Quarterly Report


Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE TRANSITION PERIOD FROM __________ TO ________
COMMISSION FILE NUMBER 001-34295
 
SIRIUS XM RADIO INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
52-1700207
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
1221 Avenue of the Americas, 36th Floor
 
 
New York, New York
 
10020
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (212) 584-5100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ         No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ         No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
(Class)
 
(Outstanding as of July 24, 2013)
COMMON STOCK, $0.001 PAR VALUE
 
6,209,264,140
SHARES




Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Item No.
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   1
 
 
 
 
 
 
   2
 
 
 
 
 
 
   3
 
 
 
 
 
 
   4
 
 
 
 
 
 
   6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
(in thousands, except per share data)
2013
 
2012
 
2013
 
2012
Revenue:
 
 
 
 
 
 
 
Subscriber revenue
$
814,718

 
$
730,285

 
$
1,598,060

 
$
1,430,526

Advertising revenue
21,757

 
20,786

 
41,968

 
39,456

Equipment revenue
18,443

 
16,417

 
36,599

 
33,370

Other revenue
85,192

 
70,055

 
160,881

 
138,912

Total revenue
940,110

 
837,543

 
1,837,508

 
1,642,264

Operating expenses:
 
 
 
 
 
 
 
Cost of services:
 
 
 
 
 
 
 
Revenue share and royalties
155,859

 
135,426

 
304,390

 
267,537

Programming and content
70,381

 
65,169

 
144,991

 
135,265

Customer service and billing
80,290

 
68,679

 
160,684

 
134,866

Satellite and transmission
19,493

 
17,551

 
39,188

 
35,661

Cost of equipment
5,442

 
7,150

 
12,469

 
12,956

Subscriber acquisition costs
129,992

 
119,475

 
246,103

 
235,596

Sales and marketing
68,058

 
57,422

 
133,956

 
115,781

Engineering, design and development
15,052

 
6,272

 
29,894

 
18,962

General and administrative
60,392

 
65,664

 
116,732

 
125,550

Depreciation and amortization
67,415

 
66,793

 
134,433


132,910

Total operating expenses
672,374

 
609,601

 
1,322,840

 
1,215,084

Income from operations
267,736

 
227,942

 
514,668

 
427,180

Other income (expense):

 

 
 
 
 
Interest expense, net of amounts capitalized
(49,728
)
 
(72,770
)
 
(95,902
)
 
(149,742
)
Loss on extinguishment of debt and credit facilities, net
(16,377
)
 
(15,650
)
 
(16,377
)
 
(25,621
)
Interest and investment income (loss)
294

 
(1,728
)
 
1,932

 
(2,871
)
Other income (loss)
256

 
(173
)
 
502

 
(749
)
Total other expense
(65,555
)
 
(90,321
)
 
(109,845
)
 
(178,983
)
Income before income taxes
202,181

 
137,621

 
404,823

 
248,197

Income tax (expense) benefit
(76,659
)
 
2,996,549

 
(155,699
)
 
2,993,747

Net income
$
125,522

 
$
3,134,170

 
$
249,124

 
$
3,241,944

Foreign currency translation adjustment, net of tax
(109
)
 
18

 
(281
)
 
(38
)
Total comprehensive income
$
125,413

 
$
3,134,188

 
$
248,843

 
$
3,241,906

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.02

 
$
0.49

 
$
0.04

 
$
0.51

Diluted
$
0.02

 
$
0.48

 
$
0.04

 
$
0.50

Weighted average common shares outstanding:
 
 
 
 

 


Basic
6,354,755

 
3,765,573

 
6,307,541

 
3,766,508

Diluted
6,447,517

 
6,506,159

 
6,526,698

 
6,521,614


See accompanying notes to the unaudited consolidated financial statements.

1

Table of Contents

SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
June 30, 2013
 
December 31, 2012
(in thousands, except share and per share data)
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
651,769

 
$
520,945

Accounts receivable, net
101,203

 
106,142

Receivables from distributors
111,288

 
104,425

Inventory, net
16,688

 
25,337

Prepaid expenses
149,408

 
122,157

Related party current assets
9,127

 
13,167

Deferred tax asset
894,303

 
923,972

Other current assets
10,177

 
12,037

Total current assets
1,943,963

 
1,828,182

Property and equipment, net
1,523,615

 
1,571,922

Long-term restricted investments
3,999

 
3,999

Deferred financing fees, net
31,757

 
38,677

Intangible assets, net
2,494,474

 
2,519,610

Goodwill
1,815,365

 
1,815,365

Related party long-term assets
36,506

 
44,954

Long-term deferred tax asset
1,089,981

 
1,219,256

Other long-term assets
11,526

 
12,878

Total assets
$
8,951,186

 
$
9,054,843

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
550,959

 
$
587,652

Accrued interest
37,822

 
33,954

Current portion of deferred revenue
1,539,841

 
1,474,138

Current portion of deferred credit on executory contracts
71,854

 
207,854

Current maturities of long-term debt
3,873

 
4,234

Related party current liabilities
7,927

 
6,756

Total current liabilities
2,212,276

 
2,314,588

Deferred revenue
152,914

 
159,501

Deferred credit on executory contracts
3,285

 
5,175

Long-term debt
3,036,660

 
2,222,080

Long-term related party debt
209,244

 
208,906

Related party long-term liabilities
17,578

 
18,966

Other long-term liabilities
80,383

 
86,062

Total liabilities
5,712,340

 
5,015,278

Commitments and contingencies (Note 15)

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.001; 50,000,000 authorized at June 30, 2013 and December 31, 2012:
 
 
 
Convertible perpetual preferred stock, series B-1 (liquidation preference of $0.001 per share); 0 and 6,250,100 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively

 
6

Common stock, par value $0.001; 9,000,000,000 shares authorized; 6,257,721,498 and 5,262,440,085 shares issued; 6,247,221,498 and 5,262,440,085 shares outstanding, at June 30, 2013 and December 31, 2012, respectively
6,258

 
5,263

Accumulated other comprehensive (loss) income, net of tax
(161
)
 
120

Additional paid-in capital
9,330,188

 
10,345,566

Treasury stock, at cost; 10,500,000 and 0 shares of common stock at June 30, 2013 and December 31, 2012, respectively
(35,173
)
 

Accumulated deficit
(6,062,266
)
 
(6,311,390
)
Total stockholders’ equity
3,238,846

 
4,039,565

Total liabilities and stockholders’ equity
$
8,951,186

 
$
9,054,843


See accompanying notes to the unaudited consolidated financial statements.

