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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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

THE SECURITIES EXCHANGE ACT OF 1934



For The Fiscal Year Ended December 31, 2007

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|                      |  |                                                      |  |                                    
|--------------------- |  | ---------------------------------------------------- |  | -----------------------------------
|CommissionFile Number |  | Exact name of Registrant As Specified in its Charter |  | I.R.S. EmployerIdentificationNumber
|000-27441             |  | XM SATELLITE RADIO HOLDINGS INC.                     |  | 54-1878819                         
|333-39178             |  | XM SATELLITE RADIO INC.                              |  | 52-1805102                         

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DELAWARE

(State or other jurisdiction of incorporation or organization of both registrants)

1500 ECKINGTON PLACE, NE

WASHINGTON, DC 20002-2194

(Address of principal executive offices) (Zip code)



202-380-4000

(Registrants
telephone number, including area code)

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Securities registered pursuant to
Section 12(b) of the Act:

Class A Common Stock, $.01 par value



Securities registered pursuant to Section 12(g) of the Act:

Not Applicable

(Title of Classes)

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Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act Yes  x    No   ̈



Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   ̈    No  x



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



Indicate by check mark if disclosure of
delinquent filers pursuant to Item  405 of Regulation S-K is not contained herein, and will not be contained, to the best of each registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.x



Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).



|                                 |  |                                |  |                                         
|-------------------------------- |  | ------------------------------ |  | ----------------------------------------
|XM Satellite Radio Holdings Inc. |  | Large Accelerated Filer      x |  | Accelerated Filer                       ̈
|                                 |  | Non-Accelerated Filer         ̈ |  | Smaller Reporting Company     ̈          
|XM Satellite Radio Inc.          |  | Large Accelerated Filer       ̈ |  | Accelerated Filer                       ̈
|                                 |  | Non-Accelerated Filer        x |  | Smaller Reporting Company     ̈          



Indicate by check mark whether each
registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes   ̈    No  x



The aggregate market value of common stock held by non-affiliates of XM Satellite Radio
Holdings Inc., based upon the closing price of its Class A common stock as of June 30, 2007, is $3,611,162,210.



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



|                                                                                                                  |  |                                     
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|(Class)                                                                                                           |  | (Outstanding as of January 31, 2008)
|XM SATELLITE RADIO HOLDINGS INC. CLASS A COMMON STOCK, $0.01 PAR VALUE                                            |  | 316,683,382 SHARES                  
|XM SATELLITE RADIO INC. COMMON STOCK, $0.10 PAR VALUE (all shares are issued to XM Satellite Radio Holdings Inc.) |  | 125 SHARES                          



DOCUMENTS
INCORPORATED BY REFERENCE



Portions of the definitive proxy statement for
the Annual Meeting of Stockholders of XM Satellite Radio Holdings Inc. to be held on May 23, 2008, to be filed within 120 days after the end of XM Satellite Radio Holdings Inc.s fiscal year, are incorporated by reference into Part III,
Items 10-14 of this Form 10-K.

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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



TABLE OF CONTENTS



|                                           |  |                                                                                                              |  |     
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                                           |  |                                                                                                              |  | Page
|PART I                                     |  |                                                                                                              |  |     
|Item 1.                                    |  | Business                                                                                                     |  | 2   
|Item 1A.                                   |  | Risk Factors                                                                                                 |  | 17  
|Item 1B.                                   |  | Unresolved Staff Comments                                                                                    |  | 26  
|Item 2.                                    |  | Properties                                                                                                   |  | 26  
|Item 3.                                    |  | Legal Proceedings                                                                                            |  | 26  
|Item 4.                                    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 28  
|                                           |  |                                                                                                             
|PART II                                    |  |                                                                                                              |  |     
|Item 5.                                    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 29  
|Item 6.                                    |  | Selected Financial Data                                                                                      |  | 31  
|Item 7.                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 33  
|Item 7A.                                   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 53  
|Item 8.                                    |  | Consolidated Financial Statements and Supplementary Data                                                     |  | 54  
|Item 9.                                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 54  
|Item 9A.                                   |  | Controls and Procedures                                                                                      |  | 54  
|Item 9B.                                   |  | Other Information                                                                                            |  | 55  
|                                           |  |                                                                                                             
|PART III                                   |  |                                                                                                              |  |     
|Item 10.                                   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 56  
|Item 11.                                   |  | Executive Compensation                                                                                       |  | 56  
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 56  
|Item 13.                                   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 56  
|Item 14.                                   |  | Principal Accountant Fees and Services                                                                       |  | 56  
|                                           |  |                                                                                                             
|PART IV                                    |  |                                                                                                              |  |     
|Item 15.                                   |  | Exhibits and Consolidated Financial Statement Schedules                                                      |  | 57  
|                                           | 
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |  | F-1                                                                                                         



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FORWARD-LOOKING STATEMENTS



Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This Form 10-K contains forward-looking statements intended to qualify for
the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Without limitation, the words anticipates, believes, estimates, expects, intends,
plans, will and similar expressions are intended to identify forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future 
including statements relating to growth, expected levels of expenditures and statements expressing general optimism about future operating results  are forward-looking statements. Similarly, statements that describe the Companys business
strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements including those related to our pending merger and those presented elsewhere by our management from time to time are
subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk
Factors of this Form 10-K. These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this filing. The Company undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.



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EXPLANATORY NOTE



This annual report on Form 10-K is a combined report being filed by two separate registrants: XM Satellite Radio Holdings Inc. (the
Company, Holdings, or XM) and XM Satellite Radio Inc. (Inc.). Holdings principal wholly owned subsidiary is Inc., and as such, the information presented in this report regarding Inc. also applies
to Holdings. Unless the context requires otherwise, the terms we, our and us, refer to Holdings. Holdings fully and unconditionally guarantees Inc.s registered debt securities. The combined report includes
Holdings Consolidated Financial Statements as the only set of financial statements; an explanation of the differences between the companies is in the Notes to the Consolidated Financial Statements; and condensed consolidating financial
information regarding Inc. The managements discussion and analysis section has also been combined, focusing on the financial condition and results of operations of Holdings, which is consistent with the inclusion in the combined report of one
set of financial statements.



We make available certain reports filed with the
Securities and Exchange Commission (SEC) that can be accessed, free of charge, through our website at http://www.xmradio.com, as soon as reasonably practicable after they are electronically filed with the SEC.



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PART I



|ITEM | 1.    BUSINESS
|---- | --------------



We are Americas leading satellite radio service company, providing music, news, talk, information, entertainment and sports programming for reception by vehicle,
home and portable radios nationwide and over the Internet to over 9.1 million subscribers. Our basic monthly subscription fee is $12.95. We believe XM Radio appeals to consumers because of our innovative and diverse programming, nationwide
coverage, many commercial-free music channels and digital sound quality.



Our
channel lineup includes more than 170 digital channels of choice from coast to coast. We broadcast from our studios in Washington, DC, New York City, including Jazz at Lincoln Center, the Country Music Hall of Fame in Nashville and in Chicago. We
have added new and innovative programming to our core channel categories of music, sports, news, talk and entertainment.



Our target market includes the more than 240 million registered vehicles including the 16.1 million new cars sold each year as well as the over 110 million
households in the United States. In addition, some of our recent and upcoming product offerings focus on the portable and wearable audio segments. Broad distribution of XM Radio through new automobiles and through mass market retailers is central to
our business strategy. We are the leader in satellite-delivered entertainment and data services for new vehicles through partnerships with General Motors, Honda/Acura, Toyota/Lexus/Scion, Hyundai and Nissan/Infiniti, among others, and available in
more than 140 different vehicle models for model year 2008. XM radios are available under various brand names at national consumer electronics retailers, such as Best Buy, Circuit City, Wal-Mart, Target and other national and regional retailers, as
well as through our website. These mass market retailers support our line of car stereo, home stereo, plug and play and portable handheld products.



Proposed Merger



On February 19, 2007, XM and Sirius Satellite Radio Inc. (Sirius) entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which XM and Sirius will combine our
businesses through a merger of XM and a newly formed, wholly owned subsidiary of Sirius (the Merger). The Merger is discussed more fully below under the caption Proposed Merger with Sirius. If the merger is not consummated on
or before March 1, 2008, either party may terminate the merger agreement.



Our Programming



The full XM channel lineup as of
January 31, 2008 includes over 170 channels. We broadcast from our studios in Washington, DC, New York City, including Jazz at Lincoln Center, the Country Music Hall of Fame in Nashville and in Chicago. Our programming includes channels
designed to appeal to different segments, including urban and rural listeners of different demographics and to specific groups that our research has shown are most likely to subscribe to our service, thereby aggregating a large potential audience
for our service. In addition to providing music, sports, news, talk and entertainment formats that are appealing to different groups, in every format we deliver, we strive to provide an entertaining and informative listening experience and make XM
the audio service of choice for consumers. We continue to add new and innovative programming to our core channel categories of music, sports, news, talk and entertainment. Also included in the XM Radio service, at no additional charge, are the XM
customizable sports and stock tickers available to users of certain receivers. We also offer content through XM Online and various wireless providers. We regularly review and update our channel line up to revise our overall offerings.



Hallmarks of our programming include:



Broad range of commercial-free music genres and live radio
entertainment.    XM offers commercial-free music channels covering genres including Decades, Country, Pop & Hits, Christian, Rock, Hip-Hop/Urban, Jazz & Blues, Lifestyle, Dance, Latin, World and Classical.
Our programming includes the most popular hits, as well as deep and eclectic playlists. We also offer music programming featuring celebrity talent. XM announced XMX a new channel showcasing XMs exclusive music programming.



Musical formats unavailable on traditional radio in many
areas.    XM Radio offers many music formats that are popular but currently unavailable in many markets on traditional radio. Most Americans listening to traditional radio are listening to primarily six programming formats:
news/talk/sports, adult contemporary, contemporary hits, urban, Hispanic and country. Furthermore, traditional radio continues to reduce, and in some cases eliminate, formats available



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to many consumers in their local market in comparison to the over 170 channels we offer on a nationwide basis. We offer many types of music with significant
popularity, as measured by recorded music sales and concert revenues, which are unavailable in many traditional AM/FM radio markets. Such music includes classical recordings and popular blues music that have retail appeal but are not commonly played
on traditional AM/FM radio. We have channels devoted to all of these formats and many other popular musical styles that are not currently broadcast in many small and medium sized geographical areas.



Superserve popular music formats.    We offer
more specific programming choices than traditional AM/FM radio generally offers for even the most popular listening formats. For example, on traditional AM/FM radio oldies music is often aggregated on a single format. We segment this category by
offering several channels devoted to the music of each decade from the 1940s to the 1990s.



Live Music Programming.    We offer diverse original content and live programming for our listeners. Our Artist Confidential series showcasing performances and interviews from artists such
as Paul McCartney, Sting, Dixie Chicks, Ludacris, Coldplay, Santana, Phil Collins, Bonnie Raitt, Willie Nelson, Faith Hill, Natalie Cole, John Mayer, Gloria Estefan and Wynton Marsalis, in our studios in front of a live audience. We host live
performances at XM and also broadcast live from major music events such as The Grammy Awards and Live Earth.



Sports Programming.    XMs sports category provides the most
sports talk and live sports coverage in radio. Our lineup features Major League Baseball®, National Hockey League®, Indy Racing
League, college sports from the Atlantic Coast Conference, Pacific-10 Conference, Big Ten Conference, Big 12 Conference, Southeastern Conference and Big East Conference, PGA Tour®, US Open
Tennis, XM Deportivo, and is complemented by ESPN Radio, ESPN News, Fox Sports, and XMs own XM Sports Nation (XMSN). ESPN Radio offers coverage of certain NBA play-by-play. We also carried exclusive satellite coverage of the 2008 college
football Bowl Championship Series (BCS) play-by-play and commentary.



We are the Official Satellite Radio Network of Major League Baseball® (MLB) and offer our 24x7 MLB Home Plate channel, as well as live play-by-play channels, and Spanish-language broadcasts. Through the 2012 baseball season, we will carry both the regular season and the
post-season MLB schedule of games, including the World Series. Our MLB Home Plate channel features live call-in programs hosted by former players and personalities such as Cal Ripken, Kevin Kennedy, and Rob Dibble. MLB Home Plate provides an inside
look at teams, players, the league, classic MLB games and other archived MLB material, as well as XM-produced MLB specialty programming, including our Baseball Confidential series.



We are the Official Satellite Radio Network of the National Hockey
League® (NHL) and offer our 24x7 Home Ice channel, as well as live play-by-play channels. Through the 2014-2015 hockey season, we will carry both the regular season and the
post-season NHL schedule of games, including the Stanley Cup playoffs. Our Home Ice channel features live call-in programs hosted by Commissioner Gary Bettman and Phil Esposito. Home Ice channel is dedicated to providing an inside look at teams,
players and the league.



We are the Official Satellite Radio
home for college football and basketball from the six BCS Conferences (ACC, PAC-10, Big East, Big 12, Big Ten and SEC) and broadcast 30 college football bowl games, including the BCS.



In August 2006, we launched XM Sports Nation (XMSN), an XM-produced
24x7 sports news and talk channel dedicated to college sports, motorsports, fantasy sports and more. Programming on XMSN includes existing XM-produced series as well as popular content from Sporting News Radio. We also carry the Indy Racing League
(IRL) races, XM Deportivo, our 24x7 Hispanic sports channel, and PGA Tour and Majors golf play-by-play and analysis on our PGA Tour® Network channel.



News/Talk/Information/Entertainment
Programming.    Our Oprah & Friends channel features Oprah Winfreys weekly Soul Series program. The channel also includes regular shows hosted by Gayle King, Bob Green, Dr. Mehmet Oz, Jean
Chatzky, Dr. Robin Smith, Dr. Maya Angelou and Marianne Williamson. The channel also includes weekly highlights from The Oprah Winfrey TV Show, and daily and weekly features and highlights. Oprah & Friends is also available on XM
Online. Oprah & Friends complements our other lifestyle programming including; Take Five, which features the Dr. Laura Show, the Food Network, HGTV and the Good Morning America Radio Show.



We offer premium news/talk/information programming including Fox News, Fox
Talk, CNN and CNN Headline News. We feature business news from CNBC and Bloomberg as well as public affairs programming on our XM Public Radio channel, featuring The Bob Edwards Show, BBC Worldservice and C-SPAN. We serve the African American
audience



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with The Power and Hispanic audience with CNN en Español. ATN-Asian Radio offers South Asian news, sports music and entertainment. We offer comedy
channels, including National Lampoon Radio, as well as The Virus, which features The Opie & Anthony Show. We also offer a presidential campaign channel called P.O.T.U.S. 08 and a medical information channel called ReachMD.



Local Traffic and Weather Programming.    Our
Instant Traffic & Weather service consists of 21 audio channels dedicated to keeping listeners informed with real-time in-depth updates on traffic and weather conditions in major metropolitan areas. Each area is served by a dedicated
channel. These channels repeat weather and traffic information and issue traffic alerts in a pattern familiar to listeners. We create the audio for the channels from our headquarters facility in Washington, DC. The data is provided by Traffic.com
for traffic information and by The Weather Channel for weather information. We believe this is a valuable part of our service offering and that it offers several key advantages over what is currently available on traditional radio. These advantages
include greater in-depth updates, near instant availability due to the pattern of repeating information frequently, 24x7 availability of the service, certain major interstate corridor and beach traffic reports and wider availability as compared to
traditional broadcasts available only to drivers within the coverage area.



A wide range of popular talk radio stars.    Over the last two decades talk radio has emerged as a major component of radio listening. We showcase many well-known radio personalities on our
channels, including Bob Edwards, Larry King, Paula Zahn, Anderson Cooper, Bill OReilly, Sean Hannity, Alan Colmes, G. Gordon Liddy, Dr. Laura Schlessinger, Greta Van Susteren, Michael Reagan, Bob Costas, Laura Ingraham, and many others.



State-of-the-art facilities.    We
create and distribute XM-original and third party content for satellite broadcast, streaming and other new distribution platforms from our studio facilities in Washington, DC, locations in midtown Manhattan in New York City, including Jazz at
Lincoln Center, in Nashville at the Country Music Hall of Fame, and in Chicago. These interconnected facilities comprise an all digital radio complex that is one of the worlds largest, with over 90 sound-proof studios of different
configurations. We produce most of our music channels and many of our sports, talk and entertainment channels from these facilities. From these studios, our music programmers tap a centralized digital database of over 250,000 CDs and more than
2 million recordings. We also have two performance studios at our Washington, DC facilities, and utilize the performance venues at Jazz at Lincoln Center in New York City, for visiting artist interviews and performances.



Superior digital sound quality.    Our digital
signal transmitted via satellite and our terrestrial repeater network provides nationwide, virtually uninterrupted coverage. Through a partnership with Neural Audio Corporation, a leading provider of digital signal processing and surround sound
technology for the broadcast industry, we broadcast select channels in 5.1 Surround Sound twenty-four hours a day. XM HD Surround provides our listeners with six discrete channels of digital full fidelity audio. In addition, a variety of special
shows and live musical performances at the XM studios are broadcast in XM HD Surround.



Our Strategy



Automotive



Broad distribution of XM Radio through the new automobile market is a
central element of our business strategy. We are the leader in satellite-delivered entertainment and data services for new vehicles through partnerships with General Motors, Honda/Acura, Toyota/Lexus/Scion, Hyundai and Nissan/Infiniti, among others,
and available in more than 140 different vehicle models for model year 2008.



General Motors.    Under our agreement with General Motors, for a 12-year period ending in September 2013, General Motors will exclusively distribute and market the XM Radio service and install XM radios in
General Motors vehicles. General Motors has announced that it will build more than 2.5 million vehicles with factory-installed XM Radio in the 2008 model year. General Motors sold 3.8 million automobiles in 2007, which represented
approximately 24% of the United States automobile market. General Motors currently offers XM Radio in over 50 models of the 2008 model year, including passenger cars, light trucks and SUVs. GM factory-installs the XM Radio option in Buick, Cadillac,
Chevrolet, GMC, HUMMER, Pontiac, Saab and Saturn brand vehicles. General Motors has made XM radios available in diverse price categories, ranging from the Chevy Cobalt to the Cadillac Escalade. Under our agreement, we have substantial payment
obligations to General Motors. General Motors is an investor in our company.



Honda.    In January 2007, we announced a 10-year extension to our arrangement with American Honda Motor Co., to be its supplier of satellite radio and related data services in Honda and Acura vehicles through
2016. Honda offers XM Radio in 16



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models as a factory-installed feature or dealer-installed option. AcuraLink TM, which utilizes XMs NavTraffic service to provide drivers real-time
traffic information for 80 major metropolitan areas, is a factory-installed option on most 2008 Acura models. American Honda is an investor in our Company.



Toyota.    In January 2007, Toyota announced a new 10-year agreement with XM as its factory-installed satellite radio provider for Toyota
and Lexus vehicle models. The new agreement extends the current arrangement to January 2017; Toyota, Lexus and Scion will offer XM Radio and traffic data services as a factory-installed option. Toyota offers XM Radio as a port-installed or
dealer-installed option in 24 of its 2008 models.



Hyundai.    In 2005, we and Hyundai Motor America announced that Hyundai will be the first automaker to launch XM as standard, factory-installed equipment in every radio-equipped vehicle across its entire model
line-up. Hyundai offers XM Radio as a standard, factory-installed feature on 8 models.



Nissan.    In 2005,Nissan chose XM to supply satellite-delivered data and telematics services, such as XM NavTraffic, and later in the year, announced it would use XM as its exclusive satellite radio
provider beginning in the 2008 model year. Currently, XM is available on 21 Nissan and Infiniti model cars as a factory or dealer-installed option. Nissan and Infiniti also offer XM NavTraffic as a factory-installed feature on versions of the 2007
G35 Sedans and Altimas factory installed with a Navigation System.



Other
Automotive Manufacturers.    Ferrari, Isuzu, Lotus, Subaru, Suzuki, Porsche and Harley-Davidson offer XM Radio as either a dealer and/or factory-installed option in numerous popular makes and models. We are educating
automobile dealers about XM Radio to develop sales and promotional campaigns that promote XM radios to new car buyers.



Retail



XM radios are available under various brand names at national consumer electronics retailers, such as Best Buy, Circuit City, Wal-Mart, Target and other national and
regional retailers, as well as through our website. These mass market retailers support our line of car stereo, home stereo, plug and play and portable handheld products. We develop in-store merchandising materials, including end-aisle displays for
several retailers, and train the sales forces of all major retailers.



XM2go Portable, Handheld Products.    In 2006, we and Pioneer introduced
the Pioneer Inno, the next-generation portable XM2go satellite radio that plays live satellite radio on the go and both MP3s and WMAs. The Inno includes a feature that allows the user to bookmark songs heard on XM, connect the Inno to a personal computer, and instantly purchase the
songs from the XM + Napster online service. The Pioneer Inno, as well as prior versions of XM2go hand-held models enable users to enjoy XM Radio in two ways: a live listening mode that enables users to listen live to all of XMs
channels and a memory mode that allows users to store up to 50 hours of XM content, even when the unit is not in use. XM2go models also feature customizable sports and stock tickers, as well as a clock and alarm.



Plug-and-Play XM Radios.    In September 2007, we
introduced the Delphi XpressRC featuring advanced browsing capability with a real-time programming guide displaying multiple channel information, artist names and song titles, full-color split-screen display, 60-minute pause and replay, and the
ability to save up to 10 songs to listen to later. The XpressRC received a 2007 Best of Whats New Award from Popular Science magazine in the Gadget category. In June 2007, we introduced the XpressR, which features split screen
display and 30-minute pause and replay, and the XpressEZ, a sleek, entry-level radio.



XM-Ready and Mini-Tuner.    Our XM-Ready and Mini-tuner technologies integrate into a broad range of home devices such as stereo receivers and DVD players by allowing the listener to simply
connect an XM Mini-tuner into an XM-Ready receiver. Various manufacturers offer XM-Ready products including home receivers, home theater systems and other home and automotive equipment.



Advanced Applications.    In addition to TuneSelect and the customizable sports and stock
tickers, we also offer XM NavTraffic, the nations first satellite traffic data service, which provides continuously updated real-time traffic information for 80 major metropolitan areas across the United States for a monthly fee. For aviation
and marine, the XM WX Satellite Weather service provides real-time graphical weather data for advanced situational awareness in prevailing weather conditions. At the 2008 Detroit Auto Show XM demonstrated the next steps in advanced applications
featuring XM NavWeather, providing real time weather information for vehicle and portable navigation systems (including demonstration of the Bushnell ONIX 400, the first handheld device to feature the service which is now available).



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To facilitate attractive pricing for retail radio and automobile consumers, we have financial arrangements with certain
radio manufacturers that include our subsidizing of certain radio component parts.



Marketing



Our marketing
strategy is designed to build awareness and demand among potential subscribers and the advertising community. Our strategy also includes providing potential subscribers with the opportunity to experience the XM service, because it is available to
new car prospects during test drives of XM-enabled vehicles from General Motors, Honda/Acura, Toyota/Lexus/Scion, Hyundai and Nissan/Infiniti, among others. This service is also available on AVIS, Alamo and National rental cars and on a limited
basis on AirTran, United, and JetBlue airplanes.



We promote XM Radio as the
leader in the satellite radio category, offering appealing features compared to traditional radio. Our ongoing advertising and promotional activities include television, radio, print and Internet advertising and distributing sample programming and
marketing materials at retail outlets, concert venues, motor sports events, and on the Internet to generate consumer interest. General Motors, Honda, Hyundai and Nissan sponsor national and local print and television advertising that features the XM
logo and message. Our current Are You On? marketing campaign features TV spots and print ads.



We leverage our extensive sports broadcasting offerings and exclusive relationships with Major League Baseball®, the PGA Tour® and the Indy Racing League to attract new subscribers. We promote our every team, all season long coverage
of Major League Baseball® to highlight the more than 2,500 spring training, regular season and playoff games we broadcast during the season. We promote our exclusive relationship with the
PGA Tour® by offering handheld radios for rental and purchase at select PGA events. We have a multi-year agreement with Andretti Green Racing (AGR) to be a major associate
sponsor of the race car driven by IndyCar Series superstar Danica Patrick.



XM
Radio promotes subscriber acquisition activities with both automobile original equipment and retail radio manufacturers. These include:



| |  |  | promotional campaigns directed towards automobile manufacturers and dealers;
| | - |  | ----------------------------------------------------------------------------



| |  |  | in-store promotional campaigns, including displays located in electronics, music and other retail stores, rental car agencies and automobile dealerships;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | incentive programs for retailers; and
| | - |  | -------------------------------------



| |  |  | jointly funded local advertising campaigns with retailers.
| | - |  | ----------------------------------------------------------



Brand Awareness and Other Distribution Arrangements



XM
Canada.    In November 2005, Canadian Satellite Radio (XM Canada), our exclusive Canadian licensee, launched its satellite radio service in Canada for a monthly subscription fee currently set at CDN$14.99. XM
Canadas line-up of over 130 channels includes XMs digital-quality commercial-free music, National Hockey League® play-by-play coverage of more than 40 games per week plus 24x7
sports talk channel Home Ice, and exclusive Canadian channels highlighting Canadian music artists and composers and Canadian news programming, as mandated by the terms of the license granted to XM Canada by the Canadian regulatory
authority.



DIRECTV®.    We have partnered with DIRECTV® to offer many channels of XMs music,
childrens and talk programming to DIRECTV®s customers.



Web-based Offerings.    While we make certain channels available to current subscribers via XM Online, we have partnered with a number of
companies to enhance the listening experience of current subscribers and expand our visibility to potential subscribers via various web-based offerings.



XM Online.    We offer a subset of our satellite radio service on XM Online, our Internet offering, that is included as part of
our basic radio subscription service price of $12.95 per month (radio required); XM Online can also be purchased as a standalone service for $7.99 per month. Our channel lineup on XM Online includes many of the commercial-free music channels
available on our satellite radio service, several channels which are exclusively programmed for XM Online and various XM original news/talk/information channels (including XM Kids, P.O.T.U.S 08, The Bob Edwards Show, XM Comedy, Laugh USA,
Oprah & Friends, and The Virus, featuring Opie & Anthony).



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Podcasts.In December 2007, we announced that select XM original music,
news and sports series are now available as free podcasts for download through xmradio.com and Apple Inc.s iTunes Store. Consumers can download exclusive XM music and comedy programming, and content from Coaches Mike Krzyzewski and Barry
Switzer, Bob Edwards Weekend, 60/20 Sports with James Carville and Luke Russert and the Opie & Anthony Show.



Audible.    With our 2005 partnership with Audible, we launched the This is Audible Show on Sonic Theatre as well as The XM
Audible Store, which offers audio books and other programs for individual purchase or computer-based download subscription, including XM programming from The Bob Edwards Show and Opie & Anthony.



Airplanes.    Certain XM Radio programming is available on certain
AirTran, JetBlue and United airplanes.



Rental
Cars.    XM Radio is available nationwide at participating Avis, National and Alamo car rental locations.



Subscriber and Advertising Revenue



We primarily derive revenues from subscriber fees for our satellite radio service. We charge subscribers a monthly fee for over 170 channels of our programming. We offer
family plan discounts to subscribers who have multiple XM radios. We also offer pre-paid annual and multi-year subscription discounts. The family, annual and multi-year subscriptions are popular with our subscribers.



We derive some revenues from advertising. Our non-commercial-free channels, including our
traffic and weather channels, provide what we believe is an attractive advertising medium for national advertisers. We have advertising sales offices in several major media markets to sell directly to advertising agencies and media buying groups. We
have sold advertising programs and sponsorships to hundreds of advertisers and agencies, including many Fortune 500 companies.



Our System



Our system provides satellite radio to the continental United States and coastal waters using radio frequencies
allocated by the FCC for satellite radio. These radio frequencies are within a range of frequencies called the S-Band. The XM Radio system is capable of providing high quality satellite services to XM radios in automobiles, trucks, recreation
vehicles, airplanes, and pleasure craft, as well as to fixed or portable XM radios in the home, office or other fixed locations. The XM Radio system extends to other platforms that include the Internet for our streaming service as well as other
platforms such as DIRECTV® and XM Radio Mobile service through certain cellular carriers. The XM Radio system uses a network consisting of high-power satellites, an uplink facility, and
ground-based repeaters primarily in dense urban areas to provide coverage where the satellite signal is obstructed.



Consumer Hardware



XM Radios.    We transmit XM content throughout the continental United States to vehicle, portable, home and plug-and-play radios. Certain of
our radios are capable of receiving both XM content and traditional AM/FM stations. Our advancing chipset design has spawned a broad array of XM Radio products. Many XM radios now feature customizable sports and stock tickers as well as TuneSelect,
which notifies the listener when a favorite artist or song is playing on any XM channel. We plan to continue to expand our product offerings in 2008 with new products and other offerings. The XpressRC received a 2007 Best of Whats New
Award from Popular Science magazine in the Gadget category. Four products were recognized as honorees for the 2008 Innovations Design and Engineering Awards, which are sponsored by the Consumer Electronics Association and honor excellence in
consumer technology design and engineering.



Space
Segment



Satellite System.    Boeing
Satellite Systems (BSS), has built, launched and delivered in-orbit four Boeing 702 high-power satellites for the XM Radio system. The satellites were launched on March 18, 2001, May 8, 2001, February 28, 2005
and October 30, 2006, respectively, and XM-3 and XM-4 are now transmitting the XM signal.



Our first two satellites, XM-1 and XM-2, experienced progressive solar array degradation issues and serve as in-orbit spares in their current capacity. We launched our third satellite, XM-3, in February 2005 and
our fourth satellite, XM-4, in October



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2006, to mitigate the issues with XM-1 and XM-2. We have a contract to construct a spare satellite, XM-5, expected to be completed by late 2008/early 2009.
Our commitments regarding our satellites are described under Managements Discussion and Analysis of Financial Condition and Results of Operations  Future Operating Liquidity and Capital Resource Requirements.



Satellite Transmission.    Our satellites are
deployed at 85° West Longitude and 115° West Longitude. At their designated orbital locations, the satellites receive digital signals from our programming center and retransmit the signals across the continental United States. The satellites
are approximately 30° apart in longitude in order to enhance the probability of clear line-of-sight communication between the satellites and XM mobile radios. The transmission coverage areas, or footprints, of our satellites encompass the 48
contiguous states, nearby coastal waters and the densely populated regions of Canada. We have tailored these footprints to provide nearly uniform availability over the United States and to minimize transmission spillage across the United States
borders into Mexico. XM Canada, our exclusive Canadian licensee, holds a broadcast license in Canada.



Our satellites transmit audio and data programming within a 12.5 Megahertz (MHz) bandwidth operating in the S-Band radio frequency spectrum that the FCC has allocated for our exclusive use. This 12.5 MHz
bandwidth is subdivided into six carrier transmission signals, four signals transmitted from our satellites and two signals transmitted by the terrestrial repeater network. The audio and data programming for XM Radio is carried on two satellite
signals, and the remaining two satellite signals and the terrestrial repeater signals repeat the audio and data programming to enhance overall signal reception. The transmission of higher quality sound requires the use of more kilobits per second
than the transmission of lesser quality sound. We are currently using our allocated bandwidth in such a way as to provide over 170 channels.



Insurance.    We bear the risk of loss for our satellites, and we seek to obtain insurance to cover some of that risk. We obtain launch and
in-orbit insurance policies from global space insurance underwriters. These policies generally provide coverage for a total, constructive total or partial loss of the satellites that occurs during a limited period after launch and for annual
in-orbit periods. Our insurance will not cover the full cost of constructing, launching and insuring new satellites, nor will it protect us from the adverse effect on our business operations due to the loss of a satellite. Our policies contain
standard commercial satellite insurance provisions, including standard coverage exclusions. We currently have in-orbit insurance on XM-3 and XM-4, our primary operating satellites. In-orbit insurance is generally for a one year term and renewed
annually; a portion of XM-4 insurance was secured for a five year term in October 2006 just prior to launch. XM-1 and XM-2, our in-orbit spare satellites, do not have in-orbit insurance coverage.



Ground Segment



Satellite Control.    Our satellites are monitored by telemetry,
tracking and control stations and are controlled by a spacecraft control station. Each of the stations has a backup station. We have a contract with Telesat Canada, Inc., an experienced satellite operator, to perform the telemetry, tracking and
control functions.



Broadcast
Facility.    Programming from both our studios and external sources is sent to our broadcast facility in Washington, DC, which packages and retransmits signals to our satellites through the uplink station. Communications
traffic between the various XM Radio facilities is controlled by the network operating center. The network operating center monitors satellite signals and the terrestrial repeater network to ensure that the XM Radio system is operating properly. We
have designed and installed fault detection diagnostic systems to detect various system failures before they significantly impact our quality of service. We have a remote backup central production and broadcast facility that is able to originate all
of our music channels as well as all third party programming.



Terrestrial
Repeaters.    Our terrestrial repeater system of approximately 800 repeaters in approximately 60 markets supplements the coverage of our satellites. In some areas, satellite signals may be subject to blockages from tall
buildings and other obstructions. Due to the satellites longitudinal separation, in most circumstances where reception is obscured from one satellite, XM Radio is still available from the other satellite. In some urban areas with a high
concentration of tall buildings, however, line-of-sight obstructions to both satellites may be more frequent. In such areas, we have installed and may continue to install terrestrial repeaters to facilitate signal reception. Terrestrial repeaters
are ground-based electronics equipment installed on rooftops or existing tower structures, where they receive the signal from one of the satellites, amplify it and retransmit it at significantly higher signal strength to overcome any satellite
signal obstruction.



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System Technology



We own the design of our system, including aspects of the technology used in communicating from the satellites, the design of the repeater
network and certain aspects of the design of and features that may be used in our radios. We have joint ownership of a license to use the technology developed by the radio and chipset manufacturers. We also license various other technologies used in
our system. We have not acquired any intellectual property rights in the technology used in constructing and launching our satellites.



Our system design, our repeater system design and the specifications we supplied to our radio and chipset manufacturers incorporate or may in the future incorporate some
intellectual property licensed to us on a non-exclusive basis by WorldSpace, who has used this technology in its own non-United States satellite radio system. We also have the right to sublicense the licensed technology to any third party, including
chipset manufacturers, terrestrial repeater manufacturers and receiver manufacturers in connection with the XM Radio system.



We believe that the intellectual property rights used in our system were independently developed or duly licensed by us or by the technology companies who supplied
portions of our system. We cannot assure you, however, that third parties will not bring suit against us for patent or other infringement of intellectual property rights.



We have signed an agreement with Sirius to develop a common receiver platform combining the companies proprietary chipsets. The FCC conditioned our
license on certification by us that our final receiver design is interoperable with the final receiver design of the other licensee, Sirius, which uses a different transmissions technology than we use. We have previously certified and reconfirmed
that we comply with this obligation. Although we believe that we are currently in compliance, the FCC has not expressly acknowledged our compliance. If the FCC were to interpret the interoperability requirement in a manner that mandates a particular
radio design, complying with this requirement could make the radios more difficult and costly to manufacture.



We currently own 51 U.S. patents relating to various aspects of our system, XM radios and their features, and have numerous other patents pending before the United States Patent and Trademark Office.



Copyrights to Programming



We must maintain music programming royalty arrangements with and pay license fees to
Broadcast Music, Inc. (BMI), the American Society of Composers, Authors and Publishers (ASCAP) and SESAC, Inc. (SESAC). These organizations negotiate with copyright users, collect royalties and distribute them to
songwriters and music publishers. We have current arrangements with all of these organizations.



Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we also have to negotiate royalty arrangements with the copyright owners of the sound recordings,
or if negotiation is unsuccessful, the royalty rate is established by a copyright royalty board (CRB). We participated in a CRB proceeding in order to set the royalty rate payable by XM under the statutory license covering our
performance of sound recordings over the XM system for the six year period starting in January 2007, which is described under the heading Legal Proceedings  Litigation and Arbitration  Copyright Royalty Board
Proceeding in Item 3. of this Form 10-K.



We were sued in the
United States District Court for the Southern District of New York in three separate lawsuits by various record labels and music publishers in actions seeking monetary damages and equitable relief alleging that certain XM radios that also have
advanced recording functionality infringe upon plaintiffs copyrighted sound recordings. We believe these allegations are without merit and these products comply with applicable copyright law, including the Audio Home Recording Act, and we
intend to vigorously defend these matters. We have entered into settlement agreements with three of the major record labels (see Legal Proceedings in Item 3. to Part I of this Form 10-K).



The XM Trademark



We have registered the trademark XM with the United States Patent and Trademark
Office in connection with the transmission services offered by our company. Our brand name and logo is generally prominently displayed on the surface of XM radios together with the radio manufacturers brand name. This identifies the equipment
as being XM Radio-compatible and builds awareness of XM Radio. We intend to maintain our trademark and registration. We are not aware of any material



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claims of infringement or other challenges to our right to use the XM trademark in the United States. We also have registered and intend to
maintain trademarks of the names of certain of our channels. We registered the trademark, XM, and the logo, in Canada. We have granted a license to use the trademark in Canada to XM Canada, the exclusive licensee of our service in
Canada.



Competition



We face significant competition for both listeners and advertising dollars. In addition to
pre-recorded entertainment purchased or playing in cars, homes and using portable players, we compete most directly with the following providers of radio or other audio services:



Sirius Satellite Radio



We compete with Sirius, the only other FCC licensee for satellite radio service in the United States. Sirius has announced that it had over
8 million subscribers as of December 31, 2007. Sirius broadcasts over 130 channels of programming and offers certain programming that we do not offer. Sirius radio service is offered as a dealer- and/or factory-installed option on a number
of vehicle model brands, including certain ones that do not offer XM. Sirius also is a partner in a Canadian joint venture partnership that competes with our Canadian licensee in providing satellite radio service in Canada. We have announced a
merger agreement between Sirius and us, as discussed more fully below under the caption Proposed Merger with Sirius.



Traditional AM/FM Radio; New HD Radio



We compete with traditional AM/FM radio. Many of the traditional radio companies are substantial entities owning large numbers of radio stations or other media
properties, including companies such as Clear Channel, CBS Radio, Emmis, Cumulus Media, Cox Radio, Entercom, Citadel Broadcasting, Radio One, Salem, Beasley Broadcast, Saga, Regent, Gannett, Univision and Westwood One. Our Canadian licensee competes
with major traditional AM/FM radio companies such as Corus Entertainment, CHUM, Rogers, Standard Broadcasting, Astral Media, Canadian Broadcasting and Jim Pattison Broadcast.



Unlike XM Radio, traditional AM/FM radio has had a well established demand for its services for many years and generally offers free
broadcast reception paid for by commercial advertising rather than by a subscription fee. However, by attracting listeners to their stations, they can reduce the likelihood that customers would be willing to pay for our subscription service and by
offering free broadcast they impose limits on what we can charge for our service. Also, many radio stations offer information programming of a local nature, such as local news and sports. We are at a competitive disadvantage to the dominant AM/FM
radio providers. Some radio stations have reduced the number of commercials per hour, expanded the range of music played on the air and experimented with new formats in order to compete with satellite radio. The radio broadcasting industry is highly
competitive. Radio companies compete for listeners and advertising revenues on the basis of a variety of factors, including:



| |  |  | program content;
| | - |  | ----------------



| |  |  | on-air talent;
| | - |  | --------------



| |  |  | transmitter power;
| | - |  | ------------------



| |  |  | source frequency;
| | - |  | -----------------



| |  |  | audience characteristics;
| | - |  | -------------------------



| |  |  | local program acceptance; and
| | - |  | -----------------------------



| |  |  | the number and characteristics of other radio stations in the geographical area.
| | - |  | --------------------------------------------------------------------------------



Although traditional AM/FM radio stations typically broadcast by means of analog signals, rather than digital transmission, a significant
number of radio stations have begun broadcasting their primary signal using digital transmission technology. A group of major broadcast radio networks recently created a coalition to jointly market digital radio services. According to this
coalition, more than 3,000 U.S. radio stations have committed to broadcasting in the HD Radio format. More than 1,500 radio stations are currently broadcasting primary signals with HD Radio technology, available to 90% of the U.S. population,



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and manufacturers, including Alpine, Delphi, Panasonic, Polk and Yamaha, are creating digital receivers. To the extent that traditional AM/FM radio stations
adopt digital transmission technology, any competitive advantage that we enjoy over traditional radio because of our digital signal would be lessened. In addition, the widespread introduction of terrestrial digital radios could lessen our
competitive advantage. Traditional AM/FM broadcasters are also aggressively entering the Internet radio and wireless distribution with e-commerce.



Downloading Devices



The Apple iPod® is a portable digital music player that
allows users to download and purchase music through Apples iTunes® Music Store, as well as convert music on compact disc to digital files. Apple sold over 51 million iPods® during its fiscal 2007 year. In addition, iPods® are compatible with certain car stereos and various home speaker systems, and
certain automobile manufacturers have entered into arrangements with manufacturers of portable media players that are expected to enhance this compatibility. Availability of music in the public MP3 audio standard has been growing in recent years
with sound files available on the websites of online music retailers, artists and record labels and through numerous file sharing software programs. These MP3 files can be played instantly, burned to a compact disc or stored in various portable
players available to consumers. Although presently available formats have drawbacks such as hardware requirements and download bandwidth constraints, which we believe could make XM Radio a more attractive option to consumers, Internet-based audio
formats are becoming increasingly competitive as quality improves and costs are reduced.



Internet Radio



Internet radio
broadcasts have no geographic limitations and can provide listeners with radio programming from around the country and the world. Major media companies including Clear Channel, America Online and Yahoo! make near CD-quality digital streams available
through the Internet for free or in some case for a fraction of the cost of a satellite radio subscription. The past few years have seen a steady increase in the audio quality of Internet radio streams and in the amount of audio content available
via the Web, resulting in a steady increase in Internet radio audience metrics. We expect that improvements from higher bandwidths, faster modems and wider programming selection are likely to continue making Internet radio an increasingly
significant competitor in the near future. These services already compete directly with our XM Radio Online service and, through the use of home stereo media adapters or media-centric PCs, with our home line of products.



Direct Broadcast Satellite and Cable Audio



A number of companies provide specialized audio service through either direct broadcast
satellite or cable audio systems. These services are targeted to fixed locations, mostly in-home. The radio service offered by direct broadcast satellite and cable audio is often included as part of a package of digital services with video service,
and video customers therefore generally do not pay an additional monthly charge for the audio service.



Digital Media Services



We face and expect to face increased competition from businesses that deliver and plan to deliver entertainment and
media content through cell phones and other wireless devices. Sprint offers music channels and other audio services, with options including 50 MSpot channels, Sony Music Box Connect, an assortment of Rhapsody channels, Pandora streaming service as
well as Sirius channels. AT&T offers access to MobiRadio, with over 50 channels including NPR, Fox News, ESPN Radio, The Weather Channel and music. Verizon Wireless offers sports audio and audio downloads, including live MLB broadcasts, as well
as access to V Cast Music, which offers 2 million songs for purchase. QUALCOMMs wholly owned subsidiary, MediaFLO USA delivers the FLO TV service, a mobile entertainment
service enabling subscribers to watch a selection of live, simulcast and time-shifted full-length television programming on their mobile phones. Verizon Wireless offers the FLO TV service through V Cast Mobile TV, with AT&T/Cingular also
planning to provide service. The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms and portable devices that compete with us now or that could compete with us in the future. For example,
Slacker and other companies have begun to introduce portable music players offering customizable Internet-based channels. Ford and Microsoft recently debuted an in-car communications system called Sync, which allows drivers to use voice
commands or steering wheel controls to play songs from their digital-music players. In addition, ICO recently demonstrated a satellite-based mobile entertainment platform to deliver live broadcast media nationwide through a hybrid satellite and
terrestrial repeater network.



Traffic News Services



A number of providers also compete with the XM NavTraffic service.
Sirius partners with NAVTEQ, the same partner used by XM for data behind XM NavTraffic, to provide real-time traffic data to vehicles over its satellite radio network for 80 major metropolitan areas. The service provides regularly updated traffic
information and help select alternative routes. Clear Channel and Tele Atlas are able to deliver nationwide traffic information for the top 50 markets to in-vehicle



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navigation systems using RDS/TMC, the radio broadcast standard technology for delivering traffic and travel information to drivers. There are also services
that provide real-time traffic information to Internet-enabled cell phones or other hand held devices, but these are available only in limited markets and the associated data plan costs in addition to normal cell phone rates may make the offering
un-desirable to many users.



Regulatory Matters



Satellite Licenses



XM and Sirius received licenses from the FCC in October 1997 to construct and operate
satellite digital audio radio service systems. The FCC allocated 25 MHz for the service in a range of radio frequencies known as the S-Band, divided equally between the two licensees.



As the holder of one of two FCC licenses to operate a commercial satellite radio service in the United States, we are subject to regulatory
oversight by the FCC. The operation of our system is subject to significant regulation by the FCC under authority granted through the Communications Act and related federal law. Non-compliance by us with FCC rules and regulations could result in
fines, additional license conditions, license revocation or other detrimental FCC actions. Any of these FCC actions may harm our business. There is no guarantee that the rules and regulations of the FCC will continue to be favorable to our business
plan. Any assignment or transfer of control of our FCC license or other FCC authorizations we hold must be approved in advance by the FCC.



Our FCC licenses, including our satellite licenses, are held by a subsidiary wholly owned by XM Radio. We are authorized to operate four satellites at specified orbital
locations. The licenses to operate the XM-1 and XM-2 satellites expire in March 2009 and May 2009, respectively. The license to operate the XM-3 satellite expires in April 2013. The license to operate the XM-4 satellite expires in December 2014. We
will be required to apply for a renewal or extension of our FCC license for each of these satellites prior to the expiration of the license term. We anticipate that, absent significant misconduct on our part, the FCC will renew or extend our license
for each satellite to permit operation of each satellite for its approximate 15 year useful life, and grant a license for any replacement satellites. From time to time, we may seek authority from the FCC to operate our satellites at orbital
locations other than those authorized in the licenses for those satellites. The U.S. government is responsible for coordinating our satellites through the International Telecommunication Union (ITU) and must make periodic filings on our
behalf at the ITU.



The FCC has indicated that it may in the future impose
public service obligations, such as channel set-asides for educational programming, on satellite radio licensees. Some entities have asked the FCC to impose public service obligations on satellite radio licensees.



In November 2005, the FCC released a decision extending Emergency Alert System
(EAS) obligations to satellite radio operators. These obligations became effective on December 31, 2006. In December 2005, we asked the FCC to reconsider its decision by relaxing its requirements for testing of EAS alerts and for
transmitting EAS codes and attention signals on certain channels. Our reconsideration request is pending. The FCC is also considering whether it should require distribution of foreign-language alerts as part of the EAS. XM filed comments in this
proceeding, but we do not expect that any such requirements would materially affect our operations.



The FCCs rules require interoperability with all licensed satellite radio systems that are operational or under construction. We have signed an agreement with Sirius to develop a common receiver platform
combining the companies proprietary chipsets. The FCC conditioned our license on certification by us that our final receiver design is interoperable with the final receiver design of the other licensee, Sirius, which uses a different
transmission technology than we use. We have previously certified and reconfirmed that we comply with this obligation. Although we believe that we are currently in compliance, the FCC has not expressly acknowledged our compliance. If the FCC
were to interpret the interoperability requirement in a manner that mandates a particular radio design, complying with this requirement could make the radios more difficult and costly to manufacture.



The FCC order granting our satellite license determined that because we operate a private
satellite system under the Communications Act and FCC rules providing a subscription service on a non-common carrier basis, we would not be subject to the FCCs foreign ownership restrictions. However, such restrictions would apply to us if we
were to offer non-subscription services. The FCC also stated in its order that it may reconsider its decision not to subject satellite radio licensees to its foreign ownership restrictions.



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In June and October 2006, the National Association of Broadcasters (NAB) submitted letters to the FCC asking
the FCC to open an investigation examining the issues raised by free access to satellite radio programming, such as (i) in new cars that have satellite radio receivers pre-installed, (ii) in rental cars, and (iii) through
transmissions from the FM modulators of satellite radio receivers to nearby vehicles not equipped with satellite radio receivers. NAB argues that free access to satellite radio programming requires the FCC to apply similar regulations to terrestrial
and satellite radio. To date, the FCC has not acted in response to these letters.



Repeater Authorization



The FCC
is currently conducting a rulemaking proceeding to establish rules for terrestrial repeater transmitters of satellite radio operators, which XM uses to fill in gaps in satellite coverage. The FCC allows XM to operate a network of such repeaters
pursuant to Special Temporary Authority (STA) initially granted in September 2001. The FCC has proposed a form of blanket licensing for terrestrial repeaters and service rules, which would prohibit satellite radio licensees from using
terrestrial repeating transmitters to originate local programming or transmit signals other than those received from the satellite radio satellites. Various parties, including the National Association of Broadcasters, Wireless Communications Service
(WCS) licensees, Multipoint Distribution Service (MDS) licensees, and Instructional Television Fixed Service (ITFS) licensees have asked the FCC to:



| |  |  | limit the power level of the repeaters to no more than 2 kW peak Effective Isotropic Radiated Power (EIRP);
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | limit the number of repeaters operating at greater than 2 kW peak power EIRP;
| | - |  | -----------------------------------------------------------------------------



| |  |  | delay consideration of terrestrial repeater rules until XM and Sirius provide additional information regarding planned terrestrial repeaters;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require individual licensing of each terrestrial repeater; and
| | - |  | --------------------------------------------------------------



| |  |  | impose a waiting period on the use of repeaters in order to determine if signal reception problems can be resolved through other means.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



Our continued operation and deployment of terrestrial
repeaters may be impacted by whatever rules the FCC ultimately issues in this regard, although we believe these impacts are not likely to be material to our business. We have made a proposal to the FCC that any limits on the power of terrestrial
repeaters not be lower than 40 kW EIRP or, alternatively, 18 kW EIRP calculated by averaging power over 360 degrees. We have also proposed to coordinate with WCS licensees in certain cases prior to operating terrestrial repeaters above 2 kW EIRP.
The coordination may include our providing filters in certain instances to limit the interference WCS licensees claim will result from our operation of repeaters operating above 2 kW EIRP.



On November 1, 2001, the FCC issued a further request for comments on various proposals
for permanent rules for the operation of terrestrial repeaters. We have opposed some of these proposals. Some of the FCCs proposals and proposals made by other parties, if adopted by the FCC, could impact our ability to operate terrestrial
repeaters, including requiring us to reduce the power of some of our current repeaters, and subject us to monetary liability to compensate other FCC licensees that claim they receive interference from our repeaters. On December 18, 2007, the
FCC released a Notice of Proposed Rulemaking and Second Further Notice of Proposed Rulemaking seeking additional comment on the final rules for satellite radio repeaters. XM is to participating in this phase of the proceeding.



As noted above, we are currently operating terrestrial repeaters pursuant to
STA. This STA authorizes us to operate our terrestrial repeaters for commercial service on a non-interference basis. Because the STA was conditioned in this manner, we are required either to reduce power or cease operating a repeater upon receipt of
a written complaint of interference. In 2001, one party that opposed XM Radios request for STA filed an application for review of the decision granting us an STA, asking the FCC to reverse the decision and deny XM Radios STA request.
This Application for Review is still pending.



On November 26, 2003, we
applied for an STA to operate an additional forty-nine repeaters in new markets that were not authorized under our September 2001 STA. This request was opposed by a coalition of WCS licensees claiming that grant of this request would result in
interference and would prejudice the outcome of the final rules governing repeaters. Our request was granted in September 2004 over these objections. Our grants of STA to operate all of our terrestrial repeaters have expired by their terms, but
pursuant to the FCCs rules, we are allowed to and have continued to operate these terrestrial repeaters under STA pending a final determination on our extension request.



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In October 2006, we disclosed to the FCC that several hundred of our repeaters were not built pursuant to the exact terms
of our STAs. These differences include some repeaters not being built in the exact locations, or with the same antenna heights, power levels, or antenna characteristics set forth in the STAs. A number of repeaters were built without an obviously
applicable authorization. We brought a number of these repeaters into full compliance with our authorizations by turning down their power levels. We also discontinued operation of some repeaters. As a result, we believe that service quality in
portions of the affected metro areas has been somewhat reduced, including in terms of more frequent interruptions and/or occasional outages to the service. There has been no impact on the satellite signal. Immediately following our disclosure to the
FCC we filed for both a 30-day STA and a 180-day STA with respect to our terrestrial repeater network. In these STA requests, we are seeking authority to continue to operate our entire repeater network, as built, despite the variances we disclosed.
We have held meetings with the staff of the FCC regarding these matters. NAB has opposed our STA requests and has asked the FCC to initiate an investigation into our deployment of repeaters and to impose sanctions. A coalition of WCS licensees has
also opposed our STA requests and has asked the FCC to require us to immediately reduce the power of any unauthorized repeaters to no more than 2000 Watts peak EIRP. The WCS licensees also dispute whether the power levels the FCC has authorized for
our repeater operations are with regard to peak power or average power. We have interpreted our FCC authorizations to be in terms of average power and a contrary interpretation would have a significant impact on operations. Our deployment of
terrestrial repeaters may be affected by the FCCs further actions, when taken. In February 2007, we received a letter of inquiry from the FCC relating to these matters. This proceeding may result in the imposition of financial penalties
against us or adverse changes to our repeater network resulting from having repeaters turned off or otherwise modified in a manner that would reduce service quality in the affected areas. There can be no assurance regarding the ultimate outcome of
this matter, or its significance to our business, consolidated results of operations or financial position. These recent STA requests are distinct from (and if granted would replace) the STAs originally granted by the FCC relating to our commencing
and continuing operation of the repeater network.



The FCC also may adopt
limits on emissions of terrestrial repeaters to protect other services using nearby frequencies. While we believe that we will meet any reasonable non-interference standard for terrestrial repeaters, the FCC has no specific standard at this time,
and the application of such limits might increase our cost of using repeaters. Although we are optimistic that we will be able to construct and use terrestrial repeaters as needed, the development and implementation of the FCCs ultimate rules
might delay this process or restrict our ability to do so. We believe that it is not likely that an FCC order would materially impact the terrestrial repeater system design currently in operation. The Notice of Proposed Rulemaking and Second
Further Notice of Proposed Rulemaking released by the FCC on December 18, 2007 requests comment relating to this issue.



Coordination and Interference Matters



We are required to coordinate the XM Radio system with systems operating in the same frequency bands in adjacent countries, particularly Canada and Mexico. The United
States government, which conducts the coordination process, has entered into coordination agreements with both the Canadian and Mexican governments. XM Canada, our exclusive Canadian licensee, received a license to operate a satellite radio service
in Canada using our existing satellites, which provide coverage of the densely populated regions of Canada.



We operate the communication uplinks to our satellites from earth stations in Washington, DC (primary) and Atlanta, GA (backup) in a band of radio frequencies that are used for several other services, such as fixed
services, broadcast auxiliary services, electronic news gathering services, and uplink feeder links for mobile satellite services. The FCC has granted us licenses for these earth stations. The license for our Washington, DC earth station expires in
March 2011 and the license for our Atlanta earth station expires in August 2019. We can seek authority from the FCC to extend these license terms and would expect them to be renewed in the ordinary course.



Our service may be subject to interference caused by other users of radio frequencies. From
time to time, the FCC has permitted or has proposed to permit new uses of radio frequencies that could result in interference to our service, particularly unlicensed operations in adjacent frequency bands. Moreover, the FCC has permitted or has
proposed to permit existing users of radio frequencies to operate in ways that could result in interference to our operations. We have expressed and continue to express concerns to the FCC regarding the potential for other uses of radio frequencies
to cause interference to our service. If the FCC does not adopt sufficient technical limits on these other uses of radio frequencies, our service may be adversely affected.



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FM Modulator Investigation



In April 2006 and August 2006, we received letters of inquiry from the FCCs Enforcement Bureau regarding FM modulator wireless
transmitters in various XM radios and whether such transmissions were in compliance with permissible emission limits. No health or safety issues have been involved with these wireless XM radios. We have responded to the FCCs letters,
implemented a series of design and installation modifications, and through October 2006, obtained new certifications for six models of modified XM radios using our new SureConnect technology. In addition, we have implemented a regulatory compliance
plan, including the appointment of an FCC regulatory compliance officer to monitor FCC regulatory compliance, specifically with reference to the design, verification/certification, and production of XM radio receivers. We are in discussions with the
FCC to resolve this matter and have proposed entering into a consent decree requiring both additional remedial action and a voluntary contribution to the federal government. NAB has asked the FCC to require a recall of non-compliant devices from our
retailers and distributors. We cannot predict at this time the extent of any further actions that we will need to undertake or the extent of the financial obligations we may incur. There can be no assurance regarding the ultimate outcome of this
matter, or its significance to our business, consolidated results of operations or financial position.



