(All dollar amounts referenced in this Item 2 are in thousands, unless otherwise stated)

Special Note Regarding Forward-Looking Statements

The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Quarterly Report on Form 10-Q and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intend," "plan," "projection" and "outlook." Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout our Annual Report on Form 10-K for the year ended December 31, 2008 (the "Form 10-K"), and in other reports and documents published by us from time to time, particularly the risk factors described under "Business - Risk Factors" in Item 1A of the Form 10-K.

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

• the substantial indebtedness of SIRIUS, XM Holdings and XM;

• the possibility that the benefits of the merger with XM Holdings may not be fully realized or may take longer to realize; and the risks associated with the undertakings made to the FCC and the effects of those undertakings on the business of XM and SIRIUS in the future;

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

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

• the competitive position of SIRIUS and XM versus other forms of audio and video entertainment including terrestrial radio, HD radio, internet radio, mobile phones, iPods and other MP3 devices, and emerging next-generation networks and technologies.

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

Executive Summary

We broadcast our music, sports, news, talk, entertainment, traffic and weather channels in the United States on a subscription fee basis through our proprietary satellite radio systems - the SIRIUS system and the XM system. On July 28, 2008, our wholly owned subsidiary, Vernon Merger Corporation, merged (the "Merger") with and into XM Satellite Radio Holdings Inc. and, as a result, XM Satellite Radio Holdings Inc. is now our wholly owned subsidiary. The SIRIUS system consists of four in-orbit satellites, approximately 120 terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios. The XM system consists of four in-orbit satellites, over 700 terrestrial repeaters that receive and retransmit signals, satellite uplink facilities and studios. Subscribers can also receive certain of our music and other channels over the Internet.

Our satellite radios are primarily distributed through automakers ("OEMs"), national, regional and specialty retail locations, pre-owned vehicle retailers and through our websites. We have agreements with every major automaker to offer SIRIUS or XM satellite radios as factory or dealer-installed equipment in their vehicles. SIRIUS and XM radios are also offered to customers of rental car companies.

Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or monthly basis. We offer discounts for pre-paid and long-term subscriptions as well as discounts for multiple subscriptions on each platform. In 2009, we increased the discounted price for additional subscriptions from $6.99 per month to $8.99 per month. We also derive revenue from activation fees, the sale of advertising on select non-music channels, the direct sale of satellite radios, components and accessories, and other ancillary services, such as our Backseat TV, data and weather services.

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

We also have an interest in the satellite radio services offered in Canada. Subscribers to the SIRIUS Canada service and the XM Canada service are not included in our subscriber count.

On August 5, 2008, Sirius Satellite Radio Inc. changed its name to Sirius XM Radio Inc. XM Satellite Radio Holdings Inc., together with its subsidiaries, is operated as an unrestricted subsidiary under the agreements governing our existing indebtedness. As an unrestricted subsidiary, transactions between the companies are required to comply with various contractual provisions in our respective debt instruments.

Unaudited Actual and Pro Forma Information

Our discussion of our unaudited pro forma information includes non-GAAP financial results that assume the Merger occurred on January 1, 2008. These financial results exclude the impact of purchase price accounting adjustments and refinancing transactions related to the Merger. The discussion also includes the following non-GAAP financial measures: average self-pay monthly churn; conversion rate; average monthly revenue per subscriber, or ARPU; subscriber acquisition cost, or SAC, as adjusted, per gross subscriber addition; customer service and billing expenses, as adjusted, per average subscriber; free cash flow; and adjusted income (loss) from operations. We believe this non-GAAP financial information provides meaningful supplemental information regarding our operating performance and is used for internal management purposes, when publicly providing the business outlook, and as a means to evaluate period-to-period comparisons. Please refer to the footnotes (pages 56 through 65) following our discussion of results of operations for the definitions and a further discussion of the usefulness of such non-GAAP financial information and reconciliation to GAAP.

