0 million shares of Class A common stock in January 2004 that yielded gross proceeds of $185.5 million and the issuance of Floating Rate Notes in April 2004 that yielded gross proceeds of $200
million, offset in part by the repayment of $152.6 million of related party debt, repayments of secured debt of $83 million, and payments of $3.1 million related to capital lease obligations. The financing activities completed during the quarter are
more fully discussed below. Investing activities consisted primarily of capital expenditures for the construction and launch of XM-3 and computer systems infrastructure. Cash flows used in operating activities includes the net loss of $339.3 million
and the net cash used by our operating assets and liabilities, offset in part by non-cash expenses included in the net loss.



Sources of Cash



Holdings and Inc. raised $3.6 billion of equity and debt net proceeds from inception through June 30, 2005 from investors and strategic partners to fund
our operations. This includes $98 million of net funds raised in the January 2005 financing transaction and $300 million of net funds raised in the June 2005 Class A common stock offering.



January 2005 Issuance of Additional Notes



In January 2005, Holdings exercised an over-allotment option on its 1.75%
convertible senior notes due in 2009 and an additional $100 million aggregate principal amount of notes were issued. The notes may be converted by the holder, at its option, into shares of Holdings Class A common stock initially at a
conversion rate of 20.0 shares of Holdings Class A common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $50.00 per share of Holdings Class A common stock (subject to adjustment in certain
events), at any time until December 1, 2009. The notes are not redeemable at Holdings option prior to the stated maturity.



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Offering of shares of Holdings Class A common stock



In June 2005, Holdings sold 9,668,063 shares of its Class A common stock
resulting in net proceeds of $300 million. Holdings and we expect to use the net proceeds from this offering for working capital and general corporate purposes, which may include launch payments for XM-4 in mid to late 2006, construction payments
for XM-5, payments for third-party programming, repayment of debt and other strategic initiatives.



Uses of Cash



Our cash used during the six months ended June 30, 2005 consisted primarily of funding operating expenses and funding the construction and launch of XM-3
and the construction of XM-4.



Warrant Exchanges



In the three months ended March 31, 2005, Holdings
entered into agreements with certain holders of its Class A common stock warrants to exchange approximately 32,000 warrants convertible into 2.7 million shares of Holdings Class A common stock for 2.5 million shares of Holdings Class A
common stock and received $16,000 in cash proceeds from the exercise of 61 warrants converted into 5,185 shares of Holdings Class A common stock. As a result of Holdings financings and other issuances of securities, the conversion price
of its Series C preferred stock issued in August 2000 has been adjusted from $8.78 at December 31, 2004 to $8.72 at June 30, 2005, the exercise price of the warrants sold in March 2000 remained at $45.23 and the number of warrant shares remained at
8.78. The exercise price of the warrants sold in January 2003 remained at $3.18 and the number of warrant shares remained at 85. There was no impact on the condensed consolidated statement of operations as a result of the adjustments to these
prices.



Commitments



We have entered into certain programming and marketing agreements that
broaden our content offering and increase our brand awareness. Under these agreements, we are obligated to make payments that total $78.9 million in the remaining six months of 2005, $114.9 million in 2006, $117.4 million in 2007, $115.6 million in
2008, $108.8 million in 2009 and $289.3 million in 2010 and beyond. These payments include fixed payments, advertising commitments and revenue sharing arrangements. The Company has a multi-year agreement with Major League Baseball to broadcast MLB
games live nationwide and those payments are included in the above disclosure of our commitments. Holdings paid $10 million to MLB in October 2004 for the 2006 season and $50 million in March 2005 for the 2005 season. Holdings will pay an additional
$50 million for the 2006 MLB season and $60 million per year thereafter through 2012, with $120 million to be deposited into escrow. MLB has the option to extend the agreement for the 2013, 2014 and 2015 seasons at the same $60 million annual
compensation rate. Holdings will also make incentive payments to MLB for XM subscribers obtained through MLB and baseball club verifiable promotional programs. No stock or warrants were included in this agreement.



Under our launch schedule for XM-4, Holdings will incur capital expenditures
relating to the launch of XM-4 approximately 12 to 18 months earlier than originally planned, but the timing and amount of capital expenditures on XM-4 itself is not expected to change. Under our existing satellite construction and launch contracts,
remaining costs for the construction and launch of XM-4 and the construction of XM-5, excluding in-orbit performance incentives and financing charges on certain amounts deferred prior to launch, are expected to be approximately $30 million in 2005,
$174 million in 2006, $81 million in 2007 and $2 million in 2008.



