SIRIUS SATELLITE RADIO INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission file number 0-24710

SIRIUS SATELLITE RADIO INC.
(Exact name of registrant as specified in its charter)

Delaware 52-1700207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1221 Avenue of the Americas, 36th Floor
New York, New York 10020
(Address of principal executive offices)
(Zip code)

212-584-5100
(Registrant's telephone number, including area code)

_________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)

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 [X] No [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Common Stock, $.001 par value 998,147,082 shares
- ----------------------------- ------------------
(Class) (Outstanding as of August 8, 2003)

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SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Part I - Financial Information

Item 1. Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002
(Unaudited) ................................................................................. 1
Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002............... 2
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2003
(Unaudited)......... ........................................................................ 3
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002
(Unaudited)......... ........................................................................ 4
Notes to Consolidated Financial Statements (Unaudited).......................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 14

Part II - Other Information

Item 6. Exhibits and Reports on Form 8-K................................................................ 24

Signatures................................................................................................ 25

Certification of Chief Executive Officer.................................................................. 26

Certification of Chief Financial Officer.................................................................. 27

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)

For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------

Revenue:
Subscriber revenue, net of mail-in rebates .............. $ 2,029 $ 50 $ 3,583 $ 54
Advertising revenue, net of agency fees ................. 27 20 44 49
Other revenue ........................................... 17 -- 37 --
--------- --------- --------- ---------
Total revenue .............................................. 2,073 70 3,664 103
--------- --------- --------- ---------
Operating expenses:
Cost of services (excludes depreciation expense shown
separately below):
Satellite and transmission ........................ 7,688 8,450 15,555 17,207
Programming and content ........................... 7,639 4,125 14,213 7,908
Customer service and billing ...................... 16,320 1,882 18,522 3,724
Sales and marketing ..................................... 39,516 30,901 84,856 46,560
General and administrative .............................. 12,464 8,588 21,558 16,128
Research and development ................................ 4,904 13,425 9,887 21,138
Depreciation expense .................................... 23,463 22,099 47,563 36,580
Non-cash stock compensation (benefit)/expense (1) ....... (123) 491 436 (8,533)
--------- --------- --------- ---------
Total operating expenses ................................... 111,871 89,961 212,590 140,712
--------- --------- --------- ---------
Loss from operations .............................. (109,798) (89,891) (208,926) (140,609)
Other income (expense):
Debt restructuring ...................................... -- -- 256,538 --
Interest and investment income .......................... 1,327 1,517 2,670 3,517
Interest expense, net of amounts capitalized ............ (3,365) (24,893) (22,030) (55,086)
--------- --------- --------- ---------
Total other income (expense) ............................... (2,038) (23,376) 237,178 (51,569)
--------- --------- --------- ---------
Net income (loss) ................................. (111,836) (113,267) 28,252 (192,178)

Preferred stock dividends .................................. -- (11,165) (8,574) (22,207)
Preferred stock deemed dividends ........................... -- (171) (79,634) (342)
--------- --------- --------- ---------
Net loss applicable to common stockholders ........ $(111,836) $(124,603) $ (59,956) $(214,727)
========= ========= ========= =========
Net loss per share applicable to common
stockholders (basic and diluted) ........................ $ (0.12) $ (1.62) $ (0.09) $ (2.85)
========= ========= ========= =========
Weighted average common shares outstanding
(basic and diluted) ..................................... 931,720 76,715 631,421 75,296
========= ========= ========= =========

- ----------
(1) Allocation of non-cash stock compensation (benefit)
/expense to other operating expenses:
Satellite and transmission .......................... $ 30 $ 84 $ 109 $ (1,512)
Programming and content ............................. 49 59 137 (1,862)
Customer service and billing ........................ 3 3 10 (182)
Sales and marketing ................................. (277) 202 (69) (1,170)
General and administrative .......................... 44 85 170 (1,771)
Research and development ............................ 28 58 79 (2,036)
--------- --------- --------- ---------
Total non-cash stock compensation
(benefit)/expense............................... $ (123) $ 491 $ 436 $ (8,533)
========= ========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

1

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

June 30, December 31,
2003 2002
---------- ------------
(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents .................................. $ 554,535 $ 18,375
Marketable securities ...................................... 5,558 155,327
Prepaid expenses ........................................... 16,672 24,562
Other current assets ....................................... 3,032 1,345
---------- ----------
Total current assets .................................... 579,797 199,609
Property and equipment, net ................................... 981,025 1,032,874
FCC license ................................................... 83,654 83,654
Restricted investments ........................................ 7,200 7,200
Other long-term assets ........................................ 9,154 17,603
---------- ----------
Total assets ............................................ $1,660,830 $1,340,940
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................... $ 49,812 $ 43,336
Accrued interest ........................................... 1,676 3,234
Deferred revenue ........................................... 4,259 1,750
---------- ----------
Total current liabilities ............................... 55,747 48,320
Long-term debt ................................................ 259,570 670,357
Accrued interest, net of current portion ...................... -- 46,914
Other long-term liabilities ................................... 9,538 7,350
---------- ----------
Total liabilities ....................................... 324,855 772,941
---------- ----------
Commitments and contingencies:
9.2% Series A Junior Cumulative Convertible Preferred
Stock, $.001 par value: 4,300,000 shares authorized,
no shares and 1,902,823 shares issued and outstanding
at June 30, 2003 and December 31, 2002, respectively
(liquidation preference of $0 and $190,282), at net
carrying value including accrued dividends............... -- 193,230
9.2% Series B Junior Cumulative Convertible Preferred
Stock, $.001 par value: 2,100,000 shares authorized,
no shares and 853,450 shares issued and outstanding at
June 30, 2003 and December 31, 2002, respectively
(liquidation preference of $0 and $85,345), at net
carrying value including accrued dividends............... -- 84,781
9.2% Series D Junior Cumulative Convertible Preferred
Stock, $.001 par value: 10,700,000 shares authorized,
no shares and 2,558,655 shares issued and outstanding
at June 30, 2003 and December 31, 2002, respectively
(liquidation preference of $0 and $255,866), at net
carrying value including accrued dividends............... -- 253,142
Stockholders' equity:
Common stock, $.001 par value: 2,500,000,000 shares
authorized, 998,122,237 and 77,454,197 shares issued
and outstanding at June 30, 2003 and December 31,
2002, respectively ...................................... 998 77
Additional paid-in capital ................................. 2,234,245 963,335
Accumulated other comprehensive income (loss) .............. (41) 913
Accumulated deficit ........................................ (899,227) (927,479)
---------- ----------
Total stockholders' equity .............................. 1,335,975 36,846
---------- ----------
Total liabilities and stockholders' equity .............. $1,660,830 $1,340,940
========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.

2

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(Unaudited)

Common Stock Additional
-------------------- Paid-In
Shares Amount Capital
----------- ------ ----------

Balances, December 31, 2002........................................... 77,454,197 $ 77 $ 963,335
Net income............................................................ -- -- --
Change in unrealized gain on available-for-sale securities............ -- -- --
Issuance of common stock to employees and employee benefit plans...... 682,634 1 344
Compensation in connection with the issuance of stock options......... -- -- 92
Warrant expense associated with sales and marketing agreement......... -- -- 6
Sale of common stock, par value $.001 per share, between $0.92 and
$1.04 per share, net of expenses................................... 211,730,379 212 192,641
Exchange of Lehman term loans, including accrued interest............. 120,988,793 121 85,781
Exchange of Loral term loans, including accrued interest.............. 58,964,981 59 41,806
Exchange of 15% Senior Secured Discount Notes due 2007, including
accrued interest................................................... 204,319,915 204 144,863
Exchange of 14 1/2% Senior Secured Notes due 2009, including accrued
interest........................................................... 148,301,817 148 105,146
Exchange of 8 3/4% Convertible Subordinated Notes due 2009,
including accrued interest......................................... 12,436,656 13 24,342
Exchange of 9.2% Series A and B Junior Cumulative Convertible
Preferred Stock, including accrued dividends....................... 39,927,796 40 304,807
Exchange of 9.2% Series D Junior Cumulative Convertible Preferred
Stock, including accrued dividends................................. 37,065,069 37 283,748
Issuance of warrants in connection with the exchange of 9.2% Series
A, B and D Junior Cumulative Convertible Preferred Stock,
between $0.92 and $1.04 per share.................................. -- -- 30,731
Sale of common stock, par value $.001 per share, $1.80 per share,
net of expenses.................................................... 86,250,000 86 144,811
Preferred stock dividends............................................. -- -- (8,574)
Preferred stock deemed dividends...................................... -- -- (79,634)
----------- ---- ----------
Balances, June 30, 2003............................................... 998,122,237 $998 $2,234,245
=========== ==== ==========

Accumulated
Other
Comprehensive Accumulated
Income (Loss) Deficit Total
------------- ----------- ----------

Balances, December 31, 2002........................................... $ 913 $(927,479) $ 36,846
Net income............................................................ -- 28,252 28,252
Change in unrealized gain on available-for-sale securities............ (954) -- (954)
Issuance of common stock to employees and employee benefit plans...... -- -- 345
Compensation in connection with the issuance of stock options......... -- -- 92
Warrant expense associated with sales and marketing agreement......... -- -- 6
Sale of common stock, par value $.001 per share, between $0.92 and
$1.04 per share, net of expenses................................... -- -- 192,853
Exchange of Lehman term loans, including accrued interest............. -- -- 85,902
Exchange of Loral term loans, including accrued interest.............. -- -- 41,865
Exchange of 15% Senior Secured Discount Notes due 2007, including
accrued interest................................................... -- -- 145,067
Exchange of 14 1/2% Senior Secured Notes due 2009, including accrued
interest........................................................... -- -- 105,294
Exchange of 8 3/4% Convertible Subordinated Notes due 2009,
including accrued interest......................................... -- -- 24,355
Exchange of 9.2% Series A and B Junior Cumulative Convertible
Preferred Stock, including accrued dividends....................... -- -- 304,847
Exchange of 9.2% Series D Junior Cumulative Convertible Preferred
Stock, including accrued dividends................................. -- -- 283,785
Issuance of warrants in connection with the exchange of 9.2% Series
A, B and D Junior Cumulative Convertible Preferred Stock,
between $0.92 and $1.04 per share.................................. -- -- 30,731
Sale of common stock, par value $.001 per share, $1.80 per share,
net of expenses.................................................... -- -- 144,897
Preferred stock dividends............................................. -- -- (8,574)
Preferred stock deemed dividends...................................... -- -- (79,634)
----- --------- ----------
Balances, June 30, 2003............................................... $ (41) $(899,227) $1,335,975
===== ========= ==========

The accompanying notes are an integral part of this consolidated financial
statement.