Unaudited Actual and Pro Forma Quarterly Subscribers and Metrics:



                                                                     Unaudited
                                             Three Months Ended                     Six Months Ended
                                                  June 30,                              June 30,
                                           2009               2008               2009               2008
                                         (Actual)         (Pro Forma)          (Actual)         (Pro Forma)
Beginning subscribers                    18,599,434         17,974,531         19,003,856         17,348,622
Gross subscriber additions                1,380,125          2,111,655          2,719,086          4,153,311
Deactivated subscribers                  (1,566,124 )       (1,509,356 )       (3,309,507 )       (2,925,103 )

Net additions                              (185,999 )          602,299           (590,421 )        1,228,208

Ending subscribers                       18,413,435         18,576,830         18,413,435         18,576,830


Retail                                    8,235,761          9,185,837          8,235,761          9,185,837
OEM                                      10,081,514          9,285,488         10,081,514          9,285,488
Rental                                       96,160            105,505             96,160            105,505

Ending subscribers                       18,413,435         18,576,830         18,413,435         18,576,830


Retail                                     (301,295 )           (4,090 )         (669,326 )          (52,878 )
OEM                                         123,165            593,169             85,561          1,252,220
Rental                                       (7,869 )           13,220             (6,656 )           28,866

Net additions                              (185,999 )          602,299           (590,421 )        1,228,208


Self-pay                                 15,421,414         14,829,150         15,421,414         14,829,150
Paid promotional                          2,992,021          3,747,680          2,992,021          3,747,680

Ending subscribers                       18,413,435         18,576,830         18,413,435         18,576,830


Self-pay                                    (14,996 )          515,744           (128,243 )          955,804
Paid promotional                           (171,003 )           86,555           (462,178 )          272,404

Net additions                              (185,999 )          602,299           (590,421 )        1,228,208


Daily weighted average number of
subscribers                              18,438,473         18,240,018         18,575,219         17,931,515


                                                                Unaudited Pro Forma
                                             Three Months Ended                     Six Months Ended
                                                  June 30,                              June 30,
                                           2009               2008               2009               2008
Average self-pay monthly churn
(1)(7)                                          2.0 %              1.7 %              2.1 %              1.8 %
Conversion rate (2)(7)                         44.4 %             50.6 %             44.7 %             50.8 %
ARPU (3)(7)                            $      10.66       $      10.55       $      10.57       $      10.54
SAC, as adjusted, per gross
subscriber addition (4)(7)             $         57       $         71       $         59       $         77
Customer service and billing
expenses, as adjusted, per average
subscriber (5)(7)                      $       1.05       $       1.06       $       1.06       $       1.10
Total revenue                          $    607,836       $    601,052       $  1,213,317       $  1,179,857
Free cash flow (6)(7)                  $     12,694       $   (168,955 )     $      9,048       $   (480,054 )
Adjusted income (loss) from
operations (8)                         $    132,219       $    (61,118 )     $    241,055       $   (131,273 )
Net loss                               $   (171,280 )     $   (203,471 )     $   (234,155 )     $   (436,858 )

Note: See pages 56 through 65 for footnotes.

Subscribers. At June 30, 2009 we had 18,413,435 subscribers, a decrease of 163,395 subscribers, or 1%, from the 18,576,830 subscribers as of June 30, 2008. The decrease was principally the result of 755,659 fewer gross paid promotional trial additions due to the decline in North American auto sales. This decline was partially offset by an increase of 592,264 in self pay subscribers compared

ARPU. ARPU is derived from total earned subscriber revenue and net advertising revenue, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. See accompanying footnotes for more details.

• Three Months: For the three months ended June 30, 2009 and 2008, total ARPU was $10.66 and $10.55, respectively. The increase was driven mainly by the sale of "Best of" programming, increased rates on our multi-subscription packages and revenues earned on our internet packages, partially offset by lower ad revenue.

• Six Months: For the six months ended June 30, 2009 and 2008, total ARPU was $10.57 and $10.54, respectively. Increases in subscriber revenue were driven mainly by the sale of "Best of" programming, increased rates on our multi-subscription packages and revenues earned on our internet packages, partially offset by lower ad revenue.

SAC, As Adjusted, Per Gross Subscriber Addition. SAC, as adjusted, per gross subscriber addition is derived from subscriber acquisition costs and margins from the direct sale of radios and accessories, excluding share-based payment expense, divided by the number of gross subscriber additions for the period. See accompanying footnotes for more details.

• Three Months: For the three months ended June 30, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $57 and $71, respectively. The decrease in SAC was primarily driven by fewer OEM installations relative to gross subscriber additions, decreased production of certain radios and lower OEM subsidies compared to the three months ended June 30, 2008.

• Six Months: For the six months ended June 30, 2009 and 2008, SAC, as adjusted, per gross subscriber addition was $59 and $77, respectively. The decrease was primarily driven by fewer OEM installations relative to gross subscriber additions, decreased production of certain radios, lower OEM subsidies and lower aftermarket inventory reserves in the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

Customer Service and Billing Expenses, As Adjusted, Per Average Subscriber.Customer service and billing expenses, as adjusted, per average subscriber is derived from total customer service and billing expenses, excluding share-based payment expense, divided by the number of months in the period, divided by the daily weighted average number of subscribers for the period. See accompanying footnotes for more details.