2


SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

 
Convertible Perpetual
Preferred Stock,
Series B-1
 
Common Stock
 
 
 
 
 
Treasury Stock
 
 
 
 
(in thousands, except share data)
Shares
 
Amount
 
Shares
 
Amount
 
Accumulated Other Comprehensive Income (Loss)
 
Additional
Paid-in
Capital
 
Shares
 
Amount
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
Balance at December 31, 2012
6,250,100

 
$
6

 
5,262,440,085

 
$
5,263

 
$
120

 
$
10,345,566

 

 
$

 
$
(6,311,390
)
 
$
4,039,565

Comprehensive income, net of tax

 
$

 

 
$

 
$
(281
)
 
$

 

 
$

 
$
249,124

 
$
248,843

Share-based payment expense

 
$

 

 
$

 
$

 
$
30,012

 

 
$

 
$

 
$
30,012

Exercise of options and vesting of restricted stock units

 
$

 
16,153,122

 
$
16

 
$

 
$
19,102

 

 
$

 
$

 
$
19,118

Conversion of preferred stock to common stock
(6,250,100
)
 
$
(6
)
 
1,293,509,076

 
$
1,293

 
$

 
$
(1,287
)
 

 
$

 
$

 
$

Conversion of Exchangeable Notes to common stock

 
$

 
27,687,850

 
$
28

 
$

 
$
45,069

 

 
$

 
$

 
$
45,097

Common stock repurchased

 
$

 

 
$

 
$

 
$

 
352,568,635

 
$
(1,143,789
)
 
$

 
$
(1,143,789
)
Common stock retired

 
$

 
(342,068,635
)
 
$
(342
)
 
$

 
$
(1,108,274
)
 
(342,068,635
)
 
$
1,108,616

 
$

 
$

Balance at June 30, 2013

 
$

 
6,257,721,498

 
$
6,258

 
$
(161
)
 
$
9,330,188

 
10,500,000

 
$
(35,173
)
 
$
(6,062,266
)
 
$
3,238,846

See accompanying notes to the unaudited consolidated financial statements.

3


SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
For the Six Months Ended June 30,
(in thousands)
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
249,124

 
$
3,241,944

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
134,433

 
132,910

Non-cash interest expense, net of amortization of premium
10,932

 
21,031

Provision for doubtful accounts
20,153

 
14,879

Amortization of deferred income related to equity method investment
(1,388
)
 
(1,388
)
Loss on extinguishment of debt and credit facilities, net
16,377

 
25,621

(Gain) loss on unconsolidated entity investments, net
(1,382
)
 
3,469

Dividend received from unconsolidated entity investment
13,217

 

Loss on disposal of assets
126

 
488

Share-based payment expense
30,012

 
28,869

Deferred income taxes
159,191

 
(2,995,542
)
Other non-cash purchase price adjustments
(137,889
)
 
(147,328
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(15,214
)
 
(26,879
)
Receivables from distributors
(6,863
)
 
(12,259
)
Inventory
8,649

 
(173
)
Related party assets
205

 
6,813

Prepaid expenses and other current assets
(28,317
)
 
(39,308
)
Other long-term assets
1,353

 
16,579

Accounts payable and accrued expenses
(69,310
)
 
(51,596
)
Accrued interest
3,868

 
(7,434
)
Deferred revenue
59,116

 
79,288

Related party liabilities
1,171

 
1,501

Other long-term liabilities
(5,543
)
 
2,238

Net cash provided by operating activities
442,021

 
293,723

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(62,980
)
 
(48,944
)
Net cash used in investing activities
(62,980
)
 
(48,944
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
21,658

 
38,671

Payment of premiums on redemption of debt
(14,719
)
 
(19,211
)
Repayment of long-term borrowings
(283,180
)
 
(169,899
)
Long-term borrowings, net of costs
1,136,640

 

Common stock repurchased and retired
(1,108,616
)
 

Net cash used in financing activities
(248,217
)
 
(150,439
)
Net increase in cash and cash equivalents
130,824

 
94,340

Cash and cash equivalents at beginning of period
520,945

 
773,990

Cash and cash equivalents at end of period
$
651,769

 
$
868,330

See accompanying notes to the unaudited consolidated financial statements.







4



SIRIUS XM RADIO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(UNAUDITED)
 
For the Six Months Ended June 30,
(in thousands)
2013
 
2012
Supplemental Disclosure of Cash and Non-Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized
$
76,540

 
$
121,480

Non-cash investing and financing activities:

 

Capital lease obligations incurred to acquire assets

 
12,781

Conversion of Series B preferred stock to common stock
1,293

 

Conversion of 7% Exchangeable Notes to common stock, net of debt issuance and deferred financing costs
45,097

 

Goodwill reduced for the exercise and vesting of certain stock awards

 
19,183

Treasury stock not yet settled
35,173

 


See accompanying notes to the unaudited consolidated financial statements.

5

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)


(1)
Business & Basis of Presentation
Business
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 music and other channels, plus new features such as SiriusXM On Demand and MySXM, 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 a majority of our subscribers. We also acquire subscribers through marketing campaigns to owners of factory-installed satellite radios that are not currently subscribing to our services. 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.

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. 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 and dealers include a subscription to our radio services in the sale or lease price of new or previously owned vehicles. The length of these trial subscriptions varies but is typically three to twelve months. We receive subscription payments for these trials from certain automakers. We also reimburse various automakers for certain costs associated with satellite radios installed in their vehicles.

Liberty Media Corporation beneficially owned as of June 30, 2013 , 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 Charter Communications, Live Nation Entertainment, Barnes & Noble, and minority equity investments in Time Warner Inc. and Viacom.
Principles of Consolidation
The accompanying consolidated financial statements of Sirius XM Radio Inc. and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the financial statements presented in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
Basis of Presentation
Certain numbers in our prior period consolidated financial statements have been reclassified to conform to our current period presentation. All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of our unaudited consolidated financial statements as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012 have been made.

