EX-99.3

Exhibit 99.3

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except share and per share data)	2008			2007			2008			2007
Revenue:
Subscription	$	284,136		$	245,778		$	559,862		$	482,264
Activation		5,044			4,766			10,188			9,419
Merchandise		7,491			5,658			11,812			10,955
Net ad sales		10,432			10,153			19,550			17,631
Other		10,932			10,921			25,078			21,118

Total revenue		318,035			277,276			626,490			541,387

Operating expenses:
Cost of revenue (excludes depreciation & amortization, shown below):
Revenue share & royalties		73,586			49,723			142,408			97,149
Customer care & billing operations(1)		36,388			30,749			70,698			58,677
Cost of merchandise		9,055			12,694			17,606			30,970
Ad sales(1)		4,879			5,480			9,583			8,866
Satellite & terrestrial(1)		13,472			13,472			26,653			27,354
Broadcast & operations:
Broadcast(1)		6,308			6,885			13,269			13,429
Operations(1)		11,026			9,683			21,516			19,399

Total broadcast & operations		17,334			16,568			34,785			32,828
Programming & content(1)		49,604			41,827			101,166			85,779

Total cost of revenue		204,318			170,513			402,899			341,623
Research & development (excludes depreciation & amortization, shown below)(1)		9,414			8,159			20,435			15,469
General & administrative (excludes depreciation & amortization, shown below)(1)		30,989			35,869			61,719			70,053
Marketing (excludes depreciation & amortization, shown below):
Retention & support(1)		11,032			10,618			22,829			20,374
Subsidies & distribution		69,193			63,855			140,717			107,457
Advertising & marketing		36,865			43,244			63,367			76,053

Marketing		117,090			117,717			226,913			203,884
Amortization of GM liability		6,504			6,504			13,007			13,008

Total marketing		123,594			124,221			239,920			216,892
Depreciation & amortization		32,438			46,506			77,921			93,387

Total operating expenses(1)		400,753			385,268			802,894			737,424

Operating loss		(82,718	)		(107,992	)		(176,404	)		(196,037	)

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS—(Continued)


	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except share and per share data)	2008			2007			2008			2007
Other income (expense):
Interest income		743			4,238			2,419			7,781
Interest expense		(30,480	)		(32,423	)		(59,807	)		(60,032	)
Loss from de-leveraging transactions		—			—			—			(2,965	)
Loss from impairment of investments		—			(35,824	)		—			(35,824	)
Equity in net loss of affiliate		(4,373	)		(2,752	)		(8,550	)		(8,177	)
Minority interest		(3,153	)		(3,266	)		(6,390	)		(4,962	)
Other income		1,082			413			895			856

Net loss before income taxes		(118,899	)		(177,606	)		(247,837	)		(299,360	)
(Provision for) benefit from deferred income taxes		(673	)		1,859			(1,004	)		1,175

Net loss	$	(119,572	)	$	(175,747	)	$	(248,841	)	$	(298,185	)

Net loss per common share—basic and diluted	$	(0.38	)	$	(0.57	)	$	(0.80	)	$	(0.97	)
Weighted average shares used in computing net loss per common share—basic and diluted		310,886,180			306,425,375			310,283,700			306,154,565


(1)		These captions include non-cash share-based payment expense as follows:


	Three months ended				Six months ended
	June 30,				June 30,
(in thousands)	2008		2007		2008		2007
Customer care & billing operations	$	752	$	497	$	1,641	$	937
Ad sales		436		460		1,044		816
Satellite & terrestrial		447		491		1,089		1,010
Broadcast		558		606		1,351		1,206
Operations		359		351		829		729
Programming & content		1,820		2,061		4,363		4,227
Research & development		1,702		1,716		4,164		3,442
General & administrative		4,686		5,829		10,737		11,878
Retention & support		2,187		2,069		5,233		3,966

Total share-based payment expense	$	12,947	$	14,080	$	30,451	$	28,211

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
(in thousands, except share and per share data)	2008		2007
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	183,853	$	156,686
Accounts receivable, net of allowance for doubtful accounts of $7,300 and $5,870		44,711		63,617
Due from related parties		16,356		18,028
Related party prepaid expenses		86,641		80,610
Prepaid programming content		54,900		28,262
Prepaid and other current assets		40,817		39,135

Total current assets		427,278		386,338
Escrow deposit		120,000		—
System under construction		166,786		151,142
Property and equipment, net of accumulated depreciation and amortization of $1,029,100 and $952,751		660,274		710,370
DARS license		141,412		141,412
Intangibles, net of accumulated amortization of $10,112 and $9,483		2,750		3,379
Deferred financing fees, net of accumulated amortization of $31,769 and $27,766		30,587		34,590
Due from related party, net of current portion		6,390		3,554
Related party prepaid expenses, net of current portion		127,106		137,586
Investments		37,192		36,981
Prepaid and other assets, net of current portion		4,111		3,878

Total assets	$	1,723,886	$	1,609,230

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	51,677	$	55,010
Accrued expenses		167,647		216,114
Accrued interest		15,907		16,827
Current portion of long-term debt		359,672		9,153
Due to related parties		68,161		65,746
Subscriber deferred revenue		437,605		416,361
Deferred income		9,993		9,915

Total current liabilities		1,110,662		789,126
Long-term debt, net of current portion		1,480,226		1,480,639
Subscriber deferred revenue, net of current portion		109,772		98,565
Deferred income, net of current portion		122,999		124,888
Other non-current liabilities		44,499		40,569

Total liabilities		2,868,158		2,533,787

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended
	June 30,
(in thousands)	2008			2007
Cash flows from operating activities:
Net loss	$	(248,841	)	$	(298,185	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts		7,476			7,516
Depreciation and amortization		77,921			93,387
Amortization of deferred income related to XM Canada		(4,996	)		(4,996	)
Loss on impairment of investments		—			35,824
Loss from de-leveraging transactions		—			2,965
Equity in net loss of affiliate		8,550			8,177
Amortization of deferred financing fees and debt discount		5,278			5,021
Share-based payment expense		30,451			28,211
(Provision for) benefit from deferred income taxes		1,004			(1,175	)
Minority interest		6,390			4,962
Other		(30	)		(39	)
Changes in operating assets and liabilities:
Decrease in accounts receivable		11,452			10,927
(Increase) decrease in due from related parties		(1,164	)		2,277
Increase in prepaid programming content		(26,638	)		(31,059	)
Decrease (increase) in prepaid and other assets		11,989			(1,964	)
Increase in escrow deposit		(120,000	)		—
(Decrease) increase in accounts payable, accrued expenses and other liabilities		(30,988	)		7,364
(Decrease) increase in accrued interest		(920	)		267
Increase in due to related parties		2,415			6,503
Increase in subscriber deferred revenue		32,451			51,954
Increase in deferred income		3,186			1,893

Net cash used in operating activities		(235,014	)		(70,170	)

Cash flows from investing activities:
Purchase of property and equipment		(20,624	)		(33,811	)
Additions to system under construction		(6,823	)		(78,596	)
Purchase of available-for-sale securities		(9,450	)		—
Net maturity of restricted investments		25			1,901

Net cash used in investing activities		(36,872	)		(110,506	)

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Nature of Business

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

As of June 30, 2008, the principal differences between the financial conditions of Holdings and Inc. were:

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

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

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

	•		the investments by Holdings in Canadian Satellite Radio (“XM Canada”) (including related revenue and deferred income) and WorldSpace, Inc.; and

	•		the existence of cash balances at Holdings.

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

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

	•		less interest expense principally related to the additional indebtedness at Holdings;

	•		less revenue associated with the amortization of deferred income and equity in losses from Holdings’ investment in Canadian Satellite Radio;

	•		no gains or losses on Holdings’ investments in Canadian Satellite Radio or WorldSpace, Inc.; and

	•		less interest income because of additional cash balances at Holdings.

Proposed Merger

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

Each of XM and Sirius has made customary representations and warranties and covenants in the Merger Agreement. The completion of the Merger is subject to various closing conditions, including receiving certain regulatory approvals. In March 2008, XM and Sirius announced that the U.S. Department of Justice had informed the companies that it had ended its investigation into the pending merger of XM and Sirius without taking action to block the transaction. The merger is still subject to approval by the Federal Communications Commission.

(2) Summary of Significant Accounting Policies and Practices

Principles of Consolidation and Basis of Presentation

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

The accompanying Condensed Consolidated Balance Sheet as of December 31, 2007, which has been derived from audited financial statements, and the interim unaudited Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America and Regulation S-X, Rule 10-01 of the United States Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these interim unaudited Condensed Consolidated Financial Statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on February 28, 2008, as amended by Amendment No. 1 on Form 10-K/A, which was filed with the SEC on April 29, 2008. All adjustments that, in the opinion of management, are necessary for a fair presentation of the periods presented have been reflected as required by Regulation S-X, Rule 10-01.

Inventory

Inventories are stated at the lower of average cost or market. The Company provides estimated inventory allowances for excess, slow moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value. Inventories consist of both finished goods and component parts. The Company had $7.1 million and $11.3 million of net inventory as of June 30, 2008 and December 31, 2007, respectively, which amounts are included in Prepaid and other current assets on the Condensed Consolidated Balance Sheets.

During the three and six months ended June 30, 2008, the Company recorded total inventory write-down charges of $0.5 million and $3.3 million, respectively; while for the comparable periods in 2007, the Company recorded total inventory write-down charges of $2.1 million and $6.9 million, respectively. These charges are reflected in Cost of merchandise in the unaudited Condensed Consolidated Statements of Operations.

Investments

Available-for-Sale Securities—Investments in securities classified as available-for-sale securities are carried at fair value. Unrealized gains and losses, net of tax, are recorded as a component of Accumulated other comprehensive income in Stockholders’ deficit in the Condensed Consolidated Balance Sheets.

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

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

The Company adopted the provisions of SFAS No. 157 on January 1, 2008 as it applies to financial assets and liabilities. SFAS No. 157 establishes a fair value hierarchy for input into valuation techniques as follows: i) Level 1 input—quoted prices in active markets for identical instrument; ii) Level 2 input—observable market data for same or similar instrument but not Level 1; and iii) Level 3 input—unobservable inputs developed using the best information available. XM uses Level 1 inputs to fair value its investments in shares of Class A common stock of WorldSpace, Inc. (“WSI”). XM uses Level 3 inputs to fair value its investments in auction rate certificates (“ARCs”) issued by student loan trusts and 8% convertible unsecured subordinated debentures issued by XM Canada. These investments are not material to the Company’s condensed consolidated results of operations or financial position.