Future Operating Liquidity and Capital Resource Requirements



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



We expect that our future working capital, capital expenditures, and debt service requirements will be satisfied from existing cash, cash equivalents, and
short-term investments and by cash generated from operations. Our business plan contemplates the use of cash on hand and received from insurance settlements to fund the construction and launch of XM-4.



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



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



In the event of unfavorable
future developments, such as adverse developments in the debt and equity market of the type experienced during much of 2001 and 2002, we may not be able to raise additional funds on favorable terms or at all.



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Our ability to obtain additional financing depends on several factors, including future market conditions; our success or lack of success in developing,
implementing and marketing our satellite audio service; our future creditworthiness; and restrictions contained in agreements with our investors or lenders. Additional financings could increase our level of indebtedness or result in further dilution
to our equity holders. If we fail to obtain necessary financing on a timely basis, a number of adverse effects could occur, or we may have to revise our business plan.



Satellite System



See Note 5 (a) and (b) to the Condensed Consolidated Financial Statements for a discussion of our DARS License and Satellite System.



Related Party Transactions



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



We are a party to a long-term distribution agreement with OnStar Corporation,
a subsidiary of General Motors that provides for the installation of XM radios in General Motors vehicles, as further described in Note 5 to the condensed consolidated financial statements. In connection with the development of our terrestrial
repeater network, we were a party to a contract with Hughes Electronics Corporation. DIRECTV has provided consulting services in connection with the development of our customer care center and billing operations. Hughes Electronics Corporation and
DIRECTV ceased to be a related party during the three-month period ended March 31, 2004. We have arrangements with American Honda relating to the promotion of the XM Service to new car buyers, the use of bandwidth on the XM System and the
development of telematics services and technologies. We have an agreement with OnStar to make available use of our bandwidth. Clear Channel Communications provides certain programming services to us. In the past, we had a sponsorship agreement with
Clear Channel Entertainment to advertise our service at Clear Channel Entertainment concerts and venues. Premiere Radio Networks, a subsidiary of Clear Channel Communications, has in the past served as one of our advertising sales representatives.
We also run advertisements on a spot and network basis on radio stations owned by Clear Channel. In addition, we lease four sites for our terrestrial repeaters from Clear Channel Communications. Clear Channel Communications ceased to be a related
party during the second quarter of 2004.



As of June 30, 2005,
we are engaged in activities with GM and Honda to jointly promote new car buyers to subscribe to the XM service. At June 30, 2005, there were 565,929 subscribers in promotional periods (typically ranging from three months to one year in duration)
paid for by the vehicle manufacturers. These subscriptions are included in our quarter-end subscriber total. Subscriber revenues received from GM and Honda for these programs are recorded as related party revenue.



GM is one of our shareholders and Chester A. Huber, Jr., the president of
OnStar, is a member of our board of directors. Hughes Electronics was one of our largest shareholders until January 2004 and was a subsidiary of GM until December 2003. Jack Shaw, a member of our board of directors, was Chief Executive Officer of
Hughes Electronics Corporation until December 2003. John W. Mendel, a member of our board of directors, is Senior Vice President, automobile operations of American Honda Motor Co., Inc. DIRECTV, a subsidiary of Hughes Electronics, was a holder of
our Series C preferred stock until January 2003.



We had the
following amounts due from related parties at June 30, 2005 and December 31, 2004 (in thousands):



|      |  |              |        |                  |   |      
|----- |  | ------------ | ------ | ---------------- | - | -----
|      |  | June 30,2005 |        | December 31,2004
|GM    |  | $            | 8,328  |                  | $ | 3,708
|Honda |  |              | 3,539  |                  |   | 1,659
|      |  |              |        |                  |   |      
|      |  | $            | 11,867 |                  | $ | 5,367
|      |  |              |        |                  |   |      



We had the following
amount as related party prepaid expense at June 30, 2005 and December 31, 2004 (in thousands):



|      |  |              |        |                  |   |       
|----- |  | ------------ | ------ | ---------------- | - | ------
|      |  | June 30,2005 |        | December 31,2004
|GM    |  | $            | 64,269 |                  | $ | 57,061
|Honda |  |              | 7,500  |                  |   |      
|      |  |              |        |                  |   |       
|      |  | $            | 71,769 |                  | $ | 57,061
|      |  |              |        |                  |   |       