3

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

For the Six Months Ended
June 30,
------------------------
2003 2002
--------- ---------

Cash flows from operating activities:
Net income (loss) ............................................................ $ 28,252 $(192,178)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation expense ...................................................... 47,563 36,580
Non-cash interest expense ................................................. 2,188 35,522
Non-cash stock compensation expense/(benefit) ............................. 436 (8,533)
Amortization of prepaid in-orbit satellite insurance ...................... 4,353 5,513
Loss on disposal of assets ................................................ 14,465 2,742
Non-cash gain associated with debt restructuring .......................... (261,275) --
Costs associated with debt restructuring .................................. 4,737 --
Other ..................................................................... 6 21
Increase (decrease) in cash and cash equivalents resulting from changes in
assets and liabilities:
Marketable securities ..................................................... (1,185) (75,490)
Prepaid expenses and other assets ......................................... 1,863 (14,225)
Accrued interest .......................................................... 13,007 3,680
Deferred revenue .......................................................... 2,509 276
Accounts payable and accrued expenses ..................................... 7,325 11,848
--------- ---------
Net cash used in operating activities .................................. (135,756) (194,244)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment ....................................... (10,179) (33,150)
Maturities of restricted investments ...................................... -- 14,500
Purchases of available-for-sale securities ................................ -- (79,375)
Maturities of available-for-sale securities ............................... 150,000 165,000
--------- ---------
Net cash provided by investing activities .............................. 139,821 66,975
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net ............................. 194,224 --
Proceeds from issuance of common stock, net ............................... 342,659 147,500
Costs associated with debt restructuring .................................. (4,737) --
Proceeds from exercise of stock options ................................... -- 22
Other ..................................................................... (51) (14)
--------- ---------
Net cash provided by financing activities .............................. 532,095 147,508
--------- ---------
Net increase in cash and cash equivalents ....................................... 536,160 20,239
Cash and cash equivalents at the beginning of period ............................ 18,375 4,726
--------- ---------
Cash and cash equivalents at the end of period .................................. $ 554,535 $ 24,965
========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

4

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

1. Business

Sirius Satellite Radio Inc. broadcasts digital-quality audio from
three orbiting satellites throughout the continental United States for a monthly
subscription fee of $12.95. We deliver 60 streams of 100% commercial-free music
in virtually every genre, and over 40 streams of news, sports, weather, talk,
comedy, public radio and children's programming.

Since inception, we have used substantial resources to develop our
satellite radio system. Our satellite radio system consists of our FCC license,
satellite system, national broadcast studio, terrestrial repeater network and
satellite telemetry, tracking and control facilities.

As of June 30, 2003, we had 105,186 subscribers. We consider
subscribers to be those who have agreed to pay for our service and have
activated their SIRIUS radio, including those who are currently in promotional
periods, and active SIRIUS radios under our agreement with Hertz Corporation.
Our primary source of revenue is subscription and activation fees. In addition,
we derive revenues from selling limited advertising on our non-music streams.

2. Recent Financings; Recapitalization

In June 2003, we sold 86,250,000 shares of our common stock in an
underwritten public offering resulting in net proceeds of $145,547.

In May 2003, we issued $201,250 in aggregate principal amount of our 3
1/2% Convertible Notes due 2008 in an underwritten public offering resulting in
net proceeds of $194,224. Our 3 1/2% Convertible Notes due 2008 are convertible,
at the option of the holder, into shares of our common stock at any time at a
conversion rate of 724.6377 shares of common stock for each $1,000.00 principal
amount, or $1.38 per share of common stock, subject to certain adjustments.

On March 7, 2003, we completed a series of transactions to restructure
our debt and equity capitalization. As part of these transactions:

o we issued 545,012,162 shares of our common stock in exchange for
approximately 91% of our then outstanding debt, including all of
our Lehman term loans, all of our Loral term loans, $251,230 in
aggregate principal amount at maturity of our 15% Senior Secured
Discount Notes due 2007, $169,742 in aggregate principal amount
of our 14 1/2% Senior Secured Notes due 2009, and $14,717 in
aggregate principal amount of our 8 3/4% Convertible Subordinated
Notes due 2009;

o we issued 39,927,796 shares of our common stock and warrants to
purchase 45,416,690 shares of our common stock in exchange for
all outstanding shares of our 9.2% Series A and B Junior
Cumulative Convertible Preferred Stock held by affiliates of
Apollo Management, L.P. ("Apollo");

o we issued 37,065,069 shares of our common stock and warrants to
purchase 42,160,424 shares of our common stock in exchange for
all outstanding shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock held by affiliates of The Blackstone
Group L.P. ("Blackstone");

o we sold 24,060,271 shares of our common stock to Apollo for an
aggregate of $25,000;

o we sold 24,060,271 shares of our common stock to Blackstone for
an aggregate of $25,000; and

o we sold 163,609,837 shares of our common stock to affiliates of
OppenheimerFunds, Inc. ("Oppenheimer") for an aggregate of
$150,000.

During the three months ended March 31, 2003, we recorded a gain of
$256,538 and a deemed dividend of $79,510 as a result of the exchange
transactions. In connection with the exchange offer relating to our debt, we
also amended the indentures under which our 15% Senior Secured Discount Notes
due 2007, 14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible
Subordinated Notes due 2009 were issued to eliminate substantially all of the
restrictive covenants. Holders of our debt also waived any existing events of
default or events of default caused by the restructuring.

5

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements,
including the accounts of Sirius Satellite Radio Inc. and our wholly owned
subsidiary, have been prepared in accordance with accounting principles
generally accepted in the United States and the instructions to Form 10-Q and
Article 10 of Regulation S-X for interim financial reporting. In the opinion of
management, all adjustments (consisting only of normal, recurring adjustments)
considered necessary for a fair presentation have been included. All
intercompany transactions have been eliminated in consolidation. Our
consolidated financial statements should be read together with our consolidated
financial statements and the notes thereto contained in our Annual Report on
Form 10-K for the year ended December 31, 2002.

Revenue Recognition

Revenue from subscribers consists of subscription fees, including
revenue derived from our agreement with Hertz, and non-refundable activation
fees. We recognize subscription fees as our service is provided. Activation fees
are recognized ratably over the estimated term of a subscriber relationship,
currently 3.5 years. The estimated term of a subscriber relationship is based on
market research and management's judgment and, if necessary, will be refined in
the future as historical data becomes available. We record an estimate of
mail-in rebates that are paid by us directly to subscribers as a reduction to
subscription revenue in the period the subscriber activates our service.

We recognize revenues from the sale of limited advertising on our
non-music streams as the advertising is broadcast. Agency fees are calculated
based on a stated percentage applied to gross billing revenue for our
advertising inventory and are reported as a reduction of advertising revenue.

Stock Options

We have adopted the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure--An Amendment of FASB Statement No.
123." In addition, we have elected to continue using the intrinsic value method
to measure the compensation costs of stock-based awards granted to employees in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees"; as a result, we recognize compensation expense
for employee stock options granted at a price less than the market value of our
common stock on the date of grant.

The following table illustrates the effect on net loss applicable to
common stockholders and net loss per share applicable to common stockholders
had stock-based employee compensation been recorded based on the fair value
method under SFAS No. 123, "Accounting for Stock-Based Compensation."

For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- --------------------
2003 2002 2003 2002
--------- --------- -------- ---------

Net loss applicable to common
stockholders--as reported ................................ $(111,836) $(124,603) $(59,956) $(214,727)
Non-cash stock compensation (benefit) expense--as reported .. (123) 491 436 (8,533)
Stock-based compensation--pro forma ......................... (5,601) (7,995) (13,319) (17,436)
--------- --------- -------- ---------
Net loss applicable to common
stockholders--pro forma .................................. $(117,560) $(132,107) $(72,839) $(240,696)
========= ========= ======== =========
Net loss per share applicable to common stockholders:
Basic and diluted--as reported ........................... $ (0.12) $ (1.62) $ (0.09) $ (2.85)

6

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

Basic and diluted--pro forma ............................. $ (0.13) $ (1.72) $ (0.12) $ (3.20)

Option valuation models require highly subjective assumptions,
including the expected stock price volatility, which may be significantly
different from those of traded options. Because changes in subjective
assumptions can materially affect the fair value estimate, it is our opinion
that the existing models do not necessarily provide a reliable single measure of
the fair value of our stock-based awards. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options,
which have no vesting restrictions and are fully transferable. The pro forma
stock-based employee compensation was estimated using the Black-Scholes option
pricing model with the following assumptions for each period:

For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
2003 2002 2003 2002
---- ---- ---------- ----

Risk-free interest rate ............ 0.91% 2.48% 0.91- 1.87% 2.48%
Expected life of options--years..... 4.89 4.75 4.89 4.75
Expected stock price volatility..... 115% 110% 115% 110%
Expected dividend yield ............ N/A N/A N/A N/A

In accordance with APB Opinion No. 25, we use the intrinsic value
method to measure the compensation costs of stock-based awards granted to
employees as the excess of the market value of our common stock on the date of
grant over the exercise price. We record these compensation costs over the
vesting period of the stock-based award.

We account for stock-based awards granted to non-employees at fair
value in accordance with SFAS No. 123.

In accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation," we record compensation charges or benefits related to repriced
stock options based on the market value of our common stock until the repriced
stock options are exercised, forfeited or expire.

Debt Restructuring

We recorded a gain of $256,538 in connection with the restructuring of
our long-term debt in March 2003. This gain represents the difference between
the carrying value of our 15% Senior Secured Discount Notes due 2007, 14 1/2%
Senior Secured Notes due 2009, Lehman term loans and Loral term loans, including
accrued interest, and the fair market value of the common stock issued, adjusted
for unamortized debt issuance costs and direct costs associated with the
restructuring. This gain is net of a loss on our 8 3/4% Convertible Subordinated
Notes due 2009 exchanged in the restructuring. This loss represents the
difference between the fair market value of the common stock issued in the
exchange and the fair market value of the common stock which would have been
issued under the original conversion ratio, including accrued interest, adjusted
for unamortized debt issuance costs and direct costs associated with the
restructuring.