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

Escrow Deposit

During May 2008, the Company deposited $120.0 million into an escrow account pursuant to an agreement with Major League Baseball^® (“MLB”) for general credit support. The deposit requirement is diminished in the last two seasons of the original contract. The deposit was recorded to Escrow Deposit in the Condensed Consolidated Balance Sheets and is in satisfaction of a minimum credit support requirement.

Property and Equipment

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


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

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

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

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

Net Loss per Common Share

The Company computes net loss per common share in accordance with SFAS No. 128, Earnings Per Share and SEC Staff Accounting Bulletin (“SAB”) No. 98, Computations of Earnings Per Share. Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per common share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and dilutive equivalent shares outstanding during the period. Options, warrants and convertible instruments outstanding as of June 30, 2008 to purchase 49.4 million shares of common stock (47.7 million of which were vested) were not included in the computation of diluted net loss per common share for the three and six months ended June 30, 2008 as their inclusion would have been anti-dilutive. Options, warrants and convertible instruments outstanding as of June 30, 2007 to purchase 50.3 million shares of common stock (47.0 million of which were vested) were not included in the computation of diluted net loss per common share for the three and six months ended June 30, 2007 as their inclusion would have been anti-dilutive. Unvested shares of restricted stock in the amount of 7.3 million and 7.4 million as of June 30, 2008 and 2007, respectively, are not included in the computation of basic net loss per common share or in diluted net loss per common share because their inclusion would have been anti-dilutive. The Company had a net loss in each of the periods presented, and therefore, basic and diluted net loss per common share are the same.

Comprehensive Income or Loss

Accumulated other comprehensive income or loss is reported on the Condensed Consolidated Balance Sheets. Unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments are included in other comprehensive income or loss (see Note 4, under the headings “WorldSpace”, “Canadian Satellite Radio” and “Auction Rate Certificates”). However, in the event that an unrealized loss is deemed other than temporary, the loss is recognized in earnings. The components of Comprehensive income or loss for the three and six months ended June 30, 2008 and 2007 are as follows (in thousands):


	Three months ended						Six months ended
	June 30,						June 30,
	2008			2007			2008			2007
Net loss	$	(119,572	)	$	(175,747	)	$	(248,841	)	$	(298,185	)
Unrealized gain (loss) on available-for-sale securities, net of tax		(412	)		1,201			(334	)		1,201
Reclassification adjustment for unrealized loss on available-for-sale securities, net of tax		—			—			—			125
Foreign currency translation adjustment, net of tax		(243	)		3,893			57			3,723

Total comprehensive loss	$	(120,227	)	$	(170,653	)	$	(249,118	)	$	(293,136	)

Unrealized loss on available-for-sale securities for the three and six months ended June 30, 2008 is shown net of $0.1 million tax provision; while for the comparative periods in 2007, unrealized gain on available-for-sale securities is shown net of tax provision of $0.8 million. The Company did not record a tax benefit for the unrealized loss on available-for-sale securities related to its investment in ARCs for the three and six months ended June 30, 2008. The Company did not record a tax provision for the reclassification adjustment for unrealized loss on available-for-sale securities for the six months ended June 30, 2007. Foreign currency translation adjustment for the three and six months ended June 30, 2008 is shown net of tax benefit of $0.2 million and immaterial tax provision, respectively; while for the comparable periods in 2007, foreign currency translation adjustment is shown net of tax provision of $2.4 million and $2.3 million, respectively.

Recent Accounting Pronouncements

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

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—An amendment of FASB Statement No. 133, which requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption permitted. The Company will adopt this Statement effective January 1, 2009. Based on the Company’s current evaluation of this Statement, the Company does not expect the adoption of SFAS No. 161 to have a significant impact on its consolidated results of operations or financial position.

In December 2007, the FASB ratified EITF No. 07-1, Accounting for Collaborative Agreements, which provides guidance on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure requirements. This Issue is effective for the first annual or interim reporting period beginning after December 15, 2008, and should be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. The Company will adopt the provisions of EITF No. 07-1 effective January 1, 2009. The Company is currently evaluating the impact, if any, that the adoption of EITF No. 07-1 will have on its consolidated results of operations and financial position.

(3) Property and Equipment

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


	June 30,			December 31,
	2008			2007
Spacecraft system	$	903,210		$	903,210
Terrestrial repeater network		265,155			264,664
Spacecraft control and uplink facilities		50,054			48,172
Broadcast facilities		67,717			66,316
Land		8,788			8,788
Buildings and improvements		75,018			74,521
Computer systems, furniture and fixtures, and equipment		319,432			297,450

Total property and equipment		1,689,374			1,663,121
Accumulated depreciation and amortization		(1,029,100	)		(952,751	)

Property and equipment, net	$	660,274		$	710,370

(4) Investments

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


	June 30,		December 31,
	2008		2007
Equity method investment	$	21,771	$	30,144
Available-for-sale securities		14,608		5,399
Embedded derivative accounted for separately from the host contract		813		1,438

Total investments	$	37,192	$	36,981

Equity Method Investment and Available-for-Sale Debt Securities

Canadian Satellite Radio (“XM Canada”)

In December 2005, XM Canada, a related party, issued to XM 11,077,500 Class A subordinate voting shares representing a 23.33% ownership interest and 11% voting interest in XM Canada. These shares were determined to have an initial fair value of $149.4 million, based on the XM Canada initial public offering price of C$16.00 per share. XM accounts for its ownership in XM Canada using the equity method of accounting.

XM Canada has a fiscal year end of August 31. XM records its share of XM Canada’s net income or loss, using the average currency exchange rate for the period, based on XM Canada’s quarterly periods ending on the last day of February, May, August and November. During the three and six months ended June 30, 2008, XM recorded a currency translation loss of $0.3 million (net of $0.2 million tax benefit) and currency translation gain of $0.1 million (net of immaterial tax provision), respectively, as a component of Accumulated other comprehensive income in Stockholders’ deficit in the Condensed Consolidated Balance Sheets. During the three and six months ended June 30, 2007, XM recorded a currency translation gain of approximately $3.9 million (net of $2.4 million tax provision) and $3.7 million (net of $2.3 million tax provision), respectively, as a component of Accumulated other comprehensive income in Stockholders’ deficit in the Condensed Consolidated Balance Sheets.

During June 2007 and December 2006, the Company reduced the carrying value of its equity method investment in XM Canada due to decreases in fair value that were considered to be other than temporary and recorded impairment charges of $35.8 million and $57.6 million, respectively. XM Canada’s shares trade publicly on the Toronto Stock Exchange under the symbol “XSR.TO”. The fair value of the Company’s equity method investment in XM Canada is determined based on XM Canada’s quoted share price on the date of the most recent financial statements, which precedes the Company’s by one month. The quoted market price on May 31, 2008 (the date of XM Canada’s most recent financial statements) was C$4.20, or US$4.23. Based on the number of shares held by the Company, the fair value of the Company’s equity method investment in XM Canada was $46.9 million on June 30, 2008. The carrying value of the Company’s equity method investment in XM Canada was $21.8 million and $30.1 million at June 30, 2008 and December 31, 2007, respectively.

During September 2007, the Company purchased C$4.0 million face value 8% convertible unsecured subordinated debentures issued by XM Canada for $3.9 million. The notes mature in 2014 and are convertible into shares of Class A subordinate voting shares of XM Canada at a price of C$5.92 per share. The embedded conversion feature is required under SFAS No. 133 to be bifurcated from the underlying debt, or host contract, and accounted for as a derivative at fair value with changes in fair value recorded in earnings as Interest income. The host contract is held as an available-for-sale security at fair value with changes in fair value recorded in Accumulated other comprehensive income, net of tax. The host contract and derivative were initially recorded at $2.4 million and $1.5 million, respectively. Foreign currency translation adjustments related to the host contract and derivative are recorded in Accumulated other comprehensive income, net of tax and Other income (expense), respectively. The change in fair value of the host contract and related foreign currency translation adjustment were not material for the three and six months ended June 30, 2008. For the three and six months ended June 30, 2008, the Company recorded reductions to Interest income of $0.4 million and $0.6 million (net of immaterial tax benefit), respectively, related to the derivative. As of June 30, 2008, the fair value of the host contract and derivative was $2.8 million and $0.8 million, respectively.

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


	May 31,		November 30,
	2008		2007
Current assets	$	43,935	$	51,959
Non-current assets		225,511		240,873
Current liabilities		43,997		38,969
Non-current liabilities		121,024		116,855
Total shareholders’ equity		104,425		137,008


	Three months ended		Three months ended		Six months ended		Six months ended
	May 31, 2008		May 31, 2007		May 31, 2008		May 31, 2007
Revenues	$	10,310	$	5,076	$	19,575	$	9,253
Net loss		18,742		11,794		36,644		35,046
XM’s share of net loss		4,373		2,752		8,550		8,177

Cost Method Investment and Available-for-Sale Equity Securities

WorldSpace

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

During June 2006 and December 2007, the Company reduced the carrying values of its investment in WSI common stock due to decreases in fair values that were considered to be other than temporary and recorded impairment charges of $7.3 million and $3.4 million, respectively. During June 2006 and September 2007, the Company reduced the carrying value of its investment in the warrant due to decreases in fair values that were considered to be other than temporary and recorded impairment charges of $11.6 million and $0.5 million, respectively. The warrant expired unexercised on July 18, 2008. WorldSpace’s shares trade publicly on the NASDAQ Stock Exchange under the symbol “WRSP”. The quoted market price on June 30, 2008 was $1.87. Based on the number of shares held by the Company, the fair value of the Company’s investment in WSI common stock was $2.9 million on June 30, 2008. As of June 30, 2008 and December 31, 2007, the cost basis of the Company’s investment in WSI common stock was $2.6 million.

Auction Rate Certificates

In October 2007, the Company purchased $9.5 million of ARCs issued by student loan trusts. ARCs are long-term securities structured to frequently reset their coupon by means of an auction. During the first quarter 2008, the auction market for these securities effectively failed due to the lack of bids. These ARCs are held as available for sale securities at fair value with changes in fair value recorded in Accumulated other comprehensive income in Stockholders’ Deficit in the Condensed Consolidated Balance Sheets. As of June 30, 2008, the carrying value of these securities was $8.9 million.

