UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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

		FOR FISCAL YEAR ENDED DECEMBER 31, 2009

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

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

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)

Not Applicable

Not Applicable

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

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

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 o No o

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 the 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. þ

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):

XM Satellite Radio Holdings Inc.		Large Accelerated Filer		o		Accelerated Filer		o
		Non-Accelerated Filer		þ		Smaller Reporting Company		o
XM Satellite Radio Inc.		Large Accelerated Filer		o		Accelerated Filer		o
		Non-Accelerated Filer		þ		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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2009 was $0.

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, 2010)
XM SATELLITE RADIO HOLDINGS INC.
COMMON STOCK, $0.01 PAR VALUE
(all shares are issued to Sirius XM Radio Inc.)		100 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
THE REGISTRANTS MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I(1)(a) AND (b) OF FORM 10-K AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

 

 

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FORM 10-K

Item No.		Description			Page
		PART I
Item 1.		Business			2
Item 1A.		Risk Factors			12
Item 1B.		Unresolved Staff Comments			18
Item 2.		Properties			18
Item 3.		Legal Proceedings			18
Item 4.		Submission of Matters to a Vote of Security Holders*			18
		PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			19
Item 6.		Selected Financial Data			19
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 7A.		Quantitative and Qualitative Disclosures About Market Risks			57
Item 8.		Financial Statements and Supplementary Data			57
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			57
Item 9A.		Controls and Procedures			57
Item 9B.		Other Information			57
		PART III
Item 10.		Directors, Executive Officers and Corporate Governance*			58
Item 11.		Executive Compensation*			58
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*			58
Item 13.		Certain Relationships and Related Transactions, and Director Independence*			58
Item 14.		Principal Accounting Fees and Services			58
		PART IV
Item 15.		Exhibits, Financial Statement Schedules			59
		Signatures			60
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 32.1
Exhibit 32.2

EXPLANATORY NOTE

This Annual Report on Form 10-K is a combined report being filed by two separate registrants: XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc. XM Satellite Radio Holdings Inc.’s principal wholly owned subsidiary is XM Satellite Radio Inc. XM Satellite Radio Holdings Inc. also fully and unconditionally guarantees certain of XM Satellite Radio Inc.’s debt securities. The two companies’ information presented in this report has been combined. The combined report includes XM Satellite Radio Holdings Inc.’s consolidated financial statements as the only set of financial statements. An explanation of the differences between the companies is set forth in Note 1 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. Condensed consolidating financial information regarding XM Satellite Radio Inc. is set forth in Note 16 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

On July 28, 2008, Vernon Merger Corporation, a wholly owned subsidiary of Sirius XM Radio Inc. merged with and into XM Satellite Radio Holdings Inc. and as a result XM Holdings became a wholly owned subsidiary of SIRIUS (the “Merger”).

Unless otherwise indicated,

•

“we,” “us,” “our,” the “company,” “XM Holdings” and similar terms refer to XM Satellite Radio Holdings Inc. and its consolidated subsidiaries (including XM);

•

“SIRIUS” refers to Sirius XM Radio Inc. and its consolidated subsidiaries;

•

“XM” refers only to XM Satellite Radio Inc. and its consolidated subsidiaries.

The SIRIUS satellite radio business is conducted by SIRIUS; and the XM satellite radio business is conducted principally by XM. XM Holdings is primarily a holding company, although XM Holdings owns the former corporate headquarters and data center of XM and leases these buildings to XM; owns the XM-5 and portions of the XM-3 and XM-4 satellites; holds the investment in XM Canada; and holds certain cash accounts.

Special Note Regarding Forward-Looking Statements

The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Annual Report on Form 10-K and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intend,” “plan,” “projection” and “outlook.” Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Annual Report on Form 10-K and in other reports and documents published by us from time to time, particularly the risk factors described under “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

Among the significant factors that could cause our actual results to differ materially from those expressed in the forward-looking statements are:

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general economic conditions, which has adversely affected our business;

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our dependence upon automakers, many of which have experienced a dramatic drop in sales, and other third parties, such as manufacturers and distributors of satellite radios, retailers and programming providers;

•

the substantial indebtedness of XM Holdings and XM;

•

the useful life of our satellites, which have experienced component failures including, with respect to a number of satellites, failures on their solar arrays, and, in certain cases, are not insured; and

•

our competitive position versus other forms of audio entertainment including terrestrial radio, HD radio, Internet radio, mobile phones, iPods and other MP3 devices, and emerging next-generation networks and technologies.

Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

PART I

ITEM 1.		BUSINESS

We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the United States for a subscription fee through our proprietary satellite radio system. In July 2008, SIRIUS’ wholly owned subsidiary, Vernon Merger Corporation, merged (the “Merger”) with and into us and, as a result, we are now a wholly owned subsidiary of SIRIUS. Our system consists of four in-orbit satellites, over 650 terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios. Subscribers can also receive certain of our music and other channels over the Internet.

As of December 31, 2009, we had 9,749,100 subscribers. Our subscriber totals include:

•

subscribers under our regular and discounted pricing plans;

•

subscribers that have prepaid, including payments either made or due from automakers for prepaid subscriptions included in the sale or lease price of a new vehicle;

•

certain radios activated for daily rental fleet programs;

•

certain subscribers to XM Online, our Internet service; and

•

certain subscribers to our weather, traffic and data services.

Our primary source of revenue is subscription fees, with most of our customers subscribing to an annual, semi-annual, quarterly or monthly plan. We offer discounts for prepaid and long-term subscriptions as well as discounts for multiple subscriptions. Since the Merger, we have introduced new programming packages and made certain changes to the pricing of our services. In October 2008, we introduced “best of” programming to subscribers for an additional $4.04 per month. In March 2009, we increased the price of our discounted second radio subscription plan from $6.99 to $8.99 per month. In March 2009, we began offering XM Online, our Internet service, to our subscribers for an additional $2.99 per month. Effective July 29, 2009, we began adding a U.S. Music Royalty Fee to subscriber invoices. The U.S. Music Royalty Fee is $1.98 a month on our base $12.95 subscriptions and $.97 for base plans that are eligible for a second radio discount. 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 data and weather services.

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

XM Satellite Radio Inc. was incorporated on December 15, 1992 in the State of Delaware. XM Satellite Radio Holdings Inc. was formed as a holding company for XM on May 16, 1997.

Programming

We offer a dynamic programming lineup of more than 135 channels of commercial-free music, sports, news, talk, entertainment, and traffic and weather. The channel line-up for the XM service is available at xmradio.com.

Our subscription packages allow most listeners to customize and enhance our standard programming lineup. The “Best of SIRIUS” package offers to XM subscribers the Howard Stern channels, Martha Stewart Living Radio, SIRIUS NFL Radio, SIRIUS NASCAR Radio, Playboy Radio and play-by-play NFL games and college sports programming. Our “Best of XM” package offers to SIRIUS subscribers Oprah Radio, The Virus, XM Public Radio, MLB Home Plate, NHL Home Ice, The PGA Tour Network, and select play-by-play of NBA and NHL games and college sports programming.

We also offer family friendly, “mostly music” and “mostly sports, news and talk” packages.

We make changes to our programming lineup from time to time as we strive to attract new subscribers and offer content that appeals to a broad range of audiences and to our existing subscribers.

Music Programming

We offer 71 channels of commercial-free music. We offer an extensive selection of music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin and classical. Within each genre we offer a range of formats, styles and recordings.

All of our original music channels are broadcast commercial free. Certain of our music channels are programmed by third parties and air commercials. Our channels are produced, programmed and hosted by a team of experts in their fields, and each channel is operated as an individual radio station, with a distinct format and branding. We also from time to time provide special features, such as our Artist Confidential series which provides interviews and performances from some of the biggest names in music, and an array of “pop up” channels featuring the music of particular artists.

Sports Programming

Live play-by-play sports is an important part of our programming strategy. We are the Official Satellite Radio Partner of Major League Baseball (“MLB”), the NBA, NHL, and the PGA Tour, and broadcast most major college sports, including NCAA Division I football and basketball games. Soccer coverage includes matches from the Barclays English Premier League and UEFA Champions League. We also air FIS Alpine Skiing and World Cup events and horse racing.

We offer many exclusive talk channels and programs such as MLB’s “Home Plate” and Chris “Mad Dog” Russo’s Mad Dog Unleashed on Mad Dog Radio, as well as simulcasts of select ESPN television shows, including SportsCenter.

Talk and Entertainment Programming

We offer a multitude of talk and entertainment channels for a variety of audiences. Our diverse spectrum of talk programming is a significant differentiator from terrestrial radio and other audio entertainment providers.

Our talk radio offerings feature dozens of popular talk personalities, most creating shows that air exclusively on our service, including POTUS, Oprah Winfrey, Rosie O’Donnell, Opie and Anthony and Bob Edwards.

News and Information Programming

We offer a wide range of national, international and financial news programming.

We also offer continuous, local traffic reports for 21 metropolitan markets throughout the United States. We broadcast these reports, together with local and national weather reports from The Weather Channel.

We also air a range of political call-in talk shows on a variety of channels including our exclusive channel, POTUS.

Distribution of Radios

Automakers

Our primary means of distributing satellite radios is through the sale and lease of new vehicles. We have agreements with several automakers — Acura/Honda, Ferrari, General Motors, Hyundai, Infiniti/Nissan, Lexus, Toyota, Scion and Porsche— to offer XM satellite radios as factory or dealer-installed equipment in their vehicles.

Many automakers include a subscription to our radio service in the sale or lease price of their vehicles. In many cases, we receive subscription payments from automakers in advance of the activation of our service. We share with certain automakers a portion of the revenues we derive from subscribers using vehicles equipped to receive our service. We also reimburse various automakers for certain costs associated with the satellite radios installed in their vehicles, including in certain cases hardware costs, tooling expenses and promotional and advertising expenses.

Retail

We sell satellite radios directly to consumers through our website. Satellite radios are also marketed and distributed through major national and regional retailers. We develop in-store merchandising materials and provide sales force training for several retailers.

Previously Owned Vehicles

We expect to acquire an increasing number of subscribers through the sale and lease of previously owned vehicles with factory installed satellite radios. We have entered into agreements with several automakers to market subscriptions to purchasers and lessees of vehicles which include satellite radios sold through their certified pre-owned programs.

We intend to develop systems and methods to identify purchasers and lessees of used vehicles which include satellite radios, and expect to make other efforts to market and sell satellite radio subscriptions to owners of used vehicles.

Our Satellite Radio System

Our satellite radio system is designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions. Subscribers can receive our transmissions in all outdoor locations where the satellite radio has an unobstructed line-of-sight with one of our satellites or is within range of one of our terrestrial repeaters. We continually monitor our infrastructure and regularly evaluate improvements in technology.

The FCC has allocated the portion of the S-band located between 2320 MHz and 2345 MHz exclusively for satellite radio. We use 12.5 MHz of this bandwidth to transmit our signal. Uplink transmissions (from the ground to our satellites) use 12.5 MHz of bandwidth in the 7060-7072.5 MHz band.

Our satellite radio system has three principal components:

•

satellites, terrestrial repeaters and other satellite facilities;

•

studios; and

•

satellite radios.

Satellites, Terrestrial Repeaters and Other Satellite Facilities

Satellites. We own four orbiting satellites; two of which, XM-3 and XM-4, currently transmit the XM signal and two of which, XM-1 and XM-2, serve as in-orbit spares. Each of these satellites was manufactured by Boeing Satellite Systems International. The XM satellites were launched in March 2001, May 2001, February 2005 and October 2006, respectively. The XM satellites are deployed in geostationary orbits at 85° West Longitude and 115° West Longitude.

Space Systems/Loral is constructing a fifth satellite, XM-5, for use in our system. XM-5 is a Loral FS-1300 model satellite. We have an agreement with International Launch Services to launch XM-5 during the third quarter of 2010 on a Proton rocket.

Satellite Insurance. We currently have in-orbit insurance on XM-3 and XM-4, our primary operating satellites, but do not carry insurance coverage for XM-1 and XM-2, our in-orbit spare satellites.

These policies provide coverage for a total, constructive total or partial loss of the satellites that occurs during annual (or multi-year) in-orbit periods. The insurance does not cover the full cost of constructing, launching and insuring new satellites, nor will it protect us from the adverse effect on business operations due to the loss of a satellite. The policies contain standard commercial satellite insurance provisions, including coverage exclusions.

Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception of satellite signals can be adversely affected. In many of these areas, we have deployed terrestrial repeaters to supplement satellite coverage. We operate over 650 terrestrial repeaters.

Other Satellite Facilities. Our satellites are monitored, tracked and controlled by Telesat Canada, a satellite operator. In addition, we operate backup stations in the United States.

Studios

The programming on our system originates principally from studios in New York City and Washington D.C., and, to a lesser extent, from smaller studio facilities in Chicago and Nashville. The New York City offices house SIRIUS’ corporate headquarters. Both the New York City and Washington D.C. offices house facilities for programming origination, programming personnel and facilities to transmit programming.

Satellite Radios

We design, establish specifications for, source or specify parts and components for, and manage various aspects of the logistics and production of XM radios. We do not manufacture radios. We have authorized manufacturers to produce and distribute XM brand radios, and have licensed our technology to various electronics manufacturers to develop, manufacture and distribute radios under various consumer brands. We directly import certain radios distributed through our website. To facilitate the sale of XM radios, we often subsidize a portion of the radio manufacturing costs to reduce the hardware price to consumers.

XM radios are manufactured in three principal configurations — as in-dash radios, Dock & Play radios and portable or wearable radios.

•

In-dash radios are integrated into vehicles and allow the user to listen to AM, FM or satellite radio with the push of a button. Aftermarket in-dash radios are available at retailers nationally, and to automakers for factory or dealer installation.

•

Dock & Play radios enable subscribers to transport their XM radios easily to and from their cars, trucks, homes, offices, boats or other locations with available adapter kits. Dock & Play radios adapt to existing audio systems through FM modulation or direct audio connection and can be easily installed. Audio systems and boom boxes, which enable subscribers to use their XM radios virtually anywhere, are available for various models of Dock & Play radios.

•

Portable or wearable radios offer live satellite radio “on the go” and recorded satellite, MP3 and WMA content. The XMp3 allows consumers to record up to one hundred hours of XM and “Best of Sirius” programming, and is capable of recording up to five channels simultaneously.

XM commercial audio systems are also available.