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We had the following amounts due to related parties at June 30, 2005 and December 31, 2004 (in
thousands):



|      |  |              |         |                  |   |       
|----- |  | ------------ | ------- | ---------------- | - | ------
|      |  | June 30,2005 |         | December 31,2004
|GM    |  | $            | 99,458  |                  | $ | 66,106
|Honda |  |              | 1,050   |                  |   | 415   
|      |  |              |         |                  |   |       
|      |  | $            | 100,508 |                  | $ | 66,521
|      |  |              |         |                  |   |       



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



|      |  |                    |        |              |   |       
|----- |  | ------------------ | ------ | ------------ | - | ------
|      |  | Three Months ended
|      |  | June 30,2005       |        | June 30,2004
|GM    |  | $                  | 6,134  |              | $ | 4,711 
|Honda |  |                    | 2,725  |              |   | 1,859 
|      |  |                    |        |              |   |       
|      |  | $                  | 8,859  |              | $ | 6,570 
|      |  |                    |        |              |   |       
|      | 
|      |  | Six months ended  
|      |  | June 30,2005       |        | June 30,2004
|GM    |  | $                  | 11,611 |              | $ | 9,346 
|Honda |  |                    | 4,601  |              |   | 3,196 
|      |  |                    |        |              |   |       
|      |  | $                  | 16,212 |              | $ | 12,542
|      |  |                    |        |              |   |       



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



|                                   |  |                                 |        |       |   |      
|---------------------------------- |  | ------------------------------- | ------ | ----- | - | -----
|                                   |  | Three Months endedJune 30, 2005
|                                   |  | GM                              |        | Honda
|Terrestrial repeater network       |  | $                               |       |       | $ |     
|Research & development             |  |                                 |       |       |   | 1,250
|Customer care & billing operations |  |                                 | 57     |       |   |     
|Marketing                          |  |                                 | 51,780 |       |   | 746  



|                                   |  |                                  |        |       |   |        |  |              |    |  |   |      
|---------------------------------- |  | -------------------------------- | ------ | ----- | - | ------ |  | ------------ | -- |  | - | -----
|                                   |  | Three Months ended June 30, 2004
|                                   |  | GM                               |        | Honda |   | Hughes |  | ClearChannel
|Terrestrial repeater network       |  | $                                |       |       | $ |       |  | $            | 98 |  | $ |     
|Terrestrial repeater site leases   |  |                                  |       |       |   |       |  |              |   |  |   | 15   
|Research and development           |  |                                  |       |       |   | 2,079  |  |              |   |  |   |     
|Customer care & billing operations |  |                                  | 99     |       |   |       |  |              |   |  |   |     
|Marketing                          |  |                                  | 38,351 |       |   |       |  |              |   |  |   | 1,446



|                                   |  |                               |        |       |   |      
|---------------------------------- |  | ----------------------------- | ------ | ----- | - | -----
|                                   |  | Six months endedJune 30, 2005
|                                   |  | GM                            |        | Honda
|Terrestrial repeater network       |  | $                             |       |       | $ |     
|Research & development             |  |                               |       |       |   | 2,500
|Customer care & billing operations |  |                               | 112    |       |   |     
|Marketing                          |  |                               | 98,373 |       |   | 1,382



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|                                   |  |                                |        |       |   |        |  |              |     |  |   |      
|---------------------------------- |  | ------------------------------ | ------ | ----- | - | ------ |  | ------------ | --- |  | - | -----
|                                   |  | Six months ended June 30, 2004
|                                   |  | GM                             |        | Honda |   | Hughes |  | ClearChannel
|Terrestrial repeater network       |  | $                              |       |       | $ |       |  | $            | 208 |  | $ |     
|Terrestrial repeater site leases   |  |                                |       |       |   |       |  |              |    |  |   | 31   
|Research and development           |  |                                |       |       |   | 4,579  |  |              |    |  |   |     
|Customer care & billing operations |  |                                | 226    |       |   |       |  |              |    |  |   |     
|Marketing                          |  |                                | 81,891 |       |   |       |  |              |    |  |   | 3,031



