Summary of SIRIUS XM RADIO INC.

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

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those described under "Item 1A - Risk Factors" and elsewhere in this Annual Report. See "Special Note Regarding Forward-Looking Statements."

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

Executive Summary

We broadcast our music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services in the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive our music and other channels, plus new features such as SiriusXM On Demand, over the Internet, including through applications for mobile devices.

We have agreements with every major automaker ("OEMs") to offer satellite radios as factory- or dealer-installed equipment in their vehicles from which we acquire the majority of our subscribers. We also acquire subscribers through the sale or lease of previously owned vehicles with factory-installed satellite radios. Additionally, we distribute our satellite radios through retail locations nationwide and through our website. Satellite radio services are also offered to customers of certain daily rental car companies.

As of December 31, 2012, we had 23,900,336 subscribers of which 19,570,274 were self-pay subscribers and 4,330,062 were paid promotional subscribers. Our subscriber totals include subscribers under our regular pricing plans; discounted pricing plans; subscribers that have prepaid, including payments either made or due from automakers for subscriptions included in the sale or lease price of a vehicle; certain radios activated for daily rental fleet programs; subscribers to our Internet services who do not also have satellite radio subscriptions; and certain subscribers to our weather, traffic, data and Backseat TV services.

Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, semi-annual, quarterly or monthly basis. We offer discounts for prepaid and long-term subscription plans, as well as discounts for multiple subscriptions on each platform. We also derive revenue from other subscription-related 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 Internet radio, Backseat TV, data, traffic, and weather services.

In certain cases, automakers include a subscription to our radio services in the sale or lease price of new and previously owned 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.

As of January 17, 2013, Liberty Media Corporation beneficially owned, directly and indirectly, over 50% of the outstanding shares of our common stock. Liberty Media owns interests in a broad range of media, communications and entertainment businesses, including its subsidiaries Atlanta National League Baseball Club, Inc. and TruePosition, Inc., its interests in Live Nation Entertainment, Barnes & Noble, and minority equity investments in Time Warner Inc. and Viacom.

We also have an equity interest in Sirius XM Canada which offers satellite radio services in Canada. Subscribers to the Sirius XM Canada service are not included in our subscriber count.

Results of Operations

Set forth below are our results of operations for the year ended December 31, 2012 compared with the year ended December 31, 2011 and the year ended December 31, 2011 compared with the year ended December 31, 2010.

                               For the Years Ended December 31,              2012 vs 2011 Change           2011 vs 2010 Change
                             2012            2011            2010             Amount            %           Amount           %
Revenue:
Subscriber revenue       $ 2,962,665     $ 2,595,414     $ 2,414,174     $      367,251         14  %   $    181,240          8  %
Advertising revenue, net
of agency fees                82,320          73,672          64,517              8,648         12  %          9,155         14  %
Equipment revenue             73,456          71,051          71,355              2,405          3  %           (304 )        -  %
Other revenue                283,599         274,387         266,946              9,212          3  %          7,441          3  %
Total revenue              3,402,040       3,014,524       2,816,992            387,516         13  %        197,532          7  %
Operating expenses:
Cost of services:
Revenue share and
royalties                    551,012         471,149         435,410             79,863         17  %         35,739          8  %
Programming and content      278,997         281,234         305,914             (2,237 )       (1 )%        (24,680 )       (8 )%
Customer service and
billing                      294,980         259,719         241,680             35,261         14  %         18,039          7  %
Satellite and
transmission                  72,615          75,902          80,947             (3,287 )       (4 )%         (5,045 )       (6 )%
Cost of equipment             31,766          33,095          35,281             (1,329 )       (4 )%         (2,186 )       (6 )%
Subscriber acquisition
costs                        474,697         434,482         413,041             40,215          9  %         21,441          5  %
Sales and marketing          248,905         222,773         215,454             26,132         12  %          7,319          3  %
Engineering, design and
development                   48,843          53,435          45,390             (4,592 )       (9 )%          8,045         18  %
General and
administrative               261,905         238,738         240,970             23,167         10  %         (2,232 )       (1 )%
Depreciation and
amortization                 266,295         267,880         273,691             (1,585 )       (1 )%         (5,811 )       (2 )%
Restructuring,
impairments and related
costs                              -               -          63,800                  -         nm           (63,800 )       nm
Total operating expenses   2,530,015       2,338,407       2,351,578            191,608          8  %        (13,171 )       (1 )%
Income from operations       872,025         676,117         465,414            195,908         29  %        210,703         45  %
Other income (expense):
Interest expense, net of
amounts capitalized         (265,321 )      (304,938 )      (295,643 )           39,617         13  %         (9,295 )       (3 )%
Loss on extinguishment
of debt and credit
facilities, net             (132,726 )        (7,206 )      (120,120 )         (125,520 )       nm           112,914         94  %
Interest and investment
income (loss)                    716          73,970          (5,375 )          (73,254 )      (99 )%         79,345         nm
Other (loss) income             (226 )         3,252           3,399             (3,478 )     (107 )%           (147 )       (4 )%
Total other expense         (397,557 )      (234,922 )      (417,739 )         (162,635 )      (69 )%        182,817         44  %
Income before income
taxes                        474,468         441,195          47,675             33,273          8  %        393,520        825  %
Income tax benefit
(expense)                  2,998,234         (14,234 )        (4,620 )        3,012,468         nm            (9,614 )     (208 )%
Net income               $ 3,472,702     $   426,961     $    43,055     $    3,045,741        713  %   $    383,906        892  %