We have introduced an interoperable radio, called MiRGE, containing both SIRIUS and XM chip sets. This radio has a unified control interface allowing for easy switching between the two satellite radio networks. We have introduced the XM SkyDock, which connects to an Apple iPhone or iPod touch and provides live XM satellite radio using the control capabilities of the iPhone or iPod touch,

Internet Radio

We simulcast music channels and select non-music channels over the Internet. Access to XM Online is offered to subscribers for a fee. We developed and introduced an application for the Apple iPhone and iPod touch that permits consumers to access and XM Online on such devices. We expect to introduce similar applications to allow consumers to access XM Online on other personal mobile devices. Subscribers to XM Online are not included in our subscriber count, unless the service is purchased separately and not as part of a subscription to the XM satellite radio service.

Canada

XM Canada, a Canadian corporation in which we have an ownership interest, offers satellite radio service in Canada. XM Canada offers 130 channels of music and news, sports, talk and entertainment programming. Subscribers to the XM Canada service are not included in our subscriber count.

Other Services

Commercial Accounts. The XM music service is also available for commercial establishments. Commercial accounts are available through providers of in-store entertainment solutions and directly from us. Commercial subscribers are included in our subscriber count.

XM Content Through Mobile Phone Carriers. We offer between 20 and 25 music and comedy channels to mobile phone users through relationships with certain mobile phone carriers. Subscribers to these services are not included in our subscriber count.

Subscribers to the following services are not included in our subscriber count, unless the applicable service is purchased by the subscriber separately and not as part of a subscription to the XM satellite radio service:

Real-Time Traffic Services. We offer services that provide graphic information as to road closings, traffic flow and incident data to consumers with compatible in-vehicle navigation systems.

Real-Time Weather Services. We offer several real-time weather services designed for in-vehicle, marine and/or aviation use.

FCC Conditions

In order to demonstrate to the FCC that the Merger was in the public interest, we agreed to implement a number of voluntary commitments. These programming, public interest and qualified entity channels, equipment, subscription rates, and other service commitments are summarized as follows:

Programming

“Best of Both” Programming: We offer customers the ability to receive the best of SIRIUS programming at a monthly cost of $16.99.

Mostly Music or News, Sports and Talk Programming: We offer customers an option of “mostly music” programming or “mostly news, sports and talk” programming at a cost of $9.99 per month.

Discounted Family-Friendly Programming: We offer consumers a “family-friendly” version of XM programming at a cost of $11.95 a month, representing a discount of $1.00 per month. We also offer XM customers a family-friendly version of the “best of” programming. This programming costs $14.99 per month, representing a discount of $2.00 per month from the cost of the “best of” programming.

Public Interest Channels

We agreed to set aside four percent of the full-time audio channels on the XM platform for non-commercial, educational and informational programming within the meaning of the FCC rules that govern similar obligations of direct broadcast satellite providers. We also committed not to select a programmer to fill more than one non-commercial, educational or informational channel on the XM platform as long as demand by programming providers for such channels exceeds available supply.

Qualified Public Entity Channels

We agreed to enter into long-term leases or other agreements to provide to a Qualified Entity or Entities, defined as an entity or entities that are majority-owned by persons who are African American, not of Hispanic origin; Asian or Pacific Islanders; American Indians or Alaskan Natives; or Hispanics, rights to four percent of the full-time audio channels on the XM platform. As digital compression technology enables us to broadcast additional full-time audio channels, we will ensure that four percent of full-time audio channels on the XM platform are reserved for a Qualified Entity or Entities.

The Qualified Entity or Entities will not be required to make any lease payments for such channels. We will have no editorial control over these channels. The FCC is expected to inform us how it plans to select these Qualified Entities. In February 2009, the FCC commenced a proceeding to determine the method to select these Qualified Entities but has not completed this proceeding. We will implement our commitment to enter into long-term leases or other agreements to provide a Qualified Entity or Entities audio channels on the XM platform when the FCC completes its pending proceeding and directs us how to legally implement this requirement.

Equipment

We are required to provide, on commercially reasonable terms, our intellectual property necessary to permit any device manufacturer to develop equipment that can deliver our satellite radio services. Chip sets for satellite radios, which include the encryption, conditional access and security technology necessary to access our satellite radio services, may be purchased by licensees from manufacturers in negotiated transactions with such manufacturers. We have agreed not to enter into any agreement that grants, or that would have the effect of granting, a device manufacturer an exclusive right to manufacture, market and sell equipment that can deliver our satellite radio services.

We have also agreed not to execute any agreement or take any other action that would bar, or have the effect of barring, a car manufacturer or other third party from including non-interfering HD radio chips, iPod compatibility, or other audio technology in an automobile or audio device.

Subscription Rates

We have agreed not to raise the retail price for, or reduce the number of channels in, our basic $12.95 per month subscription package or our new programming packages described above until July 28, 2011. Under the FCC’s order approving the Merger, we may pass through cost increases incurred since the filing of our FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries for the performance of musical works and sound recordings or for device recording fees. Effective July 29, 2009, we began adding a U.S. Music Royalty Fee to subscriber invoices. The U.S. Music Royalty Fee is $1.98 a month on our base $12.95 subscriptions and $.97 for base plans that are eligible for a second radio discount. Subscription packages, such as our “News, Sports and Talk” package, that contain little music are not subject to the U.S. Music Royalty Fee. Amounts collected on account of the U.S. Music Royalty Fee are being used to partially offset payments to the music industry. A summary of the costs passed through pursuant to U.S. Music Royalty Fee is available on our website.

Interoperable Radios

We agreed to offer for sale an interoperable radio and began offering such radio in early 2009.

Local Programming and Advertising

We have committed not to originate local programming or advertising through our repeater network.

Transactions between SIRIUS, XM Holdings and XM

Promptly following the Merger, SIRIUS and XM began to integrate their operations, and agreed to share the costs of certain day-to-day functions. For example, XM transferred its employees to SIRIUS, and SIRIUS, in turn, has agreed to provide various services to both companies necessary to support their business, such as product development, sales, marketing, finance, accounting, information technology, programming, human resources, public relations, investor relations, legal and other general management services. XM and SIRIUS share equally the costs of these employees. SIRIUS and XM also agreed to share programming and rationalize their channel line-ups, and to share equally the costs of certain programming that appears on both platforms. In addition, SIRIUS and XM have agreed to jointly market radios and coordinate rebate and warranty support programs to subscribers who purchase radios at retail or via their websites. In general, SIRIUS and XM share equally the costs of this marketing and sales coordination.

SIRIUS and XM have also sought opportunities to jointly increase revenues. SIRIUS and XM have agreed to offer their respective subscribers programming packages that include “best of” programming from the other service. Each of SIRIUS and XM retains all the respective revenue generated from its respective “best of” programming package. The companies have also made arrangements to have XM radios offered in RadioShack, a retailer that was previously exclusive to SIRIUS.

XM Holdings and XM are operated as unrestricted subsidiaries under the agreements governing SIRIUS’ existing debt. As unrestricted subsidiaries, transactions among the companies are required to comply with various contractual provisions in our respective debt instruments. The agreements between XM and SIRIUS are intended to permit both companies to share in the benefits of the inter-company arrangements in approximately equal proportion. The terms of the agreements between XM and SIRIUS are intended to be no more favorable to one company or the other than those that could be obtained at the time in an arm’s-length dealing with an unaffiliated firm or person.

Certain operations have not yet been integrated in any significant respect. SIRIUS and XM expect to enter into additional arrangements as they continue to integrate their operations and pursue opportunities to realize cost savings and increase revenues.

From time to time, we continue to evaluate options to further integrate SIRIUS and XM by completing either or both of a merger between XM Holdings and XM or a merger between SIRIUS and XM Holdings and/or XM.

Competition

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

Traditional AM/FM Radio

We compete with traditional AM/FM radio. Many traditional radio companies are substantial entities owning large numbers of radio stations or other media properties. The radio broadcasting industry is highly competitive.

Unlike satellite radio, traditional AM/FM radio has had a well established demand for its services and offers free broadcasts paid for by commercial advertising rather than by a subscription fee. Many radio stations offer information programming of a local nature, such as local news and sports. By attracting listeners to their stations, traditional AM/FM radio reduces the likelihood that customers would be willing to pay for our subscription services and by offering free broadcasts they impose limits on what we can charge for our services. Some AM/FM 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 lure customers away from satellite radio.

HD Radio

Many radio stations have begun broadcasting digital signals, which have a clarity similar to our signals. These stations do not charge a subscription fee for their digital signals but do generally carry advertising. A group of major broadcast radio networks have created a coalition to jointly market digital radio services. According to this coalition, nearly 2,000 radio stations are currently broadcasting primary signals with HD Radio technology and broadcasting approximately 1,000 new FM multicast channels (HD2/HD3), and manufacturers are marketing and distributing 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 clearer digital signal would be lessened. Traditional AM/FM broadcasters are also aggressively entering Internet radio and wireless internet-based distribution arrangements. Approximately 15 automakers have committed to installing HD Radio equipment as either a factory standard or factory option, including Ford, Volkswagen, BMW, Mercedes-Benz, Kia and Hyundai.

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 and online-only providers, including Clear Channel, CBS, and Pandora, make high fidelity digital streams available through the Internet for free or, in some cases, for a fraction of the cost of a satellite radio subscription. In addition, there has been wide proliferation of mobile Internet enabled smartphones, many of which have the capability of interfacing with vehicles. These smartphones can typically play recorded or cached content and access live Internet radio via browsers or dedicated applications. Internet based radio products have also been announced for vehicles, although their adoption is currently nascent. 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 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 Internet offerings and with our home line of products through the use of home stereo media adapters, media-centric PCs, and specialized IP-based audio consoles.

Portable Audio 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. iPods^® are compatible with certain car stereos and various home speaker systems, and certain automakers 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. In addition, many emerging artists give away their music for free via blogs and other websites in order to increase live event ticket sales, which are often more profitable to emerging artists than music sales. These MP3 files can be played instantly, burned to a compact disc or stored in various portable players available to consumers. Internet-based audio formats are becoming increasingly competitive as quality improves and costs are reduced. In addition, many current generation portable audio devices, such as the iPod touch, also contain WiFi connections enabling direct Internet connections for purchasing additional music or streaming music that is not stored on the local device.

Direct Broadcast Satellite and Cable Audio

A number of companies provide specialized audio services 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 generally do not pay an additional monthly charge for the audio service.

Digital Media Services

We face increased competition from businesses that deliver or plan to deliver media content through mobile phones and other wireless devices. The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of new media platforms and portable devices that compete with our service now or that could compete with those services in the future.

Traffic News Services

A number of providers also compete with our traffic service. Clear Channel and Tele Atlas deliver nationwide traffic information for the top 50 markets to in-vehicle navigation systems using RDS/TMC, the radio broadcast standard technology for delivering traffic and travel information to drivers. The in-dash navigation market in which we primarily compete is also being threatened by increasingly capable smartphones that provide advanced navigation functionality, including live traffic. For instance, the Motorola Droid, Google Nexus One, Palm Pre, and Apple iPhone 3GS all include GPS functionality with turn-by-turn navigation—although these services often require more expensive data plans or other fees.

Government Regulation

As an operator of a privately owned satellite system, we are regulated by the FCC under the Communications Act of 1934, principally with respect to:

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the licensing of our satellite system;

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preventing interference with or to other users of radio frequencies; and

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compliance with FCC rules established specifically for U.S. satellites and satellite radio services.

Any assignment or transfer of control of our FCC licenses must be approved by the FCC. The FCC’s order approving the Merger requires us to comply with certain voluntary commitments we made as part of the FCC merger proceeding. We believe we comply with those commitments.

In 1997, XM was a winning bidder for an FCC license to operate a satellite digital audio radio service and provide other ancillary services. Our FCC licenses for our satellites expire in 2013 and 2014. We anticipate that, absent significant misconduct on our part, the FCC will renew our licenses to permit operation of our satellites for their useful lives, and grant a license for any replacement satellites.

In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites may be blocked and reception can be adversely affected. In many of these areas, we have installed terrestrial repeaters to supplement our satellite signal coverage. The FCC has not yet established rules governing terrestrial repeaters. Rulemaking on the subject has been initiated by the FCC and is still pending. Many comments have been filed as part of this and related rulemakings. The comments cover many topics relating to the operation of our terrestrial repeaters, but principally seek to protect adjoining wireless services from interference. We cannot predict the outcome or timing of these FCC proceedings and the final rules adopted by the FCC may limit our ability to deploy additional terrestrial repeaters, require us to reduce the power of our existing terrestrial repeaters or fail to protect us from interference by adjoining spectrum holders. In the interim, the FCC has granted us special temporary authority (“STA”) to operate our terrestrial repeaters and offer service on a non-harmful interference basis to other wireless services. Following the FCC’s review of whether certain repeaters had been operating at variance to the specifications in their STAs, both XM and SIRIUS entered into consent decrees in 2008 requiring both remedial action and a voluntary contribution to the federal government. We believe the repeaters operated by us comply with the consent decree, the STAs and applicable FCC rules.

We design, establish specifications for, source or specify parts and components for, manage various aspects of the logistics and production of, and, in most cases, obtain FCC certifications for, satellite radios, including satellite radios that include FM modulators. Part 15 of the FCC’s rules establish a number of requirements relating to FM modulators, including emissions and frequency rules. Following the FCC’s review of whether the FM transmitters in certain XM radios comply with the FCC’s emissions and frequency rules, we entered into consent decrees in 2008 requiring both remedial action and a voluntary contribution to the federal government. We believe our radios that are in production comply with the consent decree and applicable FCC rules.

We are required to obtain export licenses from the United States government to deliver components of our satellite radio systems and related technical data. In addition, the delivery of satellites and the supply of related ground control equipment, technical data, and satellite communication/control services to destinations outside the United States and to foreign persons is subject to strict export control and prior approval requirements from the United States government (including prohibitions on the sharing of certain satellite-related goods and services with China).

Changes in law or regulations relating to communications policy or to matters affecting our services could adversely affect our ability to retain our FCC licenses or the manner in which we operate.

Copyrights to Programming

In connection with our music programming, we must negotiate and enter into royalty arrangements with two sets of rights holders: holders of copyrights in musical works (that is, the music and lyrics) and holders of copyrights in sound recordings (that is, the actual recording of a work).

Musical works rights holders, generally songwriters and music publishers, are represented by performing rights organizations such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”), and SESAC, Inc. (“SESAC”). These organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders. We have arrangements with all of these organizations.