Proposed Merger with Sirius



On
February 19, 2007, we entered into an Agreement and Plan of Merger with Sirius Satellite Radio Inc. under which our business would be combined with that of Sirius through a merger of XM and a newly formed, wholly owned subsidiary of Sirius.



The completion of the merger is subject to various closing conditions,
including receiving certain regulatory and antitrust approvals (including from the Federal Communications Commission and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended). The merger is intended to qualify as a
reorganization for federal income tax purposes.



At the effective time of the
merger, by virtue of the merger and without any action on the part of any stockholder, each share of our Class A common stock then issued and outstanding will be converted into the right to receive 4.6 shares of common stock of Sirius. Each
share of our Series A convertible preferred stock then issued and outstanding similarly will be converted at the effective time of the merger into the right to receive 4.6 shares of a newly-designated series of preferred stock of Sirius having the
same powers, designations, preferences, rights and qualifications, limitations and restrictions as the stock so converted.



Mr. Mel Karmazin, currently chief executive officer of Sirius, will become chief executive officer of the combined company and Mr. Gary M. Parsons,
currently our chairman, will become chairman of the combined company. The combined companys board of directors will consist of 12 directors, including Messrs. Karmazin and Parsons, four independent members designated by each company, as well
as two representatives of the auto industry who are current members of our board of directors.



The merger agreement contains certain termination rights both for us and for Sirius. If the merger agreement is terminated under circumstances specified in the merger agreement due to action by one of the parties, we
or Sirius, as the case may be, will be required to pay the other a termination fee of $175.0 million.



Our board of directors and stockholders and the board of directors and stockholders of Sirius have approved the merger.



The merger agreement contains representations and warranties which the parties thereto made to, and solely for, the benefit of each other. The assertions embodied in
those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the merger agreement and that modify, qualify and create exceptions to the
representations and warranties contained in the merger agreement. We and Sirius each have made covenants in the merger agreement about continuing our or their business in the ordinary course.



The foregoing description of the merger does not purport to be complete and is qualified in
its entirety by reference to the Current Report on Form 8-K, filed February 21, 2007 and the merger agreement filed as an exhibit to that Form 8-K and incorporated into this report by reference.



Satisfaction of the closing conditions could take several months or longer. There can be no
assurance that the conditions to completion of the merger will be met, or that the merger will be completed. If the merger is not consummated on or before March 1, 2008, either party may terminate the merger agreement.



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Statements made in this Form 10-K relating to our business strategies, operating plans, planned expenditures, expected
capital requirements and other forward-looking statements regarding our business do not take into account potential future impacts of our proposed merger with Sirius.



Personnel



As of December 31, 2007, we had 1,059 employees. In addition, we rely upon a number of consultants, other advisors and outsourced relationships. The extent and
timing of any increase in staffing will depend on the availability of qualified personnel and other developments in our business. None of our employees are represented by a labor union, and we believe that our relationship with our employees is
good.



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ITEM 1A.    RISK FACTORS



Potential investors are urged to read and consider the risk factors relating to an investment in XM Satellite Radio Holdings Inc. contained herein. Before making an investment decision, you should carefully consider these risks as well
as other information we include in or incorporate by reference into our public filings with the SEC. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also affect our business operations.



In connection with the merger, a substantial amount of our indebtedness will need to be refinanced.



In connection with the merger, an offer to repurchase a significant portion of our outstanding notes at 101% of the principal amount thereof will be required under the
terms of such debt. Any required repurchase would likely be financed with other debt and, due to prevailing conditions in the debt markets, debt financing to fund such repurchase may not be available on terms favorable to the combined company or at
all. Similarly, we may not be able to solicit the consent of holders to amend our debt to eliminate the repurchase obligation on favorable terms or at all. At December 31, 2007, the aggregate principal amount of our outstanding indebtedness was
approximately $1.5 billion, and no outstanding notes were trading above 101% of the outstanding principal amount. We believe that if the notes are trading above 101% at the time of any required repurchase offer, a large majority of holders
would be unlikely to sell their notes in the repurchase offer.



The combined
companys indebtedness following the completion of the merger will be substantial. This indebtedness could adversely affect the combined company in many ways, including by reducing funds available for other business purposes.



The pro forma indebtedness of the combined company as of December 31, 2007, after
giving effect to the merger, would have been approximately $2.8 billion. As a result of this debt, demands on the combined companys cash resources may increase after the merger. The increased levels of indebtedness could reduce funds
available for investment in research and development and capital expenditures or create competitive disadvantages compared to other companies with lower debt levels. In addition, existing covenants in the Sirius and XM debt instruments limit the
transfer of cash between the two companies and require that inter-company dealings be effected on an arms-length basis, which may affect the timing or amount of synergies realized from the integration of the two companies.



The ability to complete the merger is subject to the receipt of consents and approvals
from government entities, which may impose conditions that could have an adverse effect on us or could cause either party to abandon the merger.



In deciding whether to grant regulatory or antitrust approvals, the relevant governmental entities will consider the effect of the merger on competition within their
relevant jurisdictions. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined companys business.



The merger agreement may require us to accept significant conditions from regulatory bodies
before either of us may refuse to close the merger on the basis of those regulatory conditions. We cannot provide any assurance that either party will obtain the necessary approvals or that any other conditions, terms, obligations or restrictions
will not have a material adverse effect on the combined company following the merger. In addition, we can provide no assurance that these conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger.



Any delay in completion of the merger may significantly reduce the benefits
expected to be obtained from the merger.



In addition to the required
regulatory clearances and approvals, the merger is subject to a number of other conditions beyond our control that may prevent, delay or otherwise materially adversely affect its completion. We cannot predict whether and when these other conditions
will be satisfied. Further, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger may
significantly reduce the synergies and other benefits that we expect to achieve if we successfully complete the merger within the expected timeframe and integrate our and Siriuss businesses.



The anticipated benefits of the merger may not be realized fully or at all or may take
longer to realize than expected.



The merger involves the integration of
two companies that have previously operated independently with principal offices in two distinct locations. Due to legal restrictions, we and Sirius have conducted only limited planning regarding the integration of the two companies. The combined
company will be required to devote significant management attention and resources to



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integrating the two companies. Delays in this process could adversely affect the combined companys business, financial results, financial condition and
stock price. Even if we were able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational
efficiencies that may be possible from this integration or that these benefits will be achieved within a reasonable period of time.



Additionally, as a condition to their approval of the merger, regulatory agencies may impose requirements, limitations or costs or require divestitures or place
restrictions on the conduct of the combined companys business. If we and Sirius agree to these requirements, limitations, costs, divestitures or restrictions, the ability to realize the anticipated benefits of the merger may be impaired.



Failure to complete the merger for regulatory or other reasons could
adversely affect our stock price and our future business and financial results.



Completion of the merger is conditioned upon, among other things, the receipt of certain regulatory and antitrust approvals, including from the Federal Communications Commission and under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. There is no assurance that we will receive the necessary approvals or satisfy the other conditions to the completion of the merger. Failure to complete the proposed merger would prevent us from realizing the anticipated benefits of
the merger. We also will remain liable for significant transaction costs, including legal, accounting and financial advisory fees, regardless of whether the merger is completed. In addition, the market price of our common stock may reflect various
market assumptions as to whether the merger will occur. Consequently, the completion of, or failure to complete, the merger could result in a significant change in the market price of our common stock.



Uncertainty about the merger and diversion of management could harm us, whether or not the
merger is completed.



In response to the pending merger, existing or
prospective subscribers, retailers, radio manufacturers, automakers and programming providers may delay or defer their purchasing or other decisions concerning us, or they may seek to change their existing business relationship. In addition, as a
result of the merger, current and prospective employees could experience uncertainty about their future with XM or the combined company. These uncertainties may impair our ability to retain, recruit or motivate key personnel. Completion of the
merger will also require a significant amount of time and attention from management. The diversion of management attention away from ongoing operations could adversely affect ongoing operations and business relationships.



You could lose money on your investment because our expenses exceed our revenues.



Unless we continue to increase our revenues, we may not be able to operate
our business and service our indebtedness and you could lose money on your investment. Our ability to continue to increase our revenues and ultimately to become profitable will depend upon several factors, including:



| |  |  | whether we can attract and retain enough subscribers to XM Radio;
| | - |  | -----------------------------------------------------------------



| |  |  | our ability to maintain the costs of obtaining and retaining subscribers and programming;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | whether we compete successfully; and
| | - |  | ------------------------------------



| |  |  | whether our XM Radio system continues to operate at an acceptable level.
| | - |  | ------------------------------------------------------------------------



Our cumulative expenditures and losses have been significant and are expected to grow.



As of December 31, 2007, we had incurred capital expenditures of $1.8 billion and
cumulative net losses approximating $4.2 billion from our inception through December 31, 2007. We expect our cumulative net losses and cumulative negative cash flows to grow as we make payments under our various distribution and programming
contracts, incur marketing and subscriber acquisition costs and make interest payments on our outstanding indebtedness. If we are unable ultimately to generate sufficient revenues to become profitable and generate positive cash flow, you could lose
money on your investment.



Demand for our service may be insufficient for us
to become profitable.



Because we offer a relatively new service, we
cannot estimate with any certainty whether consumer demand for our service will be sufficient for us to continue to increase the number of subscribers at projected rates or the degree to which we will



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meet that demand. We have seen a significant decrease in new subscription demand from retail subscribers and most of our new subscription growth has come
from the OEM segment.



Among other things,
continuing and increased consumer acceptance of XM Radio will depend upon:



| |  |  | the willingness of consumers, on a mass-market basis, to pay subscription fees to obtain radio service rather than obtain their desired programming from other
sources;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the cost, features and availability of XM radios; and
| | - |  | -----------------------------------------------------



| |  |  | the marketing and pricing strategies that we employ and that are employed by our competitors.
| | - |  | ---------------------------------------------------------------------------------------------



If demand for our products and service does not continue to increase, we may not be able to
generate enough revenues to generate positive cash flow or to become profitable.



We may need additional funding for our business plan and additional financing might not be available.



Provided that we meet the revenue, expense and cash flow projections of our current business plan, we expect to be fully funded and not need additional liquidity to
continue operations beyond our existing assets, credit facilities and cash generated by operations; our current business plan is based on estimates regarding expected future costs, expected future revenue and assumes the refinancing or renegotiating
of certain of our obligations (which are discussed under the heading Liquidity and Capital Resources in Item 7. of this Form 10-K) as they become due, including the maturity of our existing credit facilities and $400 million of
convertible notes in 2009. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us
to seek additional financing, which financing may not be available on favorable terms or at all, to continue implementing our current business plan. In addition, we may seek additional financing, such as the sale of additional equity and debt
securities, to undertake initiatives not contemplated by our current business plan or for other business reasons, or seek to refinance or renegotiate certain of our other obligations.



The unfavorable outcome of pending or future litigation or investigations could have a material adverse effect on us.



We have been party to several legal proceedings, regulatory inquiries and other matters
arising out of various aspects of our business. They include an inquiry by the FCC based on a determination that the FM modulator wireless transmitter on certain XM radios was not in compliance with permissible emission limits and most recently
discussions with the FCC about issues relating to our repeater network. We also are a party to three separate suits brought by a number of record companies and music publishers alleging that XM radios that also have advanced recording functionality
infringe upon plaintiffs copyrighted sound recordings. We intend to cooperate fully with the governmental investigations and to vigorously defend all of our litigation matters. However, we cannot assure a favorable outcome of any of these
proceedings, or that an unfavorable outcome would not have a material adverse effect on our business or financial results.



Large payment obligations under our agreements with General Motors and other automobile manufacturers, suppliers of programming and others may prevent us from becoming
profitable.



We
have significant payment obligations under our agreements with automobile manufacturers, third-party suppliers of programming and licensors of program royalties. Although we paid General Motors approximately $237 million to eliminate obligations to
pay approximately $320 million during 2007, 2008 and 2009, we still have significant remaining payment obligations under our long-term distribution agreement with General Motors. We also have or in the future will have payment obligations under
agreements with other automobile manufacturers, and we will need to negotiate new or replacement agreements with these or other manufacturers over the next several years. Under our multi-year agreement with Major League Baseball® (MLB) for the rights to broadcast MLB games live nationwide and be the Official Satellite Radio provider of Major League Baseball®, we are obligated to pay $60 million per year through 2012. In July 2006, we furnished a $120.0 million two-year surety bond to MLB as part of an amendment to the agreement with MLB that permitted us to provide
various types of credit support in lieu of its $120.0 million escrow deposit requirement. If we are unable to renew this bond or obtain other credit support acceptable to MLB, there can be no assurance that we will not have to deposit funds to meet
the escrow deposit requirement. We have many other agreements and must negotiate renewal or replacement agreements with third-party suppliers of programming. Our payment obligations could increase when agreements are renewed or replaced, and will
increase under the terms of certain existing agreements as the number of our subscribers increases. Changes in the cost of certain programming or other factors could cause changes to our channel line-up in the future. These payment obligations could
significantly impact our ability to become profitable or generate positive cash flow



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and the amount that we may need to borrow. We may seek to renegotiate certain of these arrangements to generate positive cash flow and reduce our need for
external funds. There can be no assurance that we will be able to complete such renegotiations on favorable terms or at all.



We must maintain and pay license fees for music rights, and we may have disputes with copyright holders.



We must maintain music programming royalty arrangements with and pay license fees to
Broadcast Music, Inc. (BMI), the American Society of Composers, Authors and Publishers (ASCAP) and SESAC, Inc. (SESAC). These organizations negotiate with copyright users, collect royalties and distribute them to
songwriters and music publishers. Although we have final agreements with ASCAP and SESAC, respectively, through December 2011, we continue to operate under an interim agreement with BMI. We cannot assure you that the BMI royalty fee will remain at
the current level when the agreement is finalized. Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we also have to negotiate royalty arrangements with the copyright owners of the
sound recordings, or if negotiation is unsuccessful, have the royalty rate established by the Copyright Royalty Board (CRB). We participated in a CRB proceeding in order to set the royalty rate payable by XM under the statutory license
covering our performance of sound recordings over the XM system for the six year period starting in January 2007, which is described under the heading Legal Proceedings  Litigation and Arbitration  Copyright Royalty Board
Proceeding in Item 3. of this Form 10-K.



We have been sued by
several companies in the recording industry and music publishers alleging that XM radios that also have advanced recording functionality infringe upon plaintiffs copyrighted sound recordings. We believe these XM radios, which have various
functionalities widely available to consumers, comply with applicable copyright law, including the Audio Home Recording Act. Our motion to dismiss this matter was denied. There can be no assurance regarding the ultimate outcome of this matter, or
the significance, if any, to the Companys business, consolidated results of operations or financial position.



Our inability to retain customers, including those who purchase or lease vehicles that include a subscription to our service, could adversely affect our financial
performance.



We cannot predict how successful we will be at retaining
customers who purchase or lease vehicles that include a subscription to our service as part of the promotion of our product. Over the past several quarters we have retained approximately 52% to 55% of the customers who receive a promotional
subscription as part of the purchase or lease of a new vehicle, but that percentage does vary over time and the amount of data on the percentage is limited. We do not know if the percentage will change as the number of customers with promotional
subscriptions increases.



We experience subscriber churn, with respect to our
self-pay or non-promotional customers as well. Because we have been in commercial operations for a relatively short period of time, we cannot predict the amount of churn we will experience over the longer term. Our inability to retain customers who
purchase or lease new vehicles with our service beyond the promotional period and subscriber churn could adversely affect our financial performance and results of operations.



Loss or premature degradation of our existing satellites could damage our business.



We placed our XM-3 and XM-4 satellites into service during the second quarter of 2005 and
fourth quarter of 2006, respectively. Our XM-1 and XM-2 satellites experienced progressive degradation problems common to early Boeing 702 class satellites and now serve as in-orbit spares. During 2007, we entered into a sale leaseback transaction
with respect to the transponders on our XM-4 satellite. If we fail to make the required payments under this arrangement, we could lose the right to use XM-4 to broadcast our service. The terms of this arrangement also require that upon the
occurrence of specified events, including an operational failure or loss of XM-4, then we have to repurchase the satellite and we may not receive sufficient insurance proceeds to do so. An operational failure or loss of XM-3 or XM-4 would, at least
temporarily, affect the quality of our service, and could interrupt the continuation of our service and harm our business. We likely would not be able to complete and launch our XM-5 satellite before the first half of 2009. In the event of any
satellite failure prior to that time, we would need to rely on our back-up satellites, XM-1 and XM-2. We cannot assure you that restoring service through XM-1 and XM-2 would allow us to maintain adequate broadcast signal strength through the
in-service date of XM-5, particularly if XM-1 or XM-2 were to suffer unanticipated additional performance degradation or experience an operational failure.



A number of other factors could decrease the useful lives of our satellites, including:



| |  |  | defects in design or construction;
| | - |  | ----------------------------------



| |  |  | loss of on board station-keeping system;
| | - |  | ----------------------------------------



| |  |  | failure of satellite components that are not protected by back-up units;
| | - |  | ------------------------------------------------------------------------



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| |  |  | electrostatic storms; and
| | - |  | -------------------------



| |  |  | collisions with other objects in space.
| | - |  | ---------------------------------------



In addition, our network of terrestrial repeaters communicates principally with one satellite. If the satellite communicating with the repeater network fails
unexpectedly, we would have to activate our backup satellites (XM-1 and XM-2) to restore repeater service. This would result in a degradation of service that could last several hours or longer and could harm our business.



Potential losses may not be covered by insurance.



Insurance proceeds may not fully cover our losses. For example, our insurance does not cover
the full cost of constructing, launching and insuring new satellites, nor will it cover and we do not have protection against business interruption, loss of business or similar losses. Also, our insurance contains customary exclusions, salvage value
provisions, material change and other conditions that could limit our recovery. Further, any insurance proceeds may not be received on a timely basis in order to launch a spare satellite or construct and launch a replacement satellite or take other
remedial measures. In addition, some of our policies are subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses. If we experience a loss that is uninsured or that exceeds policy
limits, this may impair our ability to make timely payments on our outstanding notes and other financial obligations.



Competition could adversely affect our revenues.



In seeking market acceptance of our service, we encounter competition for both listeners and advertising revenues from many sources, including Sirius, the other U.S.
satellite radio licensee; traditional and digital AM/FM radio; Internet based audio providers; MP3 players; wireless carriers; direct broadcast satellite television audio service; digital media services; and cable systems that carry audio service.



Sirius has announced that it had over 8 million subscribers as of
December 31, 2007, including over 2.3 million net new subscribers during the year then ended. Sirius broadcasts over 130 channels of programming and offers certain programming that we do not offer, including the Howard Stern radio show.
Sirius radio service is offered as a dealer- and/or factory-installed option on a number of vehicle model brands, including certain ones that do not offer XM. Sirius has announced a number of new competitive product offerings. Sirius also is a
partner in a Canadian joint venture partnership that competes with our Canadian licensee in providing satellite radio service in Canada.



Unlike XM Radio, traditional AM/FM radio already has a well-established and dominant market presence for its services and generally offers free broadcast reception
supported by commercial advertising, rather than by a subscription fee. Also, many radio stations offer information programming of a local nature, which XM Radio is not expected to offer as effectively as local radio, or at all. Some radio stations
have reduced the number of commercials per hour, expanded the range of music played on the air and are experimenting with new formats in order to compete with satellite radio.



Digital (or HD or high definition) radio broadcast services have been expanding, and as many as 1,500 radio stations in the U.S. have begun
digital broadcasting and approximately 3,000 have committed to broadcasting in digital format. The technology permits broadcasters to transmit as many as five stations per frequency. To the extent that traditional AM/FM radio stations adopt digital
transmission technology, any competitive advantage that we enjoy over traditional radio because of our digital signal would be lessened. A group of major broadcast radio networks recently created a coalition to jointly market digital radio services.



Internet radio broadcasts have no geographic limitations and can provide
listeners with radio programming from around the country and the world. We expect that improvements from higher bandwidths, faster modems, wider programming selection and mobile internet service, will make Internet radio increasingly competitive.



The Apple iPod® is a portable digital music player that allows users to download and purchase music through Apples iTunes® Music Store, as well
as convert music on compact disc to digital files. Apple sold over 51 million iPods® during its fiscal 2007 year. The iPod®
is also compatible with certain car stereos and various home speaker systems. Our portable digital audio players including those with advanced recording functionality compete with the iPod®
and other downloading technology and devices; and some consumers may use their digital music players in their vehicles rather than subscribe to XM Radio.



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The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms and
portable devices that compete with us now or that could compete with us in the future. For example, Slacker and other companies have begun to introduce portable music players offering customizable Internet-based channels. Ford and Microsoft recently
debuted an in-car communications system called Sync, which allows drivers to use voice commands or steering wheel controls to play songs from their digital-music players. In addition, ICO recently demonstrated a satellite-based mobile
entertainment platform to deliver live broadcast media nationwide through a hybrid satellite and terrestrial repeater network.



Rapid technological and industry changes could make our service obsolete.



The audio entertainment industry is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations,
and evolving industry standards. If we are unable to keep pace with these changes, our business may be unsuccessful. Because we have depended on third parties to develop technologies used in key elements of the XM Radio system, more advanced
technologies that we may wish to use may not be available to us on reasonable terms or in a timely manner. Further, our competitors may have access to technologies not available to us, which may enable them to produce entertainment products of
greater interest to consumers, or at a more competitive cost.



Higher than
expected subscriber acquisition costs could adversely affect our financial performance.



We are still spending substantial funds on advertising and marketing and in transactions with car and radio manufacturers and other parties to obtain or as part of the expense of attracting new subscribers, including
our subscriber acquisition costs and costs per gross (or net) subscriber addition. Our ability to achieve cash flow breakeven and profitability within the expected timeframe or at all depends on our ability to continue to maintain or lower these
costs, which vary over time based on a number of factors. If the costs of attracting new subscribers are greater than expected, our financial performance and results of operations could be adversely affected.



Our business could be adversely affected by the performance of our business partners.



Our business depends in part on actions of third parties, including:



| |  |  | the sale of new vehicles with factory installed XM radios;
| | - |  | ----------------------------------------------------------



| |  |  | the development and manufacture of XM radios and other XM-compatible devices; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the availability of XM radios for sale to the public by consumer electronics retailers.
| | - |  | ---------------------------------------------------------------------------------------



The sale of vehicles with XM radios is an important source of subscribers for us. To the
extent sales of vehicles by our distribution partners slow, or the penetration percentage of factory-installed XM radios in those vehicles declines, our subscriber growth could be adversely impacted. We do not manufacture satellite radios or
accessories, and we depend on manufacturers and others for the production of these radios and their component parts. If one or more manufacturers raises the price of the radios or does not produce radios in a sufficient quantity to meet demand, or
if such radios were not to perform as advertised or were to be defective, sales of our service and our reputation could be adversely affected. Our business or reputation also could be harmed in the event our retailing partners were to fail to make
XM radios available to the public in sufficient quantities, in a timely manner or at attractive prices.



Failure to comply with FCC requirements could damage our business.



As an owner of one of two FCC licenses to operate a commercial satellite radio service in the United States, an operator of a terrestrial repeater system and the holder of authorizations for the production of certain
satellite radios, we are subject to FCC rules and regulations and the terms of our licenses and other authorizations. We are required, among other things, to operate only within specified frequencies and other limitations, and to meet certain
conditions such as the availability of radios interoperable with both our system and the other licensed satellite radio system; coordination of our satellite radio service with radio systems operating in the same range of frequencies in neighboring
countries; and coordination of our communications links to our satellites with other systems that operate in the same frequency band. Non-compliance by us with these requirements or conditions could result in fines, additional license conditions,
license revocation or other detrimental FCC actions.



The FCC has not issued
final rules authorizing terrestrial repeaters.



The FCC has not yet issued
final rules permitting us to deploy terrestrial repeaters to fill gaps in satellite coverage. We are operating our repeaters on a non-interference basis pursuant to grants of Special Temporary Authority (STA) from the



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FCC, which have expired. We have applied for extensions of these STAs and can continue to operate our terrestrial repeaters pending a final determination on
these requests. We have made filings with the Federal Communications Commission (FCC) to update the information underlying our STA with respect to our repeater network, including repeater power levels, locations and antenna
characteristics. We have held meetings with the staff of the FCC regarding these matters. In February 2007, we received a letter of inquiry from the FCC relating to these matters. One grant of STA and our request to update are currently being
opposed by operators of terrestrial wireless systems and others. This proceeding may result in the imposition of financial penalties against us or adverse changes to our repeater network resulting from having repeaters turned off or otherwise
modified in a manner that would reduce service quality in the affected areas.



One of our major business partners is experiencing financial difficulties.



On October 8, 2005, Delphi and 38 of its domestic U.S. subsidiaries, which we refer to collectively as Delphi, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York. Delphi manufactures, in factories outside the United States, XM radios for installation in various brands of GM vehicles. Delphi also distributes to consumer electronics retailers
various models of XM radios manufactured abroad. On January 25, 2008, the Bankruptcy Court entered an order confirming the First Amended Joint Plan of Reorganization of Delphi Corporation and certain Affiliates, Debtors and
Debtors-In-Possession, as Modified (the Plan). Pursuant to the Plan, Delphi settled certain disputes it had with General Motors, certain of Delphis unions and other parties. The Plan provides for a reorganization of
Delphi and the emergence of Delphi from bankruptcy as an ongoing entity. Pursuant to the Plan, Delphi assumed all executory contracts it had with contract parties including XM. Under the Plan, Delphi may reject the contract if the
Bankruptcy Courts resolution is not acceptable to Delphi. The Plan is subject to certain conditions being satisfied before it can become effective.



Our substantial indebtedness could adversely affect our financial health, which could reduce the value of our securities.



As of December 31, 2007, the total accreted value and carrying value of our
indebtedness was $1.5 billion. We may issue more debt securities if we believe we can raise money on favorable terms. Our $250.0 million bank credit facility, of which $187.5 million has been drawn, and $400.0 million of 1.75% Convertible Senior
Notes mature in 2009. Our substantial indebtedness could have important consequences to you. For example, it could:



| |  |  | increase our vulnerability to general adverse economic and industry conditions;
| | - |  | -------------------------------------------------------------------------------



| |  |  | limit our ability to fund future working capital, capital expenditures, research and development costs and other general corporate purposes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures, research and development efforts and other general corporate purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | place us at a competitive disadvantage compared to our competitors that have less debt; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



Failing to comply with those covenants could result in an
event of default, which, if not cured or waived, could cause us to have to discontinue operations or seek a purchaser for our business or assets. In addition, the covenants allow us to incur more debt in the future, which could increase our total
indebtedness.



Weaker than expected market and advertiser acceptance of our
XM Radio service could adversely affect our advertising revenue and results of operations.



Our ability to generate advertising revenues will depend on several factors, including the level and type of penetration of our service, competition for advertising dollars from other media, and changes in the
advertising industry and economy generally. We directly compete for audiences and advertising revenues with Sirius, the other satellite radio licensee, and traditional AM/FM radio stations, some of which maintain longstanding relationships with
advertisers and possess greater resources than we do, and new media, including internet, internet radio, podcasts and others. Because we offer our radio service to subscribers on a pay-for-service basis, certain advertisers may be less
likely to advertise on our radio service.



23



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Our business may be impaired by third party intellectual property rights.



Development of the XM Radio system has depended largely upon the intellectual property that
we have developed and licensed from third parties. If the intellectual property that we have developed or use is not adequately protected, others will be permitted to and may duplicate the XM Radio system or service without liability. In addition,
others may challenge, invalidate or circumvent our intellectual property rights, patents or existing sublicenses. Some of the know-how and technology we have developed and plan to develop will not be covered by United States patents. Trade secret
protection and contractual agreements may not provide adequate protection if there is any unauthorized use or disclosure. The loss of necessary technologies could require us to obtain substitute technology of lower quality performance standards, at
greater cost or on a delayed basis, which could harm our business.



Other
parties may have patents or pending patent applications, which will later mature into patents or inventions which may block our ability to operate our system or license our technology. We may have to resort to litigation to enforce our rights under
license agreements or to determine the scope and validity of other parties proprietary rights in the subject matter of those licenses. This may be expensive. Also, we may not succeed in any such litigation.



Third parties may assert claims or bring suit against us for patent or other infringement of
intellectual property rights. Any such litigation could result in substantial cost to, and diversion of effort by, our company, and adverse findings in any proceeding could subject us to significant liabilities to third parties; require us to seek
licenses from third parties; block our ability to operate the XM Radio system or license its technology; or otherwise adversely affect our ability to successfully develop and market the XM Radio system.



Interference from other users could damage our business.



We may be subject to interference from adjacent radio frequency users, such as RF lighting
and ultra-wideband (UWB) technology, if the FCC does not adequately protect us against such interference in its rulemaking process.



Our service network or other ground facilities could be damaged by natural catastrophes.



Since our ground-based network is attached to towers, buildings and other structures around the country, an earthquake, tornado, flood or
other catastrophic event anywhere in the United States could damage our network, interrupt our service and harm our business in the affected area. We have backup central production and broadcast facilities; however, we do not have replacement or
redundant facilities that can be used to assume the functions of our repeater network in the event of a catastrophic event. Any damage to our repeater network would likely result in degradation of our service for some subscribers and could result in
the complete loss of service in affected areas. Damage to our central production and broadcast facility would restrict our production of programming to our backup facilities.



Consumers could steal our service.



Like all radio transmissions, the XM Radio signal is subject to interception. Pirates may be able to obtain or rebroadcast XM Radio without paying the subscription fee.
Although we use encryption technology to mitigate the risk of signal theft, such technology may not be adequate to prevent theft of the XM Radio signal. If widespread, signal theft could harm our business.



We need to obtain rights to programming, which are expensive and could be more costly than
anticipated.



Third-party content is an important part of the marketing of the XM Radio service and obtaining third-party content can be expensive. We have a multi-year agreement with Major League Baseball® (MLB) to broadcast MLB games live nationwide and be the Official Satellite Radio provider of Major League Baseball®, for which we will pay $60
million for 2008 and $60 million per year thereafter through 2012. We have many other agreements and must negotiate new agreements with third-party suppliers of programming. Such programming is expensive, and may be more expensive in the future,
given the growth of the satellite radio industry and amounts paid for other programming. Changes in the cost of certain programming or other factors may cause changes to our channel line-up in the future. Our ability to obtain necessary third-party
content at a reasonable cost and re-negotiate programming agreements successfully will impact our financial performance and results of operations.



24



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We depend on certain on-air talent and other people with special skills. If we cannot retain these people, our
business could suffer.



We employ or independently contract with on-air
talent who maintain significant loyal audiences in or across various demographic groups. We cannot assure that our on-air talent will remain with us or will be able to retain their respective audiences. If we lose the services of one or more of
these individuals, and fail to attract comparable on-air talent with similar audience loyalty, the attractiveness of our service to subscribers and advertisers could decline, and our business could be adversely affected. We also depend on the
continued efforts of our executive officers and key employees, who have specialized technical knowledge regarding our satellite and radio systems and business knowledge regarding the radio industry and subscription services. If we lose the services
of one or more of them, or fail to attract qualified replacement personnel, it could harm our business and our future prospects.



The market price of our securities could be hurt by substantial price and volume fluctuations.



Historically, securities prices and trading volumes for growth stocks fluctuate widely for a number of reasons, including some reasons that
may be unrelated to their businesses or results of operations. This market volatility could depress the price of our securities without regard to our operating performance. In addition, our operating or financial results may be below the
expectations of public market analysts and investors. If this were to occur, the market price of our securities would likely decrease, and such decreases could be significant.



Future issuances or sales of our Class A common stock could lower our stock price or impair our ability to raise funds in new stock
offerings.



We have issued and outstanding securities exercisable for or
convertible into a significant number of shares of our Class A common stock. The conversion or exercise of these existing securities could lead to a significant increase in the amount of Class A common stock outstanding. As of
December 31, 2007, we had outstanding approximately 316.7 million shares of Class A common stock. On a pro forma basis as of December 31, 2007, if we issued all shares issuable upon conversion or exercise of outstanding
securities, we would have had approximately 363.7 million shares of Class A common stock outstanding on that date. Issuances of a large number of additional shares could adversely affect the market price of our Class A common stock.
Most of the shares of our Class A common stock that are not already publicly-traded, including those held by affiliates, have been registered by us for resale into the public market. The sale into the public market of a large number of
privately-issued shares also could adversely affect the market price of our Class A common stock and could impair our ability to raise funds in additional stock offerings.



It may be hard for a third party to acquire us, and this could depress our stock price.



We are a Delaware company with unissued preferred stock, the terms of which can be set by
our board of directors. Our shareholder rights plan, which includes a waiver in respect of our proposed merger with Sirius, could make it difficult for a third party to acquire us, even if doing so would benefit our security holders. The rights
issued under the plan have certain anti-takeover effects. The rights will cause substantial dilution to a person or group that attempts to acquire us in a manner or on terms not approved by our board of directors. The rights should not deter any
prospective offeror willing to negotiate in good faith with our board of directors. Nor should the rights interfere with any merger or other business combination approved by our board of directors. However, anti-takeover provisions in Delaware law
and the shareholder rights plan could depress our stock price and may result in entrenchment of existing management, regardless of their performance.



25



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ITEM  1B.     UNRESOLVED STAFF COMMENTS



None.



ITEM  2.     PROPERTIES



|                         |  |                                                               |  |          
|------------------------ |  | ------------------------------------------------------------- |  | ---------
|Location                 |  | Purpose                                                       |  | Own/Lease
|Washington, DC           |  | Corporate headquarters, studio/production facilities          |  | Own      
|Washington, DC           |  | Data center                                                   |  | Own      
|Merrifield, VA           |  | Office and support facilities                                 |  | Lease    
|Deerfield Beach, Florida |  | Office and technical/engineering facilities                   |  | Lease    
|New York, New York       |  | Office and studio/production facilities                       |  | Lease    
|New York, New York       |  | Studio/production facilities @ Jazz at Lincoln Center         |  | Lease    
|Nashville, Tennessee     |  | Studio/production facilities @ the Country Music Hall of Fame |  | Lease    
|Chicago, Illinois        |  | Studio/production facility                                    |  | Lease    



The corporate headquarters and data
center located in Washington, DC are subject to mortgage liens in favor of the equity owner of the lessor of the transponders of our XM-4 satellite.



The Companys four satellites are in geostationary orbits. In February 2007, we entered into a sale leaseback transaction with respect to the transponders on XM-4.
The lease term for the XM-4 transponders is nine years with an early buy-out option in year five and a buy-out option at the end of the term. The Company also has approximately 800 terrestrial repeaters in operation to ensure XM signal coverage.



ITEM 3.     LEGAL PROCEEDINGS



We are currently subject to claims, potential claims, inquiries or investigations, or party to legal proceedings, in various matters described below. In addition, in the ordinary course of business we become aware
from time to time of claims, potential claims, inquiries or investigations, or may become party to legal proceedings arising out of various matters, such as contract matters, employment related matters, issues relating to our repeater network,
product liability issues, copyright, patent, trademark or other intellectual property matters and other federal regulatory matters.



Litigation and Arbitration



Copyright Royalty Board Arbitration  In December 2007, the Copyright Royalty Board (CRB) issued its determination and order setting the
royalty rate payable by XM under the statutory license covering the performance of sound recordings over the XM system for the six-year period starting in January 1, 2007 and ending December 31, 2012. Under the terms of the CRB Satellite
Radio Services decision, XM will pay a performance license rate of 6.0% of those gross revenues subject to the fees for 2007 and 2008, 6.5% for 2009, 7.0% for 2010, 7.5% for 2011 and 8.0% for 2012. The revenue that is subject to royalty fees
includes subscription revenue from our subscribers and advertising revenues from channels other than those that use only incidental performances of music. Other exclusions and deductions from revenue subject to the statutory license fee include but
are not limited to revenue from channels, programming and products or other services offered for a separate charge where such channels use only incidental performances of sound recordings, revenue from equipment sales, revenue from current and
future data services, fulfillment service fees and bad debt expense. On February 25, 2008, SoundExchange, the organization that collects and distributes sound recording royalties on behalf of its members, filed a petition for review in the U.S.
District Court for the District of Columbia Circuit.



Separately, we settled
the royalty rate payable by XM under the statutory license covering our performance of sound recordings over XM channels transmitted over the DIRECTV satellite television system, and that CRB proceeding was concluded.



Atlantic Recording Corporation, BMG Music, Capital Records, Inc., Elektra Entertainment
Group Inc., Interscope Records, Motown Record Company, L.P., Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records, Inc and Warner Bros. Records Inc. v. XM Satellite Radio Inc.  Plaintiffs filed this action in the United
States District Court for the Southern District of New York on May 16, 2006. The complaint seeks monetary damages and equitable relief, alleging that recently introduced XM radios that also have advanced recording functionality infringe upon
plaintiffs copyrighted sound recordings.



26



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Our motion to dismiss this matter was denied in January 2007. We believe these allegations are without merit and that these products comply with applicable
copyright law, including the Audio Home Recording Act, and we intend to vigorously defend the matter. Music publishing companies and certain other record companies also have filed lawsuits, purportedly on a class basis, with similar allegations.
There can be no assurance regarding the ultimate outcome of these matters, or the significance, if any, to our business, consolidated results of operations or financial position.



In late 2007 and early 2008, the Company resolved the Atlantic lawsuit with respect to Universal Music Group (UMG),
Warner Music Group and Sony BMG Music Entertainment (Sony BMG) and each of UMG, Warner Music Group and Sony BMG have withdrawn as a party to the lawsuit against the Company.



Matthew Enderlin v. XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc.  Plaintiff filed this action in the United
States District Court for the Eastern District of Arkansas on January 10, 2006 on behalf of a purported nationwide class of all XM subscribers. The complaint alleges that we engaged in a deceptive trade practice under Arkansas and other state
laws by representing that our music channels are commercial-free. We have filed an answer to the complaint and instituted arbitration with the American Arbitration Association pursuant to the compulsory arbitration clause in our customer service
agreement. The arbitration has been stayed pending judicial determination of Enderlins objections to the arbitration. The United States Court of Appeals for the Eighth Circuit held on April 17, 2007 that those
objections are to be decided by the trial court, not the arbitrator. We believe the suit is without merit and intend to vigorously defend the matter. There can be no assurance regarding the ultimate outcome of this matter, or the significance, if
any, to our business, consolidated results of operations or financial position.



Regulatory Matters and Inquiries



Federal Communications Commission (FCC)



FCC Receiver Matter  As we have previously disclosed, we have received inquiries from, and responded to, the FCC regarding FM modulator wireless transmitters in various XM radios not in compliance with permissible emission
limits. No health or safety issues have been involved with these wireless XM radios. We have implemented a series of design and installation modifications and we have obtained new certifications for numerous models of modified XM radios using our
new SureConnect technology. In addition, we have implemented a regulatory compliance plan, including the appointment of an FCC regulatory compliance officer, to monitor FCC regulatory compliance, specifically with reference to the design,
verification/certification, and production of XM radio receivers. We have been submitting documents to the FCC and are in discussions with the FCC to resolve this matter. We cannot predict at this time the extent of any further actions that we will
need to undertake or any financial obligations we may incur. There can be no assurance regarding the ultimate outcome of this matter, or its significance to our business, consolidated results of operations or financial position.



FCC Repeater Network Matter  In October 2006, we filed for both a 30-day Special
Temporary Authority (STA) and a 180-day STA with respect to our terrestrial repeater network, seeking authority to continue to operate our entire repeater network despite the fact that the technical characteristics of certain repeaters,
as built, differ from the technical characteristics in the original STAs granted for our repeater network. These differences include some repeaters not being built in the exact locations, or with the same antenna heights, power levels, or antenna
characteristics than set forth in the earlier STAs. Prior to making these filings, we reduced the power or discontinued operation of certain repeaters. As a result, we believe that service quality in portions of the affected metro areas has been
somewhat reduced, including in terms of more frequent interruptions and/or occasional outages to the service. There has been no impact on the satellite signal. We continue to communicate meetings with the staff of the FCC regarding these matters. In
February 2007, we received a letter of inquiry from the FCC relating to these matters, to which we have responded. This proceeding may result in the imposition of financial penalties against us or adverse changes to our repeater network resulting
from having repeaters turned off or otherwise modified in a manner that would reduce service quality in the affected areas.



These STA requests are distinct from (and if granted would modify) the STAs originally granted by the FCC relating to our commencing and continuing operation of the
repeater network. As we have been disclosing for many years, the FCC has not yet issued final rules permitting us (or Sirius) to deploy terrestrial repeaters, and we have been deploying and operating our repeater network based on those early STAs
and requests we have filed previously to extend the time periods of those STAs, which have expired. We (and Sirius) and others have been requesting that the FCC establish final rules for repeater deployment. On December 18, 2007, the FCC
released a Notice of Proposed Rulemaking and Second Further Notice of



27



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Proposed Rulemaking seeking additional comment on the final rules for satellite radio repeaters. We are participating in this phase of the proceeding.
There can be no assurance regarding the ultimate outcome of this matter, or its significance to our business, consolidated results of operations or financial position.



Federal Trade Commission (FTC)



FTC Inquiry  In November 2007, we were notified by the Federal Trade Commission that the FTC was closing its inquiry into XMs marketing
and customer service practices. The FTC launched this inquiry in April 2006 and decided to close it without any action.



Securities and Exchange Commission (SEC)



SEC Inquiry  In December 2007, we were notified by the Staff of the Division of Enforcement of the Securities and Exchange
Commission that the Division has completed its investigation, initiated in August 2006, relating to various matters including our historic practices regarding subscriber data and stock options. The SEC has advised that it does not intend to
recommend any enforcement action.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------



The following matters were submitted to a vote of security holders at XMs Special Meeting of Stockholders held on November 13, 2007.



|                                                                                                                                                                                                                                 |  |             |  |              |  |               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ------------ |  | --------------
|Proposal 1                                                                                                                                                                                                                       |  | VotesFor    |  | VotesAgainst |  | VotesAbstained
|To adopt the Agreement and Plan of Merger, dated as of February 19, 2007, by and among Sirius Satellite Radio Inc., Vernon Merger
Corporation and XM Satellite Radio Holdings Inc., as the same may be amended from time to time |  | 235,176,059 |  | 444,919      |  | 69,960        



28



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------



Market Information



Our Class A common stock has been quoted on The NASDAQ National Market under the symbol XMSR since its initial public
offering on October 5, 1999 at a price to the public of $12.00 per share. The following table presents, for the period indicated, the high and low sales prices per share of the Class A common stock as reported on The NASDAQ National
Market:



|                                         |  |      |       |     |   |      
|---------------------------------------- |  | ---- | ----- | --- | - | -----
|                                         |  | High |       | Low
|2006:                                    |  |      |       |     |   |      
|First Quarter                            |  | $    | 30.46 |     | $ | 19.66
|Second Quarter                           |  |      | 24.21 |     |   | 12.77
|Third Quarter                            |  |      | 14.98 |     |   | 9.63 
|Fourth Quarter                           |  |      | 16.08 |     |   | 9.91 
|                                         |  |     
|2007:                                    |  |      |       |     |   |      
|First Quarter                            |  |      | 17.70 |     |   | 12.80
|Second Quarter                           |  |      | 13.04 |     |   | 10.37
|Third Quarter                            |  |      | 15.03 |     |   | 10.50
|Fourth Quarter                           |  |      | 16.44 |     |   | 11.51
|                                         |  |     
|2008:                                    |  |      |       |     |   |      
|First Quarter (through January 31, 2008) |  |      | 12.90 |     |   | 9.62 



On January 31, 2008, the reported
last sale price of our Class A common stock on The NASDAQ National Market was $12.40 per share. As of January 31, 2008, there were 3,668 holders of record of our Class A common stock.



Dividend Policy



We have not declared or paid any dividends on our Class A common stock since our date of inception. Our senior secured bank credit
facility as well as the indentures governing our subsidiary XM Satellite Radio Inc.s senior notes restricts XM Satellite Radio Inc. from paying dividends to us, which, in turn, will significantly limit our ability to pay dividends. We do not
intend to pay cash dividends on our Class A common stock in the foreseeable future. We anticipate that we will retain any earnings for use in our operations and the expansion of our business.



Purchases of Equity Securities



The following purchases of the Companys Class A common stock were completed
during the three months ended December 31, 2007.



|                                     |  |                                     |  |                             |       |                                                                              |   |                                                                                                          |  
|------------------------------------ |  | ----------------------------------- |  | --------------------------- | ----- | ---------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------- | -
|                                     |  | Total Number ofShares Purchased (1) |  | Average PricePaid per Share |       | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans orPrograms |   | Maximum Number(or Approximate Dollar Value)of Shares that May Yet BePurchased Under thePlans or Programs
|October 1, 2007 - October 31, 2007   |  |                                    |  | $                           |      |                                                                              |  |                                                                                                          | 
|November 1, 2007 - November 30, 2007 |  | 29,578                              |  | $                           | 14.03 |                                                                              |  |                                                                                                          | 
|December 1, 2007 - December 31, 2007 |  |                                    |  | $                           |      |                                                                              |  |                                                                                                          | 

---

|(1) | Represents the number of shares acquired as payment by employees of applicable statutory minimum withholding taxes owed upon vesting of restricted stock granted under the
Companys 1998 Shares Award Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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Stockholder Return Performance Graph



The following graph shows the cumulative total stockholder return on the Companys Class A common stock compared to the
Standard & Poors 500 Stock Index, the NASDAQ Telecommunications Index, composed of publicly traded companies which are principally in the telecommunications business, and the NASDAQ 100 Stock Index for the periods between
December 31, 2002 and December 31, 2007. The Company has included the NASDAQ 100 Stock Index, which represents the largest non-financial companies listed on The NASDAQ Stock Market based on market capitalization, because it was added to
this index in December 2004. The graph assumes $100 was invested on December 31, 2002 in (1) the Companys Class A common stock, (2) the Standard & Poors 500 Stock Index, (3) the NASDAQ Telecommunications
Index and (4) the NASDAQ 100 Index. Total stockholder return is measured by dividing total dividends, assuming dividend reinvestment, plus share price change for a period by the share price at the beginning of the measurement period.



COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

AMONG XM SATELLITE RADIO HOLDINGS INC., THE S&P 500 INDEX,

THE NASDAQ TELECOMMUNICATIONS INDEX AND THE NASDAQ 100 INDEX



LOGO



| | * | $100 invested on 12/31/2002 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.
| | - | ------------------------------------------------------------------------------------------------------------------



Stockholder Return Performance Table



|                  |  |                               |        |               |   |                  |  |                                 |        |  |   |         
|----------------- |  | ----------------------------- | ------ | ------------- | - | ---------------- |  | ------------------------------- | ------ |  | - | --------
|                  |  | NasdaqTelecommunicationsIndex |        | S&P 500 Index |   | Nasdaq 100 Index |  | XM Satellite RadioHoldings Inc.
|December 31, 2002 |  | $                             | 100.00 |               | $ | 100.00           |  | $                               | 100.00 |  | $ | 100.00  
|December 31, 2003 |  |                               | 168.74 |               |   | 126.38           |  |                                 | 149.12 |  |   | 977.32  
|December 31, 2004 |  |                               | 182.23 |               |   | 137.75           |  |                                 | 164.69 |  |   | 1,398.51
|December 31, 2005 |  |                               | 169.09 |               |   | 141.88           |  |                                 | 167.13 |  |   | 1,014.13
|December 31, 2006 |  |                               | 216.03 |               |   | 161.20           |  |                                 | 178.48 |  |   | 537.17  
|December 31, 2007 |  |                               | 235.85 |               |   | 166.89           |  |                                 | 211.80 |  |   | 455.02  



30



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ITEM 6.    SELECTED FINANCIAL DATA



XM Satellite Radio Holdings Inc. and Subsidiaries



In
considering the following selected consolidated financial data, you should also read our Consolidated Financial Statements and accompanying Notes, and the section captioned Managements Discussion and Analysis of Financial Condition
and Results of Operations. The Consolidated Statements of Operations data for the five-year period ended December 31, 2007 and the Consolidated Balance Sheets data as of December 31, 2007, 2006, 2005, 2004 and 2003 are derived
from our Consolidated Financial Statements. These statements have been audited by KPMG LLP, independent registered public accounting firm. We have not declared or paid any dividends on our Class A common stock since our date of inception.



|                                                                                      |  |                          |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ----------- | - |  | - | ----------- | -
|                                                                                      |  | Years ended December 31, |            
|(in thousands, except share and per share data)                                       |  | 2007                     |             |   | 2006 |   |             | 2005 |  |   | 2004        |   |  | 2003 |            
|Revenue                                                                               |  | $                        | 1,136,542   |   |      | $ | 933,417     |      |  | $ | 558,266     |   |  | $    | 244,443     |   |  | $ | 91,781      |  
|Cost of revenue                                                                       |  |                          | 769,116     |   |      |   | 590,738     |      |  |   | 405,293     |   |  |      | 201,935     |   |  |   | 147,952     |  
|General & administrative (excludes depreciation & amortization)                       |  |                          | 150,109     |   |      |   | 88,626      |      |  |   | 43,864      |   |  |      | 28,555      |   |  |   | 27,418      |  
|Marketing (excludes depreciation & amortization)                                      |  |                          | 508,481     |   |      |   | 450,843     |      |  |   | 487,556     |   |  |      | 304,316     |   |  |   | 200,267     |  
|Total operating expenses                                                              |  |                          | 1,647,979   |   |      |   | 1,336,515   |      |  |   | 1,113,801   |   |  |      | 705,484     |   |  |   | 546,239     |  
|Operating loss                                                                        |  |                          | (511,437    | ) |      |   | (403,098    | )    |  |   | (555,535    | ) |  |      | (461,041    | ) |  |   | (454,458    | )
|Interest expense                                                                      |  |                          | (116,605    | ) |      |   | (121,304    | )    |  |   | (107,791    | ) |  |      | (85,757     | ) |  |   | (110,349    | )
|Loss from de-leveraging transactions                                                  |  |                          | (3,693      | ) |      |   | (122,189    | )    |  |   | (27,552     | ) |  |      | (76,621     | ) |  |   | (24,749     | )
|Loss from impairment of investments                                                   |  |                          | (39,665     | ) |      |   | (76,572     | )    |  |   |            |   |  |      |            |   |  |   |            |  
|Total other income (expense)                                                          |  |                          | (171,883    | ) |      |   | (315,788    | )    |  |   | (108,850    | ) |  |      | (154,010    | ) |  |   | (130,077    | )
|Benefit from (provision for) deferred income taxes                                    |  |                          | 939         |   |      |   | 14          |      |  |   | (2,330      | ) |  |      | (27,317     | ) |  |   |            |  
|Net loss                                                                              |  |                          | (682,381    | ) |      |   | (718,872    | )    |  |   | (666,715    | ) |  |      | (642,368    | ) |  |   | (584,535    | )
|Net loss attributable to common stockholders                                          |  |                          | (682,381    | ) |      |   | (731,692    | )    |  |   | (675,312    | ) |  |      | (651,170    | ) |  |   | (604,880    | )
|Net loss per common sharebasic and diluted                                           |  | $                        | (2.22       | ) |      | $ | (2.70       | )    |  | $ | (3.07       | ) |  | $    | (3.30       | ) |  | $ | (4.83       | )
|Weighted average shares used in computing net loss per common sharebasic and diluted |  |                          | 306,700,022 |   |      |   | 270,586,682 |      |  |   | 219,620,468 |   |  |      | 197,317,607 |   |  |   | 125,176,320 |  
|                                                                                      |  |                          |             |   |     
|Other Data:                                                                           |  |                          |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Adjusted operating loss(1)                                                            |  | $                        | (238,042    | ) |      | $ | (166,172    | )    |  | $ | (403,699    | ) |  | $    | (311,856    | ) |  | $ | (293,138    | )
|Total ending subscribers(2)                                                           |  |                          | 9,027       |   |      |   | 7,629       |      |  |   | 5,933       |   |  |      | 3,229       |   |  |   | 1,360       |  
|Cash flow from operating activities                                                   |  | $                        | (154,730    | ) |      | $ | (462,091    | )    |  | $ | (166,717    | ) |  | $    | (75,205     | ) |  | $ | (245,123    | )
|Cash flow from investing activities                                                   |  | $                        | (131,515    | ) |      | $ | (264,447    | )    |  | $ | (206,123    | ) |  | $    | (36,329     | ) |  | $ | 14,621      |  
|Cash flow from financing activities                                                   |  | $                        | 224,715     |   |      | $ | 233,763     |      |  | $ | 365,964     |   |  | $    | 411,094     |   |  | $ | 615,991     |  
|                                                                                      | 
|                                                                                      |  | December 31,             |            
|(in thousands)                                                                        |  | 2007                     |             |   | 2006 |   |             | 2005 |  |   | 2004        |   |  | 2003 |            
|Selected Balance Sheet Data:                                                          |  |                          |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Cash and cash equivalents(3)                                                          |  | $                        | 156,686     |   |      | $ | 218,216     |      |  | $ | 710,991     |   |  | $    | 717,867     |   |  | $ | 418,307     |  
|System under construction                                                             |  |                          | 151,142     |   |      |   | 126,049     |      |  |   | 216,527     |   |  |      | 329,355     |   |  |   | 92,577      |  
|Property and equipment, net                                                           |  |                          | 710,370     |   |      |   | 849,662     |      |  |   | 673,672     |   |  |      | 461,333     |   |  |   | 709,501     |  
|DARS license                                                                          |  |                          | 141,412     |   |      |   | 141,387     |      |  |   | 141,276     |   |  |      | 141,227     |   |  |   | 141,200     |  
|Investments                                                                           |  |                          | 36,981      |   |      |   | 80,592      |      |  |   | 187,403     |   |  |      |            |   |  |   |            |  
|Total assets                                                                          |  |                          | 1,609,230   |   |      |   | 1,840,618   |      |  |   | 2,223,661   |   |  |      | 1,821,635   |   |  |   | 1,526,782   |  
|Total subscriber deferred revenue                                                     |  |                          | 514,926     |   |      |   | 427,193     |      |  |   | 360,638     |   |  |      | 152,347     |   |  |   | 53,884      |  
|Total deferred income                                                                 |  |                          | 134,803     |   |      |   | 140,695     |      |  |   | 151,210     |   |  |      |            |   |  |   |            |  
|Long-term debt, net of current portion                                                |  |                          | 1,480,639   |   |      |   | 1,286,179   |      |  |   | 1,035,584   |   |  |      | 948,741     |   |  |   | 743,254     |  
|Total liabilities                                                                     |  |                          | 2,533,787   |   |      |   | 2,238,498   |      |  |   | 2,142,713   |   |  |      | 1,485,472   |   |  |   | 993,894     |  
|Stockholders equity (deficit)(4)                                                     |  |                          | (984,303    | ) |      |   | (397,880    | )    |  |   | 80,948      |   |  |      | 336,163     |   |  |   | 532,888     |  



31



---

---

|(1) | Adjusted operating loss is net loss before interest income, interest expense, income taxes, depreciation and amortization, loss from de-leveraging transactions, loss from impairment
of investments, equity in net loss of affiliate, minority interest, other income (expense) and share-based payment expense. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of
operations. We believe Adjusted operating loss is a useful measure of our operating performance and improves comparability between periods. Adjusted operating loss is a significant basis used by management to measure our success in acquiring,
retaining and servicing subscribers because we believe this measure provides insight into our ability to grow revenues in a cost-effective manner. We believe Adjusted operating loss is a calculation used as a basis for investors, analysts and credit
rating agencies to evaluate and compare the periodic and future operating performances and value of our company and similar companies in our industry.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Because we have funded the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for
depreciation, amortization and interest expense. We believe Adjusted operating loss provides helpful information about the operating performance of our business apart from the expenses associated with our physical plant or capital structure. We
believe it is appropriate to exclude depreciation, amortization and interest expense due to the variability of the timing of capital expenditures, estimated useful lives and fluctuation in interest rates. We exclude income taxes due to our tax
losses and timing differences, so that certain periods will reflect a tax benefit, while others an expense, neither of which is reflective of our operating results. Because of the variety of equity awards used by companies, the varying methodologies
for determining share-based payment expense and the subjective assumptions involved in those determinations, we believe excluding share-based payment expense enhances the ability of management and investors to compare our core operating results with
those of similar companies in our industry.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Equity in net loss of affiliate represents our share of losses in a non-US affiliate in a similar business and over which we exercise significant influence, but do not control.
Management believes it is appropriate to exclude this loss when evaluating the performance of our own operations. Additionally, we exclude loss from de-leveraging transactions, loss from impairment of investments, minority interest and other income
(expense) because these items represent activity outside of our core business operations and can distort period to period comparisons of operating performance.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | There are limitations associated with the use of Adjusted operating loss in evaluating our company compared with net loss, which reflects overall financial performance. Adjusted
operating loss does not reflect the impact on our financial results of (i) interest income, (ii) interest expense, (iii) income taxes, (iv) depreciation and amortization, (v) loss from de-leveraging transactions,
(vi) loss from impairment of investments, (vii) equity in net loss of affiliate, (viii) minority interest, (ix) other income (expense) and (x) share-based payment expense, which are included in the computation of net loss.
Users that wish to compare and evaluate our company based on our net loss should refer to our Consolidated Statements of Operations. Adjusted operating loss does not purport to represent operating loss or cash flow from operating activities, as
those terms are defined under United States generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance. In addition, our measure of Adjusted operating loss may
not be comparable to similarly titled measures of other companies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The calculation of Adjusted operating loss is shown below (in thousands):
| | -------------------------------------------------------------------------



|                                                               |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|-------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                               |  | Years ended December 31, |         
|(in thousands, except percentages)                             |  | 2007                     |          |   | 2006 |   |          | 2005 |  |   | 2004     |   |  | 2003 |         
|Reconciliation of Net loss to Adjusted operating loss:         |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net loss as reported                                           |  | $                        | (682,381 | ) |      | $ | (718,872 | )    |  | $ | (666,715 | ) |  | $    | (642,368 | ) |  | $ | (584,535 | )
|Add back Net loss items excluded from Adjusted operating loss: |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Interest income                                                |  |                          | (14,084  | ) |      |   | (21,664  | )    |  |   | (23,586  | ) |  |      | (6,239   | ) |  |   | (3,066   | )
|Interest expense                                               |  |                          | 116,605  |   |      |   | 121,304  |      |  |   | 107,791  |   |  |      | 85,757   |   |  |   | 110,349  |  
|Provision for (benefit from) deferred income taxes             |  |                          | (939     | ) |      |   | (14      | )    |  |   | 2,330    |   |  |      | 27,317   |   |  |   |         |  
|Loss from de-leveraging transactions                           |  |                          | 3,693    |   |      |   | 122,189  |      |  |   | 27,552   |   |  |      | 76,621   |   |  |   | 24,749   |  
|Loss from impairment of investments                            |  |                          | 39,665   |   |      |   | 76,572   |      |  |   |         |   |  |      |         |   |  |   |         |  
|Equity in net loss of affiliate                                |  |                          | 16,491   |   |      |   | 23,229   |      |  |   | 482      |   |  |      |         |   |  |   |         |  
|Minority interest                                              |  |                          | 11,532   |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Other (income) expense                                         |  |                          | (2,019   | ) |      |   | (5,842   | )    |  |   | (3,389   | ) |  |      | (2,129   | ) |  |   | (1,955   | )
|                                                               |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Operating loss                                                 |  |                          | (511,437 | ) |      |   | (403,098 | )    |  |   | (555,535 | ) |  |      | (461,041 | ) |  |   | (454,458 | )
|Depreciation & amortization                                    |  |                          | 187,196  |   |      |   | 168,880  |      |  |   | 145,870  |   |  |      | 147,165  |   |  |   | 158,317  |  
|Share-based payment expense                                    |  |                          | 86,199   |   |      |   | 68,046   |      |  |   | 5,966    |   |  |      | 2,020    |   |  |   | 3,003    |  
|                                                               |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Adjusted operating loss                                        |  | $                        | (238,042 | ) |      | $ | (166,172 | )    |  | $ | (403,699 | ) |  | $    | (311,856 | ) |  | $ | (293,138 | )
|                                                               |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  



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

|(3) | In addition to the Cash and cash equivalents available to the Company, the Company has a $250 million credit facility with a group of banks, of which $187.5 million has been drawn
through February 28, 2008, and a $150 million credit facility with GM.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We have not declared or paid any dividends on our Class A common stock since our date of inception.
|--- | ---------------------------------------------------------------------------------------------------



32



---

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our
financial condition and consolidated results of operations. Expectations of our future financial condition and results of operations are based on our current business plan. This discussion should be read together with our Consolidated Financial
Statements and accompanying Notes beginning on page F-1 in Item 8. of this Form 10-K.



