UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-34295

 

SIRIUS XM RADIO INC.

Delaware		52-1700207
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
1221 Avenue of the Americas, 36th Floor
New York, New York		10020
(Address of principal executive offices)		(Zip Code)

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

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     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 October 31, 2011)
COMMON STOCK, $0.001 PAR VALUE		3,750,481,308 SHARES

 

 

SIRIUS XM RADIO INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q

Item No.				Description
				PART I — Financial Information
Item 1.				Financial Statements:
				Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010			1
				Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010			2
				Unaudited Consolidated Statements of Stockholders’ Equity as of September 30, 2011 and Comprehensive Income for the nine months ended September 30, 2011			3
				Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010			4
				Notes to Unaudited Consolidated Financial Statements			6
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3.				Quantitative and Qualitative Disclosures About Material Risk			45
Item 4.				Controls and Procedures			45
				PART II — Other Information
Item 1.				Legal Proceedings			45
Item 1A.				Risk Factors			46
Item 2.				Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3.				Defaults Upon Senior Securities			46
Item 4.				(Removed and Reserved)			46
Item 5.				Other Information			46
Item 6.				Exhibits			46
				Signatures			47
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

SIRIUS XM RADIO INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
(in thousands, except per share data)		2011				2010				2011				2010
Revenue:
Subscriber revenue		$	660,837			$	612,119			$	1,922,917			$	1,793,258
Advertising revenue, net of agency fees			18,810				15,973				53,595				46,296
Equipment revenue			15,504				17,823				48,392				50,625
Other revenue			67,399				71,633				205,882				190,914
Total revenue			762,550				717,548				2,230,786				2,081,093
Operating expenses:
Cost of services:
Revenue share and royalties			117,043				114,482				340,713				320,567
Programming and content			70,509				78,143				210,867				228,595
Customer service and billing			64,239				60,613				192,667				175,238
Satellite and transmission			19,681				20,844				57,238				60,944
Cost of equipment			5,888				6,463				19,894				22,187
Subscriber acquisition costs			107,279				105,984				317,711				305,745
Sales and marketing			55,210				51,519				154,471				156,813
Engineering, design and development			14,175				12,526				39,249				35,209
General and administrative			58,635				54,188				175,469				170,935
Depreciation and amortization			65,403				67,450				200,865				206,945
Restructuring, impairments and related costs			—				2,267				—				4,071
Total operating expenses			578,062				574,479				1,709,144				1,687,249
Income from operations			184,488				143,069				521,642				393,844
Other income (expense):
Interest expense, net of amounts capitalized			(75,316	)			(68,559	)			(229,730	)			(223,230	)
Loss on extinguishment of debt and credit facilities, net			—				(256	)			(7,206	)			(34,695	)
Interest and investment income (loss)			292				(4,305	)			78,590				(7,197	)
Other income			435				1,108				2,235				1,837
Total other expense			(74,589	)			(72,012	)			(156,111	)			(263,285	)
Income before income taxes			109,899				71,057				365,531				130,559
Income tax expense			(5,714	)			(3,428	)			(9,907	)			(6,060	)
Net income		$	104,185			$	67,629			$	355,624			$	124,499
Net income per common share:
Basic		$	0.03			$	0.02			$	0.10			$	0.03
Diluted		$	0.02			$	0.01			$	0.05			$	0.02
Weighted average common shares outstanding:
Basic			3,747,381				3,689,245				3,742,309				3,686,312
Diluted			6,507,370				6,369,831				6,500,819				6,361,090

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		September 30, 2011				December 31, 2010
(in thousands, except share and per share data)		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	604,592			$	586,691
Accounts receivable, net			96,905				121,658
Receivables from distributors			79,934				67,576
Inventory, net			36,196				21,918
Prepaid expenses			146,946				134,994
Related party current assets			5,228				6,719
Deferred tax asset			58,493				44,787
Other current assets			4,908				7,432
Total current assets			1,033,202				991,775
Property and equipment, net			1,702,566				1,761,274
Long-term restricted investments			3,146				3,396
Deferred financing fees, net			45,093				54,135
Intangible assets, net			2,587,855				2,632,688
Goodwill			1,834,856				1,834,856
Related party long-term assets			69,943				33,475
Other long-term assets			48,176				71,487
Total assets		$	7,324,837			$	7,383,086
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	473,472			$	593,174
Accrued interest			78,925				72,453
Current portion of deferred revenue			1,276,996				1,201,346
Current portion of deferred credit on executory contracts			286,056				271,076
Current maturities of long-term debt			25,588				195,815
Related party current liabilities			16,541				15,845
Total current liabilities			2,157,578				2,349,709
Deferred revenue			219,344				273,973
Deferred credit on executory contracts			288,036				508,012
Long-term debt			2,677,550				2,695,856
Long-term related party debt			328,029				325,907
Deferred tax liability			935,805				914,637
Related party long-term liabilities			22,435				24,517
Other long-term liabilities			81,048				82,839
Total liabilities			6,709,825				7,175,450
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, par value $0.001; 50,000,000 authorized at September 30, 2011 and December 31, 2010:
Series A convertible preferred stock; no shares issued and outstanding at September 30, 2011 and December 31, 2010			—				—
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share at September 30, 2011 and December 31, 2010); 12,500,000 shares issued and outstanding at September 30, 2011 and December 31, 2010			13				13
Convertible preferred stock, series C junior; no shares issued and outstanding at September 30, 2011 and December 31, 2010			—				—
Common stock, par value $0.001; 9,000,000,000 shares authorized at September 30, 2011 and December 31, 2010; 3,951,945,992 and 3,933,195,112 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			3,952				3,933
Accumulated other comprehensive income (loss), net of tax			398				(5,861	)
Additional paid-in capital			10,466,078				10,420,604
Accumulated deficit			(9,855,429	)			(10,211,053	)
Total stockholders’ equity			615,012				207,636
Total liabilities and stockholders’ equity		$	7,324,837			$	7,383,086