Preferred Stock Deemed Dividend

We recorded a deemed dividend of $79,510 in connection with the
exchange in March 2003 of all outstanding shares of our preferred stock for
shares of our common stock and warrants. This deemed dividend represents the
difference between the fair market value of the common stock and warrants issued
in exchange for all outstanding shares of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock, 9.2% Series B Junior Cumulative Convertible
Preferred Stock and 9.2% Series D Junior Cumulative Convertible Preferred Stock
and the fair market value of the common stock which would have been issued under
the original conversion ratios, adjusted for unamortized issuance costs and
direct costs associated with the exchange of the preferred stock.

7

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

Net Loss Per Share

Basic net loss per share is based on the weighted average common
shares outstanding during each reporting period. Diluted net loss per share
adjusts the weighted average for the potential dilution that could occur if
common stock equivalents (convertible preferred stock, convertible debt,
warrants and stock options) were exercised or converted into common stock.
Approximately 164,807,000 and 16,152,000 common stock equivalents were
outstanding as of June 30, 2003 and 2002, respectively, and were excluded from
the calculation of diluted net loss per share, as they were anti-dilutive.

Marketable Securities

Marketable securities consist of U.S. government notes and U.S.
government agency obligations. Effective April 1, 2002, we began classifying
marketable securities as available-for-sale securities rather than trading
securities because we no longer intend to actively buy and sell marketable
securities with the objective of generating trading profits. Available-for-sale
securities are carried at fair market value and unrealized gains and losses are
included as a component of stockholders' equity. Prior to April 1, 2002,
marketable securities were classified as trading securities and unrealized
holding gains and losses were recognized in earnings. Marketable securities held
at June 30, 2003 and December 31, 2002 mature within one year from the date of
purchase. We had an unrealized holding loss on marketable securities of $41 as
of June 30, 2003 and an unrealized holding gain of $913 as of December 31,
2002.

Classification of Long-Term Debt and Accrued Interest

In accordance with SFAS No. 6, "Classification of Short-Term
Obligations Expected to be Refinanced," the current portion of long-term debt
and accrued interest that were exchanged for shares of our common stock in March
2003 were classified as long-term liabilities as of December 31, 2002.

Asset Retirement Obligation

In accordance with SFAS No. 143, "Accounting for Asset Retirement
Obligations," we recorded costs equal to the present value of the future
obligation associated with the retirement of our terrestrial repeater equipment.
These costs include an amount which we estimate will be sufficient to satisfy
our obligations under leases to remove our terrestrial repeater equipment and
restore the sites to their original condition and are included in long-term
liabilities. The following table reconciles the beginning and ending aggregate
carrying amount of this asset retirement obligation.

Asset
Retirement
Obligation
----------

Balance, December 31, 2002 ................. $ --
Present value of asset retirement obligation
upon adoption of SFAS No. 143 ........... 153
Accretion expense .......................... 58
----
Balance, June 30, 2003 ..................... $211
====

Use of Estimates

The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of expenses during the reported period. Estimates involve
judgments with respect to, among other things, various future factors which are
difficult to predict and are beyond our control. Actual amounts could differ
from these estimates.

8

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

Reclassifications

Certain amounts in the prior years consolidated financial statements
have been reclassified to conform to the current presentation.

Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,"
which is effective for all financial instruments created or modified after May
31, 2003 and otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial instruments that
embody obligations of the issuer and have characteristics of both liabilities
and equity. We do not believe that our adoption of SFAS No. 150 will have a
material impact on our financial position or results of operations.

4. Subscriber Revenue

Subscriber revenue, which consists of subscription and non-refundable
activation fees, was partially offset by the cost of mail-in rebate programs. An
estimate of mail-in rebates that are paid by us directly to subscribers are
recorded as a reduction to subscriber revenue in the period the subscriber
activates our service. Subscriber revenue consists of the following:

For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
2003 2002 2003 2002
------ ---- ------ ----

Subscription revenue ........................... $2,719 $48 $4,242 $52
Activation revenue ............................. 63 2 106 2
Mail-in rebates ................................ (753) -- (765) --
------ --- ------ ---
Total subscriber revenue .................... $2,029 $50 $3,583 $54
====== === ====== ===

5. Non-cash Stock Compensation

We record non-cash stock compensation benefits or expenses in
connection with the grant of certain stock options, the issuance of common stock
to employees and the issuance of common stock to our employee benefit plans. We
recognized a non-cash stock compensation benefit of $123 and non-cash stock
compensation expense of $436 for the three and six months ended June 30, 2003,
respectively. We recognized non-cash stock compensation expense of $491 and a
non-cash stock compensation benefit of $8,533 for the three and six months ended
June 30, 2002, respectively.

The non-cash stock compensation expense and benefit for the three and
six months ended June 30, 2003 includes a $314 benefit related to certain
performance conditions of restricted stock issued to an employee that we
anticipate will not be satisfied. The non-cash stock compensation benefit for
the six months ended June 30, 2002 includes a non-cash stock compensation
benefit of $9,717 related to options that were repriced in April 2001.

6. Supplemental Cash Flow Information

We paid $6,854 and $21,310 for interest during the six months ended
June 30, 2003 and 2002, respectively. We have incurred the following non-cash
operating, investing and financing activities:

9

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

For the Six Months Ended
June 30,
------------------------
2003 2002
-------- -------

Supplemental non-cash operating activities:
Common stock issued in satisfaction of accrued compensation..... $ -- $ 1,720

Supplemental non-cash investing and financing activities:
Capitalized interest ........................................... -- 5,426
Common stock issued in exchange of 8 3/4% Convertible
Subordinated Notes due 2009, including accrued interest ..... 24,355 39,300
Common stock issued in exchange of 15% Senior Secured
Discount Notes due 2007, including accrued interest ......... 145,067 --
Common stock issued in exchange of 14 1/2% Senior Secured
Notes due 2009, including accrued interest .................. 105,294 --
Common stock issued in exchange of Lehman term loans,
including accrued interest .................................. 85,902 --
Common stock issued in exchange of Loral term loans,
including accrued interest .................................. 41,865 --
Common stock issued in exchange of 9.2% Series A and B
Junior Cumulative Convertible Preferred Stock,
including accrued dividends ................................. 304,847 --
Common stock issued in exchange of 9.2% Series D Junior
Cumulative Convertible Preferred Stock, including
accrued dividends ........................................... 283,785 --
Warrants issued in exchange of 9.2% Series A, B and D
Junior Cumulative Convertible Preferred Stock,
including accrued dividends ................................. 30,731 --

7. Property and Equipment

Subscriber Management System

On April 17, 2003, we terminated our agreement with Sentraliant, the
company that developed and operated our previous subscriber management system.
Pursuant to that agreement, we paid Sentraliant $5,000 to terminate our
agreement, of which approximately $1,000 related to operation fees. As a result
of this termination, we recorded a non-cash charge of $14,465 related to the net
book value of our subscriber management system. These costs are included in
customer service and billing in the accompanying consolidated statements of
operations for the three and six months ended June 30, 2003.

8. Long-term Debt

Our long-term debt consists of the following:

As of As of
June 30, 2003 December 31, 2002
------------- -----------------

15% Senior Secured Discount Notes due 2007 ...... $ 29,200 $280,430
14 1/2% Senior Secured Notes due 2009 ........... 27,376 179,382
3 1/2% Convertible Notes due 2008 ............... 201,250 --
8 3/4% Convertible Subordinated Notes due 2009 .. 1,744 16,461
Lehman term loans ............................... -- 144,084
Loral term loans ................................ -- 50,000
-------- --------
Total long-term debt ......................... $259,570 $670,357
======== ========

10

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

Debt Restructuring

On March 7, 2003, we issued 545,012,162 shares of our common stock in
exchange for approximately 91% of our then outstanding debt, including all of
our Lehman term loans, all of our Loral term loans and $435,689 in aggregate
principal amount at maturity of our 15% Senior Secured Discount Notes due 2007,
14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated Notes
due 2009. In connection with the exchange offer relating to our debt, we also
amended the indentures under which our 15% Senior Secured Discount Notes due
2007, 14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated
Notes due 2009 were issued to eliminate substantially all of the restrictive
covenants. Holders of our debt also waived any existing events of default or
events of default caused by the restructuring. Refer to Note 2 for further
information regarding our recapitalization.

3 1/2% Convertible Notes due 2008

In May 2003, we issued $201,250 in aggregate principal amount of our 3
1/2% Convertible Notes due 2008 in an underwritten public offering resulting in
net proceeds of $194,224. Our 3 1/2% Convertible Notes due 2008 are convertible,
at the option of the holder, into shares of our common stock at any time at a
conversion rate of 724.6377 shares of common stock for each $1,000.00 principal
amount, or $1.38 per share of common stock, subject to certain adjustments. Our
3 1/2% Convertible Notes due 2008 mature on June 1, 2008 and interest is payable
semi-annually on June 1 and December 1 of each year, commencing on December 1,
2003. The obligations under our 3 1/2% Convertible Subordinated Notes due 2008
are not secured by any of our assets.

8 3/4% Convertible Subordinated Notes due 2009

Our 8 3/4% Convertible Subordinated Notes mature on September 29,
2009. Cash interest is payable semi-annually on each March 29 and September 29,
through September 29, 2009. Our 8 3/4% Convertible Notes due 2009 are
convertible, at the option of the holder, into shares of our common stock at any
time at a conversion rate of 35.134 shares of common stock for each $1,000.00
principal, or $28.4625 per share of common stock, subject to certain
adjustments. The obligations under our 8 3/4% Convertible Subordinated Notes due
2009 are not secured by any of our assets.

We recorded non-cash charges of $336 and $9,650, related to the
issuance of 97,000 and 2,913,483 shares of our common stock in exchange for
$1,000 and $29,475 in aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009, including accrued interest, during the three and
six months ended June 30, 2002, respectively. This non-cash charge of $336 and
$9,650 is included in interest expense for the three and six months ended June
30, 2002, respectively.