Proposed Merger



On February 19,
2007, XM and Sirius Satellite Radio Inc. (Sirius) entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which XM and Sirius will combine our businesses through a merger of XM and a newly formed,
wholly owned subsidiary of Sirius (the Merger).



Each of XM and
Sirius has made customary representations and warranties and covenants in the Merger Agreement. The completion of the Merger is subject to various closing conditions, including receiving certain regulatory and antitrust approvals (including from the
Federal Communications Commission (FCC) and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended).



We filed a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), with respect to the
transactions contemplated by the Merger Agreement between XM and Sirius. On April 12, 2007, both we and Sirius received from the Department of Justice requests for additional information and documentary material relating to the merger,
generally referred to as a Second Request. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after we and Sirius have substantially complied with the Second Request. On
September 4, 2007, each of XM and Sirius certified to the Department of Justice that it was in substantial compliance with the Second Request.



On March 20, 2007, we and Sirius filed a Consolidated Application for Authority to Transfer Control with the FCC with respect to the Merger Agreement. On
June 8, 2007, the FCC released a Public Notice announcing that the application had been accepted for filing and establishing deadlines of July 9, 2007 for comments and July 24, 2007 for reply comments. On July 24, 2007, we
and Sirius filed a reply to the comments to our merger application. On June 27, 2007, the FCC released a related Notice of Proposed Rule Making asking for comment on whether language in the FCCs 1997 Order establishing the satellite
radio service concerning the transfer of such licenses constitutes a binding rule and, if so, whether the FCC should waive, modify, or repeal the rule if the FCC determines that the proposed merger would serve the public interest. On November 2,
2007, we and Sirius each received from the FCC requests for more information and documentary material related to the proposed merger. On November 16, 2007, we and Sirius each submitted written responses and documents to the agency in response to
these requests.



Executive Summary



We are Americas leading satellite radio service company, providing music, news, talk,
information, entertainment and sports programming for reception by vehicle, home and portable radios nationwide and over the Internet to over 9.1 million subscribers to date. Our basic monthly subscription fee is $12.95. We believe XM Radio
appeals to consumers because of our innovative and diverse programming, nationwide coverage, many commercial-free music channels and digital sound quality. Our channel lineup includes more than 170 digital channels of choice from coast to coast. We
broadcast from our studios in Washington, DC, New York City, including Jazz at Lincoln Center, Chicago and the Country Music Hall of Fame in Nashville.



Our target market includes the more than 240 million registered vehicles including the 16.1 million new cars sold each year as well as the over 110 million
households in the United States. Broad distribution of XM Radio through new automobiles and through mass market retailers is central to our business strategy. We are the leader in satellite-delivered entertainment and data services for new vehicles
through partnerships with General Motors, Honda/Acura, Toyota/Lexus/Scion, Hyundai and Nissan/Infiniti, among others, and available in more than 140 different vehicle models for model year 2008. XM radios are available under various brand names at
national consumer electronics retailers, such as Best Buy, Circuit City, Wal-Mart, Target and other national and regional retailers, as well as through our website. These mass market retailers support our expanded line of car stereo, home stereo,
plug and play and portable handheld products.



33



---

Highlights



We summarize our business growth and operational results through the metrics of subscriber growth, revenue growth, ARPU, SAC, CPGA and Adjusted operating loss as follows:



| |  |  | Ending subscribers increased from 7.63 million at the end of the 2006 to 9.03 million at the end 2007.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Total revenue increased from $933.4 million in the year ended December 31, 2006 to $1,136.5 million in the year ended December 31, 2007, a 22% year over
year increase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Average monthly subscription revenue per subscriber (ARPU) increased from $10.09 in 2006 to $10.15 in 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Subscriber Acquisition Costs (SAC) increased from $65 in 2006 to $75 in 2007.
| | - |  | -------------------------------------------------------------------------------



| |  |  | Cost Per Gross Addition (CPGA) increased from $108 in 2006 to $121 in 2007.
| | - |  | -----------------------------------------------------------------------------



| |  |  | Adjusted operating loss increased from $166.2 million in the year ended December 31, 2006 to $238.0 million in the year ended December 31, 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On February 13, 2007, we entered into a sale-leaseback transaction with respect to the transponders on the XM-4 satellite, which was launched in October 2006
and placed into service during December 2006. We received net proceeds of $288.5 million from the transaction, of which $44 million (inclusive of interest) was used to retire outstanding mortgages on real property and the remainder of which provides
additional liquidity available for working capital and general corporate purposes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34



---

We summarize our business growth and operational results through the metrics of subscriber data, revenue data, SAC, CPGA
and Adjusted operating loss. Greater detail regarding these key metrics we use to monitor our business growth and our operational results are as follows:



|                                                                        |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|----------------------------------------------------------------------- |  | ------------------------ | -------- | - | ------------------ | - | -------- | ------------------ |  | - | -------- | - |  | - | ------- | - | ------ | --- | - | - | - | ------- | - |  | --- | -
|                                                                        |  | Years ended December 31, |          |   | 2007 - 2006 Change |   |          | 2006 - 2005 Change | 
|                                                                        |  | 2007                     |          |   | 2006               |   |          | 2005               |  |   | Amount   |   |  | % |         |   | Amount |     |   | % |  
|Subscriber Data (in thousands, except percentages):                     |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|OEM Gross Subscriber Additions (1)                                      |  |                          | 2,622    |   |                    |   | 2,085    |                    |  |   | 1,916    |   |  |   | 537     |   |        | 26  | % |   |   | 169     |   |  | 9   | %
|Retail Gross Subscriber Additions (2)                                   |  |                          | 1,269    |   |                    |   | 1,781    |                    |  |   | 2,214    |   |  |   | (512    | ) |        | -29 | % |   |   | (433    | ) |  | -20 | %
|                                                                        |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|Total Gross Subscriber Additions (3)                                    |  |                          | 3,891    |   |                    |   | 3,866    |                    |  |   | 4,130    |   |  |   | 25      |   |        | 1   | % |   |   | (264    | ) |  | -6  | %
|OEM Net Subscriber Additions (1)                                        |  |                          | 1,213    |   |                    |   | 884      |                    |  |   | 981      |   |  |   | 329     |   |        | 37  | % |   |   | (97     | ) |  | -10 | %
|Retail Net Subscriber Additions (2)                                     |  |                          | 185      |   |                    |   | 812      |                    |  |   | 1,723    |   |  |   | (627    | ) |        | -77 | % |   |   | (911    | ) |  | -53 | %
|                                                                        |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|Total Net Subscriber Additions (4)                                      |  |                          | 1,398    |   |                    |   | 1,696    |                    |  |   | 2,703    |   |  |   | (298    | ) |        | -18 | % |   |   | (1,007  | ) |  | -37 | %
|Conversion Rate (5)                                                     |  |                          | 52.7     | % |                    |   | 53.3     | %                  |  |   | 56.9     | % |  |   | (0.6    | ) |        | -1  | % |   |   | (3.6    | ) |  | -6  | %
|Monthly Churn Rate (6)                                                  |  |                          | 1.75     | % |                    |   | 1.77     | %                  |  |   | 1.46     | % |  |   | (0.02   | ) |        | -1  | % |   |   | 0.31    |   |  | 21  | %
|OEM Subscribers                                                         |  |                          | 3,590    |   |                    |   | 2,655    |                    |  |   | 1,827    |   |  |   | 935     |   |        | 35  | % |   |   | 828     |   |  | 45  | %
|Retail Subscribers                                                      |  |                          | 4,552    |   |                    |   | 4,380    |                    |  |   | 3,582    |   |  |   | 172     |   |        | 4   | % |   |   | 798     |   |  | 22  | %
|Subscribers in OEM Promotional Periods                                  |  |                          | 777      |   |                    |   | 555      |                    |  |   | 461      |   |  |   | 222     |   |        | 40  | % |   |   | 94      |   |  | 20  | %
|XM Activated Vehicles with Rental Car Companies                         |  |                          | 61       |   |                    |   | 5        |                    |  |   | 44       |   |  |   | 56      |   |        | NM  |   |   |   | (39     | ) |  | -89 | %
|Data Services Subscribers                                               |  |                          | 46       |   |                    |   | 33       |                    |  |   | 19       |   |  |   | 13      |   |        | 39  | % |   |   | 14      |   |  | 74  | %
|                                                                        |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|Total Ending Subscribers (7)                                            |  |                          | 9,027    |   |                    |   | 7,629    |                    |  |   | 5,933    |   |  |   | 1,398   |   |        | 18  | % |   |   | 1,696   |   |  | 29  | %
|Percentage of Ending Subscribers on Annual and Multi-Year Plans         |  |                          | 44.8     | % |                    |   | 44.2     | %                  |  |   | 42.4     | % |  |   | 0.6     |   |        | 1   | % |   |   | 1.8     |   |  | 4   | %
|Percentage of Ending Subscribers on Family Plans                        |  |                          | 23.6     | % |                    |   | 22.5     | %                  |  |   | 19.0     | % |  |   | 1.1     |   |        | 5   | % |   |   | 3.5     |   |  | 18  | %
|Revenue Data (monthly average):                                         |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|Subscription Revenue per Retail, OEM & Other Subscriber                 |  | $                        | 10.39    |   |                    | $ | 10.37    |                    |  | $ | 9.97     |   |  | $ | 0.02    |   |        | 0   | % |   | $ | 0.40    |   |  | 4   | %
|Subscription Revenue per Subscriber in OEM Promotional Periods          |  | $                        | 6.15     |   |                    | $ | 6.23     |                    |  | $ | 5.79     |   |  | $ | (0.08   | ) |        | -1  | % |   | $ | 0.44    |   |  | 8   | %
|Subscription Revenue per XM Activated Vehicle with Rental Car Companies |  | $                        | 7.03     |   |                    | $ | 5.96     |                    |  | $ | 9.88     |   |  | $ | 1.07    |   |        | 18  | % |   | $ | (3.92   | ) |  | -40 | %
|Subscription Revenue per Subscriber of Data Services                    |  | $                        | 34.77    |   |                    | $ | 31.74    |                    |  | $ | 34.23    |   |  | $ | 3.03    |   |        | 10  | % |   | $ | (2.49   | ) |  | -7  | %
|Average Monthly Subscription Revenue per Subscriber (ARPU) (8)        |  | $                        | 10.15    |   |                    | $ | 10.09    |                    |  | $ | 9.51     |   |  | $ | 0.06    |   |        | 1   | % |   | $ | 0.58    |   |  | 6   | %
|Net Ad Sales Revenue per Subscriber                                     |  | $                        | 0.40     |   |                    | $ | 0.43     |                    |  | $ | 0.38     |   |  | $ | (0.03   | ) |        | -7  | % |   | $ | 0.05    |   |  | 13  | %
|Activation, Merchandise and Other Revenue per Subscriber                |  | $                        | 0.93     |   |                    | $ | 0.89     |                    |  | $ | 0.68     |   |  | $ | 0.04    |   |        | 4   | % |   | $ | 0.21    |   |  | 31  | %
|                                                                        |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|Total Revenue per Subscriber                                            |  | $                        | 11.48    |   |                    | $ | 11.41    |                    |  | $ | 10.57    |   |  | $ | 0.07    |   |        | 1   | % |   | $ | 0.84    |   |  | 8   | %
|Expense Data:                                                           |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |         |   |        |     |   |   |   |         |   |  |     |  
|Subscriber Acquisition Costs (SAC) (9)                                |  | $                        | 75       |   |                    | $ | 65       |                    |  | $ | 65       |   |  | $ | 10      |   |        | 15  | % |   | $ |        |   |  | 0   | %
|Cost Per Gross Addition (CPGA) (10)                                   |  | $                        | 121      |   |                    | $ | 108      |                    |  | $ | 109      |   |  | $ | 13      |   |        | 12  | % |   | $ | (1      | ) |  | -1  | %
|Adjusted operating loss (in thousands) (11)                             |  | $                        | (238,042 | ) |                    | $ | (166,172 | )                  |  | $ | (403,699 | ) |  | $ | (71,870 | ) |        | 43  | % |   | $ | 237,527 |   |  | -59 | %

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



NM  Not Meaningful

---

|(1) | OEM subscribers include subscribers in OEM promotional periods as well as XM activated vehicles with rental car companies.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(2) | Retail subscribers include data services subscribers.
|--- | -----------------------------------------------------

|(3) | Gross Subscriber Additions are paying subscribers newly activated in the reporting period.
|--- | ------------------------------------------------------------------------------------------

|(4) | Net Subscriber Additions represent the total net incremental paying subscribers added during the period (Gross Subscriber Additions less disconnects).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Conversion Rate  See definition and further discussion underOEM Promotional Subscribers on page 39.
|--- | ----------------------------------------------------------------------------------------------------

|(6) | Monthly Churn Rate represents the average percentage of self-paying Retail, OEM & Other Subscribers that discontinued service during the month divided by the monthly
weighted average ending subscribers. Monthly Churn Rate does not include OEM promotional period deactivations or deactivations resulting from the change-out of XM-enabled rental car activity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Subscribers  See definition and further discussion underSubscribers on page 38.
|--- | --------------------------------------------------------------------------------

|(8) | Subscription Revenue includes monthly subscription revenues for our satellite audio service and data services, net of any promotions or discounts.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | SAC  See definition and further discussion underSubscriber Acquisition Costs on page 44. The previously reported amount under the prior definition for the years ended
December 31, 2006 and 2005 was $64 for each year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | CPGA  See definition and further discussion underCost Per Gross Addition on page 45. The previously reported amount under the prior definition for the years ended
December 31, 2006 and 2005 was $108 and $109, respectively.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Adjusted operating loss  SeeReconciliation of Net Loss to Adjusted operating loss on page 46.
|---- | ----------------------------------------------------------------------------------------------



35



---

Results of Operations



|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|-------------------------------------------------- |  | ------------------------ | --------- | - | ------------------ | - | --------- | ------------------ |  | - | --------- | - |  | - | -------- | - | - | --- | - | - | - | ------- | - |  | ---- | -
|                                                   |  | Years ended December 31, |           |   | 2007 - 2006 Change |   |           | 2006 - 2005 Change | 
|(in thousands, except percentages)                 |  | 2007                     |           |   | 2006               |   |           | 2005               |  |   | $         |   |  | % |          |   | $ |     |   | % |  
|Revenue:                                           |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Subscription                                       |  | $                        | 1,005,479 |   |                    | $ | 825,626   |                    |  | $ | 502,612   |   |  | $ | 179,853  |   |   | 22  | % |   | $ | 323,014 |   |  | 64   | %
|Activation                                         |  |                          | 19,354    |   |                    |   | 16,192    |                    |  |   | 10,066    |   |  |   | 3,162    |   |   | 20  | % |   |   | 6,126   |   |  | 61   | %
|Merchandise                                        |  |                          | 28,333    |   |                    |   | 21,720    |                    |  |   | 18,182    |   |  |   | 6,613    |   |   | 30  | % |   |   | 3,538   |   |  | 19   | %
|Net ad sales                                       |  |                          | 39,148    |   |                    |   | 35,330    |                    |  |   | 20,103    |   |  |   | 3,818    |   |   | 11  | % |   |   | 15,227  |   |  | 76   | %
|Other                                              |  |                          | 44,228    |   |                    |   | 34,549    |                    |  |   | 7,303     |   |  |   | 9,679    |   |   | 28  | % |   |   | 27,246  |   |  | 373  | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total revenue                                      |  |                          | 1,136,542 |   |                    |   | 933,417   |                    |  |   | 558,266   |   |  |   | 203,125  |   |   | 22  | % |   |   | 375,151 |   |  | 67   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Variable costs of revenue(1):                      |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Revenue share & royalties                          |  |                          | 256,344   |   |                    |   | 149,010   |                    |  |   | 93,874    |   |  |   | 107,334  |   |   | 72  | % |   |   | 55,136  |   |  | 59   | %
|Customer care & billing operations                 |  |                          | 126,776   |   |                    |   | 104,871   |                    |  |   | 76,222    |   |  |   | 21,905   |   |   | 21  | % |   |   | 28,649  |   |  | 38   | %
|Cost of merchandise                                |  |                          | 62,003    |   |                    |   | 48,949    |                    |  |   | 40,707    |   |  |   | 13,054   |   |   | 27  | % |   |   | 8,242   |   |  | 20   | %
|Ad sales                                           |  |                          | 20,592    |   |                    |   | 15,961    |                    |  |   | 10,058    |   |  |   | 4,631    |   |   | 29  | % |   |   | 5,903   |   |  | 59   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total variable cost of revenue                     |  |                          | 465,715   |   |                    |   | 318,791   |                    |  |   | 220,861   |   |  |   | 146,924  |   |   | 46  | % |   |   | 97,930  |   |  | 44   | %
|Non-variable costs of revenue(2):                  |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Satellite & terrestrial                            |  |                          | 54,434    |   |                    |   | 49,019    |                    |  |   | 42,355    |   |  |   | 5,415    |   |   | 11  | % |   |   | 6,664   |   |  | 16   | %
|Broadcast & operations:                            |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Broadcast                                          |  |                          | 26,602    |   |                    |   | 23,049    |                    |  |   | 16,609    |   |  |   | 3,553    |   |   | 15  | % |   |   | 6,440   |   |  | 39   | %
|Operations                                         |  |                          | 38,465    |   |                    |   | 34,683    |                    |  |   | 24,460    |   |  |   | 3,782    |   |   | 11  | % |   |   | 10,223  |   |  | 42   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total broadcast & operations                       |  |                          | 65,067    |   |                    |   | 57,732    |                    |  |   | 41,069    |   |  |   | 7,335    |   |   | 13  | % |   |   | 16,663  |   |  | 41   | %
|Programming & content                              |  |                          | 183,900   |   |                    |   | 165,196   |                    |  |   | 101,008   |   |  |   | 18,704   |   |   | 11  | % |   |   | 64,188  |   |  | 64   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total non-variable cost of revenue                 |  |                          | 303,401   |   |                    |   | 271,947   |                    |  |   | 184,432   |   |  |   | 31,454   |   |   | 12  | % |   |   | 87,515  |   |  | 47   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total cost of revenue                              |  |                          | 769,116   |   |                    |   | 590,738   |                    |  |   | 405,293   |   |  |   | 178,378  |   |   | 30  | % |   |   | 185,445 |   |  | 46   | %
|Other operating expenses:                          |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Research & development                             |  |                          | 33,077    |   |                    |   | 37,428    |                    |  |   | 31,218    |   |  |   | (4,351   | ) |   | -12 | % |   |   | 6,210   |   |  | 20   | %
|General & administrative                           |  |                          | 150,109   |   |                    |   | 88,626    |                    |  |   | 43,864    |   |  |   | 61,483   |   |   | 69  | % |   |   | 44,762  |   |  | 102  | %
|Retention & support                                |  |                          | 44,580    |   |                    |   | 31,842    |                    |  |   | 22,275    |   |  |   | 12,738   |   |   | 40  | % |   |   | 9,567   |   |  | 43   | %
|Subsidies & distribution                           |  |                          | 259,143   |   |                    |   | 224,862   |                    |  |   | 245,593   |   |  |   | 34,281   |   |   | 15  | % |   |   | (20,731 | ) |  | -8   | %
|Advertising & marketing                            |  |                          | 178,743   |   |                    |   | 164,379   |                    |  |   | 182,438   |   |  |   | 14,364   |   |   | 9   | % |   |   | (18,059 | ) |  | -10  | %
|Amortization of GM liability                       |  |                          | 26,015    |   |                    |   | 29,760    |                    |  |   | 37,250    |   |  |   | (3,745   | ) |   | -13 | % |   |   | (7,490  | ) |  | -20  | %
|Depreciation & amortization                        |  |                          | 187,196   |   |                    |   | 168,880   |                    |  |   | 145,870   |   |  |   | 18,316   |   |   | 11  | % |   |   | 23,010  |   |  | 16   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total other operating expenses                     |  |                          | 878,863   |   |                    |   | 745,777   |                    |  |   | 708,508   |   |  |   | 133,086  |   |   | 18  | % |   |   | 37,269  |   |  | 5    | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Total operating expenses                           |  |                          | 1,647,979 |   |                    |   | 1,336,515 |                    |  |   | 1,113,801 |   |  |   | 311,464  |   |   | 23  | % |   |   | 222,714 |   |  | 20   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Operating loss                                     |  |                          | (511,437  | ) |                    |   | (403,098  | )                  |  |   | (555,535  | ) |  |   | (108,339 | ) |   | 27  | % |   |   | 152,437 |   |  | -27  | %
|Other income (expense):                            |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Interest income                                    |  |                          | 14,084    |   |                    |   | 21,664    |                    |  |   | 23,586    |   |  |   | (7,580   | ) |   | -35 | % |   |   | (1,922  | ) |  | -8   | %
|Interest expense                                   |  |                          | (116,605  | ) |                    |   | (121,304  | )                  |  |   | (107,791  | ) |  |   | 4,699    |   |   | -4  | % |   |   | (13,513 | ) |  | 13   | %
|Loss from de-leveraging transactions               |  |                          | (3,693    | ) |                    |   | (122,189  | )                  |  |   | (27,552   | ) |  |   | 118,496  |   |   | -97 | % |   |   | (94,637 | ) |  | 343  | %
|Loss from impairment of investments                |  |                          | (39,665   | ) |                    |   | (76,572   | )                  |  |   |          |   |  |   | 36,907   |   |   | -48 | % |   |   | (76,572 | ) |  | NM   |  
|Equity in net loss of affiliate                    |  |                          | (16,491   | ) |                    |   | (23,229   | )                  |  |   | (482      | ) |  |   | 6,738    |   |   | -29 | % |   |   | (22,747 | ) |  | NM   |  
|Minority interest                                  |  |                          | (11,532   | ) |                    |   |          |                    |  |   |          |   |  |   | (11,532  | ) |   | 0   | % |   |   |        |   |  | 0    | %
|Other income (expense)                             |  |                          | 2,019     |   |                    |   | 5,842     |                    |  |   | 3,389     |   |  |   | (3,823   | ) |   | -65 | % |   |   | 2,453   |   |  | 72   | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Net loss before income taxes                       |  |                          | (683,320  | ) |                    |   | (718,886  | )                  |  |   | (664,385  | ) |  |   | 35,566   |   |   | -5  | % |   |   | (54,501 | ) |  | 8    | %
|(Provision for) benefit from deferred income taxes |  |                          | 939       |   |                    |   | 14        |                    |  |   | (2,330    | ) |  |   | 925      |   |   | NM  |   |   |   | 2,344   |   |  | -101 | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Net loss                                           |  | $                        | (682,381  | ) |                    | $ | (718,872  | )                  |  | $ | (666,715  | ) |  | $ | 36,491   |   |   | -5  | % |   | $ | (52,157 | ) |  | 8    | %
|                                                   |  |                          |           |   |                    |   |           |                    |  |   |           |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  





36



---

|                                                              |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|------------------------------------------------------------- |  | ------------------------ | -------- | - | ------------------ | - | -------- | ------------------ |  | - | -------- | - |  | - | -------- | - | - | --- | - | - | - | ------- | - |  | ---- | -
|                                                              |  | Years ended December 31, |          |   | 2007 - 2006 Change |   |          | 2006 - 2005 Change | 
|(in thousands, except percentages)                            |  | 2007                     |          |   | 2006               |   |          | 2005               |  |   | $        |   |  | % |          |   | $ |     |   | % |  
|Reconciliation of Net loss to Adjusted operating loss:        |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Net loss as reported                                          |  | $                        | (682,381 | ) |                    | $ | (718,872 | )                  |  | $ | (666,715 | ) |  | $ | 36,491   |   |   | -5  | % |   | $ | (52,157 | ) |  | 8    | %
|Add back Net loss items excluded from Adjustedoperating loss: |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Interest income                                               |  |                          | (14,084  | ) |                    |   | (21,664  | )                  |  |   | (23,586  | ) |  |   | 7,580    |   |   | -35 | % |   |   | 1,922   |   |  | -8   | %
|Interest expense                                              |  |                          | 116,605  |   |                    |   | 121,304  |                    |  |   | 107,791  |   |  |   | (4,699   | ) |   | -4  | % |   |   | 13,513  |   |  | 13   | %
|Provision for (benefit from) deferred income taxes            |  |                          | (939     | ) |                    |   | (14      | )                  |  |   | 2,330    |   |  |   | (925     | ) |   | NM  |   |   |   | (2,344  | ) |  | -101 | %
|Loss from de-leveraging transactions                          |  |                          | 3,693    |   |                    |   | 122,189  |                    |  |   | 27,552   |   |  |   | (118,496 | ) |   | -97 | % |   |   | 94,637  |   |  | 343  | %
|Loss from impairment of investments                           |  |                          | 39,665   |   |                    |   | 76,572   |                    |  |   |         |   |  |   | (36,907  | ) |   | -48 | % |   |   | 76,572  |   |  | NM   |  
|Equity in net loss of affiliate                               |  |                          | 16,491   |   |                    |   | 23,229   |                    |  |   | 482      |   |  |   | (6,738   | ) |   | -29 | % |   |   | 22,747  |   |  | NM   |  
|Minority interest                                             |  |                          | 11,532   |   |                    |   |         |                    |  |   |         |   |  |   | 11,532   |   |   | 0   | % |   |   |        |   |  | 0    | %
|Other (income) expense                                        |  |                          | (2,019   | ) |                    |   | (5,842   | )                  |  |   | (3,389   | ) |  |   | 3,823    |   |   | -65 | % |   |   | (2,453  | ) |  | 72   | %
|                                                              |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Operating loss                                                |  |                          | (511,437 | ) |                    |   | (403,098 | )                  |  |   | (555,535 | ) |  |   | (108,339 | ) |   | 27  | % |   |   | 152,437 |   |  | -27  | %
|Depreciation & amortization                                   |  |                          | 187,196  |   |                    |   | 168,880  |                    |  |   | 145,870  |   |  |   | 18,316   |   |   | 11  | % |   |   | 23,010  |   |  | 16   | %
|Share-based payment expense                                   |  |                          | 86,199   |   |                    |   | 68,046   |                    |  |   | 5,966    |   |  |   | 18,153   |   |   | 27  | % |   |   | 62,080  |   |  | NM   |  
|                                                              |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  
|Adjusted operating loss(3)                                    |  | $                        | (238,042 | ) |                    | $ | (166,172 | )                  |  | $ | (403,699 | ) |  | $ | (71,870  | ) |   | 43  | % |   | $ | 237,527 |   |  | -59  | %
|                                                              |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |         |   |  |      |  

NM  Not Meaningful

---

|(1) | Variable costs of revenue are costs that vary with fluctuations in revenue generating activity such as changes in the number of subscribers, the number of advertising spots sold,
the quantity of merchandise sold or changes in rates.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Non-variable costs of revenue are costs of revenue that generally do not vary with fluctuations in revenue generating activity such as changes in the number of subscribers, the
number of advertising spots sold, the quantity of merchandise sold or changes in rates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Adjusted operating loss is net loss before interest income, interest expense, income taxes, depreciation and amortization, loss from de-leveraging transactions, loss from impairment
of investments, equity in net loss of affiliate, minority interest, other income (expense) and share-based payment expense. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of
operations. We believe Adjusted operating loss is a useful measure of our operating performance and improves comparability between periods. Adjusted operating loss is a significant basis used by management to measure our success in acquiring,
retaining and servicing subscribers because we believe this measure provides insight into our ability to grow revenues in a cost-effective manner. We believe Adjusted operating loss is a calculation used as a basis for investors, analysts and credit
rating agencies to evaluate and compare the periodic and future operating performances and value of our company and similar companies in our industry.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Because we have funded the build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for
depreciation, amortization and interest expense. We believe Adjusted operating loss provides helpful information about the operating performance of our business apart from the expenses associated with our physical plant or capital structure. We
believe it is appropriate to exclude depreciation, amortization and interest expense due to the variability of the timing of capital expenditures, estimated useful lives and fluctuation in interest rates. We exclude income taxes due to our tax
losses and timing differences, so that certain periods will reflect a tax benefit, while others an expense, neither of which is reflective of our operating results. Because of the variety of equity awards used by companies, the varying methodologies
for determining share-based payment expense and the subjective assumptions involved in those determinations, we believe excluding share-based payment expense enhances the ability of management and investors to compare our core operating results with
those of similar companies in our industry.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Equity in net loss of affiliate represents our share of losses in a non-US affiliate in a similar business and over which we exercise significant influence, but do not control.
Management believes it is appropriate to exclude this loss when evaluating the performance of our own operations. Additionally, we exclude loss from de-leveraging transactions, loss from impairment of investments, minority interest and other income
(expense) because these items represent activity outside of our core business operations and can distort period to period comparisons of operating performance.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | There are limitations associated with the use of Adjusted operating loss in evaluating our company compared with net loss, which reflects overall financial performance. Adjusted
operating loss does not reflect the impact on our financial results of (i) interest income, (ii) interest expense, (iii) income taxes, (iv) depreciation and amortization, (v) loss from de-leveraging transactions,
(vi) loss from impairment of investments, (vii) equity in net loss of affiliate, (viii) minority interest, (ix) other income (expense) and (x) share-based payment expense, which are included in the computation of net loss.
Users that wish to compare and evaluate our company based on our net loss should refer to our Consolidated Statements of Operations. Adjusted operating loss does not purport to represent operating loss or cash flow from operating activities, as
those terms are defined under United States generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance. In addition, our measure of Adjusted operating loss may
not be comparable to similarly titled measures of other companies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37



---

The following table sets forth select performance measures on a per subscriber basis and as a percentage of total
revenue:



|                                           |  |                               |     |                          |   |     |  |                                    |  |     |      |  |     |      |  |     |  
|------------------------------------------ |  | ----------------------------- | --- | ------------------------ | - | --- |  | ---------------------------------- |  | --- | ---- |  | --- | ---- |  | --- | -
|Years ended December 31,                   |  |                               |     | Years ended December 31, |  
|2007                                       |  | 2006                          |     | 2005                     |   |     |  | 2007                               |  |     | 2006 |  |     | 2005 | 
|(Annual Amount per Average Subscriber) (1) |  | (Percentage of Total Revenue) |    
|$136                                       |  | $                             | 138 |                          | $ | 122 |  | Total revenue                      |  | 100 | %    |  | 100 | %    |  | 100 | %
|121                                        |  |                               | 122 |                          |   | 110 |  | Subscription revenue               |  | 88  |      |  | 88  |      |  | 90  |  
|5                                          |  |                               | 5   |                          |   | 4   |  | Net ad sales                       |  | 3   |      |  | 4   |      |  | 4   |  
|92                                         |  |                               | 87  |                          |   | 88  |  | Total cost of revenue              |  | 68  |      |  | 63  |      |  | 73  |  
|31                                         |  |                               | 22  |                          |   | 20  |  | Revenue share & royalties          |  | 23  |      |  | 16  |      |  | 17  |  
|15                                         |  |                               | 15  |                          |   | 17  |  | Customer care & billing operations |  | 11  |      |  | 11  |      |  | 14  |  
|7                                          |  |                               | 7   |                          |   | 9   |  | Satellite & terrestrial            |  | 5   |      |  | 5   |      |  | 8   |  
|8                                          |  |                               | 9   |                          |   | 9   |  | Broadcast & operations             |  | 6   |      |  | 6   |      |  | 7   |  
|22                                         |  |                               | 24  |                          |   | 22  |  | Programming & content              |  | 16  |      |  | 18  |      |  | 18  |  
|4                                          |  |                               | 6   |                          |   | 7   |  | Research & development             |  | 3   |      |  | 4   |      |  | 6   |  
|18                                         |  |                               | 13  |                          |   | 10  |  | General & administrative           |  | 13  |      |  | 9   |      |  | 8   |  
|61                                         |  |                               | 66  |                          |   | 106 |  | Total marketing                    |  | 45  |      |  | 48  |      |  | 87  |  
|5                                          |  |                               | 5   |                          |   | 5   |  | Retention & support                |  | 4   |      |  | 3   |      |  | 4   |  
|31                                         |  |                               | 33  |                          |   | 54  |  | Subsidies & distribution           |  | 23  |      |  | 24  |      |  | 44  |  
|21                                         |  |                               | 24  |                          |   | 40  |  | Advertising & marketing            |  | 16  |      |  | 18  |      |  | 33  |  
|29                                         |  |                               | 25  |                          |   | 88  |  | Adjusted operating loss(2)         |  | 21  |      |  | 18  |      |  | 72  |  

---

|(1) | Average subscriber is calculated as the average of the beginning and ending subscriber balances for each period.
|--- | ----------------------------------------------------------------------------------------------------------------

|(2) | Adjusted operating loss  See definition and further discussion underAdjusted Operating Loss on page 46.
|--- | --------------------------------------------------------------------------------------------------------



Subscribers



Subscribers  Subscribers are those who are receiving and have agreed to pay for
our service, including those who are currently in promotional periods paid in part by vehicle manufacturers, as well as XM activated radios in vehicles for which we have a contractual right to receive payment for the use of our service. We count
radios individually as subscribers. Retail subscribers consist primarily of subscribers who purchased their radio at retail outlets, distributors, or through XMs direct sales efforts. OEM subscribers are self-paying subscribers whose XM radio
was installed by an OEM and are not currently in OEM promotional programs. OEM promotional subscribers are subscribers who receive a fixed period of XM service where XM receives revenue from the OEM for the trial period following the initial
purchase or lease of the vehicle. In situations where XM receives no revenue from the OEM during the trial period, the subscriber is not included in XMs subscriber count. At the time of sale, some vehicle owners receive a three month prepaid
trial subscription. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and processing of payments. The automated activation program provides activated XM radios on dealer lots for test drives but XM
does not include these vehicles in its subscriber count. XMs OEM partners generally indicate the inclusion of three months of XM service on the window sticker of XM-enabled vehicles. XM, historically and including the 2006 model year, receives
a negotiated rate for providing audio service to rental car companies. Beginning with the 2007 model year, XM entered into marketing arrangements which govern the rate which XM receives for providing audio service on certain rental fleet vehicles.
Data services subscribers are those subscribers that are receiving services that include stand-alone XM WX Satellite Weather service, stand-alone XM Radio Online service and stand-alone NavTraffic service. Stand-alone XM WX Satellite Weather service
packages range in price from $29.99 to $99.99 per month. Stand-alone XM Radio Online service is $7.99 per month. Stand-alone NavTraffic service is $9.95 per month. XM generally charges a range of $9.99 - $11.87 per month for its audio service
for annual and multi-year plans and $6.99 per month for a family plan.



Subscribers are the primary source of our revenues. We target the over 240 million registered vehicles and over 110 million households in the United States. As of December 31, 2007, we had 9.03 million subscribers, which
includes 8.19 million self-paying subscribers, 0.78 million subscribers in OEM promotion periods (typically ranging from three months to one year



38



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in duration) paid in part by the vehicle manufacturers and 0.06 million paying XM activated vehicles with rental car companies. The retail subscriber
base fluctuates with, among other things, our promotional activities as well as the impact of seasonality and the impact of churn on our subscriber base. OEM subscriber growth is driven primarily by the number of XM-enabled vehicles manufactured and
with OEM promotional activity.



Commercial Subscribers  Beginning
in the first quarter of 2008, we will exclude substantially all of our commercial subscribers (approximately 17,000 as of December 31, 2007) in our subscription total. This change is the result of a transition of the management of our XM for
business sales and service to a third party vendor that will assume our current and future commercial subscriber contracts. The transition of these subscribers will not be treated as a deactivation and therefore will not impact our monthly churn
rate. We will no longer recognize Subscription revenue on commercial subscribers; instead, we will recognize a royalty fee from the third party vendor which will be recorded as Other revenue.



OEM Promotional Subscribers  OEM promotional subscribers are subscribers who
receive a fixed period of XM service where XM receives revenue from the OEM for the trial period following the initial purchase or lease of the vehicle. In situations where XM receives no revenue from the OEM during the trial period, the subscriber
is not included in XMs subscriber count. At the time of sale, vehicle owners generally receive a three month prepaid trial subscription. Promotional periods generally include the period of trial service plus 30 days to handle the receipt and
processing of payments. We measure the success of these promotional programs included in our OEM promotional subscriber count based on the percentage of new promotional subscribers that elect to receive the XM service and convert to self-paying
subscribers after the initial promotion period. We refer to this as the conversion rate. We measure conversion rate three months after the period in which the trial service ends. Based on our experience it may take up to 90 days after
the trial service ends for subscribers to respond to our marketing communications and become self-paying subscribers. As of December 31, 2007, XM was available on over 140 different vehicle models for model year 2008, with approximately 100 of
those as standard equipment and approximately 110 of those offered as OEM factory-installed options. As of December 31, 2007, XMs OEM partners represented over 60% of the U.S. auto market.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Gross subscriber additions for 2007 and 2006 were 3.9 million in each year.
Net subscriber additions for 2007 were 1.4 million compared to 1.7 million for 2006. The churn rate decreased to 1.75% from 1.77%.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OEM Subscribers  Gross OEM subscriber additions for 2007 were 2.6 million compared to 2.1 million for 2006. Net OEM subscriber
additions for 2007 were 1.2 million compared to 0.9 million for 2006. We attribute the increase in net OEM subscriber additions primarily to an increase in gross OEM subscriber additions, partially offset by churn on a larger subscriber
base. The conversion rate for 2007 was 52.7% compared to 53.3% for 2006. Starting in the third quarter of 2006, we no longer include certain rental car fleets (approximately 75,000 activated vehicles as of December 31, 2007) in our subscription
total due to a marketing program with certain rental fleet partners for 2007 and 2008 model year vehicles.



Retail Subscribers  Gross retail subscriber additions for 2007 were 1.3 million compared to 1.8 million for 2006. Gross retail
subscriber additions were negatively impacted by increased competition from multiple competitors and devices, including the proliferation of audio entertainment choices that contributed to the overall slower growth in the satellite radio category.
Net retail subscriber additions for 2007 were 0.2 million compared to 0.8 million for 2006. We attribute the decrease in net retail subscriber additions to fewer gross retail subscriber additions and churn on a larger subscriber base.



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. Gross subscriber additions for 2006 were 3.9 million compared to
4.1 million for 2005. Net subscriber additions for 2006 were 1.7 million compared to 2.7 million for 2005. The churn rate increased to 1.77% from 1.46%.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OEM Subscribers  Gross OEM subscriber additions for 2006 were 2.1 million compared to 1.9 million for
2005. Net OEM subscriber additions for 2006 were 0.9 million compared to 1.0 million for 2005. We attribute the decrease in net OEM subscriber additions primarily to churn on a larger subscriber base and a higher churn rate. We partially
attribute the increase in the churn rate to the termination of our previous customer service provider and transition to a new customer service provider in 2006. The conversion rate for 2006 was 53.3% compared to 56.9% for 2005. Starting in the third
quarter of 2006, we no longer include certain rental car fleets (approximately 39,000 activated vehicles as of December 31, 2006) in our subscription total. This change is a result of a new marketing program that we implemented with certain
rental fleet partners for 2007 model year vehicles. The goal of this program is to increase the number of rental cars equipped with XM radios and expose more potential customers to our service.



39



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Retail Subscribers  Gross retail subscriber additions for 2006 were 1.8 million
compared to 2.2 million for 2005. Gross retail subscriber additions were negatively impacted by a reduction in product availability as a result of actions taken to bring XM devices into compliance with applicable FCC emission limits (see
Legal Proceedings in Item 3. to Part I of this Form 10-K), a general weakening demand for satellite radio and competitive pressures. Net retail subscriber additions for 2006 were 0.8 million compared to 1.7 million for
2005. We attribute the decrease in net retail subscriber additions to churn on a larger subscriber base, a higher churn rate and fewer gross retail subscriber additions. We partially attribute the increase in the churn rate to the termination of our
previous customer service provider and transition to a new customer service provider.



Revenue and Variable Cost of Revenue



Subscription
Revenue  Subscription revenue consists primarily of our monthly subscription fees for our satellite audio service and data services charged to consumers, commercial establishments and fleets, which are recognized as the service is
provided. Revenues received for promotional service programs are included in Subscription revenue. Our subscriber arrangements are generally cancelable without penalty. Subscription revenue growth is predominantly driven by the growth in our
subscriber base and to a lesser extent is affected by fluctuations in ARPU.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Subscription revenue increased $179.9 million or 22%. This increase was due
primarily to the 18% increase in ending subscribers. During 2007 and 2006, Subscription revenue included $48.0 million and $41.6 million, respectively, from related parties for subscription fees paid under OEM promotional agreements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve months Ended: December 31, 2006 vs. December 31, 2005. Subscription revenue increased $323.0 million or 64%. This increase was due
primarily to the 29% increase in ending subscribers and our April 2, 2005 30% rate increase, partially offset by an increase in subscribers on discount plans and family plans. In February 2005 we announced that effective April 2, 2005 we
were expanding our basic service package and increasing our monthly subscription price to $12.95 from $9.99. Existing customers were able to lock in a discounted rate by signing up for a pre-paid plan of up to five years prior to mid-April 2005. The
expanded basic service now includes the Internet service XM Radio Online (previously $3.99 per month) and the Virus Channel (previously $1.99 per month and formerly known as the High Voltage Channel), both of which were premium services prior to
this change. During 2006 and 2005, Subscription revenue included $41.6 million and $35.0 million, respectively, from related parties for subscription fees paid under OEM promotional agreements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Average Monthly Subscription Revenue Per Subscriber
(ARPU)  Average monthly subscription revenue per subscriber is derived from the total of earned subscription revenue (net of promotions and rebates) divided by the monthly weighted average number of subscribers for the period
reported. Average monthly subscription revenue per subscriber will fluctuate based on promotions, changes in our rates, as well as the proportion of subscribers on annual and multi-year prepayment plans, multi-radio discount plans (such as the
family plan) and premium services.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006.ARPU increased slightly as the effect of the addition of new subscribers at
higher rates and the transition of existing subscribers to higher rates was partially offset by an increase in the percentage of subscribers on discount plans (annual, multi-year and family) as well as the revenue impact of certain marketing
campaigns, which costs are treated as a reduction to revenue. An increase in the basic monthly subscription price became effective for all billing cycles on or after April 2, 2005, and therefore, is being implemented over time. The percentage
of subscribers as of December 31, 2007 on annual and multi-year plans and family plans increased to 44.8% and 23.6% from 44.2% and 22.5%, respectively, compared to December 31, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005.ARPU increased as a result of the addition of new subscribers at the new rates
as well as the effect of the transition of existing subscribers to the new rates. The increase in the monthly subscription price became effective for all billing cycles on or after April 2, 2005, and therefore, was being implemented over time.
The effect of the April 2005 basic plan rate increase was diluted partially by an increase in the percentage of subscribers on discount plans (annual, multi-year and family) as well as the revenue impact of certain marketing campaigns, which costs
are treated as a reduction to revenue. The percentage of subscribers at December 31, 2006 on annual and multi-year plans and family plans increased to 44.2% and 22.5% from 42.4% and 19.0%, respectively, compared to December 31,
2005.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenue Share & Royalties 
Revenue share & royalties includes performance rights obligations to composers, artists, and copyright owners for public performances of their creative works broadcast on XM, and royalties paid to radio technology



40



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providers and revenue share expenses associated with manufacturing and distribution partners and content providers. These costs are driven primarily by the
growth in our subscriber revenue and net ad sales and subscriber base and to a lesser extent by other contracts with various partners. We expect these costs to continue to increase with the growth in subscription and net ad sales revenue and the
growth in overall subscribers, but may fluctuate throughout the year based on new agreements and the renegotiation of existing contracts.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $107.3 million or 72%, and have increased as a percentage
of total revenue and on an annual amount per average subscriber basis. This dollar increase was primarily driven by an increase in shared revenue with distribution partners, an increase in performance rights royalties due mainly to an increase in
royalty rates as a result of the Copyright Royalty Board arbitration ruling that was effective retroactively to the beginning of 2007 and an increase in costs related to settlements with certain parties in an ongoing suit regarding XM radios with
advanced recording functionality (see Legal Proceedings  in Item 3. to Part I of this Form 10-K).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005.These costs increased $55.1 million or 59%, and have increased on an annual
amount per average subscriber basis, while decreasing as a percentage of total revenue. The dollar increase was primarily driven by an increase in shared revenue with distribution partners and increase in royalties due to increased subscription and
net ad sales revenue and increased subscribers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customer
Care & Billing Operations  Customer care & billing operations includes expenses from customer care functions as well as internal information technology costs associated with subscriber management applications. These costs
are primarily driven by the growth of our subscriber base.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $21.9 million or 21%, but have remained relatively flat as
a percentage of total revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by our subscriber growth that resulted in increased support costs. In addition, personnel costs increased compared to the
same period in 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $28.6 million or 38%, but have decreased as a percentage
of total revenue and on an annual amount per average subscriber basis. The increase was driven primarily by our subscriber growth and resulted in increased support costs, bad debt expense and credit card processing fees and to a lesser extent, a
change in customer service providers for which we incurred certain termination and transition costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gross profit on merchandise revenue  We calculate gross profit on merchandise revenue as Merchandise revenue less Cost of merchandise. For the years ended
December 31, 2007, 2006 and 2005, gross profit on merchandise revenue was ($33.7) million, ($27.2) million and ($22.5) million, respectively. We consider gross profit on merchandise revenue a cost of acquiring subscribers through our direct
sales channel and include it as a component of SAC.



Merchandise Revenue
 We record Merchandise revenue from direct sales to consumers through XMs online store and XMs direct-to-consumer programs as well as any inventory sales.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Merchandise revenue increased $6.6 million or 30%, and was driven primarily by
sales of component inventory to manufacturers of our radios and additional shipping revenue.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. Merchandise revenue increased $3.5 million or 19%.
| | - |  | ----------------------------------------------------------------------------------------------------------------



Cost of Merchandise  Cost of merchandise consists primarily of the cost of
radios and accessories related to XMs direct-to-consumer sales efforts, including hardware manufacturer subsidies, and related fulfillment costs. These costs are primarily driven by the volume of radios sold, which are affected by promotional
programs. We expect these costs to fluctuate throughout the year based on the volume, price and model mix of radios sold.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $13.1 million or 27%. This dollar increase was primarily the
result of an increase in the volume of radios sold as well as $11.4 million in excess and obsolete inventory charges.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $8.2 million or 20%. The increase is primarily the result of $4.9
million in excess and obsolete inventory charges and an increase in per unit subsidies and fulfillment costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



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Gross profit on net ad sales revenue  We calculate gross profit on net ad sales revenue as Net ad sales
revenue less Ad sales expense. For the years ended December 31, 2007, 2006 and 2005, gross profit on net ad sales revenue was $18.6 million, $19.4 million and $10.0 million, respectively. Gross profit on net ad sales revenue decreased due to an
overall softness in radio advertising as well as an increase in costs associated with supporting Net ad sales revenue. For the years ended December 31, 2007, 2006 and 2005, gross margin on net ad sales revenue was 47.4%, 54.8% and 50.0%,
respectively.



Net Ad Sales Revenue  Net ad sales revenue consists
of sales of advertisements and program sponsorships on the XM network that are recognized in the period in which they are broadcast. Net ad sales revenue includes advertising aired in exchange for goods and services (barter), which is recorded at
fair value. Net ad sales revenue is presented net of agency commissions.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Net ad sales revenue increased $3.8 million or 11%. This dollar increase was
driven by increased spending by certain existing advertisers as well as the addition of new advertisers and increased rates driven by a larger subscriber base, all within the context of an overall softness in radio advertising.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. Net ad sales revenue increased $15.2 million or 76%. This growth was driven by
increased spending by existing advertisers as well as the addition of new advertisers and increased rates driven by a larger subscriber base.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Ad Sales Expense  Ad sales expense consists of direct costs associated with the generation of Net ad sales revenue, including production, staffing and
marketing.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $4.6 million or 29%. This dollar increase was driven by
the costs associated with supporting Net ad sales revenue.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $5.9 million or 59%. The increase is primarily the result
of additional headcount and ad sales barter expense. In addition, we recognized $2.4 million in Ad sales expense for share-based payment expense pursuant to the adoption of SFAS No. 123R effective January 1, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Revenue  Other revenue consists primarily
of revenue related to various agreements with XM Canada, as well as other miscellaneous revenue that includes content licensing fees and billing fees.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Other revenue increased $9.7 million or 28%. This increase was primarily driven by an
increase in content licensing fees.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. Other revenue increased $27.2 million or 373%. This growth was primarily driven by a
$15.8 million increase related to the various agreements with XM Canada and $4.4 million in content licensing fees. For a further discussion of our agreements with XM Canada, see Note 14 under the heading Related Party Transactions, of
the Notes to the Consolidated Financial Statements in Item 8. of this Form 10-K.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-variable Cost of Revenue



Satellite & Terrestrial  Satellite & terrestrial includes costs related to: telemetry, tracking and control of our satellites, in-orbit satellite insurance and incentive payments, satellite uplink, and all
costs associated with operating our terrestrial repeater network such as power, maintenance and operating lease payments. We do not expect these costs to change substantially since we have completed the deployment of our in-orbit satellite network.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $5.4 million or 11%, but have remained relatively flat as a
percentage of total revenue and on an annual amount per average subscriber basis. This dollar increase was primarily driven by insurance, operating and performance incentives of XM-4, which was launched in October 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $6.7 million or 16%, but have decreased as a percentage of total
revenue and on an annual amount per average subscriber basis. This dollar increase was primarily the result of an increase in in-orbit satellite insurance expense, operating costs, and performance incentives related to XM-3, which was launched in
February 2005, as well as such expenses related to
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | XM-4, which was launched in October 2006. In addition, we recognized $2.6 million in Satellite & terrestrial expense for share-based payment expense
pursuant to the adoption of SFAS No. 123R effective January 1, 2006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Broadcast & Operations  Broadcast and operations include costs associated with the management and maintenance of systems and facilities as well as information technology expense. Broadcast
expenses include costs associated with the management and maintenance of the systems, software, hardware, production and performance studios used in the creation and distribution of XM-original and third party content via satellite broadcast, web,
wireless and other new distribution platforms. The advertising trafficking (scheduling and insertion) functions are also included. Operations expense includes facilities and information technology expense.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $7.3 million or 13%, but have remained relatively flat as
a percentage of total revenue and on an annual amount per average subscriber basis. The $3.5 million increase in Broadcast expenses was driven primarily by increased personnel costs and other costs associated with new content initiatives and
enhancements to and maintenance of the broadcast systems infrastructure. The $3.8 million increase in Operations expenses was driven primarily by an increase in personnel costs and general operating costs associated with expanded facilities and
accompanying infrastructure.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $16.7 million or 41%, but have remained relatively flat as
a percentage of revenue and on an annual amount per average subscriber basis. The $6.5 million increase in Broadcast expenses was driven primarily by increased costs associated with new content initiatives and enhancements to and maintenance of the
broadcast systems infrastructure. The $10.2 million increase in Operations expenses was driven primarily by an increase in the general operating costs associated with expanded facilities and accompanying infrastructure.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Programming & Content  Programming & content includes the
creative, production and licensing costs associated with our over 170 channels of XM-original and third party content. We view Programming & content expenses as a cost of attracting and retaining subscribers. Programming & content
includes staffing costs and fixed payments for third party content, which are primarily driven by programming initiatives. These expenses have increased over time and have varied on a per subscriber basis. We expect these costs to increase next year
as the full year impact of new 2007 contracts are recognized and as new contracts are added in 2008.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $18.7 million or 11%, but have decreased as a percentage
of total revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by costs in support of new programming initiatives. In addition, personnel costs increased compared to the same period in 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $64.2 million or 64%, and have increased on an annual
amount per average subscriber basis, while remaining relatively flat as a percentage of total revenue. This dollar increase was driven primarily by costs in support of new programming initiatives as well as the full period effects of expenses from
other programming initiatives launched throughout 2005. In addition, we recognized $10.9 million in Programming & content expense for share-based payment expense pursuant to the adoption of SFAS No. 123R effective January 1, 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Operating Expenses



Research & Development  Research & development expense
primarily includes the cost of new product development, chipset design, software development and engineering. We expect these costs to continue to fluctuate based on the nature and timing of research and development activities.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs decreased $4.4 million or 12%, and have decreased as a percentage of
total revenue and on an annual amount per average subscriber basis. This dollar decrease was driven primarily by lower development costs, partially offset by an increase in personnel costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $6.2 million or 20%, but have decreased as a percentage of
revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by an increase in Research & development expense for share-based payment expense pursuant to the adoption of SFAS No. 123R
effective January 1, 2006 offset partially by lower engineering builds, which included the design of new products launched during 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



General & Administrative  General & administrative expense primarily includes managements salaries and benefits, professional
fees, general business insurance, as well as other corporate expenses. The growth in these costs has been



43



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predominantly driven by personnel costs, professional fees, infrastructure expenses to support our growing subscriber base, as well as merger related costs.
We expect these costs to decrease due to the resolution of various legal proceedings and regulatory inquires (see Legal Proceedings in Item 3. to Part I of this Form 10-K) during 2007 and anticipated reductions in costs
associated with merger related activities.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $61.5 million or 69%, and have increased as
a percentage of total revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by $29.5 million in costs related to the pending merger with Sirius, $16.5 million in legal fees associated with various
legal proceedings and regulatory inquiries and $8.1 million in compensation expense as a result of the departure of our former Chief Executive Officer.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $44.8 million or 102%, and have increased as a percentage
of revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by an increase in General & administrative expense for share-based payment expense pursuant to the adoption of SFAS No. 123R
effective January 1, 2006; as well as headcount, consulting fees and legal fees associated with various legal proceedings and regulatory inquiries.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Retention & Support  Retention & support expense primarily includes payroll and payroll related costs of our sales and
marketing employees.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $12.7 million or 40%, and have remained relatively flat as
a percentage of total revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by an increase in personnel costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $9.6 million or 43%, but have remained relatively flat as
a percentage of revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by an increase in Retention & support expense for share-based payment expense pursuant to the adoption of SFAS
No. 123R effective January 1, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subsidies & Distribution  These direct costs include the subsidization of radios manufactured, commissions for the sale and activation of radios and certain promotional costs. These costs are primarily driven by the
volume of XM-enabled vehicles manufactured, the sales and activations of radios through our retail channel as well as promotional activities associated with the sale of XM radios. We expect these costs to fluctuate throughout the year and vary in
relationship to our gross subscribers and with changes in the volume of the manufacture, installation, sale and activation of radios, which historically has been significant during the fourth quarter.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $34.3 million or 15%, but have decreased as a percentage
of total revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by an increase in the number of OEM radios installed and activated under our automotive contracts, partially offset by decreases in
hardware subsidies and promotions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs decreased $20.7 million or 8%, and have decreased as a percentage of
total revenue and on an annual amount per average subscriber basis. This dollar decrease was driven primarily by a reduction in the number of retail radios sold and activated.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subscriber Acquisition Costs  Subscriber acquisition costs
include Subsidies & distribution and the negative gross profit on merchandise revenue. Subscriber acquisition costs are divided by gross additions to calculate what we refer to as SAC.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. During 2007 and 2006, we incurred subscriber acquisition costs of $292.8 million
and $252.1 million, respectively. SAC for 2007 and 2006 was $75 and $65, respectively. The increase in SAC is primarily due to increased factory installations by our OEM partners, partially offset by a reduction in certain retail subsidies and
distribution costs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. During 2006 and 2005, we incurred subscriber acquisition costs of $252.1 million
and $268.1 million, respectively. SAC for 2006 and 2005 remained unchanged at $65.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Advertising & Marketing  Advertising & marketing includes advertising, media and other discretionary marketing expenses. These activities drive our sales, establish our brand
recognition, and facilitate our growth. We achieve success in these areas through coordinated marketing campaigns that include retail advertising through various media, cooperative



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advertising with our retail and OEM partners, sponsorships and ongoing market research. We expect these costs to continue to fluctuate based on the timing of
our activities.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $14.4 million or 9%, but have decreased as a percentage of
total revenue and on an annual amount per average subscriber basis. This dollar increase was driven primarily by the costs associated with the termination of a contract with one of our partners, and to a lesser extent, an increase in media and
production expense.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs decreased $18.1 million or 10%, and have decreased as a
percentage of total revenue and on an annual amount per average subscriber basis. This dollar decrease was primarily driven by a decrease in media spending during 2006 as compared to 2005, which included a substantial increase to counter competitive
pressures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cost Per Gross Addition
(CPGA)  CPGA costs include the amounts in SAC, as well as Advertising & marketing. These costs are divided by the gross additions for the period to calculate CPGA. CPGA costs do not include marketing staff (included in
Retention & support) or the amortization of the GM guaranteed payments (included in Amortization of GM liability).