(5) Deferred Financing Fees

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


	June 30,			December 31,
	2008			2007
10% senior secured discount convertible notes due 2009	$	1,432		$	1,432
9.75% senior notes due 2014		16,091			16,091
Senior floating rate notes due 2013		5,354			5,354
1.75% convertible senior notes due 2009		10,066			10,066
Valuation of warrants issued to related party in conjunction with credit facilities		25,151			25,151
Debt of consolidated variable interest entity		4,262			4,262

Total deferred financing fees		62,356			62,356
Accumulated amortization		(31,769	)		(27,766	)

Deferred financing fees, net	$	30,587		$	34,590

Included in Prepaid and other current assets are net deferred financing fees in the amount of $9.9 million and $0 as of June 30, 2008 and December 31, 2007. These deferred financing fees relate to the Company’s senior secured revolving credit facility (see Note 6, under the heading “Senior Secured Revolving Credit Facility”) and senior secured term loan (see Note 6, under the heading “Senior Secured Term Loan”) and are classified as a current asset due to the short-term nature of the underlying debt.

(6) Debt

Certain of the Company’s debt instruments and credit facilities contain covenants that include restrictions on indebtedness, mergers, limitations on liens, limitations on dividends, liquidations and sale and leaseback transactions, and also require the maintenance of certain financial ratios. The Company was in compliance with all of its covenants as of June 30, 2008. The Company’s debt instruments and credit facilities permit the debt issued thereunder to be accelerated upon certain events, including the failure to pay principal when due under any of the Company’s other debt instruments or credit facilities subject to materiality thresholds.

The Company has agreed with the holders of its $400 million aggregate principal amount of 1.75% convertible senior notes due 2009 to increase the interest rate to 10% per annum, with such increased interest rate to be given effect, subject to completion of the Company’s proposed merger with Sirius, as of July 2, 2008. The noteholders that are party to the agreement have agreed not to assert any claim that the merger constitutes a “Fundamental Change” under the existing indenture, which, if any, would require an offer be made by the Company to repurchase the existing notes at par within a specified period following the merger.

In addition, the holders of a majority in aggregate principal amount of Inc.’s outstanding 9.75% senior notes due 2014 (“9.75% Notes”) have agreed to waive the change of control repurchase obligation of Inc. arising under the terms of the notes with respect to the consummation of the merger with Sirius. This waiver is effective as to all holders of the 9.75% Notes. The waiver also provides that Inc. will commence an offer to exchange the 9.75% Notes for a combination of (i) at least $400 million of cash and (ii) up to $200 million aggregate principal amount of a new series of senior notes to be issued by Inc. (the “Exchange Notes”). The waiver is subject to the consummation of the merger and if the merger and the satisfaction of specified conditions have not occurred by August 31, 2008, the waiver will cease to be effective.

The Exchange Notes will mature in 2014, or 2013 in certain circumstances. The yield to maturity on the Exchange Notes (calculated solely on the basis of interest rate on the Exchange Notes and the price at which they are offered in exchange for 9.75% Notes) will be calculated on the basis of the selling price of and interest rate on certain other senior notes expected to be issued by Inc. in connection with its merger-related refinancing transactions. The effective yield on these new senior notes will not be less than 13.92% per annum. In the event that Inc. issues less than $150 million aggregate principal amount of such other senior notes, the effective yield on the Exchange Notes will not be less than 15% per annum. Inc. recently launched a $400 million senior note offering to raise the funds necessary for the offer to exchange.

The following table presents a summary of the debt activity for the six months ended June 30, 2008 (in thousands):


	December 31,			Issuances /		Discount		Principal			June 30,
	2007			Additions		Amortization		Payments			2008
9.75% senior notes due 2014	$	600,000		$	—	$	—	$	—		$	600,000
1.75% convertible senior notes due 2009		400,000			—		—		—			400,000
Senior floating rate notes due 2013		200,000			—		—		—			200,000
10% senior secured discount convertible notes due 2009		33,249			—		—		—			33,249
Less: discount		(3,754	)		—		825		—			(2,929	)
Senior secured term loan		—			100,000		—		—			100,000
Debt of consolidated variable interest entity		230,800			—		—		—			230,800
Senior secured revolving credit facility		—			250,000		—		—			250,000
Senior secured credit facility		—			28,957		—		(28,957	)		—
Capital leases		29,497			4,466		—		(5,185	)		28,778

Total debt		1,489,792		$	383,423	$	825	$	(34,142	)		1,839,898

Less: current portion		9,153										359,672

Long-term debt, net of current portion	$	1,480,639									$	1,480,226

Senior Secured Revolving Credit Facility

On May 5, 2006, Inc. entered into a $250.0 million senior secured revolving credit facility with a group of banks (“revolving credit facility”). On June 26, 2008, Inc. and certain of the lenders who are party to the revolving credit facility entered into an amendment approving a $100.0 million credit agreement (as described below under the heading “Senior Secured Term Loan”) in lieu of Inc.’s right under the revolving credit facility to elect to increase the size by $100.0 million.

The revolving credit facility has a term of three years. Borrowings under the revolving credit facility bear interest at a rate of LIBOR plus 150 to 225 basis points or an alternate base rate, to be the higher of the JPMorgan Chase prime rate and the Federal Funds rate plus 50 basis points, in each case plus 50 to 125 basis points. The revolving credit facility includes a $120.0 million sublimit for letters of credit and a $5.0 million sublimit for swingline loans. There is a commitment fee of 37.5 to 50 basis points per year on unused portions of the revolving credit facility. The revolving credit facility is secured by substantially all of Inc.’s assets other than specified property. The revolving credit facility includes customary events of default and requires Inc. to maintain at all times unrestricted cash and cash equivalents of at least $75.0 million. On May 21, 2008, Inc. executed an amendment to the revolving credit facility to provide that the $75.0 million in unrestricted cash and cash equivalents that Inc. is required to maintain is decreased to $50.0 million for a period of 90 days from the date of such amendment. On June 26, 2008, Inc. executed an amendment to the revolving credit facility to approve a $100 million senior secured term loan (as described below under the heading “Senior Secured Term Loan”). The revolving credit facility also includes customary conditions to draw, including Inc. not undergoing any material adverse change.

In February 2008, the Company borrowed $187.5 million or 75% of the amount available under the revolving credit facility. The proceeds were used for general corporate purposes, including the Company’s annual payment to MLB and its 2007 payment under the Copyright Royalty Board proceeding, both due in March 2008, as well as its record label settlements. Interest under the revolving credit facility is currently 4.75% and is based on 9-month LIBOR. All amounts drawn under the revolving credit facility are due on May 5, 2009. As a result of drawing 75% of the amount available under the revolving credit facility, the Company has full access to the $150.0 million senior secured credit facility (as described below under the heading “Senior Secured Credit Facility”) provided by General Motors (“GM”), which may be used only for payments to GM.

In May 2008, the Company borrowed $62.5 million, which equaled the remaining 25% of the amount available under the revolving credit facility. The proceeds were used for general corporate purposes, including the escrow deposit (see Note 2, under the heading “Escrow Deposit”). Interest under the revolving credit facility is currently 5.75% and is based on the prime rate plus a spread. As of June 30, 2008, the Company has $250.0 million outstanding under the revolving credit facility.

Senior Secured Credit Facility

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

The Company is required to prepay the amount of any outstanding advances in an amount equal to the lesser of (i) 50% of the Company’s excess cash and (ii) the amount necessary to prepay the draws in full. Also, in the event that the Company merges with

another entity or sells, assigns, transfers, conveys or otherwise disposes of all or substantially all of its assets, then any outstanding advances are required to be prepaid by the Company. Furthermore, in the event that the revolving credit facility is terminated prior to its expiration and not replaced with a revolving credit facility of at least $250.0 million with a term that extends to December 31, 2009 or beyond, then any outstanding advances are required to be prepaid by the Company.

In order to make draws under the GM facility, the Company is required to have a minimum pre-marketing operating income as defined therein. The GM facility was unsecured until the first draw under Inc.’s revolving credit facility and then secured on a second priority basis behind the secured indebtedness permitted to be incurred under the revolving credit facility.

In June 2008, the Company drew on its GM facility to satisfy payments in the amount of $29.0 million for commissions and revenue share due under the Company’s distribution agreement with GM. In connection with this draw, as required the Company put in place a security interest in favor of GM under which drawn amounts are secured by substantially all of Inc.’s assets other than specified property (on a subordinated to the revolving credit facility and senior secured term loan). The Company subsequently entered into a credit agreement (as described below under the heading “Senior Secured Term Loan”), a portion of the proceeds of which were used to repay the $29.0 million draw. As of June 30, 2008, the GM facility was fully available and there were no amounts outstanding.

Senior Secured Term Loan

On June 26, 2008, the Company and Inc. entered into a credit agreement relating to a $100.0 million senior secured term loan (the “term loan”) with UBS AG. The Company used a portion of the term loan proceeds to repay the draw under its GM facility.

The term loan includes syndication and commitment fees, interest and expenses, and, similar to the revolving credit facility, has a scheduled maturity date of May 5, 2009, will survive if the pending merger with Sirius is consummated, and is secured by substantially all of Inc.’s assets other than specified property (on a pari passu basis with the revolving credit facility). Interest is payable quarterly on September 26, December 26 and March 26 at a rate currently set at 5.5625%. Thereafter, the rate is reset quarterly to 225 basis points over the 9-month LIBOR. The term loan also contains covenants, representations and events of default that are substantially similar to those under the revolving credit facility. In addition, the term loan, like the revolving credit facility, contains a financial covenant that requires Inc. to maintain a level of cash and cash equivalents from time to time of either $50 million or $75 million. If Inc. does not comply with the various covenants under the term loan, the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the revolving credit facility and foreclose on the collateral.

Debt of Consolidated Variable Interest Entity

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

The Company sold the XM-4 transponders to the Trust owned by Satellite Leasing (702-4) LLC (“Owner participant”) for $288.5 million. XM Satellite Radio Inc. is leasing the transponders for a term of nine years. These lease payment obligations, which are unconditional and guaranteed by XM Satellite Radio Holdings Inc., are senior unsecured obligations and rank equally in right of payment with existing and future senior unsecured obligations. Under the terms of the lease, the Company is obligated to make payments that total $437.4 million, of which $126.6 million is interest, over the nine-year base lease term. Payments totaling $27.9 million and $17.5 million were made in 2007 and in the first six months of 2008, respectively, while the following amounts are due in the future: $15.7 million in the remaining six months of 2008, $28.9 million in 2009, $28.4 million in 2010, $71.0 million in 2011, $145.8 million in 2012 and $102.2 million thereafter.

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

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

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

The Company can be required to repurchase the transponders upon the occurrence of specified events, including an event of loss of the satellite (subject to the right to substitute another satellite meeting equivalent or better value and functionality tests), changes in law that impose a material regulatory burden on the Owner participant, changes of control and events resulting in the absence of another holder (other than the Company and its affiliates) of FCC satellite radio licenses in the frequency bands that can be served by the XM-4 satellite. The Company has agreed to provide indemnities in the event that certain actions by the Company cause the Owner participant to lose or not be able to take certain tax positions relating to the transaction.