14 1/2% Senior Secured Notes due 2009

Our 14 1/2% Senior Secured Notes mature on May 15, 2009. Cash interest
is payable semi-annually on each May 15 and November 15, through May 15, 2009.
As of June 30, 2003, $30,258 in aggregate principal amount of our 14 1/2% Senior
Secured Notes due 2009 were outstanding. In determining the book value of our 14
1/2% Senior Secured Notes due 2009, we reduce the aggregate principal amount by
$2,882, the unamortized portion of the fair market value of warrants issued in
connection with these notes. The obligations under our 14 1/2% Senior Secured
Notes due 2009 are secured by a lien on the stock of our subsidiary that holds
our FCC license and a lien on our spare satellite.

15% Senior Secured Discount Notes due 2007

Our 15% Senior Secured Discount Notes mature on December 1, 2007. Cash
interest is payable semi-annually on each June 1 and December 1, through
December 1, 2007. The obligations under our 15% Senior Secured Discount Notes
due 2007 are secured by a lien on the stock of our subsidiary that holds our FCC
license and a lien on our spare satellite.

11

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

9. Capital Stock

Common stock, par value $.001 per share

On June 10, 2003, we sold 86,250,000 shares of our common stock in an
underwritten public offering resulting in net proceeds of $145,547.

On March 7, 2003, we sold 24,060,271 shares of our common stock to
Apollo for an aggregate of $25,000; 24,060,271 shares of our common stock to
Blackstone for an aggregate of $25,000; and 163,609,837 shares of our common
stock to Oppenheimer for an aggregate of $150,000. We received net proceeds of
$197,112 in connection with these sales.

On March 4, 2003, our stockholders approved an amendment and
restatement of our certificate of incorporation to increase our authorized
shares of common stock from 500,000,000 to 2,500,000,000. We filed this amended
and restated certificate of incorporation with the Secretary of State of the
State of Delaware on March 4, 2003.

Preferred Stock

On March 7, 2003, we issued 39,927,796 shares of our common stock to
Apollo in exchange for all of our outstanding 9.2% Series A Junior Cumulative
Convertible Preferred Stock and 9.2% Series B Junior Cumulative Convertible
Preferred Stock, and 37,065,069 shares of our common stock to Blackstone in
exchange for all of our outstanding 9.2% Series D Junior Cumulative Convertible
Preferred Stock, including, in each case, accrued dividends. Refer to Note 2 for
further discussion regarding our recapitalization.

Warrants

We issued warrants to purchase 45,416,690 shares of our common stock
in exchange for all our outstanding 9.2% Series A Junior Cumulative Convertible
Preferred and 9.2% Series B Junior Cumulative Convertible Preferred Stock held
by Apollo. These warrants were immediately exercisable and expire on March 7,
2005.

We issued warrants to purchase 42,160,424 shares of our common stock
in exchange for all our outstanding 9.2% Series D Junior Cumulative Convertible
Preferred Stock held by Blackstone. These warrants were immediately exercisable
and expire on September 7, 2004.

The exercise price of warrants to purchase 52,546,268 shares of our
common stock have an exercise price of $1.04 per share and warrants to purchase
35,030,846 shares of our common stock have an exercise price of $0.92 per share.

10. Commitments and Contingencies

The following table summarizes our contractual commitments as of June
30, 2003:

2003 2004 2005 2006 2007 Thereafter Total
------- ------- ------- ------- ------ ---------- --------

Satellite and transmission .............. $ 1,145 $ 2,291 $ 2,291 $ 2,291 $2,291 $18,328 $ 28,637
Programming and content ................. 5,143 25,563 33,724 21,282 1,025 1,000 87,737
Customer service and billing ............ 2,190 1,440 1,440 360 -- -- 5,430
Sales and marketing ..................... 34,946 19,318 10,629 6,000 4,500 -- 75,393
Chip set development and production ..... 13,056 14,400 -- -- -- -- 27,456
------- ------- ------- ------- ------ ------- --------
Contractual commitments .............. $56,480 $63,012 $48,084 $29,933 $7,816 $19,328 $224,653
======= ======= ======= ======= ====== ======= ========

12

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Dollar amounts in thousands, unless otherwise stated)
(Unaudited)

Satellite and Transmission

We have entered into an agreement with a provider of satellite
services to operate our off-site satellite telemetry, tracking and control
facilities.

Programming and Content

We have entered into agreements with licensors of music and non-music
programming and, in certain instances, are obligated to pay license fees,
guarantee minimum advertising revenue share or purchase advertising on
properties owned or controlled by these licensors. In addition, we have
agreements with various rights organizations pursuant to which we pay royalties
for public performances of music.

Customer Service and Billing

We have entered into agreements with third parties to provide customer
service, billing service and subscriber management.

Sales and Marketing

We have entered into various marketing and sponsorship agreements to
promote our brand and are obligated to make payments to sponsors, retailers,
automakers and radio manufacturers.

Chip Set Development and Production

We have entered into an agreement with Agere Systems, Inc. ("Agere")
to develop and produce chip sets for use in SIRIUS radios. This agreement
requires Agere to produce a minimum quantity of chip sets during each year of
the agreement.

Other Commitments

We have agreed to use reasonable efforts to assist certain
manufacturers of SIRIUS radios and components for those radios in the event that
production of such radios and components are greater than sales. In certain
circumstances, these reasonable efforts may include the purchase of unsold
SIRIUS radios or components by us. In addition, we have also entered into
agreements with automakers, radio manufacturers and others that include
per-radio and per-subscriber required payments and revenue sharing arrangements.
These future costs are dependent upon many factors and are difficult to
anticipate; however, these costs may be substantial. We may enter into
additional programming, marketing and other agreements that contain provisions
similar to our current agreements.

11. Subsequent Events

Our board of directors recently approved and issued stock options and
restricted stock which represent the right to acquire up to 64.9 million shares
of our common stock under the Sirius Satellite Radio 2003 Long-Term Stock
Incentive Plan. Based on the market value of our common stock of $1.62, the
closing bid price of our common stock on August 8, 2003, these awards would
result in an aggregate non-cash stock compensation charge of approximately $61.0
million over the period commencing on the date of grant and ending in July 2008.
The exact amount and timing of this charge is contingent upon a number of
factors, including the price of our common stock and the vesting date of these
stock options and restricted stock, and could materially change.

13

Management's Discussion and Analysis of Financial Condition and Results of
Operations

(All dollar amounts are in thousands, unless otherwise stated)

Special Note Regarding Forward-Looking Statements

The following cautionary statements identify important factors that
could cause our actual results to differ materially from those projected in
forward-looking statements made in this Quarterly Report on Form 10-Q and in
other reports and documents published by us from time to time. Any statements
about our beliefs, plans, objectives, expectations, assumptions, future events
or performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or phrases
such as "will likely result," "are expected to," "will continue," "is
anticipated," "estimated," "intends," "plans," "projection" and "outlook." Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout our Annual Report on Form 10-K for the year ended
December 31, 2002 (the "Form 10-K") and in other reports and documents published
by us from time to time, particularly the risk factors described under "Business
- -- Risk Factors" in Part I of the Form 10-K. Among the significant factors that
could cause our actual results to differ materially from those expressed in the
forward-looking statements are:

o our competitive position; XM Satellite Radio, the other satellite
radio service provider in the United States, began offering its
service before us, has substantially more subscribers than us and
may have certain competitive advantages;

o our dependence upon third parties to manufacture, distribute,
market and sell SIRIUS radios and components for those radios;

o the unproven market for our service; and

o the useful life of our satellites, which have experienced circuit
failures on their solar arrays and may not be covered by
insurance.

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

Overview

We broadcast digital-quality audio from three orbiting satellites
throughout the continental United States for a monthly subscription fee of
$12.95. We deliver 60 streams of 100% commercial-free music in virtually every
genre, and over 40 streams of news, sports, weather, talk, comedy, public radio
and children's programming. We hold one of only two licenses issued by the FCC
to operate a national satellite radio system.

As of June 30, 2003, we had 105,186 subscribers. We consider
subscribers to be those who have agreed to pay for our service and have
activated their SIRIUS radio, including those who are currently in promotional
periods, and active SIRIUS radios under our agreement with Hertz. We derive
revenue from:

o subscription fees, including revenue derived from our agreement
with Hertz,

o activation fees collected from our subscribers, and

o selling limited advertising on our non-music streams.

14

Results of Operations

Three Months Ended June 30, 2003 Compared with Three Months Ended June 30, 2002

Total Revenue. Total revenue increased to $2,073 from $70 for the
three months ended June 30, 2003 and 2002, respectively. Total revenue for the
three months ended June 30, 2003 included subscriber revenue of $2,029,
consisting of subscription and non-refundable activations fees, net advertising
revenue of $27 and revenue from other sources of $17. Total revenue for the
three months ended June 30, 2002 included subscription revenue of $50 and
advertising revenue of $20.

Subscriber Revenue. The increase in subscriber revenue of $1,979 was
attributable to the growth of subscribers to our service. We added 37,127 net
new subscribers during the three months ended June 30, 2003. Subscriber revenue
for the three months ended June 30, 2003 included subscription revenue of
$2,719 and activation revenue of $63, which was partially offset by $753 of
costs associated with mail-in rebate programs. Subscriber revenue for the three
months ended June 30, 2002 included subscription revenue of $48 and activation
revenue of $2. Activation fees are recognized ratably over the term of the
subscriber relationship, currently estimated to be 3.5 years. An estimate of
mail-in rebates that are paid by us directly to subscribers are recorded as a
reduction to subscription revenue in the period the subscriber activated our
service. Future subscription revenue will be dependent upon, among other things,
growth of our subscriber base, discounts and mail-in rebates offered to
subscribers and the identification of additional revenue streams from
subscribers.

Average monthly revenue per subscriber ("ARPU"). ARPU for the
three months ended June 30, 2003 was $7.91. Excluding the cost of
mail-in rebate programs, ARPU for the three months ended June 30, 2003
was $10.84. ARPU, which is not a measure of financial performance
under accounting principles generally accepted in the United States,
is derived from total subscriber revenue over the daily weighted
average number of subscribers for the period. Future ARPU will be
dependent upon the amount and timing of subscriber discounts, mail-in
rebate programs, and the identification of additional revenue streams
from subscribers.

Advertising Revenue. Advertising revenue, net of agency fees of $5,
was $27 for the three months ended June 30, 2003. Advertising revenue, net of
agency fees of $3, was $20 for the three months ended June 30, 2002. We
recognize advertising revenue from the sale of limited advertising on our
non-music streams as it is broadcast.