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. During 2007 and 2006, we incurred CPGA costs of $471.6 million and $416.5
million, respectively. CPGA for 2007 and 2006 was $121 and $108, respectively. The increase in CPGA is attributable to the increase in SAC and the increase in Advertising & marketing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. During 2006 and 2005, we incurred CPGA expenses of $416.5 million and $450.6
million, respectively. CPGA for 2006 and 2005 was $108 and $109, respectively. The decrease in CPGA is due primarily to the reductions in advertising and marketing.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Depreciation & Amortization  Depreciation and amortization
expense primarily relates to our satellites, ground support systems that include our terrestrial repeater network, broadcast facilities and computer hardware and software. We expect these costs to decrease as we have completed the deployment of our
in-orbit satellite network and XM-1 and XM-2 will be fully depreciated by the end of the 1stquarter of 2008.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. These costs increased $18.3 million or 11%. This dollar increase was primarily
due to a higher depreciable asset base, reflecting a full year of depreciation on XM-4, which was placed into service in December 2006, capital spending for system development, computer hardware, software and leased equipment.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. These costs increased $23.0 million or 16%. The increase was primarily due to a
higher depreciable asset base, reflecting a full year of depreciation on XM-3, which was placed into service in April 2005, higher capital spending for system development, computer hardware, software and leased equipment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provision for Deferred Income Taxes  In 2004,
we recorded a deferred tax liability related to indefinite lived assets that are amortized and deducted for tax purposes but are not amortized under United States generally accepted accounting principles. We will continue to incur $2.3 million in
annual tax provisions as the indefinite lived assets are amortized for tax purposes over the next 11 years.



| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. For 2007 and 2006, we recognized a net deferred tax benefit related to
transactions recorded in other comprehensive income or loss, which was partially offset by the deferred tax provision for 2006 and 2007 related to our indefinite lived assets. The net deferred tax benefit for 2007 was $0.9 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. For 2006, we recognized a deferred tax benefit related to the cumulative translation
adjustment on our investment in XM Canada, which offset the deferred tax provision for 2006 related to our indefinite lived assets. The net deferred tax benefit for 2006 was $14,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-operating Income and Expenses



Non-operating Income and Expense  Non-operating income and expense consists
primarily of net costs associated with financing and cash management activities, Loss from impairment of investments, Equity in net loss of affiliate, and Minority interest. Net costs associated with financing and cash management activities include
Interest income, Interest expense and Loss from de-leveraging transactions.



45



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| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Non-operating expenses decreased $143.9 million or 46%. The decrease was primarily
due to a decrease of $118.5 million in Loss from de-leveraging transactions due to the absence of major refinancing transactions during 2007 and a decrease of $36.9 million in Loss from impairment of investments as a result of lower impairment
charges recorded on our investments in XM Canada and WorldSpace, Inc. (WSI), offset partially by an increase of $11.5 million in Minority interest expense as a result of consolidating a variable interest entity under FIN No. 46(R)
during 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. Non-operating expenses increased $206.9 million or 190%. The increase was primarily
due to an increase of $94.6 million in Loss from de-leveraging transactions as a result of current year de-leveraging charges of $122.2 million recorded to retire debt with carrying values, including accrued interest, of $568.2 million, an
increase of $76.6 million in Loss from impairment of investments as a result of other than temporary decreases in the fair values of our investments in XM Canada and WSI, an increase of $13.5 million in Interest expense as a result of de-leveraging
related costs recognized as Interest expense and an increase of $22.7 million as a result of a full years recognition of our 23.33% proportional share of XM Canadas results which began in the fourth quarter of 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Adjusted Operating Loss



Adjusted Operating Loss  Adjusted operating loss is net loss before interest
income, interest expense, income taxes, depreciation and amortization, loss from de-leveraging transactions, loss from impairment of investments, equity in net loss of affiliate, minority interest, other income (expense) and share-based payment
expense. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe Adjusted operating loss is a useful measure of our operating performance and improves
comparability between periods. Adjusted operating loss is a significant basis used by management to measure our success in acquiring, retaining and servicing subscribers because we believe this measure provides insight into our ability to grow
revenues in a cost-effective manner. We believe Adjusted operating loss is a calculation used as a basis for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of our
company and similar companies in our industry.



Because we have funded the
build-out of our system through the raising and expenditure of large amounts of capital, our results of operations reflect significant charges for depreciation, amortization and interest expense. We believe Adjusted operating loss provides helpful
information about the operating performance of our business apart from the expenses associated with our physical plant or capital structure. We believe it is appropriate to exclude depreciation, amortization and interest expense due to the
variability of the timing of capital expenditures, estimated useful lives and fluctuation in interest rates. We exclude income taxes due to our tax losses and timing differences, so that certain periods will reflect a tax benefit, while others an
expense, neither of which is reflective of our operating results. Because of the variety of equity awards used by companies, the varying methodologies for determining share-based payment expense and the subjective assumptions involved in those
determinations, we believe excluding share-based payment expense enhances the ability of management and investors to compare our core operating results with those of similar companies in our industry.



Equity in net loss of affiliate represents our share of losses in a non-US affiliate in a
similar business and over which we exercise significant influence, but do not control. Management believes it is appropriate to exclude this loss when evaluating the performance of our own operations. Additionally, we exclude loss from de-leveraging
transactions, loss from impairment of investments, minority interest and other income (expense) because these items represent activity outside of our core business operations and can distort period to period comparisons of operating performance.



There are limitations associated with the use of Adjusted operating loss in
evaluating our company compared with net loss, which reflects overall financial performance. Adjusted operating loss does not reflect the impact on our financial results of (i) interest income, (ii) interest expense, (iii) income
taxes, (iv) depreciation and amortization, (v) loss from de-leveraging transactions, (vi) loss from impairment of investments, (vii) equity in net loss of affiliate, (viii) minority interest, (ix) other income (expense)
and (x) share-based payment expense, which are included in the computation of net loss. Users that wish to compare and evaluate our company based on our net loss should refer to our Consolidated Statements of Operations. Adjusted operating loss
does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under United States generally accepted accounting principles, and should not be considered as an alternative to those measurements as an
indicator of our performance. In addition, our measure of Adjusted operating loss may not be comparable to similarly titled measures of other companies.



46



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| |  |  | Twelve Months Ended: December 31, 2007 vs. December 31, 2006. Adjusted operating loss increased by $71.9 million or 43%, and has increased as
a percentage of total revenue. The increase in Adjusted operating loss is primarily related to the $181.1 million increase in Cost of revenue (excluding a $2.7 million decrease in share-based payment expense), $62.9 million increase in
General & administrative (excluding a $1.4 million decrease in share-based payment expense) and $25.1 million increase in Subsidies & distribution (excluding a $9.2 million increase in share-based payment expense). The overall
increase was offset partially by a $203.1 million increase in Total revenue.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Twelve Months Ended: December 31, 2006 vs. December 31, 2005. Adjusted operating loss decreased by $237.5 million or 59%, and has decreased as a
percentage of total revenue. The decrease as a percentage of total revenue reflects our ability to leverage greater revenue across our fixed cost base. The decrease in Adjusted operating loss is primarily related to the $323.0 million increase in
Subscription revenue, $27.2 million increase in Other revenue, $15.2 million increase in Net ad sales revenue, $6.1 million increase in Merchandise revenue, $20.7 million decrease in Subsidies & distribution $18.1 million decrease in
Advertising & marketing and $7.5 million decrease in Amortization of GM liability. This increase was offset partially by a $164.6 million increase in Cost of revenue (excluding a $20.8 million increase in share-based payment expense) and
$18.4 million increase in General & administrative (excluding a $26.4 million increase in share-based payment expense).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Liquidity and Capital Resources



Overview



The growth in demand for our products and services has required and will continue to require us to invest significant amounts in our business. Since inception through
December 31, 2007, we have raised proceeds of $4.5 billion, net of offering costs, through equity and debt offerings. Our ability to become profitable depends upon many factors, some of which are identified below under the caption entitled
Future Operating Liquidity and Capital Resource Requirements. Our principal sources of liquidity are our existing cash and cash equivalents and cash receipts for pre-paid subscriptions. We also have access to significant liquidity
through our bank revolving credit facility (of which $187.5 million has been drawn through February 28, 2008) and our GM credit facility. We have significant outstanding contracts and commercial commitments that need to be paid in cash or
through credit facilities over the next several years. These contractual commitments are comprised of subsidies and distribution costs, rights and royalty fees, revenue share arrangements, programming costs, repayment of long-term debt, satellite
related costs, lease payments and service payments. Our ability to become profitable also depends upon other factors identified below under the caption entitled Future Operating Liquidity and Capital Resource Requirements.



The following table presents a summary of our cash flows, beginning and ending
cash balances for years ended December 31, 2007, 2006 and 2005 (in thousands, except percentages):



|                                                     |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |          |   |  |     |  
|---------------------------------------------------- |  | ------------------------ | -------- | - | ------------------ | - | -------- | ------------------ |  | - | -------- | - |  | - | -------- | - | - | --- | - | - | - | -------- | - |  | --- | -
|                                                     |  | Years Ended December 31, |          |   | 2007 - 2006 Change |   |          | 2006 - 2005 Change | 
|                                                     |  | 2007                     |          |   | 2006               |   |          | 2005               |  |   | $        |   |  | % |          |   | $ |     |   | % |  
|Cash flows used in operating activities              |  | $                        | (154,730 | ) |                    | $ | (462,091 | )                  |  | $ | (166,717 | ) |  | $ | 307,361  |   |   | -67 | % |   | $ | (295,374 | ) |  | 177 | %
|Cash flows used in investing activities              |  |                          | (131,515 | ) |                    |   | (264,447 | )                  |  |   | (206,123 | ) |  |   | 132,932  |   |   | -50 | % |   |   | (58,324  | ) |  | 28  | %
|Cash flows provided by financing activities          |  |                          | 224,715  |   |                    |   | 233,763  |                    |  |   | 365,964  |   |  |   | (9,048   | ) |   | -4  | % |   |   | (132,201 | ) |  | -36 | %
|                                                     |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |          |   |  |     |  
|Net increase (decrease) in cash and cash equivalents |  |                          | (61,530  | ) |                    |   | (492,775 | )                  |  |   | (6,876   | ) |  |   | 431,245  |   |   | -88 | % |   |   | (485,899 | ) |  | NM  |  
|Cash and cash equivalents at beginning of period     |  |                          | 218,216  |   |                    |   | 710,991  |                    |  |   | 717,867  |   |  |   | (492,775 | ) |   | -69 | % |   |   | (6,876   | ) |  | -1  | %
|                                                     |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |          |   |  |     |  
|Cash and cash equivalents at end of period           |  | $                        | 156,686  |   |                    | $ | 218,216  |                    |  | $ | 710,991  |   |  | $ | (61,530  | ) |   | -28 | % |   | $ | (492,775 | ) |  | -69 | %
|                                                     |  |                          |          |   |                    |   |          |                    |  |   |          |   |  |   |          |   |   |     |   |   |   |          |   |  |     |  



NM  Not Meaningful

---



Operating Activities  Operating activities primarily consist of net loss adjusted for certain non-cash items including depreciation, amortization, net non-cash loss on conversion of notes, non-cash loss
on equity-based investments, share-based payment expense and the effect of changes in working capital.



| |  |  | During 2007, net cash used in operating activities was $154.7 million, consisting of a net loss of $682.4 million adjusted for net non-cash expenses of $356.3
million and $171.3 million provided by working capital as well as
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



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| | other operating activities. Included in cash provided by working capital is a $87.7 million increase in Subscriber deferred revenue, as a result of
subscribers signing up for discounted annual and multi-year pre-payment plans and $73.5 million increase in Accounts payable, accrued expenses and other liabilities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2006, net cash used in operating activities was $462.1 million, consisting of a net loss of $718.9 million adjusted for net non-cash expenses of $505.6
million, $4.5 million gain on sale of fixed assets and $244.3 million used in working capital as well as other operating activities. Included in cash used in working capital is a $102.2 million decrease in Accounts payable, accrued expenses and
other liabilities, a $205.0 million increase in Prepaid and other assets due primarily to the $237.0 million prepayment of our liability to GM and a $37.5 million increase in Accounts receivable; partially offset by a $66.6 million increase in
Subscriber deferred revenue, as a result of subscribers signing up for discounted annual and multi-year pre-payment plans and a $37.6 million decrease in Prepaid programming content.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2005, net cash used in operating activities was $166.7 million, consisting of a net loss of $666.7 million adjusted for net non-cash expenses of $266.3
million and $233.7 million provided by working capital as well as other operating activities. Included in cash provided by working capital is a $208.3 million increase in Subscriber deferred revenue, as a result of subscribers signing up for
discounted annual and multi-year pre-payment plans, $125.8 million increase in current trade liabilities and accruals due to the expansion of general business operations, partially offset by a $47.0 million increase in Prepaid and other assets and
$54.3 million in Prepaid programming content.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investing
Activities  Investing activities primarily consist of capital expenditures and proceeds from the sale of equipment.



| |  |  | During 2007, net cash used in investing activities was $131.5 million, consisting of $133.3 million in capital expenditures for the construction of XM-5 and
computer systems infrastructure, partially offset by $1.8 million received from the maturity of restricted investments.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2006, net cash used in investing activities was $264.4 million, primarily consisting of $275.0 million in capital expenditures for the construction of XM-4,
computer systems infrastructure and building improvements, offset by $7.2 million in proceeds received from the sale of terrestrial repeaters to XM Canada and $3.4 million in proceeds received from the maturity of restricted investments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2005, cash used in investing activities was $206.1 million, primarily consisting of $179.8 million in capital expenditures and $25.3 million used to purchase
an equity investment. Capital expenditures consisted primarily of expenditures for the construction and launch of XM-3 and the construction and launch of XM-4, computer systems infrastructure and broadcast facilities, and the construction of the
backup uplink facility during 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Financing
Activities  Financing activities primarily consist of proceeds from debt and equity financings, issuance of common stock pursuant to stock option exercises, and repayments of debt.



| |  |  | During 2007, net cash provided by financing activities was $224.7 million; consisting of $288.5 million of proceeds from financing of a consolidated variable
interest entity offset partially by the repayment of $38.9 million related to the mortgages on our corporate facilities, $13.7 million in capital lease payments and $9.5 million in payments made to our minority interest holder.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2006, net cash provided by financing activities was $233.8 million; primarily consisting of $600.0 million provided by the issuance of unsecured 9.75% Senior
Notes due 2014, $200.0 million provided by the issuance of unsecured Senior Floating Rate Notes due 2013 and $6.4 million in proceeds from the exercise of warrants and stock options; offset primarily by the repayment of $186.5 million of 14% Senior
Secured Discount Notes due 2009, $100.0 million of 12% Senior Secured Notes due 2010 and $200.0 million of Senior Secured Floating Rate Notes due 2009, as well as $27.4 million in premiums associated with the above-mentioned retired debt. In
addition to the debt repayment, all shares of Series B preferred stock were redeemed for $24.0 million and $21.5 million of deferred financing costs were paid in conjunction with the new debt issuances.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2005, net cash provided by financing activities was $366.0 million, primarily consisting of net proceeds of $300.0 million provided by the issuance of
approximately 9.7 million shares of Class A common stock, $100.0 million from the issuance of 1.75% Convertible Senior Notes from an over-allotment option that was exercised in January 2005 offset by the repayment of the remaining $22.8
million principal balance of 14% Senior Secured Notes due 2010 and the repayment of $15.0 million principal balance of 12% Senior Secured Notes due 2010.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48



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Future Operating Liquidity and Capital Resource Requirements



Our projected funding requirements are based on our current business plan, which in turn is
based on our operating experience to date and our available resources. We are pursuing a business plan designed to increase subscribers and revenues while maintaining reasonable subscriber acquisition costs in the long-term. Our plan contemplates
our focusing on the new automobile market where we have relationships with automobile manufacturers, the continuing introduction of innovative yet affordable technology in the retail market and the use of our more productive distribution channels.



Provided that we meet the revenue, expense and cash flow projections of our
current business plan, we expect to be fully funded and not need additional liquidity to continue operations beyond our existing assets, credit facilities and cash generated by operations; our current business plan is based on estimates regarding
expected future costs, expected future revenue and assumes the refinancing or renegotiating of certain of our obligations as they become due, including the maturity of our existing credit facilities and $400 million of convertible notes in 2009. Our
costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to seek additional financing,
which financing may not be available on favorable terms or at all, to continue implementing our current business plan. In addition, we may seek additional financing, such as the sale of additional equity and debt securities, to undertake initiatives
not contemplated by our current business plan or for other business reasons, or seek to refinance or renegotiate certain of our other obligations.



In the event of unfavorable future developments we may not be able to raise additional funds on favorable terms or at all. Our ability to obtain additional financing or
refinancing depends on several factors; including future market conditions, our success or lack of success in developing, implementing and marketing our satellite audio service and data services, our future creditworthiness and restrictions
contained in agreements with our investors or lenders. If we fail to obtain necessary financing on a timely basis, a number of adverse effects could occur, or we may have to revise our business plan.



Our merger agreement with Sirius restricts our ability to incur additional debt financing
beyond existing credit facilities (or equivalent funding) and limits the amount of new equity we can issue, in each case without approval from Sirius. Sirius is under similar restrictions not to incur new debt or issue additional equity beyond
agreed limits without our approval.



On February 13, 2007, we entered into
a sale-leaseback transaction with respect to the transponders on the XM-4 satellite, which was launched in October 2006 and placed into service during December 2006. We received net proceeds of $288.5 million from the transaction, of which $44
million (inclusive of interest) was used to retire outstanding mortgages on real property and the remainder of which provides additional liquidity available for working capital and general corporate purposes. For a further discussion, see Note 9, of
the Notes to the Consolidated Financial Statements in Item 8. of this Form 10-K under the heading Debt of Consolidated Variable Interest Entity.



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



| |  |  | Long-term debt  For a further discussion of long-term debt, see Note 9 of the Notes to the Consolidated Financial Statements in Item 8. of this
Form 10-K. Based on the various terms of our long-term debt, our ability to redeem any long-term debt is limited. We have and may continue to take advantage of opportunities to refinance existing indebtedness or reduce our level of indebtedness in
exchange for issuing equity securities, if these transactions can be completed on favorable terms.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Major League Baseball®  We have a multi-year
agreement with Major League Baseball® (MLB) to broadcast MLB games live nationwide. In the first quarter of 2007, we made a payment in the amount of $60.0 million for the 2007
season and will pay $60.0 million per year thereafter through 2012. MLB has the option to extend the agreement for the 2013, 2014 and 2015 seasons at the same $60.0 million annual compensation rate. We will also make incentive payments to MLB for XM
subscribers obtained through MLB and baseball club verifiable promotional programs. No stock or warrants were included in this agreement. The agreement requires us to deposit $120.0 million into escrow, which represents the amounts due for the 2011
and 2012 seasons, or furnish other credit support in such amount. In July 2006, we furnished a $120.0 million two-year surety bond to MLB as part of an amendment to the agreement with MLB that permitted us to provide various types of credit support
in lieu of its $120.0 million escrow deposit requirement. If we are unable to renew this bond or obtain other credit support acceptable to MLB, there can be no assurance that we will not have to deposit funds to meet the escrow deposit requirement.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Satellite Contracts  We successfully launched our fourth satellite (XM-4) into geosynchronous transfer orbit on October 30, 2006 and
handover of the satellite occurred in December 2006. In February 2007, we entered into a sale leaseback transaction for the transponders on XM-4. Under our existing satellite construction and launch contracts,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



49



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| | remaining costs for the construction and launch of our fifth satellite (XM-5) are expected to be $32.0 million in 2008 and $31.2 million in 2009.
These costs exclude launch insurance and in-orbit performance incentives. Our contractual agreements for our satellites are more fully described in Note 17 of the Notes to the Consolidated Financial Statements in Item 8. of this Form 10-K under
the heading Satellite System.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Programming Agreements  We have also entered into various long-term programming agreements. Under the terms of these agreements, we are obligated to
provide payments to other entities that may include fixed payments, advertising commitments and revenue sharing arrangements. During the years ended December 31, 2007, 2006 and 2005, we incurred expenses of $166.7 million, $158.0 million and
$90.8 million, respectively, in relation to these agreements. The amount of these costs will vary in future years, but is expected to increase next year as the full year impact of new 2007 contracts are recognized and as new contracts are added in
2008. The amount of future costs related to these agreements cannot be estimated, but are expected to be substantial. Of these amounts, $22.6 million, $16.1 million and $5.6 million, are included in Revenue Share & Royalties, and $9.1
million, $17.5 million, and $10.2 million, are included in Advertising & Marketing during the years ended December 31, 2007, 2006 and 2005, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Marketing & Distribution Agreements  We have entered into various joint sales, marketing and distribution agreements. Under the terms of these
agreements, we are obligated to provide incentives, subsidies and commissions to other entities that include fixed payments, per-unit radio and subscriber amounts and revenue sharing arrangements. We subsidize the manufacture of certain component
parts of XM radios in order to provide attractive pricing to our customers. The subsidies are generally charged to expense when the radios are activated with XM service. The amount of these operational, promotional, subscriber acquisition, joint
development, and manufacturing costs related to these agreements cannot be estimated, but are expected to be substantial future costs. During the years ended December 31, 2007, 2006 and 2005, we incurred expenses of $145.4 million, $176.6
million and $198.8 million, respectively, in relation to these agreements, excluding expenses related to GM.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Royalty Agreements  We have entered into fixed and variable revenue share payment agreements with performance rights organizations that generally
expire at the end of 2012. During the years ended December 31, 2007, 2006 and 2005, we incurred expenses of $93.0 million, $37.4 million and $22.0 million, respectively, in relation to these agreements. For a further discussion of license fees
for music rights, see above under the heading Risk Factors We must maintain and pay license fees for music rights, and we may have disputes with copyright holders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lease obligations  We have noncancelable operating leases for terrestrial repeater sites, office space, and software and noncancelable capital leases
for equipment that expire over the next fifteen years. For a further discussion of leases, see Note 17 of the Notes to the Consolidated Financial Statements in Item 8. of this Form 10-K.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General Motors Distribution Agreement  We have a long-term distribution agreement with General Motors (GM). During the term of the
agreement, which expires in 2013, GM has agreed to distribute the service to the exclusion of other S-band satellite digital radio services. Under the distribution agreement, we are required to make a subscriber acquisition payment to GM for each
person who becomes and remains an XM subscriber through the purchase of a GM vehicle.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In April 2006, we amended the distribution agreement pursuant to which we made a prepayment in May 2006 in the amount of $237.0 million to GM to retire at
a discount $320.3 million of the remaining fixed payment obligations that would have come due in 2007, 2008 and 2009. The April 2006 amendments eliminated our ability to make up to $35.0 million of subscriber acquisition payments in shares of our
Class A common stock. As of December 31, 2007, we had $26.0 million of current related party prepaid expense and $123.6 million of non-current related party prepaid expense in connection with the guaranteed fixed payments, as the result of
the $237.0 million prepayment in May 2006. In February 2008, we entered into an amended and restated agreement with GM that folds together the previously separate distribution and credit agreements with GM. The amended and restated agreements
terms remain substantially similar to those of the previously separate agreements, except for the establishment of a new minimum pre-marketing cash flow threshold for 2008 that we will need to meet in order to make draws under the GM credit facility
in 2009.



In order to encourage the broad installation of XM
radios in GM vehicles, we have agreed to subsidize a portion of the cost of XM radios, and to make incentive payments to GM when the owners of GM vehicles with installed XM radios become subscribers to our service. We must also share with GM a
percentage of the subscription revenue attributable to GM vehicles with installed XM radios, which percentage increases until there are more than eight



50



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million GM vehicles with installed XM radios (at which point the percentage remains constant). Revenue share expense is recognized as the related
subscription revenue is earned. As of December 31, 2007, we had $54.6 million of current related party prepaid expense and $14.0 million of non-current related party prepaid expense in connection with this revenue sharing arrangement. As part
of the agreement, GM provides certain call-center related services directly to XM subscribers who are also GM customers for which we must reimburse GM. The agreement is subject to renegotiation at any time based upon the installation of radios that
are compatible with a common receiver platform or capable of receiving Sirius radio service. The agreement is subject to renegotiation at two-year intervals, beginning in November 2005, if GM does not achieve and maintain specified
installation levels of GM vehicles capable of receiving our service. The specified installation level of 1,240,000 units by November 2005 was achieved in 2004. The specified installation levels in future years are the lesser of 600,000 units per
year or amounts proportionate to target market shares in the satellite digital radio service industry. There can be no assurances as to the outcome of any such renegotiations. GMs exclusivity obligations will discontinue if, by November 2007
and at two-year intervals thereafter, we fail to achieve and maintain specified minimum market share levels in the satellite digital radio service industry. We believe we were exceeding the minimum levels at December 31, 2007. For the years
ended December 31, 2007, 2006 and 2005, we incurred total costs of $303.8 million, $224.2 million and $206.1 million, respectively, under the distribution agreement.



| |  |  | Customer Service Providers  We have entered into agreements with service providers for customer care functions to subscribers of our service. Employees
of these service providers have access to our customer care systems to establish customer accounts, activate radios, update program and account information and respond to general inquiries from subscribers. We pay an hourly rate for each customer
care representative supporting our subscribers. During the years ended December 31, 2007, 2006 and 2005, we incurred $57.5 million, $50.7 million, and $29.7 million, respectively, in relation to services provided for customer care functions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | XM-4 Satellite Lease obligation  In February 2007, we entered into a sale-leaseback transaction of the transponders on the XM-4 satellite. Under the
terms of the lease, we are obligated to make payments that total $437.4 million over the nine year base lease term. For a further discussion, see Note 9, of the Notes to the Consolidated Financial Statements in Item 8. of this Form 10-K
under the heading, Debt of Consolidated Variable Interest Entity.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table represents our cash contractual obligations as of December 31, 2007:



|                                     |  |      |         |      |   |         |  |      |         |      |   |         |  |       |         |  |   |         |  |   |          
|------------------------------------ |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | ----- | ------- |  | - | ------- |  | - | ---------
|(in thousands)                       |  | 2008 |         | 2009 |   | 2010    |  | 2011 |         | 2012 |   | 2013 +  |  | Total
|Long-term debt(1)                    |  | $    | 9,153   |      | $ | 442,779 |  | $    | 8,733   |      | $ | 38,995  |  | $     | 132,971 |  | $ | 860,915 |  | $ | 1,493,546
|Major League Baseball® agreement(2)  |  |      | 180,000 |      |   | 60,000  |  |      | 60,000  |      |   |        |  |       |        |  |   |        |  |   | 300,000  
|Satellites(3)                        |  |      | 32,020  |      |   | 31,224  |  |      |        |      |   |        |  |       |        |  |   |        |  |   | 63,244   
|Other operating agreements(4)        |  |      | 97,781  |      |   | 69,745  |  |      | 56,544  |      |   | 55,210  |  |       | 50,832  |  |   | 42,033  |  |   | 372,145  
|Operating lease obligations          |  |      | 20,540  |      |   | 20,473  |  |      | 17,562  |      |   | 7,411   |  |       | 3,168   |  |   | 3,817   |  |   | 72,971   
|Payments to minority interest holder |  |      | 10,120  |      |   | 5,816   |  |      | 5,270   |      |   | 10,897  |  |       | 133     |  |   | 38,344  |  |   | 70,580   
|                                     |  |      |         |      |   |         |  |      |         |      |   |         |  |       |         |  |   |         |  |   |          
|Total                                |  | $    | 349,614 |      | $ | 630,037 |  | $    | 148,109 |      | $ | 112,513 |  | $     | 187,104 |  | $ | 945,109 |  | $ | 2,372,486
|                                     |  |      |         |      |   |         |  |      |         |      |   |         |  |       |         |  |   |         |  |   |          

---

|(1) | Excludes interest payments. Amounts due in 2009 include the maturity of our $400.0 million aggregate principal amount at maturity of 1.75% Convertible Senior Notes due 2009. Amounts
due in 2012 include payments of $133.0 million on the debt of our consolidated variable interest entity. In February 2008, we borrowed $187.5 million under our revolving credit facility, which matures in May 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes up to $180.0 million payable in the event Major League Baseball® (MLB) exercises its
option to extend the Agreement by up to three additional years. We expect to provide ongoing credit support in lieu of making the $120.0 million escrow deposit requirement in 2008, which would reduce the 2008 obligation to $60.0 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Excludes financing charges, in-orbit incentives and launch insurance.
|--- | ---------------------------------------------------------------------

|(4) | Other operating agreements include programming, marketing and royalty agreements.
|--- | ---------------------------------------------------------------------------------



The long-term debt payments due in 2009 include the maturity of our $400.0 million aggregate principal amount at maturity of 1.75%
Convertible Senior Notes due 2009, which have a conversion price of $50 per share. If we draw the full $400.0 million available under the bank and GM facilities, then we will have $800.0 million of indebtedness that comes due in 2009, including
$400.0 million of 1.75% Convertible Senior Notes. Although we expect to refinance our indebtedness that is maturing in 2009, there can be no assurance we will be able to complete such refinancing on favorable terms or at all. The



51



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long-term debt payments due in 2012 include payments of $133.0 million on the debt of our consolidated variable interest entity. The long-term debt payments
due in 2013 and beyond include the maturity of our $600.0 million aggregate principal amount at maturity of 9.75% Senior Notes due 2014 and the maturity of our $200.0 million aggregate principal amount at maturity of Senior Floating Notes due 2013.



Related Party Transactions



For a discussion of related party transactions, see Note 14 of the Notes to the Consolidated
Financial Statements in Item 8. of this Form 10-K.



Critical Accounting
Estimates



The Consolidated Financial Statements are prepared in
accordance with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Critical accounting estimates are those estimates
and assumptions that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change. Senior management has discussed with the audit committee of the
board of directors the development and selection of estimates and assumptions for the following:





| |  |  | Useful Life of Satellites and Spacecraft Control Facilities  Following the launches of XM-1 and XM-2, we extended their expected useful lives from the
initial design life of 15 years to 17.5 years based upon updated technical estimates from our satellite provider. Subsequently, due to solar array degradation, we adjusted the estimated useful life of XM-1 and XM-2 down through the first quarter of
2008 or to approximately 6.75 years from launch. Prior to the completion of its construction, XM-3 was modified to correct the solar array degradation issues experienced by XM-1 and XM-2; XM-3 was launched in February 2005 and is being depreciated
over a useful life of 15 years. XM-4, which transponders were the subject of a sale-leaseback transaction, was placed into service in December 2006 and is being depreciated over the lease life of 9 years, which is shorter than its estimated useful
life. At December 31, 2007, the combined carrying value of XM-1, XM-2, XM-3 and XM-4 is $463.5 million. Although there can be no assurance, we do not believe there is a reasonable likelihood that there will be a material change in the estimated
lives of our satellites and spacecraft control facilities; however, if actual results are not consistent with our estimates and assumptions, we may be exposed to losses that could be material. If we were to revise our estimates, for example, a 10%
decrease in the expected useful lives of satellites and spacecraft control facilities during 2007 would result in approximately $9.9 million dollars of additional depreciation expense.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Valuation of investment in DARS License  Pursuant to SFAS No. 142  Goodwill and Other Intangible Assets (SFAS No. 142), our
DARS license is an intangible asset deemed to have an indefinite useful life due to the cash flows it is expected to generate which will continue indefinitely. The DARS license has a renewable eight-year term; however, the administrative fees
necessary to renew the license are not expected to be substantial and to date we have met all of the established milestones specified in the DARS license agreement. We test our DARS license annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. Our test consists of comparing the carrying amount of our DARS license to its fair value which is estimated based on a discounted cash flow analysis. We do not believe there is a reasonable
likelihood that there will be a material change in the estimates or assumptions we use to value our DARS license; however, if actual results are not consistent with our estimates and assumptions, we may be exposed to losses that could be material.
As of December 31, 2007, our DARS license was not impaired based on our discounted cash flow analysis which indicates that the estimated fair value substantially exceeds our carrying value of $141.4 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amounts owed to Distributors and Manufacturers Amounts owed to manufacturing and distribution partners are expensed during the period in which the
triggering event occurs which includes but is not limited to the manufacture, sale, and/or activation of the radio unit. Recognition of these amounts requires estimates of distributor and radio manufacturer triggering activity due to a lag in
receiving actual data from our various business partners. Historically, we have not had any material changes to our estimates. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we
use to calculate amounts owed to distributors and radio manufacturers; however, if actual results are not consistent with our estimates and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52



---

| | assumptions, we may be exposed to losses that could be material. If we were to revise our estimates, for example, a 10% increase in the estimated expense
during 2007 would result in the recognition of approximately $2.0 million dollars of additional Subsidies and Distribution expense.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Share-Based Payment Expense  We measure and record compensation expense for three share-based payment plans under SFAS No. 123(R). The fair value
of awards for our stock option and stock purchase plans is measured at the date of grant using a Black-Scholes option pricing model and the fair value of awards for our restricted stock plans is based on the market price of our common stock on the
date of grant. In determining fair value using the Black-Scholes option pricing model, management is required to make certain estimates of the key assumptions that include expected life, expected volatility, dividend yields and risk free interest
rates. The estimate of these key assumptions involves judgment regarding subjective future expectations of market price and trends. The assumptions for expected term and expected volatility have the most significant effect on calculating the fair
value of share-based awards. We use our historical experience to determine expected life. The expected volatility is based on implied volatility, as management has determined that implied volatility better reflects the markets expectation of
future volatility than historical volatility. During 2007, we substantially reduced the amount of options granted that would be subject to these estimates and assumptions. SFAS No. 123(R) requires forfeitures to be estimated. Our estimate of
forfeitures is based on our historical activity, which we believe is indicative of expected forfeitures. In subsequent periods if the actual rate of forfeitures differs from our estimate, the forfeiture rates are revised. We do not believe there is
a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our share-based payment expense; however, if actual results are not consistent with our estimates and assumptions, we may be exposed to
losses that could be material. During 2007, we recognized approximately $64.2 million dollars of Share-based payment expense related to our three share-based payment plans.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Valuation Allowances against Deferred Tax Assets  We determine deferred tax assets and liabilities based on the future tax consequences that can be
attributed to net operating loss and credit carryovers and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, using the enacted tax rate expected to be applied when the
taxes are actually paid or recovered. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. The ultimate realization of deferred tax assets depends upon
the generation of future taxable income during the periods in which the net operating loss and credit carryovers and differences between financial statement carrying amounts and their respective tax bases become deductible. In determining a
valuation allowance, we consider past performance, expected future taxable income and prudent and feasible tax planning strategies. We currently have a full valuation allowance that has been established against the entire deferred tax asset, as we
have concluded that the deferred tax assets will not be realized due to the uncertainty of sufficient taxable income beyond the foreseeable future. Our forecast of expected future taxable income is based on historical taxable income and projections
of future taxable income over the periods that the deferred tax assets are deductible. Changes in market conditions that differ materially from our current expectations and changes in future tax laws in the U.S. may cause us to change our judgments
of future taxable income. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our valuation allowance against deferred tax assets; however, if actual results are
not consistent with our estimates and assumptions, we may be exposed to losses that could be material. As of December 31, 2007, the valuation allowance against deferred tax assets was $1,537.5 million dollars.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Accounting Pronouncements



For a discussion of recently issued accounting pronouncements, see Note 2 of the Notes to
the Consolidated Financial Statements in Item 8. of this Form 10-K.



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Fair Value of Financial Instruments  The carrying value of the following financial instruments approximates fair value because of their short maturities:
cash and cash equivalents, accounts receivable, due from related parties, accounts payable, accrued expenses, accrued satellite liability, due to related parties and restricted investments.



The estimated fair value of our long-term debt is determined by discounting the future cash
flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Companys bankers or quoted



53



---

market prices at the reporting date for the traded debt securities. As of December 31, 2007, the carrying value of our long-term debt was $1,489.8
million, compared to an estimated fair value of $1,515.7 million. The estimated fair value of our long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.



Interest Rate Risk  As of December 31, 2007, we had $1,489.8 million of
total debt, of which $1,289.8 million was fixed-rate debt and $200.0 million was variable-rate debt. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate fluctuations. An increase of
100 basis points in the interest rate applicable to the $200.0 million of variable-rate debt as of December 31, 2007 would result in an increase of $2.0 million in our annual interest expense. We believe that our exposure to interest rate risk
is not material to our results of operations.



ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The Consolidated Financial Statements of XM Satellite Radio Holdings Inc., including Consolidated Balance Sheets as of December 31, 2007 and 2006, and Consolidated
Statements of Operations, Consolidated Statements of Stockholders Equity (Deficit) and Consolidated Statements of Cash Flows for the three-year period ended December 31, 2007 and Notes to the Consolidated Financial Statements, and
Consolidated Financial Statement Schedule together with reports thereon of KPMG LLP, dated February 28, 2008, are attached hereto as pages F-1 through F-58.



|ITEM 9.    CHANGES | IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------------------ | ----------------------------------------------------------------------------



None.



ITEM 9A.    CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective. During the three months ended December 31, 2007, no changes were made in our internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Managements Annual Report on Internal Control over Financial Reporting



Our management is responsible for the preparation and fair presentation of the financial statements and other financial information
contained in this Form 10-K. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Management maintains a system of internal controls intended to provide reasonable assurances regarding
the reliability of financial reporting and the preparation of our financial statements in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements.



Our accounting policies and internal controls over
financial reporting, established and maintained by management, are under the general oversight of the Audit Committee of our Board of Directors.



Management has made a comprehensive review, evaluation and assessment of our internal control over financial reporting as of December 31, 2007. The standard measures
adopted by management in making its evaluation are the measures in the Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework).



Based upon review and evaluation, our management has concluded that our internal control over
financial reporting is effective at December 31, 2007 and that there were no material weaknesses in our internal control over financial reporting as of that date. The Companys internal control over financial reporting as of
December 31, 2007 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein, which expresses an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting as of December 31, 2007.



54



---

ITEM 9B.    OTHER INFORMATION



Borrowing under Revolving Credit Facility. On February 27, 2008, we borrowed
$187.5 million or 75% of the amount available under our $250 million revolving credit facility with a group of banks. The proceeds will be used for general corporate purposes, including our annual payment to Major League Baseball and the 2007
payment under the Copyright Royalty Board proceeding, both due in March, as well as our record label settlements. Interest under the loan is initially 4.75% and is based on 9-month LIBOR. All amounts drawn under the facility are due on May 5,
2009 and are secured by a lien on substantially all of our assets. As a result of drawing 75% of the amount available under the revolving credit facility, we now have full access to the $150 million credit facility provided by General Motors,
which may be used only for payments to GM and matures in December 2009.



Amendment to Employment Agreement-Chairman. Effective February 27, 2008, we entered into an amendment to the employment agreement of Gary Parsons, our Chairman, to extend the term of the agreement to June 30, 2008.



55



---

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------



The information is incorporated herein by reference to our definitive 2008 Proxy Statement.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------



The information is incorporated herein by reference to our definitive 2008 Proxy Statement.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



The information is incorporated herein by reference to our definitive 2008 Proxy Statement.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------



The information is incorporated herein by reference to our definitive 2008 Proxy Statement.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------



The information is incorporated herein by reference to our definitive 2008 Proxy Statement.



56



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PART IV



|ITEM 15. | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
|-------- | -------------------------------------------------------



(a)(1) The following Consolidated Financial Statements and reports of independent registered public accounting firm for XM Satellite Radio Holdings Inc. are included in
Item 8. of this Form 10-K:



Reports of Independent
Registered Public Accounting Firm.



Consolidated Statements of
Operations for the years ended December 31, 2007, 2006 and 2005.



Consolidated Balance Sheets as of December 31, 2007 and 2006.



Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005.



Consolidated Statements of Stockholders Equity (Deficit) for the years ended December 31, 2007, 2006 and 2005.



(a)(2) The following Consolidated Financial Statement Schedule is filed as part of this
report and attached hereto as page F-58:



Schedule II 
Valuation and Qualifying Accounts.



All other schedules for which provision is
made in the applicable accounting regulations of the Commission have been included in the Consolidated Financial Statements of XM Satellite Radio Holdings Inc. or the notes thereto, are not required under the related instructions or are
inapplicable, and therefore have been omitted.



(a)(3) The following exhibits
are either provided with this Form 10-K or are incorporated herein by reference:



|           |  |                                                                                                                                                                                                                                                                                                                                           
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                                               
|2.1        |  | Agreement and Plan of Merger, dated as of February 19, 2007, by and among Sirius Satellite Radio Inc., Vernon Merger Corporation and XM Satellite Radio Holdings Inc. (incorporated by
reference to XMs Current Report on Form 8-K filed February 21, 2007).                                                                             
|           | 
|3.1^       |  | Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc.                                                                                                                                                                                                                                                                 
|           | 
|3.2        |  | Amended and Restated Bylaws of XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Current Report on Form 8-K filed December 19, 2006).                                                                                                                                                                                   
|           | 
|3.3        |  | Restated Certificate of Incorporation of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                              
|           | 
|3.4        |  | Amended and Restated Bylaws of XM Satellite Radio Inc. (incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-39178).                                                                                                                                                                                        
|           | 
|3.5        |  | Certificate of Amendment of Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc. (incorporated by reference to Amendment No. 1 to XMs Registration Statement on Form
S-3, File No. 333-89132).                                                                                                                      
|           | 
|3.6        |  | Certificate of Amendment of Restated Certificate of Incorporation of XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Annual Report on Form 10-K for the year ended
December 31, 2002).                                                                                                                                
|           | 
|3.7        |  | Amendments to the Amended and Restated By-Laws of XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Current Report on Form 8-K filed December 7, 2007).                                                                                                                                                                 
|           | 
|4.1        |  | Form of Certificate for XMs Class A common stock (incorporated by reference to Exhibit 3 to XMs Registration Statement on Form 8-A filed on September 23, 1999).                                                                                                                                                                        
|           | 
|4.2        |  | Warrant Agreement, dated March 15, 2000, between XM Satellite Radio Holdings Inc. as Issuer and United States Trust Company of New York as Warrant Agent (incorporated by reference to
XMs Registration Statement on Form S-1, File No. 333-39176).                                                                                      
|           | 
|4.3        |  | Warrant Registration Rights Agreement, dated March 15, 2000, between XM Satellite Radio Holdings Inc. and Bear, Stearns & Co., Inc., Donaldson, Lufkin and Jenrette Securities
Corporation, Salomon Smith Barney Inc. and Lehman Brothers Inc. (incorporated by reference to XMs Registration Statement on Form S-1, File No. 333-39176).



57



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|           |  |                                                                                                                                                                                                                                                                                                                                                                                            
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                                                                                                
|4.4        |  | Form of Warrant (incorporated by reference to XMs Registration Statement on Form S-1, File No. 333-39176).                                                                                                                                                                                                                                                                                
|           | 
|4.5        |  | Rights Agreement, dated as of August 2, 2002, between XM and Equiserve Trust Company as Rights Agent (incorporated by reference to XMs Current Report on Form 8-K filed on August 2,
2002).                                                                                                                                                                                               
|           | 
|4.6        |  | Security Agreement, dated as of January 28, 2003, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC, and The Bank of New York, as trustee (incorporated
by reference to XMs Current Report on Form 8-K filed on January 29, 2003).                                                                                                                
|           | 
|4.7        |  | Amended and Restated Security Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and The Bank of New York (incorporated by reference to XMs Current Report on
Form 8-K filed on January 29, 2003).                                                                                                                                                                  
|           | 
|4.8        |  | Intercreditor and Collateral Agency Agreement (General Security Agreement), dated as of January 28, 2003, by and among the noteholders named therein, The Bank of New York, as trustee, General
Motors Corporation, OnStar Corporation and The Bank of New York, as collateral agent (incorporated by reference to XMs Current Report on Form 8-K filed on January 29, 2003).             
|           | 
|4.9        |  | Intercreditor and Collateral Agency Agreement (FCC License Subsidiary Pledge Agreement), dated as of January 28, 2003, by and among the noteholders named therein, The Bank of New York, as
trustee, General Motors Corporation, OnStar Corporation and The Bank of New York, as collateral agent (incorporated by reference to XMs Current Report on Form 8-K filed on January 29, 2003).
|           | 
|4.10       |  | Warrant Agreement, dated as of January 28, 2003, between XM Satellite Radio Holdings Inc. and The Bank of New York (incorporated by reference to XMs Current Report on Form 8-K filed on
January 29, 2003).                                                                                                                                                                               
|           | 
|4.11       |  | Amended and Restated Amendment No. 1 to Rights Agreement, dated as of January 22, 2003, by and among XM Satellite Radio Holdings Inc. and Equiserve Trust Company, N.A. (incorporated by
reference to XMs Current Report on Form 8-K filed on January 29, 2003).                                                                                                                          
|           | 
|4.12       |  | Form of 10% Senior Secured Discount Convertible Note due 2009 (incorporated by reference to XMs Current Report on Form 8-K filed on January 29, 2003).                                                                                                                                                                                                                                    
|           | 
|4.13       |  | Global Common Stock Purchase Warrant (incorporated by reference to XMs Current Report on Form 8-K filed on January 29, 2003).                                                                                                                                                                                                                                                             
|           | 
|4.14       |  | First Amendment to Security Agreement, dated as of June 12, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and The Bank of New York
(incorporated by reference to XMs Registration Statement on Form S-4, File No. 333-106823).                                                                                                   
|           | 
|4.15       |  | Warrant to purchase XM Satellite Radio Holdings Inc. Class A Common Stock, dated July 31, 2003, issued to Boeing Satellite Systems International, Inc. (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).                                                                                                                              
|           | 
|4.16       |  | Amendment No. 2 to Rights Agreement between XM Satellite Radio Holdings Inc. and Equiserve Trust Company, N.A. (incorporated by reference to XMs Current Report on Form 8-K filed on
April 21, 2004).                                                                                                                                                                                     
|           | 
|4.17       |  | Indenture, dated as of November 23, 2004, between XM Satellite Radio Holdings Inc. and the Bank of New York, as trustee (incorporated by reference to XMs Current Report on Form 8-K
filed on November 23, 2004).                                                                                                                                                                         
|           | 
|4.18       |  | Registration Rights Agreement, dated as of November 23, 2004, between XM Satellite Radio Holdings Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to XMs Current
Report on Form 8-K filed on November 23, 2004).                                                                                                                                                             
|           | 
|4.19       |  | Form of 1.75% Senior Convertible Note Due 2009 (incorporated by reference to XMs Current Report on Form 8-K filed on November 23, 2004).                                                                                                                                                                                                                                                  
|           | 
|4.20       |  | Amendment No. 3, dated as of February 19, 2007, to the Rights Agreement, dated as of August 2, 2002, between XM Satellite Radio Holdings Inc. and Computershare Investor Services, LLC, as
successor rights agent to Equiserve Trust Company, N.A. (incorporated by reference to XMs Current Report on Form 8-K filed on February 21, 2007).                                              



58



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|           |  |                                                                                                                                                                                                                                                                                                          
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                              
|10.1*      |  | Third Amended and Restated Shareholders and Noteholders Agreement, dated as of June 16, 2003, by and among XM Satellite Radio Holdings Inc. and certain shareholders and noteholders named therein
(incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
|           | 
|10.2       |  | Second Amended and Restated Registration Rights Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Holdings Inc. and certain shareholders and noteholders named therein
(incorporated by reference to XMs Current Report on Form 8-K filed with the SEC on January 29, 2003).     
|           | 
|10.3^*     |  | Technology Licensing Agreement by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., WorldSpace Management Corporation and American Mobile Satellite Corporation, dated as of
January 1, 1998, amended by Amendment No. 1 to Technology Licensing Agreement, dated June 7, 1999.       
|           | 
|10.4*      |  | Intentionally omitted.                                                                                                                                                                                                                                                                                   
|           | 
|10.5^      |  | Form of Indemnification Agreement between XM Satellite Radio Holdings Inc. and each of its directors and executive officers.                                                                                                                                                                             
|           | 
|10.6       |  | 1998 Shares Award Plan (incorporated by reference to XMs Registration Statement on Form S-8, File No. 333-106827).                                                                                                                                                                                      
|           | 
|10.7^      |  | Form of Employee Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                                                   
|           | 
|10.8       |  | Employee Stock Purchase Plan (incorporated by reference to XMs Registration Statement on Form S-8, File No. 333-106827).                                                                                                                                                                                
|           | 
|10.9^      |  | Non-Qualified Stock Option Agreement between Gary Parsons and XM Satellite Radio Holdings Inc., dated July 16, 1999.                                                                                                                                                                                     
|           | 
|10.10^     |  | Non-Qualified Stock Option Agreement between Hugh Panero and XM Satellite Radio Holdings Inc., dated July 1, 1998, as amended.                                                                                                                                                                           
|           | 
|10.11^     |  | Form of Director Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                                                   
|           | 
|10.12*     |  | Joint Development Agreement, dated February 16, 2000, between XM Satellite Radio Inc. and Sirius Satellite Radio Inc. (incorporated by reference to XMs quarterly report on Form 10-Q for
the quarter ended March 31, 2000).                                                                            
|           | 
|10.13      |  | XM Satellite Radio Holdings Inc. Talent Option Plan (incorporated by reference to XMs Registration Statement on Form S-8, File No. 333-65022).                                                                                                                                                          
|           | 
|10.14      |  | Assignment and Novation Agreement, dated as of December 5, 2001, between Holdings, XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by reference to XMs
Current Report on Form 8-K filed on December 6, 2001).                                                     
|           | 
|10.15*     |  | Third Amended and Restated Satellite Purchase Contract for In-Orbit Delivery, dated as of May 15, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc.
(incorporated by reference to Amendment No. 1 to XMs Registration Statement on Form S-3, File No. 333-89132).   
|           | 
|10.16*     |  | Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated as of December 5, 2001, between XM Satellite Radio Inc. and Boeing Satellite Systems International Inc. (incorporated by
reference to Holdings Current Report on Form 8-K filed on December 6, 2001).                         
|           | 
|10.17      |  | Amended and Restated Note Purchase Agreement, dated as of June 16, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and certain investors named therein (incorporated
by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).               
|           | 
|10.18      |  | Amendment No. 1 to Note Purchase Agreement, dated as of January 28, 2003, by and among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc. and certain investors named therein (incorporated
by reference to XMs Current Report on Form 8-K filed on January 29, 2003).                           
|           | 
|10.19      |  | Amended and Restated Director Designation Agreement, dated as of February 1, 2003, by and among XM Satellite Radio Holdings Inc. and the shareholders and noteholders named therein (incorporated
by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).              