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME

		Series A								Convertible Perpetual
		Convertible								Preferred Stock,																Accumulated
		Preferred Stock								Series B-1								Common Stock								Other				Additional								Total
																										Comprehensive				Paid-in				Accumulated				Stockholders’
(in thousands, except share and per share data)		Shares				Amount				Shares				Amount				Shares				Amount				Income (loss)				Capital				Deficit				Equity
Balance at December 31, 2010			—			$	—				12,500,000			$	13				3,933,195,112			$	3,933			$	(5,861	)		$	10,420,604			$	(10,211,053	)		$	207,636
Net income																																			355,624				355,624
Other comprehensive income:
Realized loss on XM Canada investment foreign currency translation adjustment			—				—				—				—				—				—				6,072				—				—				6,072
Foreign currency translation adjustment, net of tax of $5			—				—				—				—				—				—				187				—				—				187
Total comprehensive income			—				—				—				—				—				—				—				—				—				361,883
Issuance of common stock to employees and employee benefit plans, net of forfeitures			—				—				—				—				1,562,496				2				—				2,805				—				2,807
Share-based payment expense			—				—				—				—				—				—				—				33,641				—				33,641
Exercise of options and vesting of restricted stock units			—				—				—				—				10,065,433				10				—				9,035				—				9,045
Common stock issuance upon exercise of warrants							—				—				—				7,122,951				7				—				(7	)			—				—
Balance at September 30, 2011			—			$	—				12,500,000			$	13				3,951,945,992			$	3,952			$	398			$	10,466,078			$	(9,855,429	)		$	615,012

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Nine Months Ended September 30,
(in thousands)		2011				2010
Cash flows from operating activities:
Net income		$	355,624			$	124,499
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			200,865				206,945
Non-cash interest expense, net of amortization of premium			29,211				32,983
Provision for doubtful accounts			26,209				23,300
Restructuring, impairments and related costs			—				4,071
Amortization of deferred income related to equity method investment			(2,082	)			(2,081	)
Loss on extinguishment of debt and credit facilities, net			7,206				34,695
Gain on merger of unconsolidated entities			(84,855	)			—
Loss on unconsolidated entity investments, net			10,259				8,990
Loss on disposal of assets			269				927
Share-based payment expense			37,574				50,944
Deferred income taxes			7,214				6,060
Other non-cash purchase price adjustments			(203,630	)			(184,703	)
Distribution from investment in unconsolidated entity			4,849				—
Changes in operating assets and liabilities:
Accounts receivable			(1,456	)			(18,890	)
Receivables from distributors			(12,358	)			(22,430	)
Inventory			(14,278	)			(1,843	)
Related party assets			30,300				(2,654	)
Prepaid expenses and other current assets			(11,028	)			41,794
Other long-term assets			23,969				11,765
Accounts payable and accrued expenses			(100,502	)			(69,629	)
Accrued interest			6,472				5,244
Deferred revenue			19,653				92,864
Related party liabilities			696				(50,940	)
Other long-term liabilities			(1,547	)			(865	)
Net cash provided by operating activities			328,634				291,046
Cash flows from investing activities:
Additions to property and equipment			(115,065	)			(257,374	)
Sale of restricted and other investments			—				9,454
Release of restricted investments			250				—
Return of capital from investment in unconsolidated entity			10,117				—
Net cash used in investing activities			(104,698	)			(247,920	)
Cash flows from financing activities:
Proceeds from exercise of stock options			9,045				4,906
Long-term borrowings, net of costs			—				637,406
Related party long-term borrowings, net of costs			—				147,094
Payment of premiums on redemption of debt			(5,020	)			(24,321	)
Repayment of long-term borrowings			(210,060	)			(820,224	)
Repayment of related party long-term borrowings			—				(55,221	)
Net cash used in financing activities			(206,035	)			(110,360	)
Net increase (decrease) in cash and cash equivalents			17,901				(67,234	)
Cash and cash equivalents at beginning of period			586,691				383,489
Cash and cash equivalents at end of period		$	604,592			$	316,255

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS — Continued

		For the Nine Months Ended September
(in thousands)		2011				2010
Supplemental Disclosure of Cash and Non-Cash Flow Information
Cash paid during the period for:
Interest, net of amounts capitalized		$	235,096			$	172,417
Non-cash investing and financing activities:
Sale-leaseback of equipment		$	—			$	5,305
Common stock issuance upon exercise of warrants		$	7			$	—
Conversion of Series A preferred stock to common stock		$	—			$	25

See accompanying notes to the unaudited consolidated financial statements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise stated)

(1) Business

     We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive certain of our music and other channels over the Internet, including through applications for Apple, Blackberry and Android-powered mobile devices.

     In October 2011, we launched an expanded channel lineup, including new music, sports, comedy channels as well as Sirius XM Latino, a suite of Latin channels. These channels, available online and over certain new radios, are the first phase of Sirius XM 2.0, an upgrade and evolution of our satellite and Internet delivered service that will ultimately span hardware, software, audio, and data services. This new technology effectively delivers 25% more bandwidth capacity, which will allow us to expand our audio and data services without affecting the broadcast quality of existing channels.

     Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or monthly basis. We offer discounts for prepaid and long-term subscription plans as well as discounts for multiple subscriptions on each platform. We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic, data and Backseat TV services.

     Our satellite radios are primarily distributed through automakers (“OEMs”); nationwide through retail locations; and through our website. We have agreements with every major automaker to offer satellite radios as factory or dealer-installed equipment in their vehicles. Satellite radio services are also offered to customers of certain daily rental car companies.

     In July 2008, our wholly owned subsidiary, Vernon Merger Corporation, merged (the “Merger”) with and into XM Satellite Radio Holdings Inc. In January 2011, XM Satellite Radio Inc., our wholly-owned subsidiary, merged with and into us. All outstanding debt instruments held by XM Satellite Radio Inc. were assumed by us in the merger.

(2) Principles of Consolidation and Basis of Presentation

   Principles of Consolidation

     The accompanying unaudited consolidated financial statements of Sirius XM Radio Inc. and subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. All significant intercompany transactions have been eliminated in consolidation.

   Basis of Presentation

     In the opinion of management, all normal recurring adjustments necessary for the fair presentation of our unaudited consolidated financial statements as of September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 have been made.

     Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on February 16, 2011.

     We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2011 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(3) Summary of Significant Accounting Policies

    Use of Estimates

     In presenting unaudited consolidated financial statements, management makes estimates and assumptions that affect the reported amounts and accompanying notes. Estimates, by their nature, are based on judgment and available information at this time. Actual results could differ materially from those estimates.

     Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include revenue recognition, asset impairment, useful lives of our satellites, share-based payment expense, and valuation allowances against deferred tax assets. Economic conditions in the United States could have a material impact on our accounting estimates.

    Recent Accounting Pronouncements

     In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The amendments are not expected to have a significant impact on companies that apply U.S. GAAP. This standard is effective for interim and annual periods beginning after December 15, 2011 and will be applied prospectively. The impact of our pending adoption of ASU 2011-04 will not be material to our consolidated financial statements.

     In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011 and will be applied retrospectively. ASU 2011-05 affects financial statement presentation only and will have no impact on our results of operations.

