management’s discussion and analysis€¦ · the comparative twelve month period does not conform...

Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis (“MD&A”) discusses the significant factors affecting the results of operations and financial position of Canadian Satellite Radio Holdings Inc. (“CSRH”, “we”, “us”, “our” or the “Company”). This MD&A which is current as of November 14, 2012, should be read in conjunction with the Company’s Audited Consolidated Financial Statements dated August 31, 2012 and notes attached thereto and other recent securities filings available on SEDAR at sedar.com.

The financial information presented herein has been prepared on the basis of IFRS and is expressed in Canadian dollars unless otherwise noted. Please refer to Note 5 of the Company’s Audited Financial Statements dated August 31, 2012 for a summary of the differences between the financial statements previously prepared under Canadian GAAP and to those prepared under IFRS for the twelve months ended August 31, 2012

Under International Financial Reporting Standards (“IFRS”), the June 21, 2011 business combination was accounted for as a reverse takeover whereby Sirius Canada Inc. (“Sirius Canada”) was deemed to be the acquirer of CSRH, using the purchase method of accounting. CSRH historically operated the XM Canada business. Therefore, these financial results for the year (the “year-to-date”) ended August 31, 2012 include both the results of Sirius Canada and XM Canada from September 1, 2011 to August 31, 2012. The previous annual financial year-end of Sirius Canada Inc. was November 30, 2010; however, in conjunction with the acquisition, the year-end was changed to August 31. Therefore the comparative financial results for the Company include the financial results for Sirius from December 1, 2010 to August 31, 2011 and the results for CSRH for the period from June 21, the date of the acquisition, to August 31, 2011. So, the comparative period comprises of three quarters only, and the comparative year-to-date results are for the nine months ended August 31, 2011. In order to provide comparable information we have also presented “Combined Information” for the comparative periods. The comparative information consists of constructed periods for the three and twelve months ended August 31, 2011 and reflect adjustments for purchase accounting, unless otherwise stated. The comparative twelve month period does not conform to our consolidated financial period (December 2010 to August 2011) reported in our financial statements as described above. We believe this information is more relevant as it provides analysis of comparable information to understand trends in our combined business. See section entitled “Discussion of Combined Information Financial Results” for further details. The shares of Canadian Satellite Radio Holdings Inc. trade on the Toronto Stock Exchange under the stock symbol XSR. This MD&A has been prepared as of November 14, 2012 at which time 61,194,252 Class A Subordinate Voting Shares and 185,879,935 Class B Voting Shares are outstanding. Assuming conversion of the 185,879,935 Class B Shares (which are convertible into Class A Shares on a 3 to 1 basis) into 61,951,958 Class A Shares, the total number of Class A Shares outstanding would be 123,154,230.

Management’s Discussion and Analysis

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Forward-Looking Disclaimer

This discussion contains certain information that may constitute forward-looking statements within the meaning of securities laws. These statements relate to future events or future performance and reflect management’s expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of the Company on a consolidated basis. In some cases, forward-looking statements can be identified by terminology such as “may”, “would”, “could”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “seek” or the negative of these terms or other similar expressions concerning matters that are not historical facts. In particular, statements regarding the Company’s objectives, plans and goals, including future operating results, economic performance and subscriber recruitment efforts involve forward-looking statements. A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements.

Although the forward-looking statements contained in this discussion are based on what management of the Company considers are reasonable assumptions based on information currently available to it, there can be no assurance that actual events, performance or results will be consistent with these forward-looking statements, and management’s assumptions may prove to be incorrect.

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Our financial projections are based on estimates regarding expected future costs and expected revenue, which are fully described in this MD&A.

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

The Company’s reliance on its exclusive relationship with Sirius XM Radio Inc. (“Sirius XM”);

General economic conditions in Canada;

The Company’s competitive position versus other forms of audio and video entertainment;

The Company’s reliance on automakers and automobile industry sales in Canada;

The Company’s ability to manage customer attrition and average monthly subscription revenue per subscriber;

The impact of any application of or changes to governmental regulations, including any copyright legislation; and

The factors discussed in the section entitled “Risks and Uncertainties” of this MD&A and in the section entitled “Risk Factors” in the Company’s Annual Information Form for the financial year ended August 31, 2012.

Other than as required by applicable Canadian securities law, the Company does not update or revise any forward-looking statements to reflect new information, future events or otherwise. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from expectations. These include but are not limited to the risk factors included in this MD&A (including


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those listed under the heading “Risks and Uncertainties”) in addition to the risks itemized in our Annual Information Form (“AIF”) for the fiscal year ended August 31, 2012. Readers are advised to review these risk factors for a detailed discussion of the risks and uncertainties affecting the Company’s business. Readers should not place undue reliance on forward-looking statements.

This MD&A contains the following sections:

Forward-Looking Disclaimer ................................................................................................................... 1 Our Business and Strategy ..................................................................................................................... 2 Financial and Operational Highlights ................................................................................................... 4 Discussion of Combined Information Financial Results ................................................................. 7 Results of Operations – Combined Information Metrics ................................................................. 9 Selected Consolidated IFRS Financial Information ........................................................................ 23 Liquidity and Capital Resources .......................................................................................................... 32 Compilation of Combined Financial Information ............................................................................. 35 Off-Balance Sheet Arrangements ........................................................................................................ 37 Arrangements, Relationships and Transactions with Related Parties ...................................... 37 Critical Accounting Policies and Estimates ...................................................................................... 39 International Financial Reporting Standards (“IFRS”) ................................................................... 42 Risk and Uncertainties ........................................................................................................................... 43 Outstanding Share Data and Other Information .............................................................................. 47 Definitions of Industry Terminology ................................................................................................... 47 Non-GAAP Financial Measures ............................................................................................................ 49

OVERVIEW Since the business combination of Canadian Satellite Radio Holdings Inc. and its subsidiary XM Canada Inc. and Sirius Canada Inc., the combined entity operating as Sirius XM Canada Inc. (“SiriusXM Canada”) has benefitted from complementary strengths in the automotive and aftermarket businesses, to create a business which currently has over 2.2 million subscribers and ranks SiriusXM Canada as one of the largest subscription based media and entertainment businesses in Canada in terms of subscribers. To date, the Company has realized approximately $20 million in annualized synergies and is well positioned to grow free cash flow in the medium and long-term horizon. The scalability of the business model allows for a significant portion of incremental revenue to flow directly to the bottom line.

Our Business and Strategy

Our vision is to be the leading premium digital audio entertainment and information service provider in Canada. Our strategy is founded on the principles of acquiring subscribers in the most cost effective manner, retaining subscribers through enhancing the value proposition to our subscribers and improving business efficiencies.

Satellite Radio in Canada offers 120 - 130 channels, including commercial-free music as well as news, talk, sports and children’s programming. This includes over 12 Canadian channels designed and developed from studios in Toronto, Ontario, Montreal, Quebec and Vancouver, British Columbia. We continue to leverage


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our unique programming assets, such as our exclusive broadcasting agreement with the Canadian Football League (“CFL”) and our agreement with the Canadian Broadcasting Corporation (“CBC”). There are exclusive agreements through Sirius XM Radio Inc. for the National Hockey League (“NHL”), National Football League (“NFL”), Major League Baseball (“MLB”), National Basketball Association (“NBA”), Oprah Winfrey, Martha Stewart, Howard Stern, NASCAR, Professional Golfers’ Association of America (“PGA”) and more.

Our target market in Canada includes more than 23 million registered vehicles on the road, and more than 1.65 million new vehicles forecasted to be sold in calendar year 2012

1. Currently all major automobile

manufacturers in Canada have agreements with SiriusXM Canada for the installation of satellite radios. We are the leader in digital audio entertainment distribution and information delivered via satellite to new vehicles sold in Canada. The Satellite radio service is expected to be factory-installed in approximately 55% of new vehicles to be sold in model year 2012.

SiriusXM satellite radio receivers are available at leading retailers across Canada such as Best Buy, Canadian Tire, Costco, Future Shop, The Source, Wal-Mart and other national, regional and independent retailers.

Our primary source of revenue is subscription fees, with most of our customers subscribing on an annual, quarterly, or monthly basis. Discounts are offered for long-term, prepaid subscription plans, as well as discounts for multiple subscriptions on each platform. Other sources of revenue include music royalty fees, activation and other subscription-related fees, advertising revenues, the direct sale of satellite radios and accessories through our call centres and websites, and other ancillary services such as data and weather services.

In certain instances, automakers include a subscription to our radio services in the sale or lease of their vehicles. The length of these prepaid subscriptions varies from three to twelve months. In certain instances we also receive payment for subscription payments from automakers in advance of our service being activated. We also reimburse various automakers for certain costs associated with the installation of satellite radios in their vehicles. These costs which we include as subsidies costs tend to follow seasonal patterns based on manufacturing schedules by the automakers and tend to be higher in the second half of the fiscal year. Consequently, EBITDA and other financial metrics may vary on a quarterly basis.

The Company’s goal is to accelerate EBITDA and cash flow growth by maximizing our revenues primarily through subscriptions, advertising and other ancillary opportunities as well as maintaining effective cost controls, managing subscriber acquisition costs and by creating a long-term customer base by offering quality services. We believe that a premium service will attract a premium customer.

Recent Developments

On August 28, 2012, the Company publicly announced details of a price increase on its primary base subscription rate. As of October 1, 2012, the Company increased its price on the primary monthly service package from $14.99 to $15.99 at the time of customer subscription renewal. The Company believes this increase could have a modest increase in ARPU for fiscal year 2013; and the impact to revenue and Adjusted EBITDA is expected to be positive, although the full effect may be impacted by the risk attributable to customer attrition or churn.