59



---

|           |   |  |                                                                                                                                                                                                                                                                                                                                             
|---------- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |   |  | Description                                                                                                                                                                                                                                                                                                                                 
|10.20      |   |  | GM/DIRECTV Director Designation Agreement, dated as of January 28, 2003, among XM Satellite Radio Holdings Inc., General Motors Corporation and DIRECTV Enterprises LLC (incorporated by
reference to XMs Current Report on Form 8-K filed on January 29, 2003).                                                                           
|           |  
|10.21      |   |  | Amended and Restated Assignment and Use Agreement, dated as of January 28, 2003, between XM Satellite Radio Inc. and XM Radio Inc. (incorporated by reference to XMs Current Report on
Form 8-K filed on January 29, 2003).                                                                                                                
|           |  
|10.22      |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                      
|           |  
|10.23      |   |  | Form of 2003 Executive Stock Option Agreement (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).                                                                                                                                                                                       
|           |  
|10.24      | * |  | Amended and Restated Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated May 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing
Satellite Systems International, Inc. (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
|           |  
|10.25      | * |  | July 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated July 31, 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and Boeing
Satellite Systems International, Inc. (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).      
|           |  
|10.26      | * |  | Contract for Launch Services, dated August 5, 2003, between Sea Launch Limited Partnership and XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003).                                                                                                      
|           |  
|10.27      |   |  | Amendment No. 1 to Amended and Restated Director Designation Agreement, dated as of September 9, 2003, by and among XM Satellite Radio Holdings Inc. and the shareholders and noteholders
named therein (incorporated by reference to XMs Quarterly Report in Form 10-Q for the quarter ended September 30, 2003).                         
|           |  
|10.28      |   |  | December 2003 Amendment to the Satellite Purchase Contract for In-Orbit Delivery, dated December 19, 2003, by and between XM Satellite Radio Inc. and XM Satellite Radio Holdings Inc. and
Boeing Satellite Systems International, Inc. (incorporated by reference to XMs Annual Report on Form 10-K for the year ended December 31, 2003).
|           |  
|10.29      |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                      
|           |  
|10.30      |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                      
|           |  
|10.31      |   |  | Form of Amendment to Third Amended and Restated Shareholders and Noteholders Agreement, dated as of January 13, 2004, by and among XM Satellite Radio Holdings Inc. and the parties thereto
(incorporated by reference to XMs Annual Report on Form 10-K for the year ended December 31, 2003).                                            
|           |  
|10.35      |   |  | Form of Employment Agreement, dated as of August 6, 2004, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Gary Parsons (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).                                                                                     
|           |  
|10.36      |   |  | Form of Employment Agreement, dated as of August 6, 2004, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc., and Hugh Panero (incorporated by reference to XMs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).                                                                                      
|           |  
|10.37      |   |  | Form of 2004 Non-Qualified Stock Option Agreement (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).                                                                                                                                                                                    
|           |  
|10.38      |   |  | Form of Restricted Stock Agreement for executive officers (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31, 2005).                                                                                                                                                                           
|           |  
|10.39      |   |  | Employment Agreement, dated as of July 20, 2006, between XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. and Nathaniel A. Davis (incorporated by reference to XMs Current
Report on Form 8-K filed July 24, 2006).                                                                                                            



60



---

|           |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.40      |   |  | Indenture, dated as of May 1, 2006, by and among XM Satellite Radio Holdings Inc., XM Satellite Radio Inc. and The Bank of New York, as trustee, relating to the 9.75% Senior Notes due 2014
(incorporated by reference to XMs Current Report on Form 8-K filed May 5, 2006).                                                                                                                                                  
|           |  
|10.41      |   |  | Indenture, dated as of May 1, 2006, by and among XM Satellite Radio Holdings Inc., XM Satellite Radio Inc. and The Bank of New York, as trustee, relating to the Senior Floating Rate Notes due
2013 (incorporated by reference to XMs Current Report on Form 8-K filed May 5, 2006).                                                                                                                                          
|           |  
|10.42      |   |  | Form of 9.75% Senior Note due 2014 (incorporated by reference to XMs Current Report on Form 8-K filed May 5, 2006).                                                                                                                                                                                                                                                                                                            
|           |  
|10.43      |   |  | Form of Senior Floating Rate Note due 2013 (incorporated by reference to XMs Current Report on Form 8-K filed May 5, 2006).                                                                                                                                                                                                                                                                                                    
|           |  
|10.44      |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                          
|           |  
|10.45      |   |  | Intentionally omitted.                                                                                                                                                                                                                                                                                                                                                                                                          
|           |  
|10.46      |   |  | Credit Agreement, dated May 5, 2006, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., the lenders party thereto, JPMorgan Chase Bank, National Association, as
Administrative Agent, Credit Suisse Securities (USA) LLC, as Syndication Agent, and Citigroup Global Markets Inc., as Documentation Agent (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended March 31,
2006).
|           |  
|10.47      |   |  | Lease Agreement, dated as of February 13, 2007, by and between Wells Fargo Bank Northwest, as Owner Trustee, and XM Satellite Radio Inc. (incorporated by reference to XMs Current
Report on Form 8-K filed February 14, 2007).                                                                                                                                                                                                
|           |  
|10.48      |   |  | Participation Agreement, dated as of February 13, 2007, among XM Satellite Radio Holdings Inc., XM Satellite Radio Inc., Satellite Leasing (702-4), LLC, as Owner Participant, Wells Fargo Bank
Northwest, as Owner Trustee and Lessor, and The Bank of New York, as Indenture Trustee, and the note purchasers named therein (incorporated by reference to XMs Current Report on Form 8-K filed February 14, 2007).           
|           |  
|10.49      |   |  | Transponder Purchase Agreement, dated as of February 13, 2007, by and between XM Satellite Radio Holdings Inc. and Wells Fargo Bank Northwest in its capacity as Owner Trustee (incorporated by
reference to XMs Current Report on Form 8-K filed February 14, 2007).                                                                                                                                                          
|           |  
|10.50      |   |  | Guaranty, dated as of February 13, 2007, made by XM Satellite Radio Holdings Inc., XM Equipment Leasing LLC and XM Radio Inc. (incorporated by reference to XMs Current Report on Form
8-K filed February 14, 2007).                                                                                                                                                                                                           
|           |  
|10.51      |   |  | Indenture, dated as of February 13, 2007, between Wells Fargo Bank Northwest, as Owner Trustee, and The Bank of New York, as Indenture Trustee (incorporated by reference to XMs Current
Report on Form 8-K filed February 14, 2007).                                                                                                                                                                                          
|           |  
|10.52      |   |  | Form of 10% senior secured note (incorporated by reference to XMs Current Report on Form 8-K filed February 14, 2007).                                                                                                                                                                                                                                                                                                         
|           |  
|10.53^     | * |  | Operational Assistance Agreement, dated as of June 7, 1999, between XM Satellite Radio Inc. and Clear Channel Communications, Inc.                                                                                                                                                                                                                                                                                              
|           |  
|10.54      |   |  | Amendment No. 1 to Employment Agreement, dated as of April 4, 2007, between Gary Parsons and XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. (incorporated by reference to
XMs Current Report on Form 8-K filed April 10, 2007).                                                                                                                                                                                  
|           |  
|10.55      |   |  | Amendment No. 1 to Employment Agreement, dated as of April 4, 2007, between Hugh Panero and XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. (incorporated by reference to
XMs Current Report on Form 8-K filed April 10, 2007).                                                                                                                                                                                   
|           |  
|10.56      |   |  | Amendment No. 1 to Employment Agreement, dated as of April 4, 2007, between Nathaniel Davis and XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. (incorporated by reference to
XMs Current Report on Form 8-K filed April 10, 2007).                                                                                                                                                                               



61



---

|            |    |  |                                                                                                                                                                                                                                                                                                    
|----------- | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |  | Description                                                                                                                                                                                                                                                                                        
|10.57       |    |  | Form of Severance Agreement for executive officers other than Chairman, CEO and President and COO (incorporated by reference to XMs Current Report on Form 8-K filed April 10, 2007).                                                                                                             
|            |   
|10.58       |    |  | XM Satellite Radio Holdings Inc. 2007 Stock Incentive Plan (incorporated by reference to XMs Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).                                                                                                                                  
|            |   
|10.59       |    |  | Form of Non-qualified Stock Option Agreement (incorporated by reference to XMs Current Report on Form 8-K filed June 1, 2007).                                                                                                                                                                    
|            |   
|10.60       |    |  | Form of Restricted Stock Agreement (incorporated by reference to XMs Current Report on Form 8-K filed June 1, 2007).                                                                                                                                                                              
|            |   
|10.61       |    |  | Amendment No. 2 to Employment Agreement, dated as of August 10, 2007, between Nathaniel Davis and XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. (incorporated by reference
to XMs Current Report on Form 8-K filed August 14, 2007).                                               
|            |   
|10.62       | ** |  | Second Amendment and Waiver, dated as of February 1, 2008, among XM Satellite Radio Inc., XM Satellite Radio Holdings Inc., the lenders named therein and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated by reference to XMs Current Report on Form 8-K filed February 7, 2008).
|            |   
|10.63       | *  |  | Third Amended and Restated Distribution and Credit Agreement, dated as of February 6, 2008, by and among General Motors Corporation, XM Satellite Radio Holdings Inc. and XM Satellite Radio
Inc.                                                                                                  
|            |   
|10.64       |    |  | Amendment No. 2 to Employment Agreement, dated as of February 27, 2008, between Gary Parsons and XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc.                                                                                                                                      
|            |   
|21.1        |    |  | Subsidiaries of XM Satellite Radio Holdings Inc. (incorporated by reference to XMs Annual Report on Form 10-K for the year ended December 31, 2005).                                                                                                                                              
|            |   
|23.1        |    |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                          
|            |   
|31.1        |    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                                                                  
|            |   
|31.2        |    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                                                                  
|            |   
|31.3        |    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                                                                  
|            |   
|31.4        |    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                                                                                  
|            |   
|32.1        |    |  | Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                       
|            |   
|32.2        |    |  | Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                                                                                       

---

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

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

|** | Confidential treatment has been requested with respect to portions of this Exhibit that have been omitted by redacting a portion of the text.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Exhibits.
|--- | ---------



XM Satellite Radio Holdings Inc. hereby files as part of this Form 10-K the Exhibits listed in the Index to Exhibits.



|(c) | Consolidated Financial Statement Schedules.
|--- | -------------------------------------------



The following Consolidated Financial Statement Schedule is filed herewith:



Schedule II  Valuation and Qualifying Accounts.



Schedules not listed above have been omitted because they are inapplicable or the information required to be set forth therein is provided in the Consolidated Financial
Statements of XM Satellite Radio Holdings Inc. or accompanying Notes thereto.



62



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



XM SATELLITE RADIO HOLDINGS INC.By:

/s/    NATHANIEL A.
DAVISNathaniel A. Davis President and Chief Executive Officer




Date: February 28, 2008



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on the dates indicated:



|                                                  |  |                                                                                                |  |                  
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -----------------
|Signature                                         |  | Title                                                                                          |  | Date             
|/s/    NATHANIEL A.
DAVISNathaniel A.
Davis       |  | President and Chief Executive Officer                                                          |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JOSEPH J.
EUTENEUERJoseph J.
Euteneuer     |  | Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    GARY M. PARSONSGary M. Parsons             |  | Chairman of the Board of Directors                                                             |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JOAN AMBLEJoan Amble                       |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|Thomas J. Donohue                                 |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    EDDY
HARTENSTEINEddy
Hartenstein           |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    CHESTER A. HUBER,
JR.Chester A. Huber,
Jr. |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|John Mendel                                       |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JARL MOHNJarl Mohn                         |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JACK SHAWJack Shaw                         |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JEFFREY ZIENTSJeffrey Zients               |  | Director                                                                                       |  | February 28, 2008



63



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



XM SATELLITE RADIO INC.By:

/s/    NATHANIEL A.
DAVISNathaniel A. Davis President and Chief Executive Officer




Date: February 28, 2008



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on the dates indicated:



|                                                  |  |                                                                                                |  |                  
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -----------------
|Signature                                         |  | Title                                                                                          |  | Date             
|/s/    NATHANIEL A.
DAVISNathaniel A.
Davis       |  | President and Chief Operating Officer                                                          |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JOSEPH J.
EUTENEUERJoseph J.
Euteneuer     |  | Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    GARY M. PARSONSGary M. Parsons             |  | Chairman of the Board of Directors                                                             |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JOAN AMBLEJoan Amble                       |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|Thomas J. Donohue                                 |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    EDDY
HARTENSTEINEddy
Hartenstein           |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    CHESTER A. HUBER,
JR.Chester A. Huber,
Jr. |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|John Mendel                                       |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JARL MOHNJarl Mohn                         |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JACK SHAWJack Shaw                         |  | Director                                                                                       |  | February 28, 2008
|                                                  |  |                                                                                               
|/s/    JEFFREY ZIENTSJeffrey Zients               |  | Director                                                                                       |  | February 28, 2008



64



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULES



|                                                          |  |     
|--------------------------------------------------------- |  | ----
|Reports of Independent Registered Public Accounting Firm  |  | F-2 
|                                                          | 
|Consolidated Statements of Operations                     |  | F-4 
|                                                          | 
|Consolidated Balance Sheets                               |  | F-6 
|                                                          | 
|Consolidated Statements of Cash Flows                     |  | F-8 
|                                                          | 
|Consolidated Statements of Stockholders Equity (Deficit) |  | F-10
|                                                          | 
|Notes to the Consolidated Financial Statements            |  | F-12
|                                                          | 
|Schedule II  Valuation and Qualifying Accounts           |  | F-58



F-1



---

Report of Independent Registered Public Accounting Firm



The Board of Directors

XM Satellite Radio Holdings Inc.:



We have
audited the accompanying consolidated balance sheets of XM Satellite Radio Holdings Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity
(deficit), and cash flows for each of the years in the three-year period ended December 31, 2007. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule presented as
Schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.



We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



As discussed in Note 2 to the consolidated financial statements, effective January 1,
2006, the Company adopted the fair value method of accounting for share-based payments as required by Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.



We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 28, 2008, expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.



/s/    KPMG LLP



McLean, VA

February 28, 2008



F-2



---

Report of Independent Registered Public Accounting Firm



The Board of Directors

XM Satellite Radio Holdings Inc.:



We have audited XM Satellite Radio Holdings Inc.s (the Company) internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Companys internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.



A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as
of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows and related financial statement schedule for each of the years in the three-year period ended
December 31, 2007, and our report dated February 28, 2008, expressed an unqualified opinion on those consolidated financial statements.



/s/    KPMG LLP



McLean, VA

February 28, 2008



F-3



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                |  | Years Ended December 31, |          
|(in thousands, except share and per share data)                                 |  | 2007                     |           |   | 2006 |   |           | 2005 | 
|Revenue:                                                                        |  |                          |           |   |      |   |           |      |  |   |           |  
|Subscription                                                                    |  | $                        | 1,005,479 |   |      | $ | 825,626   |      |  | $ | 502,612   |  
|Activation                                                                      |  |                          | 19,354    |   |      |   | 16,192    |      |  |   | 10,066    |  
|Merchandise                                                                     |  |                          | 28,333    |   |      |   | 21,720    |      |  |   | 18,182    |  
|Net ad sales                                                                    |  |                          | 39,148    |   |      |   | 35,330    |      |  |   | 20,103    |  
|Other                                                                           |  |                          | 44,228    |   |      |   | 34,549    |      |  |   | 7,303     |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Total revenue                                                                   |  |                          | 1,136,542 |   |      |   | 933,417   |      |  |   | 558,266   |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Operating expenses:                                                             |  |                          |           |   |      |   |           |      |  |   |           |  
|Cost of revenue (excludes depreciation & amortization, shown below):            |  |                          |           |   |      |   |           |      |  |   |           |  
|Revenue share & royalties                                                       |  |                          | 256,344   |   |      |   | 149,010   |      |  |   | 93,874    |  
|Customer care & billing operations(1)                                           |  |                          | 126,776   |   |      |   | 104,871   |      |  |   | 76,222    |  
|Cost of merchandise                                                             |  |                          | 62,003    |   |      |   | 48,949    |      |  |   | 40,707    |  
|Ad sales(1)                                                                     |  |                          | 20,592    |   |      |   | 15,961    |      |  |   | 10,058    |  
|Satellite & terrestrial(1)                                                      |  |                          | 54,434    |   |      |   | 49,019    |      |  |   | 42,355    |  
|Broadcast & operations:                                                         |  |                          |           |   |      |   |           |      |  |   |           |  
|Broadcast(1)                                                                    |  |                          | 26,602    |   |      |   | 23,049    |      |  |   | 16,609    |  
|Operations(1)                                                                   |  |                          | 38,465    |   |      |   | 34,683    |      |  |   | 24,460    |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Total broadcast & operations                                                    |  |                          | 65,067    |   |      |   | 57,732    |      |  |   | 41,069    |  
|Programming & content(1)                                                        |  |                          | 183,900   |   |      |   | 165,196   |      |  |   | 101,008   |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Total cost of revenue                                                           |  |                          | 769,116   |   |      |   | 590,738   |      |  |   | 405,293   |  
|Research & development (excludes depreciation & amortization, shown below)(1)   |  |                          | 33,077    |   |      |   | 37,428    |      |  |   | 31,218    |  
|General & administrative (excludes depreciation & amortization, shown below)(1) |  |                          | 150,109   |   |      |   | 88,626    |      |  |   | 43,864    |  
|Marketing (excludes depreciation & amortization, shown below):                  |  |                          |           |   |      |   |           |      |  |   |           |  
|Retention & support(1)                                                          |  |                          | 44,580    |   |      |   | 31,842    |      |  |   | 22,275    |  
|Subsidies & distribution(1)                                                     |  |                          | 259,143   |   |      |   | 224,862   |      |  |   | 245,593   |  
|Advertising & marketing(1)                                                      |  |                          | 178,743   |   |      |   | 164,379   |      |  |   | 182,438   |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Marketing                                                                       |  |                          | 482,466   |   |      |   | 421,083   |      |  |   | 450,306   |  
|Amortization of GM liability                                                    |  |                          | 26,015    |   |      |   | 29,760    |      |  |   | 37,250    |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Total marketing                                                                 |  |                          | 508,481   |   |      |   | 450,843   |      |  |   | 487,556   |  
|Depreciation & amortization                                                     |  |                          | 187,196   |   |      |   | 168,880   |      |  |   | 145,870   |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Total operating expenses(1)                                                     |  |                          | 1,647,979 |   |      |   | 1,336,515 |      |  |   | 1,113,801 |  
|                                                                                |  |                          |           |   |      |   |           |      |  |   |           |  
|Operating loss                                                                  |  |                          | (511,437  | ) |      |   | (403,098  | )    |  |   | (555,535  | )



F-4



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS  (Continued)



|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                        |  | Years Ended December 31, |            
|(in thousands, except share and per share data)                                         |  | 2007                     |             |   | 2006 |   |             | 2005 | 
|Other income (expense):                                                                 |  |                          |             |   |      |   |             |      |  |   |             |  
|Interest income                                                                         |  |                          | 14,084      |   |      |   | 21,664      |      |  |   | 23,586      |  
|Interest expense                                                                        |  |                          | (116,605    | ) |      |   | (121,304    | )    |  |   | (107,791    | )
|Loss from de-leveraging transactions                                                    |  |                          | (3,693      | ) |      |   | (122,189    | )    |  |   | (27,552     | )
|Loss from impairment of investments                                                     |  |                          | (39,665     | ) |      |   | (76,572     | )    |  |   |            |  
|Equity in net loss of affiliate                                                         |  |                          | (16,491     | ) |      |   | (23,229     | )    |  |   | (482        | )
|Minority interest                                                                       |  |                          | (11,532     | ) |      |   |            |      |  |   |            |  
|Other income (expense)                                                                  |  |                          | 2,019       |   |      |   | 5,842       |      |  |   | 3,389       |  
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|Net loss before income taxes                                                            |  |                          | (683,320    | ) |      |   | (718,886    | )    |  |   | (664,385    | )
|(Provision for) benefit from deferred income taxes                                      |  |                          | 939         |   |      |   | 14          |      |  |   | (2,330      | )
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|Net loss                                                                                |  |                          | (682,381    | ) |      |   | (718,872    | )    |  |   | (666,715    | )
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|8.25% Series B and C preferred stock dividend requirement                               |  |                          |            |   |      |   | (6,127      | )    |  |   | (8,597      | )
|8.25% Series B preferred stock retirement loss                                          |  |                          |            |   |      |   | (755        | )    |  |   |            |  
|8.25% Series C preferred stock retirement loss                                          |  |                          |            |   |      |   | (5,938      | )    |  |   |            |  
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|Net loss attributable to common stockholders                                            |  | $                        | (682,381    | ) |      | $ | (731,692    | )    |  | $ | (675,312    | )
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|Net loss per common share  basic and diluted                                           |  | $                        | (2.22       | ) |      | $ | (2.70       | )    |  | $ | (3.07       | )
|Weighted average shares used in computing net loss per common share  basic and diluted |  |                          | 306,700,022 |   |      |   | 270,586,682 |      |  |   | 219,620,468 |  
|(1)    These
captions include non-cash share-based payment expense as follows:          | 
|                                                                                        |  | Years Ended December 31, |            
|(in thousands)                                                                          |  | 2007                     |             |   | 2006 |   |             | 2005 | 
|Customer care & billing operations                                                      |  | $                        | 2,483       |   |      | $ | 1,338       |      |  | $ | 45          |  
|Ad sales                                                                                |  |                          | 1,910       |   |      |   | 2,397       |      |  |   | 234         |  
|Satellite & terrestrial                                                                 |  |                          | 2,308       |   |      |   | 2,649       |      |  |   | 287         |  
|Broadcast                                                                               |  |                          | 2,716       |   |      |   | 2,880       |      |  |   | 240         |  
|Operations                                                                              |  |                          | 1,600       |   |      |   | 2,425       |      |  |   | 96          |  
|Programming & content                                                                   |  |                          | 8,855       |   |      |   | 10,878      |      |  |   | 840         |  
|Research & development                                                                  |  |                          | 7,929       |   |      |   | 8,655       |      |  |   | 1,029       |  
|General & administrative                                                                |  |                          | 26,689      |   |      |   | 28,124      |      |  |   | 1,741       |  
|Retention & support                                                                     |  |                          | 9,709       |   |      |   | 8,700       |      |  |   | 1,454       |  
|Subsidies & distribution                                                                |  |                          | 9,167       |   |      |   |            |      |  |   |            |  
|Advertising & marketing                                                                 |  |                          | 12,833      |   |      |   |            |      |  |   |            |  
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  
|Total share-based payment expense                                                       |  | $                        | 86,199      |   |      | $ | 68,046      |      |  | $ | 5,966       |  
|                                                                                        |  |                          |             |   |      |   |             |      |  |   |             |  



See accompanying Notes
to the Consolidated Financial Statements.



F-5



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                  |  |              |           |      |   |          
|------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                                                                                  |  | December 31,
|(in thousands, except share and per share data)                                                   |  | 2007         |           | 2006
|ASSETS                                                                                            |  |              |           |      |   |          
|Current assets:                                                                                   |  |              |           |      |   |          
|Cash and cash equivalents                                                                         |  | $            | 156,686   |      | $ | 218,216  
|Accounts receivable, net of allowance for doubtful accounts of $5,870 and $4,946                  |  |              | 63,617    |      |   | 62,293   
|Due from related parties                                                                          |  |              | 18,028    |      |   | 15,568   
|Related party prepaid expenses                                                                    |  |              | 80,610    |      |   | 66,946   
|Prepaid programming content                                                                       |  |              | 28,262    |      |   | 28,172   
|Prepaid and other current assets                                                                  |  |              | 39,135    |      |   | 41,463   
|                                                                                                  |  |              |           |      |   |          
|Total current assets                                                                              |  |              | 386,338   |      |   | 432,658  
|System under construction                                                                         |  |              | 151,142   |      |   | 126,049  
|Property and equipment, net of accumulated depreciation and amortization of $952,751 and $767,768 |  |              | 710,370   |      |   | 849,662  
|DARS license                                                                                      |  |              | 141,412   |      |   | 141,387  
|Intangibles, net of accumulated amortization of $9,483 and $8,222                                 |  |              | 3,379     |      |   | 4,640    
|Deferred financing fees, net of accumulated amortization of $27,766 and $20,537                   |  |              | 34,590    |      |   | 38,601   
|Due from related party, net of current portion                                                    |  |              | 3,554     |      |   |         
|Related party prepaid expenses, net of current portion                                            |  |              | 137,586   |      |   | 160,712  
|Investments                                                                                       |  |              | 36,981    |      |   | 80,592   
|Prepaid and other assets, net of current portion                                                  |  |              | 3,878     |      |   | 6,317    
|                                                                                                  |  |              |           |      |   |          
|Total assets                                                                                      |  | $            | 1,609,230 |      | $ | 1,840,618
|                                                                                                  |  |              |           |      |   |          
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                            
|Current liabilities:                                                                              |  |              |           |      |   |          
|Accounts payable                                                                                  |  | $            | 55,010    |      | $ | 51,844   
|Accrued expenses                                                                                  |  |              | 216,114   |      |   | 147,591  
|Accrued satellite liability                                                                       |  |              |          |      |   | 64,875   
|Accrued interest                                                                                  |  |              | 16,827    |      |   | 18,482   
|Current portion of long-term debt                                                                 |  |              | 9,153     |      |   | 14,445   
|Due to related parties                                                                            |  |              | 65,746    |      |   | 46,459   
|Subscriber deferred revenue                                                                       |  |              | 416,361   |      |   | 340,711  
|Deferred income                                                                                   |  |              | 9,915     |      |   | 9,915    
|Total current liabilities                                                                         |  |              | 789,126   |      |   | 694,322  
|                                                                                                  |  |              |           |      |   |          
|Long-term debt, net of current portion                                                            |  |              | 1,480,639 |      |   | 1,286,179
|Subscriber deferred revenue, net of current portion                                               |  |              | 98,565    |      |   | 86,482   
|Deferred income, net of current portion                                                           |  |              | 124,888   |      |   | 130,780  
|Other non-current liabilities                                                                     |  |              | 40,569    |      |   | 40,735   
|                                                                                                  |  |              |           |      |   |          
|Total liabilities                                                                                 |  |              | 2,533,787 |      |   | 2,238,498
|                                                                                                  |  |              |           |      |   |          



F-6



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS  (Continued)



|                                                                                                                                                                                                                             |  |              |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                             |  | December 31, |           
|(in thousands, except share and per share data)                                                                                                                                                                              |  | 2007         |            |   | 2006 |  
|Commitments and contingencies                                                                                                                                                                                                |  |              |            |   |      |   |            |  
|Minority interest                                                                                                                                                                                                            |  |              | 59,746     |   |      |   |           |  
|Stockholders deficit:                                                                                                                                                                                                       |  |              |            |   |      |   |            |  
|Series A convertible preferred stock, par value $0.01 (liquidation preference of $51,370 at December 31, 2007 and 2006); 15,000,000
shares authorized, 5,393,252 shares issued and outstanding at December 31, 2007 and 2006 |  |              | 54         |   |      |   | 54         |  
|Class A common stock, par value $0.01; 600,000,000 shares authorized, 316,684,482 shares and 305,781,515 shares issued and outstanding at
December 31, 2007 and 2006, respectively                                           |  |              | 3,167      |   |      |   | 3,058      |  
|Accumulated other comprehensive income, net of tax                                                                                                                                                                           |  |              | 8,966      |   |      |   | 3,590      |  
|Additional paid-in capital                                                                                                                                                                                                   |  |              | 3,184,367  |   |      |   | 3,093,894  |  
|Accumulated deficit                                                                                                                                                                                                          |  |              | (4,180,857 | ) |      |   | (3,498,476 | )
|                                                                                                                                                                                                                             |  |              |            |   |      |   |            |  
|Total stockholders deficit                                                                                                                                                                                                  |  |              | (984,303   | ) |      |   | (397,880   | )
|                                                                                                                                                                                                                             |  |              |            |   |      |   |            |  
|Total liabilities and stockholders deficit                                                                                                                                                                                  |  | $            | 1,609,230  |   |      | $ | 1,840,618  |  
|                                                                                                                                                                                                                             |  |              |            |   |      |   |            |  







See accompanying Notes to the Consolidated Financial Statements.



F-7



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                            |  | Years Ended December 31, |         
|(in thousands)                                                              |  | 2007                     |          |   | 2006 |   |          | 2005 | 
|Cash flows from operating activities:                                       |  |                          |          |   |      |   |          |      |  |   |          |  
|Net loss                                                                    |  | $                        | (682,381 | ) |      | $ | (718,872 | )    |  | $ | (666,715 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |          |   |      |   |          |      |  |   |          |  
|Provision for doubtful accounts                                             |  |                          | 12,740   |   |      |   | 15,223   |      |  |   | 8,328    |  
|Depreciation and amortization                                               |  |                          | 187,196  |   |      |   | 168,880  |      |  |   | 145,870  |  
|Amortization of deferred income related to XM Canada                        |  |                          | (9,993   | ) |      |   | (10,081  | )    |  |   |         |  
|Non-cash loss on impairment of investments                                  |  |                          | 39,665   |   |      |   | 76,572   |      |  |   |         |  
|Interest accretion expense                                                  |  |                          |         |   |      |   |         |      |  |   | 45,579   |  
|Loss from de-leveraging transactions                                        |  |                          | 3,693    |   |      |   | 122,189  |      |  |   | 27,552   |  
|Non-cash loss on equity in affiliate                                        |  |                          | 16,491   |   |      |   | 23,229   |      |  |   | 482      |  
|Amortization of deferred financing fees and debt discount                   |  |                          | 9,733    |   |      |   | 41,285   |      |  |   | 30,178   |  
|Share-based payment expense                                                 |  |                          | 86,199   |   |      |   | 68,046   |      |  |   | 5,966    |  
|(Benefit from) provision from deferred income taxes                         |  |                          | (939     | ) |      |   | (14      | )    |  |   | 2,330    |  
|Gain on sale of fixed assets                                                |  |                          |         |   |      |   | (4,490   | )    |  |   |         |  
|Minority interest                                                           |  |                          | 11,532   |   |      |   |         |      |  |   |         |  
|Other                                                                       |  |                          | (8       | ) |      |   | 264      |      |  |   | 51       |  
|Changes in operating assets and liabilities:                                |  |                          |          |   |      |   |          |      |  |   |          |  
|Increase in accounts receivable                                             |  |                          | (14,054  | ) |      |   | (37,492  | )    |  |   | (35,441  | )
|Increase in due from related parties                                        |  |                          | (6,015   | ) |      |   | (6,939   | )    |  |   | (3,262   | )
|(Increase) decrease in prepaid programming content                          |  |                          | (90      | ) |      |   | 37,565   |      |  |   | (54,348  | )
|Decrease (increase) in prepaid and other assets                             |  |                          | 8,525    |   |      |   | (204,987 | )    |  |   | (46,956  | )
|Increase (decrease) in accounts payable, accrued                            |  |                          |          |   |      |   |          |      |  |   |          |  
|expenses and other liabilities                                              |  |                          | 73,510   |   |      |   | (102,175 | )    |  |   | 125,791  |  
|(Decrease) increase in accrued interest                                     |  |                          | (1,655   | ) |      |   | 12,879   |      |  |   | (8,543   | )
|Increase (decrease) in due to related parties                               |  |                          | 19,287   |   |      |   | (9,294   | )    |  |   | 48,130   |  
|Increase in subscriber deferred revenue                                     |  |                          | 87,733   |   |      |   | 66,555   |      |  |   | 208,291  |  
|Increase (decrease) in deferred income                                      |  |                          | 4,101    |   |      |   | (434     | )    |  |   |         |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash used in operating activities                                       |  |                          | (154,730 | ) |      |   | (462,091 | )    |  |   | (166,717 | )
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities:                                       |  |                          |          |   |      |   |          |      |  |   |          |  
|Purchase of property and equipment                                          |  |                          | (54,410  | ) |      |   | (54,895  | )    |  |   | (61,210  | )
|Additions to system under construction                                      |  |                          | (78,928  | ) |      |   | (220,124 | )    |  |   | (118,583 | )
|Proceeds from sale of fixed assets                                          |  |                          |         |   |      |   | 7,182    |      |  |   |         |  
|Purchase of investment                                                      |  |                          |         |   |      |   |         |      |  |   | (25,334  | )
|Net maturity (purchase) of restricted investments                           |  |                          | 1,823    |   |      |   | 3,390    |      |  |   | (996     | )
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                       |  |                          | (131,515 | ) |      |   | (264,447 | )    |  |   | (206,123 | )
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  



F-8



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)



|                                                                   |  |                          |         |   |      |   |          |      |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------ | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                   |  | Years Ended December 31, |        
|(in thousands)                                                     |  | 2007                     |         |   | 2006 |   |          | 2005 | 
|Cash flows from financing activities:                              |  |                          |         |   |      |   |          |      |  |   |         |  
|Proceeds from sale of common stock                                 |  |                          |        |   |      |   |         |      |  |   | 300,000 |  
|Proceeds from exercise of warrants and stock options               |  |                          | 8,244   |   |      |   | 6,420    |      |  |   | 19,637  |  
|Proceeds from issuance of 9.75% senior notes due 2014              |  |                          |        |   |      |   | 600,000  |      |  |   |        |  
|Proceeds from issuance of senior floating rate notes due 2013      |  |                          |        |   |      |   | 200,000  |      |  |   |        |  
|Proceeds from issuance of 1.75% convertible senior notes due 2009  |  |                          |        |   |      |   |         |      |  |   | 100,000 |  
|Proceeds from financing of a consolidated variable interest entity |  |                          | 288,500 |   |      |   |         |      |  |   |        |  
|Repayment of 14% senior secured discount notes                     |  |                          |        |   |      |   | (186,545 | )    |  |   | (22,824 | )
|Repayment of 12% senior secured notes due 2010                     |  |                          |        |   |      |   | (100,000 | )    |  |   | (15,000 | )
|Repayment of senior secured floating rate notes due 2009           |  |                          |        |   |      |   | (200,000 | )    |  |   |        |  
|Payment of premiums on de-leveraging transactions                  |  |                          | (3,693  | ) |      |   | (27,398  | )    |  |   | (3,398  | )
|Payments to minority interest holder                               |  |                          | (9,486  | ) |      |   |         |      |  |   |        |  
|Repurchase of Series B convertible redeemable preferred stock      |  |                          |        |   |      |   | (23,960  | )    |  |   |        |  
|Retirement and payments on mortgages on corporate facilities       |  |                          | (38,877 | ) |      |   | (578     | )    |  |   | (381    | )
|Payments on other borrowings                                       |  |                          | (13,667 | ) |      |   | (12,725  | )    |  |   | (9,651  | )
|Deferred financing costs                                           |  |                          | (4,262  | ) |      |   | (21,451  | )    |  |   | (2,419  | )
|Other, net                                                         |  |                          | (2,044  | ) |      |   |         |      |  |   |        |  
|                                                                   |  |                          |         |   |      |   |          |      |  |   |         |  
|Net cash provided by financing activities                          |  |                          | 224,715 |   |      |   | 233,763  |      |  |   | 365,964 |  
|                                                                   |  |                          |         |   |      |   |          |      |  |   |         |  
|Net decrease in cash and cash equivalents                          |  |                          | (61,530 | ) |      |   | (492,775 | )    |  |   | (6,876  | )
|Cash and cash equivalents at beginning of period                   |  |                          | 218,216 |   |      |   | 710,991  |      |  |   | 717,867 |  
|                                                                   |  |                          |         |   |      |   |          |      |  |   |         |  
|Cash and cash equivalents at end of period                         |  | $                        | 156,686 |   |      | $ | 218,216  |      |  | $ | 710,991 |  
|                                                                   |  |                          |         |   |      |   |          |      |  |   |         |  





See accompanying Notes to the Consolidated Financial Statements.



F-9



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



|                                                                               |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|------------------------------------------------------------------------------ |  | ---------------------------------- |  | -------------------------------------------- | -- | ------ | -------------------------------------------- | - | ------ | ------------------- | -- | ------------------------ |  | ------- | ------------------ |  | - | ----------------------------------- | - | ------ | --------------------------------- |  | - | ----- |  | - | --------- | - |  | - | ---------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                               |  | Series AConvertiblePreferred Stock |  | Series BConvertibleRedeemablePreferred Stock |    |        | Series CConvertibleRedeemablePreferred Stock |   |        | Class ACommon Stock |    | AdditionalPaid-inCapital |  |         | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome |   |        | TotalStockholdersEquity(Deficit) | 
|(in thousands, except share data)                                              |  | Shares                             |  | Amount                                       |    | Shares |                                              |   | Amount |                     |    | Shares                   |  |         | Amount             |  |   | Shares                              |   | Amount |                                   |  |   |      
|Balance at January 1, 2005                                                     |  | 5,393,252                          |  | $                                            | 54 |        | 474,289                                      |   |        | $                   | 5  |                          |  | 79,246  |                    |  | $ | 1                                   |   |        | 208,249,188                       |  | $ | 2,082 |  | $ | 2,446,910 |   |  | $ | (2,112,889 | ) |  | $ |       |   |  | $ | 336,163  |  
|Comprehensive income (loss):                                                   |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |  
|Net loss                                                                       |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   | (666,715   | ) |  |   |       |   |  |   | (666,715 | )
|Other comprehensive income:                                                    |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|Unrealized gains on available-for-sale securities, net of $3,747 tax provision |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   |           |   |  |   | 5,985  |   |  |   | 5,985    |  
|                                                                               |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|Total comprehensive loss                                                       |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   |           |   |  |   |       |   |  |   | (660,730 | )
|Sale of shares of Class A common stock                                         |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 9,714,497                         |  |   | 98    |  |   | 301,122   |   |  |   |           |   |  |   |       |   |  |   | 301,220  |  
|Issuance of shares of Class A common stock to convert notes outstanding        |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 18,334,103                        |  |   | 183   |  |   | 74,710    |   |  |   |           |   |  |   |       |   |  |   | 74,893   |  
|Issuance of shares of Class A common stock from redemption of warrants         |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 2,547,312                         |  |   | 25    |  |   | (10       | ) |  |   |           |   |  |   |       |   |  |   | 15       |  
|Issuance of shares of Class A common stock through share-based payment plans   |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 1,793,278                         |  |   | 19    |  |   | 18,572    |   |  |   |           |   |  |   |       |   |  |   | 18,591   |  
|Issuance of shares of restricted Class A common stock, net of cancellations    |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 2,199                             |  |   |      |  |   | (38       | ) |  |   |           |   |  |   |       |   |  |   | (38      | )
|Non-cash share-based payment expense and amortization of restricted stock      |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   | 5,966     |   |  |   |           |   |  |   |       |   |  |   | 5,966    |  
|Series B convertible redeemable preferred stock dividends                      |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 61,411                            |  |   |      |  |   |          |   |  |   |           |   |  |   |       |   |  |   |         |  
|Warrants at fair value                                                         |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   | 4,868     |   |  |   |           |   |  |   |       |   |  |   | 4,868    |  
|                                                                               |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|Balance at December 31, 2005                                                   |  | 5,393,252                          |  | $                                            | 54 |        | 474,289                                      |   |        | $                   | 5  |                          |  | 79,246  |                    |  | $ | 1                                   |   |        | 240,701,988                       |  | $ | 2,407 |  | $ | 2,852,100 |   |  | $ | (2,779,604 | ) |  | $ | 5,985  |   |  | $ | 80,948   |  
|Comprehensive income (loss):                                                   |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |  
|Net loss                                                                       |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   | (718,872   | ) |  |   |       |   |  |   | (718,872 | )
|Other comprehensive income:                                                    |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|Unrealized loss on available-for-sale securities, net of $0 tax                |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   |           |   |  |   | (125   | ) |  |   | (125     | )
|Realized loss on available-for-sale securities, net of ($3,747) tax benefit    |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   |           |   |  |   | (5,985 | ) |  |   | (5,985   | )
|Foreign currency translation adjustment, net of $2,326 tax provision           |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   |          |   |  |   |           |   |  |   | 3,715  |   |  |   | 3,715    |  
|                                                                               |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|Total comprehensive loss                                                       |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   | (721,267 | )
|Sale of shares of Class A common stock                                         |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 95,884                            |  |   | 1     |  |   | 1,305     |   |  |   |           |   |  |   |       |   |  |   | 1,306    |  
|Issuance of shares of Class A common stock to convert notes outstanding        |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 48,837,514                        |  |   | 488   |  |   | 191,444   |   |  |   |           |   |  |   |       |   |  |   | 191,932  |  
|Issuance of shares of Class A common stock from redemption of warrants         |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 774,366                           |  |   | 8     |  |   | 508       |   |  |   |           |   |  |   |       |   |  |   | 516      |  
|Issuance of shares of Class A common stock through share-based payment plans   |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 600,017                           |  |   | 6     |  |   | 4,590     |   |  |   |           |   |  |   |       |   |  |   | 4,596    |  
|Issuance of shares of restricted Class A common stock, net of cancellations    |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 227,358                           |  |   | 3     |  |   |          |   |  |   |           |   |  |   |       |   |  |   | 3        |  
|Non-cash share-based payment expense and amortization of restricted stock      |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   | 68,046    |   |  |   |           |   |  |   |       |   |  |   | 68,046   |  
|Series B convertible redeemable preferred stock dividends                      |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  |        |                    |  |   |                                    |   |        | 23,254                            |  |   |      |  |   |          |   |  |   |           |   |  |   |       |   |  |   |         |  
|Repurchase of Series B convertible redeemable preferred stock                  |  |                                   |  |                                              |   |        | (474,289                                     | ) |        |                     | (5 | )                        |  |        |                    |  |   |                                    |   |        |                                  |  |   |      |  |   | (23,955   | ) |  |   |           |   |  |   |       |   |  |   | (23,960  | )
|Conversion of Series C convertible redeemable preferred stock                  |  |                                   |  |                                              |   |        |                                             |   |        |                     |   |                          |  | (79,246 | )                  |  |   | (1                                  | ) |        | 14,521,134                        |  |   | 145   |  |   | (144      | ) |  |   |           |   |  |   |       |   |  |   |         |  
|                                                                               |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  
|Balance at December 31, 2006                                                   |  | 5,393,252                          |  | $                                            | 54 |        |                                             |   |        | $                   |   |                          |  |        |                    |  | $ |                                    |   |        | 305,781,515                       |  | $ | 3,058 |  | $ | 3,093,894 |   |  | $ | (3,498,476 | ) |  | $ | 3,590  |   |  | $ | (397,880 | )
|                                                                               |  |                                    |  |                                              |    |        |                                              |   |        |                     |    |                          |  |         |                    |  |   |                                     |   |        |                                   |  |   |       |  |   |           |   |  |   |            |   |  |   |        |   |  |   |          |  





F-10



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) 
(Continued)



|                                                                             |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |            |   |  |   |       |  |   |           |  
|---------------------------------------------------------------------------- |  | ---------------------------------- |  | -------------------------------------------- | -- | -------------------------------------------- | - | ------------------- | - | ------ | ------------------------ | ------ |  | ------------------ | - |  | ----------------------------------- | - | --------------------------------- | - | ----- | - |  | - | --------- | - |  | - | ---------- | - |  | - | ----- |  | - | --------- | -
|                                                                             |  | Series AConvertiblePreferred Stock |  | Series BConvertibleRedeemablePreferred Stock |    | Series CConvertibleRedeemablePreferred Stock |   | Class ACommon Stock |   |        | AdditionalPaid-inCapital |        |  | AccumulatedDeficit |   |  | AccumulatedOtherComprehensiveIncome |   | TotalStockholdersEquity(Deficit) |  
|(in thousands, except share data)                                            |  | Shares                             |  | Amount                                       |    | Shares                                       |   | Amount              |   | Shares |                          | Amount |  | Shares             |   |  | Amount                              |   |                                   |   |       |  
|Comprehensive income (loss):                                                 |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |           
|Net loss                                                                     |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  |                                    |   |                                   |   |      |   |  |   |          |   |  |   | (682,381   | ) |  |   |      |  |   | (682,381) |  
|Other comprehensive income:                                                  |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |            |   |  |   |       |  |   |           |  
|Unrealized gain on available-for-sale securities, net of $75 tax provision   |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  |                                    |   |                                   |   |      |   |  |   |          |   |  |   |           |   |  |   | 125   |  |   | 125       |  
|Realized gain on available-for-sale securities, net of $0 tax                |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  |                                    |   |                                   |   |      |   |  |   |          |   |  |   |           |   |  |   | 125   |  |   | 125       |  
|Foreign currency translation adjustment, net of $3,209 tax provision         |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  |                                    |   |                                   |   |      |   |  |   |          |   |  |   |           |   |  |   | 5,126 |  |   | 5,126     |  
|                                                                             |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |            |   |  |   |       |  |   |           |  
|Total comprehensive loss                                                     |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |            |   |  |   |       |  |   | (677,005  | )
|Sale of shares of Class A common stock                                       |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  | 27,412                              |   |                                   |   | 1     |   |  |   | 301       |   |  |   |           |   |  |   |      |  |   | 302       |  
|Issuance of shares of Class A common stock to third party                    |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  | 1,853,412                           |   |                                   |   | 19    |   |  |   | 21,981    |   |  |   |           |   |  |   |      |  |   | 22,000    |  
|Issuance of shares of Class A common stock from redemption of warrants       |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  | 152,898                             |   |                                   |   | 1     |   |  |   | 31        |   |  |   |           |   |  |   |      |  |   | 32        |  
|Issuance of shares of Class A common stock through share-based payment plans |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  | 1,086,871                           |   |                                   |   | 10    |   |  |   | 7,900     |   |  |   |           |   |  |   |      |  |   | 7,910     |  
|Issuance of shares of restricted Class A common stock, net of cancellations  |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  | 8,100,285                           |   |                                   |   | 81    |   |  |   | (81       | ) |  |   |           |   |  |   |      |  |   |          |  
|Non-cash share-based payment expense and amortization of restricted stock    |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  |                                    |   |                                   |   |      |   |  |   | 64,199    |   |  |   |           |   |  |   |      |  |   | 64,199    |  
|Restricted shares withheld for tax upon vesting                              |  |                                   |  |                                              |   |                                              |  |                     |   |       |                          |       |  |                    |  |  | (317,911                            | ) |                                   |   | (3    | ) |  |   | (3,858    | ) |  |   |           |   |  |   |      |  |   | (3,861)   |  
|                                                                             |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |            |   |  |   |       |  |   |           |  
|Balance at December 31, 2007                                                 |  | 5,393,252                          |  | $                                            | 54 |                                              |  |                     | $ |       |                          |       |  | $                  |  |  | 316,684,482                         |   |                                   | $ | 3,167 |   |  | $ | 3,184,367 |   |  | $ | (4,180,857 | ) |  | $ | 8,966 |  | $ | (984,303  | )
|                                                                             |  |                                    |  |                                              |    |                                              |   |                     |   |        |                          |        |  |                    |   |  |                                     |   |                                   |   |       |   |  |   |           |   |  |   |            |   |  |   |       |  |   |           |  



See accompanying Notes
to the Consolidated Financial Statements.



F-11



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(1) Nature of Business



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



As of December 31, 2007, the principal differences between the financial conditions of
Holdings and Inc. were:



| |  |  | the ownership by Holdings of the corporate headquarters and data center buildings since August 2001 and September 2005, respectively, and the lease of these
buildings to Inc.;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | XM-1, XM-2, and XM-3, except for the B702 bus portion of XM-3, are owned by Inc.; the transponders of XM-4 are owned by Satellite Leasing (702-4) LLT, a separate
legal entity subject to consolidation by the Company, and leased to Inc.; and XM-5 and the B702 bus portion of XM-3 and XM-4 are owned by Holdings;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the presence at Holdings of additional indebtedness, primarily the 1.75% Convertible Senior Notes due 2009, not guaranteed by Inc.;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investments by Holdings in Canadian Satellite Radio (including related revenue and deferred income) and WorldSpace, Inc.; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



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



Accordingly, the results of operations for Inc. and its subsidiaries are substantially the same as the results of operations for Holdings and its subsidiaries except that
Inc. has:



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



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



| |  |  | less revenue associated with the amortization of deferred income and equity in losses from Holdings investment in Canadian Satellite Radio;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | no gains or losses on Holdings investments in Canadian Satellite Radio or WorldSpace, Inc.; and
| | - |  | ------------------------------------------------------------------------------------------------



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



Proposed Merger



On February 19, 2007, XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. (Sirius) entered into an Agreement and Plan of Merger (the
Merger Agreement), pursuant to which XM and Sirius will combine its businesses through a merger of XM and a newly formed, wholly owned subsidiary of Sirius (the Merger).



Each of XM and Sirius has made customary representations and warranties and covenants in the
Merger Agreement. The completion of the Merger is subject to various closing conditions, including receiving certain regulatory and antitrust approvals (including from the FCC and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended). XM filed a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), with respect to the transactions contemplated by the Merger Agreement between XM and
Sirius. On April 12, 2007, both XM and Sirius received from the Department of Justice requests for additional information and documentary material relating to the Merger, generally referred to as a Second Request. The effect of the
Second Request is to extend the waiting period imposed by the HSR Act until 30 days after XM and Sirius have substantially complied with the Second Request. On September 4, 2007, each of XM and Sirius certified to the Department of Justice that
it was in substantial compliance with the Second Request.



On March 20,
2007, XM and Sirius filed a Consolidated Application for Authority to Transfer Control with the FCC with respect to the Merger Agreement. On June 8, 2007, the FCC released a Public Notice announcing that the application had



F-12



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



been accepted for filing and establishing deadlines of July 9, 2007 for comments and July 24, 2007 for reply comments. On July 24, 2007,
XM and Sirius filed a reply to the comments to the merger application. On June 27, 2007, the FCC released a related Notice of Proposed Rule Making asking for comment on whether language in the FCCs 1997 Order establishing the
satellite radio service concerning the transfer of such licenses constitutes a binding rule and, if so, whether the FCC should waive, modify, or repeal the rule if the FCC determines that the proposed merger would serve the public interest. On
November 2, 2007, the Company and Sirius each received from the FCC requests for more information and documentary material related to the proposed merger. On November 16, 2007, the Company and Sirius each submitted written responses and documents to
the agency in response to these requests.



(2) Summary of Significant
Accounting Policies and Practices



Principles of
Consolidation and Basis of Presentation



The Consolidated Financial
Statements include the accounts of XM Satellite Radio Holdings Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. In addition, the Company evaluates its relationships with other entities to
identify whether they are variable interest entities as defined by Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, An Interpretation of ARB
No. 51, and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is consolidated in the Consolidated Financial Statements in accordance
with FIN No. 46(R). Beginning March 31, 2007, the Company reported a variable interest entity subject to consolidation by the Company pursuant to FIN No. 46(R). Satellite Leasing (702-4) LLT is a separate legal entity whose primary
beneficiary, as defined under FIN No. 46(R), is the Company. See Note 9 under the heading Debt of Consolidated Variable Interest Entity. Satellite Leasing (702-4) LLC, an entity solely owned by the third party equity
investors, will be entitled to the residual benefits, including ownership of the assets of the trust after repayment of the debt incurred by that entity.



Accounting Estimates



The preparation of the Companys Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. The estimates involve judgments with respect to, among other things, various future factors, which are difficult to predict and are beyond the control of the Company. The Company relies on significant estimates for the following:
(i) the estimated useful life of satellites and spacecraft control facilities, (ii) the valuation of the Companys investment in the DARS license, (iii) the estimated amounts owed to distributors and manufacturers,
(iv) share-based payment expense and (v) the valuation allowances against deferred tax assets. Accordingly, actual amounts could differ from these estimates.



Reclassifications



Certain prior period amounts have been reclassified to conform to the current year presentation. Amounts from Subsidies & distribution related to on-going
loyalty payments in the amount of $16.7 million and $19.1 million for the years ended December 31, 2006 and 2005, respectively, were reclassified to Advertising & marketing. Amounts from Prepaid and other current assets related to
Canadian Satellite Radio in the amount of $1.6 million as of December 31, 2006 were reclassified to Due from related parties. Restricted investments in the amount of $2.1 million as of December 31, 2006 were reclassified to Prepaid and
other assets. These amounts are considered immaterial to the prior periods to which they relate.



Cash and Cash Equivalents



The Company considers short-term, highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts reflected in
the Consolidated Balance Sheets for Cash and cash equivalents approximate fair value due to their short maturities.



Accounts Receivable



Accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Companys best estimate of the amount of probable losses in the
Companys existing accounts receivable. The Company estimates the allowance based primarily on the Companys historical write-off experience. Receivable balances are written-off when management deems amounts to be uncollectible, which is
generally determined by the number of days past due.



F-13



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Inventory



Inventories are stated at the lower of average cost or market. The Company provides estimated inventory allowances for excess, slow moving
and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value. Inventories consist of both finished goods and component parts. The Company had $11.3 million and $17.0 million of net inventory as of
December 31, 2007 and 2006, respectively, which amounts are included in Prepaid and other current assets on the Consolidated Balance Sheets.



During the years ended December 31, 2007, 2006 and 2005, the Company recorded total inventory write-down charges of $16.3 million, $4.9 million and $0, respectively.
These charges are reflected in Cost of merchandise in the Consolidated Statements of Operations.



Investments



Investments in Marketable Equity Securities  Investments in marketable equity securities are classified as available-for-sale securities and are carried at
fair value based on current market quotations. Unrealized gains and losses, net of tax, are recorded as a component of Accumulated other comprehensive income in Stockholders deficit in the Consolidated Balance Sheets.



Equity Method Investments  Investments in which the Company has the ability to
exercise significant influence but not control are accounted for using the equity method. The Company recognizes its share of net earnings or losses of the affiliate as they occur in Other income (expense) in the Consolidated Statements of
Operations. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of
the equity method investment and its estimated fair value is recognized as impairment when the loss in value is deemed other than temporary.



Cost Method Investments  Investments in equity securities that do not have readily determinable fair values and in which the Company does not have a
controlling interest or is unable to exert significant influence are recorded at cost, subject to other than temporary impairment.



Investments are periodically reviewed for impairment and a write down is recorded whenever declines in fair value below carrying value are determined to be other than
temporary. In making this determination, the Company considers, among other factors, the severity and duration of the decrease as well as the likelihood of a recovery within a reasonable timeframe.



Property and Equipment



Property and equipment is stated at cost less accumulated depreciation and amortization.
Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives:



|                                                          |  |                                             
|--------------------------------------------------------- |  | --------------------------------------------
|Spacecraft system                                         |  | 6.75  15 years                             
|Terrestrial repeater network                              |  | 5  10 years                                
|Spacecraft control and uplink facilities                  |  | 17.5 years                                  
|Broadcast facilities                                      |  | 3  7 years                                 
|Computer systems                                          |  | 3  7 years                                 
|Building and improvements                                 |  | 20 years                                    
|Furniture and fixtures                                    |  | 3  7 years                                 
|Equipment under capital leases and leasehold improvements |  | Lesser of useful lifeor remaining lease term



In February 2007, the transponders on
XM-4 were the subject of a sale-leaseback transaction and are now being amortized over their nine-year lease term, less the estimated residual value.



F-14



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Maintenance and repairs costs are expensed as incurred, whereas expenditures for renewal and betterments are
capitalized. The cost of internally developed software is capitalized in accordance with Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and
amortized over its estimated useful life. Interest costs incurred in connection with the construction of major equipment and facilities are capitalized as part of the asset cost to which it relates and depreciated over the assets useful life.
Upon the normal sale or retirement of depreciable property, the net carrying value less any salvage value is recognized as an operating gain or loss in the Consolidated Statements of Operations.



In accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.



DARS License and Other Intangible Assets



Intangible assets not subject to amortization, specifically the DARS license, are tested
annually for impairment, and are tested for impairment more frequently, if events or circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair
value.



The Company recorded amortization expense of $1.3 million for each year
ended December 31, 2007, 2006, 2005 related to acquired programming and receiver agreements with estimated useful lives of 10 years. These agreements had a remaining carrying value of $3.4 million and $4.6 million and accumulated amortization
of $9.5 million and $8.2 million at December 31, 2007 and 2006, respectively. Estimated amortization expense for the next three years is $1.3 million in 2008 through 2009 and $0.8 million in 2010.



Deferred Financing Fees



Deferred financing fees consist primarily of legal, accounting, printing and investment
banking fees as well as fees paid to obtain credit facilities. Deferred financing fees are amortized over the life of the corresponding instrument and facility.



Revenue Recognition



The Company derives revenue primarily from subscription fees and to a lesser extent activation fees, advertising, direct sales of merchandise and royalties. Revenue is
recognized as it is realized or realizable and earned.



Subscription revenue is
generally recognized straight-line over the term of the subscription. Revenue from subscribers, which is generally billed in advance, consists of (i) fixed charges for service, which are recognized as the service is provided and
(ii) non-refundable activation fees that are recognized ratably over the expected 40-month life of the customer relationship. Direct activation costs are expensed as incurred. Promotions for free or discounted service are treated as a reduction
to revenue during the period of the promotion. Consideration received in advance of revenue recognition is recorded as deferred revenue.



The Company recognizes revenue for sales of bundled packages, that generally include a radio, activation and service, in accordance with Emerging Issues Task Force
(EITF) Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF Issue No. 00-21). Pursuant to EITF Issue No. 00-21, the Company allocates the consideration received based on the relative
fair values of the individual components.



Advertising revenue is recognized in
the period in which the advertisement is broadcast. Advertising revenue is presented net of agency fees in the Consolidated Statements of Operations.



F-15



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Merchandise revenue is recognized at the time of shipment or delivery of the equipment. Royalty and other revenue are
recognized as it is realized or realizable and earned.



Barter Transactions



The Company trades advertising or
XM satellite radio service in exchange for advertising, other products, or services. Revenue and related expenses from barter transactions are recorded at fair value in accordance with EITF Issue No. 99-17, Accounting for Advertising Barter
Transactionsand SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. Revenue from barter transactions is recognized when advertising or satellite radio service is provided, and product costs and
services received are charged to expense when incurred. Revenue from barter transactions is not material to the Companys Consolidated Statements of Operations for any of the periods presented herein.



