##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM  TO
 Commission 
File 
Number
    
    Exact name of Registrant As Specified in its Charter
    
    I.R.S. Employer
Identification
Number333-39178
    
    XM SATELLITE RADIO INC.
    
    52-1805102
 DELAWARE
(State or other jurisdiction of incorporation or organization)
 1500 ECKINGTON PLACE, NE
WASHINGTON, DC 20002-2194
(Address of principal executive offices) (Zip code)
 (202) 380-4000
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ
  (Class)
    
    (Outstanding as of
October 29, 2010)XM SATELLITE RADIO INC. 
COMMON STOCK, $0.01 PAR VALUE
(all shares are issued to Sirius XM Radio Inc.)
    
    100 SHARES




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##### 



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 INDEX TO FORM 10-Q
 Item No.
    
    DescriptionPART I  Financial InformationItem 1.
    
    Financial Statements:Unaudited Consolidated Statements of Operations for the three and nine months ended
September 30, 2010 and 2009
        
    1Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009
        
    2Unaudited Consolidated Statements of Stockholders Deficit as of September 30, 2010
and Comprehensive Income for the nine months ended September 30, 2010
        
    3Unaudited Consolidated Statements of Cash Flows for the nine months ended September
30, 2010 and 2009
        
    4Notes to Unaudited Consolidated Financial Statements
        
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
        
    26Item 3.
    
    Quantitative and Qualitative Disclosures About Material Risk
        
    50Item 4.
    
    Controls and Procedures
        
    50PART II  Other InformationItem 1.
    
    Legal Proceedings
        
    51Item 1A.
    
    Risk Factors
        
    51Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
        
    51Item 3.
    
    Defaults Upon Senior Securities
        
    51Item 4.
    
    (Removed and Reserved)
        
    51Item 5.
    
    Other Information
        
    51Item 6.
    
    Exhibits
        
    51Signatures
        
    52EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months

    
    For the Nine MonthsEnded September 30,

    
    Ended September 30,(in thousands, except per share data)
    
    2010

    
    2009

    
    2010

    
    2009Revenue:Subscriber revenue, including effects of rebates
    
    $
    320,808
    
    
    $
    304,714
    
    
    $
    938,711
    
    
    $
    884,038Advertising revenue, net of agency fees
    
    
    6,247
    
    
    
    4,147
    
    
    
    15,362
    
    
    
    13,475Equipment revenue
    
    
    13,300
    
    
    
    5,657
    
    
    
    37,517
    
    
    
    17,681Other revenue
    
    
    41,902
    
    
    
    10,955
    
    
    
    114,270
    
    
    
    19,344Total revenue
    
    
    382,257
    
    
    
    325,473
    
    
    
    1,105,860
    
    
    
    934,538Operating
expenses (depreciation and amortization shown separately below):Cost of services:Revenue share and royalties
    
    
    49,444
    
    
    
    46,976
    
    
    
    138,296
    
    
    
    142,997Programming and content
    
    
    26,204
    
    
    
    27,811
    
    
    
    81,947
    
    
    
    84,353Customer service and billing
    
    
    33,415
    
    
    
    31,064
    
    
    
    95,623
    
    
    
    96,168Satellite and transmission
    
    
    11,812
    
    
    
    11,484
    
    
    
    35,299
    
    
    
    36,952Cost of equipment
    
    
    3,644
    
    
    
    5,142
    
    
    
    12,614
    
    
    
    12,049Subscriber acquisition costs
    
    
    38,674
    
    
    
    35,049
    
    
    
    109,691
    
    
    
    83,524Sales and marketing
    
    
    27,833
    
    
    
    26,055
    
    
    
    81,390
    
    
    
    84,565Engineering, design and development
    
    
    5,261
    
    
    
    5,413
    
    
    
    15,482
    
    
    
    16,798General and administrative
    
    
    19,107
    
    
    
    25,216
    
    
    
    74,035
    
    
    
    91,689Depreciation and amortization
    
    
    34,999
    
    
    
    41,587
    
    
    
    108,886
    
    
    
    146,462Restructuring, impairments and related costs
    
    
    197
    
    
    
    3,029
    
    
    
    900
    
    
    
    29,614Total operating expenses
    
    
    250,590
    
    
    
    258,826
    
    
    
    754,163
    
    
    
    825,171Income from operations
    
    
    131,667
    
    
    
    66,647
    
    
    
    351,697
    
    
    
    109,367Other income (expense):Interest expense, net of amounts capitalized
    
    
    (51,834
    )
    
    
    (70,537
    )
    
    
    (168,714
    )
    
    
    (226,376
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (256
    )
    
    
    (3,787
    )
    
    
    (4,881
    )
    
    
    (111,863
    )Loss on change in value of embedded derivative
    
    
    (45,796
    )
    
    
    (33,700
    )
    
    
    (94,399
    )
    
    
    (111,703
    )Interest and investment loss
    
    
    (1,748
    )
    
    
    (2,141
    )
    
    
    (5,652
    )
    
    
    (4,812
    )Other income
    
    
    1,225
    
    
    
    1,324
    
    
    
    2,694
    
    
    
    2,548Total other expense
    
    
    (98,409
    )
    
    
    (108,841
    )
    
    
    (270,952
    )
    
    
    (452,206
    )Income (loss) before income taxes
    
    
    33,258
    
    
    
    (42,194
    )
    
    
    80,745
    
    
    
    (342,839
    )Income tax expense
    
    
    (2,792
    )
    
    
    (578
    )
    
    
    (3,938
    )
    
    
    (1,733
    )Net Income (loss)
    
    $
    30,466
    
    
    $
    (42,772
    )
    
    $
    76,807
    
    
    $
    (344,572
    )
  1




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 September 30, 2010
    
    
    December 31, 2009(in thousands, except share and per share data)
    
    (unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    128,853
    
    
    $
    212,155Accounts receivable, net
    
    
    57,372
    
    
    
    60,042Receivables from distributors
    
    
    11,165
    
    
    
    Inventory, net
    
    
    5,870
    
    
    
    4,016Prepaid expenses
    
    
    128,688
    
    
    
    75,199Related party current assets
    
    
    585
    
    
    
    103,479Deferred tax asset
    
    
    67,415
    
    
    
    64,641Other current assets
    
    
    5,828
    
    
    
    4,585Total current assets
    
    
    405,776
    
    
    
    524,117Property and equipment, net
    
    
    898,313
    
    
    
    799,405Restricted investments
    
    
    250
    
    
    
    250Deferred financing fees, net
    
    
    63,238
    
    
    
    68,571Intangible assets, net
    
    
    2,561,177
    
    
    
    2,611,461Related party long-term assets
    
    
    28,771
    
    
    
    111,730Other long-term assets
    
    
    77,615
    
    
    
    25,529Total assets
    
    $
    4.035,140
    
    
    $
    4.141.063LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued expenses
    
    $
    219,317
    
    
    $
    198,219Accrued interest
    
    
    42,788
    
    
    
    46,939Current portion of deferred revenue
    
    
    551,637
    
    
    
    506,441Current portion of deferred credit on executory contracts
    
    
    266,096
    
    
    
    252,831Current maturities of long-term debt
    
    
    4,131
    
    
    
    11,382Related party current liabilities
    
    
    115,518
    
    
    
    184,693Total current liabilities
    
    
    1,199,487
    
    
    
    1,200,505Deferred revenue
    
    
    152,348
    
    
    
    133,863Deferred credit on executory contracts
    
    
    580,161
    
    
    
    784,078Long-term debt
    
    
    1,508,598
    
    
    
    1,494,921Long-term related party debt
    
    
    161,479
    
    
    
    157,032Deferred tax liability
    
    
    922,192
    
    
    
    915,274Related party long-term liabilities
    
    
    25,211
    
    
    
    46,301Other long-term liabilities
    
    
    37,861
    
    
    
    38,851Total liabilities
    
    
    4,587,337
    
    
    
    4,770,825Commitments and contingencies (Note 12)Stockholders deficit:Common stock, par value $0.010; 1,000 shares authorized; 100 shares
issued and outstanding as of September 30, 2010 and December 31, 2009, respectively
    
    
    
    
    
    
    Accumulated other comprehensive loss, net of tax
    
    
    (5,823
    )
    
    
    (6,581
    )Additional paid-in capital
    
    
    6,060,660
    
    
    
    6,060,660Accumulated deficit
    
    
    (6,607,034
    )
    
    
    (6,683,841
    )Total stockholders deficit
    
    
    (552,197
    )
    
    
    (629,762
    )Total liabilities and stockholders deficit
    
    $
    4,035,140
    
    
    $
    4,141,063
  2




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE INCOME
 AccumulatedCommon Stock

    
    Other

    
    Additional

    
    
    
    
    
    TotalComprehensive

    
    Paid-in
    
    Accumulated
    
    Stockholders(in thousands, except share data)
    
    Shares

    
    Amount
    
    Loss
    
    Capital
    
    Deficit
    
    DeficitBalance at December 31, 2009
    
    
    100
    
    
    $
    -
    
    
    $
    (6,581
    )
    
    $
    6,060,660
    
    
    $
    (6,683,841
    )
    
    $
    (629,762
    )Net income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    76,807
    
    
    
    76,807Other comprehensive income:Unrealized gain on available-for-sale securities
    
    
    -
    
    
    
    -
    
    
    
    469
    
    
    
    -
    
    
    
    -
    
    
    
    469Foreign currency translation adjustment, net of tax of $91
    
    
    -
    
    
    
    -
    
    
    
    289
    
    
    
    -
    
    
    
    -
    
    
    
    289Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,565Balance at September 30, 2010
    
    
    100
    
    
    $
    -
    
    
    $
    (5,823
    )
    
    $
    6,060,660
    
    
    $
    (6,607,034
    )
    
    $
    (552,197
    )
  3




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine MonthsEnded September 30,(in thousands)
    
    2010

    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    76,807
    
    
    $
    (344,572
    )Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    108,886
    
    
    
    146,462Non-cash interest expense, net of amortization of premium
    
    
    45,229
    
    
    
    67,820Provision for doubtful accounts
    
    
    11,545
    
    
    
    12,642Restructuring, impairments and related costs
    
    
    900
    
    
    
    26,401Amortization of deferred income related to equity method investment
    
    
    (2,081
    )
    
    
    (2,082
    )Loss on extinguishment of debt and credit facilities, net
    
    
    4,881
    
    
    
    111,863Loss on investments
    
    
    8,989
    
    
    
    6,660Share-based payment expense
    
    
    20,441
    
    
    
    32,539Deferred income taxes
    
    
    3,938
    
    
    
    1,733Loss on change in value of embedded derivative
    
    
    94,399
    
    
    
    111,703Other non-cash purchase price adjustments
    
    
    (184,703
    )
    
    
    (142,487
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,654
    )
    
    
    (5,158
    )Receivables from distributors
    
    
    (3,350
    )
    
    
    -Inventory
    
    
    (1,854
    )
    
    
    1,566Related party assets
    
    
    (2,318
    )
    
    
    17,223Prepaid expenses and other current assets
    
    
    44,141
    
    
    
    9,278Other long-term assets
    
    
    10,189
    
    
    
    47,465Accounts payable and accrued expenses
    
    
    (28,814
    )
    
    
    (38,868
    )Accrued interest
    
    
    (2,922
    )
    
    
    5,870Deferred revenue
    
    
    61,528
    
    
    
    57,098Related party liabilities
    
    
    (48,426
    )
    
    
    96,252Other long-term liabilities
    
    
    (876
    )
    
    
    9,210Net cash provided by operating activities
    
    
    208,875
    
    
    
    228,618Cash flows from investing activities:Additions to property and equipment
    
    
    (172,317
    )
    
    
    (38,811
    )Sale of available-for-sale securities
    
    
    9,450
    
    
    
    -Net cash used in investing activities
    
    
    (162,867
    )
    
    
    (38,811
    )Cash flows from financing activities:Long-term borrowings, net of costs
    
    
    -
    
    
    
    387,184Related party long-term borrowings, net of costs
    
    
    -
    
    
    
    95,093Payment of premiums on redemption of debt
    
    
    (256
    )
    
    
    (17,075
    )Repayment of long-term borrowings
    
    
    (129,054
    )
    
    
    (435,727
    )Repayment of related party long-term borrowings
    
    
    -
    
    
    
    (100,000
    )Net cash used in financing activities
    
    
    (129,310
    )
    
    
    (70,525
    )Net (decrease) increase in cash and cash equivalents
    
    
    (83,302
    )
    
    
    119,282Cash and cash equivalents at beginning of period
    
    
    212,155
    
    
    
    206,740Cash and cash equivalents at end of period
    
    $
    128,853
    
    
    $
    326,022Supplemental Disclosure of Cash and Non-Cash Flow InformationCash paid during the period for:Interest, net of amounts capitalized
    
    $
    118,728
    
    
    $
    148,106Non-cash investing and financing activities:Non-cash capital contributions from SIRIUS XM
    
    
    -
    
    
    
    119,198Property acquired through capital leases
    
    
    -
    
    
    
    1,337Release of restricted investments
    
    
    -
    
    
    
    120,000
  4




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##### Table of Contents



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




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##### Table of Contents



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

    
    
    For the Nine MonthsEnded September 30, 2009
    
    
    Ended September 30, 2009As Originally
    
    
    Retrospective
    
    
    As Currently
    
    
    As Originally
    
    
    Retrospective
    
    
    As CurrentlyStatement of Operations Line Item:
    
    Reported
    
    
    Adjustments
    
    
    Reported
    
    
    Reported
    
    
    Adjustments
    
    
    ReportedInterest expense, net of amounts
capitalized
    
    $
    (70,616
    )
    
    $
    79
    
    
    $
    (70,537
    )
    
    $
    (226,935
    )
    
    $
    559
    
    
    $
    (226,376
    )Net loss
    
    
    (42,851
    )
    