nm - not meaningful

Total Revenue

Subscriber Revenue includes subscription, activation and other fees.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             subscriber revenue was $2,962,665 and $2,595,414, respectively, an
             increase of 14%, or $367,251. The increase was primarily
             attributable to a 9% increase in daily weighted average number of
             subscribers, the increase in certain of our subscription rates
             beginning in January 2012, and an increase in subscriptions to
             premium services, including Premier packages, data services and
             Internet streaming. The increase was partially offset by
             subscription discounts offered through customer acquisition and
             retention programs.

•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             subscriber revenue was $2,595,414 and $2,414,174, respectively, an
             increase of 8%, or $181,240. The increase was primarily attributable
             to an increase of 8% in daily weighted average number of subscribers
             and an increase in subscriptions to premium services, including
             Premier packages, data services and Internet subscriptions,
             partially offset by the impact of subscription discounts offered
             through customer acquisition and retention programs.

We expect subscriber revenues to grow based on the growth of our subscriber base, promotions, plan mix, subscription prices and identification of additional revenue streams from subscribers.

Advertising Revenue includes the sale of advertising on certain non-music channels, net of agency fees. Agency fees are based on a contractual percentage of the gross advertising revenue.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             advertising revenue was $82,320 and $73,672, respectively, an
             increase of 12%, or $8,648. The increase was primarily due to a
             greater number of advertising spots sold and broadcast, as well as
             increases in rates charged per spot.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             advertising revenue was $73,672 and $64,517, respectively, an
             increase of 14%, or $9,155. The increase was primarily due to a
             greater number of advertising spots sold and broadcast, as well as
             increases in rates charged per spot.

We expect our advertising revenue to grow as advertisers are attracted to our platform by the increase in our subscriber base.

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

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             equipment revenue was $73,456 and $71,051, respectively, an increase
             of 3%, or $2,405. The increase was driven by royalties from higher
             OEM production, offset by lower direct to consumer sales.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             equipment revenue was $71,051 and $71,355, respectively, a decrease
             of $304. The decrease was driven by a reduction in aftermarket
             hardware subsidies earned, partially offset by increased royalties
             from higher OEM production.

We expect equipment revenue to fluctuate based on OEM production for which we receive royalty payments for our technology and, to a lesser extent, on the volume and mix of equipment sales in our aftermarket and direct to consumer business.

Other Revenue includes amounts earned from subscribers for the U.S. Music Royalty Fee, revenue from our Canadian affiliate and ancillary revenues.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011, other
             revenue was $283,599 and $274,387, respectively, an increase of 3%,
             or $9,212. The increase was driven by revenues from the U.S. Music
             Royalty Fee as the number of subscribers increased, and higher
             royalty revenue from Sirius XM Canada.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010, other
             revenue was $274,387 and $266,946, respectively, an increase of 3%,
             or $7,441. The increase was primarily due to higher royalty revenue
             from Sirius XM Canada. While the number of subscribers subject to
             the U.S. Music Royalty Fee increased, that increase was offset by a
             reduction in December 2010 in the rate charged on primary
             subscriptions.

Other revenue is dependent upon the U.S. Music Royalty Fee and the royalty from our Canadian affiliate. We expect other revenue to increase as our subscriber base drives higher U.S. Music Royalty Fees and as the performance of our Canadian affiliate improves.