(7) Equity

Preferred Stock

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

There were 5,393,252 shares of Series A convertible preferred stock issued and outstanding with a liquidation preference of $51.4 million as of June 30, 2008 and December 31, 2007. During 2006, the Company repurchased the Series B convertible redeemable preferred stock and converted the Series C convertible redeemable preferred stock. There were no shares issued and outstanding of the Series B convertible redeemable preferred stock, Series C convertible redeemable preferred stock or Series D preferred stock as of June 30, 2008 and December 31, 2007.

Common Stock

The Company has authorized 600,000,000 shares of Class A common stock, par value of $0.01, of which 319,587,602 and 316,684,482 shares were issued and outstanding as of June 30, 2008 and December 31, 2007, respectively. As of June 30, 2008 and December 31, 2007, there were 7,259,419 and 7,023,387, respectively, restricted Class A common shares issued and outstanding that was subject to forfeiture pending vesting. The Company has authorized 15,000,000 shares of Class C common stock, par value of $0.01, of which no shares were issued and outstanding as of June 30, 2008 and December 31, 2007.

(8) Share-Based Payment

The Company has three share-based payment plans. It is the practice of the Company to satisfy awards and options granted under these plans through the issuance of new shares. During the three and six months ended June 30, 2008, the Company recognized share-based payment expense of $12.9 million and $30.5 million, respectively; while for the comparable periods in 2007, the Company recognized share-based payment expense of $14.1 million and $28.2 million, respectively. In each of the periods described above, compensation expense was recorded in the unaudited Condensed Consolidated Statements of Operations related to these plans. For a summarized schedule of the distribution of share-based payment expense, see the appended footnote to the unaudited Condensed Consolidated Statements of Operations. The Company did not capitalize any share-based payment cost during the three and six months ended June 30, 2008 and 2007. The Company did not realize any income tax benefits from share-based payment plans during the three and six months ended June 30, 2008 and 2007, as a result of a full valuation allowance that is maintained for substantially all net deferred tax assets.

2007 Stock Incentive Plan

On May 25, 2007, the Company adopted the 2007 Stock Incentive Plan (“2007 Plan”) under which officers, other employees and other key individuals may be granted various types of equity awards, including restricted stock, stock units, stock options, stock appreciation rights, dividend equivalent rights and other stock awards. A total of 25,000,000 shares of the Company’s Class A common stock are reserved for issuance pursuant to these awards. Stock option awards under the 2007 Plan generally vest ratably over three years based on continuous service; while restricted stock generally vests ratably over one or three years based on continuous service. Stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant and expire no later than ten years from the date of grant. Grants of equity awards other than stock options or stock appreciation rights reduce the number of shares available for future grant by 1.5 times the number of shares granted under such equity awards. As of June 30, 2008, there were 13,128,251 shares available under the 2007 Plan for future grant.

1998 Shares Award Plan

On June 1, 1998, the Company adopted the 1998 Shares Award Plan (“1998 Plan”) under which, as amended, employees, consultants and non-employee directors may be granted stock options and restricted stock for up to 25,000,000 shares of the Company’s Class A common stock. Stock option awards and restricted stock awards under the 1998 Plan generally vest ratably over three years based on continuous service. Stock option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant and expire no later than ten years from the date of grant. The 1998 Plan terminated in June 2008 and shares are no longer available for future grant.

XM Talent Option Plan

In May 2000, the Company adopted the XM Talent Option Plan (“Talent Plan”) under which non-employee programming consultants to the Company may be granted stock options for up to 500,000 shares of the Company’s Class A common stock, which shares are reserved under the Talent Plan. Stock option awards under the Talent Plan generally vest ratably over three years based on continuous service. Stock option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant and expire no later than ten years from the date of grant. As of June 30, 2008, there were 340,000 options available under the Talent Plan for future grant.

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


	Three months ended
	June 30,
	2008			2007
Expected dividend yield		0	%		0	%
Expected volatility(1)		58	%		41	%
Risk-free interest rate(2)		3.36	%		4.92	%
Expected term (in years)(3)		4.36			6.00


(1)		Expected volatilities are based on implied volatilities from publicly traded options on the Company’s stock.

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

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

A summary of the status of the Company’s aggregate stock option awards under the 2007 Plan, 1998 Plan and the Talent Plan as of June 30, 2008, and activity during six months then ended is presented below:


						Weighted-Average
				Weighted- Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic Value
	Shares			Price		(Years)		(in thousands)
Outstanding, January 1, 2008		14,786,268		$	18.79
Granted		249,350		$	11.78
Exercised		(155,106	)	$	6.05
Forfeited, cancelled or expired		(213,731	)	$	17.77

Outstanding, June 30, 2008		14,666,781		$	18.82		5.44	$	5,126
Vested and expected to vest, June 30, 2008		14,433,719		$	18.84		5.44	$	5,044
Exercisable, June 30, 2008		13,016,019		$	19.19		5.07	$	5,126

The per share weighted-average fair value of stock option awards granted during the six months ended June 30, 2008 and 2007 was $5.83 and $6.23, respectively on the date of grant. The total intrinsic value on the date of exercise of stock option awards exercised during the six months ended June 30, 2008 and 2007 was $0.8 million and $2.6 million, respectively. As of June 30, 2008, there was $8.8 million of total unrecognized compensation cost related to stock option awards granted under the 2007 Plan, 1998 Plan and Talent Plan. The weighted-average period over which the compensation expense for these awards is expected to be recognized is 1.42 years as of June 30, 2008.

Restricted Stock—A summary of the status of the Company’s aggregate restricted stock awards under the 2007 Plan and 1998 Plan as of June 30, 2008 and activity during the six months then ended is presented below:


				Weighted-Average
				Grant Date
	Shares			Fair Value
Nonvested, January 1, 2008		7,023,387		$	14.00
Granted		3,121,014		$	12.83
Vested		(2,710,264	)	$	14.13
Forfeited		(174,718	)	$	12.92

Nonvested, June 30, 2008		7,259,419		$	13.48

The fair value of each restricted stock award is the market value of the stock, as determined by the last sale price of the Company’s Class A common stock on The NASDAQ Global Select Market as if it were vested and issued on the grant date. As of June 30, 2008 and December 31, 2007, there were $65.8 million and $55.7 million, respectively, of total unrecognized compensation cost related to restricted stock awards granted under the 2007 Plan and 1998 Plan. The weighted-average period over which the compensation expense for these awards is expected to be recognized is 1.92 years as of June 30, 2008. The total fair value of shares vested during the six months ended June 30, 2008 and 2007 was $30.6 million and $7.9 million.

Employee Stock Purchase Plan

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

Under the provisions of SFAS No. 123R, Share-Based Payment, the Company’s ESPP is considered a compensatory plan due to the greater than 5% discount and the “look-back option.” Effective January 1, 2006, the Company began recognizing compensation cost related to the ESPP. Compensation expense recognized pursuant to the ESPP is not material to the unaudited Condensed Consolidated Statements of Operations. Effective April 1, 2007, the Company suspended further purchases under the ESPP pursuant to the terms of the February 19, 2007 merger agreement with Sirius.

(9) Related Party Transactions

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

The Company is a party to a long-term distribution agreement with GM that provides for the installation of XM radios in GM vehicles, as further described in Note 11. This agreement, as amended, continues to be clarified as the Company’s business operations and working relationship with GM continues to evolve. The Company has an agreement with GM to make available use of the Company’s bandwidth. The Company has arrangements with American Honda relating to the promotion of the XM Service to new car buyers, the use of bandwidth on the XM system and the development of telematics services and technologies. The Company is engaged in activities with GM and American Honda to jointly promote new car buyers to subscribe to the XM Service. Subscriber revenues received from GM and American Honda for these programs are recorded as related party revenue. GM is one of the Company’s shareholders and Chester A. Huber, Jr., the President of OnStar Corporation, a subsidiary of GM, is a member of the Company’s board of directors. John W. Mendel, a member of the Company’s board of directors, is Senior Vice President, automobile operations of American Honda.

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

	•		The offset to the $149.4 million fair value of the shares received (see Note 4, under the heading “Equity Method Investment and Available-for-Sale Debt Securities”) is recorded as Deferred income on the Company’s Condensed Consolidated Balance Sheets and amortized on a straight-line basis into income over the 15-year expected term of the Agreements. As of June 30, 2008 and December 31, 2007, the Deferred income balance related to the initial fair value of shares received was $123.6 million and $128.7 million, respectively.

	•		The Company receives a 15% royalty fee for all subscriber fees earned by XM Canada each month for its basic service and a nominal activation fee for each gross activation of an XM Canada subscriber on the Company’s system. Beginning in 2006, XM began to accrue for, and record as revenue, royalties and activation fees related to XM Canada’s subscribers. This revenue is recognized on a straight-line basis over the remaining expected term of the Agreements. The unrecognized portion is recorded as Deferred income. As of June 30, 2008 and December 31, 2007, the Deferred income balance related to the subscriber revenue royalty and activation fees was $9.3 million and $6.1 million, respectively.

	•		XM Canada will pay the Company $71.8 million for the rights to broadcast and market National Hockey League (“NHL”) games for the 10-year term of the Company’s contract with the NHL, as amended. The $71.8 million payment is comprised of $57.0 million in license fees, $12.1 million in advertising costs and $2.7 million in interest. In accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company recognizes these payments on a gross basis as a principal.

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


	Three months ended				Six months ended
	June 30,				June 30,
	2008		2007		2008		2007
Amortization of XM Canada deferred income	$	2,498	$	2,498	$	4,996	$	4,996
Subscriber revenue royalty and activation fees		196		74		347		126
Advertising cost reimbursements		417		333		833		667
License fees		1,500		1,125		3,000		2,250

XM has provided XM Canada with a C$45 million standby credit facility which can only be utilized to finance purchases of terrestrial repeaters or for the payment of subscription fees to XM. The facility matures on December 31, 2012 and bears interest at a rate of 9% per annum. XM has the right to convert unpaid principal amounts into Class A subordinate voting shares of XM Canada at the price of C$16.00 per share. As of June 30, 2008, XM Canada has drawn $6.4 million on this facility in lieu of payment of subscription fees.