Recent Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123R. SFAS 123R requires recognition of compensation expense for stock options granted to employees. The expense is equal to the grant-date fair value of the options granted, and the expense is recorded over the
vesting period. XMs Employee Stock Purchase Plan (ESPP) is also considered compensatory under the new standard, because we offer a discount greater than 5 percent and a look-back option. We are in the process of evaluating whether
we should make modifications to our ESPP. This change in accounting is not expected to materially impact our financial position. However, because we currently account for share-based payments to our employees using the intrinsic value method, our
results of operations have not included the recognition of compensation expense for the issuance of stock option awards. Had we applied the fair-value criteria established by SFAS No. 123R to previous stock option grants, the impact to our results
of operations would have approximated the impact of applying SFAS No. 123, which was an increase to net loss of $9.7 million and $7.9 million for the three months ended June 30, 2005 and 2004, respectively, and $18.1 million and $15.6 million for
the six months ended June 30, 2005 and 2004, respectively. XM is required to adopt SFAS 123R in the 1stquarter of
2006. Compensation expense will need to be recorded for new option awards and for the remaining vesting period of existing option grants. The amount of compensation expense that we record after adoption of SFAS 123R in 2006 and beyond will depend on
the amount and timing of option activity.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



As of June 30, 2005, we do not have any derivative financial instruments. We do not hold or issue any free-standing derivatives. We invest our cash in
short-term commercial paper, investment-grade corporate and government obligations and money market funds. We have existing obligations related to our long-term debt agreements. As of June 30, 2005, we did not have significant cash flow exposure to
changing interest rates on our long-term debt because the interest rates of the majority of those securities are fixed. However, the estimated fair value of the fixed-rate debt is subject to market risk. As of June 30, 2005, we had approximately
$455.4 million in fixed-rate debt, which is approximately 69 percent of total debt. We run the risk that market rates will decline and the required payments will exceed those based on current market rates. Under our current policies, we do not use
interest rate derivative instruments to manage our exposure to interest rate fluctuations.



Presented below is an analysis of our financial instruments as of June 30, 2005 that are sensitive to changes in interest rates. The tables demonstrate the change in market value of the instruments calculated for an
instantaneous parallel shift in interest rates, plus or minus 50 basis points, or BPS, 100 BPS and 150 BPS. With respect to our fixed-rate debt, the sensitivity table below illustrates market values, or the price at which the debt would
trade should interest rates fall or rise in the range indicated, assuming similar terms and similar assessment of risk by our lenders. Market values are determined using quoted market prices or market rates on comparable instruments as of June 30,
2005.



|                                           |  |                                                                         |       |                          |   |                                                                         |  |           |       |         |   |          |  |          |       |  |   |       |  |   |      
|------------------------------------------ |  | ----------------------------------------------------------------------- | ----- | ------------------------ | - | ----------------------------------------------------------------------- |  | --------- | ----- | ------- | - | -------- |  | -------- | ----- |  | - | ----- |  | - | -----
|                                           |  | Interest Rate Risk (in millions) as of June 30, 2005                   
|                                           |  | Valuation of Securities Givenan Interest Rate Decrease ofX Basis Points |       | NoChange inInterestRates |   | Valuation of Securities Givenan Interest Rate Increase of XBasis Points
|                                           |  | (150BPS)                                                                |       | (100BPS)                 |   | (50BPS)                                                                 |  | FairValue |       | (50BPS) |   | (100BPS) |  | (150BPS)
|14% senior secured notes due 2010          |  | $                                                                       | 26.9  |                          | $ | 26.4                                                                    |  | $         | 25.9  |         | $ | 25.5     |  | $        | 25.0  |  | $ | 24.6  |  | $ | 24.1 
|14% senior secured discount notes due 2009 |  |                                                                         | 189.0 |                          |   | 185.7                                                                   |  |           | 182.4 |         |   | 179.2    |  |          | 176.1 |  |   | 173.0 |  |   | 170.0
|12% senior secured notes due 2010          |  |                                                                         | 137.2 |                          |   | 134.6                                                                   |  |           | 132.0 |         |   | 129.5    |  |          | 127.1 |  |   | 124.7 |  |   | 122.4



This sensitivity
analysis provides only a limited, point-in-time view of the market risk sensitivity of certain of our financial instruments. The actual impact of market interest rate changes on our financial instruments may differ significantly from the impact
shown in the sensitivity analysis. The 10% senior secured discount convertible notes due 2009, with an



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##### Table of Contents

estimated fair value of approximately $2.4 billion at June 30, 2005 are not included in the above analysis as the fair value of the notes is not
significantly exposed to interest rate changes. The holders of the notes may convert their notes into Holdings Class A common stock at a conversion price of $3.18 per share at any time prior to maturity. Due to the conversion feature of the
instrument, coupled with the current price of Holdings Class A common stock, the fair value of the notes is linked largely to the price of Holdings Class A common stock. Included in our fixed-rate debt are $15.1 million of capital leases
and notes payable that are not included in the analysis as the carrying amounts approximate fair value because of their short maturity.