Sound recording rights holders, typically large record companies, are primarily represented by SoundExchange, an organization which negotiates licenses, and collects and distributes royalties on behalf of record companies and performing artists. Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we may negotiate royalty arrangements with the sound recording copyright owners, or if negotiation is unsuccessful, the royalty rate is established by the Copyright Royalty Board (the “CRB”) of the Library of Congress. In January 2008, the CRB issued a decision regarding the royalty rate payable by XM under the statutory license covering the performance of sound recordings over its satellite radio service for the six-year period starting January 1, 2007 and ending December 31, 2012. Our next rate setting proceeding before the CRB is scheduled to commence in January 2011. Under the terms of the CRB’s decision, we paid a royalty of 6.0%, 6.0% and 6.5% of gross revenues, subject to certain exclusions, for 2007, 2008 and 2009, respectively. Under this decision, we will pay a royalty of 7.0% for 2010, 7.5% for 2011 and 8.0% for 2012.

Trademarks

We have registered, and intend to maintain, the trademark “XM” with the United States Patent and Trademark Office in connection with the transmission services offered by us. We are not aware of any material 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 for the names of certain of our channels. We have also registered the trademark, “XM”, and the logo, in Canada. We have granted a license to use our trademark in Canada to XM Canada.

Personnel

As of January 1, 2010, we did not have any employees. SIRIUS has agreed to provide various services necessary to support our business, such as product development, sales, marketing, finance, accounting, information technology, programming, human resources, public relations, investor relations, legal and other general management services. We share equally with SIRIUS the costs of these employees.

Corporate Information

Our executive offices are located at 1500 Eckington Place, NE, Washington, DC 20002 and our telephone number is (202) 380-4000. Our internet address is xmradio.com. Our annual, quarterly and current reports, and amendments to those reports, filed or furnished pursuant to Section 14(a) or 15(d) of the Securities Exchange Act of 1934 may be accessed free of charge through our website after we have electronically filed such material with, or furnished it to, the SEC. XMradio.com (including any other reference to such address in this Annual Report) is an inactive textual reference only, meaning that the information contained on or accessible from the website is not part of this Annual Report on Form 10-K and is not incorporated in this report by reference.

Executive Officers of the Registrant

Certain information regarding our executive officers is provided below:

Name		Age				Position
Mel Karmazin			66			President
David J. Frear			53			Treasurer
Patrick L. Donnelly			48			Secretary

Mel Karmazin has served as our President since the Merger and has served as SIRIUS’ Chief Executive Officer and a member of its board of directors since November 2004. Prior to joining SIRIUS, Mr. Karmazin was President and Chief Operating Officer and a member of the board of directors of Viacom Inc. from May 2000 until June 2004. Prior to joining Viacom, Mr. Karmazin was President and Chief Executive Officer of CBS Corporation from January 1999 and a director of CBS Corporation from 1997 until its merger with Viacom in May 2000. He was President and Chief Operating Officer of CBS Corporation from April 1998 through December 1998. Mr. Karmazin joined CBS Corporation in December 1996 as Chairman and Chief Executive Officer of CBS Radio and served as Chairman and Chief Executive Officer of the CBS Station Group (Radio and Television) from May 1997 to April 1998. Prior to joining CBS Corporation, Mr. Karmazin served as President and Chief Executive Officer of Infinity Broadcasting Corporation from 1981 until its acquisition by CBS Corporation in December 1996. Mr. Karmazin served as Chairman, President and Chief Executive Officer of Infinity from December 1998 until the merger of Infinity Broadcasting Corporation with Viacom in February 2001.

David J. Frear has served as our Treasurer since the Merger and has served as SIRIUS’ Executive Vice President and Chief Financial Officer since June 2003. From July 1999 through February 2003, Mr. Frear was Executive Vice President and Chief Financial Officer of Savvis Communications Corporation, a global managed service provider, delivering internet protocol applications for business customers. From October 1999 through February 2003, Mr. Frear also served as a director of Savvis. Mr. Frear was an independent consultant in the telecommunications industry from August 1998 until June 1999. From October 1993 to July 1998, Mr. Frear was Senior Vice President and Chief Financial Officer of Orion Network Systems Inc., an international satellite communications company that was acquired by Loral Space & Communications Ltd. in March 1998. From 1990 to 1993, Mr. Frear was Chief Financial Officer of Millicom Incorporated, a cellular, paging and cable television company. Prior to joining Millicom, he was an investment banker at Bear, Stearns & Co., Inc. and Credit Suisse.

Patrick L. Donnelly has served as our Secretary since the Merger and has served as SIRIUS’ Executive Vice President, General Counsel and Secretary since May 1998. From June 1997 to May 1998, he was Vice President and deputy general counsel of ITT Corporation, a hotel, gaming and entertainment company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in February 1998. From October 1995 to June 1997, he was assistant general counsel of ITT Corporation. Prior to October 1995, Mr. Donnelly was an attorney at the law firm of Simpson Thacher & Bartlett LLP.

Employment Agreements

Mel Karmazin

In June 2009, SIRIUS amended its employment agreement with Mel Karmazin. The amendment (i) extended the term of his employment agreement through December 31, 2012, (ii) increased his base salary from $1,250,000 per year to $1,500,000 per year beginning on January 1, 2010, and (iii) provided for the grant of an option to purchase 120,000,000 shares of SIRIUS’ common stock, at an exercise price of $0.430 per share (the closing price of SIRIUS’ common stock on the date of the amendment).

These options vest in equal installments on each of December 31, 2010, December 31, 2011, June 30, 2012 and December 31, 2012. The vesting of these stock options accelerates upon the termination of Mr. Karmazin’s employment by SIRIUS without cause, by him for good reason, upon his death or disability and in the event of a change of control. These options will generally expire on December 31, 2014; provided that if the parties subsequently agree to extend the term of his employment agreement through December 31, 2013 or later, then the term of these options will automatically extend until the later of (i) December 31, 2015 and (ii) the date that is one year following the date that such new employment agreement expires.

In the event that any payment SIRIUS makes, or benefit SIRIUS provides, to Mr. Karmazin would require him to pay an excise tax under Section 280G of the Internal Revenue Code, SIRIUS has agreed to pay Mr. Karmazin the amount of such tax and such additional amount as may be necessary to place him in the exact same financial position that he would have been in if the excise tax was not imposed.

David J. Frear

Mr. Frear has agreed to serve as SIRIUS’ Executive Vice President and Chief Financial Officer through July 2011. SIRIUS pays Mr. Frear an annual salary of $750,000, and annual bonuses in an amount determined each year by the Compensation Committee of its board of directors.

If Mr. Frear’s employment is terminated without cause or he terminates his employment for good reason, SIRIUS is obligated to pay him a lump sum payment equal to the sum of his annual salary and the annual bonus last paid to him and to continue his medical and life insurance benefits for one year.

In the event that any payment we make, or benefit SIRIUS provides, to Mr. Frear would require him to pay an excise tax under Section 280G of the Internal Revenue Code, SIRIUS has agreed to pay Mr. Frear the amount of such tax and such additional amount as may be necessary to place him in the exact same financial position that he would have been in if the excise tax was not imposed.

Patrick L. Donnelly

In January 2010, SIRIUS entered into a new employment agreement with Patrick L. Donnelly to continue to serve as its Executive Vice President, General Counsel and Secretary, through January 13, 2014. The employment agreement provides for an initial base salary of $575,000, with specified increases. If Mr. Donnelly’s employment is terminated without cause or he terminates his employment for good reason, SIRIUS is obligated to pay him a lump sum payment equal to his then annual salary and the cash value of the bonus last paid or payable to him in respect of the preceding fiscal year and to continue his health and life insurance benefits for one year. SIRIUS’ obligations to pay the foregoing amounts are subject to Mr. Donnelly’s execution of a valid release of claims against SIRIUS and his compliance with certain restrictive covenants. SIRIUS has also agreed to indemnify Mr. Donnelly for any excise taxes that may be imposed on him under Section 280G of the Internal Revenue Code.

In connection with the execution of the employment agreement, SIRIUS granted Mr. Donnelly an option to purchase 13,163,495 shares of its common stock at an exercise price of $0.6669 per share (the last sale price of SIRIUS’ common stock on the Nasdaq Global Select Market prior to the execution of the employment agreement). The option will generally vest in four equal installments on each of January 14, 2011, January 14, 2012, January 14, 2013 and January 14, 2014, subject to earlier acceleration or termination under certain circumstances.

Additional information regarding the compensation for Messrs. Karmazin, Frear and Donnelly will be included in SIRIUS’ definitive proxy statement for its 2010 annual meeting of stockholders scheduled to be held on Thursday, May 27, 2010.

ITEM 1A.		RISK FACTORS

In addition to the other information in this Annual Report on Form 10-K, including the information under the caption “Competition,” the following risk factors should be considered carefully in evaluating us and our business. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements.”

Our business and our financial condition have been adversely affected by general economic conditions.

The purchase of a satellite radio subscription is discretionary, and we believe that our business and our financial condition have been adversely affected by general economic conditions. In addition, the dramatic slowdown in auto sales negatively impacted our subscriber growth in 2008 and 2009.

Demand for our service is difficult to predict.

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 to our service. Our satellite radio service has experienced a decrease in new subscriptions from retail subscribers and most new subscription growth has come from new and used automobiles.

Failure of third parties to perform could adversely affect our business.

Our business depends in part on the efforts of various third parties, including:

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manufacturers that build and distribute satellite radios;

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companies that manufacture and sell integrated circuits for satellite radios;

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programming providers and on-air talent, including Howard Stern;

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retailers that market and sell satellite radios and promote subscriptions to our services; and

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vendors that have designed or built, and vendors that support or operate, important elements of our systems, such as our satellites and customer service facilities.

If one or more of these third parties do not perform in a sufficient or timely manner, our business could be adversely affected. In addition, a number of third parties on which we depend have, and may in the future, experience financial difficulties or file for bankruptcy protection. Such third parties may not be able to perform their obligations to us in a timely manner, if at all, as a result of their financial condition or may be relieved of their obligations to us as part of seeking bankruptcy protection.

We design, establish specifications, source or specify parts and components, and manage various aspects of the logistics and production of radios. As a result of these activities, we may be exposed to liabilities associated with the design, manufacture and distribution of radios that the providers of an entertainment service would not customarily be subject to, such as liabilities for design defects, patent infringement and compliance with applicable laws, as well as the costs of returned product.

Programming is an important part of our service, and the costs to renew our programming arrangements may be more than anticipated.

Third-party content is an important part of our satellite radio service, and we compete with many entities for content. We have entered into a number of important content arrangements, including an agreement with Major League Baseball (“MLB”), which require us to pay substantial sums. Our agreement with MLB expires at the end of the 2012 MLB season. As these agreements expire, we may not be able to negotiate renewals of one or more of these agreements, or renew such agreements at costs we believe are attractive.

In addition, we may not be able to obtain additional third-party content within the costs contemplated by our business plans.

We employ, or independently contract with, on-air talent who maintain significant loyal audiences in or across various demographic groups. There can be no assurance that this on-air talent will remain with us or that we will be able to retain their respective audiences. If we lose the services of one or more of them, or fail to attract qualified replacement personnel, it could harm our business and future prospects.

We must maintain and pay license fees for music rights.

We must maintain music programming royalty arrangements with, and pay license fees to, BMI, ASCAP and SESAC. These organizations negotiate with copyright users, collect royalties and distribute them to songwriters and music publishers. We have agreements with ASCAP and SESAC through December 2011. We do not have a definitive agreement with BMI, and we continue to operate under an interim agreement with BMI. There can be no assurance that the BMI royalty fee will remain at the current level when the pending agreement is finalized.

Under the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998, we pay royalties to copyright owners of sound recordings. Those royalty rates may be established through negotiation or, if negotiation is unsuccessful, by the CRB. Our next rate setting proceeding before the CRB is scheduled to commence in January 2011, and, if negotiations prove unsuccessful, these royalty rates may not remain at their current levels following the proceeding.

Higher than expected costs of attracting new subscribers, higher subscriber turnover or weaker than expected advertising revenue could each adversely affect our financial performance and operating results.

We are spending substantial funds on advertising and marketing and in transactions with automakers, radio manufacturers, retailers and others to obtain and attract subscribers. If the costs of attracting new subscribers are greater than expected, our financial performance and operating results could be adversely affected.

We are experiencing, and expect to continue to experience, subscriber turnover, or churn. If we are unable to retain our current subscribers, or the costs of retaining subscribers are higher than we expect, our financial performance and operating results could be adversely affected. We cannot predict how successful we will be at retaining customers who purchase or lease vehicles that include a subscription to their satellite radio service. During 2009, we converted approximately 47.6% of the customers who received a promotional subscription as part of the purchase or lease of a new vehicle to a self-paying subscription. Over the same period, we have experienced churn of our self-pay subscribers of approximately 2.03% per month.

We cannot predict the amount of churn we will experience over the longer term. Our inability to retain customers who either purchase or lease new vehicles with our service beyond the promotional period, or who purchase or lease a new vehicle that includes a prepaid subscription to our services, and self-pay subscriber churn could adversely affect our financial performance and results of operations.

Our ability to generate advertising revenues is directly affected by general economic conditions, the number of subscribers to our service and the amount of time subscribers spend listening to the talk and entertainment channels or the traffic and weather services. General economic conditions are affecting our ad revenues. Our ability to generate advertising revenues also depends on several factors, including the level and type of penetration of our services, competition for advertising dollars from other media, and changes in the advertising industry and the economy generally. We directly compete for audiences and advertising revenues with traditional AM/FM radio stations and other media, some of which maintain longstanding relationships with advertisers.

We may from time to time modify our business plan, and these changes could adversely affect us and our financial condition.

We regularly evaluate our plans and strategy. These evaluations often result in changes to our plans and strategy, some of which may be material and significantly change our cash requirements. These changes in our plans or strategy may include: the acquisition or termination of unique or compelling programming; the introduction of new features or services; significant new or enhanced distribution arrangements; investments in infrastructure, such as satellites, equipment or radio spectrum; and acquisitions, including acquisitions that are not directly related to our satellite radio business.

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations and could limit our ability to react to changes in the economy or our industry.

As of December 31, 2009, we had an aggregate principal amount of approximately $1.7 billion of indebtedness. Our substantial indebtedness has important consequences. For example, it:

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increases our vulnerability to general adverse economic and industry conditions;

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requires us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund working capital, capital expenditures and other general corporate activities;

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limits our ability to borrow additional funds or make capital expenditure;

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limits our flexibility in planning for, or reacting to, changes in our business and the audio entertainment industry; and

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may place us at a competitive disadvantage compared to other competitors.