    
    79
    
    
    
    (42,772
    )
    
    
    (345,131
    )
    
    
    559
    
    
    
    (344,572
    )
  6




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Accounts Receivable
   September 30,
    
    
    December 31,2010

    
    2009Gross accounts receivable
    
    $
    62,651
    
    
    $
    65,399Allowance for doubtful accounts
    
    
    (5,279
    )
    
    
    (5,357
    )Total accounts receivable, net
    
    $
    57,372
    
    
    $
    60,042
  September 30,
    
    
    December 31,2010

    
    2009Billed
    
    $
    6,384
    
    
    $
    Unbilled
    
    
    4,781
    
    
    
    Total
    
    $
    11,165
    
    
    $
    
 Inventory
   September 30,
    
    
    December 31,2010

    
    2009Raw materials
    
    $
    5,040
    
    
    $
    5,002Finished goods
    
    
    8,964
    
    
    
    4,975Allowance for obsolescence
    
    
    (8,134
    )
    
    
    (5,961
    )Total inventory, net
    
    $
    5,870
    
    
    $
    4,016
 7




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  (4) Intangible Assets
  September 30, 2010
    
    
    December 31, 2009Weighted Average
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingUseful Lives

    
    Value

    
    Amortization

    
    Value

    
    Value

    
    Amortization

    
    ValueIndefinite life intangible assetsFCC licenses
    
    Indefinite
    
    $
    2,000,000
    
    
    $
    -
    
    
    $
    2,000,000
    
    
    $
    2,000,000
    
    
    $
    -
    
    
    $
    2,000,000Trademark
    
    Indefinite
    
    
    250,000
    
    
    
    -
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    -
    
    
    
    250,000Definite life intangible assetsSubscriber relationships
    
    9 years
    
    $
    380,000
    
    
    $
    (131,723
    )
    
    $
    248,277
    
    
    $
    380,000
    
    
    $
    (91,186
    )
    
    $
    288,814Licensing agreements
    
    9.1 years
    
    
    75,000
    
    
    
    (21,267
    )
    
    
    53,733
    
    
    
    75,000
    
    
    
    (13,906
    )
    
    
    61,094Proprietary software
    
    6 years
    
    
    16,552
    
    
    
    (9,045
    )
    
    
    7,507
    
    
    
    16,552
    
    
    
    (6,823
    )
    
    
    9,729Developed technology
    
    10 years
    
    
    2,000
    
    
    
    (433
    )
    
    
    1,567
    
    
    
    2,000
    
    
    
    (283
    )
    
    
    1,717Leasehold interests
    
    7.4 years
    
    
    132
    
    
    
    (39
    )
    
    
    93
    
    
    
    132
    
    
    
    (25
    )
    
    
    107Total intangible assets
    
    
    
    
    
    $
    2,723,684
    
    
    $
    (162,507
    )
    
    $
    2,561,177
    
    
    $
    2,723,684
    
    
    $
    (112,223
    )
    
    $
    2,611,461
 Indefinite Life Intangible Assets
    st
 Definite Life Intangible Assets
   Year ending December 31,
    
    AmountRemaining 2010
    
    $
    15,6322011
    
    
    58,8502012
    
    
    53,4202013
    
    
    47,0972014
    
    
    38,619Thereafter
    
    
    97,559Total definite life intangible assets, net
    
    $
    311,177
 8




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  (5) Subscriber Revenue
   For the Three Months

    
    For the Nine MonthsEnded September 30,

    
    Ended September 30,2010

    
    2009

    
    2010

    
    2009Subscription fees
    
    $
    319,106
    
    
    $
    303,785
    
    
    $
    934,176
    
    
    $
    881,860Activation fees
    
    
    1,730
    
    
    
    963
    
    
    
    4,612
    
    
    
    2,351Other fees and rebates
    
    
    (28
    )
    
    
    (34
    )
    
    
    (77
    )
    
    
    (173
    )Total subscriber revenue
    
    $
    320,808
    
    
    $
    304,714
    
    
    $
    938,711
    
    
    $
    884,038
 (6) Interest Costs
  For the Three Months

    
    For the Nine MonthsEnded September 30,

    
    Ended September 30,2010

    
    2009

    
    2010

    
    2009Interest costs charged to expense
    
    $
    51,834
    
    
    $
    70,537
    
    
    $
    168,714
    
    
    $
    226,376Interest costs capitalized
    
    
    14,295
    
    
    
    7,495
    
    
    
    37,391
    
    
    
    25,053Total interest costs incurred
    
    $
    66,129
    
    
    $
    78,032
    
    
    $
    206,105
    
    
    $
    251,429
  (7) Property and Equipment
  September 30,
    
    
    December 31,2010

    
    2009Satellite system
    
    $
    490,135
    
    
    $
    490,126Terrestrial repeater network
    
    
    41,583
    
    
    
    41,604Leasehold improvements
    
    
    7,250
    
    
    
    7,250Broadcast studio equipment
    
    
    8,489
    
    
    
    7,957Capitalized software and hardware
    
    
    54,798
    
    
    
    53,772Satellite telemetry, tracking and control facilities
    
    
    33,121
    
    
    
    32,877Furniture, fixtures, equipment and other
    
    
    28,089
    
    
    
    27,418Land
    
    
    38,100
    
    
    
    38,100Building
    
    
    53,969
    
    
    
    53,851Construction in progress
    
    
    377,766
    
    
    
    223,083Total property and equipment
    
    
    1,133,300
    
    
    
    976,038Accumulated depreciation and amortization
    
    
    (234,987
    )
    
    
    (176,633
    )Property and equipment, net
    
    $
    898,313
    
    
    $
    799,405
  9




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Satellites
   (8) Related Party Transactions
  Related party

    
    Related party

    
    Related party

    
    Related party

    
    Related partycurrent assets

    
    long-term assets

    
    current liabilities

    
    long-term liabilities

    
    long-term debtSeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,2010

    
    2009

    
    2010

    
    2009

    
    2010

    
    2009

    
    2010

    
    2009

    
    2010

    
    2009Liberty Media
    
    $
    -
    
    
    $
    -
    
    
    $
    1,572
    
    
    $
    1,937
    
    
    $
    4,758
    
    
    $
    4,589
    
    
    $
    -
    
    
    $
    -
    
    
    $
    161,479
    
    
    $
    157,032XM Canada
    
    
    585
    
    
    
    1,011
    
    
    
    27,199
    
    
    
    24,429
    
    
    
    4,276
    
    
    
    2,775
    
    
    
    25,211
    
    
    
    28,793
    
    
    
    -
    
    
    
    -General Motors
    
    
    -
    
    
    
    99,554
    
    
    
    -
    
    
    
    85,364
    
    
    
    -
    
    
    
    93,107
    
    
    
    -
    
    
    
    17,508
    
    
    
    -
    
    
    
    -American Honda
    
    
    -
    
    
    
    2,914
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    3,841
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -SIRIUS
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    106,484
    
    
    
    80,381
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    $
    585
    
    
    $
    103,479
    
    
    $
    28,771
    
    
    $
    111,730
    
    
    $
    115,518
    
    
    $
    184,693
    
    
    $
    25,211
    
    
    $
    46,301
    
    
    $
    161,479
    
    
    $
    157,032
  Liberty Media
   September 30,
    
    
    December 31,2010

    
    200911.25% Senior Secured Notes due 2013
    
    $
    87,000
    
    
    $
    87,00013% Senior Notes due 2013
    
    
    76,000
    
    
    
    76,0007% Exchangeable Senior Subordinated Notes due 2014
    
    
    11,000
    
    
    
    11,000Total principal debt
    
    
    174,000
    
    
    
    174,000Less: discounts
    
    
    (15,533
    )
    
    
    (18,092
    )Add: embedded derivatives
    
    
    3,012
    
    
    
    1,124Total carrying value debt
    
    $
    161,479
    
    
    $
    157,032
   10




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  Continued
 XM Canada
      For the Three Months

    
    For the Nine MonthsEnded September 30,

    
    Ended September 30,2010

    
    2009

    
    2010

    
    2009Amortization of XM Canada deferred income
    
    $
    693
    
    
    $
    694
    
    
    $
    2,081
    
    
    $
    2,082Subscriber and activation fees royalties
    
    
    2,594
    
    
    
    225
    
    
    
    7,599
    
    
    
    499Licensing fee revenue
    
    
    750
    
    
    
    1,500
    
    
    
    3,000
    
    
    
    4,500Advertising reimbursements
    
    
    -
    
    
    
    -
    
    
    
    667
    
    
    
    733Total revenue from XM Canada
    
    $
    4,037
    
    
    $
    2,419
    
    
    $
    13,347
    
    
    $
    7,814
 General Motors and American Honda
    11




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
     Related party current assets
    
    $
    107,908Related party long term assets
    
    
    73,016Related party current liabiilties
    
    
    57,996
  For the Three Months

    
    For the Nine MonthsEnded September 30,

    
    Ended September 30,2010*

    
    2009

    
    2010*

    
    2009General Motors
    
    $
    -
    
    
    $
    8,831
    
    
    $
    12,759
    
    
    $
    22,087American Honda
    
    
    -
    
    
    
    3,374
    
    
    
    4,990
    
    
    
    9,201Total
    
    $
    -
    
    
    $
    12,205
    
    
    $
    17,749
    
    
    $
    31,288
 
 *
    
    GM and American Honda were considered related parties through May 27, 2010.  For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,2010*

    
    2009

    
    2010*

    
    2009General
    
    
    American
    
    
    General
    
    
    American
    
    
    General
    
    
    American
    
    
    General
    
    
    AmericanMotors

    
    Honda

    
    Motors

    
    Honda

    
    Motors

    
    Honda

    
    Motors

    
    HondaSales and marketing
    
    $
    -
    
    
    $
    -
    
    
    $
    7,720
    
    
    $
    1,647
    
    
    $
    13,374
    
    
    $
    -
    
    
    $
    23,387
    
    
    $
    4,391Revenue share and royalties
    
    
    -
    
    
    
    -
    
    
    
    15,008
    
    
    
    1,636
    
    
    
    15,823
    
    
    
    3,167
    
    
    
    46,664
    
    
    
    4,601Subscriber acquisition costs
    
    
    -
    
    
    
    -
    
    
    
    9,035
    
    
    
    -
    
    
    
    17,514
    
    
    
    1,969
    
    
    
    25,066
    
    
    
    -Customer service and billing
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    125
    
    
    
    -
    
    
    
    -
    
    
    
    -Interest expense, net of amounts capitalized
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,421
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    $
    -
    
    
    $
    -
    
    
    $
    31,763
    
    
    $
    3,283
    
    
    $
    48,257
    
    
    $
    5,136
    
    
    $
    95,117
    
    
    $
    8,992
 SIRIUS
     12




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  (9) Investments
  September 30,
    
    
    December 31,2010

    
    2009Investment in XM Canada
    
    $
    -
    
    
    $
    2,390Investment in XM Canada debentures
    
    
    3,323
    
    
    
    2,970Auction rate certificates
    
    
    -
    
    
    
    8,556Restricted investments
    
    
    250
    
    
    
    250Total investments
    
    $
    3,573
    
    
    $
    14,166
 XM Canada
    For the Three Months

    
    For the Nine MonthsEnded September 30,

    
    Ended September 30,2010

    
    2009

    
    2010

    
    2009Share of XM Canada net loss
    
    $
    (2,926
    )
    
    $
    (2,870
    )
    
    $
    (9,416
    )
    
    $
    (1,926
    )Impairment of XM Canada
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (4,734
    )Gain on sale of auction rate certificate
    
    
    -
    
    
    
    -
    
    
    
    425
    
    
    
    -Total
    
    $
    (2,926
    )
    
    $
    (2,870
    )
    
    $
    (8,991
    )
    
    $
    (6,660
    )
   Auction Rate Certificates
  13




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Restricted Investments
  (10) Fair Value
  Fair Value Measurements UsingQuoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for Identical
    
    
    Observable
    
    
    Unobservable
    
    
    Carrying(in thousands)
    
    Assets (Level 1)

    
    Inputs (Level 2)

    
    Inputs (Level 3)

    
    ValueAssets:Host contract and embedded derivatives
    
    
    N/A
    
    
    
    N/A
    
    
    $
    3,323
    
    
    $
    3,323Liabilities:Debt-related embedded derivatives
    
    $
    -
    
    
    $
    -
    
    
    $
    150,591
    
    
    $
    150,591
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Auction Rate
    
    
    Debentures and
    
    
    Debt-RelatedSecurities

    
    Embedded Derivatives

    
    Embedded DerivativesBalance at December 31, 2009
    
    $
    8,556
    
    
    $
    2,970
    
    
    $
    56,192Total gains and losses (realized /unrealized)
    
    
    425
    
    
    
    117
    
    
    
    94,399Included in other comprehensive income
    
    
    469
    
    
    
    236
    
    
    
    -Sale of assets
    
    
    (9,450
    )
    
    
    -
    
    
    
    -Balance at September 30, 2010
    
    $
    -
    
    
    $
    3,323
    
    
    $
    150,591
  14




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  (11) Debt
  ConversionPrice (per
    
    
    September 30,
    
    
    December 31,SIRIUS share)

    
    2010

    
    200910% Senior PIK Secured Notes due 2011 (a)
    
    
    N/A
    
    
    $
    -
    
    
    $
    113,685Less: discount
    
    
    
    
    
    
    -
    
    
    
    (7,711
    )11.25% Senior Secured Notes due 2013 (b)
    
    
    N/A
    
    
    
    525,750
    
    
    
    525,750Less: discount
    
    
    
    
    
    
    (26,483
    )
    
    
    (32,259
    )13% Senior Notes due 2013 (c)
    
    
    N/A
    
    
    
    778,500
    
    
    
    778,500Less: discount
    
    
    