• Three Months: For the three months ended June 30, 2009 and 2008, customer service and billing expenses, as adjusted, per average subscriber was $1.05 and $1.06, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses across a larger subscriber base.

• Six Months: For the six months ended June 30, 2009 and 2008, customer service and billing expenses, as adjusted, per average subscriber was $1.06 and $1.10, respectively. The decline was primarily due to decreases in personnel costs and customer call center expenses across a larger subscriber base.

Adjusted Income (Loss) from Operations. We refer to net loss before interest and investment income; interest expense, net of amounts capitalized; income tax expense, loss on extinguishment of debt and credit facilities, net; gain (loss) on investments, other expense (income), restructuring, impairments and related costs, depreciation and amortization, and share-based payment expense as adjusted income (loss) from operations. See accompanying footnotes for more details.

• Three Months: For the three months ended June 30, 2009 and 2008, our adjusted income (loss) from operations was $132,219 and ($61,118), respectively. Adjusted income (loss) from operations was favorably impacted by an increase of 1%, or $6,784, in revenues and a decrease of 28%, or $186,553, in total expense categories included in adjusted income
(loss) from operations. The increase in revenue is due mainly to an increase in weighted average subscribers as well as increased rates on multi-subscription packages, revenues earned on internet streaming packages and the sale of "Best of" programming. The decreases in expenses were primarily driven by lower Subscriber acquisition costs, lower Sales and marketing discretionary spend, savings in Programming and content expenses, and lower legal and consulting costs in General and administrative expenses.

• Six Months: For the six months ended June 30, 2009 and 2008, our adjusted income (loss) from operations was $241,055 and ($131,273), respectively. Adjusted income (loss) from operations was favorably impacted by an increase of 3%, or $33,460, in revenues and a decrease of 26%, or $338,868, in total expense categories included in adjusted income (loss) from operations. The increase in revenue was due mainly to an increase in weighted average subscribers as well as increased rates on multi-subscription packages, revenues earned on internet packages and the sale of "Best of" programming.

Unaudited Pro Forma Results of Operations. Set forth below are certain pro forma items that give effect to the Merger as if it had occurred on January 1, 2008. The pro forma information below does not give effect to any adjustments as a result of the purchase price accounting for the Merger, or the goodwill impairment charge taken during 2008. See footnote 8 (pages 57 to 58) for a reconciliation of net loss to adjusted income (loss) from operations.

                                                                Unaudited Pro Forma
                                              Three Months Ended                  Six Months Ended
                                                   June 30,                           June 30,
                                             2009             2008             2009              2008
Revenue:
Subscriber revenue, including effects
of rebates                                $  576,958       $  558,290       $ 1,153,034       $ 1,097,345
Advertising revenue, net of agency
fees                                          12,564           18,764            24,869            36,290
Equipment revenue                             10,928           15,447            20,837            25,831
Other revenue                                  7,386            8,551            14,577            20,391

Total revenue                                607,836          601,052         1,213,317         1,179,857

Operating expenses:
Satellite and transmission                    18,659           25,467            38,401            51,202
Programming and content                       87,707          101,871           184,386           209,793
Revenue share and royalties                  117,671          123,309           238,932           234,451
Customer service and billing                  58,054           58,236           117,723           118,302
Cost of equipment                              8,051           15,702            16,044            31,840
Sales and marketing                           48,610          103,326            99,212           182,403
Subscriber acquisition costs                  80,988          150,585           164,698           311,919
General and administrative                    45,754           67,980            94,331           139,460
Engineering, design and development           10,123           15,694            18,535            31,760
Depreciation and amortization                 46,118           59,551            97,599           131,940
Share-based payment expense                   31,003           30,098            52,501            69,864
Restructuring, impairments and related
costs                                         27,000               -             27,614                -

Total operating expenses                     579,738          751,819         1,149,976         1,512,934

Income (loss) from operations                 28,098         (150,767 )          63,341          (333,077 )
Other expense                               (198,263 )        (51,488 )        (295,267 )        (101,691 )

Loss before income taxes                    (170,165 )       (202,255 )        (231,926 )        (434,768 )
Income tax expense                            (1,115 )         (1,216 )          (2,229 )          (2,090 )