A substantial portion of our cash flows from operations is dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, capital expenditures, investments in new technologies and future business opportunities.

The instruments governing our indebtedness contain covenants that, among other things, restrict our ability to incur more debt, pay dividends, make distributions, make certain investments, repurchase stock, create liens, enter into transactions with affiliates, enter into sale lease-back transactions, merge or consolidate, and transfer or sell assets. Failure to comply with the covenants contained in the indentures and agreements governing this debt could result in an event of default, which, if not cured or waived, could cause us to seek the protection of the bankruptcy laws, discontinue operations or seek a purchaser for our business or assets.

Our business might never become profitable.

As of December 31, 2009, we had an accumulated deficit of approximately $6.7 billion. We expect our cumulative net losses to grow as we make payments under various contracts, incur marketing and subscriber acquisition costs and make interest payments on existing debt. As of December 31, 2009, we had total debt of approximately $1.7 billion. If we are unable ultimately to consistently generate sufficient revenues to become profitable, we may not be able to make the required payments on our indebtedness and could ultimately default on our commitments.

Our business depends in large part upon automakers, a number of whom have experienced a sharp decline in sales, have reduced production and are experiencing extreme financial difficulties.

The sale and lease of vehicles with satellite radios is an important source of subscribers for our satellite radio services. We have agreements with every major automaker to include satellite radios in new vehicles, although these agreements do not require automakers to install specific or minimum quantities of radios in any given period. Economic conditions, particularly the dramatic slowdown in auto sales, negatively impacted subscriber growth for our services in 2008 and 2009.

Our subscription growth is dependent, in large part, on sales and vehicle production by automakers. Automotive sales and production are dependent on many factors, including the availability of consumer credit, general economic conditions, consumer confidence and fuel costs. To the extent vehicle sales by automakers continue to decline, or the penetration of factory-installed satellite radios in those vehicles is reduced, and there is no offsetting growth in vehicle sales or increased penetration by other automakers, subscriber growth for our satellite radio services will be adversely impacted.

Rapid technological and industry changes could adversely impact our services.

The audio entertainment industry is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving standards. If we are unable to keep pace with these changes, our business may be unsuccessful. Products using new technologies, or emerging industry standards, could make our technologies less competitive in the marketplace.

Consumers could pirate our services.

Individuals who engage in piracy may be able to obtain or rebroadcast our satellite radio service or access the internet transmission of our services without paying the subscription fee. Although we use encryption technologies to mitigate the risk of signal theft, such technologies may not be adequate to prevent theft of the signals. If signal theft becomes widespread, it could harm our business.

Failure of our satellites would significantly damage our business and potential satellite losses may not be covered by insurance.

We operate four in-orbit satellites, including two satellites that are used for backup purposes only. The useful lives of these satellites will vary and depend on a number of factors, including:

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degradation and durability of solar panels;

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quality of construction;

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random failure of satellite components, which could result in significant damage to or loss of a satellite;

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amount of fuel the satellites consume; and

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damage or destruction by electrostatic storms or collisions with other objects in space.

We placed our XM-3 and XM-4 satellites into service during the second quarter of 2005 and during the 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. We estimate that the XM-3 and XM-4 satellites will meet their 15-year predicted useful lives, and that XM-1 and XM-2 satellites’ useful lives will end in 2011. 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 expect to launch the XM-5 satellite, which will serve as an in-orbit spare for the SIRIUS and XM services, in the third quarter of 2010. 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. There can be no assurance that restoring service through XM-1 and XM-2 would allow XM to maintain adequate broadcast signal strength through the date on which XM-5 is brought into service, particularly if XM-1 or XM-2 were to suffer unanticipated additional performance degradation or experience an operational failure.

In addition, our network of terrestrial repeaters communicates with our satellites. If the satellites communicating with our repeater network fail unexpectedly, the services would be disrupted for several hours or longer.

In the ordinary course of operation, satellites experience failures of component parts and operational and performance anomalies. Components on our in-orbit satellites have failed and from time to time we have experienced anomalies in the operation and performance of these satellites. These failures and anomalies are expected to continue in the ordinary course, and we cannot predict if any of these future events will have a material adverse effect on our operations or the useful life of our existing in-orbit satellites.

We maintain in-orbit insurance covering our primary satellites broadcasting our service, but do not maintain insurance on our back-up satellites. Any insurance proceeds will not fully cover our losses in the event of a satellite failure or significant degradation. For example, the policies covering the insured satellites do not cover the full cost of constructing, launching and insuring new satellites or our in-orbit spare satellites, nor will they cover, and we do not have protection against, business interruption, loss of business or similar losses. Our insurance contains customary exclusions, material change and other conditions that could limit recovery under those policies. 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, the policies are subject to limitations involving uninsured losses, large satellite performance deductibles and policy limits that may not be sufficient to cover losses.

Our broadcast studios, terrestrial repeater networks, satellite uplink facilities or other ground facilities could be damaged by natural catastrophes or terrorist activities.

An earthquake, tornado, flood, terrorist attack or other catastrophic event could damage our broadcast studios, terrestrial repeater networks or satellite uplink facilities, interrupt our service and harm our business. We do not have replacement or redundant facilities that can be used to assume the functions of our terrestrial repeater network. We do have redundant facilities that can be used to assume immediately many of the functions of the broadcast studios and satellite uplink facilities in the event of a catastrophic event.

Any damage to the satellites that transmit to our terrestrial repeater network would likely result in degradation of our service for some subscribers and could result in complete loss of service in certain or all areas. Damage to our satellite uplink facilities could result in a complete loss of our service until we could transfer our operations to our back-up facilities.

Electromagnetic interference from others could damage our business.

Our satellite radio service may be subject to interference caused by other users of radio frequencies, such as Wireless Communications Service (“WCS”) users. The FCC is seeking comment on proposals by certain WCS licensees for modification of rules regarding their operations in spectrum adjacent to satellite radio, including rule changes to facilitate mobile broadband services in the WCS frequencies. We are participating actively in this proceeding and have opposed the changes requested by WCS licensees out of a concern for their impact on the reception of satellite radio service. We cannot predict the outcome of the FCC proceeding, or the impact on satellite radio reception.

Failure to comply with FCC requirements could damage our business.

We hold FCC licenses and authorizations to operate commercial satellite radio services in the United States, including authorizations for satellites and terrestrial repeaters, and related authorizations. The FCC generally grants licenses and authorizations for a fixed term. Although we expect our licenses and authorizations to be renewed in the ordinary course upon their expiration, there can be no assurance that this will be the case. Any assignment or transfer of control of any of our FCC licenses or authorizations must be approved in advance by the FCC.

The operation of our satellite radio system is subject to significant regulation by the FCC under authority granted through the Communications Act and related federal law. We are required, among other things, to operate only within specified frequencies; to meet certain conditions regarding the interoperability of our satellite radios with those of other licensed satellite radio systems; to coordinate our satellite radio services with radio systems operating in the same range of frequencies in neighboring countries; and to coordinate our communications links to our satellites with other systems that operate in the same frequency band. Non-compliance by us with these requirements or other conditions or with other applicable FCC rules and regulations could result in fines, additional license conditions, license revocation or other detrimental FCC actions. There is no guarantee that Congress will not modify the statutory framework governing our services, or that the FCC will not modify its rules and regulations in a manner that would have a material impact on our operations.

The terms of our licenses, the order of the FCC approving the Merger, and the consent decree we entered into with the FCC require us to meet certain conditions. We have agreed to implement a number of voluntary commitments, including programming, minority and public interest, equipment, subscription rates and other service commitments. Non-compliance with these conditions could result in fines, additional license conditions, license revocation or other detrimental FCC actions.

The FCC has not yet issued final rules permitting us to operate and deploy terrestrial repeaters to fill gaps in our satellite coverage. We are operating our terrestrial repeaters on a “non-interference” basis pursuant to grants of special temporary authority from the FCC. The FCC’s final terrestrial repeater rules may require us to reduce the power of our terrestrial repeaters or limit our ability to deploy additional repeaters. If the FCC requires us to reduce significantly the number or power of our terrestrial repeaters, this would have an adverse effect on the quality of our service in certain markets and/or cause us to alter our terrestrial repeater infrastructure at a substantial cost. If the FCC limits our ability to deploy additional terrestrial repeaters, our ability to improve any deficiencies in our service quality that may be identified in the future would be adversely affected.

Changes in consumer protection laws and their enforcement could damage our business.

We engage in extensive marketing efforts to attract and retain subscribers to our service. We employ a wide variety of communications tools as part of our marketing campaigns, including print, television, radio and online advertising; telemarketing efforts; and email solicitations. The United States Federal Trade Commission, the FCC and various states agencies have responsibility for consumer protection and have jurisdiction over components of our consumer marketing efforts.

Consumer protection laws, rules and regulations are extensive and have developed rapidly. Consumer protection laws in certain jurisdictions cover nearly all aspects of our marketing efforts, including the content of our advertising, the terms of consumer offers. and the manner in which we communicate with subscribers and prospective subscribers. We are engaged in considerable efforts to ensure that all our activities comply with federal and state laws, rules and regulations relating to consumer protection. Modifications to federal and state laws, rules and regulations concerning consumer protection, including decisions by federal and state courts and agencies interpreting these laws, could have an adverse impact on our ability to attract and retain subscribers to our service. While we monitor the changes in and interpretations of these laws in consumer-related settlements and decisions, and while we believe that we are in material compliance with applicable laws, there can be no assurances that new laws or regulations will not be enacted or adopted, or preexisting laws or regulations will not be more strictly enforced, which might adversely affect our operations.

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

We are parties to several legal proceedings arising out of various aspects of our business. We are defending all claims against us. The outcome of these proceedings may not be favorable, and an unfavorable outcome may have a material adverse effect on our business or financial results.

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

Development of our system has depended upon the intellectual property that we have developed, as well as intellectual property 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 portions of our satellite radio systems or services without liability. In addition, others may challenge, invalidate, render unenforceable or circumvent our intellectual property rights, patents or existing sublicenses or we may face significant legal costs in connection with defending and enforcing those intellectual property rights. Some of the know-how and technology we have developed, and plan to develop, is not now, nor will it be, covered by U.S. patents or trade secret protections. 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 us.

Other parties may have patents or pending patent applications, which will later mature into patents or inventions that may block our ability to operate our system or license technologies. 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, trademark or copyright infringement, or for other infringement or misappropriation of intellectual property rights. Any such litigation could result in substantial cost, and diversion of effort 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 our systems or license our technology; or otherwise adversely affect our ability to successfully develop and market our satellite radio system.

Liberty Media Corporation has significant influence over our business and affairs and its interests may differ from ours.

Liberty Media Corporation holds preferred stock that is convertible into approximately 40% of the issued and outstanding shares of SIRIUS’ common stock. Pursuant to the terms of the preferred stock held by Liberty Media, we cannot take certain actions, such as certain issuances of equity or debt securities, without the consent of Liberty Media. Additionally, Liberty Media has the right to designate six members of SIRIUS’ fifteen-member board of directors. As a result, Liberty Media has significant influence over our business and affairs. The interests of Liberty Media may differ from our interests. The extent of Liberty Media’s stock ownership in SIRIUS also may have the effect of discouraging offers to acquire control of SIRIUS.

Our net operating loss carryforwards could be substantially limited if SIRIUS experiences an ownership change as defined in the Internal Revenue Code.

We have generated a federal net operating loss carryforward of approximately $4 billion through the year ended December 31, 2009, and we may generate net operating loss carryforwards in future years.

Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes among stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company.

If our parent company, SIRIUS, undergoes an ownership change for purposes of Section 382 as a result of future transactions involving SIRIUS’ common stock, including purchases or sales of stock between 5% stockholders, SIRIUS’ ability to use its net operating loss carryforwards and to recognize certain built-in losses would be subject to the limitations of Section 382. Depending on the resulting limitation, a significant portion of our net operating loss carryforwards could expire before we would be able to use them. Our inability to utilize our net operating loss carryforwards could have a negative impact on our long-term financial position and results of operations.

In April 2009, SIRIUS’ board of directors adopted a shareholder rights plan designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss carryforwards and built-in losses under Section 382 of the Code. SIRIUS has agreed to submit this shareholder rights plan to a vote of its stockholders. If SIRIUS’ stockholders do not approve this shareholder rights plan prior to June 30, 2010 it will terminate in accordance with its terms.

ITEM 1B.		UNRESOLVED STAFF COMMENTS

None.

ITEM 2.		PROPERTIES

Below is a list of the principal properties that we own or lease:

Location		Purpose		Own/Lease
Washington, DC		Office and studio/production facilities		Own
Washington, DC		Office facilities and data center		Own
Deerfield Beach, FL		Office and technical/engineering facilities		Lease
New York, NY		Studio/production facilities @ Jazz at Lincoln Center		Lease
Nashville, TN		Studio/production facility		Lease

We also own or lease other small facilities that we use as offices for our advertising sales personnel, studios and warehouse and maintenance space. These facilities are not material to our business or operations.

In addition, we lease space at approximately 700 locations for use in connection with the terrestrial repeater network that supports our service. In general, these leases are for space on building rooftops and communications towers. None of these individual leases is material to our business or operations.

ITEM 3.		LEGAL PROCEEDINGS

FCC Merger Order. On July 25, 2008, the FCC adopted an order approving the Merger. In September 2008, Mt. Wilson FM Broadcasters, Inc. filed a Petition for Reconsideration of the FCC’s merger order. This Petition for Reconsideration remains pending.

Advanced Recording Functionality Disputes/Atlantic Recording Corporation, BMG Music, Capital Records, Inc., Elektra Entertainment Group Inc., Interscope Records, Motown Record Company, L.P., Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records, Inc. and Warner Bros. Records Inc. v. XM Satellite Radio Inc. Commencing in May 2006, holders of copyrights in sound recordings and holders of copyrights in musical works brought actions against XM in connection with the advanced recording functionality included in the XM Inno, the XM NeXus, the XM Helix and the XM SkyFi3line of radios. The plaintiffs brought this action in the United States District Court for the Southern District of New York, seeking monetary damages and equitable relief.

We have settled these claims with the major record companies and a significant number of music publishers. We are in discussions to settle these claims with certain independent record companies and other music publishers.

We believe that the distribution and use of our products do not violate applicable copyright laws. There can be no assurance regarding the ultimate outcome of these matters and settlement discussions, or the significance, if any, to our business, consolidated results of operations or financial position.