As of June 30, 2005 and December 31, 2004, we had $200 million of variable-rate debt. A change of one percentage point in the interest rate applicable to
the $200 million of variable-rate debt at June 31, 2005 would result in a fluctuation of approximately $2 million in our annual interest expense. We believe that our exposure to interest rate risk is not material to our results of operations.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------



Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective. During the three-month period
ended June 30, 2005, no changes were made in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



37



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##### Table of Contents

PART II: OTHER INFORMATION



|Item 6. | Exhibits.
|------- | ---------



|            |  |                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                 
|3.1^        |  | Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc.                                                                                                                                                                                                                                                                                   
|            | 
|3.2         |  | Amended and Restated Bylaws of XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, filed with the
SEC on November 12, 2003).                                                                                                                                        
|            | 
|3.3         |  | Restated Certificate of Incorporation of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                                
|            | 
|3.4         |  | Amended and Restated Bylaws of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                                          
|            | 
|3.5         |  | Certificate of Amendment of Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc. (incorporated by reference to Amendment No. 1 to XMs Registration Statement on Form
S-3, File No. 333-89132).                                                                                                                                        
|            | 
|3.6         |  | Certificate of Amendment of Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Annual Report on Form 10-K, filed with the SEC on
March 31, 2003).                                                                                                                                                 
|            | 
|4.1         |  | Form of Certificate for XMs Class A common stock (incorporated by reference to Exhibit 3 to XMs Registration Statement on Form 8-A, filed with the SEC on September 23,
1999).                                                                                                                                                                            
|            | 
|4.2         |  | Form of Certificate for XMs 8.25% Series B Convertible Redeemable Preferred Stock (incorporated by reference to XMs Registration Statement on Form S-1, File No.
333-93529).                                                                                                                                                                              
|            | 
|4.3         |  | Certificate of Designation Establishing the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of XMs 8.25% Series B Convertible Redeemable
Preferred Stock due 2012 (incorporated by reference to XMs Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the SEC on March 16, 2000).
|            | 
|4.4         |  | Warrant Agreement, dated March 15, 2000, between XM Satellite Radio Holdings Inc. as Issuer and United States Trust Company of New York as Warrant Agent (incorporated by reference to
XMs Registration Statement on Form S-1, File No. 333-39176).                                                                                                        
|            | 
|4.5         |  | Warrant Registration Rights Agreement, dated March 15, 2000, between XM Satellite Radio Holdings Inc. and Bear, Stearns & Co., Inc., Donaldson, Lufkin and Jenrette Securities Corporation,
Salomon Smith Barney Inc. and Lehman Brothers Inc. (incorporated by reference to XMs Registration Statement on Form S-1, File No. 333-39176).                  
|            | 
|4.6         |  | Form of Warrant (incorporated by reference to XMs Registration Statement on Form S-1, File No. 333-39176).                                                                                                                                                                                                                                                 
|            | 
|4.7         |  | Certificate of Designation Establishing the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of the 8.25% Series C Convertible Redeemable Preferred Stock due 2012
(incorporated by reference to XMs Registration Statement on Form S-1, File No. 333-39176).                                                                     
|            | 
|4.8         |  | Form of Certificate for XMs 8.25% Series C Convertible Redeemable Preferred Stock (incorporated by reference to XMs Registration Statement on Form S-1, File No.
333-39176).                                                                                                                                                                              
|            | 
|4.9         |  | Indenture, dated as of March 15, 2000, between XM Satellite Radio Inc. and United States Trust Company of New York (incorporated by reference to XMs Registration Statement on Form S-4,
File No. 333-39178).                                                                                                                                              
|            | 
|4.10        |  | Form of 14% Senior Secured Note of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                                      
|            | 
|4.11        |  | Rights Agreement, dated as of August 2, 2002, between XM and Equiserve Trust Company as Rights Agent (incorporated by reference to XMs Current Report on Form 8-K, filed with the SEC on
August 2, 2002).                                                                                                                                                  
|            | 
|4.12        |  | Supplemental Indenture, dated as of November 15, 2001, by and between XM Satellite Radio Inc. and The Bank of New York (successor to United States Trust Company of New York) (incorporated by
reference to XMs Current Report on Form 8-K, filed with the SEC on December 6, 2001).                                                                       
|            | 
|4.13        |  | Indenture, dated as of January 28, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York, as trustee (incorporated by
reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                              