Interim results are not necessarily indicative of the results that may be expected for a full year. This Quarterly Report on Form 10-Q should be read together with our Annual Report on Form 10-K for the year ended December 31, 2012 , which was filed with the SEC on February 6, 2013.

We have evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2013 and have determined that no events have occurred that would require adjustment to our unaudited consolidated financial statements. For a discussion of subsequent events refer to Note 17.

6

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include asset impairment, depreciable lives of our satellites, share-based payment expense and income taxes.

(2)
Summary of Significant Accounting Policies
Fair Value of Financial Instruments
The fair value for publicly traded instruments is determined using quoted market prices while the fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. As of June 30, 2013 and December 31, 2012 , the carrying value of our debt was $3,249,777 and $2,435,220 , respectively, and the fair value approximated $3,803,074 and $3,055,076 , respectively. The carrying value of our investment in Sirius XM Canada was $31,852 and $37,983 as of June 30, 2013 and December 31, 2012 , respectively; the fair value approximated $310,300 and $290,900 as of June 30, 2013 and December 31, 2012 , respectively.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss of $161 was primarily comprised of the cumulative foreign currency translation adjustments related to our interest in Sirius XM Canada. During the three months ended June 30, 2013 , we recorded a foreign currency translation adjustment loss of $109 , net of a tax benefit of $57 ; during the six months ended June 30, 2013 , we recorded a foreign currency translation adjustment loss of $281 , net of a tax benefit of $140 .
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , to require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This standard was effective for interim and annual periods beginning after December 15, 2012 and is to be applied on a prospective basis. We adopted ASU 2013-02 and will disclose significant amounts reclassified out of accumulated other comprehensive income as such transactions arise. ASU 2013-02 affects financial statement presentation only and has no impact on our results of unaudited consolidated financial statements.

(3)
Earnings per Share

We utilize the two-class method in calculating basic net income per common share, as our Series B Preferred Stock was considered to be participating securities through January 18, 2013. On January 18, 2013, Liberty Media converted its remaining 6,250,100 outstanding shares of the Series B Preferred Stock into 1,293,509,076 shares of common stock. Basic net income per common share is calculated by dividing income available to common stockholders by the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average number of common shares outstanding for the potential dilution that could occur if common stock equivalents (convertible debt, preferred stock, warrants, stock options and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method.

Common stock equivalents of approximately 355,918,000 and 427,160,000 for the three months ended June 30, 2013 and 2012 , respectively, and 352,795,000 and 428,045,000 for the six months ended June 30, 2013 and 2012 , respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.

7

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
(in thousands, except per share data)
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income
$
125,522

 
$
3,134,170

 
$
249,124

  
$
3,241,944

Less:
 
 
 
 
 
 
 
Allocation of undistributed income to Series B Preferred Stock

 
(1,276,342
)
 
(4,979
)
 
(1,320,037
)
Net income available to common stockholders for basic net income per common share
125,522

 
1,857,828

 
244,145

 
1,921,907

Add back:
 
 
 
 
 
 
 
Allocation of undistributed income to Series B Preferred Stock

 
1,276,342

 
4,979

 
1,320,037

Net income available to common stockholders for diluted net income per common share
$
125,522

 
$
3,134,170

 
$
249,124

 
$
3,241,944

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding for basic net income per common share
6,354,755

 
3,765,573

 
6,307,541

  
3,766,508

Weighted average impact of assumed Series B Preferred Stock conversion

 
2,586,977

 
128,636

 
2,586,977

Weighted average impact of other dilutive equity instruments
92,762

 
153,609

 
90,521

  
168,129

Weighted average shares for diluted net income per common share
6,447,517

 
6,506,159

 
6,526,698

  
6,521,614

Net income per common share:
 
 
 
 


 
 
Basic
$
0.02

 
$
0.49

 
$
0.04

  
$
0.51

Diluted
$
0.02

 
$
0.48

 
$
0.04

  
$
0.50


(4)
Accounts Receivable, net

Accounts receivable, net, are stated at amounts due from customers net of an allowance for doubtful accounts. Our allowance for doubtful accounts is based upon our assessment of various factors. We consider historical experience, the age of the receivable balances, current economic conditions and other factors that may affect the counterparty’s ability to pay. Bad debt is included in Customer service and billing expense in our unaudited consolidated statements of comprehensive income.

Accounts receivable, net, consists of the following:
 
June 30,
2013
 
December 31,
2012
Gross accounts receivable
$
113,806

 
$
117,853

Allowance for doubtful accounts
(12,603
)
 
(11,711
)
Total accounts receivable, net
$
101,203

 
$
106,142


Receivables from distributors include billed and unbilled amounts due from OEMs for services included in the sale or lease price of vehicles, as well as billed amounts due from retailers. Receivables from distributors consist of the following:
 
June 30,
2013
 
December 31,
2012
Billed
$
59,091

  
$
53,057

Unbilled
52,197

  
51,368

Total
$
111,288

  
$
104,425



8

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

(5)
Inventory, net

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

Inventory, net, consists of the following:
 
June 30,
2013
 
December 31,
2012
Raw materials
$
14,921

 
$
17,717

Finished goods
17,237

 
23,779

Allowance for obsolescence
(15,470
)
 
(16,159
)
Total inventory, net
$
16,688

 
$
25,337


(6)
Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Our annual impairment assessment is performed as of the fourth quarter of each year, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of goodwill exceeds its fair value, an impairment loss is recognized.

As of June 30, 2013 , there were no indicators of impairment, and no impairment loss was recorded for goodwill during the three and six months ended June 30, 2013 and 2012 . During the three and six months ended June 30, 2012 , with the release of the deferred income tax valuation allowance, we reduced goodwill by $19,183 related to the subsequent exercise of certain stock options and vesting of certain restricted stock units that were recorded at fair value in connection with the July 2008 merger between our wholly owned subsidiary, Vernon Merger Corporation, and XM Satellite Radio Holdings Inc. (“the Merger”). As of June 30, 2013 , the cumulative balance of goodwill impairments recorded since the Merger was $4,766,190 , which was recognized during the year ended December 31, 2008 .