The Company had the following related party balances as of June 30, 2008 and December 31, 2007 (in thousands):


	Due from				Prepaid expense				Due to
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2008		2007		2008		2007		2008		2007
GM	$	10,021	$	8,505	$	213,747	$	218,196	$	64,027	$	62,233
American Honda		1,935		3,325		—		—		4,134		3,513
XM Canada		10,790		9,752		—		—		—		—

Total	$	22,746	$	21,582	$	213,747	$	218,196	$	68,161	$	65,746

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


	Three months ended				Six months ended
	June 30,				June 30,
	2008		2007		2008		2007
GM	$	11,234	$	8,209	$	21,352	$	14,881
American Honda		4,746		4,594		8,861		8,961
XM Canada		4,611		4,030		9,176		8,039

Total	$	20,591	$	16,833	$	39,389	$	31,881

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


	Three months ended				Three months ended
	June 30, 2008				June 30, 2007
			American				American
	GM		Honda		GM		Honda
Customer care & billing operations	$	18	$	—	$	51	$	—
Revenue share & royalties		36,208		866		27,125		71
Marketing		50,073		1,712		43,341		1,879
Interest expense		233		—		—		—

Total	$	86,532	$	2,578	$	70,517	$	1,950


	Six months ended				Six months ended
	June 30, 2008				June 30, 2007
			American				American
	GM		Honda		GM		Honda
Customer care & billing operations	$	38	$	—	$	103	$	—
Revenue share & royalties		67,697		1,525		50,855		72
Marketing		100,765		3,795		80,824		2,355
Interest expense		537				—		—

Total	$	169,037	$	5,320	$	131,782	$	2,427

(10) Supplemental Cash Flows Disclosures

The Company paid $55.6 million and $55.0 million for interest, net of amounts capitalized to System under construction of $5.4 million and $1.6 million during the six months ended June 30, 2008 and 2007, respectively.

The Company engaged in non-cash investing and financing activities involving the acquisition of property through capital leases in the amount of $4.5 million and $4.8 million during the six months ended June 30, 2008 and 2007, respectively. Additionally, during the six months ended June 30, 2008, the Company engaged in a non-cash financing activity through a draw on its GM facility to satisfy payments in the amount of $29.0 million for commissions and revenue share due under the Company’s distribution agreement with GM.

(11) Commitments and Contingencies

Satellite System

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

Satellite Contracts—As of June 30, 2008, the Company has paid $977.0 million, including manufacturing and launch costs, financing charges (excluding sale leaseback charges), in-orbit performance incentives and additional costs for collocation, under its various satellite and launch services contracts. The Company originally entered into a satellite and launch services contract for XM-1, XM-2 and XM-3 with Boeing Satellite Systems International, Inc. (“BSS”) in March 1998 and subsequently amended the contract as required (including the manufacture of XM-4). XM has fully paid its contractual obligations to BSS, except for XM-3 and XM-4 performance incentive payments which are accrued to Satellite & terrestrial expense when certain performance criteria are met pursuant to the satellite contracts. In August 2003, XM contracted with Sea Launch Company, LLC (“Sea Launch”) for the associated launch services for XM-4, and in September 2006, the Company exercised an option in the Sea Launch contract for launch services for XM-5. In June 2005, the Company awarded a contract to Space Systems/Loral (“SS/L”) for the design and construction of XM-5.

XM-3—BSS has the right to earn performance incentives of up to $25.9 million, plus interest, based on the in-orbit performance of XM-3 over its design life of fifteen years. As of June 30, 2008, the Company has paid $5.9 million of those performance incentives (including interest). The Company has in-orbit insurance for XM-3 through February 2009.

XM-4—BSS has the right to earn performance incentives of up to $12.0 million, plus interest, over the first twelve years of in-orbit life, up to an additional $7.5 million for high performance (above baseline specifications) during the first fifteen years of in-orbit life and up to an additional $10.0 million for continued high performance across the five year period beyond the fifteen year design life. As of June 30, 2008, the Company has paid $1.9 million of those performance incentives (including interest). The Company has in-orbit insurance for a portion of the XM-4 sum insured that expires in December 2011 and in-orbit insurance for the remainder of the sum insured that expires in October 2008. These policies run concurrently. In February 2007, the Company entered into a sale-leaseback of the transponders on the XM-4 satellite.

XM-5—In 2005, XM entered into a contract with SS/L to construct XM-5. On July 15, 2003, SS/L, its parent (Loral Space & Communications Ltd.) and certain other affiliated entities (collectively, the “Debtors”) commenced voluntary Chapter 11 bankruptcy cases under the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “Court”). Pursuant to an order entered on July 20, 2005, the Court approved the Company’s contract with SS/L. On August 1, 2005, the Court entered an order confirming the Debtors’ Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Reorganization Plan”). The Reorganization Plan became effective on November 21, 2005. Pursuant to the terms of the Company’s contract with SS/L, the Company may make construction payments on XM-5 into an escrow account until the occurrence of an “Emergence Date” as defined in the contract. As of June 30, 2008, the Company has paid $129.9 million with respect to the XM-5 construction and launch services, excluding financing charges. In August 2007, the contract with SS/L was amended to defer payments on the remaining XM-5 satellite construction costs until the earlier of post launch or January 2010.

GM Distribution Agreement

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

In April 2006, the Company amended the distribution agreement pursuant to which the Company made a prepayment in May 2006 in the amount of $237.0 million to GM to retire at a discount $320.3 million of the remaining fixed payment obligations that would have come due in 2007, 2008 and 2009. The April 2006 amendments eliminated the Company’s ability to make up to $35.0 million of subscriber acquisition payments in shares of the Company’s Class A common stock. As of June 30, 2008, the Company had $26.0 million of current related party prepaid expense and $110.6 million of non-current related party prepaid expense in connection with the guaranteed fixed payments as a result of the $237.0 million prepayment in May 2006. In February 2008, the Company entered into an amended and restated agreement with GM that folds together the previously separate distribution and credit agreements with GM. The amended and restated agreement’s terms remain substantially similar to those of the previously separate agreements, except for the establishment of a new minimum pre-marketing cash flow threshold for 2008 that the Company will need to meet in order to make draws under the GM credit facility in 2009.

In order to encourage the broad installation of XM radios in GM vehicles, the Company has agreed to subsidize a portion of the cost of XM radios and to make incentive payments to GM when the owners of GM vehicles with installed XM radios become subscribers to the Company’s service. The Company must also share with GM a percentage of the subscription revenue attributable to GM vehicles with installed XM radios, which percentage increases until there are more than eight million GM vehicles with installed XM radios. The Company has met this threshold and the percentage is constant. Revenue share expense is recognized as the related subscription revenue is earned. As of June 30, 2008, the Company had $60.6 million of current related party prepaid expense and $16.5 million of non-current related party prepaid expense in connection with this revenue sharing arrangement. As part of the agreement, GM provides certain call-center related services directly to XM subscribers who are also GM customers for which the Company must reimburse GM. The agreement is subject to renegotiation at any time based upon the installation of radios that are compatible with a common receiver platform or capable of receiving Sirius’ radio service. The agreement is subject to renegotiation at two-year intervals, beginning in November 2005, if GM does not achieve and maintain specified installation levels of GM vehicles capable of receiving the Company’s service. The specified installation level of 1,240,000 units by November 2005 was achieved in

2004. The specified installation levels in future years are the lesser of 600,000 units per year or amounts proportionate to targets in the satellite digital radio service industry. There can be no assurances as to the outcome of any such renegotiations. GM’s exclusivity obligations will discontinue if, by November 2009 and at two-year intervals thereafter, the Company fails to achieve and maintain specified minimum share levels in the satellite digital radio service industry. The Company believes it was exceeding the minimum levels at December 31, 2007. For the three and six months ended June 30, 2008, the Company incurred total costs of $86.5 million and $169.0 million, respectively, under the distribution agreement; while for the comparable periods in 2007, the Company incurred costs of $70.5 million and $131.8 million, respectively.

Legal Proceedings

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

Litigation and Arbitration

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

Separately in September 2007, the Company settled the royalty rate payable by the Company under the statutory license covering its performance of sound recordings over XM channels transmitted over the DIRECTV satellite television system, and that CRB proceeding was concluded.

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

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

Matthew Enderlin v. XM Satellite Radio Holdings Inc. and XM Satellite Radio Inc.—Plaintiff filed this action in the United States District Court for the Eastern District of Arkansas on January 10, 2006 on behalf of a purported nationwide class of all XM subscribers. The complaint alleges that the Company engaged in a deceptive trade practice under Arkansas and other state laws by representing that its music channels are commercial-free. The court stayed the litigation and directed the parties to arbitration. The Company instituted arbitration with the American Arbitration Association pursuant to the compulsory arbitration clause in its customer service agreement. Enderlin has filed a counterclaim in the arbitration on behalf of the class that he seeks to represent. The Company believes the matter is without merit and intends to vigorously defend the ongoing arbitration. There can be no assurance regarding the ultimate outcome of this matter, or the significance, if any, to the Company’s business, consolidated results of operations or financial position.

Regulatory Matters and Inquiries

Federal Communications Commission (“FCC”)

FCC Receiver Matter—As the Company has previously disclosed, it has received inquiries from, and responded to, the FCC regarding FM modulator wireless transmitters in various XM radios not in compliance with permissible emission limits. No health or safety issues have been involved with these wireless XM radios. The Company has implemented a series of design and installation

modifications and has obtained new certifications for modified XM radios that rely on a wired FM modulator rather than a wireless transmitter. In addition, the Company has implemented a regulatory compliance plan, including the appointment of an FCC regulatory compliance officer, to monitor FCC regulatory compliance, specifically with reference to the design, verification/certification, and production of XM radio receivers. The Company is in discussions with the FCC to resolve this matter and has proposed entering into a consent decree requiring both additional remedial action and a voluntary contribution to the federal government. National Association of Broadcasters (“NAB”) has asked the FCC to require a recall of non-compliant devices from our retailers and distributors. The Company cannot predict at this time the extent of any further actions that it will need to undertake or any financial obligations it may incur. There can be no assurance regarding the ultimate outcome of this matter, or its significance to the Company’s business, consolidated results of operations or financial position.

FCC Repeater Network Matter—In October 2006, the Company filed for both a 30-day Special Temporary Authority (“STA”) and a 180-day STA with respect to its terrestrial repeater network, seeking authority to continue to operate its entire repeater network despite the fact that the technical characteristics of certain repeaters, as built, differ from the technical characteristics in the original STAs granted for its repeater network. These differences include some repeaters not being built in the precise locations, or with the same antenna heights, power levels, or antenna characteristics set forth in the earlier STAs. A number of repeaters were built without a clearly applicable authorization. Prior to making these filings, the Company reduced the power or discontinued operation of certain repeaters. As a result, the Company believes that service quality in portions of the affected metro areas has been somewhat reduced, including in terms of more frequent interruptions and/or occasional outages to the service. There has been no impact on the satellite signal. The Company continues to communicate with the staff of the FCC regarding these matters. In February 2007, the Company received a letter of inquiry from the FCC relating to these matters, to which the Company has responded. This proceeding may result in the imposition of financial penalties against the Company or adverse changes to its repeater network resulting from having repeaters turned off or otherwise modified in a manner that would reduce service quality in the affected areas.