38



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Security Agreement, dated as of January 28, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC, and The Bank of New York (incorporated by
reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                            
|     | 
|4.15 |  | Amended and Restated Security Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and The Bank of New York (incorporated by reference to XMs Current Report on Form
8-K filed with the SEC on January 29, 2003).                                                                                                                                                                  
|     | 
|4.16 |  | Intercreditor and Collateral Agency Agreement (General Security Agreement), dated as of January 28, 2003, by and among the Noteholders named therein, The Bank of New York, as trustee, General
Motors Corporation, OnStar Corporation and The Bank of New York, as collateral agent (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).             
|     | 
|4.17 |  | Intercreditor and Collateral Agency Agreement (FCC License Subsidiary Pledge Agreement), dated as of January 28, 2003, by and among the Noteholders named therein, The Bank of New York, as
trustee, General Motors Corporation, OnStar Corporation and The Bank of New York, as collateral agent (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).
|     | 
|4.18 |  | Warrant Agreement, dated as of January 28, 2003, between XM Satellite Radio Holdings Inc. and The Bank of New York (incorporated by reference to XMs Current Report on Form 8-K filed
with the SEC on January 29, 2003).                                                                                                                                                                               
|     | 
|4.19 |  | Amended and Restated Amendment No. 1 to Rights Agreement, dated as of January 22, 2003, by and among XM Satellite Radio Holdings Inc. and Equiserve Trust Company, N.A. (incorporated by
reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                          
|     | 
|4.20 |  | Form of 10% Senior Secured Discount Convertible Note due 2009 (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                                                                                    
|     | 
|4.21 |  | Global 14% Senior Secured Discount Note due 2009 (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                                                                                                 
|     | 
|4.22 |  | Global Common Stock Purchase Warrant (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                                                                                                                                                                                                                             
|     | 
|4.23 |  | Second Supplemental Indenture, dated as of December 23, 2002, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York, as
trustee (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 15, 2003).                                                                                              



39



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|            |  |                                                                                                                                                                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                     
|4.24        |  | Third Supplemental Indenture, dated January 27, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York, as trustee
(incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                     
|            | 
|4.25        |  | Indenture, dated as of June 17, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and The Bank of New York, as trustee (incorporated by reference to XMs Registration
Statement on Form S-4, File No. 333-106823).                                                                                                         
|            | 
|4.26        |  | Form of 12% Senior Secured Note due 2010 (incorporated by reference to Exhibit A to Exhibit 4.27 hereof).                                                                                                                                                                                                                                       
|            | 
|4.27        |  | First Supplemental Indenture, dated as of June 12, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York
(incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-106823).                                                                 
|            | 
|4.28        |  | First Amendment to Security Agreement, dated as of June 12, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York
(incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-106823).                                                        
|            | 
|4.29        |  | Warrant to purchase XM Satellite Radio Holdings Inc. Class A Common Stock, dated July 31, 2003, issued to Boeing Satellite Systems International, Inc. (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).                                            
|            | 
|4.30        |  | Amendment No. 2 to Rights Agreement between XM Satellite Radio Holdings Inc. and Equiserve Trust Company, N.A. (incorporated by reference to XMs Current Report on Form 8-K, filed with
the SEC on April 21, 2004).                                                                                                                            
|            | 
|4.31        |  | Indenture, dated as of April 20, 2004, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and The Bank of New York, as trustee (incorporated by reference to XMs Current
Report on Form 8-K, filed with the SEC on April 23, 2004).                                                                                               
|            | 
|4.32        |  | Form of Senior Secured Floating Rate Note due 2009 (incorporated by reference to Exhibit A to Exhibit 4.31 hereof).                                                                                                                                                                                                                             
|            | 
|4.33        |  | Indenture, dated as of November 23, 2004, between XM Satellite Radio Holdings Inc. and the Bank of New York, as trustee (incorporated by reference to XMs Current Report on Form 8-K,
filed with the SEC on November 23, 2004).                                                                                                                
|            | 
|4.34        |  | Registration Rights Agreement, dated as of November 23, 2004, between XM Satellite Radio Holdings Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to XMs Current Report
on Form 8-K, filed with the SEC on November 23, 2004).                                                                                                    
|            | 
|4.35        |  | Form of 1.75% Senior Convertible Note Due 2009 (incorporated by reference to XMs Current Report on Form 8-K, filed with the SEC on November 23, 2004).                                                                                                                                                                                         
|            | 
|10.1*       |  | Third Amended and Restated Shareholders and Noteholders Agreement, dated as of June 16, 2003, by and among XM Satellite Radio Holdings Inc. and certain shareholders and noteholders named
therein (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).
|            | 
|10.2        |  | Second Amended and Restated Registration Rights Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Holdings Inc. and certain shareholders and note holders named therein
(incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                           
|            | 
|10.3^*      |  | Technology Licensing Agreement by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., WorldSpace Management Corporation and American Mobile Satellite Corporation, dated as of
January 1, 1998, amended by Amendment No. 1 to Technology Licensing Agreement, dated June 7, 1999.                                              
|            | 
|10.4*       |  | Second Amended and Restated Distribution Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Holdings Inc., XM Satellite Radio Inc. and OnStar Corporation, a division of
General Motors Corporation (incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                
|            | 
|10.5^       |  | Form of Indemnification Agreement between XM Satellite Radio Holdings Inc. and each of its directors and executive officers.                                                                                                                                                                                                                    
|            | 
|10.6        |  | 1998 Shares Award Plan (incorporated by reference to XMs Registration Statement on Form S-8, File No. 333-106827).                                                                                                                                                                                                                             