1 DesRosiers automotive report published in August 2012


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The Company also introduced Premier Programming for subscribers subsequent to year-end. New Premier subscriptions offer Sirius subscribers the ability to access an array of premium XM content including the NHL, NBA and PGA Tour while giving XM subscribers the ability to access premium Sirius content including Howard Stern, NFL play-by-play and more. Premier subscriptions are available at an additional monthly cost of $4.00.

The Company also launched enhanced internet radio and mobile listening Apps for subscribers. These Apps for Apple iOS and Android offer more content and enhanced personalization; essentially extending the Company’s entertainment offering beyond the home or vehicle. The internet radio service also offers On- Demand functionality, giving subscribers access to more than 200 shows. Pricing for the SiriusXM Internet Radio is $4.00 a month with a satellite radio subscription.

The Company believes that a combination of the aforementioned price increase and incremental charges for both its Premier Programming and internet radio service may result in a modest increase to ARPU in fiscal 2013.

On January 19, 2012 the Company made an application to the CRTC to renew its broadcast license and a hearing was held on June 21, 2012. Pursuant to Broadcasting Decision CRTC 2012-341, the Commission administratively renewed the Company’s Sirius Radio Service and XM Radio Service licenses from September 1, 2012 to November 30, 2012. The XM Radio Service and Sirius Radio Service conditions of license, as amended by Broadcasting Decision CRTC 2011-241, remain unchanged during the administrative renewal period. At the time of filing this MD&A the Company was awaiting for the Commission’s decision. On March 26, 2012, the Company announced that two of its shareholders, CSRI Inc. and Slaight Communications Inc. have completed the sale of an aggregate of 8,000,000 Class A Subordinate Voting Shares of the Company (“Class A Shares”) at a price of $3.00 per share. The offering was completed on a bought deal basis by an underwriting syndicate comprised of Canaccord Genuity Corp. and National Bank Financial Inc. The National Hockey League (“NHL”) and the NHL Players Association is currently engaged in a dispute which has resulted in the players being “locked out” and consequently the NHL season has not yet begun. While an ongoing work stoppage will likely result in a reduction in fees paid to the NHL as part of the Company’s license agreement which involves the right to broadcast all NHL games, our business may also be negatively impacted as some customers may cancel their subscriptions as a result of the work stoppage. At this point we are unable to determine with a fair degree of certainty, the impact to our financial results.

Financial and Operational Highlights

Quarterly and year to date results for the three and twelve months ended August 31, 2012 compared to the constructed periods (“Combined Information”)

The following are highlights for the three and twelve months ended August 31, 2012 in comparison to the results of the combined business for the comparative periods ended August 31, 2011.


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Quarter ended August 31, 2012

Adjusted EBITDA2 improved 10.5% to $12.2 million from $11.1 million; an improvement of $1.1

million;

EBITDA improved 73.4% to $11.7 million from $6.7 million; an improvement of $5.0 million;

Revenue increased 11.5% to $68.1 million from $61.1 million; an improvement of $7.0 million;

Self-Paying Subscribers increased 13.8% to 1,584,400 from 1,392,800;

Total Subscribers increased 11.3% to 2,206,200 from 1,983,100;

Free cash flow increased $9.3 million to $8.5 million from ($0.8) million;

Cash and cash equivalents of $51.0 million at August 31, 2012;

Year to date ended August 31, 2012

Adjusted EBITDA improved 75.6% to $46.6 million from $26.5 million; an improvement of $20.1 million;

EBITDA improved 211.6% to $42.5 million from $13.6 million; an improvement of $28.9 million

Revenue increased 8.9% to $259.6 million from $238.4 million; an improvement of $21.2 million

Subscriber Acquisition Cost (SAC) decreased 9.9% to $49 from $54;

Cost Per Gross Addition (CPGA) decreased 11.2% to $75 from $84;

Free cash flow increased $32.3 million to $36.6 million;

Fixed cash operating expense decreased 8.6% or $6.2 million3.

IFRS consolidated three months and year-to-date financial results ended August 31, 2012 compared to three months and year-to-date results ended August 31, 2011 (comprised of a nine-month period)

The following are highlights for the twelve months ended August 31, 2012 in comparison to IFRS results for the full-year ended August 31, 2011 (a nine-month period), which were the results of Sirius Canada and included two months of results for XM Canada from the date of the business combination of June 21, 2011. For a complete discussion of these IFRS financial results please refer to the sections entitled “Selected Consolidated IFRS Financial Information” and “Liquidity and Capital Resources”.

Three months ended August 31, 2012

Adjusted EBITDA improved 9.0% to $12.2 million from $11.2 million; an improvement of $1.0 million;

EBITDA improved 34.2% to $11.7 million from $8.7 million; an improvement of $3.0 million;

Revenue increased by 22.8% to $68.1 million from $55.5 million;

2 A reconciliation of Operating Income to Adjusted EBITDA (a non-GAAP measure) is provided on page 8.

3 Table showing the calculation of Fixed Cash Operating Expenses is provided on page 8.


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Twelve months ended August 31, 2012 vs. Nine months ended August 31, 2011

Adjusted EBITDA increased 93.6% to $46.6 million from $24.1 million;

EBITDA improved 111.6% to $42.5 million from $20.1 million;

Revenue increased 84.2% to $259.6 million from $140.9 million;

Generated $36.6 million in free cash flow during the period.


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Discussion of Combined Information Financial Results

The following table presents a selected view of the Company’s audited Consolidated Statement of Operations for 2012 and unaudited Combined Consolidated Statement of Operations for 2011.

Three Months Ended

Full-year Ended (12

Months)

( in $) August 31, 2012

August 31, 2011

August 31, 2012

August 31, 2011

IFRS Combined IFRS Combined

(Unaudited) (Unaudited) (Audited) (Unaudited)

REVENUE 68,118,950 61,111,936

259,619,500 238,388,952

OPERATING EXPENSES

Cost of Revenue

Revenue share and royalties 22,649,171 18,261,556

84,192,958 72,670,600

Customer care & billing operations 4,440,792 4,379,991

17,578,124 17,068,399

Cost of merchandise 848,809 797,216

3,051,909 3,818,707

Broadcast and operations 465,577 554,457

1,729,199 2,033,983

Programming and content 1,542,602 1,796,911

9,728,030 11,066,328

Total Cost of Revenue 29,946,951 25,790,131

116,280,220 106,658,017

General and administrative 2,547,843 2,046,299

11,222,888 11,664,816 Information Technology 2,145,339 2,993,349

11,603,735 11,892,906

Stock based compensation 333,136 190,592

1,493,400 280,156

Support 1,477,466 2,129,999

7,132,398 8,454,497

Subsidies 11,942,551 11,403,595

43,776,251 46,786,352 Marketing 8,011,790 5,957,405

24,194,451 26,680,766

Total operating expenses 56,405,077 50,511,370

215,703,343 212,417,510

Integration, severance and merger costs 1,714 3,847,638

1,383,105 12,321,472

Depreciation and amortization 8,699,322 12,450,808

39,689,053 32,590,141

Operating income (loss) 3,012,836 (5,697,880) 2,843,999 (18,940,171)

The comparative figures for the three months ended August 31, 2011 are prepared on a combined basis by adding the historical results of XM Canada and Sirius Canada for the three months ended August 31, 2011. The full-year results have been prepared by adding the historical results of XM Canada and the internal results of Sirius Canada for the periods ended August 31, 2011. The comparative three-month and full-year periods do not agree to the published IFRS results and are not consistent with our actual reported period. Please see the section “Compilation of Combined Financial Information” of this MD&A to see how the comparative results have been assembled.

Financial results for the period ending August 31, 2011 have been updated to include fair value adjustments due to purchase price accounting.


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The following table is a reconciliation of Operating Income (loss) to EBITDA and Adjusted EBITDA for the three months and year to date (twelve months) results ended August 31, 2012 on a Combined basis. Reconciliation

Three Months Ended

Full-year Ended

In ($000’s) August 31,

2012 (IFRS)

August 31, 2011

(Combined)**

August 31, 2012

(IFRS)

August 31, 2011

(Combined)**

Operating income (loss) 3,013 (5,698) 2,844 (18,940)

Amortization 8,699 12,451 39,689 32,590

EBITDA 11,712 6,752 42,533 13,650

Stock-based compensation 333 191 1,493 280

Severance and merger costs 2 3,848 1,383 12,321

Fair value adjustments* 173 271 1,152 271

Adjusted EBITDA 12,220 11,062 46,562 26,522

* Fair value adjustment relates to a reduction in revenue due to valuation of deferred revenue under purchase price accounting. ** In order to align with current reporting requirements, write off of intangibles of $4.2 million in 2011 has been reclassified from severance and mergers costs to amortization. 2011 Adjusted EBITDA includes fair value adjustments to align with our current definition as of September 1, 2011.

The following provides a summary of the change in Fixed Cash Operating Expenses for the three months and full-year ended August 31, 2012 compared to same period prior year on a Combined basis.

Fixed Cash Operating Expenses Three Months Ended Full-year Ended

In ($000’s) August 31,

2012 August

31, 2011 Change

August 31, 2012

August 31, 2011

Change

Broadcast and operations 466 554 (88) 1,729 2,034 (305)

Programming and content 1,543 1,797 (254) 9,728 11,066 (1,338)

General and administrative* 2,548 2,046 502 11,223 11,665 (442)

Information Technology 2,145 2,993 (848) 11,604 11,893 (289)

Marketing Support 1,477 2,130 (653) 7,132 8,454 (1,322)

Marketing 8,012 5,957 2,055 24,194 26,681 (2,487)

Total 16,191 15,477 712 65,610 71,793 (6,182)

*Includes one-time costs of $ 0.8 million pertaining to the “Secondary Offering” for the year ended August 31, 2012.