These STA requests are distinct from (and if granted would modify) the STAs originally granted by the FCC relating to the Company commencing and continuing operation of the repeater network. As the Company has been disclosing for many years, the FCC has not yet issued final rules permitting the Company (or Sirius) to deploy terrestrial repeaters, and the Company has been deploying and operating its repeater network based on those early STAs and requests the Company has filed previously to extend the time periods of those STAs, which have expired. The Company (and Sirius) and others have been requesting that the FCC establish final rules for repeater deployment. On December 18, 2007, the FCC released a “Notice of Proposed Rulemaking and Second Further Notice of Proposed Rulemaking” seeking additional comment on the final rules for satellite radio repeaters. In this same Notice the FCC requested comment on proposals of Wireless Communications Service (“WCS”) licensees for modification of rules governing their use of spectrum adjacent to that used for satellite radio service. Some of the proposals under discussion in the rulemaking, if adopted by the FCC, could impact the Company’s ability to operate terrestrial repeaters, including requiring the Company to reduce the power of some of its current repeaters, construct and operate additional repeaters to offer the same coverage, or otherwise impact reception of satellite radio service. The Company is participating actively in this phase of the proceeding. There can be no assurance regarding the ultimate outcome of this matter, or its significance to the Company’s business, consolidated results of operations or financial position.

Major League Baseball^{^®}

The Company has a multi-year agreement with MLB to broadcast MLB games live nationwide. The Company paid $50.0 million for the 2005 season, $60.0 million (which included $10.0 million paid in October 2004) for the 2006, 2007 and 2008 seasons and will pay $60.0 million per year thereafter through 2012. MLB has the option to extend the agreement for the 2013, 2014 and 2015 seasons at the same $60.0 million annual compensation rate. The Company will also make incentive payments to MLB for XM subscribers obtained through MLB and baseball club verifiable promotional programs. No stock or warrants were included in this agreement. The agreement requires the Company to deposit $120.0 million into escrow or furnish other credit support in such amount. On May 16, 2008, the Company deposited $120.0 million into escrow for the benefit of MLB. In connection with funding the MLB escrow arrangement, the Company borrowed $62.5 million under its revolving credit facility. This escrow arrangement, which the Company intends to replace with a letter of credit or other arrangement, reduces the Company’s unrestricted cash liquidity, and could have an adverse effect on the Company’s financial position if the Company is not able to replace the escrow arrangement with a letter of credit or other arrangement.

(12) Condensed Consolidating Financial Information

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

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2008


																			XM
					XM												Satellite		Holdings					Consolidated
					Equipment		XMSR Non-					Consolidated		XM Satellite			Leasing		Non-					XM Satellite
	XM Satellite		XM Radio		Leasing		Guarantor					XM Satellite		Radio			(702-4),		Guarantor					Radio
(in thousands)	Radio Inc.		Inc.		LLC		Subsidiaries		Eliminations			Radio Inc.		Holdings Inc.			LLT		Subsidiaries		Eliminations			Holdings Inc.
Current assets:
Cash and cash equivalents	$	163,552	$	—	$	23	$	—	$	—		$	163,575	$	20,269		$	—	$	9	$	—		$	183,853
Accounts receivable, net		44,711		—		—		—		—			44,711		—			—		—		—			44,711
Due from subsidiaries/affiliates		15,826		516,054		49,434		712,961		(1,282,690	)		11,585		1,289			—		43,815		(56,689	)		—
Due from related parties		16,356		—		—		—		—			16,356		—			—		—		—			16,356
Related party prepaid expenses		86,641		—		—		—		—			86,641		—			—		—		—			86,641
Prepaid programming content		54,900		—		—		—		—			54,900		—			—		—		—			54,900
Prepaid and other current assets		40,341		—		—		—		—			40,341		283			30,726		348		(30,881	)		40,817

Total current assets		422,327		516,054		49,457		712,961		(1,282,690	)		418,109		21,841			30,726		44,172		(87,570	)		427,278
Escrow deposit		120,000		—		—		—		—			120,000		—			—		—		—			120,000
System under construction		—		—		—		—		—			—		166,786			—		—		—			166,786
Property and equipment, net		563,987		—		8,800		—		—			572,787		46,190			—		37,568		3,729			660,274
Investment in subsidiary/affiliates		1,363,931		—		—		—		(1,363,931	)		—		(909,078	)		—		—		909,078			—
DARS license		—		141,412		—		—		—			141,412		—			—		—		—			141,412
Intangibles, net		2,750		—		—		—		—			2,750		—			—		—		—			2,750
Deferred financing fees, net		27,610		—		—		—		—			27,610		2,977			—		—		—			30,587
Due from related party, net of current portion		6,390		—		—		—		—			6,390		—			—		—		—			6,390
Related party prepaid expenses, net of current portion		127,106		—		—		—		—			127,106		—			—		—		—			127,106
Investments		—		—		—		—		—			—		37,192			—		—		—			37,192
Prepaid and other assets, net of current portion		2,080		—		—		—		—			2,080		33,293			461,268		2,032		(494,562	)		4,111

Total assets	$	2,636,181	$	657,466	$	58,257	$	712,961	$	(2,646,621	)	$	1,418,244	$	(600,799	)	$	491,994	$	83,772	$	330,675		$	1,723,886

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2008
(Continued)


																							XM
						XM														Satellite			Holdings						Consolidated
	XM					Equipment			XMSR Non-					Consolidated			XM Satellite			Leasing			Non-						XM Satellite
	Satellite			XM Radio		Leasing			Guarantor					XM Satellite			Radio			(702-4),			Guarantor						Radio
(in thousands)	Radio Inc.			Inc.		LLC			Subsidiaries		Eliminations			Radio Inc.			Holdings Inc.			LLT			Subsidiaries			Eliminations			Holdings Inc.
Current liabilities:
Accounts payable	$	51,505		$	—	$	—		$	—	$	—		$	51,505		$	10,388		$	(3,663	)	$	(2	)	$	(6,551	)	$	51,677
Accrued expenses		167,581			—		111			—		—			167,692			103			—			294			(442	)		167,647
Accrued interest		46,008			—		—			—		—			46,008			583			1,923			—			(32,607	)		15,907
Current portion of long-term debt		388,889			—		—			—		—			388,889			—			—			—			(29,217	)		359,672
Due to related parties		68,161			—		—			—		—			68,161			—			—			—			—			68,161
Due to subsidiary/affiliates		1,254,525			271		2,851			26,076		(1,282,670	)		1,053			—			—			4,441			(5,494	)		—
Subscriber deferred revenue		437,605			—		—			—		—			437,605			—			—			—			—			437,605
Deferred income		—			—		—			—		—			—			13,415			30,726			—			(34,148	)		9,993

Total current liabilities		2,414,274			271		2,962			26,076		(1,282,670	)		1,160,913			24,489			28,986			4,733			(108,459	)		1,110,662
Long-term debt, net of current portion		1,080,673			—		—			—		—			1,080,673			400,000			230,800			—			(231,247	)		1,480,226
Subscriber deferred revenue, net of current portion		109,772			—		—			—		—			109,772			—			—			—			—			109,772
Deferred income, net of current portion		9,332			—		—			—		—			9,332			138,276			168,346			—			(192,955	)		122,999
Other non-current liabilities		8,644			35,424		—			—		—			44,068			40,908			—			(1,315	)		(39,162	)		44,499

Total liabilities		3,622,695			35,695		2,962			26,076		(1,282,670	)		2,404,758			603,673			428,132			3,418			(571,823	)		2,868,158

Commitments and contingencies
Minority interest		—			—		—			—		—			—			—			—			—			60,200			60,200
Stockholders’ equity (deficit):
Capital stock		—			—		—			—		—			—			3,250			—			—			—			3,250
Accumulated other comprehensive income, net of tax		—			—		—			—		—			—			8,689			—			—			—			8,689
Additional paid-in-capital		3,357,744			146,271		60,759			286,765		(493,795	)		3,357,744			3,213,287			45,940			47,219			(3,450,903	)		3,213,287
Retained earnings (deficit)		(4,344,258	)		475,500		(5,464	)		400,120		(870,156	)		(4,344,258	)		(4,429,698	)		17,922			33,135			4,293,201			(4,429,698	)

Total stockholders’ equity (deficit)		(986,514	)		621,771		55,295			686,885		(1,363,951	)		(986,514	)		(1,204,472	)		63,862			80,354			842,298			(1,204,472	)

Total liabilities and stockholders’ equity (deficit)	$	2,636,181		$	657,466	$	58,257		$	712,961	$	(2,646,621	)	$	1,418,244		$	(600,799	)	$	491,994		$	83,772		$	330,675		$	1,723,886

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2007


																			XM
					XM		XMSR							XM Satellite			Satellite		Holdings					Consolidated
					Equipment		Non-					Consolidated		Radio			Leasing		Non-					XM Satellite
	XM Satellite		XM Radio		Leasing		Guarantor					XM Satellite		Holdings			(702-4),		Guarantor					Radio
(in thousands)	Radio Inc.		Inc.		LLC		Subsidiaries		Eliminations			Radio Inc.		Inc.			LLT		Subsidiaries		Eliminations			Holdings Inc.
Current assets:
Cash and cash equivalents	$	100,111	$	—	$	11	$	—	$	—		$	100,122	$	56,554		$	—	$	10	$	—		$	156,686
Accounts receivable, net		63,617		—		—		—		—			63,617		—			—		—		—			63,617
Due from subsidiaries/affiliates		4,015		428,973		43,250		683,745		(1,159,940	)		43		5,667			—		39,324		(45,034	)		—
Due from related parties		17,931		—		—		—		—			17,931		97			—		—		—			18,028
Related party prepaid expenses		80,610		—		—		—		—			80,610		—			—		—		—			80,610
Prepaid programming content		28,262		—		—		—		—			28,262		—			—		—		—			28,262
Prepaid and other current assets		38,937		—		—		—		—			38,937		170			30,726		182		(30,880	)		39,135