Share-Based Payments



Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),Share-Based Payment (SFAS No. 123R), which revises SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock
Issued to Employees (APB 25). SFAS No. 123R requires all share-based compensation payments to be recognized in the financial statements based on their fair value using an option pricing model.



The Company adopted SFAS No. 123R using the modified prospective method which requires
that compensation cost recognized subsequent to adoption include the applicable amounts of: (i) compensation cost for share-based payments granted prior to, but not yet vested, as of December 31, 2005, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 148,Accounting for Stock-Based Compensation  Transition and Disclosure, and (ii) compensation cost for all share-based payments granted subsequent to December 31,
2005, based on the grant date fair value estimated in accordance with SFAS No. 123R. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
initial estimates. The Company uses the Black-Scholes option-pricing model to value stock option awards and has elected to treat awards with graded vesting as a single award. The adoption of SFAS No. 123R had a material impact on the
Consolidated Statements of Operations. This impact is more fully described in Note 12.



The fair value of equity instruments granted to non-employees is measured in accordance with EITF Issue No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. The final measurement date of equity instruments with performance criteria is the date that each performance commitment for such equity instrument is satisfied or there is a significant disincentive for
non-performance.



Pro Forma Presentation for Periods Prior to the Adoption
of SFAS No. 123R  Under the modified prospective transition method, results for prior periods have not been restated to reflect the effects of implementing SFAS No. 123R. The following table illustrates the effect on net loss
during the year ended December 31, 2005 as if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands):



|                                                                                                              |  |                             |          |  
|------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | -
|                                                                                                              |  | Year EndedDecember 31, 2005 |         
|Net loss attributable to common stockholders, as reported                                                     |  | $                           | (675,312 | )
|Add: Stock-based employee compensation expense included in net loss                                           |  |                             | 5,508    |  
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards |  |                             | (43,109  | )
|                                                                                                              |  |                             |          |  
|Pro forma net loss                                                                                            |  | $                           | (712,913 | )
|                                                                                                              |  |                             |          |  
|As reported  net loss per common share: basic and diluted                                                    |  | $                           | (3.07    | )
|Pro forma  net loss per common share: basic and diluted                                                      |  | $                           | (3.25    | )



F-16



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Research & Development



Research and development expenses primarily include the cost of new product development,
chipset design, software development and engineering.



Advertising & Marketing



Advertising & marketing costs includes advertising, media and other events, training and marketing materials for retail and automotive dealer points of presence, are discretionary costs that are expensed as incurred. During the
years ended December 31, 2007, 2006, and 2005, the Company expensed approximately $178.7 million, $164.4 million and $182.4 million, respectively. Co-operative marketing costs are recognized as advertising expense to the extent an identifiable
benefit is received and the fair value of the benefit can be reasonably measured; otherwise, such costs are recorded as a reduction of revenue.



Net Loss per Common Share



The Company computes net loss per common share in accordance with SFAS No. 128,Earnings Per Share and SEC Staff Accounting Bulletin (SAB)
No. 98,Computations of Earnings Per Share. Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per common share is computed by dividing the net loss attributable to common stockholders (after deducting
preferred dividend requirements) for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss attributable to common stockholders for the period
by the weighted average number of common and dilutive equivalent shares outstanding during the period. Options, warrants and convertible instruments outstanding as of December 31, 2007 to purchase 49.5 million shares of common stock (47.0
million of which were vested) were not included in the computation of diluted net loss per common share for the year ended December 31, 2007 as their inclusion would have been anti-dilutive. Options, warrants and convertible instruments
outstanding as of December 31, 2006 to purchase 51.1 million shares of common stock (46.1 million of which were vested) were not included in the computation of diluted net loss per common share for the year ended December, 31, 2006 as
their inclusion would have been anti-dilutive. Options, warrants and convertible instruments outstanding as of December 31, 2005 to purchase 110.5 million shares of common stock (104.2 million of which were vested) were not included
in the computation of diluted net loss per common share for the year ended December, 31, 2005 as their inclusion would have been anti-dilutive. Unvested shares of restricted stock in the amount of 7.0 million, 3.4 million and
0.8 million as of December 31, 2007, 2006 and 2005, respectively, are not included in the computation of basic net loss per common share or in diluted net loss per common share because their inclusion would have been anti-dilutive. The
Company had a net loss in each of the periods presented, and therefore, basic and diluted net loss per common share are the same.



Derivative Instruments



The Company applies SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting
standards for derivative instruments and hedging activities. The Company does not engage in hedging activities. For derivative instruments not designated as hedging instruments under SFAS No. 133, changes in fair values are recognized in
earnings in the current period.



Income Taxes



Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the tax benefits and consequences in future years of differences between the tax bases of assets and liabilities and the financial reporting amounts at each year-end and operating loss and tax credit
carryforwards, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the sum of taxes payable for the period and the change during the period in deferred tax assets and liabilities.



F-17



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Comprehensive Income or Loss



Accumulated other comprehensive income or loss is reported on the Consolidated Balance
Sheets. Unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments are included in other comprehensive income or loss (see Note 7, under the headings WorldSpace and Canadian Satellite
Radio). However, in the event that an unrealized loss is deemed other than temporary, the loss is recognized in earnings. The components of Comprehensive income or loss for the years ended December 31, 2007, 2006 and 2005 are as follows
(in thousands):



|                                                                                                    |  |                          |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                    |  | Years Ended December 31, |         
|                                                                                                    |  | 2007                     |          |   | 2006 |   |          | 2005 | 
|Net loss                                                                                            |  | $                        | (682,381 | ) |      | $ | (718,872 | )    |  | $ | (666,715 | )
|Unrealized gain (loss) on available-for-sale securities, net of tax                                 |  |                          | 125      |   |      |   | (125     | )    |  |   | 5,985    |  
|Reclassification adjustment for unrealized gain (loss) on available-for-sale securities, net of tax |  |                          | 125      |   |      |   | (5,985   | )    |  |   |         |  
|Foreign currency translation adjustment, net of tax                                                 |  |                          | 5,126    |   |      |   | 3,715    |      |  |   |         |  
|                                                                                                    |  |                          |          |   |      |   |          |      |  |   |          |  
|Total comprehensive loss                                                                            |  | $                        | (677,005 | ) |      | $ | (721,267 | )    |  | $ | (660,730 | )
|                                                                                                    |  |                          |          |   |      |   |          |      |  |   |          |  



Unrealized gain on available-for-sale
securities for the year ended December 31, 2007 is shown net of tax provision of $0.1 million. The Company did not record a tax benefit for the unrealized loss on available-for-sale securities for the year ended December 31, 2006.
Unrealized gain on available-for-sale securities for the year ended December 31, 2005 is shown net of tax provision of approximately $3.7 million. The Company did not record a tax provision for the reclassification adjustment for unrealized
loss on available-for-sale securities for the year ended December 31, 2007. Reclassification adjustment for unrealized gain on available-for-sale securities for the year ended December 31, 2006 is shown net of tax benefit of $3.7 million.
Foreign currency translation adjustment for the years ended December 31, 2007 and 2006 is shown net of tax provision of $3.2 million and $2.3 million, respectively.



Recent Accounting Pronouncements



In December 2007, the FASB issued SFAS No. 141(R), Business Combinations which replaces SFAS No. 141, Business Combinations. This Statement
establishes principles and requirements for how the acquirer (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree,
(ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15,
2008. The Company will adopt this standard at the beginning of the Companys fiscal year ending December 31, 2009 for all prospective business acquisitions. The Company has not determined the effect that the adoption of SFAS
No. 141(R) will have on its consolidated financial statements, but the impact will be limited to any future acquisitions beginning in fiscal year 2009.



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No. 51. This
Statement requires all entities to report noncontrolling interests in subsidiaries as equity in the consolidated financial statements. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company will adopt this Statement effective January 1, 2009. The Company has not determined the effect that the adoption of SFAS No. 160 will have on its consolidated results of operations or financial position.



In June 2007, the FASB issued Emerging Issues Task Force (EITF)
No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities, which states that nonrefundable advance payments for future research and development activities
should be deferred and capitalized and that such amounts should be recognized as an expense as the goods are delivered or the related services are performed. If an entity does not



F-18



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. The consensus is effective for the
first annual or interim reporting period beginning after December 15, 2007. The Company will adopt this consensus effective January 1, 2008. Based on the Companys current evaluation of this EITF, the Company does not expect the
adoption of EITF Issue No. 07-3 to have a significant impact on its consolidated results of operations or financial position.



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent
with the FASBs long-term measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company will adopt
this Statement effective January 1, 2008. The Company does not expect the adoption of SFAS No. 159 to have a significant impact on its consolidated results of operations or financial position.



In September 2006, the FASB Emerging Issues Task Force issued EITF Issue No. 06-1,Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider, which states how a service provider company that depends on
specialized equipment should account for consideration paid to the manufacturers and resellers of such equipment. EITF Issue No. 06-1 requires that the service provider recognize payments based on the form of benefit the end-customer receives
from the manufacturer or reseller. If the form of the benefit is other than cash, as that term is defined in EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendors Products), or the service provider does not control the form of the benefit provided to the customer, then the consideration would be classified as an expense; otherwise, the consideration should be classified as an offset to
revenue. The consensus would require retrospective application to all prior periods as of the beginning of the first annual reporting period beginning after June 15, 2007. This Issue is effective for the first annual reporting period beginning
after June 15, 2007. The Company does not expect the adoption of EITF Issue No. 06-1 to have a significant impact on its consolidated results of operations or financial position.



In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 and FSP 157-2, Effective Date of FASB Statement
No. 157. FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2, Effective Date of FASB Statement No. 157 delays the effective date of SFAS No. 157 for all nonfinancial assets
and liabilities except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, until January 1, 2009 for calendar year end entities. The Company will adopt this Statement except as it
applies to nonfinancial assets and liabilities as noted in FSP 157-2. The Company does not expect the partial adoption of SFAS No. 157 to have a significant impact on its consolidated results of operations or financial position. The Company has
not determined the effect that the adoption of SFAS No. 157, as it relates to nonfinancial assets and liabilities, will have on its consolidated results of operations or financial position.



(3) Fair Value of Financial Instruments



The fair value of a financial instrument is the amount at which the instrument could be
exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. As of December 31, 2007 and 2006, the Company has determined that the carrying value of each of the financial instruments listed below
approximates the fair value based on the reasons indicated.



The carrying
amounts of the following financial instruments approximate fair value because of their short maturities: Cash and cash equivalents, accounts receivable, due from related parties, accounts payable, accrued expenses, accrued satellite liability, due
to related parties and restricted investments.



F-19



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



The fair value of the Companys long-term debt is determined by either estimation by discounting the future cash
flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Companys bankers or quoted market prices at the reporting date for the traded debt securities. As of
December 31, 2007 and 2006, the carrying value of its long-term debt was $1,489.8 million and $1,300.6 million, respectively; while the fair value was $1,515.7 million and $1,364.2 million, respectively.



(4) System Under Construction



The Company has capitalized costs including capitalized interest related to the development
of its spacecraft system to the extent that it has future benefits. The amounts recorded as system under construction relate to costs to build its spacecraft system and were $151.1 million and $126.0 million as of December 31, 2007 and 2006,
respectively.



(5) Property and Equipment



Property and equipment consists of the following (in thousands):



|                                                        |  |              |           |   |      |   |           |  
|------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                        |  | December 31, |          
|                                                        |  | 2007         |           |   | 2006 |  
|Spacecraft system                                       |  | $            | 903,210   |   |      | $ | 905,507   |  
|Terrestrial repeater network                            |  |              | 264,664   |   |      |   | 264,223   |  
|Spacecraft control and uplink facilities                |  |              | 48,172    |   |      |   | 46,181    |  
|Broadcast facilities                                    |  |              | 66,316    |   |      |   | 65,302    |  
|Land                                                    |  |              | 8,788     |   |      |   | 8,788     |  
|Buildings and improvements                              |  |              | 74,521    |   |      |   | 73,252    |  
|Computer systems, furniture and fixtures, and equipment |  |              | 297,450   |   |      |   | 254,177   |  
|                                                        |  |              |           |   |      |   |           |  
|Total property and equipment                            |  |              | 1,663,121 |   |      |   | 1,617,430 |  
|Accumulated depreciation and amortization               |  |              | (952,751  | ) |      |   | (767,768  | )
|                                                        |  |              |           |   |      |   |           |  
|Property and equipment, net                             |  | $            | 710,370   |   |      | $ | 849,662   |  
|                                                        |  |              |           |   |      |   |           |  



(6) DARS License



The Companys DARS license is valid for eight years upon successful launch and orbital
insertion of the satellites and can be extended by the FCC. The DARS license requires that the Company comply with a construction and launch schedule specified by the FCC for each of the first two authorized satellites, which has occurred. The FCC
has the authority to revoke the authorizations and in connection with such revocation could exercise its authority to rescind the Companys license (see Note 17). The Company determined that its DARS license was an intangible asset having an
indefinite useful life pursuant to SFAS No. 142. The Company believes that the administrative fees necessary to renew the license will bede minimis compared to the initial fee to obtain the license, and the Company has met all of the
established milestones specified in the FCC license agreement. The Company also anticipates no difficulties in renewing the license as long as the Company continues to adhere to the various regulatory requirements established in the license grant.
Although the Company faces competition from a variety of sources, the Company does not believe that the risks of the technology becoming obsolete or of a decrease in demand for the DARS service are significant.



F-20



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



(7) Investments



The Companys investments consist primarily of an equity method investment, a cost method investment and available-for-sale securities as follows (in thousands):



|                                                                    |  |              |        |      |   |       
|------------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                                                    |  | December 31,
|                                                                    |  | 2007         |        | 2006
|Equity method investment                                            |  | $            | 30,144 |      | $ | 74,252
|Cost method investment                                              |  |              |       |      |   | 480   
|Available-for-sale securities                                       |  |              | 5,399  |      |   | 5,860 
|Embedded derivative accounted for separately from the host contract |  |              | 1,438  |      |   |      
|                                                                    |  |              |        |      |   |       
|Total investments                                                   |  | $            | 36,981 |      | $ | 80,592
|                                                                    |  |              |        |      |   |       



Equity Method Investment and
Available-for-Sale Debt Securities



Canadian
Satellite Radio (XM Canada)



In December 2005, XM Canada,
a related party, issued to XM 11,077,500 Class A subordinate voting shares representing a 23.33% ownership interest and 11% voting interest in XM Canada. These shares were determined to have an initial fair value of $152.1 million, based on the
XM Canada initial public offering price of C$16.00 per share. XM accounts for its ownership in XM Canada using the equity method of accounting.



XM Canada has a fiscal year end of August 31. XM records its share of XM Canadas net income or loss, using the average currency exchange rate for the period,
based on XM Canadas quarterly periods ending on the last day of February, May, August and November. During 2007 and 2006, XM recorded a currency translation gain of $5.0 million (net of $3.2 million tax provision) and $3.7 million (net of $2.3
million tax provision), respectively, as a component of Accumulated other comprehensive income in Stockholders deficit in the Consolidated Balance Sheets.



During June 2007 and December 2006, the Company reduced the carrying value of its equity method investment in XM Canada due to decreases in fair value that were
considered to be other than temporary and recorded impairment charges of $35.8 million and $57.6 million, respectively, to Loss from impairment of investments in the Consolidated Statements of Operations. XM Canadas shares trade publicly on
the Toronto Stock Exchange under the symbol XSR.TO. The fair value of the Companys equity method investment in XM Canada is determined based on XM Canadas quoted share price on the date of the most recent financial
statements, which precedes the Companys by one month. The quoted market price on November 30, 2007 (the date of XM Canadas most recent financial statements) was C$5.85, or US$5.85. Based on the number of shares held by the Company,
the fair value of the Companys equity method investment in XM Canada was $64.8 million on December 31, 2007. The carrying value of the Companys equity method investment in XM Canada was $30.1 million and $74.3 million at
December 31, 2007 and 2006, respectively.



During September 2007, the
Company purchased C$4.0 million face value 8% convertible unsecured subordinated debentures issued by XM Canada for $3.9 million. The notes mature in 2014 and are convertible into shares of Class A subordinate voting shares of XM Canada at a
price of C$5.92 per share. The embedded conversion feature is required to be bifurcated from the underlying debt, or host contract, and accounted for as a derivative at fair value with changes in fair value recorded in earnings as Interest income.
The host contract is held as an available-for-sale security at fair value with changes in fair value recorded in Accumulated other comprehensive income, net of tax. The host contract and derivative were initially recorded at $2.4 million and $1.5
million, respectively. Foreign currency translation adjustments related to the host contract and derivative are recorded in Accumulated other comprehensive income, net of tax and Other income (expense), respectively. Unrealized gain and foreign
currency translation adjustment related to the host contract for the year ended December 31, 2007 was $0.1 million (net of immaterial tax provision) and $0.1 million (net of immaterial tax provision), respectively. The change in fair value of
the derivative and related foreign currency translation adjustment were not material for the year ended December 31, 2007. As of December 31, 2007, the fair value of the host contract and derivative was $2.8 million and $1.4 million,
respectively.



F-21



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Summarized unaudited financial information for XM Canada is as follows (US$ in thousands):



|                           |  |                                      |        |                                      |   |                               |  |   |        
|-------------------------- |  | ------------------------------------ | ------ | ------------------------------------ | - | ----------------------------- |  | - | -------
|                           |  |                                      |        | November 30,2007                     |   | November 30,2006             
|Current assets             |  |                                      |        |                                      | $ | 51,959                        |  | $ | 50,641 
|Non-current assets         |  |                                      |        |                                      | $ | 240,873                       |  | $ | 247,848
|Current liabilities        |  |                                      |        |                                      | $ | 38,969                        |  | $ | 17,782 
|Non-current liabilities    |  |                                      |        |                                      | $ | 116,855                       |  | $ | 101,674
|Total shareholders equity |  |                                      |        |                                      | $ | 137,008                       |  | $ | 179,033
|                           |  |                                      |       
|                           |  | Twelve months endedNovember 30, 2007 |        | Twelve months endedNovember 30, 2006 |   | Period endedNovember 30, 2005
|Revenues                   |  | $                                    | 23,818 |                                      | $ | 9,552                         |  | $ | 39     
|Net loss                   |  | $                                    | 70,677 |                                      | $ | 98,768                        |  | $ | 12,400 
|XMs share of net loss     |  | $                                    | 16,491 |                                      | $ | 23,229                        |  | $ | 482    



Cost Method Investment and
Available-for-Sale Equity Securities



WorldSpace



On July 18, 2005, XM acquired 1,562,500 shares of Class A
common stock of WorldSpace, Inc. (WSI) and a warrant to purchase at WSIs initial public offering price of $21.00 an additional aggregate number of shares equal to $37.5 million, subject to certain operational vesting conditions, in
exchange for $25.0 million. XM allocated its $25.0 million investment between the two financial instruments, $12.9 million to the Class A common stock and $12.1 million to the warrant. XM accounts for its investment in WSI Class A common
stock as available-for-sale securities and accounts for its investment in the warrant under the cost method, subject to other than temporary impairment. WorldSpace provides XM certain programming in exchange for a nominal monthly fee under an
amended programming agreement that extends through June 7, 2009.



During
June 2006 and December 2007, the Company reduced the carrying values of its investment in WSI common stock due to decreases in fair values that were considered to be other than temporary and recorded impairment charges of $7.3 million and $3.4
million, respectively, to Loss from impairment of investments in the Consolidated Statements of Operations. During June 2006 and September 2007, the Company reduced the carrying value of its investment in the warrant due to decreases in fair values
that were considered to be other than temporary and recorded impairment charges of $11.6 million and $0.5 million, respectively, to Loss from impairment of investments in the Consolidated Statements of Operations. WorldSpaces shares trade
publicly on the NASDAQ Stock Exchange under the symbol WRSP. The quoted market price on December 31, 2007 was $1.68. Based on the number of shares held by the Company, the fair value of the Companys investment in WSI common
stock was $2.6 million on December 31, 2007. As of December 31, 2007, the carrying value of the Companys investments in WSI common stock and warrant was $2.6 million and $0, respectively. As of December 31, 2006, the carrying
value of the Companys investments in WSI common stock and warrant was $5.5 million (which included $0.1 million of unrealized losses) and $0.5 million, respectively.



F-22



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



(8) Deferred Financing Fees



Deferred financing fees consist of the following (in thousands):



|                                                                                                                                |  |              |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                |  | December 31, |        
|                                                                                                                                |  | 2007         |         |   | 2006 |  
|10% senior secured discount convertible notes due 2009                                                                          |  | $            | 1,432   |   |      | $ | 1,432   |  
|9.75% senior notes due 2014                                                                                                     |  |              | 16,091  |   |      |   | 16,091  |  
|Senior floating rate notes due 2013                                                                                             |  |              | 5,354   |   |      |   | 5,354   |  
|1.75% convertible senior notes due 2009                                                                                         |  |              | 10,066  |   |      |   | 10,066  |  
|Valuation of warrants issued to related party in conjunction with credit facilities                                             |  |              | 25,151  |   |      |   | 25,151  |  
|Valuation of warrants issued to related party in conjunction with the issuance of 10% senior secured discount convertible
notes |  |              |        |   |      |   | 540     |  
|Mortgages                                                                                                                       |  |              |        |   |      |   | 504     |  
|Debt of consolidated variable interest entity                                                                                   |  |              | 4,262   |   |      |   |        |  
|                                                                                                                                |  |              |         |   |      |   |         |  
|Total deferred financing fees                                                                                                   |  |              | 62,356  |   |      |   | 59,138  |  
|Accumulated amortization                                                                                                        |  |              | (27,766 | ) |      |   | (20,537 | )
|                                                                                                                                |  |              |         |   |      |   |         |  
|Deferred financing fees, net                                                                                                    |  | $            | 34,590  |   |      | $ | 38,601  |  
|                                                                                                                                |  |              |         |   |      |   |         |  



(9) Long-Term Debt



Certain of the Companys debt instruments and credit facilities contain covenants
that include restrictions on indebtedness, mergers, limitations on liens, limitations on dividends, liquidations and sale and leaseback transactions, and also require the maintenance of certain financial ratios. The Company was in compliance with
all of its covenants as of December 31, 2007. The Companys debt instruments and credit facilities permit the debt issued thereunder to be accelerated upon certain events, including the failure to pay principal when due under any of the
Companys other debt instruments or credit facilities subject to materiality thresholds.



The following table presents a summary of the debt activity for the year ended December 31, 2007 (in thousands):



|                                                       |  |                  |           |   |                     |   |                      |  |                   |       |  |                  |         |   |  |   |           |  
|------------------------------------------------------ |  | ---------------- | --------- | - | ------------------- | - | -------------------- |  | ----------------- | ----- |  | ---------------- | ------- | - |  | - | --------- | -
|                                                       |  | December 31,2006 |           |   | Issuances/Additions |   | DiscountAmortization |  | PrincipalPayments |       |  | December 31,2007 |        
|9.75% senior notes due 2014                            |  | $                | 600,000   |   |                     | $ |                     |  | $                 |      |  | $                |        |   |  | $ | 600,000   |  
|1.75% convertible senior notes due 2009                |  |                  | 400,000   |   |                     |   |                     |  |                   |      |  |                  |        |   |  |   | 400,000   |  
|Senior floating rate notes due 2013                    |  |                  | 200,000   |   |                     |   |                     |  |                   |      |  |                  |        |   |  |   | 200,000   |  
|10% senior secured discount convertible notes due 2009 |  |                  | 33,249    |   |                     |   |                     |  |                   |      |  |                  |        |   |  |   | 33,249    |  
|Less: discount                                         |  |                  | (5,213    | ) |                     |   |                     |  |                   | 1,459 |  |                  |        |   |  |   | (3,754    | )
|Debt of consolidated variable interest entity          |  |                  |          |   |                     |   | 230,800              |  |                   |      |  |                  |        |   |  |   | 230,800   |  
|Mortgages                                              |  |                  | 38,877    |   |                     |   |                     |  |                   |      |  |                  | (38,877 | ) |  |   |          |  
|Capital leases                                         |  |                  | 33,711    |   |                     |   | 9,453                |  |                   |      |  |                  | (13,667 | ) |  |   | 29,497    |  
|                                                       |  |                  |           |   |                     |   |                      |  |                   |       |  |                  |         |   |  |   |           |  
|Total debt                                             |  |                  | 1,300,624 |   |                     | $ | 240,253              |  | $                 | 1,459 |  | $                | (52,544 | ) |  |   | 1,489,792 |  
|                                                       |  |                  |           |   |                     |   |                      |  |                   |       |  |                  |         |   |  |   |           |  
|Less: current portion                                  |  |                  | 14,445    |   |                     |   |                      |  |                   |       |  |                  |         |   |  |   | 9,153     |  
|                                                       |  |                  |           |   |                     |   |                      |  |                   |       |  |                  |         |   |  |   |           |  
|Long-term debt, net of current portion                 |  | $                | 1,286,179 |   |                     |   |                      |  |                   |       |  |                  |         |   |  | $ | 1,480,639 |  
|                                                       |  |                  |           |   |                     |   |                      |  |                   |       |  |                  |         |   |  |   |           |  





F-23



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Future maturities of long-term debt, stated at fully accreted values, as of December 31, 2007 are as follows (in
thousands):



|                         |  |        |          
|------------------------ |  | ------ | ---------
|Year ending December 31, |  | Amount
|2008                     |  | $      | 9,153    
|2009                     |  |        | 442,779  
|2010                     |  |        | 8,733    
|2011                     |  |        | 38,995   
|2012                     |  |        | 132,971  
|Thereafter               |  |        | 860,915  
|                         |  |        |          
|Total debt               |  | $      | 1,493,546
|                         |  |        |          



9.75% Senior
Notes due 2014



The aggregate principal balance of the unsecured 9.75%
Senior Notes due 2014 outstanding as of December 31, 2007 is $600 million. Interest is payable semi-annually on May 1 and November 1 at a rate of 9.75% per annum. The notes are unsecured and will mature on May 1, 2014. The
Company, at its option, may redeem the notes at declining redemption prices at any time on or after May 1, 2010, subject to certain restrictions. Prior to May 1, 2010, the Company may redeem the notes, in whole or in part, at a price equal
to 100% of the principal amount thereof, plus a make-whole premium and accrued and unpaid interest to the date of redemption. The notes are subject to covenants that, among other things, require the repurchase of the notes at 101% of principal
amount in the event of a change of control, and limit Inc.s ability and the ability of certain of Inc.s subsidiaries to incur additional indebtedness; pay dividends on, redeem or repurchase Inc.s capital stock; make investments;
engage in transactions with affiliates; create certain liens; or consolidate, merge or transfer all or substantially all of Inc.s assets and the assets of Inc.s subsidiaries on a consolidated basis.



1.75% Convertible Senior Notes due 2009



The aggregate principal balance of the 1.75% Convertible Senior Notes due 2009 outstanding
as of December 31, 2007 is $400 million. Interest is payable semi-annually at a rate of 1.75% per annum. The remaining principal balance is payable in December 2009. The notes may be converted by the holder, at its option, into shares of
the Companys Class A common stock initially at a conversion rate of 20.0 shares of Class A common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $50.00 per share of Class A common stock
(subject to adjustment in certain events), at any time until December 1, 2009.



Senior Floating Rate Notes due 2013



The aggregate principal balance of the unsecured Senior Floating Rate Notes due 2013 outstanding as of December 31, 2007 is $200 million. Interest is payable quarterly on May 1, August 1, November 1 and
February 1 at a rate currently set at 9.4113% per annum through February 1, 2008. Thereafter, the rate is reset quarterly to 450 basis points over the three-month LIBOR. The notes are unsecured and will mature on May 1, 2013. The
Company, at its option, may redeem the notes at declining redemption prices at any time on or after May 1, 2008, subject to certain restrictions. Prior to May 1, 2008, the Company may redeem the notes, in whole or in part, at a price equal
to 100% of the principal amount thereof, plus a make-whole premium and accrued and unpaid interest to the date of redemption. The notes are subject to covenants that, among other things, require the repurchase of the notes at 101% of principal
amount in the event of a change of control, and limit Inc.s ability and the ability of certain of Inc.s subsidiaries to incur additional indebtedness; pay dividends on, redeem or repurchase Inc.s capital stock; make investments;
engage in transactions with affiliates; create certain liens; or consolidate, merge or transfer all or substantially all of Inc.s assets and the assets of Inc.s subsidiaries on a consolidated basis.



10% Senior Secured Discount Convertible Notes due 2009



The aggregate principal balance of the 10% Senior Secured Discount
Convertible Notes due 2009 outstanding as of December 31, 2007 is $33.2 million. Interest accreted through December 31, 2005 and is thereafter payable semi-annually at



F-24



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



a rate of 10% per annum, while the remaining principal balance is payable in December 2009. At any time, a holder of the notes may convert all or part
of the accreted value of its notes at a conversion price of $3.18 per share. At any time on or after December 21, 2006, the Company may require holders of the notes to convert all, but not less than all of the notes at the conversion price of
$3.18 per share if: (i) shares of Class A common stock have traded on the NASDAQ National Market or a national securities exchange for the previous 30 trading days at 200% of the conversion price, (ii) the Company reported earnings
before interest income and expense, other income, taxes, depreciation (including amounts related to research and development) and amortization greater than $0 for the immediately preceding quarterly period for which the Company reports its financial
results, (iii) immediately following such conversion, the aggregate amount of the Company and its subsidiaries indebtedness is less than $250 million, and (iv) no shares of the Companys Series C convertible redeemable preferred
stock remain outstanding. The notes are secured by substantially all of Inc.s assets, including the stock of Inc.s FCC license subsidiary. In addition, the Notes are guaranteed by the Company, rank equally in right of payment with all of
Inc.s other existing and future senior indebtedness, and are senior in right of payment to all of Inc.s existing and future subordinated indebtedness.



Debt of Consolidated Variable Interest Entity



On February 13, 2007, the Company entered into a sale-leaseback transaction with respect to the transponders on the XM-4 satellite,
which was launched in October 2006 and placed into service during December 2006. The Company sold the XM-4 transponders to Satellite Leasing (702-4) LLT (Trust), a third-party trust formed solely for the purpose of facilitating the
sale-leaseback transaction. The Trust pooled the funds used to purchase the transponders from a $57.7 million investment by an equity investor and the $230.8 million in proceeds from the issuance of its 10% senior secured notes due 2013 (Debt
of consolidated variable interest entity). The Company is accounting for the sale and leaseback of the transponders under sale-leaseback accounting with a capital lease, pursuant to SFAS No. 13, Accounting for Leases, as amended.
Furthermore, the Company determined that the Trust is a variable interest entity, as that term is defined under FIN No. 46(R), and that the Company is the primary beneficiary of the Trust. Pursuant to FIN No. 46(R), the Company
consolidated the Trust into its Consolidated Financial Statements.



The Company
sold the XM-4 transponders to the Trust owned by Satellite Leasing (702-4) LLC (Owner participant) for $288.5 million. XM Satellite Radio Inc. is leasing the transponders for a term of nine years. These lease payment obligations, which
are unconditional and guaranteed by XM Satellite Radio Holdings Inc., are senior unsecured obligations and rank equally in right of payment with existing and future senior unsecured obligations. Under the terms of the lease, the Company is obligated
to make payments that total $437.4 million, of which $126.6 million is interest, over the nine-year base lease term. Payments totaling $27.9 million were made in 2007, while the following amounts are due in the future: $33.2 million in 2008, $28.9
million in 2009, $28.4 million in 2010, $71.0 million in 2011, $145.8 million in 2012 and $102.2 million thereafter.



Throughout the term of the lease, at any time when the Company is not investment grade, the Company will provide credit support to the Owner participant. To provide this
credit support, the Company retired the existing mortgages on its headquarters and data center properties in Washington, D.C. and put into place new mortgage liens on those properties in favor of the Owner participant.



The Company will have full operational control over the transponders for the lease term,
absent default. The Company is subject to an obligation to sell the XM-4 Bus, the remaining component of the XM-4 satellite, to the lessor for a nominal sum in the event that the Company does not repurchase the transponders at the end of the term.



The Company has an early buyout option in year five, a buy-out right at the
end of the lease term and other rights to purchase the transponders or the equity interest in the lessor. The Company also has rights to cause the lessor to effect a refinancing of the notes, and any interest savings from the refinancing would
result in reduced lease payments.



The Company can be required to repurchase
the transponders upon the occurrence of specified events, including an event of loss of the satellite (subject to the right to substitute another satellite meeting equivalent or better value and functionality tests), changes in law that impose a
material regulatory burden on the Owner participant, changes of control and events



F-25



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



resulting in the absence of another holder (other than the Company and its affiliates) of FCC satellite radio licenses in the frequency bands that can be
served by the XM-4 satellite. The Company has agreed to provide indemnities in the event that certain actions by the Company cause the Owner participant to lose or not be able to take certain tax positions relating to the transaction.



Mortgages



1500 Eckington Place



As of December 31, 2007 and 2006, the remaining principal balance of
the 1500 Eckington Place Mortgage Loan was $0 and $32.4 million, respectively. Principal and interest at a fixed rate of 6.015% was payable monthly until the mortgage was scheduled to mature in September 2014. The mortgage loan was secured by the
building and an escrow with a balance of $1.4 million at December 31, 2006. The mortgage loan on this property was retired during February 2007.



60 Florida Avenue



As of December 31, 2007 and 2006, the remaining principal balance of the 60 Florida Avenue Mortgage Loan was $0 and $6.5 million, respectively.
Principal and interest at a fixed rate of 8.26% was payable monthly until the mortgage was scheduled to mature in September 2010. The mortgage loan was secured by the building, the land, and an escrow with a balance of $0.3 million at
December 31, 2006. The mortgage loan on this property was retired during February 2007.



$250 million Senior Secured Revolving Credit Facility



On May 5, 2006, Inc. entered into a $250.0 million revolving credit facility with a group of banks. Inc. has the right to increase the size of the facility by up to $100.0 million, with any increase to be
syndicated on a best efforts basis with no lender being required to increase its commitment. As of December 31, 2007, the Company had full borrowing capacity under the facility.



The facility has a term of three years and is expected to serve as a standby facility for
additional liquidity. Borrowings under the facility will bear interest at a rate of LIBOR plus 150 to 225 basis points or an alternate base rate, to be the higher of the JPMorgan Chase prime rate and the Federal Funds rate plus 50 basis points, in
each case plus 50 to 125 basis points. The facility includes a $120.0 million sublimit for letters of credit and a $5.0 million sublimit for swingline loans. Inc. expects to pay a commitment fee of 37.5 to 50 basis points per year on unused portions
of the facility. The credit facility is secured by substantially all of Inc.s assets other than specified property. The facility includes customary events of default and requires Inc. to maintain at all times unrestricted cash and cash
equivalents of at least $75.0 million. The facility also includes customary conditions to draw, including Inc. not undergoing any material adverse change. As of December 31, 2007 there were no amounts outstanding or letters of credit issued
under the credit facility. During February 2008, the Company drew $187.5 million on this credit facility, all of which remained outstanding at February 28, 2008.



Senior Secured Credit Facility



The Company and Inc. have a revolving $150.0 million Senior Secured Credit Facility with GM that matures on the earlier of December 31, 2009 or six
months after the Company achieves investment grade status. It enables the Company to make monthly draws to finance payments that become due under the Companys distribution agreement with GM and other GM payments. All draws under the facility
bear interest at a per annum rate of LIBOR plus 8%. Interest payments are due semiannually.



The Company is required to prepay the amount of any outstanding advances in an amount equal to the lesser of (i) 50% of the Companys excess cash and (ii) the amount necessary to prepay the draws in
full. Also, in the event that the Company merges with another entity or sells, assigns, transfers, conveys or otherwise disposes of all or substantially all of its assets, then any outstanding advances are required to be prepaid by the Company.
Furthermore, in the event that the $250.0 million



F-26



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



revolving credit facility is terminated prior to its expiration and not replaced with a revolving credit facility of at least $250.0 million with a term that
extends to December 31, 2009 or beyond, then any outstanding advances are required to be prepaid by the Company.



In order to make draws under the credit facility, the Company is required to have a minimum pre-marketing operating income as defined. The GM facility will be unsecured
until the first draw under the Companys bank credit facility and then secured on a second priority basis behind the secured indebtedness permitted to be incurred under the bank credit facility. As of December 31, 2007, there were no
amounts outstanding under this credit facility.



(10) De-leveraging
Transactions



2007 De-leveraging Transactions



During 2007, the Company retired its mortgage loans on 1500 Eckington
Place and 60 Florida and recorded a de-leveraging loss of $2.9 million and $0.8 million from these retirements in Other income (expense) in the Consolidated Statements of Operations for the year ended December 31, 2007.



2006 De-leveraging Transactions



Through the cash tender offer, redemptions and other transactions discussed in this Note 10,
the Company de-leveraged $568.2 million carrying value, or $633.2 million fully accreted face value at maturity for $532.4 million in cash consideration, which included $19.3 million of accrued interest, and 48.8 million shares of Class A
common stock. The Company recorded a de-leveraging loss of $122.2 million from these extinguishments in Other income (expense) in the Consolidated Statements of Operations for the year ended December 31, 2006. This includes the following
de-leveraging transactions:



14% Senior Secured Discount
Notes due 2009

The Company repurchased or redeemed $148.7 million aggregate carrying value, or $186.5 million aggregate fully
accreted face value at maturity, of its 14% Senior Secured Discount Notes due 2009, for a redemption price of $209.6 million, including accrued interest of $9.6 million. As a result of the transaction, the Company recorded a de-leveraging charge of
$52.8 million; consisting of a redemption premium of $13.9 million, unamortized debt issuance costs of $1.3 million and unamortized discounts of $37.6 million.



12% Senior Secured Notes due 2010

The Company repurchased or redeemed $100.0 million aggregate carrying value and fully accreted face value at maturity, of its 12% Senior Secured Notes due 2010 for a redemption price of $117.2 million, including accrued interest of $4.5
million. As a result of the transaction, the Company recorded a de-leveraging charge of $15.5 million; consisting of a redemption premium of $13.0 million and unamortized debt issuance costs of $2.4 million.



10% Senior Secured Discount Convertible Notes due 2009

The Company exchanged $119.5 million aggregate carrying value, or $146.6 million aggregate fully accreted face value at maturity,
of its 10% Senior Secured Discount Convertible Notes due 2009 by issuing approximately 48.8 million shares of Class A common stock. As a result of the transactions, the Company recorded a de-leveraging charge consisting of a redemption
premium of $49.8 million. In addition, the Company wrote-off an unamortized beneficial conversion feature of $27.3 million to interest expense and unamortized debt issuance costs of $4.5 million to Additional paid-in capital.



Senior Secured Floating Rate Notes due 2009

The Company repurchased or redeemed $200.0 million aggregate carrying value and fully accreted face value at maturity, of its Senior Secured Floating Rate
Notes due 2009 for a redemption price of $205.6 million, including accrued interest of $5.2 million. As a result of the transaction, the Company recorded a de-leveraging charge of $4.1 million; consisting of a redemption premium of $0.4 million and
unamortized debt issuance costs of $3.7 million.



F-27



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



2005 De-leveraging Transactions



During 2005, the Company entered into agreements with certain holders of its notes to
de-leverage $80.0 million carrying value, or $93.8 million fully accreted face value at maturity, for $42.0 million in cash consideration, which included $0.7 million of accrued interest, and 18.3 million shares of Class A common stock.
The Company recorded a de-leveraging loss of $27.6 million from these extinguishments in Other income (expense) in the Consolidated Statements of Operations for the year ended December 31, 2005. This includes the following de-leveraging
transactions:



12% Senior Secured Notes due 2010

The Company repurchased $15.0 million aggregate carrying value and fully accreted face value at maturity, of its 12% Senior Secured Notes
due 2010 for a redemption price of $17.2 million, including $0.4 million of accrued interest. As a result of the transaction, the Company incurred a $2.2 million de-leveraging charge; consisting of a redemption premium of $1.8 million and
unamortized debt issuance costs of $0.4 million.



14%
Senior Secured Notes due 2010

The Company repurchased the remaining $19.8 million aggregate carrying value, or $22.8 million
aggregate fully accreted face value at maturity, of its 14% Senior Secured Notes due 2010 for a redemption price of $24.8 million, including $0.3 million of accrued interest. As a result of the transaction, the Company incurred a $4.9 million
de-leveraging charge; consisting of a redemption premium of $1.6 million, unamortized discount of $3.0 million and unamortized debt issuance costs of $0.3 million.



10% Senior Secured Discount Convertible Notes due 2009

The Company exchanged $45.2 million aggregate carrying value, or $56.0 million aggregate fully accreted face value at maturity, of its 10% Senior Secured
Discount Convertible Notes due 2009 by issuing 18.3 million shares of Class A common stock. As a result of the transactions, the Company recorded a de-leveraging charge consisting of a redemption premium of $20.5 million. In addition, the
Company wrote-off a beneficial conversion feature of $10.7 million to interest expense and unamortized debt issuance costs of $1.5 million to Additional paid-in capital.



(11) Equity



Preferred Stock



The Company has authorized 60,000,000 shares of preferred stock, par value $0.01, of which 15,000,000 shares were designated non-voting Series A convertible preferred
stock, 3,000,000 shares were designated non-voting 8.25% Series B convertible redeemable preferred stock, and 250,000 shares were designated 8.25% Series C convertible redeemable preferred stock, all of which are convertible into Class A common
stock at the option of the holder. Additionally, 250,000 shares were designated as non-voting Series D participating preferred stock in connection with the adoption of the Shareholders Rights Plan and are junior to all other classes of
preferred stock. The Series A convertible preferred stock receives dividends, if declared, ratably with the common stock. The Series C convertible redeemable preferred stock contains voting and certain consent rights.



There were 5,393,252 shares of Series A convertible preferred stock issued and outstanding
with a liquidation preference of $51.4 million as of December 31, 2007 and 2006. During 2006, the Company repurchased the Series B convertible redeemable preferred stock and converted the Series C convertible redeemable preferred stock. There
were no shares issued and outstanding of the Series B convertible redeemable preferred stock, Series C convertible redeemable preferred stock or Series D preferred stock as of December 31, 2007 and 2006.



Stock Dividends on Preferred Stock



The Company paid 2006 quarterly dividends on the 8.25% Series B convertible redeemable
preferred stock on February 1, 2006 and May 1, 2006 by issuing 18,126 and 5,128 shares of Class A common stock, respectively, to the respective holders of record. The Company ceased the payment of dividends subsequent to the
May 1, 2006 payment as all the remaining shares



F-28



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



were repurchased by the Company (as discussed below). The Company paid 2005 quarterly dividends on the 8.25% Series B convertible redeemable preferred stock
on February 1, 2005, May 1, 2005, August 1, 2005 and November 1, 2005 by issuing 14,714, 16,784, 14,614 and 15,299 shares of Class A common stock, respectively, to the respective holders of record.



The terms of the Companys 8.25% Series C convertible redeemable preferred stock
provided for cumulative dividends payable in cash. The net loss attributable to common stockholders reflects the accrual of the dividends to preferred stockholders for the years ended December 31, 2006 and 2005.



Repurchases of Series B Convertible Redeemable Preferred Stock



In April 2006, the Company repurchased 366,304 shares of its 8.25% Series B
convertible redeemable preferred stock, for approximately $18.3 million (or $50.00 per share). In June 2006, the Company repurchased the remaining 107,985 shares of 8.25% Series B convertible redeemable preferred stock, for approximately $5.6
million (or $51.65 per share). These repurchases included an aggregate premium of $755,000 and accrued dividends of $68,000, but excluded approximately $260,000 of accrued dividends that were forgiven.



Conversions of Series C Convertible Redeemable Preferred Stock



In October 2006, the Company converted 29,246 shares of its 8.25% Series C
convertible redeemable preferred stock into 5.4 million shares of its Class A common stock. In November 2006, the Company converted its remaining 50,000 shares of its 8.25% Series C convertible redeemable preferred stock into
9.1 million shares of its Class A common stock. These conversions included an aggregate premium of $5.9 million (included in net loss attributable to common stockholders) and accrued dividends of $40.7 million.



Common Stock



The Company has authorized 600,000,000 shares of Class A common stock, par value of
$0.01, of which 316,684,482 and 305,781,515 shares were issued and outstanding as of December 31, 2007 and 2006, respectively. As of December 31, 2007, there were 7,023,387 restricted Class A common shares issued and outstanding that
was subject to forfeiture pending vesting. The Company has authorized 15,000,000 shares of Class C common stock, par value of $0.01, of which no shares were issued and outstanding as of December 31, 2007 and 2006.



Class A Common Stock Issuances



During 2007, 2006 and 2005, the Company issued 0.2 million, 0.8 million and
2.5 million shares, respectively, of Class A common stock related to the exercise of certain warrants. During 2006 and 2005, the Company issued 48.8 million and 18.3 million shares, respectively, of Class A common stock to
convert or redeem certain notes. During 2006, the Company issued 14.5 million shares of Class A common stock to convert certain preferred stock. On June 14, 2005, the Company completed a public offering of 9,668,063 shares of its
Class A common stock at $31.20 per share. The 9,668,063 shares offered by the Company resulted in net proceeds of $300 million.



In December 2007, the Company signed a termination and release agreement with Starbucks Corporation (Starbucks). In connection with this agreement, the
Company issued 1,853,412 shares of its Class A common stock to Starbucks. In exchange for issuing these shares, other than some limited rights to use trademarks, the Company and Starbucks released each other from all remaining obligations under
this previous agreement. The Company recognized Subsidies & distribution and Advertising & marketing expense of $9.2 million and $12.8 million, respectively, associated with the issuance of these shares.



Warrants



14% Senior Secured Notes due 2010 Warrants  As part of the issuance of 14%
Senior Secured Notes due 2010, the Company granted warrants to purchase shares of the Companys Class A common stock. As of December 31, 2007,



F-29



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



2.6 million shares were available for purchase at a price of $45.17 per share. The exercise price of each warrant may be paid either in cash or without
the payment of cash by reducing the number of shares of Class A common stock that would be obtainable upon the exercise of a warrant. The warrants are fully vested and expire March 15, 2010.



14% Senior Secured Discount Notes due 2009 Warrants  As part of the exchange of
14% Senior Secured Notes due 2010 for 14% Senior Secured Discount Notes due 2009, the Company granted warrants to purchase shares of the Companys Class A common stock. As of December 31, 2007, approximately 7.4 million shares
were available for purchase at a price of $3.16 per share. The exercise price of each warrant may be paid either in cash or without the payment of cash by reducing the number of shares of Class A common stock that would be obtainable upon the
exercise of a warrant. The warrants are fully vested and expire December 31, 2009.



Boeing Satellite Systems  Pursuant to the Companys satellite contract for XM-4, the Company issued a fully vested warrant to Boeing Satellite Systems in July 2003 to purchase 500,000 shares of its Class A common
stock at $13.524 per share. The fair value of this warrant was determined to be approximately $5.8 million using a Black-Scholes based methodology and is included in the cost of XM-4. These warrants expire July 31, 2008 and have been
transferred by Boeing to Bank of America.



Space Systems/Loral 
Pursuant to the Companys satellite contract for XM-5, the Company issued a fully vested warrant to Space Systems/Loral to purchase 400,000 shares of its Class A common stock at $32.42 per share during 2005. The fair value of this warrant
was determined to be approximately $4.9 million using a Black-Scholes based methodology and is included in the cost of XM-5. These warrants expire December 31, 2011.



Shareholders Rights Plan



In August 2002, the Company adopted a Shareholders Rights Plan (commonly known as a poison pill) in which preferred stock purchase rights were granted
as a dividend at the rate of one right for each share of common stock held of record as of the close of business on August 15, 2002. The rights would be exercisable only upon the occurrence of certain events relating to an unsolicited take-over
or change of control of the Company.



(12) Share-Based Payment



The Company has three share-based payment plans. It is the practice of
the Company to satisfy awards and options granted under these plans through the issuance of new shares. During the years ended December 31, 2007, 2006 and 2005, the Company recognized share-based payment expense of $86.2 million, $68.0 million
and $6.0 million, respectively. In each of the periods described above, compensation expense was recorded in the Consolidated Statements of Operations related to these plans. For a summarized schedule of the distribution of share-based payment
expense, see the appended footnote to the Consolidated Statements of Operations on page F-5 of this Form 10-K. The Company did not capitalize any share-based payment cost during the years ended December 31, 2007, 2006 and 2005. The Company did
not realize any income tax benefits from share-based payment plans during the years ended December 31, 2007, 2006 and 2005, as a result of a full valuation allowance that is maintained for substantially all net deferred tax assets.



2007 Stock Incentive Plan



On May 25, 2007, the Company adopted the 2007 Stock Incentive Plan (2007
Plan) under which officers, other employees and other key individuals may be granted various types of equity awards, including restricted stock, stock units, stock options, stock appreciation rights, dividend equivalent rights and other stock
awards. A total of 25,000,000 shares of the Companys Class A common stock are reserved for issuance pursuant to these awards. Stock option awards under the 2007 Plan generally vest ratably over three years based on continuous service;
while restricted stock generally vests ratably over one or three years based on continuous service. Stock option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant and
expire no later than ten years from the date of grant. Grants of equity awards other than stock options or stock appreciation rights reduce the number of shares available for future grant by 1.5 times the number of shares granted under such equity
awards. As of December 31, 2007, there were 17,777,161 shares available under the 2007 Plan for future grant.



F-30



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



1998 Shares Award Plan



On June 1, 1998, the Company adopted the 1998 Shares Award Plan (1998 Plan) under which, as amended, employees, consultants
and non-employee directors may be granted stock options and restricted stock for up to 25,000,000 shares of the Companys Class A common stock. Stock option awards and restricted stock awards under the 1998 Plan generally vest ratably over
three years based on continuous service. Stock option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant and expire no later than ten years from the date of grant. As of
December 31, 2007, there were 763,913 shares available under the 1998 Plan for future grant.



XM Talent Option Plan



In May 2000, the Company adopted the XM Talent Option Plan (Talent Plan) under which non-employee programming consultants to the Company may be granted stock
options for up to 500,000 shares of the Companys Class A common stock, which shares are reserved under the Talent Plan. Stock option awards under the Talent Plan generally vest ratably over three years based on continuous service. Stock
option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant and expire no later than ten years from the date of grant. As of December 31, 2007, there were 340,000 options
available under the Talent Plan for future grant.



Stock Options
 The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option-pricing model based on the following weighted average assumptions:



|                            |  |                          |  |               |  |              
|--------------------------- |  | ------------------------ |  | ------------- |  | -------------
|                            |  | Years Ended December 31,
|                            |  | 2007                     |  | 2006          |  | 2005         
|Expected dividend yield     |  | 0%                       |  | 0%            |  | 0%           
|Expected volatility(1)      |  | 41% - 60%                |  | 42% - 52%     |  | 39% - 47%    
|Risk-free interest rate(2)  |  | 3.45% - 4.92%            |  | 4.59% - 5.10% |  | 3.32% - 4.33%
|Expected term (in years)(3) |  | 4.13 - 6.00              |  | 6.00          |  | 5.00         

---

| | (1) | Expected volatilities are based on implied volatilities from publicly traded options on the Companys stock. The weighted average volatility for the years ended
December 31, 2007, 2006 and 2005 was 49%, 45% and 45%, respectively.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The risk-free rate for periods within the contractual term of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Beginning in the fourth quarter of 2007, expected term is derived from a model based upon actual historical option exercises. Previously the expected term was calculated as the
average between the vesting term and the contractual term, weighted by tranche, pursuant to SAB No. 107.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-31



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



A summary of the status of the Companys aggregate stock option awards under the 2007 Plan, 1998 Plan and the
Talent Plan as of December 31, 2007, and activity during the years then ended is presented below:



|                                               |  |            |   |  |                               |       |                                                  |      |                                       |   |       
|---------------------------------------------- |  | ---------- | - |  | ----------------------------- | ----- | ------------------------------------------------ | ---- | ------------------------------------- | - | ------
|                                               |  | Shares     |   |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractual Term(Years) |      | AggregateIntrinsicValue(in thousands)
|Outstanding, January 1, 2005                   |  | 14,686,161 |   |  | $                             | 15.37 |                                                  |      |                                       |   |       
|Granted                                        |  | 2,019,505  |   |  | $                             | 29.21 |                                                  |      |                                       |   |       
|Exercised                                      |  | (1,793,278 | ) |  | $                             | 10.37 |                                                  |      |                                       |   |       
|Forfeited, cancelled or expired                |  | (343,376   | ) |  | $                             | 21.36 |                                                  |      |                                       |   |       
|                                               |  |            |   |  |                               |       |                                                  |      |                                       |   |       
|Outstanding, December 31, 2005                 |  | 14,569,012 |   |  | $                             | 17.81 |                                                  |      |                                       |   |       
|Granted                                        |  | 2,751,699  |   |  | $                             | 18.36 |                                                  |      |                                       |   |       
|Exercised                                      |  | (600,017   | ) |  | $                             | 7.53  |                                                  |      |                                       |   |       
|Forfeited, cancelled or expired                |  | (876,810   | ) |  | $                             | 26.30 |                                                  |      |                                       |   |       
|                                               |  |            |   |  |                               |       |                                                  |      |                                       |   |       
|Outstanding, December 31, 2006                 |  | 15,843,884 |   |  | $                             | 18.41 |                                                  |      |                                       |   |       
|Granted                                        |  | 617,600    |   |  | $                             | 12.59 |                                                  |      |                                       |   |       
|Exercised                                      |  | (1,086,871 | ) |  | $                             | 7.12  |                                                  |      |                                       |   |       
|Forfeited, cancelled or expired                |  | (588,345   | ) |  | $                             | 23.75 |                                                  |      |                                       |   |       
|                                               |  |            |   |  |                               |       |                                                  |      |                                       |   |       
|Outstanding, December 31, 2007                 |  | 14,786,268 |   |  | $                             | 18.79 |                                                  | 5.87 |                                       | $ | 18,874
|Vested and expected to vest, December 31, 2007 |  | 14,401,827 |   |  | $                             | 18.83 |                                                  | 5.87 |                                       | $ | 18,383
|Exercisable, December 31, 2007                 |  | 12,299,083 |   |  | $                             | 18.56 |                                                  | 5.38 |                                       | $ | 18,576



The per share weighted-average fair
value of stock option awards granted during the years ended December 31, 2007, 2006 and 2005 was $6.40, $9.36 and $12.83, respectively, on the date of grant. The total intrinsic value on the date of exercise of stock option awards exercised
during years ended December 31, 2007, 2006 and 2005 was $7.4 million, $7.2 million and $37.0 million, respectively. As of December 31, 2007, there was $13.6 million of total unrecognized compensation cost related to stock option awards
granted under the 2007 Plan, 1998 Plan and Talent Plan. The weighted-average period over which the compensation expense for these awards is expected to be recognized is 1.39 years as of December 31, 2007.



F-32



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Restricted Stock  A summary of the status of the Companys aggregate restricted stock awards
under the 2007 Plan and 1998 Plan as of December 31, 2007 and activity during the years then ended is presented below:



|                             |  |            |   |  |                                      |      
|---------------------------- |  | ---------- | - |  | ------------------------------------ | -----
|                             |  | Shares     |   |  | Weighted-AverageGrant DateFair Value
|Nonvested, January 1, 2005   |  | 10,000     |   |  | $                                    | 26.97
|Granted                      |  | 865,627    |   |  | $                                    | 28.90
|Vested                       |  | (3,333     | ) |  | $                                    | 26.97
|Forfeited                    |  | (45,000    | ) |  | $                                    | 32.13
|                             |  |            |   |  |                                      |      
|Nonvested, December 31, 2005 |  | 827,294    |   |  | $                                    | 28.71
|Granted                      |  | 3,036,877  |   |  | $                                    | 17.83
|Vested                       |  | (291,062   | ) |  | $                                    | 27.53
|Forfeited                    |  | (166,083   | ) |  | $                                    | 25.03
|                             |  |            |   |  |                                      |      
|Nonvested, December 31, 2006 |  | 3,407,026  |   |  | $                                    | 19.29
|Granted                      |  | 4,831,301  |   |  | $                                    | 11.85
|Vested                       |  | (1,013,028 | ) |  | $                                    | 21.21
|Forfeited                    |  | (201,912   | ) |  | $                                    | 15.61
|                             |  |            |   |  |                                      |      
|Nonvested, December 31, 2007 |  | 7,023,387  |   |  | $                                    | 14.00
|                             |  |            |   |  |                                      |      



The fair value of each restricted
stock award is the market value of the stock, as determined by the last sale price of the Companys Class A common stock on The NASDAQ Global Select Market as if it were vested and issued on the grant date. As of December 31, 2007 and
2006, there were $55.7 million and $48.9 million, respectively, of total unrecognized compensation cost related to restricted stock awards granted under the 2007 Plan and 1998 Plan. The weighted-average period over which the compensation expense for
these awards is expected to be recognized is 1.71 years as of December 31, 2007. The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $11.8 million, $3.5 million and $0.1 million.