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Results of Operations – Combined Information Metrics

The following table is a summary of the key financial and operating metrics the Company uses to help measure the success of its operations. Please refer to the section “Definitions of Industry Terminology” at the end of this MD&A for an overview of the metrics noted below.

Financial and Operating Metrics Three Months Ended Full-year Ended

August 31, 2012

August 31, 2011

August 31, 2012

August 31, 2011

Self-Paying 1,584,400 1,392,800 1,584,400 1,392,800 Paid-Promotional 516,500 509,800 516,500 509,800 Non-Paid Promotional 105,300 80,500 105,300 80,500

Ending Subscribers 2,206,200 1,983,100 2,206,200 1,983,100 Self-Pay 77,300 64,300 191,600 177,900 Paid/Non Paid Net Additions 11,900 16,300 31,500 73,500

Total Net Additions 89,200 80,600 223,100 251,400 Average Self-Pay Churn 1.71% 1.66% 1.92% 1.91% ARPU $11.65 $11.63 $11.60 $11.96 SAC $46 $50 $49 $54 CPGA $76 $75 $75 $84

The following section compares the results of the operations for the three months and year ended August 31, 2012 to the three months and year ended August 31, 2011 on a Combined basis. In the following charts, “Q4” represents the three months ended August 31 and “FY” represents the twelve months ended August 31.


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Subscribers

The Company continued to experience growth in Self-Pay Subscribers and in Paying and Non-Paying Promotional Subscribers in the quarter. As at August 31, 2012, we had total subscribers of 2,206,200, representing 1,584,400 Self-Paying Subscribers and 621,800 Paid Promotional Subscribers and Non Paid Promotional Subscribers. Self-Paying Subscribers increased 13.8% versus the fourth quarter of 2011, driven largely by growth in the number of OEM additions in the quarter. OEM gross additions increased in the fourth quarter of 2012 compared to the fourth quarter of 2011 due to higher penetration in vehicle models and more frequent free listening promotional programs which have been successful in attracting trial subscribers. Paid Promotional Subscribers and Non-Paid Promotional Subscribers increased 5.3% compared to the corresponding period of 2011 due to continued increase in vehicles equipped with satellite radio (referred to as “penetration rate”). Churn

1,584,400 1,392,800

621,800

590,300

Q4 2012 Q4 2011

Self Paying Paying & Non Paying Promotional

1.71% 1.66%

1.92% 1.91%

Q4 2012 Q4 2011 FY 2012 FY 2011

1,983,100 2,206,200


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Self-pay monthly churn increased modestly to 1.71% in the fourth quarter of 2012 from 1.66% in the corresponding quarter of 2011 due to less discounts offered in the current period. On a year to date basis, churn was relatively static, 1.92% in 2012 versus 1.91% in 2011. ARPU

ARPU was $11.65 and $11.63 for the fourth quarters of 2012 and 2011, respectively. ARPU increased relative to the comparative quarter last year due to one-time tax credits resulting in a positive impact of $0.10. On a year to date basis, ARPU was $11.60 in 2012 compared to $11.96 in 2011. The decrease in ARPU is due primarily to the following reasons:

(i) an increase in automotive Self-Paying Subscribers which have a lower ARPU due to higher price discounts being offered to these subscribers; and

(ii) revenue from some customers on lifetime plans being fully amortized.

ARPU is below the basic service price due to promotions offered to new OEM Self-Paying Subscribers, Paid Promotional Subscriptions by automakers, family plan subscribers, discounts offered to renewing self-paying subscribers across all channels and discounted multi-year plans that provide the Company with a significant working capital benefit. As the Company continues to grow the business it is currently anticipated that ARPU may fluctuate due to multi-year plans and promotional discounts offered to attract and retain its Self-Paying Subscriber base. The Company increased its pricing on its basic monthly package by $1.00 and also began charging monthly fees of $4.00 each for access to Premier Programming and to its internet radio service. These changes took effect on October 1, 2012. We believe these pricing changes will help to offset some of the dilutive effects to ARPU as discussed above ultimately resulting in a modest increase in ARPU for fiscal 2013.

$11.65 $11.63 $11.60

$11.96

Q4 2012 Q4 2011 FY 2012 FY 2011


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Revenue

Revenue includes subscription revenue, activation fees, sale of merchandise through direct fulfillment channels, advertising revenue from Canadian-produced channels and certain other revenue. Revenue also includes the impact of fair value adjustments as a resulting of purchase price allocation.

Revenue ($ millions)

Fourth quarter: Revenue increased by $7.0 million or 11.5%, to $68.1 million in the fourth quarter of 2012 from $61.1 million in the fourth quarter of 2011. The increase was attributable to the increase in the subscriber base and a slight increase in ARPU over the comparable period in 2011.

Year to date: Revenue increased by $21.2 million, or 8.9% to $259.6 million from $238.4 million in 2012 compared to 2011. The increase is due to the Company’s increased subscriber base of 13.8% partially offset by lower ARPU compared to last year.

Cost of Revenue

Cost of revenue increased by $4.2 million or 16.1% to $30.0 million in the fourth quarter of 2012 from $25.8 million in the fourth quarter of 2011. The reasons for the increase in cost of revenue are discussed below. Cost of revenue is comprised of the following:

Revenue share & royalties – This category includes revenue share payments to the OEM partners, Canadian Radio-television and Telecommunications Commission (“CRTC”) fees, Canadian Talent Development (“CTD”) contributions, tariff obligations to composers, artists, and copyright owners for public performances and reproduction of their works broadcast on the Company’s satellite radio service and fees paid to Sirius XM, including a royalty based on a percentage of total revenue excluding certain non-subscriber revenue.

$68.1 $61.1

$259.6

$238.4

Q4 2012 Q4 2011 FY 2012 FY 2011


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Fourth quarter: Revenue share & royalties increased by $4.4 million or 24.0%, to $22.7 million in the fourth quarter of 2012 from $18.3 million in the fourth quarter of 2011. Revenue share & royalties increased in the fourth quarter of 2012 compared to the fourth quarter of 2011 due to higher revenue in the current quarter and a higher overall revenue share rate paid to various automakers during the current period as compared to the corresponding period in the prior year. The Company has revenue sharing arrangements with certain automotive partners and since the rate paid to each automaker is different, a change in vehicle mix of the underlying subscriber base will affect the overall revenue sharing rate. As a percentage of total revenue, revenue share & royalties increased to 33.2% in the fourth quarter of 2012 from 29.9% in the fourth quarter of 2011 due to higher revenue attributed to OEM channel combined with a higher overall revenue share rate paid to certain automotive partners.

Year to date: Revenue share & royalties increased by $11.5 million or 15.9%, to $84.2 million from $72.7 million in 2012 compared to 2011. Revenue share & royalties increased in 2012 compared to 2011 due to (a) higher revenue in the current period and (b) higher overall revenue share rate paid to various automakers as the Company achieved certain thresholds which resulted in higher effective rates during the current period as compared to the corresponding prior year period. As a percentage of total revenue, revenue share & royalties increased to 32.4% in 2012 from 30.5% in 2011 due to higher revenue attributed to OEM channel combined with a higher overall revenue share rate paid to certain automotive partners.

Customer care & billing operations – This category consists primarily of personnel and related costs associated with the ongoing operations of call centres as well as credit card payment processing fees. The Company operates onshore and offshore customer support centres through third party vendors. The Company’s objective is to find the optimum blend of onshore and offshore volume allocation in order to maximize cost efficiencies. Since the closing of the merger, the Company has reduced costs in this area based on a cost per subscriber basis and will continue to seek further cost reduction opportunities as we realize synergies for the legacy businesses (XM Canada and Sirius Canada) across the entire customer care platform. A current initiative underway is to get both billing systems onto a common platform to more effectively moderate call volumes in order to drive further efficiencies. A larger subscriber base presents additional opportunities to reduce per subscriber costs.

Fourth quarter: Customer care & billing operations cost increased by $0.1 million or 1.4% to $4.5 million in the fourth quarter of 2012 from $4.4 million in the fourth quarter of 2011. Customer care & billing operations costs are primarily driven by the volume derived from the Company’s growing subscriber base. While self-paying subscribers increased by 13.8%, these costs increased by only 1.4% as the company continues to leverage a larger subscriber base to its advantage and realize synergies from the legacy businesses.

Year to date: Customer care & billing operations cost increased by $0.5 million or 3.0% to $17.6 million from $17.1 million in 2012 compared to 2011. Customer care & billing operations costs are primarily driven by the volume derived from the Company’s growing subscriber base. While self-paying subscribers increased by 13.8%, these costs increased by 3.0% as a portion is fixed and does not increase with volume. The realization of synergies in the current year also tempered the costs increase due to the higher call volume in 2012.


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Monthly Customer Care and Billing Costs per Self-Paying Subscriber

Fourth quarter: As shown below, monthly customer care & billing costs per Self-Paying Subscriber decreased to $0.96 in the three months ended August 31, 2012 from $1.07 in the three months ended August 31, 2011 due to increased efficiencies and synergies due to the harmonization of best practices across legacy businesses.

Year to date: As shown below, monthly customer care & billing costs per Self-Paying Subscriber decreased to $1.00 in the full-year ended August 31, 2012 from $1.10 in the full-year ended August 31, 2011 as higher operating costs were more than offset by a larger subscriber base, operational efficiencies and synergies due to the harmonization of best practices across legacy businesses.

Monthly Customer Care and Billing per Self-Paying Subscriber ($/Sub)

Cost of merchandise – The Company sells merchandise under normal business terms directly to new and existing subscribers who purchase additional radios, and to commercial accounts through our direct fulfillment channel including through our online store and call centres. Cost of merchandise consists primarily of the cost of radios and accessories and related fulfillment costs associated with the direct sale of this merchandise.