    
    
    
    (64,113
    )
    
    
    (76,602
    )9.75% Senior Notes due 2014 (d)
    
    
    N/A
    
    
    
    -
    
    
    
    5,2607% Exchangeable Senior Subordinated Notes due 2014 (e)
    
    $
    1.875
    
    
    
    550,000
    
    
    
    550,000Less: discount
    
    
    
    
    
    
    (244,354
    )
    
    
    (263,784
    )Other debt:Capital leases
    
    
    N/A
    
    
    
    4,317
    
    
    
    14,304Embedded derivatives (f)
    
    
    
    
    
    
    150,591
    
    
    
    56,192Total debt
    
    
    
    
    
    
    1,674,208
    
    
    
    1,663,335Less: current maturities
    
    
    
    
    
    
    4,131
    
    
    
    11,382Total long-term
    
    
    
    
    
    
    1,670,077
    
    
    
    1,651,953Less: related party
    
    
    
    
    
    
    161,479
    
    
    
    157,032Total long-term, excluding related party
    
    
    
    
    
    $
    1,508,598
    
    
    $
    1,494,921
 (a) 10% Senior PIK Secured Notes due 2011
  (b) 11.25% Senior Secured Notes due 2013
   15




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  (c) 13% Senior Notes due 2013
  (d) 9.75% Senior Notes due 2014
  (e) 7% Exchangeable Senior Subordinated Notes due 2014
   (f) Embedded Derivatives
   7.625% Senior Notes due 2018
  Covenants and Restrictions
    16




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  (12) Commitments and Contingencies
  Remaining(in thousands)
    
    2010

    
    2011

    
    2012

    
    2013

    
    2014

    
    Thereafter

    
    TotalLong-term debt obligations
    
    $
    1,488
    
    
    $
    2,781
    
    
    $
    46
    
    
    $
    1,304,252
    
    
    $
    550,000
    
    
    $
    -
    
    
    $
    1,858,567Cash interest payments
    
    
    48,929
    
    
    
    198,949
    
    
    
    198,852
    
    
    
    169,278
    
    
    
    38,500
    
    
    
    -
    
    
    
    654,508Lease obligations
    
    
    11,664
    
    
    
    11,811
    
    
    
    8,297
    
    
    
    6,106
    
    
    
    5,649
    
    
    
    4,264
    
    
    
    47,791Satellite and transmission
    
    
    1,836
    
    
    
    3,915
    
    
    
    91
    
    
    
    94
    
    
    
    97
    
    
    
    9,053
    
    
    
    15,086Programming and content
    
    
    10,786
    
    
    
    110,957
    
    
    
    98,480
    
    
    
    20,683
    
    
    
    10,350
    
    
    
    4,000
    
    
    
    255,256Satellite performance incentive payments
    
    
    1,124
    
    
    
    4,695
    
    
    
    5,030
    
    
    
    5,392
    
    
    
    5,784
    
    
    
    37,048
    
    
    
    59,073Marketing and distribution
    
    
    10,357
    
    
    
    9,445
    
    
    
    9,034
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    1,500
    
    
    
    36,336Other
    
    
    1,129
    
    
    
    628
    
    
    
    163
    
    
    
    1
    
    
    
    -
    
    
    
    -
    
    
    
    1,921Total
    
    $
    87,313
    
    
    $
    343,181
    
    
    $
    319,993
    
    
    $
    1,508,806
    
    
    $
    613,380
    
    
    $
    55,865
    
    
    $
    2,928,538
 Long-term debt obligations
 Cash interest payments.
 Operating lease obligations.
 Satellite and transmission.
 Programming and content.
 Satellite incentive payments.
 Marketing and distribution.
 17




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Other.
  Legal Proceedings
 FCC Merger Order.
 Advanced Recording Functionality Disputes Atlantic Recording Corp. et al. v. XM Satellite Radio Inc., Famous Music LLC, et al. v. XM
Satellite Radio, Inc., and In re XM Satellite Radio Copyright Litigation.
  State Consumer Investigations
   Other Matters
 (13) Condensed Consolidating Financial Information
   18




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Basis of Presentation
   XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
 XM
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Equipment
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    Inc.

    
    Leasing LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Revenue
    
    $
    382,256
    
    
    $
    -
    
    
    $
    -
    
    
    $
    2,566
    
    
    $
    334
    
    
    $
    -
    
    
    $
    (2,899
    )
    
    $
    382,257Cost of services
    
    
    124,516
    
    
    
    3
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    124,519Subscriber acquisition costs
    
    
    38,674
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    38,674Sales and marketing
    
    
    27,833
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    27,833Engineering, design and development
    
    
    5,261
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,261General and administrative
    
    
    20,936
    
    
    
    -
    
    
    
    11
    
    
    
    290
    
    
    
    71
    
    
    
    -
    
    
    
    (2,201
    )
    
    
    19,107Depreciation and amortization
    
    
    34,389
    
    
    
    -
    
    
    
    -
    
    
    
    508
    
    
    
    102
    
    
    
    -
    
    
    
    -
    
    
    
    34,999Restructuring, impairments and related costs
    
    
    197
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    197Total operating expenses
    
    
    251,806
    
    
    
    3
    
    
    
    11
    
    
    
    798
    
    
    
    173
    
    
    
    -
    
    
    
    (2,201
    )
    
    
    250,590Income (loss) from operations
    
    
    130,450
    
    
    
    (3
    )
    
    
    (11
    )
    
    
    1,768
    
    
    
    161
    
    
    
    -
    
    
    
    (698
    )
    
    
    131,667Other income (expense):Interest expense, net of amounts
capitalized
    
    
    (51,834
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (51,834
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (256
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (256
    )Gain (loss) on change in value of
embedded derivative
    
    
    (45,796
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (45,796
    )Interest and investment income (loss)
    
    
    376
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (95
    )
    
    
    (2,029
    )
    
    
    (1,748
    )Other income (expense)
    
    
    (2,214
    )
    
    
    48,805
    
    
    
    2,834
    
    
    
    -
    
    
    
    -
    
    
    
    14,810
    
    
    
    (63,010
    )
    
    
    1,225Net income (loss) before
income taxes
    
    
    30,726
    
    
    
    48,802
    
    
    
    2,823
    
    
    
    1,768
    
    
    
    161
    
    
    
    14,715
    
    
    
    (65,737
    )
    
    
    33,258Benefit from (provision for)
income taxes
    
    
    (260
    )
    
    
    (2,532
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (2,792
    )Net income (loss)
    
    $
    30,466
    
    
    $
    46,270
    
    
    $
    2,823
    
    
    $
    1,768
    
    
    $
    161
    
    
    $
    14,715
    
    
    $
    (65,737
    )
    
    $
    30,466
 19




---



##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    Inc.

    
    LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Revenue
    
    $
    325,473
    
    
    $
    -
    
    
    $
    -
    
    
    $
    2,605
    
    
    $
    333
    
    
    $
    -
    
    
    $
    (2,938
    )
    
    $
    325,473Cost of services
    
    
    122,489
    
    
    
    -
    
    
    
    (12
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    122,477Subscriber acquisition costs
    
    
    35,049
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    35,049Sales and marketing
    
    
    26,055
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    26,055Engineering, design and development
    
    
    5,413
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,413General and administrative
    
    
    26,796
    
    
    
    -
    
    
    
    30
    
    
    
    292
    
    
    
    87
    
    
    
    -
    
    
    
    (1,989
    )
    
    
    25,216Depreciation and amortization
    
    
    39,862
    
    
    
    -
    
    
    
    1,114
    
    
    
    508
    
    
    
    103
    
    
    
    -
    
    
    
    -
    
    
    
    41,587Restructuring, impairments and related costs
    
    
    3,029
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    3,029Total operating expenses
    
    
    258,693
    
    
    
    -
    
    
    
    1,132
    
    
    
    800
    
    
    
    190
    
    
    
    -
    
    
    
    (1,989
    )
    
    
    258,826Income (loss) from operations
    
    
    66,780
    
    
    
    -
    
    
    
    (1,132
    )
    
    
    1,805
    
    
    
    143
    
    
    
    -
    
    
    
    (949
    )
    
    
    66,647Other income (expense):Interest expense, net of amounts
capitalized
    
    
    (70,537
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (70,537
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (3,787
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,787
    )Gain (loss) on change in value of
embedded derivative
    
    
    (33,700
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (33,700
    )Interest and investment income (loss)
    
    
    1,540
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,681
    )
    
    
    (2,141
    )Other income (expense)
    
    
    (2,490
    )
    
    
    46,185
    
    
    
    2,872
    
    
    
    -
    
    
    
    -
    
    
    
    14,637
    
    
    
    (59,880
    )
    
    
    1,324Net income (loss) before
income taxes
    
    
    (42,194
    )
    
    
    46,185
    
    
    
    1,740
    
    
    
    1,805
    
    
    
    143
    
    
    
    14,637
    
    
    
    (64,510
    )
    
    
    (42,194
    )Benefit from (provision for)
income taxes
    
    
    (578
    )
    
    
    (578
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    578
    
    
    
    (578
    )Net income (loss)
    
    $
    (42,772
    )
    
    $
    45,607
    
    
    $
    1,740
    
    
    $
    1,805
    
    
    $
    143
    
    
    $
    14,637
    
    
    $
    (63,932
    )
    
    $
    (42,772
    )
 20




---



##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    Inc.

    
    LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Revenue
    
    $
    1,105,830
    
    
    $
    -
    
    
    $
    -
    
    
    $
    7,729
    
    
    $
    997
    
    
    $
    -
    
    
    $
    (8,696
    )
    
    $
    1,105,860Cost of services
    
    
    363,772
    
    
    
    7
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    363,779Subscriber acquisition costs
    
    
    109,691
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    109,691Sales and marketing
    
    
    81,390
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    81,390Engineering, design and development
    
    
    15,482
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    15,482General and administrative
    
    
    79,358
    
    
    
    185
    
    
    
    23
    
    
    
    857
    
    
    
    216
    
    
    
    -
    
    
    
    (6,604
    )
    
    
    74,035Depreciation and amortization
    
    
    107,056
    
    
    
    -
    
    
    
    -
    
    
    
    1,523
    
    
    
    307
    
    
    
    -
    
    
    
    -
    
    
    
    108,886Restructuring, impairments and related costs
    
    
    900
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    900Total operating expenses
    
    
    757,649
    
    
    
    192
    
    
    
    23
    
    
    
    2,380
    
    
    
    523
    
    
    
    -
    
    
    
    (6,604
    )
    
    
    754,163Income (loss) from operations
    
    
    348,181
    
    
    
    (192
    )
    
    
    (23
    )
    
    
    5,349
    
    
    
    474
    
    
    
    -
    
    
    
    (2,092
    )
    
    
    351,697Other income (expense):Interest expense, net of amounts
capitalized
    
    
    (168,714
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (168,714
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (4,881
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (4,881
    )Gain (loss) on change in value of
embedded derivative
    
    
    (94,399
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (94,399
    )Interest and investment income (loss)
    
    
    4,494
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (263
    )
    
    
    (9,883
    )
    
    
    (5,652
    )Other income (expense)
    
    
    (7,624
    )
    
    
    142,174
    
    
    
    8,484
    
    
    
    -
    
    
    
    -
    
    
    
    43,945
    
    
    
    (184,285
    )
    
    
    2,694Net income (loss) before
income taxes
    
    
    77,057
    
    
    
    141,982
    
    
    
    8,461
    
    
    
    5,349
    
    
    
    474
    
    
    
    43,682
    
    
    
    (196,260
    )
    
    
    80,745Benefit from (provision for)
income taxes
    
    
    (250
    )
    
    
    (3,688
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,938
    )Net income (loss)
    
    $
    76,807
    
    
    $
    138,294
    
    
    $
    8,461
    
    
    $
    5,349
    
    
    $
    474
    
    
    $
    43,682
    
    
    $
    (196,260
    )
    
    $
    76,807
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 XM
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Equipment
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    Inc.

    
    Leasing LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Revenue
    
    $
    934,539
    
    
    $
    -
    
    
    $
    -
    
    
    $
    7,740
    
    
    $
    997
    
    
    $
    -
    
    
    $
    (8,738
    )
    
    $
    934,538Cost of services
    
    
    372,513
    
    
    
    -
    
    
    
    6
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    372,519Subscriber acquisition costs
    
    
    83,524
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    83,524Sales and marketing
    
    
    84,565
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    84,565Engineering, design and development
    
    
    16,798
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    16,798General and administrative
    
    
    97,067
    
    
    
    -
    
    
    
    30
    
    
    
    938
    
    
    
    259
    
    
    
    -
    
    
    
    (6,605
    )
    
    
    91,689Depreciation and amortization
    
    
    138,150
    
    
    
    -
    
    
    
    6,554
    
    
    
    1,416
    
    
    
    342
    
    
    
    -
    
    
    
    -
    
    
    
    146,462Restructuring, impairments and related costs
    
    
    29,614
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    29,614Total operating expenses
    
    
    822,231
    
    
    
    -
    
    
    
    6,590
    
    
    
    2,354
    
    
    
    601
    
    
    
    -
    
    
    
    (6,605
    )
    
    
    825,171Income (loss) from operations
    
    
    112,308
    
    
    
    -
    
    
    
    (6,590
    )
    
    
    5,386
    
    
    
    396
    
    
    
    -
    
    
    
    (2,133
    )
    
    
    109,367Other income (expense):Interest expense, net of amounts
capitalized
    
    
    (226,376
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (226,376
    )Loss on extinguishment of debt and credit facilities, net
    
    
    (111,863
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (111,863
    )Gain (loss) on change in value of
embedded derivative
    
    
    (111,703
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (111,703
    )Interest and investment income (loss)
    
    
    (1,131
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,681
    )
    
    
    (4,812
    )Other income (expense)
    
    
    (4,074
    )
    
    
    132,925
    
    
    
    8,676
    
    
    
    -
    
    
    
    -
    
    
    
    43,530
    
    
    
    (178,509
    )
    
    
    2,548Net income (loss) before
income taxes
    
    
    (342,839
    )
    
    
    132,925
    
    
    
    2,086
    
    
    
    5,386
    
    
    
    396
    
    
    
    43,530
    
    
    
    (184,323
    )
    
    
    (342,839
    )Benefit from (provision for)
income taxes
    
    
    (1,733
    )
    
    
    (1,733
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,733
    
    
    
    (1,733
    )Net income (loss)
    
    $
    (344,572
    )
    
    $
    131,192
    
    
    $
    2,086
    
    
    $
    5,386
    
    
    $
    396
    
    
    $
    43,530
    
    
    $
    (182,590
    )
    
    $
    (344,572
    )
 21




---



##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2010
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    
    
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    XM Radio Inc.