Satellite and Transmission. Satellite and transmission expenses
decreased to $7,688 for the three months ended June 30, 2003 from $8,450 for the
three months ended June 30, 2002. Satellite and transmission expenses consist
primarily of personnel costs, in-orbit satellite insurance expense and costs
associated with the operation and maintenance of our satellite tracking,
telemetry and control system, terrestrial repeater network and national
broadcast studio. The decrease in satellite and transmission expense was
primarily attributable to decreased in-orbit satellite insurance expense as a
result of reduced in-orbit satellite insurance coverage. Our current policies
cover each of our three satellites up to $110,000 in the event of a total or
constructive total loss. We expect that a significant portion of our satellite
and transmission costs will remain relatively constant, and that increases or
decreases in satellite and transmission costs will be due to costs of insuring
our in-orbit satellites and modest additions to our terrestrial repeater
network.

Programming and Content. Programming and content expenses increased to
$7,639 for the three months ended June 30, 2003 from $4,125 for the three months
ended June 30, 2002. Programming and content expenses include costs to acquire
programming from third parties, on-air talent costs, broadcast royalties and
programming personnel costs. The increase in costs was primarily attributable to
broadcast royalties and on-air talent.

Acquired programming. We have entered into various agreements
with third parties for music and non-music programming. These
agreements require us to share advertising revenue, pay license fees
and purchase advertising on media properties owned or controlled by
the licensor. In addition, certain agreements include guaranteed
obligations which we recognize on a straight-line basis over the term
of the applicable agreement. Advertising revenue share is expensed as
the associated revenue is recognized; license fees are expensed as the
programming is aired and purchased advertising is recorded as a sales
and marketing expense when the advertising is aired.

Broadcast royalties. We have entered into agreements with various
rights organizations pursuant to which we pay royalties for public
performances of music. These agreements include fixed and variable

15

payment obligations. We record variable broadcast royalties as they
are incurred and fixed obligations on a straight-line basis over the
term of the applicable agreement.

We anticipate that our programming costs will increase over time as we
continue to develop our streams and share advertising revenue from the sale of
advertising on our non-music streams.

Customer Service and Billing. Customer service and billing costs
increased to $16,320 for the three months ended June 30, 2003 from $1,882 for
the three months ended June 30, 2002. Customer service and billing costs include
costs associated with the operation of our customer service center and
subscriber management system. The increase in costs during the 2003 quarter was
due to a $14,465 loss on the disposal of our prior subscriber management system
as a result of the termination of our agreement with Sentraliant, the company
that developed and operated that system.

Sales and Marketing. Sales and marketing expenses increased to $39,516
for the three months ended June 30, 2003 from $30,901 for the three months ended
June 30, 2002. Sales and marketing expenses include costs related to sales and
marketing personnel, advertising media and production activities, sponsorships,
costs to acquire subscribers and payments to reimburse retailers, distributors
and automakers for marketing and promotional activities. Sales and marketing
expenses increased as a result of our national advertising campaign, increased
marketing activities by automakers and increased sponsorship activities.

Advertising Media and Production. These costs include promotional
events, media, advertising production and market research. Media is
expensed when it is aired and advertising production costs are
expensed as incurred.

Retail and Distribution. These costs include advertising,
residuals and market development funds. Advertising is expensed as
incurred. Residuals are monthly fees paid based upon the number of
subscribers using a SIRIUS radio purchased from a retailer and are
expensed as incurred. Market development funds are fixed and variable
payments to reimburse retailers for the cost of advertising and other
product awareness activities. Fixed market development funds are
expensed over the periods specified in the applicable agreement;
variable costs are expensed at the time a subscriber is activated.

Automakers. We have entered into agreements with DaimlerChrysler,
Ford, BMW and other automakers which anticipate that such automakers
will manufacture, market and sell vehicles which are equipped with
SIRIUS radios ("Enabled Vehicles"). Under many of these agreements,
we share a portion of the revenue we derive from subscribers using
Enabled Vehicles. This revenue share is expensed as the corresponding
subscription revenue is earned. We also reimburse automakers for
certain advertising, promotional, hardware and engineering costs. We
record expenses associated with these reimbursements as incurred or on
a straight-line basis over the contract period for guaranteed
obligations.

We have issued a warrant to purchase 4,000,000 shares of our
common stock to each of DaimlerChrysler and Ford. These warrants
become exercisable based on, among other conditions, the number of
Enabled Vehicles the automakers manufacture. We record warrant expense
for interim reporting periods based upon the performance of the
automakers in manufacturing Enabled Vehicles and the fair value of the
warrants at each reporting date. The final measurement date of these
warrants will be the date that each performance commitment for such
warrants is satisfied.

Subscriber Acquisition Costs. Subscriber acquisition costs
increased to $9,275 for the three months ended June 30, 2003 from
$8,626 for the three months ended June 30, 2002. Subscriber
acquisition costs per gross activation decreased to $229 for the three
months ended June 30, 2003, as compared to $299 for the three months
ended March 31, 2003. Subscriber acquisition costs include incentives
for the purchase, installation and activation of SIRIUS radios, as
well as subsidies paid to radio manufacturers, automakers, retailers
and payments to Agere. Certain subscriber acquisition costs are
recorded in advance of acquiring a subscriber. Subscriber acquisition
costs do not include advertising and promotional activities, loyalty
payments to distributors and dealers of SIRIUS radios, revenue sharing
payments to manufacturers of SIRIUS radios and guaranteed payments to
automakers. We retain ownership of the SIRIUS radios used in our
agreement with Hertz; as a result, amounts capitalized in connection
with this program are not included in our subscriber acquisition
costs.

We expect sales and marketing expenses to increase in the future as we
continue to build brand awareness through national advertising and continue to
offer subsidies, commissions and other incentives to acquire

16

subscribers. In addition, we expect to incur significant costs related to our
agreements with automakers as they increase production of Enabled Vehicles. We
anticipate that the costs of certain subsidized components of SIRIUS radios will
decrease as manufacturers experience economies of scale in production and we
secure additional manufacturers of these components.

General and Administrative. General and administrative expenses
increased to $12,464 for the three months ended June 30, 2003 from $8,588 for
the three months ended June 30, 2002. General and administrative expenses
include rent and occupancy, accounting, legal and public relations costs and
costs of general and administrative personnel. The increase was a result of
approximately $4,000 of costs to terminate our agreement with Sentraliant,
the company that developed and operated our prior subscriber management system.

Research and Development. Research and development costs decreased to
$4,904 for the three months ended June 30, 2003 from $13,425 for the three
months ended June 30, 2002. Research and development costs include costs to
develop our next generation chip sets, new product designs and personnel costs.
The decrease related to a payment of $8,134 to Panasonic during the second
quarter of 2002, which released us from a purchase commitment and reduced the
factory price of SIRIUS radios.

Chip Set Development. We have an agreement with Agere to develop
and produce chip sets for use in SIRIUS radios. This agreement
requires Agere to manufacture a minimum quantity of chip sets during
each year of the agreement. The agreement requires us to pay Agere
fixed monthly payments. These costs are allocated between research
and development and sales and marketing for development work and
chip set production, respectively.

The amount of our future research and development costs is dependent
upon modifications to our existing technology and enhancements to SIRIUS radios.

Depreciation Expense. Depreciation expense increased to $23,463 for
the three months ended June 30, 2003 from $22,099 for the three months ended
June 30, 2002. We expect depreciation expense to remain relatively constant as
our satellite radio system is complete.

Non-cash Stock Compensation. We recognized a non-cash stock
compensation benefit of $123 and non-cash stock compensation expense of $491 for
the three months ended June 30, 2003 and 2002, respectively. Non-cash stock
compensation includes charges and benefits associated with the grant of certain
stock options and the issuance of our common stock to employees and an employee
benefit plan. The non-cash stock compensation benefit for the three months ended
June 30, 2003 was principally a result a $314 benefit related to certain
performance conditions of restricted stock that we anticipate will not be
satisfied.

Interest and Investment Income. Interest and investment income
decreased to $1,327 for the three months ended June 30, 2003 from 1,517 for the
three months ended June 30, 2002. This decrease was attributable to lower
returns on our investments in U.S. government securities during the 2003 period.

Interest Expense. Interest expense decreased to $3,365 for the three
months ended June 30, 2003 from $24,893 for the three months ended June 30,
2002, net of amounts capitalized of $0 and $1,025, respectively. The decrease
in interest expense was a result of the exchange of approximately $636,000 in
aggregate principal amount at maturity of our outstanding long-term debt for
common stock in March 2003.

Six Months Ended June 30, 2003 Compared with Six Months Ended June 30, 2002

Total Revenue. Total revenue increased to $3,664 from $103 for the six
months ended June 30, 2003 and 2002, respectively. Total revenue for the six
months ended June 30, 2003 included subscriber revenue of $3,583, consisting of
subscription and non-refundable activations fees, net advertising revenue of $44
and revenue from other sources of $37. Total revenue for the six months ended
June 30, 2002 included subscription revenue of $54 and advertising revenue of
$49.

Subscriber Revenue. The increase in subscriber revenue of $3,529 was
attributable to the growth of subscribers to our service. We added 75,239 net
new subscribers during the six months ended June 30, 2003. Subscriber revenue
for the six months ended June 30, 2003 included subscription revenue of $4,242
and activation revenue of $106, which was partially offset by $765 of costs
associated with mail-in rebate programs. Subscriber revenue, for the six months
ended June 30, 2002, included subscription revenue of $52 and activation revenue
of $2.

17

Average monthly revenue per subscriber. ARPU for the six months
ended June 30, 2003 was $8.94. Excluding the cost of mail-in rebate
programs, ARPU for the six months ended June 30, 2003 was $10.85.

Advertising Revenue. Advertising revenue, net of agency fees of $8,
was $44 for the six months ended June 30, 2003. Advertising revenue, net of
agency fees of $9, was $49 for the six months ended June 30, 2002.

Satellite and Transmission. Satellite and transmission expenses
decreased to $15,555 for the six months ended June 30, 2003 from $17,207 for the
six months ended June 30, 2002. The decrease in satellite and transmission
expense was primarily attributable to decreased in-orbit satellite insurance
expense as a result of reduced in-orbit satellite insurance coverage.