Fourth quarter: Cost of merchandise increased by $0.1 million to $0.9 million in the fourth quarter of 2012 from $0.8 million in the fourth quarter of 2011. These costs are primarily driven by the volume and levels of discounts on radio sales, which are mostly affected by promotional programs. Sales volume increased by approximately 10% compared to the corresponding quarter last year. The increase in volume resulted in a 6.5% increase in cost of merchandise.

Year to date: Cost of merchandise decreased by $0.7 million to $3.1 million from $3.8 million in 2012 compared to 2011. Although sales volume increased 8% during the current period compared to the same period in the prior year, costs decreased 20% due the realization of

$0.96

$1.07 $1.00

$1.10

Q4 2012 Q4 2011 FY 2012 FY 2011


Fourth Quarter 2012

Page | 15

synergies in the supply chain and to a change in product mix to lower priced products in the current period compared to the same period of 2011.

Broadcast & operations – Broadcast expenses include costs associated with the management and maintenance of the systems, software, hardware, production and performance studios used in the creation and distribution of Canadian-produced channels. Operations expenses include operating costs of facilities and the terrestrial repeater network and information technology expenses related to the broadcast facilities.

Fourth quarter: Broadcast & operations expenses decreased by $0.1 million to $0.5 million in the fourth quarter of 2012 from $0.6 million in the fourth quarter 2011. These expenses declined compared to the same period prior year due to a reduction in maintenance costs as a result of the termination of certain agreements including repeater maintenance which was previously conducted by the CBC, a related party, and insourcing of channel recording from the CBC for regulatory purposes as part of the Company’s ongoing efforts to drive synergies.

Year to date: Broadcast & operations expenses decreased by $0.3 million to $1.7 million from $2.0 million in 2012 compared to 2011. These expenses declined compared to the same period prior year due to a reduction in maintenance costs as a result of the termination of certain agreements and insourcing of channel recording for regulatory purposes as part of the Company’s ongoing efforts to drive synergies. Broadcast and operations expenses may fluctuate from quarter to quarter depending on the timing of maintenance and repairs on the Company’s broadcast repeaters.

Programming & content – Includes the creative, production and licensing costs for live NHL programming associated with the Company’s Canadian-produced channels, which includes third party content acquisition that are driven by programming initiatives. Programming & content also includes licensing costs paid to the CBC. The Company views programming & content as a cost of attracting and retaining subscribers. The NHL License cost is amortized over the NHL season, which runs for a nine month period beginning in October of each year.

Fourth quarter: Programming & content expenses decreased by $0.3 million or 14.2%, to $1.5 million in the fourth quarter of 2012 from $1.8 million in corresponding quarter of 2011. The decrease is due to lower costs associated with third party acquired programming in the current period compared to the same period last year. In the current quarter the Company produced certain programming in-house that had previously been outsourced, resulting in lower programming costs compared to the same period prior year.

Year to date: Programming & content expenses decreased by $1.4 million, or 12.1% to $9.7 million in 2012 from $11.1 million in 2011, respectively. Programming & content expenses decreased due to lower costs associated with third party acquired programming in the current period compared to the same period last year. In the current period the Company produced certain programming in-house that had previously been outsourced, resulting in lower programming costs compared to the same period prior year.

Marketing support – Marketing support includes staffing directly associated with facilitating the sale of radio receivers through third party distribution channels, converting OEM trial customers into Self-Paying Subscribers, retaining our customer base, costs related to winning back churned subscribers and marketing the SiriusXM brand.


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Fourth quarter: Marketing support costs decreased by $0.6 million or 30.6% to $1.5 million in the fourth quarter of 2012 from $2.1 million in the fourth quarter of 2011 due to lower headcount in the current period.

Year to date: Marketing support costs decreased by $1.4 million or 15.6% to $7.1 million in 2012 from $8.5 million in 2011 due to realization of synergies resulting from lower headcount in the current period.

Subsidies – These direct costs include the subsidization of radios, commissions paid with respect to the sale and activation of radios through our retail partners, chipset costs, warranty costs and certain promotional costs.

Fourth quarter: Subsidies costs increased by $0.5 million or 4.7%, to $11.9 million in the fourth quarter of 2012 from $11.4 million in the fourth quarter 2011. Subsidies expenses increased due primarily to higher costs in the OEM channel as a result of higher hardware subsidies, chipsets and commission costs resulting from higher volume of installations and trials conversions in the current period compared to the corresponding period last year. Subsidies costs may fluctuate throughout the year due to the seasonality of vehicle production.

Year to date: Subsidies costs decreased by $3.0 million or 6.4%, to $43.8 million in 2012 from $46.8 million in 2011. Subsidies expenses decreased primarily due to lower costs in both the aftermarket and automotive channels with a significant portion of the decrease coming from the aftermarket channel. Subsidies expenses decreased in the Aftermarket channel primarily due to the realization of synergies and as a result of a lower volume of radios sold compared to last year. Subsidies costs also decreased year-over-year due to a reduction in warranty costs as a result of a lower number of receivers purchased in the current period. Amounts are paid to a third party to cover warranty costs at the time of radio purchase and consequently the Company has no liability to repair radios. Subsidies expenses decreased in the automotive channel due to a shift in the mix of vehicles equipped with satellite receivers for certain partners where subsidies are paid based on vehicles shipped compared to partners where subsidies are paid based on vehicles sold. Lower per-unit contractual rate and lower per-unit chipset costs were also contributing factors to lower subsidies costs in the automotive channel.


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SAC

Subscriber Acquisition Costs – SAC was $46 and $50 for the fourth quarters of 2012 and 2011, respectively. SAC decreased during the quarter as subsidies costs did not increase proportionally to the increase in gross additions. On a year to date basis, SAC decreased to $49 in 2012 from $54 in 2011 due to lower subsidies costs and higher gross additions. While SAC may fluctuate on a quarterly basis we anticipate that annual SAC will likely remain within a narrow range going forward. Marketing – Include costs related to communications associated with converting trial subscribers to self-paying subscribers such as mailing and telephone costs, retail advertising through various media, co-operative advertising with distribution partners, sponsorships, and ongoing market research. These costs fluctuate based on the timing of these activities. Since a portion of the company’s marketing spend is dedicated to converting trial subscribers to self-paying subscribers, marketing costs will increase once the Company no longer benefits from synergies in advertising and brand marketing and the volume of the trial subscribers increase.

Fourth quarter: Marketing expenses increased by $2.0 million or 34.5% to $8.0 million in the fourth quarter of 2012 from $6.0 million in the comparable quarter in 2011 primarily due to incremental research costs to further understand consumer behavior, rebranding costs in preparation for the upcoming holiday season and customer outreach costs in respect of the recently announced price increase in the current quarter compared to the same period last year. While the Company continues to realize synergies through a reduction in per unit variable marketing costs by aligning communication strategies across legacy businesses, the effects of these reductions are offset by higher costs associated with a higher number of trial subscribers in the current quarter compared to the corresponding quarter last year.

Year to date: Marketing expenses decreased by $2.5 million or 9.3% to $24.2 million in 2012 from $26.7 million in 2011 primarily due to lower general advertising and synergies. Marketing expenses also decreased due to a reduction in per unit variable marketing costs by aligning communication strategies across legacy businesses offset by higher costs associated with a higher number of trial subscribers in the current period compared to the corresponding period last year.

$46

$50 $49

$54

Q4 2012 Q4 2011 FY 2012 FY 2011


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CPGA

Cost Per Gross Addition – CPGA was $76 and $75 for the fourth quarters of 2012 and 2011, respectively. CPGA increased marginally period-over-period due to higher marketing costs as mentioned above offset by higher gross subscriber additions in the current period compared to the same period prior year. The Company currently does not anticipate any meaningful changes in CPGA as both SAC and variable marketing spend stabilize going forward. CPGA is generally lower for subscribers gained through the pre-owned market as compared to subscribers gained through the new vehicle channel. On a year to date basis, CPGA decreased to $75 in 2012 from $84 in 2011 due to a combination of lower costs (Subsidies and marketing) and higher gross additions in the current period.

General & Administrative Expenses

General & administrative expenses primarily include compensation, as well as other expenses which include public company costs, office occupancy expenses and other corporate expenses.

Fourth quarter: General & administrative expenses increased by $0.5 million or 24.5% to $2.5 million in the fourth quarter of 2012 from $2.0 million in the fourth quarter of 2011. The main components of general & administrative expenses are the following:

o Compensation expenses: These costs decreased by $0.5 million to 1.2 million from $1.7 million on year-over-year basis. The decrease is due to lower headcount.

o Other expenses: These costs, which include public company costs, professional fees and other general corporate expenses, were approximately $1.0 million higher compared to the same period last year predominantly due to higher legal costs. The increase in legal costs was a result of costs associated with the Company’s license renewal application with the CRTC.

Year to date: General & administrative expenses decreased by $0.5 million or 3.8% to $11.2 million in 2012 from $11.7 million in 2011 despite the incurrence of approximately $0.8 million in

$76 $75 $75

$84

Q4 2012 Q4 2011 FY 2012 FY 2011


Fourth Quarter 2012

Page | 19

costs during the period for the secondary offering of the securities during the year. The main components of general & administrative expenses are the following:

o Compensation expenses: These costs decreased by $2.2 million or 30.6%

in 2012 compared to same period of 2011.

o Other expenses: These costs, which include public company costs, professional fees and other general corporate expenses, increased by $1.8 million in 2012 compared to 2011. The increase in other expenses is due primarily to higher legal costs associated with a secondary offering of securities which closed in the third quarter as well as costs associated with the Company’s license renewal application with the CRTC. Higher legal costs were partially offset by lower costs due to consulting and professional fees.