Total current assets		333,483		428,973		43,261		683,745		(1,159,940	)		329,522		62,488			30,726		39,516		(75,914	)		386,338
System under construction		—		—		—		—		—			—		151,142			—		—		—			151,142
Property and equipment, net		611,116		—		14,805		—		—			625,921		48,124			—		38,571		(2,246	)		710,370
Investment in subsidiary/affiliates		1,249,173		—		—		—		(1,249,173	)		—		(702,323	)		—		—		702,323			—
DARS license		—		141,412		—		—		—			141,412		—			—		—		—			141,412
Intangibles, net		3,379		—		—		—		—			3,379		—			—		—		—			3,379
Deferred financing fees, net		30,585		—		—		—		—			30,585		4,005			—		—		—			34,590
Due from related party, net of current portion		3,554		—		—		—		—			3,554		—			—		—		—			3,554
Related party prepaid expenses, net of current portion		137,586		—		—		—		—			137,586		—			—		—		—			137,586
Investments		—		—		—		—		—			—		36,981			—		—		—			36,981
Prepaid and other assets, net of current portion		1,880		—		—		—		—			1,880		15,817			478,745		1,998		(494,562	)		3,878

Total assets	$	2,370,756	$	570,385	$	58,066	$	683,745	$	(2,409,113	)	$	1,273,839	$	(383,766	)	$	509,471	$	80,085	$	129,601		$	1,609,230

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2007
(Continued)


																							XM
						XM			XMSR								XM Satellite			Satellite			Holdings						Consolidated
						Equipment			Non-					Consolidated			Radio			Leasing			Non-						XM Satellite
	XM Satellite			XM Radio		Leasing			Guarantor					XM Satellite			Holdings			(702-4),			Guarantor						Radio
(in thousands)	Radio Inc.			Inc.		LLC			Subsidiaries		Eliminations			Radio Inc.			Inc.			LLT			Subsidiaries			Eliminations			Holdings Inc.
Current liabilities:
Accounts payable	$	54,711		$	—	$	—		$	—	$	—		$	54,711		$	4,578		$	(1,779	)	$	(2	)	$	(2,498	)	$	55,010
Accrued expenses		216,036			—		125			—		—			216,161			100			—			294			(441	)		216,114
Accrued interest		29,395			—		—			—		—			29,395			583			1,829			—			(14,980	)		16,827
Current portion of long-term debt		38,370			—		—			—		—			38,370			—			—			—			(29,217	)		9,153
Due to related parties		65,746			—		—			—		—			65,746			—			—			—			—			65,746
Due to subsidiary/affiliates		1,132,143			271		2,581			25,757		(1,159,920	)		832			—			—			6,717			(7,549	)		—
Subscriber deferred revenue		416,361			—		—			—		—			416,361			—			—			—			—			416,361
Deferred income		—			—		—			—		—			—			13,338			30,725			—			(34,148	)		9,915

Total current liabilities		1,952,762			271		2,706			25,757		(1,159,920	)		821,576			18,599			30,775			7,009			(88,833	)		789,126
Long-term debt, net of current portion		1,083,575			—		—			—		—			1,083,575			400,000			230,800			—			(233,736	)		1,480,639
Subscriber deferred revenue, net of current portion		98,565			—		—			—		—			98,565			—			—			—			—			98,565
Deferred income, net of current portion		6,146			—		—			—		—			6,146			145,189			186,371			—			(212,818	)		124,888
Other non-current liabilities		8,993			34,269		—			—		—			43,262			36,749			—			(1,314	)		(38,128	)		40,569

Total liabilities		3,150,041			34,540		2,706			25,757		(1,159,920	)		2,053,124			600,537			447,946			5,695			(573,515	)		2,533,787

Commitments and contingencies
Minority interest		—			—		—			—		—			—			—			—			—			59,746			59,746
Stockholders’ equity (deficit):
Capital stock		—			—		—			—		—			—			3,221			—			—			—			3,221
Accumulated other comprehensive income, net of tax		—			—		—			—		—			—			8,966			—			—			—			8,966
Additional paid-in-capital		3,315,665			146,271		60,759			286,765		(493,795	)		3,315,665			3,184,367			49,993			47,064			(3,412,722	)		3,184,367
Retained earnings (deficit)		(4,094,950	)		389,574		(5,399	)		371,223		(755,398	)		(4,094,950	)		(4,180,857	)		11,532			27,326			4,056,092			(4,180,857	)

Total stockholders’ equity (deficit)		(779,285	)		535,845		55,360			657,988		(1,249,193	)		(779,285	)		(984,303	)		61,525			74,390			643,370			(984,303	)

Total liabilities and stockholders’ equity (deficit)	$	2,370,756		$	570,385	$	58,066		$	683,745	$	(2,409,113	)	$	1,273,839		$	(383,766	)	$	509,471		$	80,085		$	129,601		$	1,609,230

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008


																									XM
							XM															Satellite			Holdings					Consolidated
	XM						Equipment			XMSR Non-						Consolidated			XM Satellite			Leasing			Non-					XM Satellite
	Satellite			XM Radio			Leasing			Guarantor						XM Satellite			Radio			(702-4),			Guarantor					Radio
(in thousands)	Radio Inc.			Inc.			LLC			Subsidiaries			Eliminations			Radio Inc.			Holdings Inc.			LLT			Subsidiaries		Eliminations			Holdings Inc.
Revenue	$	621,494		$	87,081		$	5,481		$	—		$	(92,562	)	$	621,494		$	4,996		$	18,025		$	7,468	$	(25,493	)	$	626,490
Cost of revenue		405,998			—			22			—			221			406,241			—			—			650		(3,992	)		402,899
Research & development		20,435			—			—			—			—			20,435			—			—			—		—			20,435
General & administrative		61,842			—			—			—			—			61,842			138			—			6		(267	)		61,719
Marketing		239,920			—			—			—			—			239,920			—			—			—		—			239,920
Depreciation & amortization		74,965			—			5,993			—			—			80,958			96			—			1,003		(4,136	)		77,921

Total operating expenses		803,160			—			6,015			—			221			809,396			234			—			1,659		(8,395	)		802,894

Operating income (loss)		(181,666	)		87,081			(534	)		—			(92,783	)		(187,902	)		4,762			18,025			5,809		(17,098	)		(176,404	)
Other income (expense):
Interest income		2,112			—			319			29,217			(29,535	)		2,113			306			—			—		—			2,419
Interest expense		(91,500	)		—			—			(319	)		29,535			(62,284	)		(1,027	)		(11,635	)		—		15,139			(59,807	)
Loss from de-leveraging transactions		—			—			—			—			—			—			—			—			—		—			—
Loss from impairment of investments		—			—			—			—			—			—			—			—			—		—			—
Equity in net loss of affiliate		—			—			—			—			—			—			(8,550	)		—			—		—			(8,550	)
Minority interest		—			—			—			—			—			—			—			—			—		(6,390	)		(6,390	)
Other income (expense)		21,746			—			151			—			(21,976	)		(79	)		(243,328	)		—			—		244,302			895

Net income (loss) before income taxes		(249,308	)		87,081			(64	)		28,898			(114,759	)		(248,152	)		(247,837	)		6,390			5,809		235,953			(247,837	)

Benefit from (provision for) deferred income taxes		—			(1,156	)		—			—			—			(1,156	)		(1,004	)		—			—		1,156			(1,004	)

Net income (loss)	$	(249,308	)	$	85,925		$	(64	)	$	28,898		$	(114,759	)	$	(249,308	)	$	(248,841	)	$	6,390		$	5,809	$	237,109		$	(248,841	)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2008


																									XM
							XM			XMSR									XM Satellite			Satellite			Holdings					Consolidated
	XM						Equipment			Non-						Consolidated			Radio			Leasing			Non-					XM Satellite
	Satellite			XM Radio			Leasing			Guarantor						XM Satellite			Holdings			(702-4),			Guarantor					Radio
(in thousands)	Radio Inc.			Inc.			LLC			Subsidiaries			Eliminations			Radio Inc.			Inc.			LLT			Subsidiaries		Eliminations			Holdings Inc.
Revenue	$	315,537		$	43,840		$	2,740		$	—		$	(46,580	)	$	315,537		$	2,498		$	9,039		$	2,748	$	(11,787	)	$	318,035
Cost of revenue		205,871			—			11			—			107			205,989			—			—			325		(1,996	)		204,318
Research & development		9,414			—			—			—			—			9,414			—			—			—		—			9,414
General & administrative		31,050			—			—			—			—			31,050			69			—			3		(133	)		30,989
Marketing		123,594			—			—			—			—			123,594			—			—			—		—			123,594
Depreciation & amortization		30,962			—			2,995			—			—			33,957			48			—			501		(2,068	)		32,438

Total operating expenses		400,891			—			3,006			—			107			404,004			117			—			829		(4,197	)		400,753

Operating income (loss)		(85,354	)		43,840			(266	)		—			(46,687	)		(88,467	)		2,381			9,039			1,919		(7,590	)		(82,718	)
Other income (expense):
Interest income		856			—			160			14,609			(14,768	)		857			(114	)		—			—		—			743
Interest expense		(46,260	)		—			—			(160	)		14,768			(31,652	)		(515	)		(5,887	)		—		7,574			(30,480	)
Loss from de-leveraging transactions		—			—			—			—			—			—			—			—			—		—			—
Loss from impairment of investments		—			—			—			—			—			—			—			—			—		—			—
Equity in net loss of affiliate		—			—			—			—			—			—			(4,373	)		—			—		—			(4,373	)
Minority interest		—			—			—			—			—			—			—			—			—		(3,153	)		(3,153	)
Other income (expense)		11,095			—			151			—			(11,069	)		177			(116,278	)		—			—		117,183			1,082

Net income (loss) before income taxes		(119,663	)		43,840			45			14,449			(57,756	)		(119,085	)		(118,899	)		3,152			1,919		114,014			(118,899	)

Benefit from (provision for) deferred income taxes		—			(578	)		—			—			—			(578	)		(673	)		—			—		578			(673	)

Net income (loss)	$	(119,663	)	$	43,262		$	45		$	14,449		$	(57,756	)	$	(119,663	)	$	(119,572	)	$	3,152		$	1,919	$	114,592		$	(119,572	)

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007


																									XM
							XM			XMSR												Satellite			Holdings						Consolidated
	XM						Equipment			Non-						Consolidated			XM Satellite			Leasing			Non-						XM Satellite
	Satellite			XM Radio			Leasing			Guarantor						XM Satellite			Radio			(702-4),			Guarantor						Radio
(in thousands)	Radio Inc.			Inc.			LLC			Subsidiaries			Eliminations			Radio Inc.			Holdings Inc.			LLT			Subsidiaries			Eliminations			Holdings Inc.
Revenue	$	536,360		$	77,225		$	5,481		$	—		$	(82,706	)	$	536,360		$	4,996		$	13,710		$	5,197		$	(18,876	)	$	541,387
Cost of revenue		344,666			—			10			—			228			344,904			—			—			594			(3,875	)		341,623
Research & development		15,469			—			—			—			—			15,469			—			—			—			—			15,469
General & administrative		68,652			—			—			—			—			68,652			292			—			1,369			(260	)		70,053
Marketing		216,892			—			—			—			—			216,892			—			—			—			—			216,892
Depreciation & amortization		86,718						6,094			—			—			92,812			2,611			—			1,003			(3,039	)		93,387