         Earnings per Share (“EPS”)

     Basic net income per common share is calculated using the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average common shares outstanding for the potential dilution that could occur if common stock equivalents (convertible debt and preferred stock, warrants, stock options, restricted stock and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method. Common stock equivalents of approximately 417,427,000 and 727,496,000 for the three months ended September 30, 2011 and 2010, respectively, and 407,649,000 and 735,091,000 for the nine months ended September 30, 2011 and 2010, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
(in thousands, except per share data)		2011				2010				2011				2010
Net income available to common stockholders		$	104,185			$	67,629			$	355,624			$	124,499
Effect of assumed conversions			—				—				—				—
Net income available to common stockholders and assumed conversions		$	104,185			$	67,629			$	355,624			$	124,499
Average common shares outstanding-basic			3,747,381				3,689,245				3,742,309				3,686,312
Dilutive effect of equity instruments			2,759,989				2,680,586				2,758,510				2,674,778
Average common shares outstanding-diluted			6,507,370				6,369,831				6,500,819				6,361,090
Net income per common share
Basic		$	0.03			$	0.02			$	0.10			$	0.03
Diluted		$	0.02			$	0.01			$	0.05			$	0.02

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

    Accounts Receivable

     Accounts receivable, net, is stated at amounts due from customers net of an allowance for doubtful accounts. Our allowance for doubtful accounts considers historical experience, the age of amounts due, current economic conditions and other factors that may affect the counterparty’s ability to pay.

     Accounts receivable, net, consists of the following:

		September 30,				December 31,
		2011				2010
Gross accounts receivable		$	111,562			$	131,880
Allowance for doubtful accounts			(14,657	)			(10,222	)
Total accounts receivable, net		$	96,905			$	121,658

     Receivables from distributors include billed and unbilled amounts due from OEMs for radio services included in the sale or lease price of vehicles, as well as billed amounts due from retailers. Receivables from distributors consist of the following:

		September 30,				December 31,
		2011				2010
Billed		$	42,095			$	30,456
Unbilled			37,839				37,120
Total		$	79,934			$	67,576

    Inventory

     Inventory consists of finished goods, refurbished goods, chip sets and other raw materials and components used in manufacturing radios. Inventory is stated at the lower of cost, determined on a first-in, first-out or market basis. We record an estimated allowance for inventory that is considered slow moving, obsolete or whose carrying value is in excess of net realizable value. The provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of equipment in our unaudited consolidated statements of operations. The provision related to inventory consumed in our OEM and retail distribution channel is reported as a component of Subscriber acquisition costs in our unaudited consolidated statements of operations.

     Inventory, net, consists of the following:

		September 30,				December 31,
		2011				2010
Raw materials		$	26,198			$	18,181
Finished goods			31,276				24,492
Allowance for obsolescence			(21,278	)			(20,755	)
Total inventory, net		$	36,196			$	21,918

   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 September 30, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents, accounts and other receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.

     The fair value for publicly traded instruments is determined using quoted market prices while the fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. As of September 30, 2011 and December 31, 2010, the carrying value of our debt was $3,031,167 and $3,217,578, respectively; and the fair value approximated $3,409,272 and $3,722,905, respectively.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

    Reclassifications

     Certain amounts in our prior period consolidated financial statements have been reclassified to conform to our current period presentation.

(4) Goodwill

     Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment is performed as of October 1^st of each year, and an assessment is performed at other times if events or circumstances indicate it is more likely than not that the asset is impaired. During the three and nine months ended September 30, 2011 and 2010, there were no indicators of impairment and no impairment loss was recorded to our goodwill.

(5) Intangible Assets

     Intangible assets consist of the following:

						September 30, 2011												December 31, 2010
						Gross												Gross
		Weighted Average				Carrying				Accumulated				Net Carrying				Carrying				Accumulated				Net Carrying
		Useful Lives				Value				Amortization				Value				Value				Amortization				Value
Indefinite life intangible assets:
FCC licenses		Indefinite				$	2,083,654			$	—			$	2,083,654			$	2,083,654			$	—			$	2,083,654
Trademark		Indefinite					250,000				—				250,000				250,000				—				250,000
Definite life intangible assets:
Subscriber relationships		9 years					380,000				(179,976	)			200,024				380,000				(144,325	)			235,675
Licensing agreements		9.1 years					78,897				(31,641	)			47,256				78,897				(24,130	)			54,767
Proprietary software		6 years					16,552				(11,073	)			5,479				16,552				(9,566	)			6,986
Developed technology		10 years					2,000				(633	)			1,367				2,000				(483	)			1,517
Leasehold interests		7.4 years					132				(57	)			75				132				(43	)			89
Total intangible assets						$	2,811,235			$	(223,380	)		$	2,587,855			$	2,811,235			$	(178,547	)		$	2,632,688

    Indefinite Life Intangible Assets

     We have identified our FCC licenses and the XM trademark as indefinite life intangible assets after considering the expected use of the assets, the regulatory and economic environment within which they are used and the effects of obsolescence on their use.

     We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our licenses expires:

FCC license		Expiration year
SIRIUS FM-1 satellite		2017
SIRIUS FM-2 satellite		2017
SIRIUS FM-3 satellite		2017
SIRIUS FM-4 satellite(1)		2017
SIRIUS FM-5 satellite		2017
SIRIUS FM-6 satellite		(2)
XM-1 satellite		2014
XM-2 satellite		2014
XM-3 satellite		2013
XM-4 satellite		2014
XM-5 satellite		2018

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

          Prior to expiration, we are required to apply for a renewal of our FCC licenses. The renewal and extension of our licenses is reasonably certain at minimal cost, which is expensed as incurred. Each of the FCC licenses authorizes us to use the broadcast spectrum, which is a renewable, reusable resource that does not deplete or exhaust over time.

          In connection with the Merger, $250,000 of the purchase price was allocated to the XM trademark. As of September 30, 2011, there were no legal, regulatory or contractual limitations associated with the XM trademark.

          Our annual impairment assessment of our indefinite intangible assets is performed as of October 1st of each year. An assessment is made at other times if events or changes in circumstances indicate that it is more likely than not that the assets have been impaired. As of September 30, 2011, there were no indicators of impairment and no impairment loss was recorded for intangible assets with indefinite lives during the three and nine months ended September 30, 2011 and 2010.

     Definite Life Intangible Assets

          Subscriber relationships are amortized on an accelerated basis over 9 years, which reflects the estimated pattern in which the economic benefits will be consumed. Other definite life intangible assets include certain licensing agreements, which are amortized over a weighted average useful life of 9.1 years on a straight-line basis.