Operating Expenses

 Revenue Share and Royalties include distribution and content provider revenue
share, advertising revenue share, and broadcast and web streaming royalties.
Advertising revenue share is recognized in revenue share and royalties in the
period in which the advertising is broadcast.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             revenue share and royalties were $551,012 and $471,149,
             respectively, an increase of 17%, or $79,863, and increased as a
             percentage of total revenue. The increase was primarily attributable
             to greater revenues subject to royalty and/or revenue sharing
             arrangements and a 7% increase in the statutory royalty rate for the
             performance of sound recordings, partially offset by an increase in
             the benefit to earnings from the amortization of deferred credits on
             executory contracts initially recognized in purchase price
             accounting associated with the Merger.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             revenue share and royalties were $471,149 and $435,410,
             respectively, an increase of 8%, or $35,739. For the year ended
             December 31, 2011, revenue share and royalties remained flat as a
             percentage of total revenue. The increase in revenue share and
             royalties was primarily attributable to a 14% increase in our
             revenues subject to royalty and/or revenue sharing arrangements and
             a 7% increase in the statutory royalty rate for the performance of
             sound recordings, partially offset by a $18,974 increase in the
             benefit to earnings from the amortization of deferred credits on
             executory contracts initially recognized in purchase price
             accounting associated with the Merger.

We expect our revenue share and royalty costs to increase as our revenues grow. Under the terms of the Copyright Royalty Board's decision, we paid royalties of 8.0% and 7.5% of gross revenues, subject to certain exclusions, for the years ended December 31, 2012, and 2011, respectively, and will pay 9.0% in 2013. The deferred credits on executory contracts initially recognized in purchase price accounting associated with the Merger are expected to provide increasing benefits to revenue share and royalties through the expiration of the acquired executory contracts in 2013.

Programming and Content includes costs to acquire, create, promote and produce content. We have entered into various agreements with third parties for music and non-music programming that require us to pay license fees, purchase advertising on media properties owned or controlled by the licensor, which is allocated to sales and marketing, and pay other guaranteed amounts.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             programming and content expenses were $278,997 and $281,234,
             respectively, a decrease of 1%, or $2,237, and decreased as a
             percentage of total revenue. The decrease was primarily due to
             savings in content agreements, partially offset by increases in
             personnel costs and reductions in the benefit to earnings from
             purchase price accounting adjustments associated with the Merger
             attributable to the amortization of the deferred credit on acquired
             programming executory contracts.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             programming and content expenses were $281,234 and $305,914,
             respectively, a decrease of 8%, or $24,680, and decreased as a
             percentage of total revenue. The decrease was primarily due to
             savings in content agreements and production costs, partially offset
             by increases in personnel costs and an $8,394 reduction in the
             benefit to earnings from purchase price accounting adjustments
             associated with the Merger attributable to the amortization of the
             deferred credit on acquired programming executory contracts.

Excluding the impact from purchase accounting adjustments, based on our current programming offerings, we expect our programming and content expenses to decrease as agreements expire and are renewed or replaced on more cost effective terms. The impact of purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit on acquired programming executory contracts will continue to decline, in absolute amount and as a percentage of reported programming and content costs, through 2015. Substantially all of the deferred credits on executory contracts will be amortized by the end of 2013.

Customer Service and Billing includes costs associated with the operation and management of third party customer service centers, and our subscriber management systems as well as billing and collection costs, transaction fees and bad debt expense.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             customer service and billing expenses were $294,980 and $259,719,
             respectively, an increase of 14%, or $35,261, but remained flat as a
             percentage of total revenue. The increase was primarily due to
             longer average handle time per call and higher subscriber volume
             driving increased subscriber contacts and higher technology costs.

•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             customer service and billing expenses were $259,719 and $241,680,
             respectively, an increase of 7%, or $18,039, but remained flat as a
             percentage of total revenue. The increase was primarily attributable
             to an 8% increase in daily weighted average number of subscribers
             which drove higher call volume, billing and collection costs,
             transaction fees, as well as increased handle time per call and
             personnel costs. This increase was partially offset by lower agent
             rates, fewer contacts per subscriber and lower general operating
             costs.

We expect our customer service and billing expenses to increase as our subscriber base grows.

Satellite and Transmission consists of costs associated with the operation and maintenance of our satellites; satellite telemetry, tracking and control systems; terrestrial repeater networks; satellite uplink facilities; broadcast studios; and delivery of our Internet streaming service.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             satellite and transmission expenses were $72,615 and $75,902,
             respectively, a decrease of 4%, or $3,287, and decreased as a
             percentage of total revenue. The decrease was primarily due to a
             reduction of satellite in-orbit insurance expense as we elected not
             to renew insurance policies on certain older satellites.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             satellite and transmission expenses were $75,902 and $80,947,
             respectively, a decrease of 6%, or $5,045, and decreased as a
             percentage of total revenue. The decrease was due to savings in
             repeater expenses from network optimization along with favorable
             lease renewals, a reduction of satellite in-orbit insurance expense,
             and a transition to more cost-effective approaches to satellite and
             broadcast operations.