40



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|            |  |                                                                                                                                                                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                      
|10.7^       |  | Form of Employee Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                                                                           
|            | 
|10.8        |  | Employee Stock Purchase Plan (incorporated by reference to XMs Registration Statement on Form S-8, File No. 333-106827).                                                                                                                                                                                                        
|            | 
|10.9^       |  | Non-Qualified Stock Option Agreement between Gary Parsons and XM Satellite Radio Holdings Inc., dated July 16, 1999.                                                                                                                                                                                                             
|            | 
|10.10^      |  | Non-Qualified Stock Option Agreement between Hugh Panero and XM Satellite Radio Holdings Inc., dated July 1, 1998, as amended.                                                                                                                                                                                                   
|            | 
|10.11^      |  | Form of Director Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                                                                           
|            | 
|10.12*      |  | Joint Development Agreement, dated February 16, 2000, between XM Satellite Radio Inc. and Sirius Satellite Radio Inc. (incorporated by reference to XMs quarterly report on Form 10-Q for
the quarter ended March 31, 2000, filed with the SEC on May 12, 2000).                                                                
|            | 
|10.13       |  | XM Satellite Radio Holdings Inc. Talent Option Plan (incorporated by reference to XMs Registration Statement on Form S-8, File No. 333-65022).                                                                                                                                                                                  
|            | 
|10.14       |  | Assignment and Novation Agreement, dated as of December 5, 2001, between Holdings, XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to
XMs Current Report on Form 8-K filed with the SEC on December 6, 2001).                                                                
|            | 
|10.15*      |  | Third Amended and Restated Satellite Purchase Contract for In-Orbit Delivery, dated as of May 15, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc.
(incorporated by reference to Amendment No. 1 to XMs Registration Statement on Form S-3, File No. 333-89132).                           
|            | 
|10.16*      |  | Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated as of December 5, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated
by reference to Holdings Current Report on Form 8-K filed with the SEC on December 6, 2001).                                    
|            | 
|10.17       |  | Amended and Restated Note Purchase Agreement, dated as of June 16, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and certain investors named therein
(incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).
|            | 
|10.18       |  | Amendment No. 1 to Note Purchase Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and certain investors named therein
(incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                      
|            | 
|10.19       |  | Amended and Restated Director Designation Agreement, dated as of February 1, 2003, by and among XM Satellite Radio Holdings Inc. and the shareholders and note holders named therein
(incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15, 2003). 
|            | 
|10.20       |  | GM/DIRECTV Director Designation Agreement, dated as of January 28, 2003, among XM Satellite Radio Holdings Inc., General Motors Corporation and DIRECTV Enterprises LLC (incorporated by
reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                                                   
|            | 
|10.21       |  | Amended and Restated Assignment and Use Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and XM Radio Inc. (incorporated by reference to XMs Current Report on
Form 8-K filed with the SEC on January 29, 2003).                                                                                        
|            | 
|10.22       |  | Credit Agreement, dated as of January 28, 2003, among XM Satellite Radio Inc., as a borrower, and XM Satellite Radio Holdings Inc., as a borrower, and General Motors Corporation, as lender
(incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).                              
|            | 
|10.23       |  | Employment Agreement, dated as of June 21, 2002, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Joseph J. Euteneuer (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed with the SEC on August 14, 2002).                                     
|            | 
|10.24       |  | Form of 2003 Executive Stock Option Agreement (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15,
2003).                                                                                                                                        