    
    LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Current assets:Cash and cash equivalents
    
    $
    116,387
    
    
    $
    
    
    
    $
    
    
    
    $
    10,916
    
    
    $
    1,550
    
    
    $
    
    
    
    $
    
    
    
    $
    128,853Accounts receivable, net
    
    
    57,372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,372Receivables from distributors
    
    
    11,165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,165Due from subsidiaries/affiliates
    
    
    68,138
    
    
    
    922,420
    
    
    
    72,526
    
    
    
    51,493
    
    
    
    5,835
    
    
    
    821,392
    
    
    
    (1,941,804
    )
    
    
    Inventory, net
    
    
    5,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,870Prepaid expenses
    
    
    128,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128,688Related party current assets
    
    
    587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    585Deferred tax asset
    
    
    67,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.415Other current assets
    
    
    3,653
    
    
    
    
    
    
    
    64
    
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    1,781
    
    
    
    5,828Total current assets
    
    
    459,275
    
    
    
    922,420
    
    
    
    72,590
    
    
    
    62,739
    
    
    
    7,385
    
    
    
    821,392
    
    
    
    (1,940,025
    )
    
    
    405,776Property and equipment, net
    
    
    830,467
    
    
    
    
    
    
    
    
    
    
    
    55,634
    
    
    
    12,212
    
    
    
    
    
    
    
    
    
    
    
    898,313Investment in subsidiaries/affiliates
    
    
    3,187,601
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,187,601
    )
    
    
    Restricted investments
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Deferred financing fees, net
    
    
    63,238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,238Intangible assets, net
    
    
    561,177
    
    
    
    2,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,561,177Related party long-term assets
    
    
    28,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,771Other long-term assets
    
    
    75,616
    
    
    
    
    
    
    
    
    
    
    
    1,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,615Total assets
    
    $
    5,206,395
    
    
    $
    2,922,420
    
    
    $
    72,590
    
    
    $
    120,372
    
    
    $
    19,597
    
    
    $
    821,392
    
    
    $
    (5,127,626
    )
    
    $
    4,035,140Current liabilities:Accounts payable and accrued expenses
    
    $
    271,984
    
    
    $
    
    
    
    $
    99
    
    
    $
    9
    
    
    $
    
    
    
    $
    
    
    
    $
    (52,775
    )
    
    $
    219,317Accrued interest
    
    
    42,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,788Due to subsidiaries/affiliates
    
    
    1,878,350
    
    
    
    
    
    
    
    
    
    
    
    7,309
    
    
    
    804
    
    
    
    3,417
    
    
    
    (1,889,880
    )
    
    
    Current portion of deferred revenue
    
    
    551,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    551,637Current portion of deferred credit on executory
contracts
    
    
    266,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266,096Current maturities of long-term debt
    
    
    4,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,131Related party current liabilities
    
    
    109,601
    
    
    
    4
    
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,656
    
    
    
    115,518Total current liabilities
    
    
    3,124,587
    
    
    
    4
    
    
    
    356
    
    
    
    7,318
    
    
    
    804
    
    
    
    3,417
    
    
    
    (1,936,999
    )
    
    
    1,199,487Deferred revenue
    
    
    152,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,348Deferred credit on executory contracts
    
    
    580,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    580,161Long-term debt
    
    
    1,508,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,508,598Long-term related party debt
    
    
    161,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,479Deferred tax liability
    
    
    164,006
    
    
    
    758,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    922,192Related party long-term liability
    
    
    25,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,211Other long-term liabilities
    
    
    42,201
    
    
    
    
    
    
    
    
    
    
    
    (1,315
    )
    
    
    
    
    
    
    
    
    
    
    (3,025
    )
    
    
    37,861Total liabilities
    
    
    5,758,591
    
    
    
    758,190
    
    
    
    356
    
    
    
    6,003
    
    
    
    804
    
    
    
    3,417
    
    
    
    (1,940,024
    )
    
    
    4,587,337Commitments and contingenciesStockholders equity (deficit):Capital stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    
    (5,823
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,823
    )Additional paid-in-capital
    
    
    6,060,660
    
    
    
    1,781,641
    
    
    
    57,854
    
    
    
    99,348
    
    
    
    17,615
    
    
    
    691,811
    
    
    
    (2,648,269
    )
    
    
    6,060,660Retained earnings (deficit)
    
    
    (6,607,033
    )
    
    
    382,589
    
    
    
    14,380
    
    
    
    15,021
    
    
    
    1,178
    
    
    
    126,164
    
    
    
    (539,333
    )
    
    
    (6,607,034
    )Total stockholders equity (deficit)
    
    
    (552,196
    )
    
    
    2,164,230
    
    
    
    72,234
    
    
    
    114,369
    
    
    
    18,793
    
    
    
    817,975
    
    
    
    (3,187,602
    )
    
    
    (552,197
    )Total liabilities and stockholders equity(deficit)
    
    $
    5,206,395
    
    
    $
    2,922,420
    
    
    $
    72,590
    
    
    $
    120,372
    
    
    $
    19,597
    
    
    $
    821,392
    
    
    $
    (5,127,626
    )
    
    $
    4,035,140
 22




---



##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2009
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    
    
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    XM Radio Inc.

    
    LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

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




---



##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
 XM Satellite
    
    
    
    
    
    
    XM Equipment
    
    
    XM 1500
    
    
    XM Investment
    
    
    Other
    
    
    
    
    
    
    Consolidated XM(in thousands)
    
    Radio Inc.

    
    XM Radio Inc.

    
    Leasing LLC

    
    Eckington LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Satellite Radio Inc.Balance at December 31, 2009
    
    $
    (629,761
    )
    
    $
    2,025,936
    
    
    $
    63,773
    
    
    $
    109,020
    
    
    $
    18,319
    
    
    $
    774,293
    
    
    $
    (2,991,342
    )
    
    $
    (629,762
    )Net income (loss)
    
    
    76,807
    
    
    
    138,294
    
    
    
    8,461
    
    
    
    5,349
    
    
    
    474
    
    
    
    43,682
    
    
    
    (196,260
    )
    
    
    76,807Other comprehensive loss:Unrealized gain on available-for-sale
securities
    
    
    469
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    469Foreign currency translation
adjustment
    
    
    289
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    289Comprehensive income (loss)
    
    
    77,565
    
    
    
    138,294
    
    
    
    8,461
    
    
    
    5,349
    
    
    
    474
    
    
    
    43,682
    
    
    
    (196,260
    )
    
    
    77,565Balance at September 30, 2010
    
    $
    (552,196
    )
    
    $
    2,164,230
    
    
    $
    72,234
    
    
    $
    114,369
    
    
    $
    18,793
    
    
    $
    817,975
    
    
    $
    (3,187,602
    )
    
    $
    (552,197
    )
 XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    Inc.

    
    LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Net cash provided by (used in)
operating activities
    
    $
    202,926
    
    
    $
    -
    
    
    $
    (16
    )
    
    $
    5,301
    
    
    $
    664
    
    
    $
    -
    
    
    $
    -
    
    
    $
    208,875Cash flows from investing activities:Additions to property and
equipment
    
    
    (172,317
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (172,317
    )Sale of restricted and other
investments
    
    
    9,450
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    9,450Net cash (used in) provided by
investing activities
    
    
    (162,867
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (162,867
    )Cash flows from financing activities:Payment of premiums on redemption of debt
    
    
    (256
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (256
    )Repayment of long-term borrowings
    
    
    (129,054
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (129,054
    )Net cash provided by (used in)
financing activities
    
    
    (129,310
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (129,310
    )Net increase (decrease) in cash
and cash equivalents
    
    
    (89,251
    )
    
    
    -
    
    
    
    (16
    )
    
    
    5,301
    
    
    
    664
    
    
    
    -
    
    
    
    -
    
    
    
    (83,302
    )Cash and cash equivalents at
beginning of period
    
    
    205,638
    
    
    
    -
    
    
    
    16
    
    
    
    5,615
    
    
    
    886
    
    
    
    -
    
    
    
    -
    
    
    
    212,155Cash and cash equivalents at
end of period
    
    $
    116,387
    
    
    $
    -
    
    
    $
    -
    
    
    $
    10,916
    
    
    $
    1,550
    
    
    $
    -
    
    
    $
    -
    
    
    $
    128,853
 24




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##### Table of Contents



XM SATELLITE RADIO INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  Continued
  XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
 XMEquipment
    
    
    XM 1500
    
    
    XM
    
    
    
    
    
    
    
    
    
    
    ConsolidatedXM Satellite
    
    
    XM Radio
    
    
    Leasing
    
    
    Eckington
    
    
    Investment
    
    
    Other
    
    
    
    
    
    
    XM Satellite(in thousands)
    
    Radio Inc.

    
    Inc.

    
    LLC

    
    LLC

    
    LLC

    
    Subsidiaries

    
    Eliminations

    
    Radio Inc.Net cash provided by (used in)
operating activities
    
    $
    224,975
    
    
    $
    -
    
    
    $
    (5
    )
    
    $
    3,088
    
    
    $
    560
    
    
    $
    -
    
    
    $
    -
    
    
    $
    228,618Cash flows from investing activities:Additions to property and
equipment
    
    
    (38,811
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (38,811
    )Net cash used in
investing activities
    
    
    (38,811
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (38,811
    )Cash flows from financing activities:Long-term borrowings,
net of costs
    
    
    387,184
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    387,184Related Party long-term borrowings,
net of costs
    
    
    95,093
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    95,093Payment of premiums on redemption
of debt
    
    
    (17,075
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (17,075
    )Repayment of long-term borrowings
    
    
    (256,662
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (179,065
    )
    
    
    (435,727
    )Repayment of related party long-term bo
    
    
    (100,000
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (100,000
    )Net cash used in
financing activities
    
    
    108,540
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (179,065
    )
    
    
    (70,525
    )Net increase (decrease) in cash
and cash equivalents
    
    
    294,704
    
    
    
    -
    
    
    
    (5
    )
    
    
    3,088
    
    
    
    560
    
    
    
    -
    
    
    
    (179,065
    )
    
    
    119,282Cash and cash equivalents at
beginning of period
    
    
    205,861
    
    
    
    -
    
    
    
    15
    
    
    
    760
    
    
    
    104
    
    
    
    -
    
    
    
    -
    
    
    
    206,740Cash and cash equivalents at
end of period
    
    $
    500,565
    
    
    $
    -
    
    
    $
    10
    
    
    $
    3,848
    
    
    $
    664
    
    
    $
    -
    
    
    $
    (179,065
    )
    
    $
    326,022
 25




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (All dollar amounts referenced in this Item 2 are in thousands, unless otherwise stated.)
 Special Note Regarding Forward-Looking Statements
   
    
    our dependence upon automakers, many of which have experienced a dramatic drop in sales,
and other third parties, such as manufacturers and distributors of satellite radios,
retailers and programming providers;
    
    our substantial indebtedness;
    
    the useful life of our satellites, which have experienced component failures including,
with respect to a number of satellites, failures on their solar arrays, and, in certain
cases, are not insured; and
    
    our competitive position versus other forms of audio entertainment including terrestrial
radio, HD radio, Internet radio, mobile phones, iPods and other MP3 devices, and emerging
next-generation networks and technologies.
    Executive Summary
  26




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27




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##### Table of Contents



Actual Results of Operations
  Total Revenue
 Subscriber Revenue
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, subscriber
revenue was $320,808 and $304,714, respectively, an increase of 5%, or $16,094. The
increase was primarily attributable to the 5% increase in daily weighted average
subscribers, an increase in the sale of Best of programming, decreases in discounts on
multi-subscription and internet packages and a $5,962 decrease in the impact of purchase
price accounting adjustments attributable to deferred subscriber revenues, partially offset by an increase in the number of
subscribers on promotional plans.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, subscriber
revenue was $938,711 and $884,038, respectively, an increase of 6%, or $54,673. The
increase was primarily attributable to the 3% increase in daily weighted average
subscribers, an increase in the sale of Best of programming, decreases in discounts on
multi-subscription and internet packages and a $28,894 decrease in the impact of
purchase price accounting adjustments attributable to deferred subscriber revenues, partially offset by an increase in the number of
subscribers on promotional plans.
  Advertising Revenue
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, advertising
revenue was $6,247 and $4,147, respectively, an increase of 51%, or $2,100. The increase
was primarily due to more effective sales efforts and improvements in the national
market for advertising.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, advertising
revenue was $15,362 and $13,475, respectively, an increase of 14%, or $1,887. The
increase was primarily due to more effective sales efforts and improvements in the
national market for advertising, partially offset by the expiration of a long-term
contract.
  Equipment Revenue
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, equipment
revenue was $13,300 and $5,657, respectively, an increase of 135%, or $7,643. The
increase was driven by royalties from increased OEM installations.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, equipment revenue
was $37,517 and $17,681, respectively, an increase of 112%, or $19,836. The increase was
driven by royalties from increased OEM installations.
  Other Revenue
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, other revenue
was $41,902 and $10,955, respectively. The $30,947 increase was primarily due to the
introduction of the U.S. Music Royalty Fee in the third quarter of 2009.
 28