Information Technology

Information Technology expenses primarily include costs related to our subscriber management systems, data processing, communications cost, network infrastructure cost and people costs.

Fourth quarter: Information technology expenses decreased by $0.9 million or 28.3% to $2.1 million in the fourth quarter of 2012 from $3.0 million in the fourth quarter of 2011. The decrease in these costs is a result of the capitalization of approximately $1.2 million in labor costs related to system enhancements to update the Company’s Billing Revenue Management System (“BRM system”).

Year to date: Information technology expenses decreased by $0.3 million or 2.4% to $11.6 million in 2012 from $11.9 million in 2011. The decrease in these costs is due to the capitalization of approximately $1.5 million in labor costs related to system enhancements to update the Company’s BRM system, cost reduction due to contract negotiations with the third parties, partially offset by higher compensation costs and higher costs related to online streaming of our service, resulting from an increase in the number of online subscribers.

The Company will seek to realize further synergies by consolidating operating systems across a single platform. This consolidation initiative necessitates additional capital investment over the next two years.


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Integration, severance and merger costs

Integration, severance and merger costs include restructuring costs incurred as a result of the merger.

Fourth quarter: The Company incurred insignificant severance and merger costs in fourth quarter of 2012 compared to $3.8 million in the comparable quarter of 2011. In 2011, these costs primarily related to severance and miscellaneous merger costs.

Year to date: On a year to date basis, the Company incurred $1.4 million of merger and restructuring costs primarily related to severance costs compared to $12.3 million in 2011. Merger costs in the prior period include severance, accounting, legal and transaction fees.

Stock-based Compensation

Stock-based compensation expenses are related to the issuance of stock options.

Fourth quarter: Stock-based compensation expenses increased to $0.3 million in the fourth quarter of 2012 from less than $0.2 million in 2011. The increase in stock-based compensation is a result of expenses associated with options granted in the fourth quarter of fiscal 2011 and the second quarter of fiscal 2012 as well as the recognition of stock compensation related to unvested options assumed on the merger.

Year to date: Stock-based compensation expenses increased to $1.5 million in 2012 from less than $0.3 million in 2011. The increase in stock-based compensation is a result of expenses associated with options granted in the fourth quarter of fiscal 2011 and the second quarter of fiscal 2012 as well as the recognition of stock compensation related to unvested options assumed on the merger.

EBITDA

The Company intends to use EBITDA and its variants such as Adjusted EBITDA, as included in the Non GAAP Financial Measures section, to gauge the performance of the business going forward.

$11.7

$6.7

$42.5

$13.6

Q4 2012 Q4 2011 FY 2012 FY 2011


Fourth Quarter 2012

Page | 21

Fourth quarter: EBITDA improved by $5.0 million or 73.4% to $11.7 million from $6.7 million in the fourth quarters of 2012 and 2011, respectively. EBITDA improved compared to the same period in the prior year primarily due to a $7.0 million revenue improvement (including fair value adjustments of $0.2 million as a result of purchase price accounting), lower severance and merger costs of $3.8 million offset by higher Cost of Revenue of $4.2 million as well as a $1.9 million increase in marketing costs. As a percentage of revenue, EBITDA improved to 17.2% in the fourth quarter of 2012 from 11.1% in the fourth quarter of 2011. The improvement in EBITDA is a function of both operational leverage and the realization of synergies in areas such as programming and marketing.

Year to date: EBITDA improved by $28.9 million or 211.6% to $42.5 million from $13.6 million in 2012 and 2011, respectively. EBITDA improved compared to the prior year primarily due to a $21.2 million revenue improvement (including fair value adjustments of $1.2 million as a result of purchase price accounting), lower marketing costs of $6.8 million, a $0.7 million decrease in administrative and information technology costs and lower severance and merger costs of $10.9 million offset by higher Cost of Revenue of $9.6 million and a $1.2 million increase in stock based compensation. As a percentage of revenue EBITDA improved to 16.4% in 2012 from 5.7% in 2011. The improvement in EBITDA is a function of both operational leverage and the realization of synergies in areas such as programming, customer care, subsidies, general and administrative expenses as well as in marketing.

Adjusted EBITDA

Adjusted EBITDA

Fourth quarter: Adjusted EBITDA improved by $1.1 million or 10.5% to $12.2 million in the fourth quarter of 2012 from $11.1 million in the fourth quarter 2011. Adjusted EBITDA improved compared to the same period in the prior year primarily due to a $7.0 million revenue improvement (including fair value adjustments of $0.2 million as a result of purchase price accounting) offset by $1.9 million increase in marketing expenses and higher cost of revenue of

$12.2 $11.1

$46.6

$26.5

Q4 2012 Q4 2011 FY 2012 FY 2011


Fourth Quarter 2012

Page | 22

$4.2 million. As a percentage of revenue, Adjusted EBITDA decreased to 17.9% in the fourth quarter of 2012 from 18.1% in the fourth quarter of 2011.

Year to date: Adjusted EBITDA improved by $20.1 million or 75.6% to $46.6 million in 2012 from $26.5 million in 2011. Adjusted EBITDA improved compared to the same period in the prior year primarily due to a $21.2 million revenue improvement (including fair value adjustments of $1.2 million as a result of purchase price accounting), lower marketing costs of $6.8 million and a $0.7 million decrease in administrative and information technology costs, offset by higher cost of revenue of $9.6 million. As a percentage of revenue Adjusted EBITDA improved to 17.9% in 2012 from 11.1% in 2011. The improvement in Adjusted EBITDA is a function of both operational leverage and the realization of synergies in areas such as programming, customer care, subsidies, general and administrative expenses as well as in marketing.


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Selected Consolidated IFRS Financial Information

The following selected consolidated financial information has been derived from our audited consolidated financial statements for the period ended August 31, 2012. The June 21, 2011 business combination was accounted for as a reverse takeover whereby Sirius Canada Inc. (“Sirius Canada”) was deemed to be the acquirer of CSRH, using the purchase method of accounting. CSRH historically operated the XM Canada business. Therefore, these financial results for the year (the “year-to-date”) ended August 31, 2012 include both the results of Sirius Canada and XM Canada from September 1, 2011 to August 31, 2012. The previous annual financial year-end of Sirius Canada Inc. was November 30, 2010; however, in conjunction with the acquisition, the year-end was changed to August 31. Therefore the comparative financial results for the Company include the consolidated results for Sirius from December 1, 2010 to August 31, 2011 and the results for CSRH for the period from June 21, the date of the business combination, to August 31, 2011. As a result of the change in year-end, the comparative year-to-date results are for the nine months only from December 1, 2010 to August 31, 2011 and comprises of three quarters only. This information should be read in conjunction with our audited consolidated financial statements and related notes thereto. The year-to-date results of fiscal 2012 are not directly comparable to the year-to-date results of 2011 as the prior period includes financial results for Sirius Canada from December 1, 2010 to August 31, 2011 (9 months) and results for CSRH from June 21, 2011 (date of business combination) to August 31, 2011 (2 months only) compared to financial results of the consolidated entity for the current period from September 1, 2011 to August 31, 2012 (12 Months). Hence, the two reporting periods cannot be compared in a meaningful way. Also, the time periods are not comparable as the current year covers the period from September to August while the prior period is from December to August. For a qualitative assessment of reasons or factors that caused variances in results from period to period, management directs the reader to the Combined Financial Information discussion provided earlier, which is substantially applicable to the reported results.

The following table presents the Company’s audited Consolidated Statement of Operations and Comprehensive Income.


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Three Months Ended Year to date Ended

( in $) August 31, 2012

August 31, 2011

August 31, 2012

August 31, 2011

(12 Months) (9 Months)

REVENUE 68,118,950 55,465,637 259,619,500 140,917,994

OPERATING EXPENSES

Cost of Revenue

Revenue share and royalties 22,649,171 17,045,181 84,192,958 43,136,699

Customer care & billing operations 4,440,792 3,822,604 17,578,124 9,454,429

Cost of merchandise 848,809 649,494 3,051,909 2,002,456

Broadcast and operations 465,577 443,489 1,729,199 718,429

Programming and content 1,542,602 1,078,085 9,728,030 3,348,569

Total Cost of Revenue 29,946,951 23,038,853 116,280,220 58,660,582

General and administrative 2,547,843 1,429,554 11,222,888 4,842,509

Information Technology 2,145,339 2,499,815 11,603,735 5,395,960

Stock based compensation 333,136 184,684 1,493,400 184,684

Marketing support 1,477,466 1,861,912 7,132,398 4,263,442

Subsidies 11,942,551 10,750,106 43,776,251 30,193,327

Marketing 8,011,790 4,946,456 24,194,451 13,778,273

Total operating expenses 56,405,077 44,711,380 215,703,343 117,318,777

Severance and merger costs 1,714 2,025,976 1,383,105 3,501,293

Depreciation and amortization 8,699,322 10,519,355 39,689,053 12,266,976

Operating income (loss) 3,012,836 (1,791,074) 2,843,999 7,830,948

Interest income (132,759) (80,737) (360,906) (329,145)

Interest expense 3,983,824 3,427,853 16,699,532 3,427,853

Loss on debt payment - 1,908,263 - 1,908,263

Foreign exchange loss (gain) (335,663) 143,904 210,372 315,095

Gain on revaluation of derivative (1,216,863) - (1,213,473) -

Net Income (Loss) before income taxes 714,297 (7,190,357) (12,491,526) 2,508,882

Income tax recovery (5,402,488) (15,344,226) (8,312,710) (15,344,226)

Net Income (Loss) for the period 6,116,785 8,153,869 (4,178,816) 17,853,108

The following table is a reconciliation of Operating Income (loss) to EBITDA and Adjusted EBITDA for the three months and year-to-date.