Other Matters. In the ordinary course of business, we are a defendant in various lawsuits and arbitration proceedings, including actions filed by subscribers, both on behalf of themselves and on a class action basis; former employees; parties to contracts or leases; and owners of patents, trademarks, copyrights or other intellectual property. None of these actions are, in our opinion, likely to have a material adverse effect on our cash flows, financial position or results of operations.

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

Omitted pursuant to General Instructions I(2)(c) of Form 10-K.

PART II

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

Prior to the completion of the Merger, our common stock was traded on the Nasdaq Global Select Market under the symbol “XMSR.”

ITEM 6.		SELECTED FINANCIAL DATA

Our selected financial data set forth below with respect to the consolidated statements of operations for the year ended December 31, 2009 and from August 1, 2008 through December 31, 2008 (the Successor Periods) and from January 1, 2008 through July 31, 2008 and for the year ended December 31, 2007 (the Predecessor Periods) and with respect to the consolidated balance sheets at December 31, 2009 and 2008, are derived from our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Our selected financial data set forth below with respect to the consolidated statements of operations for the years ended December 31, 2006 and 2005, and with respect to the consolidated balance sheets at December 31, 2007, 2006 and 2005 are derived from our predecessor audited consolidated financial statements which are not included in this Annual Report on Form 10-K. This selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Item 7 of this Annual Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

		Successor Entity									Predecessor Entity
		Year Ended				August 1, 2008					January 1, 2008				Year Ended				Year Ended				Year Ended
		December 31,				Through December 31,					Through July 31,				December 31,				December 31,				December 31,
(in thousands)		2009				2008					2008				2007				2006				2005
Statements of Operations Data:
Total revenue		$	1,297,341			$	511,154				$	731,194			$	1,136,542			$	933,417			$	558,266
Net loss			(246,830	)			(6,438,185	)				(322,458	)			(682,381	)			(718,872	)			(666,715	)

		Successor Entity									Predecessor Entity
		As of December 31,									As of December 31,
(in thousands)		2009				2008					2007				2006				2005
Balance Sheet Data:
Cash and cash equivalents		$	212,155			$	206,740				$	156,686			$	218,216			$	710,991
Restricted investments			250				120,250					275				2,098				5,488
Total assets			4,076,508				4,311,279					1,609,230				1,840,618				2,223,661
Long-term debt, net of current portion			1,659,532				1,413,596					1,480,639				1,286,179				1,035,584
Stockholder’s (deficit) equity (1)			(701,896	)			(575,554	)				(984,303	)			(397,880	)			80,948

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those described under “Item 1A — Risk Factors” and elsewhere in this Annual Report. See “Explanatory Note” and “Special Note Regarding Forward-Looking Statements.”

(All dollar amounts referenced in this Item 7 are in thousands, unless otherwise stated.)

Executive Summary

We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the United States on a subscription fee basis through our proprietary satellite radio system. On July 28, 2008, XM Satellite Radio Holdings Inc. merged with and into Vernon Merger Corporation, a wholly owned subsidiary of SIRIUS; and as a result, XM Satellite Radio Holdings Inc. is now a wholly owned subsidiary of SIRIUS. Our system consists of four in-orbit satellites, over 650 terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios. Subscribers can also receive certain of our music and other channels over the Internet, including through an application on the Apple iPhone.

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

As of December 31, 2009, we had 9,749,100 subscribers. Our subscriber totals include subscribers under our regular pricing plans; discounted pricing plans; subscribers that have prepaid, including payments either made or due from automakers and dealers for prepaid subscriptions included in the sale or lease price of a vehicle; certain radios activated for daily rental fleet programs; certain subscribers to XM Radio Online, our Internet service; and certain subscribers to our weather, traffic and data services.

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 pre-paid and long-term subscriptions as well as discounts for multiple subscriptions. We also derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios, components and accessories, and other ancillary services, such as data and weather services.

In certain cases, automakers include a subscription to our radio services in the sale or lease price of vehicles. The length of these prepaid subscriptions varies, but is typically three months. We also reimburse various automakers for certain costs associated with satellite radios installed in their vehicles.

We also have an interest in a satellite radio service offered in Canada. Subscribers to the Canadian Satellite Radio Holdings Inc. (“XM Canada”) service are not included in our subscriber count.

XM Satellite Radio Holdings Inc., together with its subsidiaries, operates as an unrestricted subsidiary under the agreements governing SIRIUS’ existing indebtedness. As an unrestricted subsidiary, transactions between the companies are required to comply with various contractual provisions in our respective debt instruments.

Unaudited Actual and Pro Forma Information

Our discussion of our unaudited pro forma information includes non-GAAP financial results that assume the Merger occurred on January 1, 2008. These financial results exclude the impact of purchase price accounting adjustments and refinancing transactions related to the Merger. The discussion also includes the following non-GAAP financial measures: average self-pay monthly churn; conversion rate; average monthly revenue per subscriber, or ARPU; subscriber acquisition cost, or SAC, as adjusted, per gross subscriber addition; customer service and billing expenses, as adjusted, per average subscriber; free cash flow; and adjusted income (loss) from operations. We believe this non-GAAP financial information provides meaningful supplemental information regarding our operating performance and is used for internal management purposes, when publicly providing the business outlook, and as a means to evaluate period-to-period comparisons. Please refer to the footnotes (pages 43 through 56) following our discussion of results of operations for the definitions and a further discussion of the usefulness of such non-GAAP financial information and reconciliation to GAAP.

Unaudited Actual and Pro Forma Subscribers and Metrics. The following tables contain our actual and pro forma subscriber and key operating metrics for the three months and two years ended December 31, 2009 and 2008, respectively:

		Unaudited
		For the Three Months Ended December 31,
		2009				2008
Beginning subscribers			9,704,886				9,896,072
Gross subscriber additions			895,199				794,809
Deactivated subscribers			(850,985	)			(840,140	)
Net additions			44,214				(45,331	)
Ending subscribers			9,749,100				9,850,741
Retail			3,659,504				4,319,632
OEM			5,988,148				5,442,724
Rental			101,448				88,385
Ending subscribers			9,749,100				9,850,741
Retail			(118,142	)			(99,114	)
OEM			147,511				54,873
Rental			14,845				(1,090	)
Net additions			44,214				(45,331	)
Self-pay			9,040,022				9,095,579
Paid promotional			709,078				755,162
Ending subscribers			9,749,100				9,850,741
Self-pay			142,540				178,879
Paid promotional			(98,326	)			(224,210	)
Net additions			44,214				(45,331	)
Daily weighted average number of subscribers			9,703,031				9,825,521

		Unaudited
		For the Three Months Ended December 31,
		2009				2008
Average self-pay monthly churn (1)(7)			2.0	%			1.8	%
Conversion rate (2)(7)			47.5	%			47.4	%
ARPU (3)(7)		$	10.94			$	10.67
SAC, as adjusted, per gross subscriber addition (4)(7)		$	57			$	61
Customer service and billing expenses, as adjusted, per average subscriber (5)(7)		$	1.11			$	1.20
Total revenue		$	370,408			$	337,476
Free cash flow (6)(7)		$	29,561			$	(3,918	)
Adjusted income (loss) from operations (8)		$	82,360			$	25,657
Net loss		$	(4,686	)		$	(88,998	)

Note: See pages 43 through 56 for footnotes.

Subscribers. At December 31, 2009, we had 9,749,100 subscribers, a decrease of 101,641 subscribers, or 1%, from the 9,850,741 subscribers as of December 31, 2008. Net subscriber additions increased 89,545, or 198%, in the three months ended December 31, 2009 compared to 2008. Net subscriber additions in our OEM channel increased 92,638, or 169%, in the three months ended December 31, 2009 compared to 2008. Net subscriber additions in our retail channel decreased 19,028, or 19%, in the three months ended December 31, 2009 compared to 2008. Deactivation rates for self-pay subscriptions in the quarter increased to 2.0% per month reflecting reductions in consumer discretionary spending, subscriber response to our increase in prices for multi-subscription accounts, channel line-up changes in 2008, the institution of a monthly charge for our upgraded streaming service and the introduction of the U.S. Music Royalty Fee.

ARPU. ARPU is derived from total earned subscriber revenue and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. See accompanying footnotes for more details. For the three months ended December 31, 2009 and 2008, total ARPU was $10.94 and $10.67, respectively. The increase was driven mainly by the sale of “Best of” programming, increased rates on our multi-subscription packages and revenues earned on our internet packages, partially offset by lower advertising revenue.

SAC, As Adjusted, Per Gross Subscriber Addition. SAC, as adjusted, per gross subscriber addition is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense divided by the number of gross subscriber additions for the period. See accompanying footnotes for more details. For the three months ended December 31, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $57 and $61, respectively. The decrease in SAC was primarily driven by fewer OEM installations relative to gross subscriber additions and lower OEM subsidies, offset by onetime aftermarket product related charges compared to 2008.

Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber. Customer service and billing expenses, as adjusted, per average subscriber is derived from total customer service and billing expenses, excluding share-based payment expense, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. See accompanying footnotes for more details. For the three months ended December 31, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.11 and $1.20, respectively. The decrease was primarily due to decreases in personnel costs and customer call center expenses.

Adjusted Income (Loss) from Operations. We refer to net income (loss) before interest and investment income; interest expense, net of amounts capitalized; income tax expense; loss on extinguishment of debt and credit facilities, net; (gain) loss on investments; other expense (income); restructuring, impairments and related costs; depreciation and amortization; and share-based payment expense as adjusted income (loss) from operations. See accompanying footnotes for more details. For the three months ended December 31, 2009 and 2008, our adjusted income (loss) from operations was $82,360 and $25,657, respectively. Adjusted income (loss) from operations was favorably impacted by an increase of 10%, or $32,932, in revenues and a decrease of 8%, or $23,771, in total expenses included in adjusted income (loss) from operations. The increase in revenue was due mainly to increased rates on multi-subscription packages, the introduction of the U.S. Music Royalty Fee, revenues earned on internet packages and the sale of “Best of” programming, partially offset by decreased equipment revenue. The decreases in expenses were primarily driven by lower programming and content costs, lower customer service and billing expenses and lower legal and consulting costs in general and administrative expenses.

		Unaudited
		For the Years Ended December 31,
		2009				2008
Beginning subscribers			9,850,741				9,026,837
Gross subscriber additions			3,184,559				3,956,653
Deactivated subscribers			(3,286,200	)			(3,132,749	)
Net additions			(101,641	)			823,904
Ending subscribers			9,749,100				9,850,741
Retail			3,659,504				4,319,632
OEM			5,988,148				5,442,724
Rental			101,448				88,385
Ending subscribers			9,749,100				9,850,741
Retail			(660,128	)			(278,374	)
OEM			545,424				1,075,088
Rental			13,063				27,190
Net additions			(101,641	)			823,904
Self-pay			9,040,022				9,095,579
Paid promotional			709,078				755,162
Ending subscribers			9,749,100				9,850,741
Self-pay			(55,557	)			907,297
Paid promotional			(46,084	)			(83,393	)
Net additions			(101,641	)			823,904
Daily weighted average number of subscribers			9,687,489				9,572,997

		Unaudited
		For the Years Ended December 31,
		2009				2008
Average self-pay monthly churn (1)(7)			2.0	%			1.7	%
Conversion rate (2)(7)			47.6	%			50.7	%
ARPU (7)(10)		$	10.81			$	10.57
SAC, as adjusted, per gross subscriber addition (7)(11)		$	54			$	68
Customer service and billing expenses, as adjusted, per average subscriber (7)(12)		$	1.10			$	1.22
Total revenue		$	1,351,406			$	1,283,902
Free cash flow (7)(13)		$	219,368			$	(288,112	)
Adjusted income (loss) from operations (14)		$	273,544			$	(78,822	)
Net loss		$	(247,712	)		$	(480,796	)

Note: See pages 43 through 56 for footnotes.

Subscribers. At December 31, 2009, we had 9,749,100 subscribers, a decrease of 101,641 subscribers, or 1%, from the 9,850,741 subscribers as of December 31, 2008. The decrease was principally the result of 46,084 fewer paid promotional trials due to the decline in North American auto sales and 55,557 fewer self-pay subscribers compared to December 31, 2008. Deactivation rates for self-pay subscriptions in the year increased to 2.0% per month reflecting reductions in consumer discretionary spending, subscriber response to our increase in prices for multi-subscription accounts, channel line-up changes in 2008, the institution of a monthly charge for our upgraded streaming service and the introduction of the U.S. Music Royalty Fee.

ARPU. For the years ended December 31, 2009 and 2008, total ARPU was $10.81 and $10.57, respectively. Increases in subscriber revenue were driven mainly by the sale of “Best of” programming, increased rates on our multi-subscription packages and revenues earned on our internet packages, partially offset by lower ad revenue.

SAC, As Adjusted, Per Gross Subscriber Addition. For the years ended December 31, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $54 and $68, respectively. The decrease was primarily driven by lower aftermarket inventory charges, fewer OEM installations relative to gross subscriber additions and lower OEM subsidies in the year ended December 31, 2009 compared to 2008.

Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber. For the year ended December 31, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.10 and $1.22, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses.

Adjusted Income (Loss) from Operations. For the years ended December 31, 2009 and 2008, our adjusted income (loss) from operations was $273,544 and ($78,822), respectively. Adjusted income (loss) from operations was favorably impacted by an increase of 5%, or $67,504, in revenues and a decrease of 21%, or $284,862, in total expenses included in adjusted income (loss) from operations. The increase in revenue was due mainly to an increase in weighted average subscribers as well as increased rates on multi-subscription packages, the introduction of the U.S. Music Royalty Fee, revenues earned on internet packages and the sale of “Best of” programming, partially offset by decreased equipment revenue. The decreases in expenses were primarily driven by lower subscriber acquisition costs, lower sales and marketing discretionary spend and lower legal and consulting costs in general and administrative expenses.

Unaudited Pro Forma Results of Operations. Set forth below are certain pro forma items that give effect to the Merger as if it had occurred on January 1, 2008. The pro forma information below does not give effect to any adjustments as a result of the purchase price accounting for the Merger. See footnote 8 (pages 44 to 45) and footnote 14 (pages 48 to 49) for a reconciliation of net income (loss) to adjusted income (loss) from operations.