9

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

(7)
Intangible Assets

As a result of the Merger, certain intangible assets formerly held by XM Satellite Radio Holdings Inc. were recorded at fair value. Intangible assets consist of the following:
 
 
 
June 30, 2013
 
December 31, 2012
 
Weighted Average
Useful Lives
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Carrying
Value
Indefinite life intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
FCC licenses
Indefinite
 
$
2,083,654

 
$

 
$
2,083,654

 
$
2,083,654

  
$

 
$
2,083,654

Trademark
Indefinite
 
250,000

 

 
250,000

 
250,000

  

 
250,000

Definite life intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Subscriber relationships
9 years
 
380,000

 
(252,826
)
 
127,174

 
380,000

  
(233,317
)
 
146,683

Licensing agreements
9.1 years
 
78,289

 
(49,169
)
 
29,120

 
78,489

  
(44,161
)
 
34,328

Proprietary software
6 years
 
16,552

 
(13,087
)
 
3,465

 
16,552

  
(12,777
)
 
3,775

Developed technology
10 years
 
2,000

 
(983
)
 
1,017

 
2,000

  
(883
)
 
1,117

Leasehold interests
7.4 years
 
132

 
(88
)
 
44

 
132

  
(79
)
 
53

Total intangible assets
 
 
$
2,810,627

 
$
(316,153
)
 
$
2,494,474

 
$
2,810,827

  
$
(291,217
)
 
$
2,519,610


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

We hold FCC licenses to operate our satellite digital audio radio service and provide ancillary services. The following table outlines the years in which each of our licenses expires:
FCC satellite licenses
 
Expiration year
SIRIUS FM-1
 
2017
SIRIUS FM-2
 
2017
SIRIUS FM-3
 
2017
SIRIUS FM-5
 
2017
SIRIUS FM-6 (1)
 

XM-1
 
2014
XM-2
 
2014
XM-3
 
2021
XM-4
 
2014
XM-5
 
2018
(1)
We hold an FCC license for our FM-6 satellite, which will expire eight years from when this satellite is launched and placed into operation.

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

In connection with the Merger, $250,000 of the purchase price was allocated to the XM trademark. As of June 30, 2013 , there were no legal, regulatory or contractual limitations associated with the XM trademark.

Our annual impairment assessment of our indefinite intangible assets is performed as of the fourth quarter of each year. An assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. If the carrying value of the intangible assets exceeds its fair value, an

10

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

impairment loss is recognized. As of June 30, 2013 , there were no indicators of impairment, and no impairment loss was recorded for intangible assets with indefinite lives during the three and six months ended June 30, 2013 and 2012 .

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

Amortization expense for all definite life intangible assets was $12,345 and $13,651 for the three months ended June 30, 2013 and 2012 , respectively, and $24,936 and $27,577 for the six months ended June 30, 2013 and 2012 , respectively. Expected amortization expense for the remaining period in 2013, each of the fiscal years 2014 through 2017 and for periods thereafter is as follows:
Year ending December 31,
  
Amount
2013
  
$
22,391

2014
  
38,877

2015
  
35,561

2016
  
32,546

2017
  
19,582

Thereafter
  
11,863

Total definite life intangible assets, net
  
$
160,820


(8)
Interest Costs

We capitalized a portion of the interest on funds borrowed as part of the cost of constructing our satellites and related launch vehicle. We are currently capitalizing the interest associated with our FM-6 satellite and related launch vehicle and will continue to do so until its launch. We also incur interest costs on our debt instruments and on our satellite incentive agreements. The following is a summary of our interest costs:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Interest costs charged to expense
$
49,728

 
$
72,770

 
$
95,902

 
$
149,742

Interest costs capitalized
8,038

 
8,128

 
16,008

 
16,082

Total interest costs incurred
$
57,766

 
$
80,898

 
$
111,910

 
$
165,824


Included in interest costs incurred is non-cash interest expense, consisting of amortization related to original issue discounts, premiums and deferred financing fees of $5,490 and $10,384 for the three months ended June 30, 2013 and 2012 , respectively, and $10,932 and $21,031 for the six months ended June 30, 2013 and 2012 , respectively.


11

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

(9)
Property and Equipment

Property and equipment, net, consists of the following:
 
June 30,
2013
 
December 31,
2012
Satellite system
$
1,943,537

 
$
1,943,537

Terrestrial repeater network
112,538

 
112,482

Leasehold improvements
45,212

 
44,938

Broadcast studio equipment
57,070

 
55,823

Capitalized software and hardware
254,431

 
232,753

Satellite telemetry, tracking and control facilities
63,125

 
62,734

Furniture, fixtures, equipment and other
64,884

 
76,028

Land
38,411

 
38,411

Building
57,936

 
57,816

Construction in progress
452,956

 
417,124

Total property and equipment
3,090,100

 
3,041,646

Accumulated depreciation and amortization
(1,566,485
)
 
(1,469,724
)
Property and equipment, net
$
1,523,615

 
$
1,571,922


Construction in progress consists of the following:
 
June 30,
2013
 
December 31,
2012
Satellite system
$
398,699

  
$
376,825

Terrestrial repeater network
22,176

  
17,224

Other
32,081

  
23,075

Construction in progress
$
452,956

  
$
417,124


Depreciation expense on property and equipment was $55,070 and $53,142 for the three months ended June 30, 2013 and 2012 , respectively, and $109,497 and $105,333 for the six months ended June 30, 2013 and 2012 , respectively.

We retired property and equipment of $12,862 and $4,554 and recognized a loss on disposal of assets of $126 and $488 during the six months ended June 30, 2013 and 2012 , respectively.


12

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

Satellites
We currently own a fleet of nine orbiting satellites. The chart below provides certain information on these satellites:
Satellite Designation
 
Year Delivered
 
Estimated End of
Depreciable Life
FM-1*
 
2000
 
2013
FM-2
 
2000
 
2013
FM-3
 
2000
 
2015
FM-5
 
2009
 
2024
XM-1*
 
2001
 
2013
XM-2*
 
2001
 
2013
XM-3
 
2005
 
2020
XM-4
 
2006
 
2021
XM-5
 
2010
 
2025
* Satellite was fully depreciated as of June 30, 2013 but is still in operation.

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

During the three months ended June 30, 2013 and 2012 , we capitalized expenditures, including interest, of $8,210 and $8,340 respectively, and $16,374 and $17,005 during the six months ended June 30, 2013 and 2012 , respectively, related to the construction of our FM-6 satellite and related launch vehicle.