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##### Table of Contents




    
    Nine Months: For the nine months ended September 30, 2010 and 2009, other revenue was
$114,270 and $19,344, respectively. The $94,926 increase was primarily due to the
introduction of the U.S. Music Royalty Fee in the third quarter of 2009.
  Operating Expenses
 Revenue Share and Royalties
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, revenue share
and royalties were $49,444 and $46,976, respectively, an increase of 5%, or $2,468. The
increase was primarily attributable to a 8% increase in our revenues subject to royalty
and/or revenue sharing arrangements and a 8% increase in the statutory royalty rate for
the performance of sound recordings, partially offset by a decrease in the revenue
sharing rate with an automaker and a $4,526 increase in the benefit to earnings from the
amortization of deferred credits on executory contracts initially recognized in purchase
price accounting associated with the Merger.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, revenue share and
royalties were $138,296 and $142,997, respectively, a decrease of 3%, or $4,701. The
decrease was primarily attributable to a decrease in the revenue sharing rate with an
automaker and a $13,663 increase in the benefit to earnings from the amortization of
deferred credits on executory contracts initially recognized in purchase price
accounting associated with the Merger, partially offset by a 8% increase in our revenues
subject to royalty and/or revenue sharing arrangements and a 8% increase in the
statutory royalty rate for the performance of sound recordings.
  Programming and Content
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, programming and
content expenses were $26,204 and $27,811, respectively, a decrease of 6%, or $1,607.
The decrease was primarily due to savings in content agreements, partially offset by a
$4,162 reduction in the benefit to earnings from purchase price accounting adjustments
associated with the Merger attributable to the amortization of the deferred credit on
programming executory contracts.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, programming and
content expenses were $81,947 and $84,353, respectively, a decrease of 3%, or $2,406.
The decrease was primarily due to savings in content agreements and production costs,
partially offset by increases in personnel costs, general operating expenses and a
$11,903 reduction in the benefit to earnings from purchase price accounting adjustments
associated with the Merger attributable to the amortization of the deferred credit on
programming executory contracts.
  29




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##### Table of Contents



Customer Service and Billing
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, customer
service and billing expenses were $33,415 and $31,064, respectively, an increase of 8%,
or $2,351. The increase was primarily due to higher call volumes, partially offset by
lower call center expenses as a result of moving calls to lower cost locations.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, customer service
and billing expenses were $95,623 and $96,168, respectively, a decrease of 1%, or $545.
The decrease was primarily due to lower call center expenses as a result of moving calls
to lower cost locations.
  Satellite and Transmission
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, satellite and
transmission expenses were $11,812 and $11,484, respectively, an increase of 3%, or
$328. The increase was primarily due to increased repeater expenses and personnel costs.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, satellite and
transmission expenses were $35,299 and $36,952, respectively, a decrease of 4%, or
$1,653. The decrease was primarily due to savings in consulting expenses and repeater
expenses, partially offset by increased personnel costs.
  Cost of Equipment
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, cost of
equipment was $3,644 and $5,142, respectively, a decrease of 29%, or $1,498. The
decrease was primarily due to lower inventory reserves offset by increased equipment
sales to consumers.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, cost of equipment
was $12,614 and $12,049, respectively, an increase of 5%, or $565. The increase was
primarily due to increased component sales to manufacturers and distributors and
equipment sales to consumers, partially offset by lower inventory reserves.
  Subscriber Acquisition Costs
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, subscriber
acquisition costs were $38,674 and $35,049, respectively, an increase of 10%, or $3,625.
The increase was primarily a result of the 15% increase in gross subscriber additions
and higher subsidies related to the 27% increase in OEM installations, partially offset
by a $1,559 increase in the benefit to earnings from the amortization of the deferred
credit for executory contracts recognized in purchase price accounting associated with
the Merger.
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##### Table of Contents




    
    Nine Months: For the nine months ended September 30, 2010 and 2009, subscriber
acquisition costs were $109,691 and $83,524, respectively, an increase of 31%, or
$26,167. The increase was primarily a result of the 20% increase in gross subscriber
additions and higher subsidies related to the 66% increase in OEM installations,
partially offset by a $15,546 increase in the benefit to earnings from the amortization
of the deferred credit for executory contracts recognized in purchase price accounting
associated with the Merger.
  Sales and Marketing
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, sales and
marketing expenses were $27,833 and $26,055, respectively, an increase of 7%, or $1,778.
The increase was primarily due to additional cooperative marketing and personnel costs,
partially offset by reductions in consumer advertising, event marketing and third party
distribution support expenses.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, sales and
marketing expenses were $81,390 and $84,565, respectively, a decrease of 4%, or $3,175.
The decrease was primarily due to reductions in consumer advertising, event marketing
and third party distribution support expenses, partially offset by additional
cooperative marketing and personnel costs.
  Engineering, Design and Development
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, engineering,
design and development expenses were $5,261 and $5,413, respectively, a decrease of 3%,
or $152. The decrease was primarily due to savings in personnel costs.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, engineering,
design and development expenses were $15,482 and $16,798, respectively, a decrease of
8%, or $1,316. The decrease was primarily due to savings in personnel costs.
  General and Administrative
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, general and
administrative expenses were $19,107 and $25,216, respectively, a decrease of 24%, or
$6,109. The decrease was primarily due to an insurance recovery of previously expensed
legal charges, as well as lower consulting and office costs, partially offset by
increased personnel.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, general and
administrative expenses were $74,035 and $91,689, respectively, a decrease of 19%, or
$17,654. The decrease was primarily due to lower share-based payment expense, an
insurance recovery of previously expensed legal charges, consulting, accounting and
office costs, partially offset by increased personnel costs.
  31




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##### Table of Contents



Depreciation and Amortization
 
    
    Three Months:For the three months ended September 30, 2010 and 2009, depreciation
and amortization expense was $34,999 and $41,587, respectively, a decrease of 16%, or
$6,588. The decrease was primarily due to a $7,628 reduction in the charge to earnings
attributable to the satellite constellation and subscriber relationships, partially
offset by additional depreciation recognized on building improvements.
 
    
    Nine Months:For the nine months ended September 30, 2010 and 2009, depreciation and
amortization expense was $108,886 and $146,462, respectively, a decrease of 26%, or
$37,576. The decrease was primarily due to a $33,742 reduction in the charge to earnings
attributable to the satellite constellation and subscriber relationships, partially
offset by additional depreciation recognized on building improvements.
  Other Income (Expense)
 Interest Expense, Net of Amounts Capitalized,
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, interest
expense was $51,834 and $70,537, respectively, a decrease of 27%, or $18,703. The
decrease was primarily due to decreases in the weighted average interest rate on our
outstanding debt in the three months ended September 30, 2010 compared to the three
months ended September 30, 2009 and the redemption of our 10% Senior PIK Secured Notes
due 2011 on June 1, 2010.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, interest expense
was $168,714 and $226,376, respectively, a decrease of 25%, or $57,662. The decrease was
primarily due to decreases in the weighted average interest rate on our outstanding debt
in the nine months ended September 30, 2010 compared to the nine months ended September
30, 2009 and the redemption of our 10% Senior PIK Secured Notes due 2011 on June 1,
2010.
 Loss on Extinguishment of Debt and Credit Facilities, Net,
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, loss on
extinguishment of debt and credit facilities, net, was $256 and $3,787, respectively, a
decrease of 93%, or $3,531. During the three months ended September 30, 2010, the loss
was incurred on the repayment of our 9.75% Senior Notes due 2014. During the three
months ended September 30, 2009, the loss was incurred on the partial repayment of our
10% Convertible Senior Notes due 2009.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, loss on
extinguishment of debt and credit facilities, net, was $4,881 and $111,863,
respectively, a decrease of 96%, or $106,982. During the nine months ended September 30,
2010, the loss was incurred on the repayment of our 10% Senior PIK Secured Notes due
2011 and 9.75% Senior Notes due 2014. During the nine months ended September 30, 2009,
the loss was incurred on the repayment of our Amended and Restated Credit Agreement due
2011, the partial repayment of our 10% Convertible Senior Notes due 2009 and the
termination of our Second Lien Credit Agreement.
 Loss on Change in Value of Embedded Derivative.
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, we recorded a
loss on change in value of embedded derivative of $45,796 and $33,700, respectively, an
increase of 36%, or $12,096. As a result of the Merger, we recorded derivative
liabilities reflecting the fair value of the embedded derivative as of the Merger date.
During the three months ended September 30, 2010 and 2009, the SIRIUS stock price
increased resulting in an increased fair value and a loss on the change in value of the
derivative. Because the change in the stock price during the three months ended
September 30, 2010 was greater than the change in the stock price during the three
months ended September 30, 2009, we recorded a larger loss.
 32




---



##### Table of Contents




    
    Nine Months: For the nine months ended September 30, 2010 and 2009, we recorded a
loss on change in value of embedded derivative of $94,399 and $111,703, respectively, a
decrease of 15%, or $17,304. As a result of the Merger, we recorded derivative
liabilities reflecting the fair value of the embedded derivative as of the Merger date.
During the nine months ended September 30, 2010 and 2009, the SIRIUS stock price
increased resulting in an increased fair value and a loss on the change in value of the
derivative. Because the change in the stock price during the nine months ended September
30, 2010 was less than the change in the stock price during the nine months ended
September 30, 2009, we recorded a smaller loss.
 Interest and Investment Income (Loss)
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, interest and
investment loss was $1,748 and $2,141, respectively, a decrease of 18%, or $393. The
decrease was primarily attributable to increased interest income on higher average cash
balances.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, interest and
investment loss was $5,652 and $4,812, respectively, an increase of 17%, or $840. The
increase was primarily attributable to higher net losses at XM Canada during the nine
months ended September 30, 2010, partially offset by an impairment charge recorded
during the nine months ended September 30, 2009 and increased interest income on higher
average cash balances.
 Income Taxes
 Income Tax Expense
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, income tax
expense was $2,792 and $578, respectively, an increase of 383%, or $2,214. The increase
was primarily attributable to an increase in the applicable tax rate.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, income tax
expense was $3,938 and $1,733, respectively, an increase of 127%, or $2,205. The
increase was primarily attributable to an increase in the applicable tax rate.
 33




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##### Table of Contents



Subscriber Data
  For the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Beginning subscribers
    
    
    10,057,380
    
    
    
    9,641,800
    
    
    
    9,749,100
    
    
    
    9,850,741Gross subscriber additions
    
    
    956,471
    
    
    
    833,684
    
    
    
    2,751,252
    
    
    
    2,289,360Deactivated subscribers
    
    
    (795,586
    )
    
    
    (770,598
    )
    
    
    (2,282,087
    )
    
    
    (2,435,215
    )Net additions
    
    
    160,885
    
    
    
    63,086
    
    
    
    469,165
    
    
    
    (145,855
    )Ending subscribers
    
    
    10,218,265
    
    
    
    9,704,886
    
    
    
    10,218,265
    
    
    
    9,704,886Retail
    
    
    3,346,642
    
    
    
    3,777,646
    
    
    
    3,346,642
    
    
    
    3,777,646OEM
    
    
    6,738,464
    
    
    
    5,840,637
    
    
    
    6,738,464
    
    
    
    5,840,637Rental
    
    
    133,159
    
    
    
    86,603
    
    
    
    133,159
    
    
    
    86,603Ending subscribers
    
    
    10,218,265
    
    
    
    9,704,886
    
    
    
    10,218,265
    
    
    
    9,704,886Self-pay
    
    
    9,362,495
    
    
    
    8,897,480
    
    
    
    9,362,495
    
    
    
    8,897,480Paid promotional
    
    
    855,770
    
    
    
    807,406
    
    
    
    855,770
    
    
    
    807,406Ending subscribers
    
    
    10,218,265
    
    
    
    9,704,886
    
    
    
    10,218,265
    
    
    
    9,704,886Retail
    
    
    (95,005
    )
    
    
    (175,144
    )
    
    
    (312,862
    )
    
    
    (541,986
    )OEM
    
    
    259,957
    
    
    
    237,950
    
    
    
    750,316
    
    
    
    397,913Rental
    
    
    (4,067
    )
    
    
    280
    
    
    
    31,711
    
    
    
    (1,782
    )Net additions
    
    
    160,885
    
    
    
    63,086
    
    
    
    469,165
    
    
    
    (145,855
    )Self-pay
    
    
    127,867
    
    
    
    (23,551
    )
    
    
    322,473
    
    
    
    (198,099
    )Paid promotional
    
    
    33,018
    
    
    
    86,637
    
    
    
    146,692
    
    
    
    52,244Net additions
    
    
    160,885
    
    
    
    63,086
    
    
    
    469,165
    
    
    
    (145,855
    )Daily weighted average number of subscribers
    
    
    10,147,115
    
    
    
    9,691,620
    
    
    
    9,935,054
    
    
    
    9,682,252Average self-pay monthly churn (1)
    
    
    1.9
    %
    
    
    2.0
    %
    
    
    1.9
    %
    
    
    2.1
    %Conversion rate (2)
    
    
    47.7
    %
    
    
    48.6
    %
    
    
    46.7
    %
    
    
    47.6
    %
 
 Note: See pages 43 through 49 for footnotes. Subscribers.
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, net additions
were 160,885 and 63,086, respectively, an increase in net additions of 97,799. The
improvement was due to the 15% increase in gross subscriber additions, primarily
resulting from an increase in new vehicle penetration along with an increase in
returning activations, partially offset by a 3% increase in deactivations resulting from higher promotional churn due to an increase
in the volume of trial subscriptions.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, net additions
were 469,165 and (145,855), respectively, an increase in net additions of 615,020. The
improvement was due to the 20% increase in gross subscriber additions, primarily
resulting from an increase in new vehicle penetration along with an increase in
returning activations from previously inactive vehicles, and the 6% decline in
deactivations resulting from improvements in the conversion rate in paid promotional
trials and average self-pay monthly churn.
 34




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##### Table of Contents



Average Self-pay Monthly Churn
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, our average
self-pay monthly churn rate was 1.9% and 2.0%, respectively. The decrease was due to an
improving economy, the success of retention and win-back programs and reductions in
non-pay cancellation rates.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, our average
self-pay monthly churn rate was 1.9% and 2.1%, respectively. The decrease was due to an
improving economy, the success of retention and win-back programs and reductions in
non-pay cancellation rates.
 Conversion Rate
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, our conversion
rate was 47.7% and 48.6%, respectively. The decrease in conversion rate is primarily due
to an increase in the mix of lower converting models in the three months ended September
30, 2010, compared to the three months ended September 30, 2009.
 