Total operating expenses		732,397			—			6,104			—			228			738,729			2,903			—			2,966			(7,174	)		737,424

Operating income (loss)		(196,037	)		77,225			(623	)		—			(82,934	)		(202,369	)		2,093			13,710			2,231			(11,702	)		(196,037	)
Other income (expense):
Interest income		3,322			—			332			29,135			(29,467	)		3,322			4,459			—			—			—			7,781
Interest expense		(89,340	)		—			—			(332	)		29,467			(60,205	)		(2,291	)		(8,748	)		(517	)		11,729			(60,032	)
Loss from de-leveraging transactions		—			—			—			—			—			—			—			—			(2,965	)		—			(2,965	)
Loss from impairment of investments					—			—			—			—			—			(35,824	)		—			—			—			(35,824	)
Equity in net loss of affiliate		—			—			—			—			—			—			(8,177	)		—			—			—			(8,177	)
Minority Interest																													(4,962	)		(4,962	)
Other income (expense)		21,595			—			—			—			(21,647	)		(52	)		(259,593	)					—			260,501			856

Net income (loss) before income taxes		(260,460	)		77,225			(291	)		28,803			(104,581	)		(259,304	)		(299,333	)		4,962			(1,251	)		255,566			(299,360	)

Benefit from (provision for) deferred income taxes		28			(1,156	)		—			—			—			(1,128	)		1,148			—			—			1,155			1,175

Net income (loss)	$	(260,432	)	$	76,069		$	(291	)	$	28,803		$	(104,581	)	$	(260,432	)	$	(298,185	)	$	4,962		$	(1,251	)	$	256,721		$	(298,185	)

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2007


							XM															Satellite			XM Holdings					Consolidated
	XM						Equipment			XMSR Non-						Consolidated			XM Satellite			Leasing			Non-					XM Satellite
	Satellite			XM Radio			Leasing			Guarantor						XM Satellite			Radio			(702-4),			Guarantor					Radio
(in thousands)	Radio Inc.			Inc.			LLC			Subsidiaries			Eliminations			Radio Inc.			Holdings Inc.			LLT			Subsidiaries		Eliminations			Holdings Inc.
Revenue	$	274,746		$	39,560		$	2,740		$	—		$	(42,301	)	$	274,745		$	2,498		$	8,988		$	2,675	$	(11,630	)	$	277,276
Cost of revenue		172,058			—			3			—			114			172,175			—			—			326		(1,988	)		170,513
Research & development		8,159			—			—			—			—			8,159			—			—			—		—			8,159
General & administrative		35,845			—			—			—			—			35,845			157			—			2		(135	)		35,869
Marketing		124,221			—			—			—			—			124,221			—			—			—		—			124,221
Depreciation & amortization		45,066						2,998			—			—			48,064			7			—			502		(2,067	)		46,506

Total operating expenses		385,349			—			3,001			—			114			388,464			164			—			830		(4,190	)		385,268

Operating income (loss)		(110,603	)		39,560			(261	)		—			(42,415	)		(113,719	)		2,334			8,988			1,845		(7,440	)		(107,992	)
Other income (expense):
Interest income		1,804			—			167			14,648			(14,815	)		1,804			2,434			—			—		—			4,238
Interest expense		(47,578	)		—			—			(167	)		14,815			(32,930	)		(1,436	)		(5,722	)		—		7,665			(32,423	)
Loss from de-leveraging transactions		—			—			—			—			—			—			—			—			—		—			—
Loss from impairment of investments					—			—			—			—			—			(35,824	)		—			—		—			(35,824	)
Equity in net loss of affiliate		—			—			—			—			—			—			(2,752	)		—			—		—			(2,752	)
Minority Interest																												(3,266	)		(3,266	)
Other income (expense)		10,907			—			—			—			(10,954	)		(47	)		(142,335	)					—		142,795			413

Net income (loss) before income taxes		(145,470	)		39,560			(94	)		14,481			(53,369	)		(144,892	)		(177,579	)		3,266			1,845		139,754			(177,606	)

Benefit from (provision for) deferred income taxes		28			(578	)		—			—			—			(550	)		1,832			—			—		577			1,859

Net income (loss)	$	(145,442	)	$	38,982		$	(94	)	$	14,481		$	(53,369	)	$	(145,442	)	$	(175,747	)	$	3,266		$	1,845	$	140,331		$	(175,747	)

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008


																			Satellite			XM Holdings						Consolidated
	XM					XM			XMSR Non-				Consolidated			XM Satellite			Leasing			Non-						XM Satellite
	Satellite			XM Radio		Equipment			Guarantor				XM Satellite			Radio			(702-4),			Guarantor						Radio
(in thousands)	Radio Inc.			Inc.		Leasing LLC			Subsidiaries		Eliminations		Radio Inc.			Holdings Inc.			LLT			Subsidiaries			Eliminations			Holdings Inc.
Net cash (used in) provided by operating activities	$	(238,275	)	$	—	$	5,198		$	—	$	—	$	(233,077	)	$	(5,385	)	$	5,937		$	(1	)	$	(2,488	)	$	(235,014	)
Cash flows from investing activities:
Purchase of property and equipment		(20,624	)		—		—			—		—		(20,624	)		—			—			—			—			(20,624	)
Additions to system under construction		—			—		—			—		—		—			(6,823	)		—			—			—			(6,823	)
Purchase of available-for-sale securities		—			—		—			—		—		—			(9,450	)		—			—			—			(9,450	)
Net maturity (purchase) of restricted investments		25			—		—			—		—		25			—			—			—			—			25

Net cash (used in) provided by investing activities		(20,599	)		—		—			—		—		(20,599	)		(16,273	)		—			—			—			(36,872	)

Cash flows from financing activities:
Proceeds from exercise of warrants and stock options		—			—		—			—		—		—			956			—			—			—			956
Capital contributions from Holdings		13,125			—		—			—		—		13,125			(13,125	)		—			—			—			—
Proceeds from borrowing on senior secured revolving credit facility		250,000			—		—			—		—		250,000			—			—			—			—			250,000
Proceeds from borrowing on a senior secured term loan		100,000			—		—			—		—		100,000			—			—			—			—			100,000
Repayment on draws made on senior secured credit facility		(28,957	)		—		—			—		—		(28,957	)		—			—			—			—			(28,957	)
Payments to minority interest holder		—			—		—			—		—		—			—			(5,937	)		—			—			(5,937	)
Payments on other borrowings		(2,488	)		—		(5,185	)		—		—		(7,673	)		—			—			—			2,488			(5,185	)
Deferred financing costs		(9,366	)		—		—			—		—		(9,366	)		—			—			—			—			(9,366	)
Other, net		—			—		—			—		—		—			(2,458	)		—			—			—			(2,458	)

Net cash provided by (used in) financing activities		322,314			—		(5,185	)		—		—		317,129			(14,627	)		(5,937	)		—			2,488			299,053

Net increase (decrease) in cash and cash equivalents		63,440			—		13			—		—		63,453			(36,285	)		—			(1	)		—			27,167
Cash and cash equivalents at beginning of period		100,111			—		11			—		—		100,122			56,554			—			10			—			156,686

Cash and cash equivalents at end of period	$	163,551		$	—	$	24		$	—	$	—	$	163,575		$	20,269		$	—		$	9		$	—		$	183,853

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

XM SATELLITE RADIO INC., SUBSIDIARIES AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2007


									XMSR										Satellite			XM Holdings						Consolidated
	XM					XM			Non-				Consolidated			XM Satellite			Leasing			Non-						XM Satellite
	Satellite			XM Radio		Equipment			Guarantor				XM Satellite			Radio			(702-4),			Guarantor						Radio
(in thousands)	Radio Inc.			Inc.		Leasing LLC			Subsidiaries		Eliminations		Radio Inc.			Holdings Inc.			LLT			Subsidiaries			Eliminations			Holdings Inc.
Net cash (used in) provided by operating activities	$	(79,217	)	$	—	$	7,568		$	—	$	—	$	(71,649	)	$	(38,518	)	$	—		$	39,997		$	—		$	(70,170	)
Cash flows from investing activities:
Purchase of property and equipment		(33,245	)		—		—			—		—		(33,245	)		(566	)		(288,500	)		—			288,500			(33,811	)
Additions to system under construction		—			—		—			—		—		—			(78,596	)		—			—			—			(78,596	)
Proceeds from sale of assets		—			—		—			—		—		—			288,500			—			—			(288,500	)		—
Net maturity (purchase) of restricted investments		199			—		—			—		—		199			—			—			1,702			—			1,901

Net cash (used in) provided by investing activities		(33,046	)		—		—			—		—		(33,046	)		209,338			(288,500	)		1,702			—			(110,506	)

Cash flows from financing activities:
Proceeds from exercise of warrants and stock options		—			—		—			—		—		—			2,989			—			—			—			2,989
Capital contributions from Holdings		127,202			—		—			—				127,202			(127,202	)		—			—			—			—
Capital contributions from outside investor to minority interest		—			—		—			—		—		—			—			57,700			—			(57,700	)		—
Proceeds from insuance of debt by minority interest		—			—		—			—		—		—			—			230,800			—			(230,800	)		—
Proceeds from financing of a consolidated variable interest entity		—			—		—			—		—		—			—			—			—			288,500			288,500
Retirement of mortgages on corporate facilities		—			—		—			—		—		—			—			—			(38,877	)		—			(38,877	)
Payment of premiums on de-leveraging transactions					—		—			—		—		—			—			—			(2,965	)		—			(2,965	)
Payments on other borrowings					—		(7,592	)		—		—		(7,592	)		—			—						—			(7,592	)
Deferred financing costs		(4,203	)		—		—			—		—		(4,203	)		—			—			—			—			(4,203	)

Net cash provided by (used in) financing activities		122,999			—		(7,592	)		—		—		115,407			(124,213	)		288,500			(41,842	)		—			237,852

Net increase (decrease) in cash and cash equivalents		10,736			—		(24	)		—		—		10,712			46,607			—			(143	)		—			57,176
Cash and cash equivalents at beginning of period		92,445			—		32			—		—		92,477			125,593			—			146			—			218,216

Cash and cash equivalents at end of period	$	103,181		$	—	$	8		$	—	$	—	$	103,189		$	172,200		$	—		$	3		$	—		$	275,392