          Amortization expense for definite life intangible assets was $14,570 and $16,228 for the three months ended September 30, 2011 and 2010, respectively, and $44,833 and $50,342 for the nine months ended September 30, 2011 and 2010, respectively. Expected amortization expense for the remaining period in 2011, each of the years 2012 through 2015 and for periods thereafter is as follows:

Year ending December 31,		Amount
Remaining 2011		$	14,232
2012			53,680
2013			47,357
2014			38,879
2015			37,553
Thereafter			62,500
Total definite life intangibles assets, net		$	254,201

(6) Subscriber Revenue

     Subscriber revenue consists of subscription fees, revenue derived from agreements with certain daily rental fleet operators, non-refundable activation and other fees. Revenues received from OEMs for subscriptions included in the sale or lease price of vehicles are also included in subscriber revenue over the service period.

     Subscriber revenue consists of the following:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Subscription fees		$	657,245			$	607,738			$	1,912,787			$	1,780,557
Activation fees			3,592				4,381				10,130				12,701
Total subscriber revenue		$	660,837			$	612,119			$	1,922,917			$	1,793,258

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(7) Interest Costs

          We capitalized a portion of the interest on funds borrowed to finance the construction costs of our satellites and related launch vehicles for our FM-6 satellite in 2011 and for our FM-6 and XM-5 satellites in 2010. We also incur interest costs on all of our debt instruments and certain contingent incentive payments due pursuant to our satellite construction agreements. The following is a summary of our interest costs:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Interest costs charged to expense		$	75,316			$	68,559			$	229,730			$	223,230
Interest costs capitalized			8,906				19,040				24,224				49,470
Total interest costs incurred		$	84,222			$	87,599			$	253,954			$	272,700

     Included in interest costs incurred is non-cash interest expense, consisting of amortization related to original issue discounts, premiums and deferred financing fees, of $9,977 and $10,689 for the three months ended September 30, 2011 and 2010, respectively, and $29,211 and $32,983 for the nine months ended September 30, 2011 and 2010, respectively.

(8) Property and Equipment

          Property and equipment, net, consists of the following:

		September 30,				December 31,
		2011				2010
Satellite system		$	1,943,537			$	1,943,537
Terrestrial repeater network			111,880				109,582
Leasehold improvements			43,392				43,567
Broadcast studio equipment			52,554				51,985
Capitalized software and hardware			181,712				163,689
Satellite telemetry, tracking and control facilities			57,917				57,665
Furniture, fixtures, equipment and other			64,673				63,265
Land			38,411				38,411
Building			56,952				56,685
Construction in progress			365,827				297,771
Total property and equipment			2,916,855				2,826,157
Accumulated depreciation and amortization			(1,214,289	)			(1,064,883	)
Property and equipment, net		$	1,702,566			$	1,761,274

     Construction in progress consists of the following:

		September 30,				December 31,
		2011				2010
Satellite system		$	330,320			$	262,744
Terrestrial repeater network			19,306				19,239
Other			16,201				15,788
Construction in progress		$	365,827			$	297,771

          Depreciation and amortization expense on property and equipment was $50,833 and $51,222 for the three months ended September 30, 2011 and 2010, respectively, and $156,032 and $156,603 for the nine months ended September 30, 2011 and 2010, respectively.

     Satellites

          We own four orbiting satellites for use in the SIRIUS system. Space Systems/Loral is constructing a fifth satellite, FM-6, for use in this system. We have an agreement with International Launch Services to launch this satellite on a Proton rocket.

          We own five orbiting satellites for use in the XM system. Four of these satellites were manufactured by Boeing Satellite Systems International and one was manufactured by Space Systems/Loral.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

     During the three and nine months ended September 30, 2011, we capitalized expenditures, including interest, of $16,875 and $67,576, respectively, related to the construction of our FM-6 satellite and related launch vehicle. In the three and nine months ended September 30, 2010, we capitalized $38,397 and $161,851, respectively, of expenditures, including interest, which also related to our FM-6 and XM-5 satellites.

      

(9) Related Party Transactions

          We had the following related party transaction balances at September 30, 2011 and December 31, 2010:

		Related party								Related party								Related party								Related party								Related party
		current assets								long-term assets								current liabilities								long-term liabilities								long-term debt
		September 30,				December 31,				September 30,				December 31,				September 30,				December 31,				September 30,				December 31,				September 30,				December 31,
		2011*				2010				2011*				2010				2011*				2010				2011*				2010				2011*				2010
Liberty Media		$	—			$	—			$	1,300			$	1,571			$	10,461			$	9,765			$	—			$	—			$	328,029			$	325,907
Sirius XM Canada			5,228				—				68,643				—				6,080				—				22,435				—				—				—
SIRIUS Canada			—				5,613				—				—				—				1,805				—				—				—				—
XM Canada			—				1,106				—				31,904				—				4,275				—				24,517				—				—
Total		$	5,228			$	6,719			$	69,943			$	33,475			$	16,541			$	15,845			$	22,435			$	24,517			$	328,029			$	325,907

     Liberty Media

          In February 2009, we entered into an Investment Agreement (the “Investment Agreement”) with an affiliate of Liberty Media Corporation, Liberty Radio, LLC (collectively, “Liberty Media”). Pursuant to the Investment Agreement, in March 2009 we issued to Liberty Radio, LLC 12,500,000 shares of our Convertible Perpetual Preferred Stock, Series B-1 (the “Series B Preferred Stock”), with a liquidation preference of $0.001 per share in partial consideration for certain loan investments. Liberty Media has representatives on our board of directors.

          The Series B Preferred Stock is convertible into 2,586,976,000 shares of common stock. Liberty Media has agreed not to acquire more than 49.9% of our outstanding common stock prior to March 2012, except that Liberty Media may acquire more than 49.9% of our outstanding common stock at any time pursuant to any cash tender offer for all of the outstanding shares of our common stock that are not beneficially owned by Liberty Media or its affiliates at a price per share greater than the closing price of the common stock on the trading day preceding the earlier of the public announcement or commencement of such tender offer. The Investment Agreement also provides for certain other standstill provisions ending in March 2012.