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, our conversion
rate was 46.7% and 47.6%, respectively. The decrease in conversion rate is primarily due
to an increase in the mix of lower converting models in the nine months ended September
30, 2010, compared to the nine months ended September 30, 2009.
 35




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##### Table of Contents



Adjusted Results of Operations
      Unaudited AdjustedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,(in thousands, except for per subscriber amounts)
    
    2010

    
    2009

    
    2010

    
    2009ARPU (3)
    
    $
    12.07
    
    
    $
    11.18
    
    
    $
    11.91
    
    
    $
    10.85SAC, per gross subscriber addition (4)
    
    $
    52
    
    
    $
    65
    
    
    $
    52
    
    
    $
    53Customer service and billing expenses, per average
subscriber (5)
    
    $
    1.09
    
    
    $
    1.06
    
    
    $
    1.06
    
    
    $
    1.09Free cash flow (6)
    
    $
    41,530
    
    
    $
    92,524
    
    
    $
    46,008
    
    
    $
    189,807Adjusted total revenue (8)
    
    $
    387,246
    
    
    $
    336,424
    
    
    $
    1,123,426
    
    
    $
    980,998Adjusted EBITDA (7)
    
    $
    112,374
    
    
    $
    66,327
    
    
    $
    307,919
    
    
    $
    191,184
 
 Note:
    
    See pages 43 through 49 for footnotes. 36




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##### Table of Contents



ARPU
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, total ARPU was
$12.07 and $11.18, respectively. The increase was driven primarily by the introduction
of the U.S. Music Royalty Fee in the third quarter of 2009, increased revenues from the
sale of Best of programming and decreases in discounts on multi-subscription and
internet packages, partially offset by an increase in the number of
subscribers on promotional plans.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, total ARPU was
$11.91 and $10.85, respectively. The increase was driven primarily by the introduction
of the U.S. Music Royalty Fee in the third quarter of 2009, increased revenues from the
sale of Best of programming and decreases in discounts on multi-subscription and
internet packages, partially offset by an increase in the number of
subscribers on promotional plans.
 SAC, Per Gross Subscriber Addition
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, SAC, per gross
subscriber addition was $52 and $65, respectively. The decrease was primarily due to
lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations
and royalties from radio manufacturers compared to the three months ended September 30,
2009, partially offset by a 27% increase in OEM production with factory-installed
satellite radios.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, SAC, per gross
subscriber addition was $52 and $53, respectively. The decrease was primarily due to
lower per radio subsidy rates for certain OEMs and growth in subscriber reactivations
and royalties from radio manufacturers compared to the nine months ended September 30,
2009, partially offset by a 66% increase in OEM production with factory-installed
satellite radios.
 Customer Service and Billing Expenses, Per Average Subscriber
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, customer
service and billing expenses, per average subscriber was $1.09 and $1.06, respectively.
The increase was primarily due to higher call volumes, partially offset by lower call
center expenses as a result of moving calls to lower cost locations.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, customer service
and billing expenses, per average subscriber was $1.06 and $1.09, respectively. The
decrease was primarily due to lower call center expense as a result of moving calls to
lower cost locations.
 Free Cash Flow
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, free cash flow
was $41,530 and $92,524, respectively, a decrease of $50,994. Net income plus non-cash
operating activities increased 690%, to $78,965, from $9,998, principally as a result of
improvements in our adjusted EBITDA. Changes in our operating assets and liabilities
decreased by $100,808 compared to the three months ended September 30, 2009. The
decrease was primarily due to decreases in cash flows from operations resulting from the
periodic payment of related party liabilities in the current period compared to a
deferral of such payments in the three months ended September 30, 2009 and the routine
amortization of prepaid programming costs and release of credit card hold-backs included
in other long-term assets in the three months ended September 30, 2009. The decrease was
partially offset by increases in cash flows from operations resulting from higher
collections of amounts due from subscribers and distributors during the three months
ended September 30, 2010 as compared to the three months ended September 30, 2009. As a
result of these transactions, net cash provided by operating activities decreased
$31,841 to $95,373 in the three months ended September 30, 2010 compared to the $127,214
provided by operations in the three months ended September 30, 2009. In addition,
capital expenditures in the three months ended September 30, 2010 increased $19,153 to
$53,843 compared to $34,690 expended in the three months ended September 30, 2009,
primarily due to increased satellite and related launch vehicle spending.
 37




---



##### Table of Contents




    
    Nine Months: For the nine months ended September 30, 2010 and 2009, free cash flow
was $46,008 and $189,807, respectively, a decrease of $143,799. Net income plus non-cash
operating activities increased 560%, to $189,231, from $28,682, principally as a result
of improvements in our adjusted EBITDA. Changes in our operating assets and liabilities
decreased by $180,292 compared to the nine months ended September 30, 2009. The decrease
was primarily due to pay-downs of related party liabilities deferred in 2009 and employee bonus payments in the
first quarter of 2010 where no bonus payments were made in 2009 and the release of credit
card funds during the nine months ended September 30, 2009. As a result of these
transactions, net cash provided by operating activities decreased $19,743 to $208,875 in
the nine months ended September 30, 2010 compared to the $228,618 provided by operations
in the nine months ended September 30, 2009. In addition, capital expenditures in the
nine months ended September 30, 2010 increased $133,506 to $172,317 compared to $38,811
expended in the nine months ended September 30, 2009, primarily due to increased
satellite and related launch vehicle spending, offset by $9,450 of proceeds from the sale
of investment securities in the nine months ended September 30, 2010.
 Adjusted Total Revenue.
 UnauditedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,(in thousands)
    
    2010

    
    2009

    
    2010

    
    2009Revenue:Subscriber revenue, including effects of rebates
    
    $
    320,808
    
    
    $
    304,714
    
    
    $
    938,711
    
    
    $
    884,038Advertising revenue, net of agency fees
    
    
    6,247
    
    
    
    4,147
    
    
    
    15,362
    
    
    
    13,475Equipment revenue
    
    
    13,300
    
    
    
    5,657
    
    
    
    37,517
    
    
    
    17,681Other revenue
    
    
    41,902
    
    
    
    10,955
    
    
    
    114,270
    
    
    
    19,344Purchase price accounting adjustments:Subscriber revenue
    
    
    3,176
    
    
    
    9,138
    
    
    
    12,128
    
    
    
    41,022Other revenue
    
    
    1,813
    
    
    
    1,813
    
    
    
    5,438
    
    
    
    5,438Adjusted total revenue
    
    $
    387,246
    
    
    $
    336,424
    
    
    $
    1,123,426
    
    
    $
    980,998
 
    
    Three Months: Our adjusted total revenue grew 15%, or $50,822, in the three
months ended September 30, 2010 compared to the three months ended September 30, 2009.
Subscriber revenue increased 5%, or $16,094, in the three months ended September 30,
2010 compared to the three months ended September 30, 2009. The increase in subscriber
revenue was driven by the increase in subscribers as well as an increase in the sale of
Best of programming and the decreases in discounts on multi-subscription and internet
packages, partially offset by an increase in the number of
subscribers on promotional plans. Advertising revenue increased 51%, or $2,100, in the three months ended
September 30, 2010 compared to the three months ended September 30, 2009. The increase
in advertising revenue was driven by more effective sales efforts and improvements in
the national market for advertising. Equipment revenue increased 135%, or $7,643, in the
three months ended September 30, 2010 compared to the three months ended September 30,
2009. The increase in equipment revenue was driven by increased royalties from OEM
installations and aftermarket production. Other revenue increased $30,947, in the three
months ended September 30, 2010 compared to the three months ended September 30, 2009.
The increase in other revenue was driven by the introduction of the U.S. Music Royalty
Fee in the third quarter of 2009.
 
    
    Nine Months:Our adjusted total revenue grew 15%, or $142,428, in the nine months
ended September 30, 2010 compared to the nine months ended September 30, 2009.
Subscriber revenue increased 6%, or $54,673, in the nine months ended September 30, 2010
compared to the nine months ended September 30, 2009. The increase in subscriber revenue
was driven by the increase in subscribers as well as an increase in the sale of Best
of programming and the decreases in discounts on multi-subscription and internet
packages, partially offset by an increase in the number of
subscribers on promotional plans. Advertising revenue increased 14%, or $1,887, in the nine months ended
September 30, 2010 compared to the nine months ended September 30, 2009. The increase in
advertising revenue was driven by more effective sales efforts and improvements in the
national market for advertising. Equipment revenue increased 112%, or $19,836, in the
nine months ended September 30, 2010 compared to the nine months ended September 30,
2009. The increase in equipment revenue was driven by increased royalties from OEM
installations and aftermarket production. Other revenue increased $94,926, in the nine
months ended September 30, 2010 compared to the nine months ended September 30, 2009.
The increase in other revenue was driven by the introduction of the U.S. Music Royalty
Fee in the third quarter of 2009.
 38




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##### Table of Contents



Adjusted EBITDA.
 Unaudited AdjustedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,(in thousands)
    
    2010

    
    2009

    
    2010

    
    2009Adjusted EBITDA
    
    $
    112,374
    
    
    $
    66,327
    
    
    $
    307,919
    
    
    $
    191,184
 
    
    Three Months: For the three months ended September 30, 2010 and 2009, adjusted
EBITDA was $112,374 and $66,327, respectively, an increase of 69%, or $46,047. The
increase was primarily due to an increase of 15%, or $50,822 in revenues, partially
offset by an increase of 2%, or $4,775, in expenses included in adjusted EBITDA. The
increase in revenue was primarily due to the increase in our subscriber base and the
introduction of the U.S. Music Royalty Fee in the third quarter of 2009, as well as
increased equipment revenue, decreases in discounts on multi-subscription and internet
packages, and an increase in the sale of Best of programming, partially offset by an increase in the number of
subscribers on promotional plans. The increase in expenses
was primarily driven by higher subscriber acquisition costs related to the 15% increase
in gross additions and higher revenue share and royalties expenses associated with
growth in revenues subject to revenue sharing and royalty arrangements, partially offset
by a decrease in programming and content expenses.
    
    Nine Months: For the nine months ended September 30, 2010 and 2009, adjusted EBITDA
was $307,919 and $191,184, respectively, an increase of 61%, or $116,735. The increase
was primarily due to an increase of 15%, or $142,428, in revenues, partially offset by
an increase of 3%, or $25,693, in total expenses included in adjusted EBITDA. The
increase in revenue was primarily due to the increase in our subscriber base and the
introduction of the U.S. Music Royalty Fee in the third quarter of 2009, as well as
increased equipment revenue, decreases in discounts on multi-subscription and internet
packages, and an increase in the sale of Best of programming, partially offset by an increase in the number of
subscribers on promotional plans. The increase in expenses
was primarily driven by higher subscriber acquisition costs related to the 20% increase
in gross additions and higher revenue share and royalties expenses associated with
growth in revenues subject to revenue sharing and royalty arrangements, partially offset
by a decrease in programming and content expenses and general and administrative
expenses.
 39




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows for the Nine Months Ended September 30, 2010 Compared with the Nine Months Ended September 30, 2009
  For the Nine MonthsEnded September 30,2010

    
    2009

    
    2010 vs. 2009Net cash provided by operating activities
    
    $
    208,875
    
    
    $
    228,618
    
    
    $
    (19,743
    )Net cash used in investing activities
    
    
    (162,867
    )
    
    
    (38,811
    )
    
    
    (124,056
    )Net cash used in financing activities
    
    
    (129,310
    )
    
    
    (70,525
    )
    
    
    (58,785
    )Net (decrease) increase in cash and cash equivalents
    
    
    (83,302
    )
    
    
    119,282
    
    
    
    (202,584
    )Cash and cash equivalents at beginning of period
    
    
    212,155
    
    
    
    206,740
    
    
    
    5,415Cash and cash equivalents at end of period
    
    $
    128,853
    
    
    $
    326,022
    
    
    $
    (197,169
    )
 Cash Flows Provided by Operating Activities
 
    
    Nine Months: Net cash provided by operating activities decreased $19,743, to
$208,875, for the nine months ended September 30, 2010 from $228,618 for the nine months
ended September 30, 2009. The decrease was primarily due to pay-downs of related party
liabilities deferred in 2009 and employee bonus payments in the first quarter of 2010
where no bonus payments were made in 2009 and the release of credit card funds during
the nine months ended September 30, 2009, partially offset by improvements in our income
from operations.
 Cash Flows Used in Investing Activities
 
    
    Nine Months: Net cash used in investing activities increased $124,056, to $162,867,
for the nine months ended September 30, 2010 from $38,811 for the nine months ended
September 30, 2009. The increase was primarily the result of an increase of $133,506 in
capital expenditures for construction of our satellites and related launch vehicles,
partially offset by $9,450 of proceeds from the sale of investment securities.
  Cash Flows Used in Financing Activities
 