(10)
Related Party Transactions

We had the following related party balances at June 30, 2013 and December 31, 2012 :
 
Related party current assets
 
Related party long-term assets
 
Related party current liabilities
 
Related party long-term liabilities
 
Related party long-term debt
 
June 30, 2013
 
December 31, 2012
 
June 30, 2013
 
December 31, 2012
 
June 30, 2013
 
December 31, 2012
 
June 30, 2013
 
December 31, 2012
 
June 30, 2013
 
December 31, 2012
Liberty Media
$

  
$

  
$
590

  
$
757

  
$
3,981

 
$
3,980

  
$

  
$

  
$
209,244

  
$
208,906

Sirius XM Canada
9,127

  
13,167

  
35,916

  
44,197

  
3,946

 
2,776

  
17,578

  
18,966

  

  

Total
$
9,127

  
$
13,167

  
$
36,506

  
$
44,954

  
$
7,927

 
$
6,756

  
$
17,578

  
$
18,966

  
$
209,244

  
$
208,906


Liberty Media

In February and March 2009, we entered into several transactions to borrow up to $530,000 from Liberty Media Corporation and its affiliates. All of these loans were repaid in 2009.

As part of the transactions with Liberty Media, in February 2009, we entered into an investment agreement (the “Investment Agreement”) with Liberty Radio, LLC, an indirect wholly-owned subsidiary of Liberty Media. Pursuant to the Investment Agreement, we issued to Liberty Radio, LLC 12,500,000  shares of our Convertible Perpetual Preferred Stock, Series B-1 (the “Series B Preferred Stock”) with a liquidation preference of $0.001 per share in partial consideration for the loan investments. The Series B Preferred Stock was convertible into approximately 40% of our outstanding shares of common stock (after giving effect to such conversion).

In September 2012, Liberty Radio, LLC converted 6,249,900 shares of the Series B Preferred Stock into 1,293,467,684 shares of our common stock. In January 2013, the Federal Communications Commission granted Liberty Media approval to acquire de jure control of us, and Liberty Radio, LLC converted its remaining Series B Preferred Stock into

13

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

1,293,509,076 shares of our common stock. In addition, Liberty Media, indirectly through its subsidiaries, purchased an additional 50,000,000 shares of our common stock. As a result of these conversions of Series B Preferred Stock and additional purchases of shares of our common stock, Liberty Media beneficially owned, directly and indirectly, over 50% of our outstanding common stock as of June 30, 2013 .

Four current Liberty Media executives are members of our board of directors. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of our board of directors.

Liberty Media has advised us that as of June 30, 2013 and December 31, 2012 it also owned the following:
 
June 30,
2013
 
December 31,
2012
8.75% Senior Notes due 2015
$
150,000

  
$
150,000

7% Exchangeable Senior Subordinated Notes due 2014
11,000

  
11,000

7.625% Senior Notes due 2018
50,000

  
50,000

Total principal debt
211,000

  
211,000

Less: discounts
1,756

  
2,094

Total carrying value of debt
$
209,244

  
$
208,906


As of June 30, 2013 and December 31, 2012 , we recorded $3,981 and $3,980 , respectively, related to accrued interest with Liberty Media to Related party current liabilities. We recognized Interest expense associated with debt held by Liberty Media of $4,682 and $9,024 for the three months ended June 30, 2013 and 2012 , respectively, and $9,359 and $18,018 for the six months ended June 30, 2013 and 2012 , respectively.

Sirius XM Canada
We own approximately 46,700,000 Class A shares on a converted basis of Sirius XM Canada Holdings Inc., the parent company of Sirius XM Canada, representing a 37.7% equity interest and a 25.0% voting interest.

We had the following Related party current asset balances attributable to Sirius XM Canada at June 30, 2013 and December 31, 2012 :
 
June 30,
2013
 
December 31,
2012
Deferred programming costs and accrued interest
$
4,476


$
4,350

Dividends receivable


6,176

Chip set and other services reimbursement
4,651


2,641

Total
$
9,127

  
$
13,167


We provide Sirius XM Canada with chip sets and other services and we are reimbursed for these costs.


14

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

Related party long-term asset balances attributable to Sirius XM Canada consisted of the following:    
 
June 30,
2013
 
December 31,
2012
Non-interest bearing note, principal
$
383


$
404

Fair value of host contract of debenture
3,648


3,877

Fair value of embedded derivative of debenture
33


9

Investment balance *
31,852


37,983

Deferred programming costs and accrued interest


1,924

Total
$
35,916

  
$
44,197

* The investment balance includes equity method goodwill and intangible assets of $26,888 and $27,615 as of June 30, 2013 and December 31, 2012 , respectively.

We hold a non-interest bearing note issued by Sirius XM Canada Holdings Inc. We also hold an investment in CAD $4,000 face value of 8% convertible unsecured subordinated debentures issued by Sirius XM Canada Holdings, Inc., for which the embedded conversion feature is bifurcated from the host contract. The host contract is accounted for at fair value as an available-for-sale security with changes in fair value recorded to Accumulated other comprehensive income (loss), net of tax. The embedded conversion feature is accounted for at fair value as a derivative with changes in fair value recorded in earnings as Interest and investment income (loss).

Our interest in Sirius XM Canada is accounted for under the equity method. The excess of the cost of our ownership interest in the equity of Sirius XM Canada over our share of the net assets is recognized as goodwill and intangible assets and is included in the carrying amount of our investment. Equity method goodwill is not amortized. We periodically evaluate this investment to determine if there has been an other than temporary decline below carrying value. Equity method intangible assets are amortized over their respective useful lives, which is recorded in Interest and investment income (loss).

In April 2013, Sirius XM Canada declared a quarterly cash dividend of CAD $0.0825 per Class A share and CAD $0.0275 per Class B share for shareholders of record on April 22, 2013. We received $3,730 of these quarterly dividends which was recorded as a reduction of our investment balance in Sirius XM Canada for the three months ended June 30, 2013 .