Programming and Content. Programming and content expenses increased to
$14,213 for the six months ended June 30, 2003 from $7,908 for the six months
ended June 30, 2002. The increase in costs was primarily attributable to
broadcast royalties and on-air talent.

Customer Service and Billing. Customer service and billing costs
increased to $18,522 for the six months ended June 30, 2003 from $3,724 for the
six months ended June 30, 2002. The increase in costs during the quarter was due
to a $14,465 loss on the disposal of our prior subscriber management system as a
result of the termination of our agreement with Sentraliant.

Sales and Marketing. Sales and marketing expenses increased to $84,856
for the six months ended June 30, 2003 from $46,560 for the six months ended
June 30, 2002. Sales and marketing expenses increased due to the launch of our
national advertising campaign, certain marketing activities by retailers,
automakers and radio manufacturers, sponsorship activities and the costs
associated with subsidies paid to radio and chip set manufacturers.

Subscriber Acquisition Costs. Subscriber acquisition costs
increased to $21,138 for the six months ended June 30, 2003 from
$10,291 for the six months ended June 30, 2002. Subscriber acquisition
costs per gross activation was $263 for the six months ended June 30,
2003.

General and Administrative. General and administrative expenses
increased to $21,558 for the six months ended June 30, 2003 from $16,128 for the
six months ended June 30, 2002. The increase was primarily a result of
approximately $4,000 of costs to terminate our agreement with Sentraliant.

Research and Development. Research and development costs decreased to
$9,887 for the six months ended June 30, 2003 from $21,138 for the six months
ended June 30, 2002. The decrease related to a payment of $8,134 to Panasonic in
the second quarter of 2002, which released us from a purchase commitment and
reduced the factory price of SIRIUS radios.

Depreciation Expense. Depreciation expense increased to $47,563 for
the six months ended June 30, 2003 from $36,580 for the six months ended June
30, 2002. The increase was due to a full period of depreciation of our satellite
radio system, which began in February 2002.

Non-cash Stock Compensation. We recognized non-cash stock compensation
expense of $436 and a non-cash stock compensation benefit of $8,533 for the six
months ended June 30, 2003 and 2002, respectively. The non-cash stock
compensation expense of $436 for the six months ended June 30, 2003 includes a
$314 benefit related to certain performance conditions of restricted stock that
we anticipate will not be satisfied. The non-cash stock compensation benefit for
the six months ended June 30, 2002 was principally a result of a $9,717 benefit
related to the repricing of certain employee stock options in April 2001.

Debt Restructuring. We recorded a gain of $256,538 in connection with
the restructuring of our long-term debt. This gain represents the difference
between the carrying value of our 15% Senior Secured Discount Notes due 2007, 14
1/2% Senior Secured Notes due 2009, Lehman term loans and Loral term loans,
including accrued interest, and the fair market value of the common stock
issued, adjusted for unamortized debt issuance costs and direct costs associated
with the restructuring. This gain is net of a loss on our 8 3/4% Convertible
Subordinated Notes due 2009 exchanged in the restructuring. This loss represents
the difference between the fair market value of the common stock issued in the
exchange and the fair market value of the common stock which would have been
issued under the original conversion ratio, including accrued interest, adjusted
for unamortized debt issuance costs and direct costs associated with the
restructuring.

18

Interest and Investment Income. Interest and investment income
decreased to $2,670 for the six months ended June 30, 2003 from $3,517 for the
six months ended June 30, 2002. This decrease was attributable to lower returns
on our investments in U.S. government securities during the 2003 period.

Interest Expense. Interest expense decreased to $22,030 for the six
months ended June 30, 2003 from $55,086 for the six months ended June 30, 2002,
net of amounts capitalized of $0 and $5,426, respectively. Interest expense for
the six months ended June 30, 2002 included non-cash costs of $9,650 associated
with the induced conversion of $29,475 in aggregate principal amount of our 8
3/4% Convertible Subordinated Notes due 2009. The decrease in interest expense
is a result of the exchange of approximately $636,000 in aggregate principal
amount at maturity of our outstanding long-term debt for common stock in March
2003.

Cash Flows

Six Months Ended June 30, 2003 Compared With Six Months Ended June 30, 2002

Net cash used in operating activities decreased to $135,756 from
$194,244 for the six months ended June 30, 2003 and 2002, respectively. The
decrease in cash used in operations was primarily attributable to the change in
the classification of our marketable securities in the second quarter of 2002 to
available-for-sale securities from trading securities. Transactions relating to
trading securities are considered operating activities; transactions relating to
available-for-sale securities are considered investing activities. Excluding our
transactions in marketable securities, cash used in operating activities
increased to $134,571 for the six months ended June 30, 2003 from $118,754 for
the six months ended June 30, 2002. This increase was primarily due to the cost
of our national advertising campaign, the costs of acquiring subscribers and the
cost of producing our music and non-music streams.

Net cash provided by investing activities for the six months ended
June 30, 2003 increased to $139,821 from $66,975 for the six months ended June
30, 2002. The change from the prior period was principally due to a change in
the classification of our marketable securities from trading securities to
available-for-sale securities during the second quarter of 2002. Excluding our
transactions in marketable securities, cash used in investing activities
decreased to $10,179 from $33,150 for the six months ended June 30, 2003 and
2002, respectively. This decrease was a result of a reduction in capital
expenditures as we completed the construction of our satellite radio system
during 2002.

Net cash provided by financing activities was $532,095 and $147,508
for the six months ended June 30, 2003 and 2002, respectively. During 2003, we
sold 211,730,379 and 86,250,000 shares of common stock resulting in net proceeds
of $197,112 and $145,547, respectively. In addition, we issued $201,250 in
principal amount of our 3 1/2% Convertible Notes due 2008 resulting in net
proceeds of $194,224, and incurred costs associated with our debt restructuring
of $4,737. During the six months ended June 30, 2002, we sold 16,000,000 shares
of common stock resulting in net proceeds of $147,500.

Liquidity and Capital Resources

At June 30, 2003, we had cash, cash equivalents and marketable
securities totaling $560,093 and working capital of $524,050, compared with
cash, cash equivalents and marketable securities totaling $173,702 and working
capital of $151,289 at December 31, 2002.

We estimate that our cash, cash equivalents and marketable securities
are sufficient to cover our estimated funding needs through cash flow breakeven,
the point at which our revenues are sufficient to fund expected operating
expenses, capital expenditures, working capital requirements, interest and
principal payments and taxes. Our actual funding requirements could vary
materially from our current estimates. We may have to raise more funds to remain
in business and continue to develop and market our satellite radio service.

Our financial projections are based on assumptions which we believe
are reasonable but contain significant uncertainties, including, most
importantly, the length of time and level of costs necessary to obtain the
number of subscribers required to sustain our operations. At June 30, 2003, we
had 105,186 subscribers. We estimate that we will need approximately two million
subscribers before we achieve cash flow breakeven which we estimate to be in the
second quarter of 2005.

19

Recent Financings; Recapitalization

In June 2003, we sold 86,250,000 shares of our common stock in an
underwritten public offering resulting in net proceeds of $145,547.

In May 2003, we issued $201,250 in aggregate principal amount of
our 3 1/2% Convertible Notes due 2008 in an underwritten public offering
resulting in net proceeds of $194,224. Our 3 1/2% Convertible Notes due 2008 are
convertible, at the option of the holder, into shares of our common stock at any
time at a conversion rate of 724.6377 shares of common stock for each $1,000.00
principal amount, or $1.38 per share of common stock, subject to certain
adjustments.

On March 7, 2003, we completed a series of transactions to restructure
our debt and equity capitalization. As part of these transactions:

o we issued 545,012,162 shares of our common stock in exchange for
approximately 91% of our then outstanding debt, including all of
our Lehman term loans, all of our Loral term loans, $251,230 in
aggregate principal amount at maturity of our 15% Senior Secured
Discount Notes due 2007, $169,742 in aggregate principal amount
of our 14 1/2% Senior Secured Notes due 2009, and $14,717 in
aggregate principal amount of our 8 3/4% Convertible Subordinated
Notes due 2009;

o we issued 39,927,796 shares of our common stock and warrants to
purchase 45,416,690 shares of our common stock in exchange for
all outstanding shares of our 9.2% Series A and B Junior
Cumulative Convertible Preferred Stock held by Apollo;

o we issued 37,065,069 shares of our common stock and warrants to
purchase 42,160,424 shares of our common stock in exchange for
all outstanding shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock held by Blackstone;

o we sold 24,060,271 shares of our common stock to Apollo for an
aggregate of $25,000;

o we sold 24,060,271 shares of our common stock to Blackstone for
an aggregate of $25,000; and

o we sold 163,609,837 shares of our common stock to Oppenheimer for
an aggregate of $150,000.

During the three months ended March 31, 2003, we recorded a gain of
$256,538 and a deemed dividend of $79,510 as a result of the exchange
transactions. In connection with the exchange offer relating to our debt, we
also amended the indentures under which our 15% Senior Secured Discount Notes
due 2007, 14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible
Subordinated Notes due 2009 were issued to eliminate substantially all of the
restrictive covenants. Holders of our debt also waived any existing events of
default or events of default caused by the restructuring.

Contractual Commitments

The following table summarizes our expected contractual commitments as
of June 30, 2003:

2003 2004 2005 2006 2007 Thereafter Total
------- ------- ------- ------- ------- ---------- --------

Long-term debt obligations ........ $ 8,101 $15,964 $15,964 $15,964 $45,164 $249,376 $350,533
Operating leases .................. 7,670 7,873 7,105 6,192 6,032 35,903 70,775
Satellite and transmission ........ 1,145 2,291 2,291 2,291 2,291 18,328 28,637
Programming and content ........... 5,143 25,563 33,724 21,282 1,025 1,000 87,737
Customer service and billing ...... 2,190 1,440 1,440 360 -- -- 5,430
Sales and marketing ............... 34,946 19,318 10,629 6,000 4,500 -- 75,393
Chip set development and production 13,056 14,400 -- -- -- -- 27,456
------- ------- ------- ------- ------- -------- --------
Contractual commitments ........... $72,251 $86,849 $71,153 $52,089 $59,012 $304,607 $645,961
======= ======= ======= ======= ======= ======== ========

20

Long-Term Debt Obligations

Long-term debt obligations include principal and interest payments.
As of June 30, 2003, we had $262,452 in aggregate principal amount of
outstanding debt, consisting of $29,200 in aggregate principal amount at
maturity of our 15% Senior Secured Discount Notes due 2007, $30,258 in aggregate
principal amount of our 14 1/2% Senior Secured Notes due 2009, $201,250 in
aggregate principal amount of our 3 1/2% Convertible Notes due 2008 and $1,744
in aggregate principal amount of our 8 3/4% Convertible Subordinated Notes due
2009.