    
    Nine Months: Net cash used in financing activities increased $58,785, to $129,310,
for the nine months ended September 30, 2010 from $70,525 for the nine months ended
September 30, 2009. The increase in cash used in financing activities was primarily due
to a decrease of $482,277 in net proceeds from the issuance of debt, partially offset by
a decrease of $406,673 in repayments of debt. During the nine months ended September 30,
2009, we received net proceeds of $482,277, from the issuance of our 11.25% Senior
Secured Notes due 2013. During the nine months ended September 30, 2010, we made debt
repayments of $129,054, principally to holders of our 10% Senior PIK Secured Notes due
2011 and 9.75% Senior Notes due 2014. During the nine months ended September 30, 2009,
we made debt repayments of $535,727, principally to holders of our Amended and Restated
Credit Agreement due 2011 and 10% Convertible Senior Notes due 2009. During the nine
months ended September 30, 2010 and 2009, we paid $256 and $17,075 in premiums on the
redemption of debt, respectively.
 40




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##### Table of Contents



Financings and Capital Requirements
  Future Liquidity and Capital Resource Requirements
      Debt Covenants
   Off-Balance Sheet Arrangements
  Contractual Cash Commitments
  41




---



##### Table of Contents



Related Party Transactions
  Critical Accounting Policies and Estimates
   42




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##### Table of Contents



Footnotes
 (1)
    
    Average self-pay monthly churn represents the monthly average of self-pay deactivations for
the quarter divided by the average number of self-pay subscribers for the quarter.(2)
    
    We measure the percentage of vehicle owners and lessees that receive our service and convert
to become self-paying subscribers after the initial promotion period. We refer to this as the
conversion rate. At the time satellite radio enabled vehicles are sold or leased, the owners
or lessees generally receive three month trial subscriptions. Promotional periods generally
include the period of trial service plus 30 days to handle the receipt and processing of
payments. We measure conversion rate three months after the period in which the trial service
ends.(3)
    
    ARPU is derived from total earned subscriber revenue, net advertising revenue and other
subscription-related revenue, net of purchase price accounting adjustments, divided by the
number of months in the period, divided by the daily weighted average number of subscribers
for the period. Other subscription-related revenue includes the U.S. Music Royalty Fee, which
was initially charged to subscribers in the third quarter of 2009. Purchase price accounting
adjustments include the recognition of deferred subscriber revenues not recognized in purchase
price accounting associated with the Merger. ARPU is calculated as follows (in thousands,
except for subscriber and per subscriber amounts):
 UnauditedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Subscriber revenue (GAAP)
    
    $
    320,808
    
    
    $
    304,714
    
    
    $
    938,711
    
    
    $
    884,038Net advertising revenue (GAAP)
    
    
    6,247
    
    
    
    4,147
    
    
    
    15,362
    
    
    
    13,475Other subscription-related revenue (GAAP)
    
    
    37,175
    
    
    
    7,146
    
    
    
    98,756
    
    
    
    7,146Purchase price accounting adjustment
    
    
    3,176
    
    
    
    9,138
    
    
    
    12,128
    
    
    
    41,022$
    367,406
    
    
    $
    325,145
    
    
    $
    1,064,957
    
    
    $
    945,681Daily weighted average number of subscribers
    
    
    10,147,115
    
    
    
    9,691,620
    
    
    
    9,935,054
    
    
    
    9,682,252ARPU
    
    $
    12.07
    
    
    $
    11.18
    
    
    $
    11.91
    
    
    $
    10.85
 (4)
    
    Subscriber acquisition cost, per gross subscriber addition (or SAC, per gross subscriber
addition) is derived from subscriber acquisition costs and margins from the direct sale of
radios and accessories, excluding purchase price accounting adjustments, divided by
the number of gross subscriber additions for the period. Purchase price accounting adjustments associated with the Merger include the
elimination of the benefit of amortization of deferred credits on executory contracts
recognized at the Merger date attributable to an OEM. SAC, per gross subscriber addition, is
calculated as follows (in thousands, except for subscriber and per subscriber amounts):
 UnauditedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Subscriber acquisition costs (GAAP)
    
    $
    38,674
    
    
    $
    35,049
    
    
    $
    109,691
    
    
    $
    83,524Less: margin from direct sales of radios and accessories (GAAP)
    
    
    (9,656
    )
    
    
    (515
    )
    
    
    (24,903
    )
    
    
    (5,632
    )Add: purchase price accounting adjustments
    
    
    20,889
    
    
    
    19,330
    
    
    
    58,855
    
    
    
    43,309$
    49,907
    
    
    $
    53,864
    
    
    $
    143,643
    
    
    $
    121,201Gross subscriber additions
    
    
    956,471
    
    
    
    833,684
    
    
    
    2,751,252
    
    
    
    2,289,360SAC, per gross subscriber addition
    
    $
    52
    
    
    $
    65
    
    
    $
    52
    
    
    $
    53
 43




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##### Table of Contents



(5)
    
    Customer service and billing expenses, per average subscriber, is derived from total customer service and billing expenses,
 excluding share-based payment expense and purchase price accounting
adjustments associated with the Merger, divided by the number of
months in the period, divided by the daily weighted average number of subscribers for the period. We believe the exclusion of share-based payment expense in our calculation of customer service and billing expenses, per average subscriber, is useful given the significant variation in expense that can result from changes in the fair market value of SIRIUS
 common stock, the effect of which is unrelated to the operational conditions that give rise to variations in the components of our customer service and billing expenses. Purchase price accounting adjustments include the elimination of the benefit associated with incremental share-based payment arrangements recognized at the Merger date. Customer service and billing expenses, per average subscriber, is calculated as follows (in thousands, except for subscriber and per subscriber amounts):
 UnauditedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Customer service and billing expenses (GAAP)
    
    $
    33,415
    
    
    $
    31,064
    
    
    $
    95,623
    
    
    $
    96,168Less: share-based payment expense, net of purchase price accounting adjustments
    
    
    (212
    )
    
    
    (460
    )
    
    
    (879
    )
    
    
    (1,436
    )Add: purchase price accounting adjustment
    
    
    54
    
    
    
    115
    
    
    
    226
    
    
    
    358$
    33,257
    
    
    $
    30,719
    
    
    $
    94,970
    
    
    $
    95,090Daily weighted average number of subscribers
    
    
    10,147,115
    
    
    
    9,691,620
    
    
    
    9,935,054
    
    
    
    9,682,252Customer service and billing expenses, per average
subscriber
    
    $
    1.09
    
    
    $
    1.06
    
    
    $
    1.06
    
    
    $
    1.09
 (6)
    
    Free cash flow is calculated as follows (in thousands):
 UnauditedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Net cash provided by operating activities
    
    $
    95,373
    
    
    $
    127,214
    
    
    $
    208,875
    
    
    $
    228,618Additions to property and equipment
    
    
    (53,843
    )
    
    
    (34,690
    )
    
    
    (172,317
    )
    
    
    (38,811
    )Restricted and other investment activity
    
    
    -
    
    
    
    -
    
    
    
    9,450
    
    
    
    -Free cash flow
    
    $
    41,530
    
    
    $
    92,524
    
    
    $
    46,008
    
    
    $
    189,807
 (7)
    
    EBITDA is defined as net income (loss) before interest and investment income (loss); interest
expense, net of amounts capitalized; taxes expense and depreciation and amortization. We
adjust EBITDA to remove the impact of other income and expense, loss on extinguishment of debt
as well as certain non-cash charges discussed below. This measure is one of the primary
Non-GAAP financial measures on which we (i) evaluate the performance of our businesses, (ii)
base our internal budgets and (iii) compensate management. Adjusted EBITDA is a Non-GAAP
financial performance measure that excludes (if applicable): (i) certain adjustments as a
result of the purchase price accounting for the Merger, (ii) goodwill impairment, (iii)
restructuring, impairments, and related costs, (iv) depreciation and amortization and (v)
share-based payment expense. The purchase price accounting adjustments include: (i) the
elimination of deferred revenue associated with the investment in XM Canada, (ii) recognition
of deferred subscriber revenues not recognized in purchase price accounting, and (iii)
elimination of the benefit of deferred credits on executory contracts, which are primarily
attributable to third party arrangements with an OEM and programming providers. We believe
adjusted EBITDA is a useful measure of the underlying trend of our operating performance,
which provides useful information about our business apart from the costs associated with our
physical plant, capital structure and purchase price accounting. We believe investors find
this Non-GAAP financial measure useful when analyzing our results and comparing our operating
performance to the performance of other communications, entertainment and media companies. We
believe investors use current and projected adjusted EBITDA to estimate our current and
prospective enterprise value and to make investment decisions. Because we fund and build-out
our satellite radio system through the periodic raising and expenditure of large amounts of
capital, our results of operations reflect significant charges for depreciation expense. The
exclusion of depreciation and amortization expense is useful given significant variation in
depreciation and amortization expense that can result from the potential variations in
estimated useful lives, all of which can vary widely across different industries or among
companies within the same industry. We believe the exclusion of restructuring, impairments and
related costs is useful given the nature of these expenses. We also believe the exclusion of
share-based payment expense is useful given the significant variation in expense that can
result from changes in the fair market value of SIRIUS' common stock.
 44




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##### Table of Contents



UnauditedFor the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Net income (loss) (GAAP)
    
    $
    30,466
    
    
    $
    (42,772
    )
    
    $
    76,807
    
    
    $
    (344,572
    )Add back items excluded from Adjusted EBITDA:Purchase price accounting adjustments:Revenues (see pages 46-49)
    
    
    4,989
    
    
    
    10,951
    
    
    
    17,566
    
    
    
    46,460Operating Expenses (see pages 46-49)
    
    
    (66,438
    )
    
    
    (64,619
    )
    
    
    (193,904
    )
    
    
    (177,006
    )Depreciation and amortization (GAAP)
    
    
    34,999
    
    
    
    41,587
    
    
    
    108,886
    
    
    
    146,462Restructuring, impairments and related costs (GAAP)
    
    
    197
    
    
    
    3,029
    
    
    
    900
    
    
    
    29,614Share-based payment expense, net of purchase price accounting adjustments (see pages 46-49)
    
    
    6,960
    
    
    
    8,732
    
    
    
    22,774
    
    
    
    36,287Interest expense, net of amounts capitalized (GAAP)
    
    
    51,834
    
    
    
    70,537
    
    
    
    168,714
    
    
    
    226,376Loss on extinguishment of debt and credit facilities, net (GAAP)
    
    
    256
    
    
    
    3,787
    
    
    
    4,881
    
    
    
    111,863Loss on change in value of embedded derivative (GAAP)
    
    
    45,796
    
    
    
    33,700
    
    
    
    94,399
    
    
    
    111,703Interest and investment loss (GAAP)
    
    
    1,748
    
    
    
    2,141
    
    
    
    5,652
    
    
    
    4,812Other income (GAAP)
    
    
    (1,225
    )
    
    
    (1,324
    )
    
    
    (2,694
    )
    
    
    (2,548
    )Income tax expense (GAAP)
    
    
    2,792
    
    
    
    578
    
    
    
    3,938
    
    
    
    1,733Adjusted EBITDA
    
    $
    112,374
    
    
    $
    66,327
    
    
    $
    307,919
    
    
    $
    191,184
 45




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##### Table of Contents



Unaudited For the Three Months Ended September 30, 2010Purchase Price
    
    
    Allocation of(in thousands)
    
    As Reported

    
    Accounting
    
    
    Share-based
    
    
    AdjustedAdjustments

    
    Payment ExpenseRevenue:Subscriber revenue, including effects of rebates
    
    $
    320,808
    
    
    $
    3,176
    
    
    $
    -
    
    
    $
    323,984Advertising revenue, net of agency fees
    
    
    6,247
    
    
    
    -
    
    
    
    -
    
    
    
    6,247Equipment revenue
    
    
    13,300
    
    
    
    -
    
    
    
    -
    
    
    
    13,300Other revenue
    
    
    41,902
    
    
    
    1,813
    
    
    
    -
    
    
    
    43,715Total revenue
    
    $
    382,257
    
    
    $
    4,989
    
    
    $
    -
    
    
    $
    387,246Operating expensesCost of services:Revenue share and royalties
    
    
    49,444
    
    
    
    27,499
    
    
    
    -
    
    
    
    76,943Programming and content
    
    
    26,204
    
    
    
    13,955
    
    
    
    (925
    )
    
    
    39,234Customer service and billing
    
    
    33,415
    
    
    
    54
    
    
    
    (212
    )
    
    
    33,257Satellite and transmission
    
    
    11,812
    
    
    
    272
    
    
    
    (179
    )
    
    
    11,905Cost of equipment
    
    
    3,644
    
    
    
    -
    
    
    
    -
    
    
    
    3,644Subscriber acquisition costs
    
    
    38,674
    
    
    
    20,889
    
    
    
    -
    
    
    
    59,563Sales and marketing
    
    
    27,833
    
    
    
    3,506
    
    
    
    (1,100
    )
    
    
    30,239Engineering, design and development
    
    
    5,261
    
    
    
    93
    
    
    
    (348
    )
    
    
    5,006General and administrative
    
    
    19,107
    
    
    
    170
    
    
    
    (4,196
    )
    
    
    15,081Depreciation and amortization (a)
    
    
    34,999
    
    
    
    -
    
    
    
    -
    
    
    
    34,999Restructuring, impairments and related costs
    
    
    197
    
    
    
    -
    
    
    
    -
    
    
    
    197Share-based payment expense (b)
    
    
    -
    
    
    
    -
    
    
    
    6,960
    
    
    
    6,960Total operating expenses
    
    $
    250,590
    
    
    $
    66,438
    
    
    $
    -
    
    
    $
    317,028(a)   Purchase price accounting adjustments included in the tables above exclude the
incremental depreciation and amortization associated with the $785,000 stepped up basis in
property, equipment and intangible assets as a result of the Merger. The increased depreciation and
amortization for the three months ended September 30, 2010 was $16,000.(b)   Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content
    