Employee Stock Purchase Plan



In 1999, the Company established an employee stock purchase plan (ESPP) that, as
amended, provides for the issuance of 1,000,000 shares. All employees whose customary employment is more than 20 hours per week and for more than five months in any calendar year are eligible to participate in the ESPP, provided that any employee
who would own 5% or more of the Companys total combined voting power immediately after an offering date under the ESPP is not eligible to participate. Eligible employees must authorize the Company to deduct an amount from their pay during
offering periods established by the Compensation Committee of the Board of Directors. The purchase price for shares under the ESPP was determined by the Compensation Committee but may not be less than 85% of the lesser of the market price of the
common stock on the first or last business day of each offering period, a look-back option.



Under the provisions of SFAS No. 123R, Share-Based Payment, the Companys ESPP is considered a compensatory plan due to the greater than 5% discount and the look-back option. Effective
January 1, 2006, the Company began recognizing compensation cost related to the ESPP. Compensation expense recognized pursuant to the ESPP is not material to the Consolidated Statements of Operations. Effective April 1, 2007, the Company
suspended further purchases under the ESPP pursuant to the terms of the February 19, 2007 merger agreement with Sirius. As of December 31, 2007, 2006 and 2005, the Company had issued a cumulative total of 744,453, 717,041 and 616,745
shares, respectively, under the ESPP. The weighted-average grant date fair value per share for shares issued during the years ended December 31, 2007, 2006 and 2005 was $10.98, $13.02 and $26.27, respectively. The remaining shares available for
issuance under the ESPP as of December 31, 2007 were 255,547.



F-33



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



(13) Profit Sharing and Employee Savings Plan



On July 1, 1998, the Company adopted a profit sharing and employee savings plan under Section 401(k) of the Internal Revenue Code.
This plan allows eligible employees to defer the maximum percentage of their compensation allowable under law on a pre-tax basis through contributions to the savings plan. The Company contributed $0.50 in 2007, 2006 and 2005 for every $1.00 the
employees contributed up to 6% of compensation, which amounted to $2.0 million, $1.7 million and $1.2 million, respectively



(14) Related Party Transactions



The Company developed strategic relationships with General Motors (GM) and American Honda Motor Co., Inc. (American Honda) that were instrumental
in the construction and development of its system. In connection with the Company granting to them large supply contracts, both companies have become large investors in the Company and have been granted rights to designate directors or observers to
the Companys board of directors. The negotiation of these supply contracts and investments primarily occurred at or prior to the time both companies became related parties.



The Company is a party to a long-term distribution agreement with GM that provides for the installation of XM radios in GM vehicles, as
further described in Note 17. This agreement, as amended, continues to be clarified as the Companys business operations and working relationship with GM continues to evolve. The Company has an agreement with GM to make available use of the
Companys bandwidth. The Company has arrangements with American Honda relating to the promotion of the XM Service to new car buyers, the use of bandwidth on the XM System and the development of telematics services and technologies. The Company
is engaged in activities with GM and American Honda to jointly promote new car buyers to subscribe to the XM Service. Subscriber revenues received from GM and American Honda for these programs are recorded as related party revenue. GM is one of the
Companys shareholders and Chester A. Huber, Jr., the President of OnStar Corporation, a subsidiary of GM, is a member of the Companys board of directors. John W. Mendel, a member of the Companys board of directors, is Senior Vice
President, automobile operations of American Honda.



In November 2005, the
Company entered into a number of agreements (Agreements) with XM Canada that provide XM Canada with exclusive rights to offer XM satellite digital radio service in Canada. The Agreements have an initial term of ten years and XM Canada
has the unilateral option to extend the term of the Agreements for an additional five years at no additional cost beyond the current financial arrangements. XM Canada has expressed its intent to exercise this option at the end of the initial term of
the Agreements. The various deliverables of these Agreements are considered a single accounting unit in accordance with EITF Issue No. 00-21, and as such are accounted for as follows:



| |  |  | The offset to the $152.1 million fair value of the shares received (see Note 7, under the heading Equity Method Investment and Available-for-Sale Debt
Securities) is recorded as Deferred income on the Companys Consolidated Balance Sheets and amortized on a straight-line basis into income over the 15-year expected term of the Agreements. As of December 31, 2007 and 2006, the
Deferred income balance related to the initial fair value of shares received was $128.7 million and $138.6 million, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company receives a 15% royalty fee for all subscriber fees earned by XM Canada each month for its basic service and a nominal activation fee for each gross
activation of an XM Canada subscriber on the Companys system. Beginning in 2006, XM began to accrue for, and record as revenue, royalties and activation fees related to XM Canadas subscribers. This revenue is recognized on a
straight-line basis over the remaining expected term of the Agreements. The unrecognized portion is recorded as Deferred income. As of December 31, 2007 and 2006, the Deferred income balance related to the subscriber revenue royalty and
activation fees was $6.1 million and $2.0 million, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | XM Canada will pay the Company $69.1 million for the rights to broadcast and market National Hockey League (NHL) games for the 10-year term of the
Companys contract with the NHL. The $69.1 million payment is comprised of $57.0 million in license fees and $12.1 million in advertising costs and is required to be paid in ten annual installments ranging from $5.3 million to $7.5 million per
year. In accordance with EITF Issue No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent, the Company recognizes these payments on a gross basis as a principal.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-34



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



The Company recognized the following as Other revenue in the Consolidated Statement of Operations (in thousands):



|                                               |  |                          |       |      |   |        |  |   |  
|---------------------------------------------- |  | ------------------------ | ----- | ---- | - | ------ |  | - | -
|                                               |  | Years Ended December 31,
|                                               |  | 2007                     |       | 2006 |   | 2005  
|Amortization of XM Canada deferred income      |  | $                        | 9,993 |      | $ | 10,080 |  | $ | 
|Subscriber revenue royalty and activation fees |  |                          | 333   |      |   | 258    |  |   | 
|Advertising cost reimbursements                |  |                          | 1,083 |      |   | 1,083  |  |   | 
|License fees                                   |  |                          | 4,875 |      |   | 4,500  |  |   | 



XM has provided XM Canada with a C$45
million standby credit facility which can only be utilized to finance purchases of terrestrial repeaters or for the payment of subscription fees to XM. The facility matures on December 31, 2012 and bears interest at a rate of 9% per annum.
XM has the right to convert unpaid principal amounts into Class A subordinate voting shares of XM Canada at the price of C$16.00 per share. As of December 31, 2007, XM Canada has drawn $3.6 million on this facility in lieu of payment of
subscription fees.



During 2006, XM recognized a $4.5 million gain as Other
income related to the sale of 78 terrestrial repeaters to XM Canada during 2005. XM Canada purchased these repeaters from XM at their original cost.



The Company had the following related party balances as of December 31, 2007 and 2006 (in thousands):



|               |  |          |        |                 |   |        |  |      |         |      |   |         |  |   |        |  |   |       
|-------------- |  | -------- | ------ | --------------- | - | ------ |  | ---- | ------- | ---- | - | ------- |  | - | ------ |  | - | ------
|               |  | Due from |        | Prepaid expense |   | Due to
|               |  | 2007     |        | 2006            |   | 2007   |  | 2006 |         | 2007 |   | 2006   
|GM             |  | $        | 8,505  |                 | $ | 8,149  |  | $    | 218,196 |      | $ | 227,658 |  | $ | 62,233 |  | $ | 44,975
|American Honda |  |          | 3,325  |                 |   | 5,842  |  |      |        |      |   |        |  |   | 3,513  |  |   | 1,484 
|XM Canada      |  |          | 9,752  |                 |   | 1,577  |  |      |        |      |   |        |  |   |       |  |   |      
|               |  |          |        |                 |   |        |  |      |         |      |   |         |  |   |        |  |   |       
|Total          |  | $        | 21,582 |                 | $ | 15,568 |  | $    | 218,196 |      | $ | 227,658 |  | $ | 65,746 |  | $ | 46,459
|               |  |          |        |                 |   |        |  |      |         |      |   |         |  |   |        |  |   |       



The Company earned the following total
revenue, primarily consisting of subscriptions, in connection with sales to related parties described above (in thousands):



|               |  |                          |        |      |   |        |  |   |       
|-------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------
|               |  | Years Ended December 31,
|               |  | 2007                     |        | 2006 |   | 2005  
|GM             |  | $                        | 36,047 |      | $ | 27,412 |  | $ | 27,580
|American Honda |  |                          | 18,385 |      |   | 17,159 |  |   | 10,957
|XM Canada      |  |                          | 16,284 |      |   | 15,922 |  |   |      
|               |  |                          |        |      |   |        |  |   |       
|Total          |  | $                        | 70,716 |      | $ | 60,493 |  | $ | 38,537
|               |  |                          |        |      |   |        |  |   |       



The Company has relied upon certain
related parties for technical, marketing and other services. The Company has incurred the following costs in transactions with the related parties described above (in thousands):



|                                   |  |                          |         |               |   |       |  |               |         |    |   |               |  |   |         |  |   |      
|---------------------------------- |  | ------------------------ | ------- | ------------- | - | ----- |  | ------------- | ------- | -- | - | ------------- |  | - | ------- |  | - | -----
|                                   |  | Years ended December 31,
|                                   |  | 2007                     |         | 2006          |   | 2005 
|                                   |  | GM                       |         | AmericanHonda |   | GM    |  | AmericanHonda |         | GM |   | AmericanHonda
|Research & development             |  | $                        |        |               | $ |      |  | $             |        |    | $ | 5,000         |  | $ |        |  | $ | 5,000
|Customer care & billing operations |  |                          | 230     |               |   |      |  |               | 149     |    |   |              |  |   | 242     |  |   |     
|Revenue share & royalties          |  |                          | 111,169 |               |   | 843   |  |               | 78,193  |    |   |              |  |   | 48,081  |  |   |     
|Marketing                          |  |                          | 192,405 |               |   | 7,675 |  |               | 145,894 |    |   | 2,600         |  |   | 157,756 |  |   | 1,782
|                                   |  |                          |         |               |   |       |  |               |         |    |   |               |  |   |         |  |   |      
|Total                              |  | $                        | 303,804 |               | $ | 8,518 |  | $             | 224,236 |    | $ | 7,600         |  | $ | 206,079 |  | $ | 6,782
|                                   |  |                          |         |               |   |       |  |               |         |    |   |               |  |   |         |  |   |      



F-35



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



(15) Income Taxes



The (benefit from) provision for the income taxes included in the Consolidated Statements of Operations is as follows (in thousands):



|                            |  |                          |      |   |      |   |     |      |  |   |      
|--------------------------- |  | ------------------------ | ---- | - | ---- | - | --- | ---- |  | - | -----
|                            |  | Years ended December 31,
|                            |  | 2007                     |      |   | 2006 |   |     | 2005
|Current taxes:              |  |                          |      |   |      |   |     |      |  |   |      
|Federal                     |  | $                        |     |   |      | $ |    |      |  | $ |     
|State                       |  |                          |     |   |      |   |    |      |  |   |     
|                            |  |                          |      |   |      |   |     |      |  |   |      
|Total current taxes         |  |                          |     |   |      |   |    |      |  |   |     
|                            |  |                          |      |   |      |   |     |      |  |   |      
|Deferred taxes:             |  |                          |      |   |      |   |     |      |  |   |      
|Federal                     |  |                          | (807 | ) |      |   | (12 | )    |  |   | 2,003
|State                       |  |                          | (132 | ) |      |   | (2  | )    |  |   | 327  
|                            |  |                          |      |   |      |   |     |      |  |   |      
|Total deferred taxes        |  |                          | (939 | ) |      |   | (14 | )    |  |   | 2,330
|                            |  |                          |      |   |      |   |     |      |  |   |      
|Total tax (benefit) expense |  | $                        | (939 | ) |      | $ | (14 | )    |  | $ | 2,330
|                            |  |                          |      |   |      |   |     |      |  |   |      



A reconciliation of the statutory tax
(benefit) expense, assuming all income is taxed at the statutory rate applicable to the income and the actual tax (benefit) expense is as follows (in thousands):



|                                                                                       |  |                          |          |   |      |   |          |      |  |   |          |  
|-------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                       |  | Years ended December 31, |         
|                                                                                       |  | 2007                     |          |   | 2006 |   |          | 2005 | 
|Net loss before income taxes, as reported in the consolidated statements of operations |  | $                        | (683,320 | ) |      | $ | (718,886 | )    |  | $ | (664,385 | )
|                                                                                       |  |                          |          |   |      |   |          |      |  |   |          |  
|Theoretical tax benefit on the above amount at 35%                                     |  |                          | (239,162 | ) |      |   | (251,610 | )    |  |   | (232,535 | )
|State tax, net of federal benefit                                                      |  |                          | (23,916  | ) |      |   | (25,161  | )    |  |   | (23,253  | )
|Increase in taxes resulting from permanent differences, net                            |  |                          | 1,181    |   |      |   | 39,302   |      |  |   | 21,351   |  
|Change in valuation allowance                                                          |  |                          | 260,958  |   |      |   | 237,455  |      |  |   | 236,767  |  
|                                                                                       |  |                          |          |   |      |   |          |      |  |   |          |  
|Taxes on income for the reported year                                                  |  | $                        | (939     | ) |      | $ | (14      | )    |  | $ | 2,330    |  
|                                                                                       |  |                          |          |   |      |   |          |      |  |   |          |  



The tax (benefit) expense results from
the following required adjustments to the Companys valuation allowance (in thousands):



|                                                                                                    |  |                          |        |   |      |   |        |      |  |   |      
|--------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | -----
|                                                                                                    |  | Years ended December 31,
|                                                                                                    |  | 2007                     |        |   | 2006 |   |        | 2005
|Indefinite-lived assets (DARS license)                                                              |  |                          | 2,311  |   |      |   | 2,312  |      |  |   | 2,330
|Currency translation adjustment from investment in XM Canada included in other comprehensive income |  |                          | (3,250 | ) |      |   | (2,326 | )    |  |   |     
|                                                                                                    |  |                          |        |   |      |   |        |      |  |   |      
|Tax expense (benefit) on income for the reported year                                               |  | $                        | (939   | ) |      | $ | (14    | )    |  | $ | 2,330
|                                                                                                    |  |                          |        |   |      |   |        |      |  |   |      



During 2004 the Company determined
that it was not appropriate under generally accepted accounting principles to offset deferred tax assets against deferred tax liabilities related to indefinite lived assets that cannot be scheduled to reverse in the same period. Accordingly, the
Company recognized a $2.3 million increase to the valuation allowance in each of the years ended December 31, 2007, 2006 and 2005 related to the indefinite lived asset. The Company does not expect to settle this liability in the foreseeable
future.



F-36



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Deferred income tax consists of tax assets (liabilities) attributable to the
following (in thousands):



|                                                         |  |              |            |   |      |   |            |  
|-------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                         |  | December 31, |           
|                                                         |  | 2007         |            |   | 2006 |  
|Deferred tax assets  current:                           |  |              |            |   |      |   |            |  
|Deferred revenue  XM Service                            |  | $            | 160,299    |   |      | $ | 131,174    |  
|Deferred revenue  CSR                                   |  |              | 3,817      |   |      |   | 3,817      |  
|Other deferred tax assets  current                      |  |              | 18,422     |   |      |   | 5,107      |  
|                                                         |  |              |            |   |      |   |            |  
|Gross total deferred tax assets  current                |  |              | 182,538    |   |      |   | 140,098    |  
|Valuation allowance for deferred tax assets  current    |  |              | (182,383   | ) |      |   | (139,647   | )
|                                                         |  |              |            |   |      |   |            |  
|Net deferred tax assets  current                        |  |              | 155        |   |      |   | 451        |  
|                                                         |  |              |            |   |      |   |            |  
|Deferred tax assets  noncurrent:                        |  |              |            |   |      |   |            |  
|Net operating loss/other tax attribute carryovers        |  |              | 969,649    |   |      |   | 790,921    |  
|Book expenses capitalized and amortized for tax purposes |  |              | 96,752     |   |      |   | 97,170     |  
|Deferred revenue  XM Service                            |  |              | 37,948     |   |      |   | 33,296     |  
|Deferred revenue  CSR                                   |  |              | 48,082     |   |      |   | 50,350     |  
|Property, equipment and property under construction      |  |              | 50,354     |   |      |   | 28,098     |  
|Deferred interest expense                                |  |              | 2,862      |   |      |   | 2,958      |  
|Loan financing costs                                     |  |              | 25,823     |   |      |   | 38,685     |  
|Share-based payment expense                              |  |              | 39,142     |   |      |   | 24,895     |  
|Investments                                              |  |              | 54,562     |   |      |   | 36,216     |  
|Other deferred tax assets                                |  |              | 31,081     |   |      |   | 33,556     |  
|                                                         |  |              |            |   |      |   |            |  
|Gross total deferred tax assets  noncurrent             |  |              | 1,356,255  |   |      |   | 1,136,145  |  
|Valuation allowance for deferred tax assets  noncurrent |  |              | (1,355,108 | ) |      |   | (1,134,809 | )
|                                                         |  |              |            |   |      |   |            |  
|Net deferred tax assets  noncurrent                     |  |              | 1,147      |   |      |   | 1,336      |  
|                                                         |  |              |            |   |      |   |            |  
|Net deferred tax assets                                  |  |              | 1,302      |   |      |   | 1,787      |  
|                                                         |  |              |            |   |      |   |            |  
|Deferred tax liabilities:                                |  |              |            |   |      |   |            |  
|DARS license                                             |  |              | (34,269    | ) |      |   | (31,958    | )
|Intangible assets                                        |  |              | (1,302     | ) |      |   | (1,786     | )
|                                                         |  |              |            |   |      |   |            |  
|Net deferred tax liabilities                             |  |              | (35,571    | ) |      |   | (33,744    | )
|                                                         |  |              |            |   |      |   |            |  
|Deferred income tax, net                                 |  | $            | (34,269    | ) |      | $ | (31,957    | )
|                                                         |  |              |            |   |      |   |            |  



The Company offsets the non-current
net deferred tax asset against the non-current deferred tax liability in Other non-current liabilities on the Consolidated Balance Sheets. The net deferred tax asset  current is included in Prepaid and other current assets on the Consolidated
Balance Sheets.



At December 31, 2007, the Company had accumulated net
operating losses (NOL) of $2,518.6 million for Federal income tax purposes that are available to offset future regular taxable income. These operating loss carryforwards expire between the years 2014 and 2027.



In assessing whether the Company will realize a benefit from the deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of



F-37



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.



The Company or one of its subsidiaries files income tax returns in the U.S. Federal jurisdiction, and various state and local jurisdictions. With the exception of a
few state returns, the Company is no longer subject to income tax assessment for years before 2004. However, since the Company has incurred net operating losses in every tax year since inception, all its income tax returns are subject to examination
by the Internal Revenue Service (IRS) and state authorities for purposes of determining the amount of net operating losses to reduce taxable income generated in a given tax year.



The IRS has commenced an examination of the Companys 2005 and 2006 federal income tax
returns in the first quarter of 2008. There can be no assurance regarding the ultimate outcome of this matter, or the significance, if any, to the Companys business, consolidated results of operations or financial position.



The Company adopted the provision of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. The Company had no change in its liability for unrecognized tax benefits as a result of the implementation of Interpretation 48. The Company does not expect any material changes to its FIN 48
positions in the next 12 months. The Company did not have any beginning or ending year 2007 unrecognized tax benefits, in addition there were no increases or decreases in unrecognized tax benefits during the year. The Company has never incurred
interest or penalties related to accounting for income taxes.



(16)
Supplemental Cash Flows Disclosures



The Company paid $108.7 million,
$67.1 million and $40.5 million for interest, net of amounts capitalized to System under construction of $7.1 million, $22.3 million and $24.1 million, during the years ended December 31, 2007, 2006 and 2005, respectively. Additionally, the
Company incurred the following non-cash financing and investing activities (in thousands):



|                                                                                                                                            |  |                          |       |      |   |         |  |   |        
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- | - | ------- |  | - | -------
|                                                                                                                                            |  | Years ended December 31,
|                                                                                                                                            |  | 2007                     |       | 2006 |   | 2005   
|Accrued system construction costs                                                                                                           |  | $                        |      |      | $ | 56,590  |  | $ | 30,360 
|Conversion of 10% senior secured discount convertible notes due 2009 to Class A common stock                                                |  |                          |      |      |   | 146,649 |  |   | 55,991 
|Non-cash loss from de-leveraging transactions                                                                                               |  |                          |      |      |   | 94,790  |  |   | 24,154 
|Write-off of deferred financing costs to equity in connection with the conversion of 10% Senior secured discount convertible notes due 2009 |  |                          |      |      |   | 4,522   |  |   | 1,548  
|Property acquired through capital leases                                                                                                    |  |                          | 9,453 |      |   | 32,723  |  |   | 14,399 
|Assumption of debt on purchase of building                                                                                                  |  |                          |      |      |   |        |  |   | 6,630  
|Issuance of warrants for satellite contract                                                                                                 |  |                          |      |      |   |        |  |   | 4,868  
|Issuance of warrants for deferred financing fees                                                                                            |  |                          |      |      |   |        |  |   | 150    
|Receipt of Canadian Satellite Radio stock                                                                                                   |  |                          |      |      |   |        |  |   | 152,054



(17) Commitments and Contingencies



DARS Licenses



The Companys DARS license is valid for eight years upon successful launch and orbital
insertion of the satellites and can be extended by the FCC. The DARS license requires that the Company comply with a construction and launch schedule specified by the FCC for each of the first two authorized satellites, which has occurred. The FCC
has the authority to revoke the authorizations and in connection with such revocation could exercise its authority to rescind the Companys license. The Company believes that the exercise of such authority to rescind the license is unlikely.
The Company has requested and received FCC authority for the four satellites it has in-orbit.



F-38



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



The FCC has not yet issued final rules permitting the Company to deploy its terrestrial repeaters to fill gaps in
satellite coverage. The Company is operating its repeaters on a non-interference basis pursuant to a grant of special temporary authority from the FCC. This grant originally expired March 18, 2002; however, on March 11, 2002, the Company
applied for an extension of this special temporary authority and the Company can continue to operate its terrestrial repeaters pursuant to the special temporary authority pending a final determination on this extension request. This authority is
currently being challenged by operators of terrestrial wireless systems who have asserted that the Companys repeaters may cause interference. On December 18, 2007, the FCC released a Notice of Proposed Rulemaking and Second Further
Notice of Proposed Rulemaking seeking additional comment on the final rules for satellite radio repeaters. XM is participating in this phase of the proceeding. The Company has certain matters before the FCC, which are discussed below under the
heading Regulatory Matters and Inquiries  Federal Communications Commission.



Technology Licenses



Effective
January 1, 1998, the Company entered into a technology licensing agreement with Motient and WorldSpace Management Corporation (WorldSpace MC) by which as compensation for certain licensed technology then under development to be used
in the XM Radio System, the Company pays certain amounts to WorldSpace MC. The actual amounts to be incurred under this agreement are dependent upon further development of the technology, which is at the Companys option. The agreement includes
provisions for sharing certain costs related to the further development of technology and for royalty payments from the Company to WorldSpace MC. At December 31, 2007 and 2006, the Company had recorded an accrual, including interest of $0.8
million and $2.0 million, respectively, payable to WorldSpace MC for royalty payments.



Satellite System



Satellite
Deployment Plan  The Company currently operates four satellites in-orbit. The Company launched its first two satellites, XM-1 and XM-2, in the first half of 2001 prior to the commencement of commercial operations. Currently, XM-1 and XM-2
function as in-orbit spares. In February 2005, the Company launched its third satellite, XM-3, which has been used to transmit XM service since April 2005. In October 2006, the Company launched its fourth satellite, XM-4, which has been used to
transmit XM service since December 2006. In 2005, XM entered into a contract to construct a fifth satellite, XM-5, which is expected to be completed in late 2008 or early 2009 for use as a ground spare or to be available for launch as needed.



Satellite Contracts  As of December 31, 2007, the Company
has paid $968.8 million, including manufacturing and launch costs, financing charges (excluding sale leaseback charges), in-orbit performance incentives and additional costs for collocation, under its various satellite and launch services contracts.
The Company originally entered into a satellite and launch services contract for XM-1, XM-2 and XM-3 with Boeing Satellite Systems International, Inc. (BSS) in March 1998 and subsequently amended the contract as required (including the
manufacture of XM-4). XM has fully paid its contractual obligations to BSS, except for XM-3 and XM-4 performance incentive payments which are accrued to Satellite & terrestrial expense when certain performance criteria are met pursuant to
the satellite contracts. In August 2003, XM contracted with Sea Launch Company, LLC (Sea Launch) for the associated launch services for XM-4, and in September 2006, the Company exercised an option in the Sea Launch contract for launch
services for XM-5. In June 2005, the Company awarded a contract to Space Systems/Loral (SS/L) for the design and construction of XM-5.



XM-3  BSS has the right to earn performance incentives of up to $25.9 million, plus interest, based on the in-orbit performance of XM-3 over its design life
of fifteen years. As of December 31, 2007, the Company has paid $4.8 million of those performance incentives (including interest). The Company has in-orbit insurance for XM-3 through February 2009.



XM-4  BSS has the right to earn performance incentives of up to $12.0 million,
plus interest, over the first twelve years of in-orbit life, up to an additional $7.5 million for high performance (above baseline specifications) during the first fifteen years of in-orbit life and up to an additional $10.0 million for continued
high performance across the five year period beyond the fifteen year design life. As of December 31, 2007, the Company has paid $1.2 million of those performance incentives (including interest). The Company has in-orbit insurance for a portion
of the XM-4 sum insured that expires in



F-39



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



December 2011 and in-orbit insurance for the remainder of the sum insured that expires in October 2008. These policies run concurrently. In February
2007, the Company entered into a sale-leaseback of the transponders on the XM-4 satellite. See Note 9 under the heading Debt of Consolidated Variable Interest Entity.



XM-5  In 2005, XM entered into a contract with SS/L to construct XM-5. On July 15, 2003, SS/L, its parent (Loral
Space & Communications Ltd.) and certain other affiliated entities (collectively, the Debtors) commenced voluntary Chapter 11 bankruptcy cases under the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York (the Court). Pursuant to an order entered on July 20, 2005, the Court approved the Companys contract with SS/L. On August 1, 2005, the Court entered an order confirming the Debtors Fourth Amended
Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the Reorganization Plan). The Reorganization Plan became effective on November 21, 2005. Pursuant to the terms of the Companys contract with SS/L, the Company
may make construction payments on XM-5 into an escrow account until the occurrence of an Emergence Date as defined in the contract. As of December 31, 2007, the Company has paid $123.5 million with respect to the XM-5 construction
and launch services, excluding financing charges. In August 2007, the contract with SS/L was amended to defer payments on the remaining XM-5 satellite construction costs until the earlier of post launch or January 2010.



GM Distribution Agreement



The Company has a long-term distribution agreement with GM. During the term of the
agreement, which expires in 2013, GM has agreed to distribute the service to the exclusion of other S-band satellite digital radio services. Under the distribution agreement, the Company is required to make a subscriber acquisition payment to GM for
each person who becomes and remains an XM subscriber through the purchase of a GM vehicle.



In April 2006, the Company amended the distribution agreement pursuant to which the Company made a prepayment in May 2006 in the amount of $237.0 million to GM to retire at a discount $320.3 million of the remaining
fixed payment obligations that would have come due in 2007, 2008 and 2009. The April 2006 amendments eliminated the Companys ability to make up to $35.0 million of subscriber acquisition payments in shares of the Companys Class A
common stock. As of December 31, 2007, the Company had $26.0 million of current related party prepaid expense and $123.6 million of non-current related party prepaid expense in connection with the guaranteed fixed payments as a result of the
$237.0 million prepayment in May 2006. In February 2008, the Company entered into an amended and restated agreement with GM that folds together the previously separate distribution and credit agreements with GM. The amended and restated
agreements terms remain substantially similar to those of the previously separate agreements, except for the establishment of a new minimum pre-marketing cash flow threshold for 2008 that the Company will need to meet in order to make draws
under the GM credit facility in 2009.



In order to encourage the broad
installation of XM radios in GM vehicles, the Company has agreed to subsidize a portion of the cost of XM radios, and to make incentive payments to GM when the owners of GM vehicles with installed XM radios become subscribers to the Companys
service. The Company must also share with GM a percentage of the subscription revenue attributable to GM vehicles with installed XM radios, which percentage increases until there are more than eight million GM vehicles with installed XM radios (at
which point the percentage remains constant). Revenue share expense is recognized as the related subscription revenue is earned. As of December 31, 2007, the Company had $54.6 million of current related party prepaid expense and $14.0 million
of non-current related party prepaid expense in connection with this revenue sharing arrangement. As part of the agreement, GM provides certain call-center related services directly to XM subscribers who are also GM customers for which the Company
must reimburse GM. The agreement is subject to renegotiation at any time based upon the installation of radios that are compatible with a common receiver platform or capable of receiving Sirius radio service. The agreement is subject to
renegotiation at two-year intervals, beginning in November 2005, if GM does not achieve and maintain specified installation levels of GM vehicles capable of receiving the Companys service. The specified installation level of 1,240,000 units by
November 2005 was achieved in 2004. The specified installation levels in future years are the lesser of 600,000 units per year or amounts proportionate to targets in the satellite digital radio service industry. There can be no assurances as to the
outcome of any such renegotiations. GMs exclusivity obligations will discontinue if, by November 2007 and at two-year intervals thereafter, the Company fails to achieve and maintain specified minimum share levels in the satellite digital radio
service industry. The Company believes it



F-40



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



was exceeding the minimum levels at December 31, 2007. For the years ended December 31, 2007, 2006 and 2005, the Company incurred total costs of
$303.8 million, $224.2 million and $206.1 million, respectively, under the distribution agreement.



Legal Proceedings



The Company is currently subject to claims, potential claims, inquiries or investigations, or party to legal proceedings, in various matters described below. In addition,
in the ordinary course of business the Company become aware from time to time of claims, potential claims, inquiries or investigations, or may become party to legal proceedings arising out of various matters, such as contract matters, employment
related matters, issues relating to its repeater network, product liability issues, copyright, patent, trademark or other intellectual property matters and other federal regulatory matters.



Litigation and Arbitration



Copyright Royalty Board Arbitration  In December 2007, the Copyright
Royalty Board (CRB) issued its determination and order setting the royalty rate payable by the Company under the statutory license covering the performance of sound recordings over the XM system for the six-year period starting in
January 1, 2007 and ending December 31, 2012. Under the terms of the CRB Satellite Radio Services decision, the Company will pay a performance license rate of 6.0% of those gross revenues subject to the fees for 2007 and 2008, 6.5% for
2009, 7.0% for 2010, 7.5% for 2011 and 8.0% for 2012. The revenue that is subject to royalty fees includes subscription revenue from its subscribers and advertising revenues from channels other than those that use only incidental performances of
music. Other exclusions and deductions from revenue subject to the statutory license fee include but are not limited to revenue from channels, programming and products or other services offered for a separate charge where such channels use only
incidental performances of sound recordings, revenue from equipment sales, revenue from current and future data services, fulfillment service fees and bad debt expense. On February 25, 2008, SoundExchange, the organization that collects and
distributes sound recordings royalties on behalf of its members, filed a petition for review in the U.S. District Court for the District of Columbia Circuit.



Separately, the Company settled the royalty rate payable by the Company under the statutory license covering its performance of sound recordings over XM channels
transmitted over the DIRECTV satellite television system, and that CRB proceeding was concluded.



Atlantic Recording Corporation, BMG Music, Capital Records, Inc., Elektra Entertainment Group Inc., Interscope Records, Motown Record Company, L.P., Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin
Records, Inc and Warner Bros. Records Inc. v. XM Satellite Radio Inc.  Plaintiffs filed this action in the United States District Court for the Southern District of New York on May 16, 2006. The complaint seeks monetary damages and
equitable relief, alleging that recently introduced XM radios that also have advanced recording functionality infringe upon plaintiffs copyrighted sound recordings. The Companys motion to dismiss this matter was denied in January 2007.
The Company believes these allegations are without merit and that these products comply with applicable copyright law, including the Audio Home Recording Act, and intends to vigorously defend the matter. Music publishing companies and certain other
record companies also have filed lawsuits, purportedly on a class basis, with similar allegations. There can be no assurance regarding the ultimate outcome of these matters, or the significance, if any, to the Companys business, consolidated
results of operations or financial position.



In late 2007 and early 2008, the
Company resolved the lawsuit with respect to Universal Music Group (UMG), Warner Music Group and Sony BMG Music Entertainment (Sony BMG) and each of UMG, Warner Music Group and Sony BMG agreed to withdraw as a party to the
lawsuit against the Company.



Matthew Enderlin v. XM Satellite Radio
Holdings Inc. and XM Satellite Radio Inc.  Plaintiff filed this action in the United States District Court for the Eastern District of Arkansas on January 10, 2006 on behalf of a purported nationwide class of all XM subscribers. The
complaint alleges that the Company engaged in a deceptive trade practice under Arkansas and other state laws by representing that its music channels are commercial-free. The Company has filed an answer to the complaint and instituted arbitration
with the American Arbitration Association pursuant to the compulsory arbitration clause in its customer service agreement. The arbitration has been stayed pending judicial determination of Enderlins objections to the
arbitration. The United States Court of Appeals for the Eighth Circuit held on April 17, 2007 that those objections are to be



F-41



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



decided by the trial court, not the arbitrator. The Company believes the suit is without merit and intends to vigorously defend the matter. There can be no
assurance regarding the ultimate outcome of this matter, or the significance, if any, to the Companys business, consolidated results of operations or financial position.



Regulatory Matters and Inquiries



Federal Communications Commission (FCC)



FCC Receiver Matter  As the Company has previously disclosed, it has received inquiries from, and responded to, the FCC
regarding FM modulator wireless transmitters in various XM radios not in compliance with permissible emission limits. No health or safety issues have been involved with these wireless XM radios. The Company has implemented a series of design and
installation modifications and the Company has obtained new certifications for numerous models of modified XM radios using its new SureConnect technology. In addition, the Company has implemented a regulatory compliance plan, including the
appointment of an FCC regulatory compliance officer, to monitor FCC regulatory compliance, specifically with reference to the design, verification/certification, and production of XM radio receivers. The Company has been submitting documents to the
FCC and is in discussions with the FCC to resolve this matter. The Company cannot predict at this time the extent of any further actions that it will need to undertake or any financial obligations it may incur. There can be no assurance regarding
the ultimate outcome of this matter, or its significance to the Companys business, consolidated results of operations or financial position.



FCC Repeater Network Matter  In October 2006, the Company filed for both a 30-day Special Temporary Authority (STA) and a 180-day STA with
respect to its terrestrial repeater network, seeking authority to continue to operate its entire repeater network despite the fact that the technical characteristics of certain repeaters, as built, differ from the technical characteristics in the
original STAs granted for its repeater network. These differences include some repeaters not being built in the exact locations, or with the same antenna heights, power levels, or antenna characteristics than set forth in the earlier STAs. Prior to
making these filings, the Company reduced the power or discontinued operation of certain repeaters. As a result, the Company believes that service quality in portions of the affected metro areas has been somewhat reduced, including in terms of more
frequent interruptions and/or occasional outages to the service. There has been no impact on the satellite signal. The Company continues to communicate with the staff of the FCC regarding these matters. In February 2007, the Company received a
letter of inquiry from the FCC relating to these matters, to which the Company has responded. This proceeding may result in the imposition of financial penalties against the Company or adverse changes to its repeater network resulting from having
repeaters turned off or otherwise modified in a manner that would reduce service quality in the affected areas. There can be no assurance regarding the ultimate outcome of this matter, or its significance to the Companys business, consolidated
results of operations or financial position.



These STA requests are distinct
from (and if granted would modify) the STAs originally granted by the FCC relating to the Company commencing and continuing operation of the repeater network. As the Company has been disclosing for many years, the FCC has not yet issued final rules
permitting the Company (or Sirius) to deploy terrestrial repeaters, and the Company has been deploying and operating its repeater network based on those early STAs and requests the Company has filed previously to extend the time periods of those
STAs, which have expired. The Company (and Sirius) and others have been requesting that the FCC establish final rules for repeater deployment. On December 18, 2007, the FCC released a Notice of Proposed Rulemaking and Second Further
Notice of Proposed Rulemaking seeking additional comment on the final rules for satellite radio repeaters. The Company is participating in this phase of the proceeding.



Federal Trade Commission (FTC)



FTC Inquiry  In November 2007, the Company was notified by the Federal Trade Commission that the FTC was closing its inquiry
into the Companys marketing and customer service practices. The FTC launched this inquiry in April 2006 and decided to close it without any action.



F-42



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Securities and Exchange Commission (SEC)



SEC Inquiry  In December 2007, the Company was notified by the Staff of the
Division of Enforcement of the Securities and Exchange Commission that the Division has completed its investigation, initiated in August 2006, relating to various matters including the Companys historic practices regarding subscriber data and
stock options. The SEC has advised that it does not intend to recommend any enforcement action.



Sales, Marketing and Distribution Agreements



The Company has entered into various joint sales, marketing and distribution agreements. Under the terms of these agreements, the Company is obligated to provide
incentives, subsidies and commissions to other entities that may include fixed payments, per-unit radio and subscriber amounts and revenue sharing arrangements. The amount of the operational, promotional, subscriber acquisition, joint development,
and manufacturing costs related to these agreements cannot be estimated, but future costs are expected to be substantial. During the years ended December 31, 2007, 2006, and 2005, the Company incurred expenses of $145.4 million, $176.6 million,
and $198.8 million respectively, in relation to these agreements, excluding the GM distribution agreement.



Programming Agreements



The Company has entered into various programming agreements. Under the terms of these agreements, the Company is obligated to provide payments to other entities that may
include fixed payments, advertising commitments and revenue sharing arrangements. During the years ended December 31, 2007, 2006, and 2005, the Company incurred expenses of $166.7 million, $158.0 million and $90.8 million, respectively, in
relation to these agreements. The amount of these costs will vary in future years, but is expected to increase in the next year as the number of subscribers and advertising revenue increase.



The Company has a multi-year agreement
with Major League Baseball® to broadcast MLB games live nationwide. The Company paid $50 million for the 2005 season, $60 million (which included $10 million paid in October 2004) for the
2006 and 2007 seasons and will pay $60 million per year thereafter through 2012. MLB has the option to extend the agreement for the 2013, 2014 and 2015 seasons at the same $60 million annual compensation rate. The Company will also make incentive
payments to MLB for XM subscribers obtained through MLB and baseball club verifiable promotional programs. No stock or warrants were included in this agreement. The agreement requires the Company to deposit $120 million into escrow or furnish other
credit support in such amount. In July 2006, the Company furnished a $120 million two-year surety bond to MLB as part of an amendment to the agreement with MLB that permitted the Company to provide various types of credit support in lieu of its $120
million escrow deposit requirement. If the Company is unable to renew this bond or obtain other credit support acceptable to MLB, there can be no assurance the Company will not have to deposit funds to meet the escrow deposit requirement.



Royalty Agreements



The Company has entered into fixed and variable revenue share payment agreements with
performance rights organizations that generally expire at the end of 2012. In 2007, the CRB issued its determination and order setting the royalty rate payable by the Company under the statutory license covering the performance of sound recordings
over the XM system for the six year period from January 2007 to December 2012. During the years ended December 31, 2007, 2006 and 2005, the Company incurred expenses of $93.0 million, $37.4 million and $22.0 million, respectively, in relation
to these agreements. SoundExchange has filed a petition for review of the CRB determination in the U.S. District Court for the District of Columbia Circuit.



Joint Development Agreement



Under the terms of a joint development agreement with Sirius, the other holder of an FCC satellite radio license, each party is obligated to fund one half of the
development cost for a common receiver platform for satellite radios. Pursuant to the joint development agreement, in November of 2003, XM and Sirius formed a limited liability company for this purpose. During the years ended December 31, 2007,
2006 and 2005, the Company incurred costs of $1.0 million, $1.0 million and $1.3 million, respectively, in relation to this agreement. These costs are being expensed as incurred in research and development.



F-43



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Leases



In February 2007, the Company entered into a sale-leaseback transaction of the transponders on the XM-4 satellite. For a further discussion, see Note 9,
under the heading Debt of Consolidated Variable Interest Entity.



The Company has noncancelable operating leases for terrestrial repeater sites, office space, and software, and noncancelable capital leases for equipment that expire over the next fifteen years. Additionally, the Company owns several
buildings and leases a portion of the space to other entities. The future minimum lease payments and rentals under noncancelable leases as of December 31, 2007 are (in thousands):



|                                            |  |              |        |   |                |   |        |  |   |       
|------------------------------------------- |  | ------------ | ------ | - | -------------- | - | ------ |  | - | ------
|                                            |  | CapitalLease |        |   | OperatingLease |   | Rental
|Years ending December 31,                   |  | Payments     |        |   | Payments       |   | Income
|2008                                        |  | $            | 11,305 |   |                | $ | 20,540 |  | $ | 1,520 
|2009                                        |  |              | 10,889 |   |                |   | 20,473 |  |   | 1,469 
|2010                                        |  |              | 9,264  |   |                |   | 17,562 |  |   | 1,467 
|2011                                        |  |              | 2,119  |   |                |   | 7,411  |  |   | 1,467 
|2012                                        |  |              | 37     |   |                |   | 3,168  |  |   | 1,467 
|Thereafter                                  |  |              |       |   |                |   | 3,817  |  |   | 9,167 
|                                            |  |              |        |   |                |   |        |  |   |       
|Total                                       |  |              | 33,614 |   |                | $ | 72,971 |  | $ | 16,557
|                                            |  |              |        |   |                |   |        |  |   |       
|Less amount representing interest           |  |              | (4,117 | ) |                |   |       
|                                            |  |              |        |   |                |   |        |  |   |       
|Present value of net minimum lease payments |  |              | 29,497 |   |                |   |        |  |   |       
|Less current maturities                     |  |              | (9,153 | ) |                |   |       
|                                            |  |              |        |   |                |   |        |  |   |       
|Long-term obligations                       |  | $            | 20,344 |   |                |   |        |  |   |       
|                                            |  |              |        |   |                |   |        |  |   |       



Rent expense for the years ended
December 31, 2007, 2006 and 2005 was $20.3 million, $23.2 million, and $19.9 million, respectively.



Separation Agreement



The Company announced on July 24, 2007 the departure of its Chief Executive Officer (CEO), effective on August 10, 2007. Pursuant to an employment
agreement dated August 6, 2004, as amended, the Company recognized approximately $8.1 million in compensation expense as a result of the accelerated vesting of certain share-based payment awards and the payment of certain amounts. The Company
deposited approximately $4.8 million into a deferred compensation trust for the benefit of its former CEO, which trust has been consolidated for accounting purposes and presented as Prepaid and other current assets with an offset to Accrued expenses
in the Consolidated Balance Sheets as of December 31, 2007.



Customer Service Providers



The Company has entered
into agreements with service providers for customer care functions to subscribers of its service. Employees of these service providers have access to the Companys customer care systems to establish customer accounts, activate radios, update
program and account information and respond to general inquires from subscribers. The Company pays its service provider an hourly rate for each customer care representative supporting its subscribers. During the years ended December 31, 2007,
2006, and 2005, the Company incurred $57.5 million, $50.7 million and $29.7 million, respectively, in relation to services provided for customer care functions.



F-44



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



(18) Quarterly Data



|                                                   |  |            |          |   |            |   |          |            |  |   |            |   |  |   |          |  
|-------------------------------------------------- |  | ---------- | -------- | - | ---------- | - | -------- | ---------- |  | - | ---------- | - |  | - | -------- | -
|                                                   |  | 2007       |         
|(Unaudited, in thousands except per share amounts) |  | 1stQuarter |          |   | 2ndQuarter |   |          | 3rdQuarter |  |   | 4thQuarter |  
|Revenues                                           |  | $          | 264,112  |   |            | $ | 277,276  |            |  | $ | 287,456    |   |  | $ | 307,698  |  
|Operating loss                                     |  |            | (88,046  | ) |            |   | (107,992 | )          |  |   | (113,069   | ) |  |   | (202,330 | )
|Net Loss                                           |  |            | (122,438 | ) |            |   | (175,747 | )          |  |   | (145,378   | ) |  |   | (238,818 | )
|Net loss attributable to common stockholders       |  |            | (122,438 | ) |            |   | (175,747 | )          |  |   | (145,378   | ) |  |   | (238,818 | )
|Net loss per common share  basic and diluted      |  |            | (0.40    | ) |            |   | (0.57    | )          |  |   | (0.47      | ) |  |   | (0.78    | )



|                                                   |  |            |          |   |            |   |          |            |  |   |            |   |  |   |          |  
|-------------------------------------------------- |  | ---------- | -------- | - | ---------- | - | -------- | ---------- |  | - | ---------- | - |  | - | -------- | -
|                                                   |  | 2006       |         
|(Unaudited, in thousands except per share amounts) |  | 1stQuarter |          |   | 2ndQuarter |   |          | 3rdQuarter |  |   | 4thQuarter |  
|Revenues                                           |  | $          | 207,966  |   |            | $ | 227,886  |            |  | $ | 240,444    |   |  | $ | 257,121  |  
|Operating loss                                     |  |            | (100,796 | ) |            |   | (101,656 | )          |  |   | (60,760    | ) |  |   | (139,886 | )
|Net Loss                                           |  |            | (149,221 | ) |            |   | (229,109 | )          |  |   | (83,819    | ) |  |   | (256,723 | )
|Net loss attributable to common stockholders       |  |            | (151,370 | ) |            |   | (231,678 | )          |  |   | (85,453    | ) |  |   | (263,191 | )
|Net loss per common share  basic and diluted      |  |            | (0.60    | ) |            |   | (0.87    | )          |  |   | (0.32      | ) |  |   | (0.91    | )



(19) Condensed Consolidating
Financial Information



The Company has certain series of debt securities
outstanding that are guaranteed by Holdings and two of the Companys subsidiaries, XM Equipment Leasing LLC, which owns certain terrestrial repeaters, and XM Radio Inc. These guarantees are full and unconditional and joint and several. Inc. is
owned 100% by Holdings, while XM Equipment Leasing LLC and XM Radio Inc. are owned 100% by Inc. Satellite Leasing (702-4) LLT is a separate legal entity subject to consolidation by the Company, pursuant to FIN 46(R). Accordingly, the Company
provides the following condensed consolidating financial information.



F-45



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XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2007



|                                                       |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |          |   |  |   |          
|------------------------------------------------------ |  | ---------------------- | --------- | ------------ | - | --------------------- |  | ------------------------------ | ------ | ------------ | - | ------- | ---------------------------------- | - | ---------------------------- | - |  | ---------------------------- | --------- |  | ----------------------------------- | -------- | - | ------------ | - | ------- | ------------------------------------------ |  | - | ------ | - |  | - | -------- | - |  | - | ---------
|(in thousands)                                         |  | XM SatelliteRadio Inc. |           | XM RadioInc. |   | XMEquipmentLeasingLLC |  | XMSR Non-GuarantorSubsidiaries |        | Eliminations |   |         | ConsolidatedXM SatelliteRadio Inc. |   | XMSatelliteRadioHoldingsInc. |   |  | SatelliteLeasing(702-4), LLT |           |  | XMHoldingsNon-GuarantorSubsidiaries |          |   | Eliminations |   |         | ConsolidatedXM SatelliteRadio HoldingsInc.
|Current assets:                                        |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                           
|Cash and cash equivalents                              |  | $                      | 100,111   |              | $ |                      |  | $                              | 11     |              | $ |        |                                    | $ |                             |   |  | $                            | 100,122   |  | $                                   | 56,554   |   |              | $ |        |                                            |  | $ | 10     |   |  | $ |         |   |  | $ | 156,686  
|Accounts receivable, net                               |  |                        | 63,617    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 63,617    |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 63,617   
|Due from subsidiaries/affiliates                       |  |                        | 4,015     |              |   | 428,973               |  |                                | 43,250 |              |   | 683,745 |                                    |   | (1,159,940                   | ) |  |                              | 43        |  |                                     | 5,667    |   |              |   |        |                                            |  |   | 39,324 |   |  |   | (45,034  | ) |  |   |         
|Due from related parties                               |  |                        | 17,931    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 17,931    |  |                                     | 97       |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 18,028   
|Related party prepaid expenses                         |  |                        | 80,610    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 80,610    |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 80,610   
|Prepaid programming content                            |  |                        | 28,262    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 28,262    |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 28,262   
|Prepaid and other current assets                       |  |                        | 38,937    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 38,937    |  |                                     | 170      |   |              |   | 30,726  |                                            |  |   | 182    |   |  |   | (30,880  | ) |  |   | 39,135   
|                                                       |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |          |   |  |   |          
|Total current assets                                   |  |                        | 333,483   |              |   | 428,973               |  |                                | 43,261 |              |   | 683,745 |                                    |   | (1,159,940                   | ) |  |                              | 329,522   |  |                                     | 62,488   |   |              |   | 30,726  |                                            |  |   | 39,516 |   |  |   | (75,914  | ) |  |   | 386,338  
|System under construction                              |  |                        |          |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              |          |  |                                     | 151,142  |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 151,142  
|Property and equipment, net                            |  |                        | 611,116   |              |   |                      |  |                                | 14,805 |              |   |        |                                    |   |                             |   |  |                              | 625,921   |  |                                     | 48,124   |   |              |   |        |                                            |  |   | 38,571 |   |  |   | (2,246   | ) |  |   | 710,370  
|Investment in subsidiary/affiliates                    |  |                        | 1,249,173 |              |   |                      |  |                                |       |              |   |        |                                    |   | (1,249,173                   | ) |  |                              |          |  |                                     | (702,323 | ) |              |   |        |                                            |  |   |       |   |  |   | 702,323  |   |  |   |         
|DARS license                                           |  |                        |          |              |   | 141,412               |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 141,412   |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 141,412  
|Intangibles, net                                       |  |                        | 3,379     |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 3,379     |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 3,379    
|Deferred financing fees, net                           |  |                        | 30,585    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 30,585    |  |                                     | 4,005    |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 34,590   
|Due from related party, net of current portion         |  |                        | 3,554     |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 3,554     |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 3,554    
|Related party prepaid expenses, net of current portion |  |                        | 137,586   |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 137,586   |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 137,586  
|Investments                                            |  |                        |          |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              |          |  |                                     | 36,981   |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 36,981   
|Prepaid and other assets, net of current portion       |  |                        | 1,880     |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 1,880     |  |                                     | 15,817   |   |              |   | 478,745 |                                            |  |   | 1,998  |   |  |   | (494,562 | ) |  |   | 3,878    
|                                                       |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |          |   |  |   |          
|Total assets                                           |  | $                      | 2,370,756 |              | $ | 570,385               |  | $                              | 58,066 |              | $ | 683,745 |                                    | $ | (2,409,113                   | ) |  | $                            | 1,273,839 |  | $                                   | (383,766 | ) |              | $ | 509,471 |                                            |  | $ | 80,085 |   |  | $ | 129,601  |   |  | $ | 1,609,230
|                                                       |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |          |   |  |   |          
|Current liabilities:                                   |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |          |   |  |   |          
|Accounts payable                                       |  | $                      | 54,711    |              | $ |                      |  | $                              |       |              | $ |        |                                    | $ |                             |   |  | $                            | 54,711    |  | $                                   | 4,578    |   |              | $ | (1,779  | )                                          |  | $ | (2     | ) |  | $ | (2,498   | ) |  | $ | 55,010   
|Accrued expenses                                       |  |                        | 216,036   |              |   |                      |  |                                | 125    |              |   |        |                                    |   |                             |   |  |                              | 216,161   |  |                                     | 100      |   |              |   |        |                                            |  |   | 294    |   |  |   | (441     | ) |  |   | 216,114  
|Accrued interest                                       |  |                        | 29,395    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 29,395    |  |                                     | 583      |   |              |   | 1,829   |                                            |  |   |       |   |  |   | (14,980  | ) |  |   | 16,827   
|Current portion of long-term debt                      |  |                        | 38,370    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 38,370    |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   | (29,217  | ) |  |   | 9,153    
|Due to related parties                                 |  |                        | 65,746    |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 65,746    |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 65,746   
|Due to subsidiary/affiliates                           |  |                        | 1,132,143 |              |   | 271                   |  |                                | 2,581  |              |   | 25,757  |                                    |   | (1,159,920                   | ) |  |                              | 832       |  |                                     |         |   |              |   |        |                                            |  |   | 6,717  |   |  |   | (7,549   | ) |  |   |         
|Subscriber deferred revenue                            |  |                        | 416,361   |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              | 416,361   |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |         |   |  |   | 416,361  
|Deferred income                                        |  |                        |          |              |   |                      |  |                                |       |              |   |        |                                    |   |                             |   |  |                              |          |  |                                     | 13,338   |   |              |   | 30,725  |                                            |  |   |       |   |  |   | (34,148  | ) |  |   | 9,915    
|                                                       |  |                        |           |              |   |                       |  |                                |        |              |   |         |                                    |   |                              |   |  |                              |           |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |          |   |  |   |          
|Total current liabilities                              |  |                        | 1,952,762 |              |   | 271                   |  |                                | 2,706  |              |   | 25,757  |                                    |   | (1,159,920                   | ) |  |                              | 821,576   |  |                                     | 18,599   |   |              |   | 30,775  |                                            |  |   | 7,009  |   |  |   | (88,833  | ) |  |   | 789,126  



F-46



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2007



|                                                     |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|---------------------------------------------------- |  | ---------------------- | ---------- | - | ------------ | - | --------------------- |  | - | ------------------------------ | - | ------------ | - | ------- | ---------------------------------- | - | ---------- | ---------------------------- |  | - | ---------------------------- | - | ----------------------------------- | - | ---------- | ------------ |  | - | ------------------------------------------ |  | - | ------ | - |  | - | ---------- | - |  | - | ---------- | -
|(in thousands)                                       |  | XM SatelliteRadio Inc. |            |   | XM RadioInc. |   | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   | Eliminations |   |         | ConsolidatedXM SatelliteRadio Inc. |   |            | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4), LLT |   | XMHoldingsNon-GuarantorSubsidiaries |   |            | Eliminations |  |   | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Long-term debt, net of current portion               |  |                        | 1,083,575  |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 1,083,575                    |   |                                     |   | 400,000    |              |  |   | 230,800                                    |  |   |       |   |  |   | (233,736   | ) |  |   | 1,480,639  |  
|Subscriber deferred revenue, net of current portion  |  |                        | 98,565     |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 98,565                       |   |                                     |   |           |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 98,565     |  
|Deferred income, net of current portion              |  |                        | 6,146      |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 6,146                        |   |                                     |   | 145,189    |              |  |   | 186,371                                    |  |   |       |   |  |   | (212,818   | ) |  |   | 124,888    |  
|Other non-current liabilities                        |  |                        | 8,993      |   |              |   | 34,269                |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 43,262                       |   |                                     |   | 36,749     |              |  |   |                                           |  |   | (1,314 | ) |  |   | (38,128    | ) |  |   | 40,569     |  
|                                                     |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Total liabilities                                    |  |                        | 3,150,041  |   |              |   | 34,540                |  |   | 2,706                          |   |              |   | 25,757  |                                    |   | (1,159,920 | )                            |  |   | 2,053,124                    |   |                                     |   | 600,537    |              |  |   | 447,946                                    |  |   | 5,695  |   |  |   | (573,515   | ) |  |   | 2,533,787  |  
|                                                     |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Commitments and contingencies                        |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Minority interest                                    |  |                        |           |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                             |   |                                     |   |           |              |  |   |                                           |  |   |       |   |  |   | 59,746     |   |  |   | 59,746     |  
|Stockholders equity (deficit):                      |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Capital stock                                        |  |                        |           |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                             |   |                                     |   | 3,221      |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 3,221      |  
|Accumulated other comprehensive income, net of tax   |  |                        |           |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                             |   |                                     |   | 8,966      |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 8,966      |  
|Additional paid-in-capital                           |  |                        | 3,315,665  |   |              |   | 146,271               |  |   | 60,759                         |   |              |   | 286,765 |                                    |   | (493,795   | )                            |  |   | 3,315,665                    |   |                                     |   | 3,184,367  |              |  |   | 49,993                                     |  |   | 47,064 |   |  |   | (3,412,722 | ) |  |   | 3,184,367  |  
|Retained earnings (deficit)                          |  |                        | (4,094,950 | ) |              |   | 389,574               |  |   | (5,399                         | ) |              |   | 371,223 |                                    |   | (755,398   | )                            |  |   | (4,094,950                   | ) |                                     |   | (4,180,857 | )            |  |   | 11,532                                     |  |   | 27,326 |   |  |   | 4,056,092  |   |  |   | (4,180,857 | )
|                                                     |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Total stockholders equity (deficit)                 |  |                        | (779,285   | ) |              |   | 535,845               |  |   | 55,360                         |   |              |   | 657,988 |                                    |   | (1,249,193 | )                            |  |   | (779,285                     | ) |                                     |   | (984,303   | )            |  |   | 61,525                                     |  |   | 74,390 |   |  |   | 643,370    |   |  |   | (984,303   | )
|                                                     |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Total liabilities and stockholders equity (deficit) |  | $                      | 2,370,756  |   |              | $ | 570,385               |  | $ | 58,066                         |   |              | $ | 683,745 |                                    | $ | (2,409,113 | )                            |  | $ | 1,273,839                    |   |                                     | $ | (383,766   | )            |  | $ | 509,471                                    |  | $ | 80,085 |   |  | $ | 129,601    |   |  | $ | 1,609,230  |  
|                                                     |  |                        |            |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                              |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  