Operating Leases

We have entered into operating leases related to our national
broadcast studio, office space, terrestrial repeater sites and equipment.

Satellite and Transmission

We have entered into an agreement with a provider of satellite
services to operate our off-site satellite telemetry, tracking and control
facilities.

Programming and Content

We have entered into agreements with licensors of music and non-music
programming and, in certain instances, are obligated to pay license fees,
guarantee minimum advertising revenue share or to purchase advertising on
properties owned or controlled by these licensors. In addition, we have
agreements with various rights organizations pursuant to which we pay royalties
for public performances of music.

Customer Service and Billing

We have entered into agreements with third parties to provide customer
service, billing service and subscriber management.

Sales and Marketing

We have entered into various marketing and sponsorship agreements to
promote our brand and are obligated to make payments to sponsors, retailers,
automakers and radio manufacturers.

Chip Set Development and Production

We have entered into an agreement with Agere to develop and produce
chip sets for use in SIRIUS radios. This agreement requires Agere to manufacture
a minimum quantity of chip sets during each year of the agreement.

Other Commitments

We have agreed to use reasonable efforts to assist certain
manufacturers of SIRIUS radios and components for those radios in the event that
production of such radios and components are greater than sales. In certain
circumstances, these reasonable efforts may include the purchase of unsold
SIRIUS radios or components by us. In addition to the contractual commitments
described above, we have also entered into agreements with automakers, radio
manufacturers and others that include per-radio and per-subscriber required
payments and revenue sharing arrangements. These future costs are dependent upon
many factors and are difficult to anticipate; however, these costs may be
substantial. We may enter into additional programming, marketing and other
agreements that contain provisions similar to our current agreements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods. A summary of our
significant accounting policies is contained in Note 3 to the consolidated
financial statements contained in this report. We have identified the following
policies, which were

21

discussed with the Audit Committee of our board of directors, as critical to our
business and understanding our results of operations.

Subscription Revenue Recognition

Revenue from subscribers consists of subscription fees, including
revenue derived from our agreement with Hertz, and non-refundable
activation fees. We recognize subscription fees as our service is
provided. Activation fees are recognized ratably over the term of the
subscriber relationship, currently estimated to be 3.5 years. The
estimated term of a subscriber relationship is based on market
research and management's judgment and, if necessary, will be refined
in the future as historical data becomes available. As required by
Emerging Issues Task Force No. 01-09, "Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor's
Products)," an estimate of mail-in rebates that are paid by us
directly to subscribers are recorded as a reduction to subscription
revenue in the period the subscriber activates our service.

Subscriber Acquisition Costs

Subscriber acquisition costs include incentives for the purchase,
installation and activation of SIRIUS radios, as well as subsidies
paid to radio manufacturers, retailers and Agere. Certain subscriber
acquisition costs are recorded in advance of acquiring a subscriber.
Subscriber acquisition costs do not include advertising and
promotional activities, loyalty payments to distributors and dealers
of SIRIUS radios, revenue sharing payments to manufacturers of SIRIUS
radios and guaranteed payments to automakers. We retain ownership of
the SIRIUS radios used in our agreement with Hertz; as a result,
amounts capitalized in connection with this program are not included
in our subscriber acquisition costs.

Marketable Securities

Marketable securities consist of U.S. government agency
obligations. Effective April 1, 2002, marketable securities were
classified as available-for-sale securities because management no
longer intends to buy and sell marketable securities with the
objective of generating profits. Available-for-sale securities are
carried at fair market value and unrealized gains and losses are
included as a component of stockholders' equity. In prior periods,
marketable securities were classified as trading securities and
unrealized holding gains and losses were recognized in earnings.

Long-Lived Assets

We carry our long-lived assets at cost less accumulated
depreciation. We review our long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset is not recoverable. At such time as an impairment in value
of a long-lived asset is identified, the impairment will be measured
as the amount by which the carrying amount of a long-lived asset
exceeds its fair value. To determine fair value we would employ an
expected present value technique, which utilizes multiple cash flow
scenarios that reflect the range of possible outcomes and an
appropriate discount rate.

Useful Life of Satellite System

Our satellite system includes the cost of satellite construction,
launch vehicles, launch insurance, capitalized interest, our spare
satellite and our terrestrial repeater network. We monitor our
satellites for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset is not recoverable. The
expected useful lives of our in-orbit satellites are fifteen years
from the date they were placed into orbit. We are depreciating our
three in-orbit satellites over their respective remaining useful lives
beginning February 14, 2002 or, in the case of our spare satellite,
from the date it was delivered to ground storage on April 19, 2002. If
placed into orbit, our spare satellite is expected to operate
effectively for fifteen years.

FCC License

We carry our FCC license at cost. Our FCC license has an
indefinite life and will be evaluated for impairment on an annual
basis. We completed an impairment analysis of our FCC license on
November 1,

22

2002, and determined that there was no impairment. We use projections
regarding estimated future cash flows and other factors in assessing
the fair value of our FCC license. If these estimates or projections
change in the future, we may be required to record an impairment
charge related to our FCC license.

Accrued Expenses

Payments owed to our manufacturing and distribution partners and
other service providers are expensed during the month in which the
applicable service is performed. The amount of these expenses are
dependent upon information provided by our internal systems and
processes and partner systems and processes. Due to length of time
necessary to receive accurate information from these partners,
estimates of amounts due are necessary in order to record monthly
expenses. In subsequent months expenses are reconciled, and
adjusted where necessary. Since launching commercial operations, we
continue to refine the estimation process based on an increased
understanding of the time requirements, and close working
relationships with our partners.

Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,"
which is effective for all financial instruments created or modified after May
31, 2003 and otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial instruments that
embody obligations of the issuer and have characteristics of both liabilities
and equity. We do not believe that our adoption of SFAS No. 150 will have a
material impact on our financial position or results of operations.

Controls and Procedures

As of June 30, 2003, an evaluation was performed under the supervision
and with the participation of our management, including Joseph P. Clayton, our
President and Chief Executive Officer, and David J. Frear, our Executive Vice
President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure and control procedures. Based on that evaluation,
our management, including our chief executive officer and our chief financial
officer, concluded that our disclosure controls and procedures were effective
as of June 30, 2003. There have been no significant changes in our internal
controls or in other factors that could significantly affect these internal
controls subsequent to June 30, 2003.

23

Part II

Other Information

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

See Exhibit Index attached hereto.

(b) Reports on Form 8-K.

On May 1, 2003, we filed a Current Report on Form 8-K to report that our
board of directors had extended the expiration date of the rights issued
under the Rights Agreement between The Bank of New York and ourselves from
May 1, 2003 to August 1, 2003.

On May 14, 2003, we filed a Current Report on Form 8-K to report our
financial results for the quarter ended March 31, 2003.

On May 21, 2003, we filed a Current Report on Form 8-K that included a Form
T-1 of The Bank of New York, the trustee in respect of our 3 1/2%
Convertible Notes due 2008 issued under our senior indenture dated as of
May 23, 2003.

On May 23, 2003, we filed a Current Report on Form 8-K that included the
Terms Agreement between Morgan Stanley & Co. Incorporated, UBS Warburg LLC
and ourselves, the Indenture, dated as of May 23, 2003, between ourselves
and The Bank of New York, as trustee, and the Supplemental Indenture, dated
as of May 23, 2003, between ourselves and The Bank of New York, as trustee,
relating to our issuance of $201,250,000 in aggregate principal amount of 3
1/2% Convertible Notes due 2008.

On June 16, 2003, we filed a Current Report on Form 8-K that included the
Terms Agreement between Morgan Stanley & Co. Incorporated, UBS Warburg LLC
and ourselves, relating our sale of 86,250,000 shares of our common stock
in a public offering. We also included as exhibit to such Current Report on
Form 8-K a copy of the Registration Rights Agreement, dated as of June 13,
2003, among Blackstone CCC Capital Partners L.P., Blackstone CCC Offshore
Capital Partners L.P. and Blackstone Family Investment Partnership III L.P.
As part of such Current Report on Form 8-K, we also reported that on June
13, 2003, Mr. Peter G. Peterson, the Chairman of The Blackstone Group L.P.,
resigned as a member of our board of directors.

24

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SIRIUS SATELLITE RADIO INC.

By: /s/ DAVID J. FREAR
-----------------------------
David J. Frear
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

August 12, 2003

25

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Joseph P. Clayton, the Chief Executive Officer of Sirius Satellite Radio
Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sirius Satellite
Radio Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as June 30, 2003 (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

By: /S/ JOSEPH P. CLAYTON
-------------------------------------
Joseph P. Clayton
President and Chief Executive Officer
(Principal Executive Officer)

August 12, 2003

26

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David J. Frear, the Executive Vice President and Chief Financial Officer
of Sirius Satellite Radio Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sirius Satellite
Radio Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of June 30, 2003 (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

By: /S/ DAVID J. FREAR
-----------------------------
David J. Frear
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

August 12, 2003

27

Exhibit Index
-------------

Exhibit Description
- ------- -----------

3.1 Amended and Restated Certificate of Incorporation dated March 4, 2003
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).

3.2 Amended and Restated By-Laws (incorporated by reference to Exhibit
3.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).

3.3 Form of Certificate of Designations of Series B Preferred Stock
(incorporated by reference to Exhibit A to Exhibit 1 to the Company's
Registration Statement on Form 8-A filed on October 30, 1997 (the
"Form 8-A")).

4.1 Form of certificate for shares of Common Stock (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-1 (File No. 33-74782) (the "S-1 Registration Statement")).

4.2.1 Rights Agreement, dated as of October 22, 1997 (the "Rights
Agreement"), between the Company and Continental Stock Transfer &
Trust Company, as rights agent (incorporated by reference to
Exhibit 1 to the Form 8-A).