          Liberty Media has advised us that as of September 30, 2011 and December 31, 2010 it owned the following amounts of our debt securities:

		September 30,				December 31,
		2011				2010
8.75% Senior Notes due 2015		$	150,000			$	150,000
9.75% Senior Secured Notes due 2015			50,000				50,000
13% Senior Notes due 2013			76,000				76,000
7% Exchangeable Senior Subordinated Notes due 2014			11,000				11,000
7.625% Senior Notes due 2018			50,000				50,000
Total principal debt			337,000				337,000
Less: discounts			8,971				11,093
Total carrying value debt		$	328,029			$	325,907

          As of September 30, 2011 and December 31, 2010, we recorded $10,461 and $9,765, respectively, related to accrued interest with Liberty Media to Related party current liabilities and $1,300 and $1,571, respectively, related to deferred financing costs with Liberty Media to Related party long-term assets. We recognized Interest expense associated with debt held by Liberty Media of $8,934 and $10,574 for the three months ended September 30, 2011 and 2010, respectively, and $26,718 and $30,538 for the nine months ended September 30, 2011 and 2010, respectively.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Sirius XM Canada

     In June 2011, Canadian Satellite Radio Holdings Inc. (“CSR”), the parent company of XM Canada, and SIRIUS Canada completed a transaction to combine their operations (“the Canada Merger”). As a result of the Canada Merger, SIRIUS Canada became a wholly-owned subsidiary of CSR. The combined company operates as Sirius XM Canada. In connection with the transaction, we received:

	•		approximately 46,700,000 Class A shares of CSR, representing a 38.0% equity interest and a 25.0% voting interest;
	•		$53,781 in cash as repayment of the XM Canada credit facility ($38,815) and consideration for our preferred stock in SIRIUS Canada ($10,117 as a return of capital and $4,849 in dividends, net of foreign withholding taxes); and
	•		$5,207 in non-interest bearing notes of CSR, which primarily have a two year term.

          Our interest in Sirius XM Canada is accounted for under the equity method. The transaction was accounted for as a reverse acquisition whereby SIRIUS Canada was deemed to be the acquirer of CSR. As a result of the transaction, we recognized an $84,855 gain in Interest and investment income during the nine months ended September 30, 2011.

          The excess of the cost of our ownership interest in the equity of Sirius XM Canada over our share of the net assets is recognized as goodwill and intangible assets and is included in the carrying amount of our investment. Equity method goodwill is not amortized. We will periodically evaluate this investment to determine if there has been an other than temporary decline below carrying value. Equity method intangible assets are amortized over their respective useful lives, which is recorded in Interest and investment income. As of September 30, 2011, our investment balance in Sirius XM Canada was approximately $50,728, $30,000 of which represents equity method goodwill and intangible assets, and was recorded in Related party long-term assets. Sirius XM Canada is still evaluating the fair value allocation between goodwill and intangible assets; the final purchase price allocation is not expected to have a material effect on our financial statements.

          We provide Sirius XM Canada with chipsets and other services and we are reimbursed for these costs. As of September 30, 2011, amounts due for these costs totaled $5,228 and is reported as Related party current assets.

          As of September 30, 2011, amounts due from Sirius XM Canada also included $9,263 attributable to deferred programming costs and accrued interest, all of which is reported as Related party long-term assets.

          We hold an investment in Cdn$4,000 face value of 8% convertible unsecured subordinated debentures issued by CSR, for which the embedded conversion feature is bifurcated from the host contract. The host contract is accounted for at fair value as an available-for-sale security with changes in fair value recorded to Accumulated other comprehensive loss, net of tax. The embedded conversion feature is accounted for at fair value as a derivative with changes in fair value recorded in earnings as Interest and investment income (loss). As of September 30, 2011, the carrying values of the host contract and embedded derivative related to our investment in the debentures was $3,445 and $0, respectively. As of December 31, 2010, the carrying values of the host contract and embedded derivative related to our investment in the debentures was $3,302 and $11, respectively. The carrying values of the host contract and embedded derivative are recorded in Related party long-term assets.

          As of September 30, 2011, amounts due to Sirius XM Canada totaled $1,804 and is reported as Related party current liabilities.

          We recorded the following revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of operations:

		For the Three and Nine Months
		Ended September 30,
		2011*
Royalty income		$	6,468
Amortization of Sirius XM Canada deferred income			694
Licensing fee revenue			1,500
Advertising reimbursements			—
Total revenue from Sirius XM Canada		$	8,662

     Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income (loss) in our unaudited consolidated statements of operations on a one month lag. Our share of Sirius XM Canada’s net loss was $4,214 for the three and nine months ended September 30, 2011.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

     SIRIUS Canada

          We had an equity interest of 49.9% in SIRIUS Canada until June 21, 2011 when the transaction between XM Canada and SIRIUS Canada closed. Our investment balance was zero as of December 31, 2010 as our investment balance was absorbed by our share of net losses generated by SIRIUS Canada.

          In 2005, we entered into a license and services agreement with SIRIUS Canada. Pursuant to such agreement, we are reimbursed for certain costs incurred to provide SIRIUS Canada service, including certain costs incurred for the production and distribution of radios, as well as information technology support costs. In consideration for the rights granted pursuant to this license and services agreement, we have the right to receive a royalty equal to a percentage of SIRIUS Canada’s gross revenues based on subscriber levels (ranging between 5% to 15%) and the number of Canadian-specific channels made available to SIRIUS Canada.

          We recorded the following revenue from SIRIUS Canada. Royalty income is included in other revenue and dividend income is included in Interest and investment income (loss) in our unaudited consolidated statements of operations:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011*				2010				2011*				2010
Royalty income		$	—			$	3,163			$	9,945			$	6,603
Dividend income			—				232				460				689
Total revenue from SIRIUS Canada		$	—			$	3,395			$	10,405			$	7,292

          Receivables from royalty and dividend income were utilized to absorb a portion of our share of net losses generated by SIRIUS Canada. Total costs that have been or will be reimbursed by SIRIUS Canada for the three months ended September 30, 2010 were $2,498 and for the nine months ended September 30, 2011 and 2010 were $5,253 and $7,333, respectively.

          Our share of net earnings or losses of SIRIUS Canada is recorded to Interest and investment income (loss) in our unaudited consolidated statements of operations on a one month lag. Our share of SIRIUS Canada’s net loss was $3,361 for the three months ended September 30, 2010 and $9,717 and $6,579 for the nine months ended September 30, 2011 and 2010, respectively. The payments received from SIRIUS Canada in excess of carrying value was $546 for the three months ended September 30, 2010 and $6,748 and $4,256 for the nine months ended September 30, 2011 and 2010, respectively.

     XM Canada

          We had an equity interest of 21.5% in XM Canada until June 21, 2011 when the transaction between XM Canada and SIRIUS Canada closed. Our investment balance was zero as of December 31, 2010 as our investment balance was absorbed by our share of net losses generated by XM Canada.

          In 2005, XM entered into agreements to provide XM Canada with the right to offer XM satellite radio service in Canada. The agreements have an initial ten year term and XM Canada has the unilateral option to extend the agreements for an additional five year term. We receive a 15% royalty for all subscriber fees earned by XM Canada each month for its basic service and an activation fee for each gross activation of an XM Canada subscriber on XM’s system. Sirius XM Canada is obligated to pay us a total of $70,300 for the rights to broadcast and market National Hockey League (“NHL”) games for a ten year term. We recognize these payments on a gross basis as a principal obligor pursuant to the provisions of ASC 605, Revenue Recognition. The estimated fair value of deferred revenue from XM Canada as of the Merger date was approximately $34,000, which is amortized on a straight-line basis through 2020, the end of the expected term of the agreements. As of September 30, 2011 and December 31, 2010, the carrying value of deferred revenue related to this agreement was $26,711 and $28,792, respectively.