		Unaudited Pro Forma
		For the Three Months Ended December 31,
(in thousands)		2009				2008
Revenue:
Subscriber revenue, including effects of rebates		$	313,158			$	309,523
Advertising revenue, net of agency fees			5,232				4,845
Equipment revenue			11,892				15,640
Other revenue			40,126				7,468
Total revenue			370,408				337,476
Operating expenses:
Satellite and transmission			13,413				16,401
Programming and content			40,469				49,057
Revenue share and royalties			68,530				72,087
Customer service and billing			32,227				35,450
Cost of equipment			4,126				7,279
Sales and marketing			47,245				49,301
Subscriber acquisition costs			58,726				56,602
General and administrative			19,348				20,256
Engineering, design and development			3,964				5,386
Depreciation and amortization			25,042				26,251
Share-based payment expense			4,209				13,321
Restructuring, impairments and related costs			2,640				—
Total operating expenses			319,939				351,391
Income (loss) from operations			50,469				(13,915	)
Other expense			(54,426	)			(74,792	)
Loss before income taxes			(3,957	)			(88,707	)
Income tax expense			(729	)			(291	)
Net loss			(4,686	)			(88,998	)
Add: net loss attributable to noncontrolling interests			—				—
Net loss — XM Satellite Radio Holdings Inc. and Subsidiaries		$	(4,686	)		$	(88,998	)

Highlights for the Three Months Ended December 31, 2009. Our revenue grew 10%, or $32,932, in the three months ended December 31, 2009 compared to 2008. Subscriber revenue increased 1%, or $3,635, in the three months ended December 31, 2009 compared to 2008. The increase in subscriber revenue was driven by the sale of “Best of” programming and the price increases to our multi-subscription and internet packages. Advertising revenue increased 8%, or $387, in the three months ended December 31, 2009 compared to 2008. Equipment revenue decreased 24%, or $3,748, in the three months ended December 31, 2009 compared to 2008. The decrease in equipment revenue was driven by a decrease in aftermarket manufacturing revenues and fewer component sales compared to the three months ended December 31, 2008. Other revenue increased 437%, or $32,658, in the three months ended December 31, 2009 compared to 2008. The increase in other revenue was driven by the U.S. Music Royalty Fee introduced in the third quarter of 2009. The overall increase in revenue, combined with a decrease of 8%, or $23,771, in adjusted operating costs (total operating expense excluding restructuring, impairments and related costs, depreciation and amortization, impairment of goodwill and share-based payment expense), resulted in improved adjusted income (loss) from operations of $82,360 in the three months ended December 31, 2009 compared to $25,657 in 2008.

Satellite and transmission costs decreased 18%, or $2,988, in the three months ended December 31, 2009 compared to 2008 due to reductions in repeater maintenance costs and personnel costs. Programming and content costs decreased 18%, or $8,588, in the three months ended December 31, 2009 compared to 2008, due mainly to reductions in personnel and on-air talent costs as well as savings on content agreements. Revenue share and royalties decreased 5%, or $3,557, primarily due to decreases in our royalties due to certain automakers, partially offset by an increase in the statutory royalty rate for the performance of sound recordings. Customer service and billing costs decreased 9%, or $3,223, in the three months ended December 31, 2009 compared to 2008 primarily due to decreases in personnel costs and customer call center expenses. Cost of equipment decreased 43%, or $3,153, in the three months ended December 31, 2009 as a result of a decrease in inventory write-downs, fewer component sales and lower average cost per units sold.

Sales and marketing costs decreased 4%, or $2,056, in the three months ended December 31, 2009 compared to 2008 due to reduced advertising and cooperative marketing spend, as well as reductions to personnel costs and third party distribution support expenses. Subscriber acquisition costs increased $2,124, or 4%, in the three months ended December 31, 2009 compared to 2008. This increase was driven by onetime aftermarket product related charges, partially offset by fewer OEM installations relative to gross subscriber additions.

General and administrative costs decreased 4%, or $908 in the three months ended December 31, 2009 compared to 2008. Engineering, design and development costs decreased 26%, or $1,422, in the three months ended December 31, 2009 compared to 2008, due to lower costs associated with development, tooling and testing of radios as well as lower personnel costs.

Restructuring, impairments and related costs were $2,640 mainly due to charges related to compensation incurred as part of the Merger integration.

Other expenses decreased 27%, or $20,366, in the three months ended December 31, 2009 compared to 2008 driven mainly by decreases in loss on investments of $22,307.

		Unaudited Pro Forma
		For the Years Ended December 31,
(in thousands)		2009				2008
Revenue:
Subscriber revenue, including effects of rebates		$	1,238,217			$	1,181,860
Advertising revenue, net of agency fees			18,708				32,753
Equipment revenue			29,574				32,388
Other revenue			64,907				36,901
Total revenue			1,351,406				1,283,902
Operating expenses:
Satellite and transmission			49,954				72,712
Programming and content			175,661				192,066
Revenue share and royalties			277,135				288,242
Customer service and billing			127,317				140,015
Cost of equipment			16,175				32,312
Sales and marketing			137,420				197,936
Subscriber acquisition costs			185,559				270,662
General and administrative			89,916				140,715
Engineering, design and development			18,725				28,064
Depreciation and amortization			85,476				136,129
Share-based payment expense			40,496				55,188
Restructuring, impairments and related costs			32,254				—
Total operating expenses			1,236,088				1,554,041
Income (loss) from operations			115,318				(270,139	)
Other expense			(360,567	)			(200,739	)
Loss before income taxes			(245,249	)			(470,878	)
Income tax (expense) benefit			(2,463	)			(2,475	)
Net loss			(247,712	)			(473,353	)
Add: net loss attributable to noncontrolling interests			—				(7,443	)
Net loss — XM Satellite Radio Holdings Inc. and Subsidiaries		$	(247,712	)		$	(480,796	)

Highlights for the Year Ended December 31, 2009. Our revenue grew 5%, or $67,504, in the year ended December 31, 2009 compared to 2008. Subscriber revenue grew 5%, or $56,357, in the year ended December 31, 2009 compared to 2008. This revenue growth was driven by the sale of “Best of” programming, rate increases on our multi-subscription and Internet packages. Advertising revenue decreased 43%, or $14,045, in the year ended December 31, 2009 compared to 2008. The decrease in advertising revenue was driven by the current economic environment. Equipment revenue decreased 9%, or $2,814, in the year ended December 31, 2009 compared to 2008. The decrease in equipment revenue was driven by a decrease in aftermarket manufacturing revenues and fewer component sales. Other revenue increased 76%, or $28,006, in the year ended December 31, 2009 compared to 2008. The increase in other revenue was driven by the U.S. Music Royalty Fee introduced in the third quarter of 2009. The overall increase in revenue, combined with a decrease of 21%, or $284,862, in adjusted operating costs (total operating expenses excluding restructuring, impairments and related costs, depreciation and amortization, impairment of goodwill and share-based payment expense), resulted in improved adjusted income (loss) from operations of $273,544 in the year ended December 31, 2009 compared to ($78,822) in 2008.

Satellite and transmission costs decreased 31%, or $22,758, in the year ended December 31, 2009 compared to 2008 due to reductions in maintenance costs and personnel costs. Programming and content costs decreased 9%, or $16,405, in the year ended December 31, 2009 compared to 2008, due mainly to reductions in personnel and on-air talent costs as well as savings on certain content agreements. Revenue share and royalties decreased 4%, or $11,107, in the year ended December 31, 2009 compared to 2008, primarily due to decreases in our royalties due to certain automakers, partially offset by an increase in the statutory royalty rate for the performance of sound recordings. Customer service and billing costs decreased 9%, or $12,698, in the year ended December 31, 2009 compared to 2008 due to scale efficiencies. Cost of equipment decreased 50%, or $16,137, in the year ended December 31, 2009 compared to 2008 as a result of a decrease in direct to customer sales and lower inventory write-downs.

Sales and marketing costs decreased 31%, or $60,516, in the year ended December 31, 2009 compared to 2008 due to reduced advertising and cooperative marketing spend as well as reductions to personnel costs and third party distribution support expenses. Subscriber acquisition costs decreased 31%, or $85,103, in the year ended December 31, 2009 compared to 2008. The decrease was primarily driven by lower aftermarket inventory charges, fewer OEM installations relative to gross subscriber additions and lower OEM subsidies in the year ended December 31, 2009. Subscriber acquisition costs also decreased as a result of the 20% decline in gross additions during the year ended December 31, 2009.

General and administrative costs decreased 36%, or $50,799, mainly due to the absence of certain legal and regulatory charges incurred in 2008 and lower personnel costs. Engineering, design and development costs decreased 33%, or $9,339, in the year ended December 31, 2009 compared to 2008, due to lower costs associated with development, tooling and testing of radios as well as lower personnel costs.

Restructuring, impairments and related costs increased $32,254, mainly due to a loss of $24,196 on capitalized installment payments for the launch of a satellite which are expected to provide no future benefit due to the counterparty’s bankruptcy filing, and to charges related to revisions in estimated cash flows for vacated leases.

Other expenses increased 80%, or $159,828, in the year ended December 31, 2009 compared to 2008 driven mainly by an increase in the loss on extinguishment of debt and credit facilities of $115,884 and an increase in interest expense of $79,690, partially offset by a decrease of $31,746 in loss on investments. The loss on the extinguishment of debt and credit facilities was incurred on the full repayment of our Amended and Restated Credit Agreement, termination of our Second-Lien Credit Agreement and a portion of our 10% Senior PIK Secured Notes due 2011. Interest expense increased due primarily to the issuance of the 13% Senior Notes due 2013 and the 7% Exchangeable Senior Subordinated Notes due 2014 in the third quarter of 2008 and the execution of the Amended and Restated Credit Agreement in the first quarter of 2009.

Unaudited Actual Results of Operations

Our discussion of our results of operations, along with the selected financial information in the tables that follow, includes the following non-GAAP financial measures: average self-pay monthly churn; conversion rate; average monthly revenue per subscriber, or ARPU; subscriber acquisition cost, or SAC, as adjusted, per gross subscriber addition; customer service and billing expenses, as adjusted, per average subscriber; free cash flow; and adjusted income (loss) from operations. We believe these non-GAAP financial measures provide meaningful supplemental information regarding our operating performance and are used for internal management purposes, when publicly providing the business outlook, and as a means to evaluate period-to-period comparisons. Please refer to the footnotes (pages 43 through 56) following our discussion of results of operations for the definitions and a further discussion of the usefulness of such non-GAAP financial measures.

Unaudited Actual Subscribers and Metrics. The following tables contain our actual subscriber and key operating metrics for the three months ended December 31, 2009 and 2008, respectively and three years ended December 31, 2009, 2008 and 2007, respectively:

		Unaudited
		For the Three Months Ended December 31,
		2009				2008
Beginning subscribers			9,704,886				9,896,072
Gross subscriber additions			895,199				794,809
Deactivated subscribers			(850,985	)			(840,140	)
Net additions			44,214				(45,331	)
Ending subscribers			9,749,100				9,850,741
Retail			3,659,504				4,319,632
OEM			5,988,148				5,442,724
Rental			101,448				88,385
Ending subscribers			9,749,100				9,850,741
Retail			(118,142	)			(99,114	)
OEM			147,511				54,873
Rental			14,845				(1,090	)
Net additions			44,214				(45,331	)
Self-pay			9,040,022				9,095,579
Paid promotional			709,078				755,162
Ending subscribers			9,749,100				9,850,741
Self-pay			142,540				178,879
Paid promotional			(98,326	)			(224,210	)
Net additions			44,214				(45,331	)
Daily weighted average number of subscribers			9,703,031				9,825,521

		Unaudited
		For the Three Months Ended December 31,
		2009				2008
Average self-pay monthly churn (1)(7)			2.0	%			1.8	%
Conversion rate (2)(7)			47.5	%			47.4	%
ARPU (7)(16)		$	10.74			$	9.98
SAC, as adjusted, per gross subscriber addition (7)(17)		$	37			$	37
Customer service and billing expenses, as adjusted, per average subscriber (7)(18)		$	1.11			$	1.20
Total revenue		$	362,802			$	315,551
Free cash flow (7)(19)		$	29,561			$	(3,918	)
Adjusted income (loss) from operations (20)		$	137,587			$	66,015
Net loss		$	98,301			$	(1,584,162	)

Subscribers. At December 31, 2009, we had 9,749,100 subscribers, a decrease of 101,641 subscribers, or 1%, from the 9,850,741 subscribers as of December 31, 2008. Net subscriber additions increased 89,545, or 198%, in the three months ended December 31, 2009 compared to 2008. Net subscriber additions in our OEM channel increased 92,638, or 169%, in the three months ended December 31, 2009 compared to 2008. Net subscriber additions in our retail channel decreased 19,028, or 19%, in the three months ended December 31, 2009 compared to 2008. Deactivation rates for self-pay subscriptions in the quarter increased to 2.0% per month reflecting reductions in consumer discretionary spending, subscriber response to our increase in prices for multi-subscription accounts, channel line-up changes in 2008, the institution of a monthly charge for our streaming service and the introduction of the U.S. Music Royalty Fee.

ARPU. For the three months ended December 31, 2009 and 2008, total ARPU was $10.74 and $9.98, respectively. The increase was driven by the revenue earned for “Best of” programming, increased rates on multi-subscription packages and internet subscriptions.

We expect ARPU to fluctuate based on promotion, rebates offered to subscribers and corresponding take-rates, plan mix, subscription prices, advertising sales and the identification of additional revenue from subscribers.

SAC, As Adjusted, Per Gross Subscriber Addition. For each of the three months ended December 31, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $37.

We expect SAC, as adjusted, per gross subscriber addition to decline as the costs of subsidized components of XM radios decrease in the future. Our SAC, as adjusted, per gross subscriber addition will continue to be impacted by changes in our mix of OEM and retail additions.

Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber. For the three months ended December 31, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.11 and $1.20, respectively. The decrease was primarily due to decreases in personnel costs and customer call center expenses.

We expect customer service and billing expenses, as adjusted, per average subscriber to decrease on an annual basis as our subscriber base grows due to scale efficiencies in our call centers and other customer care and billing operations.

Adjusted Income (Loss) from Operations. For the three months ended December 31, 2009 and 2008, our adjusted income from operations was $137,587 and $66,015, respectively, an increase of $71,572. The increase was primarily driven by improvements in operating expense areas, excluding restructuring, impairments and related cost, depreciation and amortization, impairment of goodwill and share-based payment expense, totaling $24,321 and an increase in total revenue of $47,251.