Related party liabilities attributable to Sirius XM Canada consisted of the following:
 
June 30,
2013
 
December 31,
2012
Deferred revenue for NHL licensing fees
$
1,170

 
$

Carrying value of deferred revenue for NHL games
20,354

 
21,742

Total
$
21,524

  
$
21,742


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


15

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

We recorded the following revenue from Sirius XM Canada as Other revenue in our unaudited consolidated statements of comprehensive income:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Royalty income
$
9,001

 
$
8,036

 
$
17,470

 
$
15,501

Amortization of Sirius XM Canada deferred income
694

 
694

 
1,388

 
1,388

Licensing fee revenue
1,171

 
1,500

 
2,342

 
3,000

Advertising and other reimbursements
1,696

 
416

 
2,111

 
833

Total revenue from Sirius XM Canada
$
12,562

 
$
10,646

 
$
23,311

 
$
20,722


Our share of net earnings or losses of Sirius XM Canada are recorded to Interest and investment income (loss) in our unaudited consolidated statements of comprehensive income on a one month lag. Our share of Sirius XM Canada’s net income (loss) was $401 and $(1,576) for the three months ended June 30, 2013 and 2012 , respectively, and $2,109 and $(3,221) for the six months ended June 30, 2013 and 2012 , respectively. We recorded amortization expense related to the equity method intangible assets of $364 and $421 for the three months ended June 30, 2013 and 2012 , respectively, and $727 and $248 for the six months ended June 30, 2013 and 2012 , respectively.

(11)    Investments

Long Term Restricted Investments
Restricted investments relate to reimbursement obligations under letters of credit issued for the benefit of lessors of our office space. As of June 30, 2013 and December 31, 2012 , our Long-term restricted investments were $3,999 .



16

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

(12)    Debt

Our debt consists of the following:
 
Conversion
Price
(per share)
 
June 30,
2013
 
December 31,
2012
8.75% Senior Notes due 2015
N/A

 
$
770,987

 
$
800,000

Less: discount
 
 
(5,408
)
 
(7,056
)
7% Exchangeable Senior Subordinated Notes due 2014
$
1.841

 
502,370

 
550,000

Less: discount
 
 
(2,846
)
 
(4,112
)
7.625% Senior Notes due 2018
N/A

 
599,350

 
700,000

Less: discount
 
 
(7,692
)
 
(9,647
)
  5.25% Senior Notes due 2022
N/A

 
400,000

 
400,000

            Less: discount
 
 
(5,592
)
 
(5,826
)
4.25% Senior Notes due 2020
N/A

 
500,000

 

Less: discount
 
 
(5,539
)
 

4.625% Senior Notes due 2023
N/A

 
500,000

 

Less: discount
 
 
(5,570
)
 

Other debt:
 
 
 
 
 
Capital leases
N/A

 
9,717

 
11,861

Total debt
 
 
3,249,777

 
2,435,220

Less: total current maturities non-related party
 
 
3,873

 
4,234

Total long-term
 
 
3,245,904

 
2,430,986

Less: related party
 
 
209,244

 
208,906

Total long-term, excluding related party
 
 
$
3,036,660

 
$
2,222,080


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

During the three months ended June 30, 2013 , we purchased $29,013 of the 8.75% Notes. The aggregate purchase price for these 8.75% Notes was $32,977 , including accrued interest. We recognized an aggregate loss on the extinguishment of these 8.75% Notes of $3,755 , consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net, during the three months ended June 30, 2013 . For a discussion of subsequent events refer to Note 17.
7% Exchangeable Senior Subordinated Notes due 2014
In August 2008, we issued $550,000 aggregate principal amount of 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”). The Exchangeable Notes are senior subordinated obligations and rank junior in right of payment to our existing and future senior debt and equally in right of payment with our existing and future senior subordinated debt. Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the Exchangeable Notes on a senior subordinated basis.

The Exchangeable Notes are exchangeable at any time at the option of the holder into shares of our common stock at an exchange rate of 543.1372 shares of common stock per $1,000 principal amount of Exchangeable Notes, which is equivalent

17

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

to an approximate exchange price of $1.841 per share of common stock. Interest is payable semi-annually in arrears on June 1 and December 1 of each year at a rate of 7%  per annum. The Exchangeable Notes mature on December 1, 2014 .

In connection with the fundamental change that occurred on January 17, 2013 and the subsequent offer that was made to each holder of the Exchangeable Notes on February 1, 2013, $47,630 in principal amount of the Exchangeable Notes were converted resulting in the issuance of 27,687,850 shares of common stock. As a result of this conversion, we retired $47,630 in principal amount of the Exchangeable Notes and recognized a proportionate share of unamortized discount and deferred financing fees of $2,533 to Additional paid-in capital. No loss was recognized as a result of the exchange.

During the three and six months ended June 30, 2013 and 2012 , the common stock reserved for conversion in connection with the Exchangeable Notes were considered to be anti-dilutive in our calculation of diluted net income per share.

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

During the three months ended June 30, 2013 , we purchased $100,650 of the 7.625% Notes. The aggregate purchase price for these 7.625% Notes was $112,569 , including accrued interest. We recognized an aggregate loss on the extinguishment of these 7.625% Notes of $12,622 , consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net, during the three months ended June 30, 2013 . For a discussion of subsequent events refer to Note 17.

5.25% Senior Notes due 2022
In August 2012, we issued $400,000 aggregate principal amount of 5.25% Senior Notes due 2022 (the “ 5.25% Notes”). Interest is payable semi-annually in arrears on February 15 and August 15 of each year at a rate of 5.25%  per annum. The 5.25% Notes mature on August 15, 2022 . Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 5.25% Notes on a senior unsecured basis.

4.25% Senior Notes due 2020
In May 2013, we issued $500,000 aggregate principal amount of 4.25% Senior Notes due 2020 (the “ 4.25% Notes”). Interest is payable semi-annually in arrears on May 15 and November 15 of each year at a rate of 4.25%  per annum. The 4.25% Notes mature on May 15, 2020 . Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 4.25% Notes on a senior unsecured basis. The 4.25% Notes were issued for $494,375 , resulting in an aggregate original issuance discount of $5,625 .

4.625% Senior Notes due 2023
In May 2013, we issued $500,000 aggregate principal amount of 4.625% Senior Notes due 2023 (the “ 4.625% Notes”). Interest is payable semi-annually in arrears on May 15 and November 15 of each year at a rate of 4.625%  per annum. The 4.625% Notes mature on May 15, 2023 . Substantially all of our domestic wholly-owned subsidiaries guarantee our obligations under the 4.625% Notes on a senior unsecured basis. The 4.625% Notes were issued for $494,375 , resulting in an aggregate original issuance discount of $5,625 .