          The Cdn$45,000 standby credit facility we extended to XM Canada was paid and terminated as a result of the Canada Merger. We received $38,815 in cash upon payment of this facility. As a result of the repayment of the credit facility and completion of the Canada Merger, we released a $15,649 valuation allowance related to the absorption of our share of the net loss from our investment in XM Canada as of June 21, 2011.

          As of December 31, 2010, amounts due from XM Canada also included $7,201 attributable to deferred programming costs and accrued interest, all of which is reported as Related party long-term assets.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

          We recorded the following revenue from XM Canada as Other revenue in our unaudited consolidated statements of operations:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011*				2010				2011*				2010
Amortization of XM Canada deferred income		$	—			$	693			$	1,388			$	2,081
Subscriber and activation fee royalties			—				2,594				5,483				7,599
Licensing fee revenue			—				750				3,000				3,000
Advertising reimbursements			—				—				833				667
Total revenue from XM Canada		$	—			$	4,037			$	10,704			$	13,347

          Our share of net earnings or losses of XM Canada is recorded to Interest and investment income (loss) in our unaudited consolidated statements of operations on a one month lag. Our share of XM Canada’s net loss was $2,926 for the three months ended September 30, 2010 and $6,045 and $9,416 for the nine months ended September 30, 2011 and 2010, respectively.

     General Motors and American Honda

          We have a long-term distribution agreement with General Motors Company (“GM”). GM had a representative on our board of directors and was considered a related party through May 27, 2010. During the term of the agreement, GM has agreed to distribute the XM service. We subsidize a portion of the cost of satellite radios and make incentive payments to GM when the owners of GM vehicles with factory- or dealer- installed satellite radios become self-paying subscribers. We also share with GM a percentage of the subscriber revenue attributable to GM vehicles with factory- or dealer- installed satellite radios. As part of the agreement, GM provides certain call-center related services directly to subscribers who are also GM customers for which we reimburse GM.

          We make bandwidth available to OnStar LLC for audio and data transmissions to owners of enabled GM vehicles, regardless of whether the owner is a subscriber. OnStar’s use of our bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with our business, and must meet our quality standards. We also granted to OnStar a certain amount of time to use our studios on an annual basis and agreed to provide certain audio content for distribution on OnStar’s services.

          We have a long-term distribution agreement with American Honda. American Honda had a representative on our board of directors and was considered a related party through May 27, 2010. We have an agreement to make a certain amount of our bandwidth available to American Honda. American Honda’s use of our bandwidth must be in compliance with applicable laws, must not compete or adversely interfere with our business, and must meet our quality standards. This agreement remains in effect so long as American Honda holds a certain amount of its investment in us. We make incentive payments to American Honda for each purchaser of a Honda or Acura vehicle that becomes a self-paying subscriber and we share with American Honda a portion of the subscriber revenue attributable to Honda and Acura vehicles with installed satellite radios.

          We recorded the following total related party revenue from GM and American Honda, primarily consisting of subscriber revenue, in connection with the agreements above:

		For the Nine Months
		Ended September 30,
		2010*
GM		$	12,759
American Honda			4,990
Total		$	17,749

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

          We incurred the following related party expenses with GM and American Honda:

		For the Nine Months
		Ended September 30, 2010*
						American
		GM				Honda
Sales and marketing		$	13,374			$	—
Revenue share and royalties			15,823				3,167
Subscriber acquisition costs			17,514				1,969
Customer service and billing			125				—
Interest expense, net of amounts capitalized			1,421				—
Total		$	48,257			$	5,136

(10) Investments

     Auction Rate Certificates

          Auction rate certificates are long-term securities structured to reset their coupon rates by means of an auction. We accounted for our investment in auction rate certificates as available-for-sale securities. In January 2010, our investment in the auction rate certificates was called by the issuer at par plus accrued interest, or $9,456, resulting in a gain of $425 in the nine months ended September 30, 2010.

     Restricted Investments

          Restricted investments relate to reimbursement obligations under letters of credit issued for the benefit of lessors of office space. As of September 30, 2011 and December 31, 2010, our Long-term restricted investments were $3,146 and $3,396, respectively. During the nine months ended September 30, 2011, $250 of obligations relating to these letters of credit was terminated.

(11) Debt

          Our debt consists of the following:

		Conversion
		Price				September 30,				December 31,
		(per share)				2011				2010
3.25% Convertible Notes due 2011 (a)		$	5.30			$	23,866			$	191,979
Less: discount							(3	)			(515	)
8.75% Senior Notes due 2015 (b)			N/A				800,000				800,000
Less: discount							(10,389	)			(12,213	)
9.75% Senior Secured Notes due 2015 (c)			N/A				257,000				257,000
Less: discount							(8,814	)			(10,116	)
11.25% Senior Secured Notes due 2013 (d)			N/A				—				36,685
Less: discount							—				(1,705	)
13% Senior Notes due 2013 (e)			N/A				778,500				778,500
Less: discount							(44,843	)			(59,592	)
7% Exchangeable Senior Subordinated Notes due 2014 (f)		$	1.875				550,000				550,000
Less: discount							(6,388	)			(7,620	)
7.625% Senior Notes due 2018 (g)			N/A				700,000				700,000
Less: discount							(11,196	)			(12,054	)
Other debt:
Capital leases			N/A				3,434				7,229
Total debt							3,031,167				3,217,578
Less: total current maturities non-related party							25,588				195,815
Total long-term							3,005,579				3,021,763
Less: related party							328,029				325,907
Total long-term, excluding related party						$	2,677,550			$	2,695,856

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

     (a) 3.25% Convertible Notes due 2011

          In October 2004, we issued $230,000 in aggregate principal amount of 3.25% Convertible Notes due October 15, 2011 (the “3.25% Notes”), which are convertible, at the option of the holder, into shares of our common stock at any time at a conversion rate of 188.6792 shares of common stock for each $1,000 principal amount, or $5.30 per share of common stock, subject to certain adjustments. Interest is payable semi-annually on April 15 and October 15 of each year. The obligations under the 3.25% Notes are not secured by any of our assets.

          In 2011, we purchased $168,113 of the outstanding 3.25% Notes at prices between 100.75% and 101% of the principal amount plus accrued interest. We recognized a loss on extinguishment of debt for the 3.25% Notes of $2,291 for the nine months ended September 30, 2011, which consists primarily of cash premiums paid, unamortized discount and deferred financing fees. The remaining $23,866 in principal amount of the 3.25% Notes was paid in October 2011 upon maturity.

