2008 ANNUAL REPORT AND PROXY STATEMENT TABLE OF CONTENTS Annual Report Letter to Stockholders . 1 Management’s Discussion and Analysis of Financial Condition and Results of Operations . 4 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 46 Comparison of Cumulative Total Returns . 47 Selected Financial Data. 48 Quantitative and Qualitative Disclosure About Market Risks................................................... 48 Reports of Independent Registered Public Accounting Firm................................................... F-1 Consolidated Financial Statements . F-4 Notes to Consolidated Financial Statements . F-9 Notice of Annual Meeting of Stockholders and Proxy Statement May 5, 2009 Dear Fellow Stockholders: The last year was marked by great challenges for our platforms and is being heavily marketed. As contracts country and dramatic change across the economy. As with our vendors and others have come up, we have the landscape changed in ways that few would have been able to realize efficiencies and are confident this predicted, at SIRIUS XM we did our best work in the trend will continue. worst of times. We closed our merger and integrated SIRIUS and XM have long been the hallmarks of the the two companies in record time. We grew our rev- best in audio entertainment and one of the most excit- enues and subscribers at a time when most companies ing aspects of the merger has been the opportunity to did not accomplish either. We introduced a new suite bring new programming options to the market. Our of packages to extend our combined offering to more long awaited “Best of” options, which allows listeners listeners at more price points. We secured additional to access both the SIRIUS and XM platforms for capital and added a prestigious new investor in credit additional $4 a month, has been well received. This markets that were among the tightest our economy has kind of organic growth is a great example of how our ever seen. stockholders and listeners are benefiting from the Despite the backdrop we are operating against, our merger. company is strong. There is nothing to indicate that the In addition to “Best of” options, we introduced our a la coming months will be easy, but I am confident we will carte programming option. We also have options for continue to meet any challenge and that we are well music lovers; new programming tailored for listeners positioned to take advantage of opportunities. who are focused sports, news and talk; and channel packages that are strictly family friendly. For our most Bringing Together the “Best of” From Both devoted listeners, we now have an interoperable radio, Companies the Mirge, which can deliver both platforms in their Combining SIRIUS and XM was the right thing to do entirety through one device. The SIRIUS and XM when we started the process over two years ago. It was $12.95 per month packages remain our most popular an opportunity to deliver value to stockholders and options and, for pennies a day, continue to be a great offer more choices at better prices to consumers. Given value. the economic environment we find ourselves in today, Significantly, many of these new packages are offered our merger looks extremely wise and timely. at prices that are below our standard subscription rates. As the economy has softened, we have been able to As many consumers are becoming more economically leverage what we expect will be more than $425 mil- sensitive, we are well-positioned to meet any house- lion in synergies for 2009 — a number that we expect hold budget. to see grow through 2010 and beyond. The ability to introduce new programming packages — an option Delivering Meaningful Results that would not have been available to us absent the Although we have not made all the gains that we would merger — has opened new avenues for growth. At a like to see, we have made incredible financial progress time when many companies struggle to begin to at SIRIUS XM. streamline their operations and refine their product offerings, we have already done both and are reaping We posted positive pro forma adjusted income from the benefits of the merger. operations in the fourth quarter for the first time in the history of SIRIUS and XM. This is dramatic consid- We moved quickly to integrate our teams. Senior ering we had a loss of $224 million one year ago. management for the combined company was up and running within days of closing the merger. Our offer- Pro forma full year 2008 revenue was up 18% over ing to advertisers has been streamlined to cover both 2007 — $2.4 billion compared with $2.1 billion for 1 the year ended December 31, 2007. Pro forma fourth more drivers to add satellite radio to their auto pur- quarter 2008 revenue was $644 million, up 16%, while chase. We are also looking at pre-owned vehicles as a total cash operating expenses declined by 22%, prov- source for additional subscribers, and are focusing our ing our focus on improving profitability. Our subscrib- efforts to be successful in that channel. ers grew by 10% from 2007 to more than 19 million at The retail aftermarket, including direct sales to new the end of 2008. In 2008, we also increased the factory and existing customers, continues to be an important installation of satellite radio in new vehicles. Over the source of subscribers for us. We are determined to use course of 2007, we estimate that satellite radio was our experience in this market to develop products and factory installed in approximately 32% of the vehicles messages that attract subscribers. In addition, our built for sale in the United States. In contrast, over the video, navigation and traffic services have been very course of 2008, approximately 45% of those vehicles well received and are continuing to garner interest included satellite radio. Given the current environ- from consumers and automakers. We are also excited ment, we were pleased to see our monthly self-pay about the iPhone application we are introducing customer churn rate was 1.8% in the fourth quarter shortly. The iPhone app is slick, easy to use, adds to 2008, as compared with 1.7% in the fourth quarter our exposure to a new large consumer audience, and 2007. broadens access to our great content. Successfully Navigated 2009 Liquidity Challenges Whether it is in the car, home, office or while on the go, as consumer confidence returns and spending One of our most significant accomplishments was one increases, we believe that SIRIUS XM is well-poised that just last year would have been routine for any for success. Given the new reality we are operating in, company like ours. The closing of our merger in July when measured by subscribers, we are still one of the 2008 necessitated refinancing much of SIRIUS and largest subscription media businesses in the U.S. We XM’s debt. The credit markets were tightening, at the have a first-rate management team; exclusive pro- same time opponents of our merger were threatening gramming offered through innovative packages; oper- to prevent our closing, so we moved quickly to refi- ations that are increasingly efficient; and the financial nance approximately $1.250 billion of XM debt. But, structure we need to be successful. even after these successful refinancings, we were left with over $1 billion of debt maturing in 2009. Our accomplishments in the last year are a result of the passion and dedication of our employees. They have The credit markets then deteriorated to the point that seamlessly navigated a great deal of change and have very few companies had any access to capital. In a done so while continuing to put our valued subscribers show of extraordinary confidence in our future, we first. We are incredibly grateful. were able to execute an agreement with Liberty Media, which strengthened our capital structure and enhanced Likewise, on behalf of the Board of Directors, I’d like our financial flexibility. With this investment, we have to thank you, our stockholders, for your support. We addressed the uncertainty related to our debt maturing appreciate your confidence and hope to see it rewarded in 2009, allowing us to turn our focus to back to our in an improved share price. The last year was not business and to providing our subscribers with the without its challenges, but I believe we have demon- great content and innovative programming they know strated our company’s resilience and that we will see and love. the benefits. Liberty Media is a strong partner and we are pleased to I hope you share my confidence in what lies ahead for welcome their investment and new colleagues to our SIRIUS XM. Board of Directors. In addition to capital, they bring an extraordinary amount of expertise in the media industry. Sincerely, Looking to the Future We are following events in the auto market very closely. The decline in auto sales is concerning. How- ever, cars are still being sold and, as a result of the merger, we have penetration into every major auto MEL KARMAZIN manufacturer. We are working closely with each of the CEO major automakers and exploring new options to entice SIRIUS XM Radio 2 Special Note Regarding Forward-Looking Statements The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in forward-looking statements made in this Annual Report and Proxy Statement and in other reports and documents published by us from time to time. Any statements about our beliefs, plans, objectives, expectations, assumptions, future events or performance are not historical facts and may be forward- looking.