18

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

Senior Secured Revolving Credit Facility
In December 2012, we entered into a five -year Senior Secured Revolving Credit Facility (the “Credit Facility”) with a syndicate of financial institutions for $1,250,000 . Our obligations under the Credit Facility are guaranteed by certain of our material domestic subsidiaries and are secured by a lien on substantially all of our assets and the assets of our material domestic subsidiaries. Borrowings under the Credit Facility are used for working capital and other general corporate purposes, including dividends, financing of acquisitions and share repurchases. Interest on borrowings is payable on a quarterly basis and accrues at a rate based on LIBOR plus an applicable rate. We are also required to pay a variable fee on the average daily unused portion of the Credit Facility which is currently 0.30% per annum and is payable on a quarterly basis. The Credit Facility contains customary covenants, including a maintenance covenant, and events of default. The Credit Facility contains incremental facilities which would allow us to increase or obtain new commitments and/or incur new term loans, subject to the terms of the Credit Facility.

During the three months ended June 30, 2013 , we borrowed and repaid $150,000 under the Credit Facility. As of June 30, 2013 , we had no outstanding balance and the full $1,250,000 was available for future borrowing under the Credit Facility.

Retired Debt

9.75% Senior Secured Notes due 2015
During the three and six months ended June 30, 2012 , we purchased $38,316 and $70,888 , respectively, of our then outstanding 9.75% Senior Secured Notes (the “ 9.75% Notes”) for an aggregate purchase price, including interest, of $41,875 and $77,440 , respectively. We recognized an aggregate loss on the extinguishment of these 9.75% Notes of $4,054 and $7,832 during the three and six months ended June 30, 2012 , respectively, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net. The remainder of the 9.75% Notes was repurchased in the second half of 2012.

13% Senior Notes due 2013
During the three and six months ended June 30, 2012 , we purchased $62,729 and $96,983 , respectively, of our then outstanding 13% Senior Notes due 2013 (the “ 13% Notes”) for an aggregate purchase price, including interest, of $73,616 and $113,226 , respectively. We recognized an aggregate loss on the extinguishment of these 13% Notes of $11,596 and $17,789 during the three and six months ended June 30, 2012 , respectively, consisting primarily of unamortized discount, deferred financing fees and repayment premium, to Loss on extinguishment of debt and credit facilities, net. The remainder of the 13% Notes was repurchased in the second half of 2012.

Covenants and Restrictions
Our debt, other than our 4.25% Notes and 4.625% Notes, generally requires compliance with certain covenants that restrict our ability to, among other things, (i) incur additional indebtedness unless our consolidated leverage would be no greater than 5.0 times consolidated operating cash flow after the incurrence of the indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions. In addition, under the Credit Facility, we also must comply with a maintenance covenant that we not exceed a total leverage ratio, calculated as total consolidated debt to consolidated operating cash flow, of 5.0 to 1.0 .

Our 4.25% Notes and our 4.625% Notes are subject to covenants that, among other things, (i) limit our ability and the ability of our subsidiaries to (x) create certain liens; and (y) enter into sale/leaseback transactions; and (ii) limit our ability to merge or consolidate. The indentures relating to the 4.25% Notes and the 4.625% Notes restrict our non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiary guaranteeing each such series of Notes on a pari passu basis.

Under our debt agreements, the following generally constitute an event of default: (i) a default in the payment of interest; (ii) a default in the payment of principal; (iii) failure to comply with covenants; (iv) failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; (v) certain events of bankruptcy; (vi) a

19

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

judgment for payment of money exceeding a specified aggregate amount; and (vii) voidance of subsidiary guarantees, subject to grace periods where applicable. If an event of default occurs and is continuing, our debt could become immediately due and payable.

At June 30, 2013 and December 31, 2012 , we were in compliance with our debt covenants.

(13)
Stockholders’ Equity

Common Stock, par value $0.001 per share
We were authorized to issue up to 9,000,000,000 shares of common stock as of June 30, 2013 and December 31, 2012 . There were 6,257,721,498 and 5,262,440,085 shares of common stock issued and 6,247,221,498 and 5,262,440,085 shares outstanding as of June 30, 2013 and December 31, 2012 , respectively.

As of June 30, 2013 , approximately 558,569,000 shares of common stock were reserved for issuance in connection with outstanding convertible debt, warrants, incentive stock awards and common stock to be granted to third parties upon satisfaction of performance targets.

Stock Repurchase Program
In December 2012, our board of directors approved a $2,000,000 common stock repurchase program. Shares of common stock may be purchased from time to time on the open market or in privately negotiated transactions.

During the six months ended June 30, 2013 , we repurchased 352,568,635 shares of our common stock for $1,143,789 , including fees and commissions, on the open market and in privately negotiated transactions. Liberty Media did not participate in the common stock repurchases.

Common stock repurchases are retired upon settlement. As of June 30, 2013 , $35,173 of common stock repurchases had not settled and were recorded as Treasury stock within our unaudited consolidated balance sheets and unaudited consolidated statements of stockholders' equity. As of June 30, 2013 , $856,211 remained available for purchase under our stock repurchase program. For a discussion of subsequent events refer to Note 17.

Share Lending Arrangements
To facilitate the offering of the Exchangeable Notes, we entered into share lending agreements with Morgan Stanley Capital Services Inc. and UBS AG London Branch in July 2008. All loaned shares were returned to us as of October 2011, and the share lending agreements were terminated.

We recorded interest expense related to the amortization of the costs associated with the share lending arrangement and other issuance costs for our Exchangeable Notes of $3,097 and $3,060 , respectively, for the three months ended June 30, 2013 and 2012 , and $6,306 and $6,042 , respectively, for the six months ended June 30, 2013 and 2012 , respectively. As of June 30, 2013 , the unamortized balance of the debt issuance costs was $19,140 , with $18,721 recorded in Deferred financing fees, net, and $419 recorded in Long-term related party assets. As of December 31, 2012 , the unamortized balance of the debt issuance costs was $27,652 , with $27,099 recorded in Deferred financing fees, net, and $553 recorded in Long-term related party assets. These costs will continue to be amortized until the debt is terminated. A portion of the unamortized debt issuance costs was recognized during the six months ended June 30, 2013 in connection with the conversion of the Exchangeable Notes.
 