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IFRS Financial Results Three Months Ended Year to date Ended

In ($000’s)

August 31, 2012

(IFRS)

August 31, 2011

(IFRS) 2

August 31, 2012

(IFRS)

August 31, 2011

(IFRS) 2


Operating Income (Loss) 3,013 (1,791) 2,844 7,831

Amortization 8,699 10,519 39,689 12,267

EBITDA 11,712 8,728 42,533 20,098

Stock-based compensation 333 185 1,493 185

Severance and merger costs 2 2,026 1,383 3,501

Fair value adjustments1 173 271 1,152 271

Adjusted EBITDA 12,220 11,210 46,562 24,054

1. Fair value adjustment relates to the reduction in revenue due to valuation of deferred revenue under purchase price accounting. 2. In order to align with current reporting requirements, a write off of intangibles of $4.2 million in 2011 has been reclassified from severance and merger costs to amortization.

The following tables summarize quarterly information for fiscal years 2012, 2011 and 2010.

IFRS Financial Summary Fiscal Year 2012 (Sep 2011 – Aug 2012)

In ($000’s) except EPS Q1 Q2 Q3 Q4 FY 2012

Revenues 63,111 63,774 64,615 68,119 259,620

Net Income (loss) (3,412) (2,695) (4,189) 6,117 (4,179)

Loss per share ($0.03) ($0.02) ($0.03) $0.05 ($0.03)

IFRS Financial Summary Fiscal Year 2011 (Dec 2010 - Aug 2011)

In ($000’s) except EPS Q1 Q2 Q3 FY 2011

Revenues 42,500 42,953 55,466 140,918

Net Income 3,576 6,123 8,154 17,853

Earnings per share (EPS) $0.04 $0.08 $0.07 $0.19

Canadian GAAP Financial Summary Fiscal Year 2010 ( Jan 2010 - Nov 2010)

In ($000’s) except EPS Q1 Q2 Q3 Q4* FY 2010

Revenues 35,058 36,772 40,451 29,998 142,279

Net Income 4,835 1,597 7,038 2,266 15,736

Earnings per share (EPS) $0.06 $0.01 $0.09 $0.02 $0.18

* Q4 2010 comprises only 2 months due to the change in the year-end of Sirius Canada to November 30, 2010.


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The following section discusses the consolidated results of the operations for the year ended August 31, 2012 in comparison to the year to date results for the comparative period ended August 31, 2011 as presented in our audited annual IFRS financial statements.

Revenue

Revenue includes Subscription Revenue, activation fees, sale of merchandise through direct fulfillment channels, advertising revenue from Canadian-produced channels and other revenue from partnership subscribers.

Three months: For the three months ended August 31, 2012, revenue was $68.1 million compared to revenue of $55.5 million for the three months ended August 31, 2011. Revenue increased by 22.8% or $12.7 million in the current period due to the inclusion of three months of revenue for XM Canada in the current period compared to only two months in the comparative period last year. Revenues also increased as a result of a higher subscriber base.

Year to date: For the full-year ended August 31, 2012, revenue was $259.6 million compared to revenue of $140.9 million for the full-year ended August 31, 2011. Revenue increased by 84.2% or $118.7 million in the current period as the current period consists of twelve months compared to only nine months in 2011 and also due to the inclusion of full-year of results for XM Canada in the current period compared to two months in the comparative period last year. Revenues also increased as a result of a higher subscriber base offset by a decline in ARPU.

Cost of Revenue

Three months: For the three months ended August 31, 2012, cost of revenue was $30.0 million or 44.0% of total revenue compared to $23.0 million or 41.5% of total revenue for the three months ended August 31, 2011. Cost of revenue increased by $6.9 million in the current period due to the inclusion of three months of cost of revenue for XM Canada in the current period compared to two months in the comparative period last year. Cost of revenue increased 2.5% percentage points due to higher revenue combined with a higher overall revenue share rate paid to certain automotive partners and due to an increase in customer care costs resulting from a higher subscriber base over the comparative period.

Year to date: For the full-year ended August 31, 2012, cost of revenue was $116.3 million or 44.8% of revenue compared to cost of revenue of $58.7 million or 41.6% of revenue for the full-year ended August 31, 2011. Cost of revenue increased as the current period consists of twelve months compared to only nine months in 2011 and also partially due to the inclusion of full-year of results for XM Canada for the current period while the prior period included full year results for Sirius Canada and only two months for XM Canada. Cost of revenue increased by approximately 3.2% points in the current period compared to the prior period due to a higher blended royalty rate paid to Sirius XM in addition to higher revenue share rates paid to certain automakers in the current period as the Company reached certain subscriber thresholds in the current period, which resulted in higher effective rates in the current period.


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General & Administrative Expenses

General & administrative expenses primarily include compensation, as well as other expenses which include public company costs, office occupancy expenses and other corporate expenses.

Three months: For the three months ended August 31, 2012, general and administrative expenses were $2.5 million compared to $1.4 million for the three months ended August 31, 2011. These costs increased by $1.1 million in the current period due to the inclusion of three months of costs for XM Canada in the current period compared to two months in the comparative period last year. Higher legal costs associated with Company’s license renewal application with the CRTC, also contributed to the increase in general and administrative expenses.

Year to date: For the full-year ended August 31, 2012, general and administrative expenses were $11.2 million compared to $4.8 million for the full-year ended August 31, 2011. The general and administrative expenses increased as the current period consists of twelve months compared to only nine months in 2011 and also due to the inclusion of full-year of costs for XM Canada in the current period compared to only two months of costs in the prior period as well as higher legal costs due primarily to the secondary offering of securities in the current period offset by costs savings due to the realization of synergies post-merger.

Information Technology Expenses

Information Technology expenses primarily include costs related to our subscriber management systems, data processing, communications cost, network infrastructure cost and people costs.

Three months: For the three months ended August 31, 2012, information technology expenses were $2.1 million compared to $2.5 million for the three months ended August 31, 2011. These costs decreased by $0.4 million in the current period due to the capitalization of approximately $1.2 million in labor costs related to system enhancements to update the Company’s BRM system offset by increase in costs due to the inclusion of three months of costs for XM Canada in the current period compared to only two months in the comparative period last year.

Year to date: For the full-year ended August 31, 2012, information technology expenses were $11.6 million compared to $5.4 million for the full-year ended August 31, 2011. Information technology expenses increased as the current period consists of twelve months compared to only nine months in 2011 and also due to the addition of costs related to XM Canada for the full-year in the current period compared to only two months in the comparative period last year as well as higher compensation costs, higher data processing charges and higher costs related to online streaming of our service, resulting from an increase in the number of online subscribers. During the current year, the Company capitalized approximately $1.5 million in labor costs related to system enhancements to update the Company’s BRM system.


Three Months: For the three months ended August 31, 2012 stock-based compensation was $0.3 million compared to $0.2 million for the three months ended August 31, 2011. Sirius Canada did not have a stock option plan in place pre-merger. Stock options previously issued to employees of CSRH remained in place at the time of the acquisition and were not modified and


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therefore vest based on their original terms. Stock option expense increased by $0.1 due to the inclusion of three months of stock options expense in current period compared to only two months in the comparative period as the stock options expense relates to XM Canada only.

Year to date: For the full-year ended August 31, 2012 stock-based compensation was $1.5 million compared to $0.2 million for the full-year ended August 31, 2011. Sirius Canada did not have a stock option plan in place. Stock options previously issued to employees of CSRH remained in place at the time of the acquisition and were not modified and therefore vest based on their original terms. During the fourth quarter of calendar 2011 and the second quarter of fiscal 2012, the Company issued stock options to the senior management team and to employees. The options issued vest over the next five years. The $1.5 million in stock-based compensation expense is primarily a result of these most recent grants. Stock option expense in the comparative period relates to XM Canada only.

Marketing support – Marketing support includes staffing directly associated with supporting the sale of radio receivers through third party distribution channels, the sale of radios through direct channels, installation of receivers, converting OEM trial customers into Self-Paying Subscribers, retaining the customer base, costs related to winning back churned subscribers and marketing the SiriusXM brand.

Three Months: For the three months ended August 31, 2012, marketing support costs were $1.5 million compared to $1.9 million for the three months ended August 31, 2011. Marketing support costs decreased by $0.4 million due to synergies associated with lower headcount in the current period offset by the inclusion of marketing support costs from XM Canada for three months in the current period compared to two months in the comparative period.

Year to date: For the full-year ended August 31, 2012, marketing support costs were $7.1 million compared to $4.3 million for the full-year ended August 31, 2011. Marketing support costs increased by $2.9 million as the current period consists of twelve months compared to only nine months in 2011 and also due primarily to the inclusion of marketing support costs from XM Canada for the full-year in the current period compared to two months in the comparative period offset by synergies realized post-merger.

Subsidies – These direct costs include the subsidization of radios, commissions paid with respect to

the sale and activation of radios through the retail partners, and certain promotional costs.

Three months: For the three months ended August 31, 2012, Subsidies costs were $11.9 million compared to $10.7 million for the three months ended August 31, 2011. Subsidies costs increased by $1.2 million due to the inclusion of costs from XM Canada for three months in the current period compared to two months in the comparative period and higher costs in the OEM channel as a result of higher hardware subsidies, chipsets and commission costs resulting from higher volume of installations and trials conversions in the current period compared to the corresponding period last year.

Year to date: For the full-year ended August 31, 2012, Subsidies costs were $43.8 million compared to $30.2 million for the full-year ended August 31, 2011. Subsidies costs increased by $13.6 million as the current period consists of twelve months compared to only nine months in 2011 and also due to the inclusion of costs from XM Canada for full-year in the current period compared to two months in the comparative period offset by lower per unit contractual subsidy rate and lower per unit chipset costs.