     (b) 8.75% Senior Notes due 2015

          In March 2010, we issued $800,000 aggregate principal amount of 8.75% Senior Notes due 2015 (the “8.75% Notes”). Interest is payable semi-annually in arrears on April 1 and October 1 of each year at a rate of 8.75% per annum. The 8.75% Notes mature on April 1, 2015. The 8.75% Notes were issued for $786,000, resulting in an aggregate original issuance discount of $14,000. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 8.75% Notes on a senior unsecured basis.

     (c) 9.75% Senior Secured Notes due 2015

          In August 2009, we issued $257,000 aggregate principal amount of 9.75% Senior Secured Notes due September 1, 2015 (the “9.75% Notes”). Interest is payable semi-annually in arrears on March 1 and September 1 of each year at a rate of 9.75% per annum. The 9.75% Notes were issued for $244,292, resulting in an aggregate original issuance discount of $12,708. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 9.75% Notes. The 9.75% Notes and related guarantees are secured by first-priority liens on substantially all of our assets and the assets of the guarantors.

     (d) 11.25% Senior Secured Notes due 2013

          In June 2009, we issued $525,750 aggregate principal amount of 11.25% Senior Secured Notes due 2013 (the “11.25% Notes”). The 11.25% Notes were issued for $488,398, resulting in an aggregate original issuance discount of $37,352.

          In October 2010, we purchased $489,065 in aggregate principal amount of the 11.25% Notes. The aggregate purchase price for the 11.25% Notes was $567,927. We recorded an aggregate loss on extinguishment of the 11.25% Notes of $85,216, consisting primarily of unamortized discount, deferred financing fees and repayment premium to Loss on extinguishment of debt and credit facilities, net, in our 2010 consolidated statement of operations. The remainder of the 11.25% Notes of $36,685 was purchased in January 2011 for an aggregate purchase price of $40,376. A loss from extinguishment of debt of $4,915 associated with this purchase was recorded during the nine months ended September 30, 2011.

     (e) 13% Senior Notes due 2013

          In July 2008, we issued $778,500 aggregate principal amount of 13% Senior Notes due 2013 (the “13% Notes”). Interest is payable semi-annually in arrears on February 1 and August 1 of each year at a rate of 13% per annum. The 13% Notes mature on August 1, 2013. Substantially all of our domestic wholly-owned subsidiaries guarantee the obligations under the 13% Notes.

     (f) 7% Exchangeable Senior Subordinated Notes due 2014

          In August 2008, we issued $550,000 aggregate principal amount of 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”). The Exchangeable Notes are senior subordinated obligations and rank junior in right of payment to our existing and future senior debt and equally in right of payment with our existing and future senior subordinated debt. Substantially all of our domestic wholly-owned subsidiaries have guaranteed the Exchangeable Notes on a senior subordinated basis.

          Interest is payable semi-annually in arrears on June 1 and December 1 of each year at a rate of 7% per annum. The Exchangeable Notes mature on December 1, 2014. The Exchangeable Notes are exchangeable at any time at the option of the holder into shares of our common stock at an initial exchange rate of 533.3333 shares of common stock per $1,000 principal amount of Exchangeable Notes, which is equivalent to an approximate exchange price of $1.875 per share of common stock. During the second quarter of 2011, the common stock reserved for exchange in connection with the Exchangeable Notes were considered to be dilutive in our calculation of diluted net income per common share since our stock price was greater than the exchange price. Our stock price

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

as of September 30, 2011 was below the exchange price and therefore these shares were excluded from the calculation of diluted net income per common share for the three and nine months ended September 30, 2011 as the effect would have been anti-dilutive.

     (g) 7.625% Senior Notes due 2018

          In October 2010, we issued $700,000 aggregate principal amount of 7.625% Senior Notes due 2018 (the “7.625% Senior Notes”). Interest is payable semi-annually in arrears on May 1 and November 1 of each year at a rate of 7.625% per annum. A majority of the net proceeds were used to purchase $489,065 aggregate principal amount of the 11.25% Notes. The 7.625% Senior Notes mature on November 1, 2018. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 7.625% Senior Notes.

     Covenants and Restrictions

          Our debt generally requires compliance with certain covenants that restrict our ability to, among other things, (i) incur additional indebtedness unless our consolidated leverage ratio would be no greater than 6.00 to 1.00 after the incurrence of the indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions.

          Under our debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; (v) certain events of bankruptcy; (vi) a judgment for payment of money exceeding a specified aggregate amount; and (vii) voidance of subsidiary guarantees, subject to grace periods where applicable. If an event of default occurs and is continuing, our debt could become immediately due and payable.

          At September 30, 2011, we were in compliance with our debt covenants.

(12) Stockholders’ Equity

     Common Stock, par value $0.001 per share

          We were authorized to issue up to 9,000,000,000 shares of common stock as of September 30, 2011 and December 31, 2010. There were 3,951,945,992 and 3,933,195,112 shares of common stock issued and outstanding as of September 30, 2011 and December 31, 2010, respectively.

          As of September 30, 2011, approximately 3,354,649,000 shares of common stock were reserved for issuance in connection with outstanding convertible debt, preferred stock, warrants, incentive stock awards and common stock to be granted to third parties upon satisfaction of performance targets.

          To facilitate the offering of the Exchangeable Notes, we entered into share lending agreements with Morgan Stanley Capital Services Inc. (“MS”) and UBS AG London Branch (“UBS”) in July 2008, under which we loaned MS and UBS an aggregate of 262,400,000 shares of our common stock in exchange for a fee of $0.001 per share. During the third quarter of 2009, MS returned to us 60,000,000 shares of our common stock borrowed in July 2008, which were retired upon receipt. As of September 30, 2011, there were 202,400,000 shares loaned under the facilities. In October 2011, MS and UBS returned the remaining 202,400,000 shares loaned. The returned shares were retired upon receipt and will be removed from outstanding common stock in the fourth quarter of 2011.

          Once borrowed shares are returned to us, they may not be re-borrowed under the share lending agreements.

          The shares we loaned to the share borrowers were issued and outstanding for corporate law purposes through October 2011, and holders of borrowed shares (other than the share borrowers) had the same rights under those shares as holders of any of our other outstanding common shares. Under GAAP, the borrowed shares were not considered outstanding for the purpose of computing and reporting our net income (loss) per common share.