F-47



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES



CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2006



|                                                       |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|------------------------------------------------------ |  | ---------------------- | --------- | ------------ | - | --------------------- |  | ----------------------------- | ------ | ------------ | - | ------- | ---------------------------------- | - | ---------------------------- | - |  | --------------------------- | --------- | ----------------------------------- | - | ------------ | - |  | ------------------------------------------ | - |  | - | ------ |  | - | ------- | - |  | - | ---------
|(in thousands)                                         |  | XM SatelliteRadio Inc. |           | XM RadioInc. |   | XMEquipmentLeasingLLC |  | XMSRNon-GuarantorSubsidiaries |        | Eliminations |   |         | ConsolidatedXM SatelliteRadio Inc. |   | XMSatelliteRadioHoldingsInc. |   |  | SatelliteLeasing(702-4),LLT |           | XMHoldingsNon-GuarantorSubsidiaries |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio HoldingsInc.
|Current assets:                                        |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|Cash and cash equivalents                              |  | $                      | 92,445    |              | $ |                      |  | $                             | 32     |              | $ |        |                                    | $ |                             |   |  | $                           | 92,477    |                                     | $ | 125,593      |   |  | $                                          |  |  | $ | 146    |  | $ |        |   |  | $ | 218,216  
|Accounts receivable, net                               |  |                        | 62,293    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 62,293    |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 62,293   
|Due from subsidiaries/affiliates                       |  |                        | 3,645     |              |   | 267,724               |  |                               | 31,251 |              |   | 624,991 |                                    |   | (927,582                     | ) |  |                             | 29        |                                     |   |             |   |  |                                            |  |  |   | 29,235 |  |   | (29,264 | ) |  |   |         
|Due from related parties                               |  |                        | 15,568    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 15,568    |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 15,568   
|Related party prepaid expenses                         |  |                        | 66,946    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 66,946    |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 66,946   
|Prepaid programming content                            |  |                        | 28,172    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 28,172    |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 28,172   
|Prepaid and other current assets                       |  |                        | 40,711    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 40,711    |                                     |   | 1,280        |   |  |                                            |  |  |   | 597    |  |   | (1,125  | ) |  |   | 41,463   
|                                                       |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|Total current assets                                   |  |                        | 309,780   |              |   | 267,724               |  |                               | 31,283 |              |   | 624,991 |                                    |   | (927,582                     | ) |  |                             | 306,196   |                                     |   | 126,873      |   |  |                                            |  |  |   | 29,978 |  |   | (30,389 | ) |  |   | 432,658  
|System under construction                              |  |                        |          |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             |          |                                     |   | 126,049      |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 126,049  
|Property and equipment, net                            |  |                        | 475,521   |              |   |                      |  |                               | 26,895 |              |   |        |                                    |   |                             |   |  |                             | 502,416   |                                     |   | 311,767      |   |  |                                            |  |  |   | 40,578 |  |   | (5,099  | ) |  |   | 849,662  
|Investment in subsidiary/affiliates                    |  |                        | 1,032,642 |              |   |                      |  |                               |       |              |   |        |                                    |   | (1,032,642                   | ) |  |                             |          |                                     |   | (379,419     | ) |  |                                            |  |  |   |       |  |   | 379,419 |   |  |   |         
|DARS license                                           |  |                        |          |              |   | 141,387               |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 141,387   |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 141,387  
|Intangibles, net                                       |  |                        | 4,640     |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 4,640     |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 4,640    
|Deferred financing fees, net                           |  |                        | 32,185    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 32,185    |                                     |   | 6,025        |   |  |                                            |  |  |   | 391    |  |   |        |   |  |   | 38,601   
|Related party prepaid expenses, net of current portion |  |                        | 160,712   |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 160,712   |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 160,712  
|Investments                                            |  |                        |          |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             |          |                                     |   | 80,592       |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 80,592   
|Prepaid and other assets, net of current portion       |  |                        | 2,701     |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 2,701     |                                     |   |             |   |  |                                            |  |  |   | 3,616  |  |   |        |   |  |   | 6,317    
|                                                       |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|Total assets                                           |  | $                      | 2,018,181 |              | $ | 409,111               |  | $                             | 58,178 |              | $ | 624,991 |                                    | $ | (1,960,224                   | ) |  | $                           | 1,150,237 |                                     | $ | 271,887      |   |  | $                                          |  |  | $ | 74,563 |  | $ | 343,931 |   |  | $ | 1,840,618
|                                                       |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|Current liabilities:                                   |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|Accounts payable                                       |  | $                      | 51,634    |              | $ |                      |  | $                             |       |              | $ |        |                                    | $ |                             |   |  | $                           | 51,634    |                                     | $ | 210          |   |  | $                                          |  |  | $ |       |  | $ |        |   |  | $ | 51,844   
|Accrued expenses                                       |  |                        | 146,902   |              |   |                      |  |                               | 127    |              |   |        |                                    |   |                             |   |  |                             | 147,029   |                                     |   | 713          |   |  |                                            |  |  |   | 290    |  |   | (441    | ) |  |   | 147,591  
|Accrued satellite liability                            |  |                        |          |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             |          |                                     |   | 64,875       |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 64,875   
|Accrued interest                                       |  |                        | 15,277    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 15,277    |                                     |   | 3,001        |   |  |                                            |  |  |   | 204    |  |   |        |   |  |   | 18,482   
|Current portion of long-term debt                      |  |                        | 13,883    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 13,883    |                                     |   |             |   |  |                                            |  |  |   | 562    |  |   |        |   |  |   | 14,445   
|Due to related parties                                 |  |                        | 46,459    |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 46,459    |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 46,459   
|Due to subsidiary/affiliates                           |  |                        | 900,055   |              |   | 245                   |  |                               | 2,226  |              |   | 25,062  |                                    |   | (927,562                     | ) |  |                             | 26        |                                     |   | 29,235       |   |  |                                            |  |  |   | 112    |  |   | (29,373 | ) |  |   |         
|Subscriber deferred revenue                            |  |                        | 340,711   |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             | 340,711   |                                     |   |             |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 340,711  
|Deferred income                                        |  |                        |          |              |   |                      |  |                               |       |              |   |        |                                    |   |                             |   |  |                             |          |                                     |   | 9,915        |   |  |                                            |  |  |   |       |  |   |        |   |  |   | 9,915    
|                                                       |  |                        |           |              |   |                       |  |                               |        |              |   |         |                                    |   |                              |   |  |                             |           |                                     |   |              |   |  |                                            |   |  |   |        |  |   |         |   |  |   |          
|Total current liabilities                              |  |                        | 1,514,921 |              |   | 245                   |  |                               | 2,353  |              |   | 25,062  |                                    |   | (927,562                     | ) |  |                             | 615,019   |                                     |   | 107,949      |   |  |                                            |  |  |   | 1,168  |  |   | (29,814 | ) |  |   | 694,322  



F-48



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES



CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2006



|                                                              |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------- |  | ---------------------- | ---------- | - | ------------ | - | --------------------- |  | - | ----------------------------- | - | ------------ | - | ------- | ---------------------------------- | - | ---------- | ---------------------------- |  | - | --------------------------- | - | ----------------------------------- | - | ---------- | ------------ |  | - | ------------------------------------------ |  | - | ------ | - |  | - | ---------- | - |  | - | ---------- | -
|(in thousands)                                                |  | XM SatelliteRadio Inc. |            |   | XM RadioInc. |   | XMEquipmentLeasingLLC |  |   | XMSRNon-GuarantorSubsidiaries |   | Eliminations |   |         | ConsolidatedXM SatelliteRadio Inc. |   |            | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4),LLT |   | XMHoldingsNon-GuarantorSubsidiaries |   |            | Eliminations |  |   | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Long-term debt, net of current portion                        |  | $                      | 847,864    |   |              | $ |                      |  | $ |                              |   |              | $ |        |                                    | $ |           |                              |  | $ | 847,864                     |   |                                     | $ | 400,000    |              |  | $ |                                           |  | $ | 38,315 |   |  | $ |           |   |  | $ | 1,286,179  |  
|Subscriber deferred revenue, net of current portion           |  |                        | 86,482     |   |              |   |                      |  |   |                              |   |              |   |        |                                    |   |           |                              |  |   | 86,482                      |   |                                     |   |           |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 86,482     |  
|Deferred income, net of current portion                       |  |                        | 2,045      |   |              |   |                      |  |   |                              |   |              |   |        |                                    |   |           |                              |  |   | 2,045                       |   |                                     |   | 128,735    |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 130,780    |  
|Other non-current liabilities                                 |  |                        | 14,043     |   |              |   | 31,958                |  |   |                              |   |              |   |        |                                    |   |           |                              |  |   | 46,001                      |   |                                     |   | 33,083     |              |  |   |                                           |  |   | (1,316 | ) |  |   | (37,033    | ) |  |   | 40,735     |  
|                                                              |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Total liabilities                                             |  |                        | 2,465,355  |   |              |   | 32,203                |  |   | 2,353                         |   |              |   | 25,062  |                                    |   | (927,562   | )                            |  |   | 1,597,411                   |   |                                     |   | 669,767    |              |  |   |                                           |  |   | 38,167 |   |  |   | (66,847    | ) |  |   | 2,238,498  |  
|                                                              |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Commitments and contingencies Stockholders equity (deficit): |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Capital stock                                                 |  |                        |           |   |              |   |                      |  |   |                              |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 3,112      |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 3,112      |  
|Accumulated other comprehensive income, net of tax            |  |                        |           |   |              |   |                      |  |   |                              |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 3,590      |              |  |   |                                           |  |   |       |   |  |   |           |   |  |   | 3,590      |  
|Additional paid-in-capital                                    |  |                        | 3,002,594  |   |              |   | 146,271               |  |   | 60,759                        |   |              |   | 286,765 |                                    |   | (493,795   | )                            |  |   | 3,002,594                   |   |                                     |   | 3,093,894  |              |  |   |                                           |  |   | 10,830 |   |  |   | (3,013,424 | ) |  |   | 3,093,894  |  
|Retained earnings (deficit)                                   |  |                        | (3,449,768 | ) |              |   | 230,637               |  |   | (4,934                        | ) |              |   | 313,164 |                                    |   | (538,867   | )                            |  |   | (3,449,768                  | ) |                                     |   | (3,498,476 | )            |  |   |                                           |  |   | 25,566 |   |  |   | 3,424,202  |   |  |   | (3,498,476 | )
|                                                              |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Total stockholders equity (deficit)                          |  |                        | (447,174   | ) |              |   | 376,908               |  |   | 55,825                        |   |              |   | 599,929 |                                    |   | (1,032,662 | )                            |  |   | (447,174                    | ) |                                     |   | (397,880   | )            |  |   |                                           |  |   | 36,396 |   |  |   | 410,778    |   |  |   | (397,880   | )
|                                                              |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  
|Total liabilities and stockholders equity (deficit)          |  | $                      | 2,018,181  |   |              | $ | 409,111               |  | $ | 58,178                        |   |              | $ | 624,991 |                                    | $ | (1,960,224 | )                            |  | $ | 1,150,237                   |   |                                     | $ | 271,887    |              |  | $ |                                           |  | $ | 74,563 |   |  | $ | 343,931    |   |  | $ | 1,840,618  |  
|                                                              |  |                        |            |   |              |   |                       |  |   |                               |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |            |              |  |   |                                            |  |   |        |   |  |   |            |   |  |   |            |  



F-49



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2007



|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|-------------------------------------------------- |  | ---------------------- | --------- | - | ------------ | - | ------- | --------------------- |  | - | ------------------------------ | - |  | ------------ | ------ | - | ---------------------------------- | - | -------- | ---------------------------- |  | - | ---------------------------- | - |  | ----------------------------------- | -------- | - | ------------ | - | ------- | ------------------------------------------ |  | - | ------ | - |  | - | ------- | - |  | - | --------- | -
|(in thousands)                                     |  | XM SatelliteRadio Inc. |           |   | XM RadioInc. |   |         | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   |  | Eliminations |        |   | ConsolidatedXM SatelliteRadio Inc. |   |          | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4), LLT |   |  | XMHoldingsNon-GuarantorSubsidiaries |          |   | Eliminations |   |         | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Revenue                                            |  | $                      | 1,126,518 |   |              | $ | 161,248 |                       |  | $ | 10,963                         |   |  | $            |       |   |                                    | $ | (172,211 | )                            |  | $ | 1,126,518                    |   |  | $                                   | 9,993    |   |              | $ | 31,825  |                                            |  | $ | 10,538 |   |  | $ | (42,332 | ) |  | $ | 1,136,542 |  
|Cost of revenue                                    |  |                        | 775,308   |   |              |   |        |                       |  |   | 32                             |   |  |              |       |   |                                    |   | 457      |                              |  |   | 775,797                      |   |  |                                     |         |   |              |   |        |                                            |  |   | 1,181  |   |  |   | (7,862  | ) |  |   | 769,116   |  
|Research & development                             |  |                        | 33,077    |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 33,077                       |   |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |        |   |  |   | 33,077    |  
|General & administrative                           |  |                        | 148,740   |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 148,740                      |   |  |                                     | 518      |   |              |   |        |                                            |  |   | 1,378  |   |  |   | (527    | ) |  |   | 150,109   |  
|Marketing                                          |  |                        | 508,481   |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 508,481                      |   |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   |        |   |  |   | 508,481   |  
|Depreciation & amortization                        |  |                        | 177,568   |   |              |   |        |                       |  |   | 12,090                         |   |  |              |       |   |                                    |   |         |                              |  |   | 189,658                      |   |  |                                     | 2,707    |   |              |   |        |                                            |  |   | 2,006  |   |  |   | (7,175  | ) |  |   | 187,196   |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Total operating expenses                           |  |                        | 1,643,174 |   |              |   |        |                       |  |   | 12,122                         |   |  |              |       |   |                                    |   | 457      |                              |  |   | 1,655,753                    |   |  |                                     | 3,225    |   |              |   |        |                                            |  |   | 4,565  |   |  |   | (15,564 | ) |  |   | 1,647,979 |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Operating income (loss)                            |  |                        | (516,656  | ) |              |   | 161,248 |                       |  |   | (1,159                         | ) |  |              |       |   |                                    |   | (172,668 | )                            |  |   | (529,235                     | ) |  |                                     | 6,768    |   |              |   | 31,825  |                                            |  |   | 5,973  |   |  |   | (26,768 | ) |  |   | (511,437  | )
|Other income (expense):                            |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Interest income                                    |  |                        | 5,885     |   |              |   |        |                       |  |   | 695                            |   |  |              | 58,754 |   |                                    |   | (59,449  | )                            |  |   | 5,885                        |   |  |                                     | 8,199    |   |              |   |        |                                            |  |   |       |   |  |   |        |   |  |   | 14,084    |  
|Interest expense                                   |  |                        | (178,354  | ) |              |   |        |                       |  |   |                               |   |  |              | (695   | ) |                                    |   | 59,449   |                              |  |   | (119,600                     | ) |  |                                     | (3,306   | ) |              |   | (20,293 | )                                          |  |   | (519   | ) |  |   | 27,113  |   |  |   | (116,605  | )
|Loss from de-leveraging transactions               |  |                        |          |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                             |   |  |                                     |         |   |              |   |        |                                            |  |   | (3,693 | ) |  |   |        |   |  |   | (3,693    | )
|Loss from impairment of investments                |  |                        |          |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                             |   |  |                                     | (39,665  | ) |              |   |        |                                            |  |   |       |   |  |   |        |   |  |   | (39,665   | )
|Equity in net loss of affiliate                    |  |                        |          |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                             |   |  |                                     | (16,491  | ) |              |   |        |                                            |  |   |       |   |  |   |        |   |  |   | (16,491   | )
|Minority interest                                  |  |                        |          |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                             |   |  |                                     |         |   |              |   |        |                                            |  |   |       |   |  |   | (11,532 | ) |  |   | (11,532   | )
|Other income (expense)                             |  |                        | 43,944    |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   | (43,864  | )                            |  |   | 80                           |   |  |                                     | (638,825 | ) |              |   |        |                                            |  |   |       |   |  |   | 640,764 |   |  |   | 2,019     |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Net income (loss) before income taxes              |  |                        | (645,181  | ) |              |   | 161,248 |                       |  |   | (464                           | ) |  |              | 58,059 |   |                                    |   | (216,532 | )                            |  |   | (642,870                     | ) |  |                                     | (683,320 | ) |              |   | 11,532  |                                            |  |   | 1,761  |   |  |   | 629,577 |   |  |   | (683,320  | )
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Benefit from (provision for) deferred income taxes |  |                        |          |   |              |   | (2,311  | )                     |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | (2,311                       | ) |  |                                     | 939      |   |              |   |        |                                            |  |   |       |   |  |   | 2,311   |   |  |   | 939       |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Net income (loss)                                  |  | $                      | (645,181  | ) |              | $ | 158,937 |                       |  | $ | (464                           | ) |  | $            | 58,059 |   |                                    | $ | (216,532 | )                            |  | $ | (645,181                     | ) |  | $                                   | (682,381 | ) |              | $ | 11,532  |                                            |  | $ | 1,761  |   |  | $ | 631,888 |   |  | $ | (682,381  | )
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                              |   |  |                                     |          |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |           |  



F-50



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2006



|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|-------------------------------------------------- |  | ---------------------- | --------- | - | ------------ | - | ------- | --------------------- |  | - | ------------------------------ | - |  | ------------ | ------ | - | ---------------------------------- | - | -------- | ---------------------------- |  | - | --------------------------- | - | ----------------------------------- | - | -------- | ------------ |  | - | ------------------------------------------ |  | - | ------ | - |  | - | ------- | - |  | - | --------- | -
|(in thousands)                                     |  | XM SatelliteRadio Inc. |           |   | XM RadioInc. |   |         | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   |  | Eliminations |        |   | ConsolidatedXM SatelliteRadio Inc. |   |          | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4),LLT |   | XMHoldingsNon-GuarantorSubsidiaries |   |          | Eliminations |  |   | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Revenue                                            |  | $                      | 923,327   |   |              | $ | 133,386 |                       |  | $ | 10,942                         |   |  | $            |       |   |                                    | $ | (144,328 | )                            |  | $ | 923,327                     |   |                                     | $ | 10,081   |              |  | $ |                                           |  | $ | 10,165 |   |  | $ | (10,156 | ) |  | $ | 933,417   |  
|Cost of revenue                                    |  |                        | 597,068   |   |              |   |        |                       |  |   | 7                              |   |  |              |       |   |                                    |   | 476      |                              |  |   | 597,551                     |   |                                     |   |         |              |  |   |                                           |  |   | 806    |   |  |   | (7,619  | ) |  |   | 590,738   |  
|Research & development                             |  |                        | 37,428    |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 37,428                      |   |                                     |   |         |              |  |   |                                           |  |   |       |   |  |   |        |   |  |   | 37,428    |  
|General & administrative                           |  |                        | 88,700    |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 88,700                      |   |                                     |   | 451      |              |  |   |                                           |  |   | (25    | ) |  |   | (500    | ) |  |   | 88,626    |  
|Marketing                                          |  |                        | 450,843   |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 450,843                     |   |                                     |   |         |              |  |   |                                           |  |   |       |   |  |   |        |   |  |   | 450,843   |  
|Depreciation & amortization                        |  |                        | 149,264   |   |              |   |         |                       |  |   | 13,067                         |   |  |              |       |   |                                    |   |         |                              |  |   | 162,331                     |   |                                     |   | 4,542    |              |  |   |                                           |  |   | 2,007  |   |  |   |        |   |  |   | 168,880   |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Total operating expenses                           |  |                        | 1,323,303 |   |              |   |        |                       |  |   | 13,074                         |   |  |              |       |   |                                    |   | 476      |                              |  |   | 1,336,853                   |   |                                     |   | 4,993    |              |  |   |                                           |  |   | 2,788  |   |  |   | (8,119  | ) |  |   | 1,336,515 |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Operating income (loss)                            |  |                        | (399,976  | ) |              |   | 133,386 |                       |  |   | (2,132                         | ) |  |              |       |   |                                    |   | (144,804 | )                            |  |   | (413,526                    | ) |                                     |   | 5,088    |              |  |   |                                           |  |   | 7,377  |   |  |   | (2,037  | ) |  |   | (403,098  | )
|Other income (expense):                            |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Interest income                                    |  |                        | 3,956     |   |              |   |        |                       |  |   | 754                            |   |  |              | 58,754 |   |                                    |   | (59,451  | )                            |  |   | 4,013                       |   |                                     |   | 17,226   |              |  |   |                                           |  |   | 425    |   |  |   |        |   |  |   | 21,664    |  
|Interest expense                                   |  |                        | (177,968  | ) |              |   |        |                       |  |   |                               |   |  |              | (697   | ) |                                    |   | 59,451   |                              |  |   | (119,214                    | ) |                                     |   | (1,415   | )            |  |   |                                           |  |   | (675   | ) |  |   |        |   |  |   | (121,304  | )
|Loss from de-leveraging transactions               |  |                        | (121,564  | ) |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | (121,564                    | ) |                                     |   | (625     | )            |  |   |                                           |  |   |       |   |  |   |        |   |  |   | (122,189  | )
|Loss from impairment of investments                |  |                        |          |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                            |   |                                     |   | (76,572  | )            |  |   |                                           |  |   |       |   |  |   |        |   |  |   | (76,572   | )
|Equity in net loss of affiliate                    |  |                        |          |   |              |   |        |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                            |   |                                     |   | (23,229  | )            |  |   |                                           |  |   |       |   |  |   |        |   |  |   | (23,229   | )
|Other income (expense)                             |  |                        | 47,058    |   |              |   |        |                       |  |   | 4,304                          |   |  |              |       |   |                                    |   | (47,254  | )                            |  |   | 4,108                       |   |                                     |   | (639,359 | )            |  |   |                                           |  |   | (59    | ) |  |   | 641,152 |   |  |   | 5,842     |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Net income (loss) before income taxes              |  |                        | (648,494  | ) |              |   | 133,386 |                       |  |   | 2,926                          |   |  |              | 58,057 |   |                                    |   | (192,058 | )                            |  |   | (646,183                    | ) |                                     |   | (718,886 | )            |  |   |                                           |  |   | 7,068  |   |  |   | 639,115 |   |  |   | (718,886  | )
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Benefit from (provision for) deferred income taxes |  |                        |          |   |              |   | (2,311  | )                     |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | (2,311                      | ) |                                     |   | 14       |              |  |   |                                           |  |   |       |   |  |   | 2,311   |   |  |   | 14        |  
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  
|Net income (loss)                                  |  | $                      | (648,494  | ) |              | $ | 131,075 |                       |  | $ | 2,926                          |   |  | $            | 58,057 |   |                                    | $ | (192,058 | )                            |  | $ | (648,494                    | ) |                                     | $ | (718,872 | )            |  | $ |                                           |  | $ | 7,068  |   |  | $ | 641,426 |   |  | $ | (718,872  | )
|                                                   |  |                        |           |   |              |   |         |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |        |   |  |   |         |   |  |   |           |  





F-51



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005



|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|-------------------------------------------------- |  | --------------------- | --------- | - | ------------ | - | ------ | --------------------- |  | - | ------------------------------ | - |  | ------------ | ------ | - | ---------------------------------- | - | -------- | ---------------------------- |  | - | --------------------------- | - | ----------------------------------- | - | -------- | ------------ |  | - | ------------------------------------------ |  | - | ----- | - |  | - | ------- | - |  | - | --------- | -
|(in thousands)                                     |  | XMSatelliteRadio Inc. |           |   | XM RadioInc. |   |        | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   |  | Eliminations |        |   | ConsolidatedXM SatelliteRadio Inc. |   |          | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4),LLT |   | XMHoldingsNon-GuarantorSubsidiaries |   |          | Eliminations |  |   | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Revenue                                            |  | $                     | 558,266   |   |              | $ | 80,574 |                       |  | $ | 10,529                         |   |  | $            |       |   |                                    | $ | (91,103  | )                            |  | $ | 558,266                     |   |                                     | $ |         |              |  | $ |                                           |  | $ | 9,317 |   |  | $ | (9,317  | ) |  | $ | 558,266   |  
|Cost of revenue                                    |  |                       | 410,321   |   |              |   |       |                       |  |   | 24                             |   |  |              |       |   |                                    |   | 447      |                              |  |   | 410,792                     |   |                                     |   |         |              |  |   |                                           |  |   | 1,161 |   |  |   | (6,660  | ) |  |   | 405,293   |  
|Research & development                             |  |                       | 31,218    |   |              |   |       |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 31,218                      |   |                                     |   |         |              |  |   |                                           |  |   |      |   |  |   |        |   |  |   | 31,218    |  
|General & administrative                           |  |                       | 43,196    |   |              |   |       |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | 43,196                      |   |                                     |   | 618      |              |  |   |                                           |  |   | 538   |   |  |   | (488    | ) |  |   | 43,864    |  
|Marketing                                          |  |                       | 487,512   |   |              |   |       |                       |  |   |                               |   |  |              | 44     |   |                                    |   |         |                              |  |   | 487,556                     |   |                                     |   |         |              |  |   |                                           |  |   |      |   |  |   |        |   |  |   | 487,556   |  
|Depreciation & amortization                        |  |                       | 127,685   |   |              |   |       |                       |  |   | 13,881                         |   |  |              |       |   |                                    |   |         |                              |  |   | 141,566                     |   |                                     |   | 2,708    |              |  |   |                                           |  |   | 1,596 |   |  |   |        |   |  |   | 145,870   |  
|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|Total operating expenses                           |  |                       | 1,099,932 |   |              |   |       |                       |  |   | 13,905                         |   |  |              | 44     |   |                                    |   | 447      |                              |  |   | 1,114,328                   |   |                                     |   | 3,326    |              |  |   |                                           |  |   | 3,295 |   |  |   | (7,148  | ) |  |   | 1,113,801 |  
|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|Operating income (loss)                            |  |                       | (541,666  | ) |              |   | 80,574 |                       |  |   | (3,376                         | ) |  |              | (44    | ) |                                    |   | (91,550  | )                            |  |   | (556,062                    | ) |                                     |   | (3,326   | )            |  |   |                                           |  |   | 6,022 |   |  |   | (2,169  | ) |  |   | (555,535  | )
|Other income (expense):                            |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|Interest income                                    |  |                       | 2,364     |   |              |   |       |                       |  |   | 630                            |   |  |              | 58,754 |   |                                    |   | (59,325  | )                            |  |   | 2,423                       |   |                                     |   | 20,825   |              |  |   |                                           |  |   | 338   |   |  |   |        |   |  |   | 23,586    |  
|Interest expense                                   |  |                       | (161,784  | ) |              |   |       |                       |  |   |                               |   |  |              | (572   | ) |                                    |   | 59,325   |                              |  |   | (103,031                    | ) |                                     |   | (4,006   | )            |  |   |                                           |  |   | (754  | ) |  |   |        |   |  |   | (107,791  | )
|Loss from de-leveraging transactions               |  |                       | (27,552   | ) |              |   |       |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | (27,552                     | ) |                                     |   |         |              |  |   |                                           |  |   |      |   |  |   |        |   |  |   | (27,552   | )
|Loss from impairment of investments                |  |                       |          |   |              |   |       |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                            |   |                                     |   |         |              |  |   |                                           |  |   |      |   |  |   |        |   |  |   |          |  
|Equity in net loss of affiliate                    |  |                       |          |   |              |   |       |                       |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   |                            |   |                                     |   | (482     | )            |  |   |                                           |  |   |      |   |  |   |        |   |  |   | (482      | )
|Other income (expense)                             |  |                       | 42,184    |   |              |   |       |                       |  |   | (23                            | ) |  |              |       |   |                                    |   | (42,063  | )                            |  |   | 98                          |   |                                     |   | (679,726 | )            |  |   |                                           |  |   | 1,426 |   |  |   | 681,591 |   |  |   | 3,389     |  
|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|Net income (loss) before income taxes              |  |                       | (686,454  | ) |              |   | 80,574 |                       |  |   | (2,769                         | ) |  |              | 58,138 |   |                                    |   | (133,613 | )                            |  |   | (684,124                    | ) |                                     |   | (666,715 | )            |  |   |                                           |  |   | 7,032 |   |  |   | 679,422 |   |  |   | (664,385  | )
|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|Benefit from (provision for) deferred income taxes |  |                       |          |   |              |   | (2,330 | )                     |  |   |                               |   |  |              |       |   |                                    |   |         |                              |  |   | (2,330                      | ) |                                     |   |         |              |  |   |                                           |  |   |      |   |  |   |        |   |  |   | (2,330    | )
|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  
|Net income (loss)                                  |  | $                     | (686,454  | ) |              | $ | 78,244 |                       |  | $ | (2,769                         | ) |  | $            | 58,138 |   |                                    | $ | (133,613 | )                            |  | $ | (686,454                    | ) |                                     | $ | (666,715 | )            |  | $ |                                           |  | $ | 7,032 |   |  | $ | 679,422 |   |  | $ | (666,715  | )
|                                                   |  |                       |           |   |              |   |        |                       |  |   |                                |   |  |              |        |   |                                    |   |          |                              |  |   |                             |   |                                     |   |          |              |  |   |                                            |  |   |       |   |  |   |         |   |  |   |           |  



F-52



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2007



|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|---------------------------------------------------------------- |  | ---------------------- | -------- | - | ------------ | - | --- | --------------------- |  | - | ------------------------------ | - | ------------ | - | ---------------------------------- |  | - | ---------------------------- |  | - | --------------------------- | - |  | ------------------------------------ | -------- | - | ------------ | - | -------- | ------------------------------------------ |  | - | ------- | - |  | - | -------- | - |  | - | -------- | -
|(in thousands)                                                   |  | XM SatelliteRadio Inc. |          |   | XM RadioInc. |   |     | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   | Eliminations |   | ConsolidatedXM SatelliteRadio Inc. |  |   | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4),LLT |   |  | XM HoldingsNon-GuarantorSubsidiaries |          |   | Eliminations |   |          | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Net cash (used in) provided by operating activities              |  | $                      | (162,982 | ) |              | $ | 25  |                       |  | $ | 13,646                         |   |              | $ |                                   |  | $ |                             |  | $ | (149,311                    | ) |  | $                                    | (55,626  | ) |              | $ | 9,486    |                                            |  | $ | 40,721  |   |  | $ |         |   |  | $ | (154,730 | )
|Cash flows from investing activities:                            |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Purchase of property and equipment                               |  |                        | (53,779  | ) |              |   | (25 | )                     |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (53,804                     | ) |  |                                      | (606     | ) |              |   | (288,500 | )                                          |  |   |        |   |  |   | 288,500  |   |  |   | (54,410  | )
|Additions to system under construction                           |  |                        | (113     | ) |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (113                        | ) |  |                                      | (78,815  | ) |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   | (78,928  | )
|Proceeds from sale of assets                                     |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      | 288,500  |   |              |   |         |                                            |  |   |        |   |  |   | (288,500 | ) |  |   |         |  
|Net maturity (purchase) of restricted investments                |  |                        | 110      |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   | 110                         |   |  |                                      |         |   |              |   |         |                                            |  |   | 1,713   |   |  |   |         |   |  |   | 1,823    |  
|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Net cash (used in) provided by investing activities              |  |                        | (53,782  | ) |              |   | (25 | )                     |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (53,807                     | ) |  |                                      | 209,079  |   |              |   | (288,500 | )                                          |  |   | 1,713   |   |  |   |         |   |  |   | (131,515 | )
|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Cash flows from financing activities:                            |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Proceeds from exercise of warrants and stock options             |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      | 8,244    |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   | 8,244    |  
|Capital contributions from Holdings                              |  |                        | 230,736  |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   | 230,736                     |   |  |                                      | (230,736 | ) |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   |         |  
|Capital contributions from outside investor to minority interest |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      |         |   |              |   | 57,700   |                                            |  |   |        |   |  |   | (57,700  | ) |  |   |         |  
|Proceeds from issuance of debt by minority interest              |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      |         |   |              |   | 230,800  |                                            |  |   |        |   |  |   | (230,800 | ) |  |   |         |  
|Proceeds from financing of a consolidated entity                 |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      |         |   |              |   |         |                                            |  |   |        |   |  |   | 288,500  |   |  |   | 288,500  |  
|Payment on borrowings of a consolidated entity                   |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      |         |   |              |   | (9,486   | )                                          |  |   |        |   |  |   |         |   |  |   | (9,486   | )
|Retirement of mortgages on corporate facilities                  |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      |         |   |              |   |         |                                            |  |   | (38,877 | ) |  |   |         |   |  |   | (38,877  | )
|Payment of premiums on de-leveraging transactions                |  |                        |         |   |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |  |                                      |         |   |              |   |         |                                            |  |   | (3,693  | ) |  |   |         |   |  |   | (3,693   | )
|Payments on other borrowings                                     |  |                        |         |   |              |   |    |                       |  |   | (13,667                        | ) |              |   |                                   |  |   |                             |  |   | (13,667                     | ) |  |                                      |         |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   | (13,667  | )
|Deferred financing costs                                         |  |                        | (4,262   | ) |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (4,262                      | ) |  |                                      |         |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   | (4,262   | )
|Other, net                                                       |  |                        | (2,044   | ) |              |   |    |                       |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (2,044                      | ) |  |                                      |         |   |              |   |         |                                            |  |   |        |   |  |   |         |   |  |   | (2,044   | )
|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Net cash provided by (used in) financing activities              |  |                        | 224,430  |   |              |   |    |                       |  |   | (13,667                        | ) |              |   |                                   |  |   |                             |  |   | 210,763                     |   |  |                                      | (222,492 | ) |              |   | 279,014  |                                            |  |   | (42,570 | ) |  |   |         |   |  |   | 224,715  |  
|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents             |  |                        | 7,666    |   |              |   |    |                       |  |   | (21                            | ) |              |   |                                   |  |   |                             |  |   | 7,645                       |   |  |                                      | (69,039  | ) |              |   |         |                                            |  |   | (136    | ) |  |   |         |   |  |   | (61,530  | )
|Cash and cash equivalents at beginning of period                 |  |                        | 92,445   |   |              |   |    |                       |  |   | 32                             |   |              |   |                                   |  |   |                             |  |   | 92,477                      |   |  |                                      | 125,593  |   |              |   |         |                                            |  |   | 146     |   |  |   |         |   |  |   | 218,216  |  
|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  
|Cash and cash equivalents at end of period                       |  | $                      | 100,111  |   |              | $ |    |                       |  | $ | 11                             |   |              | $ |                                   |  | $ |                             |  | $ | 100,122                     |   |  | $                                    | 56,554   |   |              | $ |         |                                            |  | $ | 10      |   |  | $ |         |   |  | $ | 156,686  |  
|                                                                 |  |                        |          |   |              |   |     |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |  |                                      |          |   |              |   |          |                                            |  |   |         |   |  |   |          |   |  |   |          |  



F-53



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2006



|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|------------------------------------------------------------- |  | ---------------------- | -------- | - | ------------ | - | --------------------- |  | - | ------------------------------ | - | ------------ | - | ---------------------------------- |  | - | ---------------------------- |  | - | --------------------------- | - | ------------------------------------ | - | -------- | ------------ |  | ------------------------------------------ | - |  | - | ------- | - |  | - | - |  | - | -------- | -
|(in thousands)                                                |  | XM SatelliteRadio Inc. |          |   | XM RadioInc. |   | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   | Eliminations |   | ConsolidatedXM SatelliteRadio Inc. |  |   | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4),LLT |   | XM HoldingsNon-GuarantorSubsidiaries |   |          | Eliminations |  | ConsolidatedXM SatelliteRadio HoldingsInc. |  
|Net cash (used in) provided by operating activities           |  | $                      | (479,536 | ) |              | $ |                      |  | $ | 5,569                          |   |              | $ |                                   |  | $ |                             |  | $ | (473,967                    | ) |                                      | $ | 29,694   |              |  | $                                          |  |  | $ | (17,818 | ) |  | $ |  |  | $ | (462,091 | )
|Cash flows from investing activities:                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Purchase of property and equipment                            |  |                        | (54,895  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (54,895                     | ) |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | (54,895  | )
|Additions to system under construction                        |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |                                      |   | (220,124 | )            |  |                                            |  |  |   |        |   |  |   |  |  |   | (220,124 | )
|Proceeds from sale of assets                                  |  |                        |         |   |              |   |                      |  |   | 7,182                          |   |              |   |                                   |  |   |                             |  |   | 7,182                       |   |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | 7,182    |  
|Net maturity (purchase) of restricted investments             |  |                        | (11      | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (11                         | ) |                                      |   |         |              |  |                                            |  |  |   | 3,401   |   |  |   |  |  |   | 3,390    |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Net cash (used in) provided by investing activities           |  |                        | (54,906  | ) |              |   |                      |  |   | 7,182                          |   |              |   |                                   |  |   |                             |  |   | (47,724                     | ) |                                      |   | (220,124 | )            |  |                                            |  |  |   | 3,401   |   |  |   |  |  |   | (264,447 | )
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Cash flows from financing activities:                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Proceeds from exercise of warrants and stock options          |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |                                      |   | 6,420    |              |  |                                            |  |  |   |        |   |  |   |  |  |   | 6,420    |  
|Capital contributions from Holdings                           |  |                        | 304,053  |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                              |  |   | 304,053                     |   |                                      |   | (304,053 | )            |  |                                            |  |  |   |        |   |  |   |  |  |   |         |  
|Proceeds from issuance of 9.75% senior notes due 2014         |  |                        | 600,000  |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | 600,000                     |   |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | 600,000  |  
|Proceeds from issuance of senior floating rate notes due 2013 |  |                        | 200,000  |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | 200,000                     |   |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | 200,000  |  
|Repayment of 14% senior secured discount notes due 2009       |  |                        | (186,545 | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (186,545                    | ) |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | (186,545 | )
|Repayment of 12% senior secured notes due 2010                |  |                        | (100,000 | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (100,000                    | ) |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | (100,000 | )
|Repayment of senior secured floating rate notes due 2009      |  |                        | (200,000 | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (200,000                    | ) |                                      |   |         |              |  |                                            |  |  |   |        |   |  |   |  |  |   | (200,000 | )
|Payment of premiums on de-leveraging transactions             |  |                        | (26,773  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (26,773                     | ) |                                      |   | (625     | )            |  |                                            |  |  |   |        |   |  |   |  |  |   | (27,398  | )
|Repurchase of Series B convertible redeemable preferred stock |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                            |   |                                      |   | (23,960  | )            |  |                                            |  |  |   |        |   |  |   |  |  |   | (23,960  | )
|Payments on other borrowings                                  |  |                        |         |   |              |   |                      |  |   | (12,725                        | ) |              |   |                                   |  |   |                             |  |   | (12,725                     | ) |                                      |   |         |              |  |                                            |  |  |   | (578    | ) |  |   |  |  |   | (13,303  | )
|Deferred financing costs                                      |  |                        | (21,446  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (21,446                     | ) |                                      |   | (5       | )            |  |                                            |  |  |   |        |   |  |   |  |  |   | (21,451  | )
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Net cash provided by (used in) financing activities           |  |                        | 569,289  |   |              |   |                      |  |   | (12,725                        | ) |              |   |                                   |  |   |                             |  |   | 556,564                     |   |                                      |   | (322,223 | )            |  |                                            |  |  |   | (578    | ) |  |   |  |  |   | 233,763  |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents          |  |                        | 34,847   |   |              |   |                      |  |   | 26                             |   |              |   |                                   |  |   |                             |  |   | 34,873                      |   |                                      |   | (512,653 | )            |  |                                            |  |  |   | (14,995 | ) |  |   |  |  |   | (492,775 | )
|Cash and cash equivalents at beginning of period              |  |                        | 57,598   |   |              |   |                      |  |   | 6                              |   |              |   |                                   |  |   |                             |  |   | 57,604                      |   |                                      |   | 638,246  |              |  |                                            |  |  |   | 15,141  |   |  |   |  |  |   | 710,991  |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  
|Cash and cash equivalents at end of period                    |  | $                      | 92,445   |   |              | $ |                      |  | $ | 32                             |   |              | $ |                                   |  | $ |                             |  | $ | 92,477                      |   |                                      | $ | 125,593  |              |  | $                                          |  |  | $ | 146     |   |  | $ |  |  | $ | 218,216  |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                             |   |                                      |   |          |              |  |                                            |   |  |   |         |   |  |   |   |  |   |          |  



F-54



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2005



|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|-------------------------------------------------------- |  | ---------------------- | -------- | - | ------------ | - | --------------------- |  | - | ------------------------------ | - | ------------ | - | ---------------------------------- |  | - | ---------------------------- |  | - | ------------------------------------ | - |  | ------------ | -------- | ------------------------------------------ |  | - | ------ | - |  | - | - |  | - | -------- | -
|(in thousands)                                           |  | XM SatelliteRadio Inc. |          |   | XM RadioInc. |   | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   | Eliminations |   | ConsolidatedXM SatelliteRadio Inc. |  |   | XMSatelliteRadioHoldingsInc. |  |   | XM HoldingsNon-GuarantorSubsidiaries |   |  | Eliminations |          | ConsolidatedXM SatelliteRadio HoldingsInc. | 
|Net cash (used in) provided by operating activities      |  | $                      | (184,488 | ) |              | $ |                      |  | $ | (41                            | ) |              | $ |                                   |  | $ |                             |  | $ | (184,529                             | ) |  | $            | 3,073    |                                            |  | $ | 14,739 |   |  | $ |  |  | $ | (166,717 | )
|Cash flows from investing activities:                    |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Purchase of property and equipment                       |  |                        | (54,221  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (54,221                              | ) |  |              | 381      |                                            |  |   | (7,370 | ) |  |   |  |  |   | (61,210  | )
|Additions to system under construction                   |  |                        | (55,357  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (55,357                              | ) |  |              | (63,226  | )                                          |  |   |       |   |  |   |  |  |   | (118,583 | )
|Purchase of equity investments                           |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                                     |   |  |              | (25,334  | )                                          |  |   |       |   |  |   |  |  |   | (25,334  | )
|Net (purchase) maturity of restricted investments        |  |                        | (3       | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (3                                   | ) |  |              | (50      | )                                          |  |   | (943   | ) |  |   |  |  |   | (996     | )
|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Net cash used in investing activities                    |  |                        | (109,581 | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (109,581                             | ) |  |              | (88,229  | )                                          |  |   | (8,313 | ) |  |   |  |  |   | (206,123 | )
|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Cash flows from financing activities:                    |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Proceeds from sale of common stock                       |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                                     |   |  |              | 300,000  |                                            |  |   |       |   |  |   |  |  |   | 300,000  |  
|Proceeds from exercise of warrants and stock options     |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                                     |   |  |              | 19,637   |                                            |  |   |       |   |  |   |  |  |   | 19,637   |  
|Capital contributions from Holdings                      |  |                        | 200,070  |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | 200,070                              |   |  |              | (200,070 | )                                          |  |   |       |   |  |   |  |  |   |         |  
|Proceeds from issuance of 1.75% convertible senior notes |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   |                                     |   |  |              | 100,000  |                                            |  |   |       |   |  |   |  |  |   | 100,000  |  
|Repayment of 12% senior secured notes due 2010           |  |                        | (15,000  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (15,000                              | ) |  |              |         |                                            |  |   |       |   |  |   |  |  |   | (15,000  | )
|Payment of premiums on de-leveraging transactions        |  |                        | (3,398   | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (3,398                               | ) |  |              |         |                                            |  |   |       |   |  |   |  |  |   | (3,398   | )
|Repayment of 14% senior secured notes 2010               |  |                        | (22,824  | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (22,824                              | ) |  |              |         |                                            |  |   |       |   |  |   |  |  |   | (22,824  | )
|Payments on other borrowings                             |  |                        | (9,651   | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (9,651                               | ) |  |              |         |                                            |  |   | (381   | ) |  |   |  |  |   | (10,032  | )
|Deferred financing costs                                 |  |                        | (4       | ) |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | (4                                   | ) |  |              | (2,415   | )                                          |  |   |       |   |  |   |  |  |   | (2,419   | )
|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Net cash provided by (used in) financing activities      |  |                        | 149,193  |   |              |   |                      |  |   |                               |   |              |   |                                   |  |   |                             |  |   | 149,193                              |   |  |              | 217,152  |                                            |  |   | (381   | ) |  |   |  |  |   | 365,964  |  
|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents     |  |                        | (144,876 | ) |              |   |                      |  |   | (41                            | ) |              |   |                                   |  |   |                             |  |   | (144,917                             | ) |  |              | 131,996  |                                            |  |   | 6,045  |   |  |   |  |  |   | (6,876   | )
|Cash and cash equivalents at beginning of period         |  |                        | 202,474  |   |              |   |                      |  |   | 47                             |   |              |   |                                   |  |   |                             |  |   | 202,521                              |   |  |              | 506,250  |                                            |  |   | 9,096  |   |  |   |  |  |   | 717,867  |  
|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  
|Cash and cash equivalents at end of period               |  | $                      | 57,598   |   |              | $ |                      |  | $ | 6                              |   |              | $ |                                   |  | $ |                             |  | $ | 57,604                               |   |  | $            | 638,246  |                                            |  | $ | 15,141 |   |  | $ |  |  | $ | 710,991  |  
|                                                         |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |                                    |  |   |                              |  |   |                                      |   |  |              |          |                                            |  |   |        |   |  |   |   |  |   |          |  





F-55



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

CONDENSED CONSOLIDATING STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005



|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|------------------------------------------------------------- |  | ---------------------- | -------- | - | ------------ | - | --------------------- |  | - | ------------------------------ | - | ------------ | - | ------- | ---------------------------------- | - | ---------- | ---------------------------- |  | - | --------------------------- | - | ----------------------------------- | - | ------------ | - |  | ------------------------------------------ | ------ |  | - | ------ |  | - | -------- | - |  | - | -------- | -
|(in thousands)                                                |  | XM SatelliteRadio Inc. |          |   | XM RadioInc. |   | XMEquipmentLeasingLLC |  |   | XMSR Non-GuarantorSubsidiaries |   | Eliminations |   |         | ConsolidatedXM SatelliteRadio Inc. |   |            | XMSatelliteRadioHoldingsInc. |  |   | SatelliteLeasing(702-4),LLT |   | XMHoldingsNon-GuarantorSubsidiaries |   | Eliminations |   |  | ConsolidatedXM SatelliteRadio HoldingsInc. |       
|Balance at January 1, 2005                                    |  | $                      | 43,582   |   |              | $ | 167,589               |  | $ | 91,927                         |   |              | $ | 483,735 |                                    | $ | (743,251   | )                            |  | $ | 43,582                      |   |                                     | $ | 336,163      |   |  | $                                          |       |  | $ | 13,755 |  | $ | (57,337  | ) |  | $ | 336,163  |  
|Net income (loss)                                             |  |                        | (686,454 | ) |              |   | 78,245                |  |   | (2,769                         | ) |              |   | 58,138  |                                    |   | (133,614   | )                            |  |   | (686,454                    | ) |                                     |   | (666,715     | ) |  |                                            |       |  |   | 7,032  |  |   | 679,422  |   |  |   | (666,715 | )
|Other comprehensive income                                    |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Unrealized gain on available-for-sale securities              |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 5,985        |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 5,985    |  
|Comprehensive loss                                            |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   | (666,715     | ) |  |                                            |        |  |   |        |  |   |          |   |  |   | (666,715 | )
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Capital stock issuances                                       |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 394,681      |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 394,681  |  
|Contributions to paid-in capital                              |  |                        | 274,193  |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 274,193                     |   |                                     |   | 4,868        |   |  |                                            |       |  |   | 8,512  |  |   | (282,705 | ) |  |   | 4,868    |  
|Share-based payment expense                                   |  |                        | 5,966    |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 5,966                       |   |                                     |   | 5,966        |   |  |                                            |       |  |   |       |  |   | (5,966   | ) |  |   | 5,966    |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Balance at December 31, 2005                                  |  | $                      | (362,713 | ) |              | $ | 245,834               |  | $ | 89,158                         |   |              | $ | 541,873 |                                    | $ | (876,865   | )                            |  | $ | (362,713                    | ) |                                     | $ | 80,948       |   |  | $                                          |       |  | $ | 29,299 |  | $ | 333,414  |   |  | $ | 80,948   |  
|Net income (loss)                                             |  |                        | (648,495 | ) |              |   | 131,074               |  |   | 2,926                          |   |              |   | 58,056  |                                    |   | (192,056   | )                            |  |   | (648,495                    | ) |                                     |   | (718,872     | ) |  |                                            |       |  |   | 7,068  |  |   | 641,427  |   |  |   | (718,872 | )
|Other comprehensive income                                    |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Unrealized loss on available-for-sale securities              |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | (125         | ) |  |                                            |       |  |   |       |  |   |         |   |  |   | (125     | )
|Realized loss on available-for-sale securities                |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | (5,985       | ) |  |                                            |       |  |   |       |  |   |         |   |  |   | (5,985   | )
|Foreign currency translation adjustment                       |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 3,715        |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 3,715    |  
|Comprehensive loss                                            |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   | (721,267     | ) |  |                                            |        |  |   |        |  |   |          |   |  |   | (721,267 | )
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Capital stock issuances                                       |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 198,353      |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 198,353  |  
|Repurchase of Series B convertible redeemable preferred stock |  |                        |         |   |              |   |                      |  |   |                                |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | (23,960      | ) |  |                                            |       |  |   |       |  |   |         |   |  |   | (23,960  | )
|Contributions (distributions) to (from) paid-in capital       |  |                        | 495,988  |   |              |   |                      |  |   | (36,260                        | ) |              |   |        |                                    |   | 36,260     |                              |  |   | 495,988                     |   |                                     |   |             |   |  |                                            |       |  |   | 28     |  |   | (496,016 | ) |  |   |         |  
|Share-based payment expense                                   |  |                        | 68,046   |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 68,046                      |   |                                     |   | 68,046       |   |  |                                            |       |  |   |       |  |   | (68,046  | ) |  |   | 68,046   |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Balance at December 31, 2006                                  |  | $                      | (447,174 | ) |              | $ | 376,908               |  | $ | 55,824                         |   |              | $ | 599,929 |                                    | $ | (1,032,661 | )                            |  | $ | (447,174                    | ) |                                     | $ | (397,880     | ) |  | $                                          |       |  | $ | 36,395 |  | $ | 410,779  |   |  | $ | (397,880 | )
|Net income (loss)                                             |  |                        | (645,181 | ) |              |   | 158,937               |  |   | (464                           | ) |              |   | 58,059  |                                    |   | (216,532   | )                            |  |   | (645,181                    | ) |                                     |   | (682,381     | ) |  |                                            | 11,532 |  |   | 1,761  |  |   | 631,888  |   |  |   | (682,381 | )
|Other comprehensive income                                    |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Unrealized loss on available-for-sale securities              |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 125          |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 125      |  
|Realized loss on available-for-sale securities                |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 125          |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 125      |  
|Foreign currency translation adjustment                       |  |                        |         |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   |                            |   |                                     |   | 5,126        |   |  |                                            |       |  |   |       |  |   |         |   |  |   | 5,126    |  
|Comprehensive loss                                            |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   | (677,005     | ) |  |                                            |        |  |   |        |  |   |          |   |  |   | (677,005 | )
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Capital stock issuances                                       |  |                        | 22,000   |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 22,000                      |   |                                     |   | 22,000       |   |  |                                            |       |  |   |       |  |   | (22,000  | ) |  |   | 22,000   |  
|Contributions (distributions) to (from) paid-in capital       |  |                        | 226,871  |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 226,871                     |   |                                     |   | 4,383        |   |  |                                            | 49,993 |  |   | 36,234 |  |   | (313,098 | ) |  |   | 4,383    |  
|Share-based payment expense                                   |  |                        | 64,199   |   |              |   |                      |  |   |                               |   |              |   |        |                                    |   |           |                              |  |   | 64,199                      |   |                                     |   | 64,199       |   |  |                                            |       |  |   |       |  |   | (64,199  | ) |  |   | 64,199   |  
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  
|Balance at December 31, 2007                                  |  | $                      | (779,285 | ) |              | $ | 535,845               |  | $ | 55,360                         |   |              | $ | 657,988 |                                    | $ | (1,249,193 | )                            |  | $ | (779,285                    | ) |                                     | $ | (984,303     | ) |  | $                                          | 61,525 |  | $ | 74,390 |  | $ | 643,370  |   |  | $ | (984,303 | )
|                                                              |  |                        |          |   |              |   |                       |  |   |                                |   |              |   |         |                                    |   |            |                              |  |   |                             |   |                                     |   |              |   |  |                                            |        |  |   |        |  |   |          |   |  |   |          |  



F-56



---

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



(20) Subsequent Events



On February 27, 2008, the Company borrowed $187.5 million or 75% of the amount available under our $250 million revolving credit
facility with a group of banks. The proceeds will be used for general corporate purposes, including the Companys annual payment to Major League Baseball and the 2007 payment under the Copyright Royalty Board proceeding, both due in March,
as well as the Companys record label settlements. Interest under the loan is initially 4.75% and is based on 9-month LIBOR. All amounts drawn under the facility are due on May 5, 2009 and are secured by a lien on substantially all of the
Companys assets. As a result of drawing 75% of the amount available under the revolving credit facility, the Company now has full access to the $150 million credit facility provided by General Motors, which may be used only for payments
to GM and matures in December 2009.



F-57



---

Schedule IIValuation and Qualifying Accounts



|                                          |  |                   |           |                             |         |                         |        |   |                           |         |   |                     |   |          
|----------------------------------------- |  | ----------------- | --------- | --------------------------- | ------- | ----------------------- | ------ | - | ------------------------- | ------- | - | ------------------- | - | ---------
|(in thousands) Description                |  | BalanceJanuary 1, |           | Charged toCosts andExpenses |         | Charged toOtherAccounts |        |   | Write-offs/Payments/Other |         |   | BalanceDecember 31,
|2005                                      |  |                   |           |                             |         |                         |        |   |                           |         |   |                     |   |          
|Allowance for doubtful accounts           |  | $                 | 1,551     |                             | 8,328   |                         |       |   |                           | (6,157  | ) |                     | $ | 3,722    
|Deferred tax assets  valuation allowance |  |                   | 796,947   |                             | 236,767 |                         | 10,240 |   |                           |        |   |                     |   | 1,043,954
|2006                                      |  |                   |           |                             |         |                         |        |   |                           |         |   |                     |   |          
|Allowance for doubtful accounts           |  |                   | 3,722     |                             | 15,223  |                         |       |   |                           | (13,999 | ) |                     |   | 4,946    
|Deferred tax assets  valuation allowance |  |                   | 1,043,954 |                             | 237,455 |                         | (6,953 | ) |                           |        |   |                     |   | 1,274,456
|2007                                      |  |                   |           |                             |         |                         |        |   |                           |         |   |                     |   |          
|Allowance for doubtful accounts           |  |                   | 4,946     |                             | 12,740  |                         |       |   |                           | (11,816 | ) |                     |   | 5,870    
|Deferred tax assets  valuation allowance |  |                   | 1,274,456 |                             | 260,958 |                         | 2,077  |   |                           |        |   |                     |   | 1,537,491



F-58