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Marketing – Include costs related to communications associated with converting trial subscribers to self-paying subscribers, retail advertising through various media, co-operative advertising with distribution partners, sponsorships, and ongoing market research. These costs fluctuate based on the timing of these activities.

Three months: For the three months ended August 31, 2012 marketing costs were $8.0 million compared to $4.9 million for the three months ended August 31, 2011. These costs increased by $3.1 million due to the inclusion of three months of results for XM Canada compared to two months of results in the comparative period. These costs also increased as a result of incremental research costs to further understand consumer behavior, rebranding costs in preparation for the upcoming holiday season and customer outreach costs in respect of the recently announced price increase offset by synergies realized through lower spending on brand marketing.

Year to date: For the full-year ended August 31, 2012 marketing costs were $24.2 million compared to $13.8 million for the full-year ended August 31, 2011. These costs increased by $10.4 million as the current period consists of twelve months compared to only nine months in 2011 and due to the inclusion of full-year of results for XM Canada compared to two months of results in the comparative period offset by synergies realized through lower spending on brand marketing.

Integration, severance and merger costs

Three months: For the three months ended August 31, 2012 the Company incurred insignificant merger and restructuring costs compared to $2.0 million in the three months ended August 31, 2011. Merger costs incurred in the prior period were primarily severance related costs.

Year to date: For the full-year ended August 31, 2012 merger and restructuring costs were $1.4 million compared to $3.5 million in the year ended August 31, 2011. Merger costs in the prior period include severance, accounting, legal and transaction fees incurred by the legacy businesses. Restructuring costs of $1.0 million relating to severance for employees of the merged company were expensed for the year ended August 31, 2012 and included in the total amount of $1.4 million.

EBITDA

Three months: For the three months ended August 31, 2012 EBITDA was $11.7 million compared to $8.7 million for the three months ended August 31, 2011. EBITDA increased in the current period compared to the prior period due to a $12.7 million increase in revenue, lower severance and merger costs of $2.0 million, offset by higher cost of revenue of $6.9 million, higher marketing costs of $3.9 million, higher administrative and information technology costs of $0.8 million. The inclusion of three months of results in the current period compared to only two months of results in the comparative period contributed to higher revenue, cost of revenue and support costs. As a percentage of revenue, EBITDA was 17.2% compared to 15.7% in the comparative period. The improvement in EBITDA is due primarily to an increase in revenues compared to the prior period and post-merger synergies.


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Year to date: For the year ended August 31, 2012 EBITDA was $42.5 million compared to $20.1 million for the full-year ended August 31, 2011. EBITDA increased in the current period compared to the prior period due to a $118.7 million increase in revenue, lower severance and merger costs of $2.1 million, offset by higher cost of revenue of $57.6 million, higher marketing costs of $26.9 million, higher administrative and information technology costs of $12.6 million and higher stock based compensation of $1.3 million. The inclusion of twelve months in the current year compared to only nine months in 2011 and also the inclusion of full-year of results for XM Canada in the current period compared to two months in the comparative period, contributed to higher revenue, cost of revenue and support costs. As a percentage of revenue EBITDA was 16.4% compared to 14.3% in the comparative period. The improvement in EBITDA is due primarily to an increase in revenues and cost synergies realized compared to the prior period and due to the fact that prior period results are primarily those of Sirius Canada only, offset by an increase in average monthly revenue share due to a higher effective royalty rate in the current period compared to the prior period. The expansion of the EBITDA margin was aided by the decline of marketing costs as a percentage of revenue due to the realization of synergies in this area.

Adjusted EBITDA

Three months: For the three months ended August 31, 2012, Adjusted EBITDA was $12.2 million compared to $11.2 million for the three months ended August 31, 2011. Adjusted EBITDA increased in the current period compared to the prior period due to higher revenue of $12.7 million, offset by higher cost of revenue of $6.9 million, higher marketing costs of $3.9 million, higher administrative and information technology costs of $0.8 million. The inclusion of three months of results for XM Canada in the current period compared to only two months of results in the comparative period contributed to higher revenue, cost of revenue and support costs. As a percentage of revenue Adjusted EBITDA was 17.9% compared to 20.2% in the comparative period. Adjusted EBITDA margins were lower in the current quarter due to a higher overall revenue share rate paid to certain automotive partners, incremental marketing costs in preparation for the upcoming holiday season and customer outreach costs in respect of the recently announced price increase.

Year to date: For the full-year ended August 31, 2012, Adjusted EBITDA was $46.6 million compared to $24.1 million for the full-year ended August 31, 2011. Adjusted EBITDA increased in the current period compared to the prior period due to higher revenue of $118.7 million (including fair value adjustment difference of $0.9 million as a result of purchase price accounting), offset by higher cost of revenue of $57.6 million, higher marketing costs of $26.9 million, higher administrative and information technology costs of $12.6 million. The inclusion of twelve months in the current year compared to only nine months in 2011 and also the inclusion of full-year of results for XM Canada in the current period compared to only two months of results in the comparative period contributed to higher revenue, cost of revenue and support costs. As a percentage of revenue Adjusted EBITDA was 17.9% compared to 17.1% in the comparative period. The improvement in Adjusted EBITDA is due primarily to an increase in revenue and cost synergies realized compared to the prior period offset by an increase in average monthly revenue share due to a higher effective royalty rate in the current period compared to the prior period. The expansion of the Adjusted EBITDA margin was aided by the decline of marketing costs as a percentage of revenue due to the realization of synergies in this area.


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Financing and Other Items

Interest Expense – Interest expense includes costs associated with the Company’s 9.75% Senior notes (the “Senior notes”) due June 21, 2018, $20 million 8% unsecured subordinated Convertible notes (the “Convertible notes”) due September 12, 2014, and interest and interest accretion associated with other long term obligations.

Three months: Interest expense for the three months ended August 31, 2012 was $4.0 million and $3.4 million for the three months ended August 31, 2011. The increase in interest expense is due to the inclusion of three months of interest expense in 2012 on liabilities assumed from XM Canada on the closing of the merger, interest on the new Senior notes, and Convertible notes. Previously Sirius Canada did not have any debt outstanding and consequently did not incur any interest expense prior to June 21, 2011 and the comparative period includes interest expense for only two months for XM Canada.

Year to date: Interest expense for the year ended August 31, 2012 was $16.7 million and $3.4 million for the year ended August 31, 2011. The increase in interest expense is due to inclusion of twelve months of interest expense in 2012, due to interest on liabilities assumed from XM Canada on the closing of the merger, interest on the new Senior notes, and Convertible notes. Previously Sirius Canada did not have any debt outstanding and consequently did not incur any interest expense prior to June 21, 2011 and the comparative period includes interest expense for only two months for XM Canada.

Interest Income – Interest income includes income from our cash and cash equivalent balances.

Three months: Interest income was $0.1 million for the three months ended August 31, 2012 and August 31, 2011.

Year to date: Interest income for the year ended August 31, 2012 was $0.4 million and $0.3 million for the year ended August 31, 2011. The increase in interest income is due to earning twelve months of interest on cash balances in 2012 compared to only earning nine months of interest on cash balances in 2011 offset by lower monthly average cash balances in the current period compared to the period ended August 31, 2011. Monthly average cash balances declined in the period ended August 31, 2012 compared to the period ended August 31, 2011 primarily due to distributions in the amount of $44.7 million that were paid to the shareholders of Sirius Canada prior to the closing of the merger.

Income tax recovery

Three months: For the three months ended August 31, 2012, the Company had an income tax recovery of $5.4 million compared to the income tax recovery of $15.3 million for the three months ended August 31, 2011.

Year to date: For the year ended August 31, 2012, the Company had an income tax recovery of $8.3 million compared to an income tax recovery of $15.3 million for the year ended August 31, 2011. Income tax recovery of $8.3 million is comprised of a recovery of $3.4 million due to the net loss in the current year and $5.7 million due to a change in the tax rate on the opening deferred taxes offset by non-deductible expenses of $0.9 million. In 2011 income tax recovery of


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$15.4 million relates to a reversal of a valuation allowance previously recorded against the future tax asset related to a portion of the non-capital losses of Sirius Canada Inc.

Discussion of Secondary Offering

On March 26, 2012, the Company announced that two of its shareholders, CSRI Inc. and Slaight Communications Inc. have completed the sale of an aggregate of 8,000,000 Class A Subordinate Voting Shares of the Company (“Class A Shares”) at a price of $3.00 per share. The offering was completed on a bought deal basis by an underwriting syndicate comprised of Canaccord Genuity Corp. and National Bank Financial Inc. CSRI Inc. sold 6,000,000 Class A Shares, and Slaight Communications Inc. sold 2,000,000 Class A Shares. SiriusXM Canada did not receive any proceeds from the offering. Total costs incurred by the Company were approximately $0.8 million primarily for legal and auditing fees. The offering was subscribed by both institutional and retail investors and significantly increased the size and liquidity of the Company’s publicly traded float.