		Unaudited
		For the Years Ended December 31,
		2009				2008				2007
Beginning subscribers			9,850,741				9,026,837				7,628,552
Gross subscriber additions			3,184,559				3,956,653				3,893,773
Deactivated subscribers			(3,286,200	)			(3,132,749	)			(2,495,488	)
Net additions			(101,641	)			823,904				1,398,285
Ending subscribers			9,749,100				9,850,741				9,026,837
Retail			3,659,504				4,319,632				4,598,006
OEM			5,988,148				5,442,724				4,367,636
Rental			101,448				88,385				61,195
Ending subscribers			9,749,100				9,850,741				9,026,837
Retail			(660,128	)			(278,374	)			192,560
OEM			545,424				1,075,088				1,154,100
Rental			13,063				27,190				51,625
Net additions			(101,641	)			823,904				1,398,285
Self-pay			9,040,022				9,095,579				8,188,282
Paid promotional			709,078				755,162				838,555
Ending subscribers			9,749,100				9,850,741				9,026,837
Self-pay			(55,557	)			907,297				1,120,258
Paid promotional			(46,084	)			(83,393	)			278,027
Net additions			(101,641	)			823,904				1,398,285
Daily weighted average number of subscribers			9,687,489				9,572,997				8,256,659

		Unaudited
		For the Years Ended December 31,
		2009				2008				2007
Average self-pay monthly churn (1)(7)			2.0	%			1.7	%			1.8	%
Conversion rate (2)(7)			47.6	%			50.7	%			52.7	%
ARPU (7)(21)		$	10.41			$	10.24			$	10.83
SAC, as adjusted, per gross subscriber addition (7)(22)		$	35			$	60			$	73
Customer service and billing expenses, as adjusted, per average subscriber (7)(23)		$	1.10			$	1.22			$	1.25
Total revenue		$	1,297,341			$	1,242,348			$	1,136,542
Free cash flow (7)(24)		$	219,368			$	(288,112	)		$	(286,245	)
Adjusted income (loss) from operations (25)		$	455,569			$	(18,727	)		$	(238,042	)
Net loss		$	(246,830	)		$	(6,760,643	)		$	(682,381	)

Subscribers. At December 31, 2009, we had 9,749,100 subscribers, a decrease of 101,641 subscribers, or 1%, from the 9,850,741 subscribers as of December 31, 2008. The decrease was principally the result of 46,084 fewer paid promotional trials due to the decline in North American auto sales and 55,557 fewer self-pay subscribers compared to December 31, 2008. Deactivation rates for self-pay subscriptions in the year increased to 2.0% per month reflecting reductions in consumer discretionary spending, subscriber response to our increase in prices for multi-subscription accounts, channel line-up changes in 2008, the institution of a monthly charge for our streaming service and the introduction of the U.S. Music Royalty Fee.

We ended 2008 with 9,850,741 subscribers, an increase of 823,904 subscribers, or 9%. Since December 31, 2007, 278,374 net retail subscribers deactivated and 1,075,088 net OEM subscribers activated, resulting in a decrease of 6% and an increase of 25% in retail and OEM subscribers, respectively. Gross additions in our OEM channel continued to grow as automakers continued to increase the portion of their vehicles which incorporates satellite radio.

ARPU. For the years ended December 31, 2009 and 2008, total ARPU was $10.41 and $10.24, respectively. The increase was driven by the revenue earned for “Best of” programming, increased rates on multi-subscription packages and internet subscriptions.

For the years ended December 31, 2008 and 2007, total ARPU was $10.24 and $10.83, respectively. The decrease was driven by an increase in the mix of discounted OEM promotional trials, subscriber win-back programs, second subscribers, the effects of purchase price accounting adjustments and subscriber growth exceeding the growth in advertising revenues.

We expect ARPU to fluctuate based on the growth of our subscriber base, promotions, rebates offered to subscribers and corresponding take-rates, plan mix, subscription prices, advertising sales and the identification of additional revenue from subscribers.

SAC, As Adjusted, Per Gross Subscriber Addition. For the years ended December 31, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $35 and $60, respectively. The decrease was primarily driven by the effect of purchase price accounting adjustments, lower aftermarket inventory charges, fewer OEM installations relative to gross subscriber additions and lower OEM subsidies.

For the years ended December 31, 2008 and 2007, SAC, as adjusted, per gross subscriber addition was $60 and $73, respectively. The decrease was primarily driven by the effect of purchase price accounting adjustments and improved equipment margin.

We expect SAC, as adjusted, per gross subscriber addition to decline as the costs of subsidized components of XM radios decrease in the future. Our SAC, as adjusted, per gross subscriber addition will continue to be impacted by changes in our mix of OEM and retail additions.

Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber. For the years ended December 31, 2009 and 2008, customer service and billing expenses, as adjusted, per weighted average subscriber was $1.10 and $1.22, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses.

For the years ended December 31, 2008 and 2007, Customer service and billing expenses, as adjusted, per average subscriber was $1.22 and $1.25, respectively. The decrease was primarily due to efficiencies across a larger subscriber base.

We expect customer service and billing expenses, as adjusted, per average subscriber to decrease on an annual basis as our subscriber base grows due to scale efficiencies in our call centers and other customer care and billing operations.

Adjusted Income (Loss) from Operations. For the years ended December 31, 2009 and 2008, our adjusted income from operations was $455,569 and ($18,727), respectively, an increase of $474,296. The increase was primarily driven by improvements in operating expense areas, excluding restructuring, impairments and related cost, depreciation and amortization, impairment of goodwill and share-based payment expense, totaling $419,303 and an increase in total revenue of $54,993.

For the years ended December 31, 2008 and 2007, adjusted income (loss) from operations was ($18,727) and ($238,042), respectively, a decrease of $219,315. The decrease was primarily driven by an increase in subscriber revenue of $107,506 as a result of a 9% increase in our subscriber base, a net benefit from the effect of purchase price accounting adjustments of $60,096 and improvements in subscriber acquisition costs and general and administrative expenses of $20,195 and $24,808, respectively.

Results of Operations

Set forth below are our actual results of operations for the three months ended December 31, 2009 and 2008 and three years ended December 31, 2009, 2008 and 2007. As a result of the consummation of the Merger, the financial results have been presented separately for “Predecessor Entity” period January 1, 2008 through July 31, 2008, and for the “Successor Entity” period August 31, 2008 through December 31, 2008. For comparative purposes, we combined the “Predecessor Entity” and “Successor Entity” periods in our discussions below, as we believe this combination is useful to provide the reader a more accurate comparison. This combination is not a GAAP measure and it is provided to enhance the reader’s understanding of the results of operations for the periods presented. See footnote 26 (page 56) for more details on this combination. See footnote 20 (pages 52 to 53) and footnote 25 (pages 54 to 55) for a reconciliation of net income (loss) to adjusted income (loss) from operations.

		Unaudited Actual
		For the Three Months Ended December 31,
(in thousands)		2009				2008
Revenue:
Subscriber revenue, including effects of rebates		$	307,365			$	289,424
Advertising revenue, net of agency fees			5,232				4,845
Equipment revenue			11,892				15,640
Other revenue			38,313				5,642
Total revenue			362,802				315,551
Operating expenses:
Satellite and transmission			13,498				17,394
Programming and content			22,505				29,575
Revenue share and royalties			44,358				52,593
Customer service and billing			32,551				35,948
Cost of equipment			4,126				7,279
Sales and marketing			43,782				47,153
Subscriber acquisition costs			40,871				37,383
General and administrative			21,807				28,107
Engineering, design and development			4,873				6,467
Impairment of goodwill			—				1,574,208
Depreciation and amortization			45,319				59,690
Restructuring, impairments and related costs			2,640				—
Total operating expenses			276,330				1,895,797
Income (loss) from operations			86,472				(1,580,246	)
Other income (expense)
Interest and investment income			789				(667	)
Interest expense, net of amounts capitalized			(62,910	)			(59,357	)
Gain (loss) on change in value of embedded derivatives			78,169				80,124
Loss on extinguishment of debt and credit facilities, net			(4,021	)			—
Loss on investments			(366	)			(22,673	)
Other income (expense)			897				(1,052	)
Total other income (expense)			12,558				(3,625	)
Income (loss) before income taxes			99,030				(1,583,871	)
Income tax expense			(729	)			(291	)
Net income (loss)			98,301				(1,584,162	)
Add: net loss attributable to noncontrolling interests			—				—
Net income (loss) — XM Satellite Radio Holdings Inc. and Subsidiaries		$	98,301			$	(1,584,162	)
Satellite and transmission		$	306			$	712
Programming and content			(758	)			1,191
Customer service and billing			324				499
Sales and marketing			(84	)			1,030
Subscriber acquisition costs			—				—
General and administrative			2,459				7,851
Engineering, design and development			909				1,080
Total share-based payment expense		$	3,156			$	12,363

Highlights for the Three Months Ended December 31, 2009. Our revenue grew 15%, or $47,251, in the three months ended December 31, 2009 compared to 2008. Subscriber revenue increased 6%, or $17,941, in the three months ended December 31, 2009 compared to 2008. The increase in subscriber revenue was driven by the sale of “Best of” programming and the rate increases to our multi-subscription and internet packages. Advertising revenue increased 8%, or $387, in the three months ended December 31, 2009 compared to 2008. Equipment revenue decreased 24%, or $3,748, in the three months ended December 31,

2009 compared to 2008. The decrease in equipment revenue was driven by a decrease in aftermarket manufacturing revenues and fewer component sales compared to the three months ended December 31, 2008. Other revenue increased 579%, or $32,671, in the three months ended December 31, 2009 compared to 2008. The increase in other revenue was driven by the U.S. Music Royalty Fee introduced in the third quarter of 2009. The overall increase in revenue, combined with a decrease of 10%, or $24,321, in adjusted operating costs (total operating expense excluding restructuring, impairments and related costs, depreciation and amortization, impairment of goodwill and share-based payment expense), resulted in improved adjusted income from operations of $137,587 in the three months ended December 31, 2009 compared to $66,015 in 2008.

Satellite and transmission costs decreased 22%, or $3,896, in the three months ended December 31, 2009 compared to 2008 due to reductions in maintenance costs and personnel costs. Programming and content costs decreased 24%, or $7,070, in the three months ended December 31, 2009 compared to 2008, due mainly to reductions in personnel and on-air talent costs as well as savings on content agreements. Revenue share and royalties decreased 16%, or $8,235, primarily due to decreases in our royalties due to certain automakers, partially offset by an increase in the statutory royalty rate for the performance of sound recordings. Customer service and billing costs decreased 9%, or $3,397, in the three months ended December 31, 2009 compared to 2008 primarily due to decreases in personnel costs and customer call center expenses. Cost of equipment decreased 43%, or $3,153, in the three months ended December 31, 2009 as a result of a decrease in inventory write-downs, fewer component sales, and lower average cost per units sold.

Sales and marketing costs decreased 7%, or $3,371, in the three months ended December 31, 2009 compared to 2008 due to reduced advertising and cooperative marketing spend, as well as reductions to personnel costs and third party distribution support expenses. Subscriber acquisition costs increased 9%, or $3,488, in the three months ended December 31, 2009 compared to 2008. This increase was driven by onetime aftermarket product related charges partially offset by fewer OEM installations relative to gross subscriber additions and lower OEM subsidies.

General and administrative costs decreased 22%, or $6,300, mainly due to the absence of certain legal and regulatory costs incurred in 2008 and lower personnel costs. Engineering, design and development costs decreased 25%, or $1,594, in the three months ended December 31, 2009 compared to 2008, due to lower costs associated with development, tooling and testing of radios as well as lower personnel costs.

Restructuring, impairments and related costs were $2,640 mainly due to charges related to compensation incurred as part of the Merger integration.

Other expenses decreased 446%, or $16,183, in the three months ended December 31, 2009 compared to 2008 driven mainly by a decrease of $22,307 in loss on investments, partially offset by an increase of $3,553 in interest expense and a decrease of $1,955 in gain on change in value of embedded derivative.

		Actual
		For the Years Ended December 31,
(in thousands)		2009				2008				2007
Revenue:
Subscriber revenue, including effects of rebates		$	1,191,403			$	1,143,327			$	1,033,776
Advertising revenue, net of agency fees			18,708				32,753				39,148
Equipment revenue			29,574				32,388				28,333
Other revenue			57,656				33,880				35,285
Total revenue			1,297,341				1,242,348				1,136,542
Operating expenses:
Satellite and transmission			50,450				76,418				81,036
Programming and content			106,858				164,777				183,900
Revenue share and royalties			187,355				257,738				256,344
Customer service and billing			128,719				142,714				126,776
Cost of equipment			16,175				32,312				62,003
Sales and marketing			128,347				202,158				269,930
Subscriber acquisition costs			124,395				238,948				259,143
General and administrative			113,497				163,766				188,574
Engineering, design and development			21,671				34,703				33,077
Impairment of goodwill			—				6,601,046				—
Depreciation and amortization			191,781				183,059				187,196
Restructuring, impairments and related costs			32,254				—				—
Total operating expenses			1,101,502				8,097,639				1,647,979
Income (loss) from operations			195,839				(6,855,291	)			(511,437	)
Other income (expense)
Interest and investment income			2,637				6,309				14,084
Interest expense, net of amounts capitalized			(289,845	)			(181,092	)			(116,605	)
Gain (loss) on change in value of embedded derivatives			(33,534	)			322,347				—
Loss on extinguishment of debt and credit facilities, net			(115,884	)			—				(3,693	)
Loss on investments			(7,026	)			(38,772	)			(56,156	)
Other income (expense)			3,446				(4,226	)			2,019
Total other (expense) income			(440,206	)			104,566				(160,351	)
Loss before income taxes			(244,367	)			(6,750,725	)			(671,788	)
Income tax (expense) benefit			(2,463	)			(2,475	)			939
Net loss			(246,830	)			(6,753,200	)			(670,849	)
Add: net loss attributable to noncontrolling interests			—				(7,443	)			(11,532	)
Net loss — XM Satellite Radio Holdings Inc. and Subsidiaries		$	(246,830	)		$	(6,760,643	)		$	(682,381	)

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008 and Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Total Revenue

Subscriber Revenue. Subscriber revenue includes subscription fees, activation and other fees and the effects of rebates.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, subscriber revenue was $1,191,403 and $1,143,327, respectively, an increase of 4%, or $48,076. The increase was attributable to the sale of “Best of” programming, increased internet and multi-subscription rates and higher average subscribers, offset partially by the effect from purchase price accounting adjustments.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, subscriber revenue was $1,143,327 and $1,033,776, respectively, an increase of 11%, or $109,551. The increase was attributable to the 9% growth of subscribers to our service in 2008.