          We recorded interest expense related to the amortization of the costs associated with the share-lending arrangement and other issuance costs of $1,276 and $2,555, respectively, for the three months ended September 30, 2011 and 2010 and $6,727 and $7,473, respectively, for the nine months ended September 30, 2011 and 2010. As of September 30, 2011, the unamortized balance of the debt issuance costs was $42,961, with $42,101 recorded in deferred financing fees, net, and $859 recorded in long-term related party assets. As of December 31, 2010, the unamortized balance of the debt issuance costs was $51,243, with $50,218 recorded in deferred financing fees, net, and $1,025 recorded in long-term related party assets. As of September 30, 2011 and December 31, 2010, the

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

estimated fair value of the remaining 202,400,000 loaned shares was approximately $305,624 and $329,912, respectively. These costs will continue to be amortized until the debt is terminated.

          In January 2004, SIRIUS signed a seven-year agreement with a sports programming provider which expired in February 2011. Upon execution of this agreement, SIRIUS delivered 15,173,070 shares of common stock valued at $40,967 to that programming provider. These shares of common stock were subject to transfer restrictions which lapsed over time. We recognized share-based payment expense associated with these shares of $0 and $1,641 in the three months ended September 30, 2011 and 2010, respectively, and $1,568 and $3,501 in the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011 and December 31, 2010, there was $0 and $1,568 remaining balance of common stock value included in other current assets, respectively.

     Preferred Stock, par value $0.001 per share

          We were authorized to issue up to 50,000,000 shares of undesignated preferred stock as of September 30, 2011 and December 31, 2010.

          There were no shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) issued and outstanding as of September 30, 2011 and December 31, 2010.

          There were 12,500,000 shares of Series B Preferred Stock issued and outstanding as of September 30, 2011 and December 31, 2010. The Series B Preferred Stock is convertible into shares of our common stock at the rate of 206.9581409 shares of common stock for each share of Series B Preferred Stock, representing approximately 40% of our outstanding shares of common stock (after giving effect to such conversion). As the holder of the Series B Preferred Stock, Liberty Radio LLC is entitled to a number of votes equal to the number of shares of our common stock into which such shares of Series B Preferred Stock are convertible. Liberty Radio LLC will also receive dividends and distributions ratably with our common stock, on an as-converted basis. With respect to dividend rights, the Series B Preferred Stock ranks evenly with our common stock and each other class or series of our equity securities not expressly provided as ranking senior to the Series B Preferred Stock. With respect to liquidation rights, the Series B Preferred Stock ranks evenly with each other class or series of our equity securities not expressly provided as ranking senior to the Series B Preferred Stock, and will rank senior to our common stock.

          There were no shares of Preferred Stock, Series C Junior (the “Series C Junior Preferred Stock”), issued and outstanding as of September 30, 2011 and December 31, 2010. In 2009, our board of directors created and reserved for issuance in accordance with the Rights Plan (as described below) 9,000 shares of the Series C Junior Preferred Stock. The shares of Series C Junior Preferred Stock are not redeemable and rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of our preferred stock, unless the terms of such series shall so provide. The Rights Plan expired on August 1, 2011.

     Warrants

          We have issued warrants to purchase shares of common stock in connection with distribution, programming and satellite purchase agreements and certain debt issuances. As of September 30, 2011, approximately 24,346,000 warrants to acquire an equal number of shares of common stock with an average exercise price of $2.96 per share were outstanding and fully vested and expire at various times through 2015. During the nine months ended September 30, 2011, 1,575,000 of these warrants expired.

          In February 2011, Daimler AG exercised 16,500,000 warrants to purchase shares of common stock on a net settlement basis, resulting in the issuance of 7,122,951 shares of our common stock.

     Rights Plan

     In April 2009, our board of directors adopted a rights plan. The terms of the rights and the rights plan are set forth in a Rights Agreement dated as of April 29, 2009 (the “Rights Plan”). The Rights Plan was intended to act as a deterrent to any person or group acquiring 4.9% or more of our outstanding common stock (assuming for purposes of this calculation that all of our outstanding convertible preferred stock is converted into common stock) without the approval of our board of directors. The Rights Plan expired on August 1, 2011.

     (13) Benefits Plans

          We recognized share-based payment expense of $13,983 and $16,220 for the three months ended September 30, 2011 and 2010, respectively, and $36,006 and $47,443 for the nine months ended September 30, 2011 and 2010, respectively. We did not realize any income tax benefits from share-based benefits plans during the three and nine months ended September 30, 2011 and 2010 as a result of the full valuation allowance that is maintained for substantially all net deferred tax assets.

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

     2009 Long-Term Stock Incentive Plan

          In May 2009, our stockholders approved the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (the “2009 Plan”). Employees, consultants and members of our board of directors are eligible to receive awards under the 2009 Plan. The 2009 Plan provides for the grant of stock options, restricted stock, restricted stock units and other stock-based awards that the compensation committee of our board of directors may deem appropriate. Vesting and other terms of stock-based awards are set forth in the agreements with the individuals receiving the awards. Stock-based awards granted under the 2009 Plan are generally subject to a vesting requirement. Stock-based awards generally expire ten years from the date of grant. Each restricted stock unit entitles the holder to receive one share of common stock upon vesting. As of September 30, 2011, approximately 196,121,000 shares of common stock were available for future grants under the 2009 Plan.

     Other Plans

          We maintain four other share-based benefit plans — the XM 2007 Stock Incentive Plan, the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan, the XM 1998 Shares Award Plan and the XM Talent Option Plan. No further awards may be made under these plans. Outstanding awards under these plans are being continued.

          The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Risk-free interest rate			1.1	%			1.5	%			1.1	%			1.7	%
Expected life of options — years			5.27				5.33				5.27				5.28
Expected stock price volatility			68	%			85	%			68	%			85	%
Expected dividend yield			0	%			0	%			0	%			0	%

          There were no options granted to third parties during the three and nine months ended September 30, 2011 and 2010.

     We estimate fair value of awards granted using the hybrid approach for volatility, which weights observable historical volatility and implied volatility of qualifying actively traded options on our common stock. In 2010, due to the lack of qualifying actively traded options on our common stock, we utilized a 100% weighting to observable historical volatility.

     The following table summarizes stock option activity under our share-based payment plans for the nine months ended September 30, 2011 (shares in thousands):

										Weighted-Average
										Remaining				Aggregate
						Weighted-Average				Contractual Term				Intrinsic
		Shares				Exercise Price				(Years)				Value
Outstanding, December 31, 2010			401,870			$	1.32
Granted			77,451			$	1.80
Exercised			(9,965	)		$	0.91
Forfeited, cancelled or expired			(24,288	)		$	4.32
Outstanding, September 30, 2011			445,068			$	1.25				6.60			$	278,467
Exercisable, September 30, 2011			145,867			$	1.89				5.49			$	81,314