4.2.2 Form of Right Certificate (incorporated by reference to Exhibit B to
Exhibit 1 to the Form 8-A).

4.2.3 Amendment to the Rights Agreement dated as of October 13, 1998
(incorporated by reference to Exhibit 99.2 to the Company's Current
Report on Form 8-K dated October 13, 1998).

4.2.4 Amendment to the Rights Agreement dated as of November 13, 1998
(incorporated by reference to Exhibit 99.7 to the Company's Current
Report on Form 8-K dated November 17, 1998).

4.2.5 Amended and Restated Amendment to the Rights Agreement dated as of
December 22, 1998 (incorporated by reference to Exhibit 6 to
Amendment No. 1 to the Form 8-A filed on January 6, 1999).

4.2.6 Amendment to the Rights Agreement dated as of June 11, 1999
(incorporated by reference to Exhibit 4.1.8 to the Company's
Registration Statement on Form S-4 (File No. 333-82303) (the "1999
Units Registration Statement")).

4.2.7 Amendment to the Rights Agreement dated as of September 29, 1999
(incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on October 13, 1999).

4.2.8 Amendment to the Rights Agreement dated as of December 23, 1999
(incorporated by reference to Exhibit 99.4 to the Company's Current
Report on Form 8-K filed on

Exhibit Description
- ------- -----------

December 29, 1999).

4.2.9 Amendment to the Rights Agreement dated as of January 28, 2000
(incorporated by reference to Exhibit 4.6.9 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (the "1999
Form 10-K")).

4.2.10 Amendment to the Rights Agreement dated as of August 7, 2000
(incorporated by reference to Exhibit 4.6.10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).

4.2.11 Amendment to the Rights Agreement dated as of January 8, 2002
(incorporated by reference to Exhibit 4.6.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 (the "2001
Form 10-K")).

4.2.12 Amendment to the Rights Agreement dated as of October 22, 2002
(incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K filed on October 24, 2002).

4.2.13 Amendment to the Rights Agreement dated as of March 6, 2003
(incorporated by reference to Exhibit 4.2.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).

4.2.14 Amendment to the Rights Agreement dated as of March 31, 2003
(incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K dated March 31, 2003).

4.2.15 Amendment to the Rights Agreement dated as of July 30, 2003
(incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K dated July 30, 2003).

4.3 Indenture, dated as of November 26, 1997, between the Company and IBJ
Schroder Bank & Trust Company, as trustee, relating to the Company's
15% Senior Secured Discount Notes due 2007 (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-3
(File No. 333-34769) (the "1997 Units Registration Statement")).

4.4 Supplemental Indenture, dated as of March 7, 2003, between the
Company and The Bank of New York (as successor to IBJ Schroder Bank &
Trust Company), as trustee, relating to the Company's 15% Senior
Secured Discount Notes due 2007 (incorporated by reference to Exhibit
4.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002).

4.5 Form of 15% Senior Secured Discount Note due 2007 (incorporated by
reference to Exhibit 4.2 to the 1997 Units Registration Statement).

Exhibit Description
- ------- -----------

4.6 Warrant Agreement, dated as of November 26, 1997, between the Company
and IBJ Schroder Bank & Trust Company, as warrant agent (incorporated
by reference to Exhibit 4.3 to the 1997 Units Registration
Statement).

4.7 Form of Warrant (incorporated by reference to Exhibit 4.4 to the 1997
Units Registration Statement).

4.8 Form of Common Stock Purchase Warrant granted by the Company to
Everest Capital Master Fund, L.P. and to The Ravich Revocable Trust
of 1989 (incorporated by reference to Exhibit 4.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).

4.9 Indenture, dated as of May 15, 1999, between the Company and United
States Trust Company of New York, as trustee, relating to the
Company's 14 1/2% Senior Secured Notes due 2009 (incorporated by
reference to Exhibit 4.4.2 to the 1999 Units Registration Statement).

4.10 Supplemental Indenture, dated as of March 7, 2003, between the
Company and The Bank of New York (as successor to United States Trust
Company of New York), as trustee, relating to the Company's 14 1/2%
Senior Secured Notes due 2009 (incorporated by reference to Exhibit
4.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002).

4.11 Form of 14 1/2% Senior Secured Note due 2009 (incorporated by
reference to Exhibit 4.4.3 to the 1999 Units Registration Statement).

4.12 Warrant Agreement, dated as of May 15, 1999, between the Company and
United States Trust Company of New York, as warrant agent
(incorporated by reference to Exhibit 4.4.4 to the 1999 Units
Registration Statement).

4.13 Common Stock Purchase Warrant granted by the Company to Ford Motor
Company, dated October 7, 2002 (incorporated by reference to Exhibit
4.16 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).

4.14 Indenture, dated as of September 29, 1999, between the Company and
United States Trust Company of Texas, N.A., as trustee, relating to
the Company's 8 3/4% Convertible Subordinated Notes due 2009
(incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed on October 13, 1999).

4.15 First Supplemental Indenture, dated as of September 29, 1999, between
the Company and United States Trust Company of Texas, N.A., as
trustee, relating to the Company's 8 3/4% Convertible Subordinated
Notes due 2009 (incorporated by reference to Exhibit 4.01 to the
Company's Current Report on Form 8-K filed on October 1, 1999).

4.16 Second Supplemental Indenture, dated as of March 4, 2003, among the
Company, The Bank of New York (as successor to United States Trust
Company of Texas, N.A.), as resigning trustee, and HSBC Bank USA, as
successor trustee, relating to the Company's 8 3/4% Convertible
Subordinated Notes due 2009 (incorporated by reference to Exhibit
4.16 to the Company's Annual Report on Form 10-K for the year ended

Exhibit Description
- ------- -----------

December 31, 2002).

4.17 Third Supplemental Indenture, dated as of March 7, 2003, between the
Company and HSBC Bank USA, as trustee, relating to the Company's
8 3/4% Convertible Subordinated Notes due 2009 (incorporated by
reference to Exhibit 4.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2002).

4.18 Form of 8 3/4% Convertible Subordinated Note due 2009 (incorporated
by reference to Article VII of Exhibit 4.01 to the Company's Current
Report on Form 8-K filed on October 1, 1999).

4.19 Common Stock Purchase Warrant granted by the Company to
DaimlerChrysler Corporation dated October 25, 2002 (incorporated by
reference to Exhibit 4.20 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002).

4.20 Form of Series A Common Stock Purchase Warrant dated March 7, 2003
(incorporated by reference to Exhibit 4.20 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).

4.21 Form of Series B Common Stock Purchase Warrant dated March 7, 2003
(incorporated by reference to Exhibit 4.21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).

4.22 Amended and Restated Warrant Agreement, dated as of December 27,
2000, between the Company and United States Trust Company of New
York, as warrant agent and escrow agent (incorporated by reference to
Exhibit 4.27 to the Company's Registration Statement on Form S-3
(File No. 333-65602)).

4.23 Second Amended and Restated Pledge Agreement, dated as of March 7,
2001, among the Company, as pledgor, The Bank of New York, as trustee
and collateral agent, United States Trust Company of New York, as
trustee, and Lehman Commercial Paper Inc., as administrative agent
(incorporated by reference to Exhibit 4.25 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001).

4.24 Collateral Agreement, dated as of March 7, 2001, between the Company,
as borrower, and The Bank of New York, as collateral agent
(incorporated by reference to Exhibit 4.26 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001).

4.25 Amended and Restated Intercreditor Agreement, dated as of March 7,
2001, by and between The Bank of New York, as trustee and collateral
agent, United States Trust Company of New York, as trustee, and
Lehman Commercial Paper Inc., as administrative agent (incorporated
by reference to Exhibit 4.27 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001).

10.1.1 Lease Agreement, dated as of March 31, 1998, between Rock-McGraw,
Inc. and the Company (incorporated by reference to Exhibit 10.1.2 to
the Company's Quarterly

Exhibit Description
- ------- -----------

Report on Form 10-Q for the quarter ended June 30, 1998).

10.1.2 Supplemental Indenture, dated as of March 22, 2000, between
Rock-McGraw, Inc. and the Company (incorporated by reference to
Exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000).

10.1.3 Supplemental Indenture, dated as of November 30, 2001, between
Rock-McGraw, Inc. and the Company (incorporated by reference to
Exhibit 10.1.3 to the 2001 Form 10-K).

*10.2 Employment Agreement, dated as of February 28, 2003, between the
Company and Patrick L. Donnelly (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003).

*10.3 Employment Agreement, dated as of August 29, 2001, between the
Company and Michael S. Ledford (incorporated by reference to Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).

*10.4 Employment Agreement, dated as of November 26, 2002, between the
Company and Joseph P. Clayton (incorporated by reference to Exhibit
10.6 to the 2001 Form 10-K).

*10.5 Employment Agreement, dated as of January 7, 2002, between the
Company and Guy D. Johnson (incorporated by reference to Exhibit 10.7
to the 2001 Form 10-K).

*10.6 Employment Agreement, dated as of May 3, 2002, between the Company
and Mary Patricia Ryan (incorporated by reference to Exhibit 10.8 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002).

*10.7 Employment Agreement, dated as of June 3, 2003, between the Company
and David J. Frear (filed herewith).

*10.8 Agreement, dated as of October 16, 2001, between the Company and
David Margolese (incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).

*10.9 1994 Stock Option Plan (incorporated by reference to Exhibit 10.21 to
the S-1 Registration Statement).

*10.10 Amended and Restated 1994 Directors' Nonqualified Stock Option Plan
(incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).

*10.11 CD Radio Inc. 401(k) Savings Plan (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File
No. 333-65473)).

*10.12 Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan
(incorporated by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).

10.13 Form of Option Agreement, dated as of December 29, 1997, between the
Company and

Exhibit Description
- ------- -----------

each Optionee (incorporated by reference to Exhibit 10.16.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).

'D'10.14 Joint Development Agreement, dated as of February 16, 2000, between
the Company and XM Satellite Radio Inc. (incorporated by reference to
Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000).

99.1 Certificate of Joseph P. Clayton, President and Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

99.2 Certificate of David J. Frear, Executive Vice President and Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).

- -----------------

* This document has been identified as a management contract or compensatory
plan or arrangement.

'D' Portions of these exhibits have been omitted pursuant to Applications for
Confidential treatment filed by the Company with the Securities and
Exchange Commission.

STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as.................................. 'D'