The following table contains a breakdown of our subscriber revenue for the periods presented (in thousands):

		Successor Entity									Predecessor Entity
						August 1, 2008					January 1, 2008
		Year Ended				Through					Through				Year Ended
		December 31,				December 31,					July 31,				December 31,
		2009				2008					2008				2007
Subscription fees		$	1,188,195			$	472,800				$	659,775			$	1,016,720
Activation fees			3,488				319					11,855				19,354
Effect of rebates			(280	)			(662	)				(760	)			(2,298	)
Total subscriber revenue		$	1,191,403			$	472,457				$	670,870			$	1,033,776

Future subscriber revenue will be dependent upon, among other things, the growth of our subscriber base, promotions, rebates offered to subscribers and corresponding take-rates, plan mix, subscription prices and the identification of additional revenue streams from subscribers.

Advertising Revenue. Advertising revenue includes the sale of advertising on our non-music channels, net of agency fees. Agency fees are based on a contractual rate applied to gross billing revenue.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, net advertising revenue was $18,708 and $32,753, respectively, which represents a decrease of 43%, or $14,045. The decrease was driven by the current economic environment.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, net advertising revenue was $32,753 and $39,148, respectively, which represents a decrease of 16%, or $6,395. The decrease was driven by lower advertising spot sales compared to 2007.

Our advertising revenue is subject to fluctuation based on the national economic environment. We believe general economic conditions have negatively affected our advertising revenue in recent quarters. We expect advertising revenue to grow as our subscribers increase, as the economy improves and as we increase the size and effectiveness of our advertising sales force.

Equipment Revenue. Equipment revenue includes revenue and royalties from the sale of radios, components and accessories.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, equipment revenue was $29,574 and $32,388, respectively, a decrease of 9%, or $2,814. The decrease was primarily due to a decrease in the number of radios sold through our direct to consumer distribution channel and fewer component sales.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, equipment revenue was $32,388 and $28,333, respectively, an increase of 14%, or $4,055. The increase was primarily due to an increase in royalties partially offset by a decrease in the number of radios sold through our direct to consumer distribution channel.

We expect equipment revenue to increase as we introduce new products and as sales grow through our direct to consumer distribution channel.

Other Revenue. Other revenue consists primarily of U.S. Music Royalty Fees, revenue related to various agreements with XM Canada, as well as other miscellaneous revenue that includes content licensing fees, technology licensing fees and billing fees.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, other revenue was $57,656 and $33,880, respectively, an increase of 70%, or $23,776. The increase was primarily due to the U.S. Music Royalty Fee introduced in the third quarter of 2009.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, other revenue was $33,880 and $35,285, respectively, a decrease of 4%, or $1,405.

Future other revenue will be dependent upon, among other things, the growth of subscriber base, new content and technology agreements and the development of other sources of revenue.

Operating Expenses

Satellite and Transmission. Satellite and transmission expenses consist of costs associated with the operation and maintenance of our satellites; satellite telemetry, tracking and control system; terrestrial repeater network; satellite uplink facility; and broadcast studios.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, satellite and transmission expenses were $50,450 and $76,418, respectively, a decrease of 34%, or $25,968. The decrease was primarily due to lower maintenance and repeater network expenses as well as lower personnel costs.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, satellite and transmission expenses were $76,418 and $81,036, respectively, a decrease of 6%, or $4,618. As of December 31, 2008 and 2007, we had over 700 terrestrial repeaters in operation. Satellite and transmission expense decreased compared to December 31, 2007 primarily as a result of decreased terrestrial repeater network costs.

We expect satellite and transmission expenses, excluding share-based payment expense, to increase as we add to our in-orbit satellite fleet.

Programming and Content. Programming and content expenses include costs to acquire, create and produce content and on-air talent costs. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees, share advertising revenue, purchase advertising on media properties owned or controlled by the licensor and pay other guaranteed amounts. Purchased advertising is recorded as a sales and marketing expense and the cost of sharing advertising revenue is recorded as revenue share and royalties in the period the advertising is broadcast.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, programming and content expenses were $106,858 and $164,777, respectively, a decrease of 35%, or $57,919. The decrease was primarily attributable to the lower costs recognized subsequent to the Merger due to the impact of purchase price accounting adjustments, reductions in personnel and on-air talent costs, as well as savings on various content agreements.

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2008 vs. 2007:For the years ended December 31, 2008 and 2007, programming and content expenses were $164,777 and $183,900, respectively, a decrease of 10%, or $19,123. The decrease was primarily attributable to the lower costs recognized subsequent to the Merger due to the impact of purchase price accounting adjustments.

Our programming and content expenses, excluding share-based payment expenses, are expected to decrease as a result of the Merger, as we reduce duplicate programming and content costs.

Revenue Share and Royalties. Revenue share and royalties include distribution and content provider revenue share, residuals and broadcast and web streaming royalties. Residuals are monthly fees paid based upon the number of subscribers using radios purchased from retailers. Advertising revenue share is recorded to revenue share and royalties in the period the advertising is broadcast.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, revenue share and royalties were $187,355 and $257,738, respectively, a decrease of 27% or $70,383. This decrease was primarily attributable to the effect of purchase price accounting, offset by an increase in our revenues and an increase in the statutory royalty rate due for the performance of sound recordings.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, revenue share and royalties were $257,738 and $256,344, respectively, an increase of 1%, or $1,394. This increase was primarily attributable to the determination of the royalty rate under the statutory license covering the performance of sound recordings by the Copyright Royalty Board; and a 11% growth in our subscription revenue.

We expect these costs to increase as our revenues grow, as we expand our distribution of radios through automakers and retailers, and as a result of increases in the royalty for the performance of sound recordings.

Customer Service and Billing. Customer service and billing expenses include costs associated with the operation of third party customer service centers and our subscriber management system as well as bad debt expense.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, customer service and billing expenses were $128,719 and $142,714, respectively, a decrease of 10%, or $13,995. The decrease was primarily due to decreases in personnel costs and customer call center expenses.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, customer service and billing expenses were $142,714 and $126,776, respectively, an increase of 13%, or $15,938. This increase was primarily due to higher call center operating costs necessary to accommodate the increase in our subscriber base and higher total transaction fees on the larger customer base.

We expect our customer care and billing expenses to decrease on a per subscriber basis, but increase overall as our subscriber base grows due to increased call center operating costs, transaction fees and bad debt expense.

Cost of Equipment. Cost of equipment includes costs from the sale of our radios, components and accessories.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, cost of equipment was $16,175 and $32,312, respectively, a decrease of 50%, or $16,137. The decrease was primarily attributed to fewer radios sold through our direct to consumer distribution channel, lower inventory related charges for obsolescence, and lower component sales.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, cost of equipment was $32,312 and $62,003, respectively, a decrease of 48%, or $29,691. The decrease was primarily attributed to fewer radios sold through our direct to consumer distribution channel and lower inventory related charges for obsolescence.

We expect cost of equipment to vary in the future with changes in sales through our direct to consumer distribution channel.

Sales and Marketing. Sales and marketing expenses include costs for advertising, media and production, including promotional events and sponsorships; cooperative marketing; customer retention and compensation. Cooperative marketing costs include fixed and variable payments to reimburse retailers and automakers for the cost of advertising and other product awareness activities.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, sales and marketing expenses were $128,347 and $202,158, respectively, a decrease of 37%, or $73,811. This decrease was primarily attributable to lower consumer advertising, reduced cooperative marketing spend with our distributors, reduced personnel costs and the effect of purchase price accounting.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, sales and marketing expenses were $202,158 and $269,930, respectively, a decrease of 25%, or $67,772. This decrease was primarily attributable to lower consumer advertising and reduced cooperative marketing spend with our distributors.

We expect sales and marketing expenses, excluding share-based payment expense, to decrease as we consolidate our advertising and promotional activities with SIRIUS, gain efficiencies in marketing management and eliminate overlapping distribution support costs.

Subscriber Acquisition Costs. Subscriber acquisition costs include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include our radio and a prepaid subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain radios; commissions paid to retailers and automakers as incentives to purchase, install and activate our radios; product warranty obligations; and compensation costs associated with stock-based awards granted in connection with certain distribution agreements. The majority of subscriber acquisition costs are incurred and expensed in advance or concurrent with acquiring a subscriber. Subscriber acquisition costs do not include advertising, loyalty payments to distributors and dealers of our radios and revenue share payments to automakers and retailers of our radios.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, subscriber acquisition costs were $124,395 and $238,948, respectively, a decrease of 48%, or $114,553. This decrease was primarily driven by purchase price accounting adjustments associated with the Merger, lower aftermarket inventory charges, lower retail and OEM subsidies due to better product economics and fewer OEM installations due to the weakening automotive market.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, subscriber acquisition costs were $238,948 and $259,143, respectively, a decrease of 8%, or $20,195. This decrease was primarily driven by purchase price accounting adjustments associated with the Merger, along with lower retail and OEM subsidies due to better product economics.

We expect total subscriber acquisition costs to fluctuate as increases or decreases in our gross subscriber additions are accompanied by continuing declines in the costs of subsidized components of our radios. We intend to continue to offer subsidies, commissions and other incentives to acquire subscribers.

General and Administrative. General and administrative expenses include rent and occupancy, finance, legal, human resources, information technology and investor relations costs.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, general and administrative expenses were $113,497 and $163,766, respectively, a decrease of 31%, or $50,269. This decrease was the result of lower costs for certain Merger, litigation and regulatory matters.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, general and administrative expenses were $163,766 and $188,574, respectively, a decrease of 13% or $24,808. This decrease was the result of increased costs in 2007, including increased compensation costs and increased legal fees associated with regulatory inquiries.

We expect total general and administrative expenses, excluding share-based payment expense, to decrease in future periods as we gain efficiencies in staff, facilities, and information technology costs.

Engineering, Design and Development. Engineering, design and development expenses include costs to develop our future generation of chip sets and new products, research and development for broadcast information systems and costs associated with the incorporation of radios into vehicles manufactured by automakers.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, engineering, design and development expenses were $21,671 and $34,703, respectively, a decrease of 38%, or $13,032. This decrease was primarily attributable to reduced development, tooling and testing of radios as well as lower personnel costs.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, engineering, design and development expenses were $34,703 and $33,077, respectively, an increase of 5%, or $1,626. This increase was primarily attributable to increased OEM and product development costs.

We expect engineering, design and development expenses, excluding share-based payment expense, to increase in future periods as we increase development of our next generation chip sets.

Other Income (Expense)

Interest and Investment Income. Interest and investment income includes realized gains and losses, dividends and interest income, including amortization of the premium and discount arising at purchase.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, interest and investment income was $2,637 and $6,309, respectively, a decrease of 58%, or $3,672. The decrease was primarily attributable to a lower average cash balance and lower interest rates in 2009.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, interest and investment income was $6,309 and $14,084, respectively, a decrease of 55%, or $7,775. The decrease was primarily attributable to lower interest rates in 2008 and a lower cash balance.

Interest Expense. Interest expense includes interest on outstanding debt, reduced by interest capitalized in connection with the construction of our new satellite and launch vehicle.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, interest expense was $289,845 and $181,092, respectively, an increase of 60%, or $108,753. Interest expense increased significantly due to the additional debt issuances in July and August 2008 as a result of the Merger, the financing transactions in February and March 2009, and the impact of the purchase price adjustments which set the existing debt at fair value and caused interest expense to increase.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, interest expense was $181,092 and $116,605, respectively, an increase of 55%, or $64,487. Interest expense increased significantly due to the additional debt issuances in July and August 2008 as a result of the Merger, as well as the impact of the purchase price adjustments which set the existing debt at fair value and caused interest expense to increase. The increase in our interest expense was partially offset by the capitalized interest associated with satellite construction and the related launch vehicle.

We expect interest expense to increase as a result of changes in the GAAP recognition and reporting requirements for share lending arrangements which were adopted as of January 1, 2010. EITF No. 09-1 will require us to recognize an aggregate increase of $257,000 in deferred financing costs associated with our 7% Exchangeable Senior Subordinated Notes due 2014, which will be amortized to interest expense over the six year life of the notes under the effective interest method.

Gain (loss) on change in value of embedded derivative. We are required to account for the conversion feature of our exchangeable debt, which is exchangeable into SIRIUS common stock, separately and recognize the changes in the fair value of these embedded derivatives in earnings. The fair value of the derivative will be impacted by the value of the underlying SIRIUS common shares.

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2009 vs. 2008: For the year ended December 31, 2009, we recorded a loss on change in value of embedded derivative of $33,534, and for the year ended December 31, 2008, we recorded a gain on change in value of embedded derivative of $322,347. As a result of the Merger, we recorded derivative liabilities reflecting the fair value of the embedded derivative as of the Merger date. Subsequent to July 28, 2008, the SIRIUS stock price decreased significantly resulting in a decreased fair value and a gain on the change in value of the derivative. During the year ended December 31, 2009, the SIRIUS stock price increased resulting in an increased fair value and a loss on the change in value of the derivative.

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2008 vs. 2007: For the year ended December 31, 2008, we recorded a gain on change in value of embedded derivative of $322,347. As a result of the Merger, we recorded derivative liabilities reflecting the fair value of the embedded derivative as of the Merger date. Subsequent to July 28, 2008, the SIRIUS stock price decreased significantly resulting in a decreased fair value and a gain on the change in value of the derivative.

Loss on extinguishment of debt and credit facilities, net. Loss on extinguishment of debt and credit facilities, net includes losses incurred as a result of the conversion of certain of our debt instruments.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, Loss on extinguishment of debt and credit facilities, net was $115,884 and $0, respectively.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, Loss on extinguishment of debt and credit facilities, net was $0 and $3,693, respectively.

Gain (loss) on investments. Gain (loss) on investments includes our share of XM Canada’s net losses and losses recorded from our investment in XM Canada when the decrease in fair value was determined to be other than temporary.

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2009 vs. 2008: For the years ended December 31, 2009 and 2008, loss on investments was $7,026 and $38,772, respectively, a decrease of 82%, or $31,746. The decrease was primarily attributable to the inclusion of our share of XM Canada’s net income for the year ended December 31, 2009, net of impairments versus our share of XM Canada’s net loss for the year ended December 31, 2008, net of impairments.

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2008 vs. 2007: For the years ended December 31, 2008 and 2007, loss on investments was $38,772 and $56,156, respectively, a decrease of 31%, or $17,384.