41



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                           
|10.25*      |  | Amended and Restated Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated May 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing
Satellite Systems International, Inc. (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).   
|            | 
|10.26*      |  | July 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated July 31, 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing
Satellite Systems International, Inc. (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).         
|            | 
|10.27*      |  | Contract for Launch Services, dated August 5, 2003, between Sea Launch Limited Partnership and XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, filed with the SEC on August 14, 2003).                                                                                                         
|            | 
|10.28       |  | Amendment No. 1 to Amended and Restated Director Designation Agreement, dated as of September 9, 2003, by and among XM Satellite Radio Holdings Inc. and the shareholders and noteholders named
therein (incorporated by reference to XMs Quarterly Report in Form 10-Q for the quarter ended September 30, 2003 filed with the SEC on November 12, 2003).                           
|            | 
|10.29       |  | December 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated December 19, 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and
Boeing Satellite Systems International, Inc. (incorporated by reference to XMs Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on March 15, 2004).    
|            | 
|10.30       |  | First Amendment to Credit Agreement, dated January 13, 2004, by and between XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and General Motors Corporation (incorporated by reference
to XMs Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on March 15, 2004).                                                                       
|            | 
|10.31       |  | First Amendment to Second Amended and Restated Distribution Agreement, dated as of January 13, 2004, by and among OnStar Corporation, XM Satellite Radio Holdings Inc., and XM Satellite Radio
Inc. (incorporated by reference to XMs Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on March 15, 2004).                                        
|            | 
|10.32       |  | Form of Amendment to Third Amended and Restated Shareholders and Noteholders Agreement, dated as of January 13, 2004, by and among XM Satellite Radio Holdings Inc. and the parties thereto
(incorporated by reference to XMs Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on March 15, 2004).                                                
|            | 
|10.33       |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing, from XM 1500 Eckington LLC to Elisabeth Zajic for the benefit of Merrill Lynch Mortgage
Lending, Inc., dated as of August 9, 2004 (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 9, 2004).
|            | 
|10.34       |  | Form of Amended and Restated Secured Promissory Note, made as of August 9, 2004, by XM 1500 Eckington LLC in favor of Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to
XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 9, 2004).                                                                               
|            | 
|10.35       |  | Form of Indemnity and Guaranty Agreement, made as of August 9, 2004, by XM Satellite Radio Holdings Inc. in favor of Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to
XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 9, 2004).                                                                                
|            | 
|10.36       |  | Form of Employment Agreement, dated as of August 6, 2004, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Gary Parsons (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 9, 2004).                                                                                         
|            | 
|10.37       |  | Form of Employment Agreement, dated as of August 6, 2004, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Hugh Panero (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 9, 2004).                                                                                          
|            | 
|10.38       |  | Form of 2004 Non-Qualified Stock Option Agreement (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 9,
2004).                                                                                                                                                                                        
|            | 
|10.39       |  | Form of Restricted Stock Agreement for executive officers (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, filed with the SEC on May
5, 2005).                                                                                                                                                                                  
|            | 
|31.1        |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                                                                                                                                                     



42



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|            |  |                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                 
|31.2        |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                           
|            | 
|32.1        |  | Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

---

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



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



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SIGNATURES



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



|               |  |  |  |                                      |  |                         |  |                                                                                                  
|-------------- |  |  |  | ------------------------------------ |  | ----------------------- |  | -------------------------------------------------------------------------------------------------
|               |  |  |  | XM SATELLITE RADIO INC. (Registrant)
|               |  |  | 
|August 5, 2005 |  |  |  | By:                                  |  | /s/ HUGH PANERO        
|               |  |  |  |                                      |  |                         |  | Hugh Panero,                                                                                     
|               |  |  |  |                                      |  |                         |  | President and Chief Executive Officer (principal executive officer)                              
|               |  | 
|               |  |  |  | XM SATELLITE RADIO INC. (Registrant)
|               |  |  | 
|August 5, 2005 |  |  |  | By:                                  |  | /s/ JOSEPH J. EUTENEUER
|               |  |  |  |                                      |  |                         |  | Joseph J. Euteneuer                                                                              
|               |  |  |  |                                      |  |                         |  | Executive Vice President and Chief Financial Officer (principal financial and accounting officer)



44