We expect overall satellite and transmission expenses to increase as we enhance our Internet-based service and add functionality, launch our FM-6 satellite and incur in-orbit insurance costs, and extend our terrestrial repeater network.

Cost of Equipment includes costs from the sale of satellite radios, components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011, cost
             of equipment was $31,766 and $33,095, respectively, a decrease of
             4%, or $1,329, and decreased as a percentage of equipment revenue.
             The decrease was primarily due to lower direct to consumer sales,
             partially offset by higher inventory reserves.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010, cost
             of equipment was $33,095 and $35,281, respectively, a decrease of
             6%, or $2,186, and decreased as a percentage of equipment revenue.
             The decrease was primarily due to lower volume of direct to consumer
             sales.

We expect cost of equipment to vary with changes in sales, supply chain management and inventory valuations.

Subscriber Acquisition Costs include hardware subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who include a satellite radio and subscription to our service in the sale or lease price of a new vehicle; subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for certain radios and chip sets; commissions paid to automakers as incentives to purchase, install and activate satellite radios; product warranty obligations; freight; and provisions for inventory allowances attributable to inventory consumed in our OEM and retail distribution channels. The majority of subscriber acquisition costs are incurred and expensed in advance of, or concurrent with, acquiring a subscriber. Subscriber acquisition costs do not include advertising, marketing, loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011,
             subscriber acquisition costs were $474,697 and $434,482,
             respectively, an increase of 9%, or $40,215, and decreased as a
             percentage of total revenue. The increase was primarily a result of
             higher subsidies related to increased OEM installations occurring in
             advance of acquiring the subscriber, partially offset by improved
             OEM subsidy rates per vehicle and increases in the benefit to
             earnings from the amortization of the deferred credit for acquired
             executory contracts recognized in purchase price accounting
             associated with the Merger.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010,
             subscriber acquisition costs were $434,482 and $413,041,
             respectively, an increase of 5%, or $21,441, and decreased as a
             percentage of total revenue. The increase was primarily a result of
             the 12% increase in gross subscriber additions and higher subsidies
             related to

increased OEM installations occurring in advance of acquiring the subscriber, partially offset by improved OEM subsidy rates per vehicle and a $6,052 increase in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the Merger.

We expect total subscriber acquisition costs to fluctuate with increases or decreases in OEM installations and changes in our gross subscriber additions. Changes in contractual OEM subsidy rates and the cost of subsidized radio components will also impact total subscriber acquisition costs. The impact of purchase price accounting adjustments associated with the Merger attributable to the amortization of the deferred credit for acquired executory contracts will vary, in absolute amount and as a percentage of reported subscriber acquisition costs, through the expiration of the acquired contracts in 2013. We intend to continue to offer subsidies, commissions and other incentives to acquire subscribers.

Sales and Marketing includes costs for advertising, media and production, including promotional events and sponsorships; cooperative marketing; customer acquisition and retention, and personnel. Cooperative marketing costs include fixed and variable payments to reimburse retailers and automakers for the cost of advertising and other product awareness activities performed on our behalf. Customer acquisition and retention costs include expenses related to direct mail, outbound telemarketing and email.

•            2012 vs. 2011: For the years ended December 31, 2012 and 2011, sales
             and marketing expenses were $248,905 and $222,773, respectively, an
             increase of 12%, or $26,132, and remained flat as a percentage of
             total revenue. The increase was primarily due to additional
             subscriber communications and retention programs associated with a
             greater number of subscribers and promotional trials, and higher OEM
             cooperative marketing.



•            2011 vs. 2010: For the years ended December 31, 2011 and 2010, sales
             and marketing expenses were $222,773 and $215,454, respectively, an
             increase of 3%, or $7,319, and decreased as a percentage of total
             revenue. The increase was primarily due to increased subscriber
             communications and retention programs associated with a greater
             number of subscribers and promotional trials, partially offset by
             reductions in consumer advertising and event marketing.

We anticipate that sales and marketing expenses will increase as we launch seasonal advertising and promotional initiatives to attract new subscribers, and launch and expand programs to retain our existing subscribers and win-back . . .