Preferred Stock, par value $0.001 per share
We were authorized to issue up to 50,000,000 shares of undesignated preferred stock as of June 30, 2013 and December 31, 2012 , respectively.

There were 6,250,100 shares of Series B Preferred Stock issued and outstanding as of December 31, 2012 held by Liberty Media. In January 2013, Liberty Media converted its remaining shares of the Series B Preferred Stock into 1,293,509,076 shares of our common stock.

20

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)


Warrants
We have issued warrants to purchase shares of our common stock in connection with distribution, programming and satellite purchase agreements. As of June 30, 2013 and December 31, 2012 , approximately 18,455,000 warrants to acquire an equal number of shares of common stock were outstanding and fully vested. Warrants were included in our calculation of diluted net income per common share as the effect was dilutive for the three and six months ended June 30, 2013 . They were excluded from the calculation for the three and six months ended June 30, 2012 as the effect would have been anti-dilutive. The warrants expire at various times through 2015. At June 30, 2013 and December 31, 2012 , the weighted average exercise price of outstanding warrants was $2.55 per share. We did not incur warrant related expenses during the three and six months ended June 30, 2013 and 2012 .

(14)
Benefit Plans

We recognized share-based payment expense of $15,494 and $13,918 for the three months ended June 30, 2013 and 2012 , respectively, and $30,012 and $28,869 for the six months ended June 30, 2013 and 2012 , respectively.

2009 Long-Term Stock Incentive Plan
In May 2009, our stockholders approved the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan (the “2009 Plan”). Employees, consultants and members of our board of directors are eligible to receive awards under the 2009 Plan. The 2009 Plan provides for the grant of stock options, restricted stock, restricted stock units and other stock-based awards that the compensation committee of our board of directors may deem appropriate. Vesting and other terms of stock-based awards are set forth in the agreements with the individuals receiving the awards. Stock-based awards granted under the 2009 Plan are generally subject to a vesting requirement. Stock-based awards generally expire ten years from the date of grant. Each restricted stock unit entitles the holder to receive one share of common stock upon vesting. As of June 30, 2013 , approximately 133,184,000 shares of common stock were available for future grants under the 2009 Plan.

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

The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Risk-free interest rate
0.7%
 
0.8%
 
0.7%
 
0.8%
Expected life of options — years
4.71
 
5.12
 
4.71
 
5.17
Expected stock price volatility
48%
 
53%
 
48%
 
54%
Expected dividend yield
0%
 
0%
 
0%
 
0%

There were no options granted to third parties during the three and six months ended June 30, 2013 and 2012 . We do not intend to pay regular dividends on our common stock. Accordingly, the dividend yield percentage used in the Black-Scholes-Merton option value is zero for all periods.


21

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

The following table summarizes stock option activity under our share-based payment plans for the six months ended June 30, 2013 (options in thousands):
 
Options
 
Weighted-
Average
Exercise
Price (1)
 
Weighted-Average
Remaining
Contractual Term
(Years)
 
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2012
274,512

 
$
1.92

 
 
 
 
Granted
10,718

 
$
3.31

 
 
 
 
Exercised
(15,962
)
 
$
1.20

 
 
 
 
Forfeited, cancelled or expired
(3,231
)
 
$
1.53

 
 
 
 
Outstanding as of June 30, 2013
266,037

 
$
2.03

 
6.98
 
$
393,944

Exercisable as of June 30, 2013
81,882

 
$
2.70

 
4.65
 
$
95,545

(1)
The weighted-average exercise price for options outstanding as of December 28, 2012 were adjusted in 2012 to reflect the reduction to the exercise price related to the December 28, 2012 special cash dividend.

The weighted average grant date fair value of options granted during the six months ended June 30, 2013 and 2012 was $1.34 and $0.94 , respectively. The total intrinsic value of stock options exercised during the six months ended June 30, 2013 and 2012 was $33,660 and $107,560 , respectively.

We recognized share-based payment expense associated with stock options of $15,283 and $13,047 for the three months ended June 30, 2013 and 2012 , respectively, and $29,801 and $26,690 for the six months ended June 30, 2013 and 2012 , respectively.

The following table summarizes the restricted stock unit activity under our share-based payment plans for the six months ended June 30, 2013 (shares in thousands):
 
Shares
 
Grant Date Fair Value
Nonvested as of December 31, 2012
429

 
$
3.25

Granted
985

 
$
3.30

Vested restricted stock units
(192
)
 
$
3.27

Forfeited

 
$

Nonvested as of June 30, 2013
1,222

 
$
3.29


The weighted average grant date fair value of restricted stock units granted during the six months ended June 30, 2013 was $3.30 . The total intrinsic value of restricted stock units that vested during the six months ended June 30, 2013 was $605 . There were no restricted stock units granted to third parties during the three and six months ended June 30, 2013 and 2012 .

We recognized share-based payment expense associated with restricted stock units of $211 during the three and six months ended June 30, 2013 .

Total unrecognized compensation costs related to unvested share-based payment awards for stock options, restricted stock units and shares granted to employees and members of our board of directors at June 30, 2013 and December 31, 2012 , net of estimated forfeitures, were $116,474 and $129,010 , respectively. The total unrecognized compensation costs at June 30, 2013 are expected to be recognized over a weighted-average period of 2.5 years.


22

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
(Dollar amounts in thousands, unless otherwise stated)

401(k) Savings Plan

We sponsor the Sirius XM Radio 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees. The Sirius XM Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions, up to 6% of an employee’s pre-tax salary, in cash which is used to purchase shares of our common stock on the open market. During the three and six months ended June 30, 2013 , we contributed approximately $968 and $2,387 , respectively, to the Sirius XM Plan in fulfillment of our matching obligation. During the three and six months ended June 30, 2012 , employer matching contributions were made in the form of shares of our common stock. Employer matching contributions under the Sirius XM Plan vest at a rate of 33.33% for each year of employment and are fully vested after three years of employment for all current and future contributions. Share-based payment expense resulting from the matching contribution to the Sirius XM Plan for the three and six months ended June 30, 2012 was $871 and $2,179 , respectively.

(15)
Commitments and Contingencies

The following table summarizes our expected contractual cash commitments as of June 30, 2013 :
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
Total
Long-term debt obligations
$
2,095

 
$
505,776

 
$
774,342