    $
    844
    
    
    $
    81
    
    
    $
    -
    
    
    $
    925Customer service and billing
    
    
    158
    
    
    
    54
    
    
    
    -
    
    
    
    212Satellite and transmission
    
    
    128
    
    
    
    51
    
    
    
    -
    
    
    
    179Sales and marketing
    
    
    1,020
    
    
    
    80
    
    
    
    -
    
    
    
    1,100Engineering, design and development
    
    
    255
    
    
    
    93
    
    
    
    -
    
    
    
    348General and administrative
    
    
    4,026
    
    
    
    170
    
    
    
    -
    
    
    
    4,196Total share-based payment expense
    
    $
    6,431
    
    
    $
    529
    
    
    $
    -
    
    
    $
    6,960
 46




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##### Table of Contents



Unaudited For the Three Months Ended September 30, 2009Purchase Price
    
    
    Allocation of(in thousands)
    
    As Reported

    
    Accounting
    
    
    Share-based
    
    
    AdjustedAdjustments

    
    Payment ExpenseRevenue:Subscriber revenue, including effects of rebates
    
    $
    304,714
    
    
    $
    9,138
    
    
    $
    -
    
    
    $
    313,852Advertising revenue, net of agency fees
    
    
    4,147
    
    
    
    -
    
    
    
    -
    
    
    
    4,147Equipment revenue
    
    
    5,657
    
    
    
    -
    
    
    
    -
    
    
    
    5,657Other revenue
    
    
    10,955
    
    
    
    1,813
    
    
    
    -
    
    
    
    12,768Total revenue
    
    $
    325,473
    
    
    $
    10,951
    
    
    $
    -
    
    
    $
    336,424Operating expensesCost of services:Revenue share and royalties
    
    
    46,976
    
    
    
    22,973
    
    
    
    -
    
    
    
    69,949Programming and content
    
    
    27,811
    
    
    
    18,117
    
    
    
    (1,024
    )
    
    
    44,904Customer service and billing
    
    
    31,064
    
    
    
    115
    
    
    
    (460
    )
    
    
    30,719Satellite and transmission
    
    
    11,484
    
    
    
    331
    
    
    
    (384
    )
    
    
    11,431Cost of equipment
    
    
    5,142
    
    
    
    -
    
    
    
    -
    
    
    
    5,142Subscriber acquisition costs
    
    
    35,049
    
    
    
    19,330
    
    
    
    -
    
    
    
    54,379Sales and marketing
    
    
    26,055
    
    
    
    3,155
    
    
    
    (1,397
    )
    
    
    27,813Engineering, design and development
    
    
    5,413
    
    
    
    224
    
    
    
    (738
    )
    
    
    4,899General and administrative
    
    
    25,216
    
    
    
    374
    
    
    
    (4,729
    )
    
    
    20,861Depreciation and amortization (a)
    
    
    41,587
    
    
    
    -
    
    
    
    -
    
    
    
    41,587Restructuring, impairments and related costs
    
    
    3,029
    
    
    
    -
    
    
    
    -
    
    
    
    3,029Share-based payment expense (b)
    
    
    -
    
    
    
    -
    
    
    
    8,732
    
    
    
    8,732Total operating expenses
    
    $
    258,826
    
    
    $
    64,619
    
    
    $
    -
    
    
    $
    323,445(a)   Purchase price accounting adjustments included in the tables above exclude the
incremental depreciation and amortization associated with the $785,000 stepped up basis in
property, equipment and intangible assets as a result of the Merger. The increased depreciation and
amortization for the three months ended September 30, 2009 was $24,000.(b)   Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content
    
    $
    859
    
    
    $
    165
    
    
    $
    -
    
    
    $
    1,024Customer service and billing
    
    
    345
    
    
    
    115
    
    
    
    -
    
    
    
    460Satellite and transmission
    
    
    273
    
    
    
    111
    
    
    
    -
    
    
    
    384Sales and marketing
    
    
    1,261
    
    
    
    136
    
    
    
    -
    
    
    
    1,397Engineering, design and development
    
    
    514
    
    
    
    224
    
    
    
    -
    
    
    
    738General and administrative
    
    
    4,355
    
    
    
    374
    
    
    
    -
    
    
    
    4,729Total share-based payment expense
    
    $
    7,607
    
    
    $
    1,125
    
    
    $
    -
    
    
    $
    8,732
 47




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##### Table of Contents



Unaudited For the Nine Months Ended September 30, 2010Purchase Price
    
    
    Allocation of(in thousands)
    
    As Reported

    
    Accounting
    
    
    Share-based
    
    
    AdjustedAdjustments

    
    Payment ExpenseRevenue:Subscriber revenue, including effects of rebates
    
    $
    938,711
    
    
    $
    12,128
    
    
    $
    -
    
    
    $
    950,839Advertising revenue, net of agency fees
    
    
    15,362
    
    
    
    -
    
    
    
    -
    
    
    
    15,362Equipment revenue
    
    
    37,517
    
    
    
    -
    
    
    
    -
    
    
    
    37,517Other revenue
    
    
    114,270
    
    
    
    5,438
    
    
    
    -
    
    
    
    119,708Total revenue
    
    $
    1,105,860
    
    
    $
    17,566
    
    
    $
    -
    
    
    $
    1,123,426Operating expensesCost of services:Revenue share and royalties
    
    
    138,296
    
    
    
    79,271
    
    
    
    -
    
    
    
    217,567Programming and content
    
    
    81,947
    
    
    
    42,805
    
    
    
    (2,789
    )
    
    
    121,963Customer service and billing
    
    
    95,623
    
    
    
    226
    
    
    
    (879
    )
    
    
    94,970Satellite and transmission
    
    
    35,299
    
    
    
    897
    
    
    
    (817
    )
    
    
    35,379Cost of equipment
    
    
    12,614
    
    
    
    -
    
    
    
    -
    
    
    
    12,614Subscriber acquisition costs
    
    
    109,691
    
    
    
    58,855
    
    
    
    -
    
    
    
    168,546Sales and marketing
    
    
    81,390
    
    
    
    10,692
    
    
    
    (3,551
    )
    
    
    88,531Engineering, design and development
    
    
    15,482
    
    
    
    427
    
    
    
    (1,561
    )
    
    
    14,348General and administrative
    
    
    74,035
    
    
    
    731
    
    
    
    (13,177
    )
    
    
    61,589Depreciation
and amortization (a)
    
    
    108,886
    
    
    
    -
    
    
    
    -
    
    
    
    108,886Restructuring, impairments and related costs
    
    
    900
    
    
    
    -
    
    
    
    -
    
    
    
    900Share-based
payment expense (b)
    
    
    -
    
    
    
    -
    
    
    
    22,774
    
    
    
    22,774Total operating expenses
    
    $
    754,163
    
    
    $
    193,904
    
    
    $
    -
    
    
    $
    948,067(a)   Purchase price accounting adjustments included in the tables above exclude the
incremental depreciation and amortization associated with the $785,000 stepped up basis in
property, equipment and intangible assets as a result of the Merger. The increased depreciation and
amortization for the nine months ended September 30, 2010 was $52,000.(b)   Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content
    
    $
    2,420
    
    
    $
    369
    
    
    $
    -
    
    
    $
    2,789Customer service and billing
    
    
    653
    
    
    
    226
    
    
    
    -
    
    
    
    879Satellite and transmission
    
    
    581
    
    
    
    236
    
    
    
    -
    
    
    
    817Sales and marketing
    
    
    3,207
    
    
    
    344
    
    
    
    -
    
    
    
    3,551Engineering, design and development
    
    
    1,134
    
    
    
    427
    
    
    
    -
    
    
    
    1,561General and administrative
    
    
    12,446
    
    
    
    731
    
    
    
    -
    
    
    
    13,177Total share-based payment expense
    
    $
    20,441
    
    
    $
    2,333
    
    
    $
    -
    
    
    $
    22,774
 48




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##### Table of Contents



Unaudited For the Nine Months Ended September 30, 2009Purchase Price
    
    
    Allocation of(in thousands)
    
    As Reported

    
    Accounting
    
    
    Share-based
    
    
    AdjustedAdjustments

    
    Payment ExpenseRevenue:Subscriber revenue, including effects of rebates
    
    $
    884,038
    
    
    $
    41,022
    
    
    $
    -
    
    
    $
    925,060Advertising revenue, net of agency fees
    
    
    13,475
    
    
    
    -
    
    
    
    -
    
    
    
    13,475Equipment revenue
    
    
    17,681
    
    
    
    -
    
    
    
    -
    
    
    
    17,681Other revenue
    
    
    19,344
    
    
    
    5,438
    
    
    
    -
    
    
    
    24,782Total revenue
    
    $
    934,538
    
    
    $
    46,460
    
    
    $
    -
    
    
    $
    980,998Operating expensesCost of services:Revenue share and royalties
    
    
    142,997
    
    
    
    65,608
    
    
    
    -
    
    
    
    208,605Programming and content
    
    
    84,353
    
    
    
    54,708
    
    
    
    (3,869
    )
    
    
    135,192Customer service and billing
    
    
    96,168
    
    
    
    358
    
    
    
    (1,436
    )
    
    
    95,090Satellite and transmission
    
    
    36,952
    
    
    
    1,013
    
    
    
    (1,424
    )
    
    
    36,541Cost of equipment
    
    
    12,049
    
    
    
    -
    
    
    
    -
    
    
    
    12,049Subscriber acquisition costs
    
    
    83,524
    
    
    
    43,309
    
    
    
    -
    
    
    
    126,833Sales and marketing
    
    
    84,565
    
    
    
    9,986
    
    
    
    (4,375
    )
    
    
    90,176Engineering, design and development
    
    
    16,798
    
    
    
    772
    
    
    
    (2,809
    )
    
    
    14,761General and administrative
    
    
    91,689
    
    
    
    1,252
    
    
    
    (22,374
    )
    
    
    70,567Depreciation and amortization (a)
    
    
    146,462
    
    
    
    -
    
    
    
    -
    
    
    
    146,462Restructuring, impairments and related costs
    
    
    29,614
    
    
    
    -
    
    
    
    -
    
    
    
    29,614Share-based payment expense (b)
    
    
    -
    
    
    
    -
    
    
    
    36,287
    
    
    
    36,287Total operating expenses
    
    $
    825,171
    
    
    $
    177,006
    
    
    $
    -
    
    
    $
    1,002,177(a)   Purchase price accounting adjustments included in the tables above exclude the
incremental depreciation and amortization associated with the $785,000 stepped up basis in
property, equipment and intangible assets as a result of the Merger. The increased depreciation and
amortization for the nine months ended September 30, 2009 was $86,000.(b)   Amounts related to share-based payment expense included in operating expenses were as follows:Programming and content
    
    $
    3,368
    
    
    $
    501
    
    
    $
    -
    
    
    $
    3,869Customer service and billing
    
    
    1,077
    
    
    
    359
    
    
    
    -
    
    
    
    1,436Satellite and transmission
    
    
    1,073
    
    
    
    351
    
    
    
    -
    
    
    
    1,424Sales and marketing
    
    
    3,862
    
    
    
    513
    
    
    
    -
    
    
    
    4,375Engineering, design and development
    
    
    2,037
    
    
    
    772
    
    
    
    -
    
    
    
    2,809General and administrative
    
    
    21,122
    
    
    
    1,252
    
    
    
    -
    
    
    
    22,374Total share-based payment expense
    
    $
    32,539
    
    
    $
    3,748
    
    
    $
    -
    
    
    $
    36,287
 
 For the Three Months Ended

    
    For the Nine Months EndedSeptember 30,

    
    September 30,2010

    
    2009

    
    2010

    
    2009Net cash provided by operating activities
    
    $
    95,373
    
    
    $
    127,214
    
    
    $
    208,875
    
    
    $
    228,618Less: Changes in operating assets and liabilities, net
    
    
    (16,408
    )
    
    
    (117,216
    )
    
    
    (19,644
    )
    
    
    (199,936
    )Net income plus non cash operating activities
    
    $
    78,965
    
    
    $
    9,998
    
    
    $
    189,231
    
    
    $
    28,682
 49




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##### Table of Contents



ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
    
 ITEM 4 CONTROLS AND PROCEDURES
 Controls and Procedures
  50




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 FCC Merger Order.
 Advanced Recording Functionality Disputes. Atlantic Recording Corp. et al. v. XM Satellite Radio Inc., Famous Music LLC, et al. v. XM Satellite Radio, Inc., and In re XM Satellite
Radio Copyright Litigation.
 State Consumer Investigations.
   Other Matters
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  51




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##### Table of Contents



SIGNATURES
 th
 XM Satellite Radio Inc.By:
    /s/ David J. FrearDavid J. FrearTreasurer
(Principal Financial Officer and Principal
 Accounting Officer) 52




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Certificate of Ownership and Merger, dated April 14, 2010
(incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K filed on April 16, 2010).4.1
    
    Indenture, dated as of October 27, 2010, among the Company,
the guarantors thereto and U.S. Bank National Association,
as trustee, relating to the 7.625% Senior Notes due 2018
(incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed on October 28, 2010).4.2
    
    Supplemental Indenture, dated as of October 27, 2010, among
the Company, the guarantors thereto and U.S. Bank National
Association, as trustee , relating to the 11.25% Senior
Secured Notes due 2013 (incorporated by reference to
Exhibit 4.2 to the Companys Current Report on Form 8-K
filed on October 28, 2010).31.1
    
    Certificate of Mel Karmazin, President of XM Satellite
Radio Inc., pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).31.2
    
    Certificate of David J. Frear, Treasurer of XM Satellite
Radio Inc., pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).32.1
    
    Certificate of Mel Karmazin, President and David J. Frear,
Treasurer of XM Satellite Radio Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).