Net loss                                  $ (171,280 )     $ (203,471 )     $  (234,155 )     $  (436,858 )

Highlights for the Three Months Ended June 30, 2009. Our revenue grew 1%, or $6,784, in the three months ended June 30, 2009 compared to the same period in 2008. This revenue growth was driven by a 1% growth in weighted average subscribers, the sale of "Best of" programming and rate increases on our multi-subscription and Internet packages resulting in the growth of Subscriber revenue by 3%, or $18,668, in the three months ended June 30, 2009 compared to the same period in 2008. Advertising revenue decreased 33%, or $6,200, in the three months ended June 30, 2009 compared to the same period in 2008. The decrease in advertising revenue was driven by the decline in the national radio advertising market and the current economic environment. Equipment revenue decreased 29%, or $4,519, in the three months ended June 30, 2009 compared to the same period in 2008. The decrease in equipment revenue was driven by declines in sales through our direct to consumer distribution channel. Other revenue decreased 14%, or $1,165, in the three months ended June 30, 2009 compared to the same period in 2008. The overall increase in revenue, combined with a decrease of 28%, or $186,553, in adjusted operating costs (total operating expense excluding restructuring, impairments and related costs, depreciation and amortization and share-based payment expense), resulted in improved adjusted income (loss) from operations of $132,219 in the three months ended June 30, 2009 compared to ($61,118) in the same three month period in 2008.

Satellite and transmission costs decreased 27%, or $6,808, in the three months ended June 30, 2009 compared to the same period in 2008 due to reductions in maintenance costs, repeater lease expense, and personnel costs. Programming and content costs decreased 14%, or $14,164, in the three months ended June 30, 2009 compared to the same period in 2008, due mainly to reductions in personnel and on-air talent costs as well as savings on certain content agreements. Revenue share and royalties decreased by 5%, or $5,638. Customer service and billing costs remained flat with a decrease of $182 in the three months ended June 30, 2009 compared to the same period in 2008. Cost of equipment decreased by 49%, or $7,651, in the three months ended June 30, 2009 compared to the

Subscriber acquisition costs decreased 46%, or $69,597, and decreased as a percentage of revenue to 13% from 25% in the three months ended June 30, 2009 compared to the same period in 2008. This improvement was driven by fewer OEM installations relative to gross subscriber additions, decreased production of certain radios, lower OEM subsidies and lower aftermarket inventory reserves as compared to the three months ended June 30, 2008. Subscriber acquisition costs also decreased as a result of the 35% decline in gross additions during the three months ended June 30, 2009 compared to the three months ended June 30, 2008.

General and administrative costs decreased 33%, or $22,226, mainly due to the absence of certain legal and regulatory charges incurred in 2008 and lower personnel costs. Engineering, design and development costs decreased 35%, or $5,571, in the three months ended June 30, 2009 compared to the same period in 2008, due to lower costs associated with manufacturing of radios, OEM tooling and manufacturing, and personnel.

Restructuring, impairments and related costs increased $27,000 mainly due to a loss of $24,196 on capitalized installment payments, which are expected to provide no future benefit due to the counterparty's bankruptcy filing, for the launch of a satellite.

Other expenses increased 285%, or $146,775, in the three months ended June 30, 2009 compared to the same period in 2008 driven mainly by the loss on extinguishment of debt and credit facilities of $107,756, and an increase in interest expense of $53,354, offset by an increase of $12,795 in gain on investments. The loss on the extinguishment of debt and credit facilities was incurred on the full repayment of XM's Amended and Restated Credit Agreement and its Second-Lien Credit Agreement. Interest expense increased due primarily to the issuance of XM's 13% Senior Notes due 2013 and the 7% Exchangeable Senior Subordinated Notes due 2014 in the third quarter of 2008.

Highlights for the Six Months Ended June 30, 2009. Our subscriber revenue grew 5%, or $55,689, in the six months ended June 30, 2009 compared to the same period in 2008. This revenue growth was driven by a 4% growth in weighted average subscribers over the period. Advertising revenue decreased 31%, or $11,421, in the six months ended June 30, 2009 compared to the same period in 2008. The decrease in advertising revenue was driven by the current economic environment. Equipment revenue decreased 19%, or $4,994, in the six months ended June 30, 2009 compared to the same period in 2008. The decrease in equipment revenue was driven by declines in sales through our direct to consumer distribution channel. Other revenue decreased 29%, or $5,814, in the six months ended June 30, 2009 compared to the same period in 2008. Total revenue increased . . .