Liquidity and Capital Resources

Total cash and cash equivalents at the end of fiscal 2012 were $51.0 million, an improvement of $25.0 million over the prior year. The increase in cash and cash equivalents was driven by an increase in free cash flow of $36.6 million year-over-year. The increase in free cash flow was due to higher revenues and an improvement in our EBITDA margin compared to the prior year. Our financial position continues to improve, driven by strong operating cash flow generation and low capital expenditure requirements. We expect an increase in capital expenditure for fiscal 2013 and 2014 as we enhance our subscriber management system but then anticipate a decline in 2015 and beyond. A substantial portion of our existing debt obligations does not mature until fiscal 2018 and we currently do not have other obligations requiring meaningful cash outflow until fiscal 2015 when the Company’s $20 million in convertible debentures comes due. Consequently, we believe that our cash and cash equivalents will continue to increase until the board of directors decide on an appropriate capital allocation strategy. The Company expects free cash flow will be sufficient to meet our short and long-term obligations. Improving free cash flow will also allow us to continually invest in areas that yield the highest return for shareholders in the long-term. The Company’s cash flows from operating, investing and financing activities are summarized in the following table:


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Three Months ended

Year to date ended

(in $) Aug 31,

2012 Aug 31,

2011

Aug 31, 2012

Aug 31, 2011


Cash provided by operating activities 10,427,052 (1,673,093)

41,075,084 7,737,268

Cash (used) provided by investing activities (1,911,194) 1,6777,534

(4,428,916) 113,429

Cash (used) provided by financing activities 29,830 (29,445,712)

(11,626,858) (29,445,712)

Net Change in cash and cash equivalents 8,545,688 (29,445,712)

25,019,310 (21,595,015)

Cash and cash equivalents, beginning of period 42,489,061 55,456,710

26,015,439 47,610,454

Cash and cash equivalents, end of period 51,034,749 26,015,439

51,034,749 26,015,439

Free Cash Flow 8,515,858 (4,441)

36,646,169 7,850,697

Operating Activities – Cash flow from operating activities primarily consist of net income (loss) adjusted for certain non-cash items including amortization, stock-based compensation, unrealized foreign exchange gains and losses and the effect of changes in non-cash working capital and the cash interest payments.

During the three months in the current period cash generated from operating activities was $10.4 million, consisting of net gain of $6.1 million adjusted for net non-cash expenses and losses of $1.2 million and a $5.5 million increase in working capital. The increase in working capital in the period is primarily a result of increase in payables of $1.8 million, increase in deferred revenue of $4.5 million offset by an increase in receivables of $0.8 million.

During the year cash generated from operating activities was $41.1 million, consisting of net loss of $4.2 million adjusted for net non-cash expenses and gains of $32.6 million and a $12.7 million change in working capital. The positive working capital in the period is primarily due to an $11.5 million increase in deferred revenue and to changes in assets and liabilities.

Investing Activities – Cash flow from investing activities consists primarily of capital expenditures, purchases of intangible assets relating to computer software.

During the three months in the current period, cash used in investing activities was $1.9 million related to the purchase of property, equipment and intangible assets. Approximately $1.5 million relates to system enhancements costs, including capitalized labor costs of approximately $1.2 million, to update the Company’s BRM system.

During the year, cash used in investing activities was $4.4 million related to the purchase of property, equipment and intangible assets. Approximately $2.7 million relates to system enhancements costs, including capitalized labor costs of approximately $1.5 million, to update the Company’s BRM system of costs related to the subscriber management system.


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Financing Activities

During the three months in the current period cash provided by financing activities was less than

$0.1 million due to proceeds from the exercise of options.

During the year cash used in financing activities was $11.6 million consisting of an $11.2 million payment of a promissory note to the shareholders of Sirius Canada, US$ Senior note repayment of $0.9 million, offset by $0.5 million in proceeds from the exercise of stock options.

Total Debt:

As at

(in $) August 31,

2012 August 31,

2011

Senior notes 125,961,506 126,719,584

Convertible notes 19,031,312 18,522,652

US$ Senior notes - 901,048

Total Debt 144,992,819 146,143,284

Senior notes - The Senior notes mature in 2018, and as at August 31, 2012, the principal amount outstanding is $130.8 million. The Senior notes bear interest at 9.75% payable semi-annually on June 21 and December 21. The Senior notes are redeemable at the option of the Company on or after June 21, 2014. Any redemption prior to June 21, 2017 will include an applicable premium of up to 7.3%. The premium varies based on the date of redemption.

Convertible notes - The Company has $20 million aggregate principal amount of 8.0% unsecured subordinated Convertible notes, due September 12, 2014 outstanding. The interest is payable semi-annually on June 30 and December 31 and the Convertible note holders may elect to receive interest payments in the form of Class A Subordinate Voting Shares of the Company based on the market price of the Class A Subordinate Voting Shares at the time of the payment.

The Convertible notes are convertible at the option of the debenture holders at any time at a conversion price of $5.92 per share. The Convertible notes are redeemable at the option of the Company at any time provided certain thresholds are met.

As of August 31, 2012, Sirius XM held $4.0 million of the Convertible notes and shareholders of CSRI, including John Bitove, the chairman of the Company and a shareholder held $1.7 million of the Convertible notes.

US$ Senior notes – During the year, the Company retired its outstanding 12.75% US$ Senior notes due in

2014 in the amount of US$0.9. These US$ Senior notes had an interest rate of 12.75% and the interest

payments were due semi-annually, on February 15 and August 15.


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Compilation of Combined Financial Information

The comparative periods presented are combined results and do not conform to our IFRS financial reporting periods. The intent is to provide additional information to readers. The comparative figures for the three and full-year ended August 31, 2011 are prepared on a combined basis by adding the historical results of XM Canada for the three and full-year ended August 31, 2011 and the internal results of Sirius Canada for the three and full-year ended August 31, 2011. They do not agree to the Company’s published results and are not consistent with our actual reported periods.

The following table presents the Company’s partial unaudited Consolidated Interim Statement of Operations for the three months ended August 31, 2012 in comparison to the Combined Statement of Operations for three months ended August 31, 2011.

Unaudited Combined Information Three Months Ended

August 31, 2012 Three Months Ended

August 31, 2011

( in $) IFRS Sirius* XM* Combined

TOTAL REVENUE 68,118,950 43,785,838 17,326,098 61,111,936

OPERATING EXPENSES

Cost of Revenue

Revenue share and royalties 22,649,171 14,098,438 4,163,118 18,261,556 Customer care & billing operations 4,440,792 2,783,654 1,596,337 4,379,991 Cost of merchandise 848,809 405,623 391,593 797,216 Broadcast and operations 465,577 136,499 417,958 554,457 Programming and content 1,542,602 1,003,293 793,618 1,796,911


General and administrative 2,547,843 757,825 1,288,474 2,046,299 Information Technology 2,145,339 1,443,865 1,549,484 2,993,349 Stock based compensation 333,136 - 190,592 190,592

Support 1,477,466 1,222,608 907,391 2,129,999 Subsidies 11,942,551 9,060,211 2,343,384 11,403,595 Marketing 8,011,790 4,042,895 1,914,510 5,957,405


Integration, severance and merger costs 1,714 847,206 3,000,432 3,847,638

EBITDA 11,712,159 7,983,721 (1,230,793) 6,752,928


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The following table presents the Company’s partial audited Consolidated Statement of Operations for the year ended August 31, 2012 in comparison to Combined Statement of Operations for the full-year ended August 31, 2011.

Unaudited Combined Information Full-year Ended August 31, 2012

Full-year Ended August 31, 2011

( in $) IFRS Sirius XM* Combined TOTAL REVENUE 259,619,500 173,073,432 65,315,520 238,388,952

OPERATING EXPENSES

Cost of Revenue

Revenue share and royalties 84,192,958 53,265,966 19,404,634 72,670,600 Customer care & billing operations 17,578,124 10,701,807 6,366,592 17,068,399 Cost of merchandise 3,051,909 2,242,357 1,576,350 3,818,707 Broadcast and operations 1,729,199 499,103 1,534,880 2,033,983 Programming and content 9,728,030 4,360,499 6,705,829 11,066,328


General and administrative 11,222,888 6,324,683 5,340,133 11,664,816 Information Technology 11,603,735 5,823,169 6,069,737 11,892,906 Stock based compensation 1,493,401 - 280,156 280,156

Support 7,132,398 5,147,971 3,306,526 8,454,497 Subsidies 43,776,251 39,007,475 7,778,877 46,786,352 Marketing 24,194,451 17,488,201 9,192,565 26,680,766


Severance and merger costs 1,383,105 3,986,986 8,334,486 12,321,472

EBITDA 42,533,052 24,225,215 (10,575,245) 13,649,970

*Although the results of operations have not changed since previously reported, some line items may not agree to those previously

reported as certain costs may have been reclassified to conform to our current reporting format.

Contractual Commitments The Company has entered into a number of leases and other contractual commitments. The following table summarizes its outstanding contractual commitments as of August 31, 2012 (in $000’s):


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Contracts and Commitments (1)

As at August 31, 2012

(in $000’s) Total Less than

1 Yr. 1-3 Yrs. 4-5 Yrs. More than

5 Yrs.

Operating leases 6,841 1,474 2,692 1,854 821

NHL agreement 28,783 9,364 19,419 - -

Principal on 9.75% Senior notes 130,771 - - - 130,771

Interest on 9.75% Senior notes 76,500 12,750 25,500 25,500 12,750

Principal on 8.0% Convertible notes 20,000 - 20,000 - -

Interest on 8.0% Convertible notes 3,333 1,600 1,733 - -

Service provider agreements

CBC 21,400 2,500 4,200 4,200 10,500 SiriusXM 3,462 1,980 757 725 -

Others 9,148 4,081 4,599 468 -

Advertising and marketing(2)

11,053 5,552 2,911 1,630 960

Total 311,291 39,301 81,811 34,377 155,802

Notes:

1. The following arrangements have not been included in the table above because the specific amounts payable are contingent on the Company’s revenue and/or subscriber projections, which themselves are subject to various economic assumptions: i) In connection with our broadcasting license, amended February 10, 2006, we are required to contribute to, or make payments based on a minimum of 5% of revenues over the six year license term towards Canadian Content development/Canadian Talent Development (“CCD”/”CTD”); ii) In addition, pursuant to a decision rendered by the Copyright Board of Canada, the Company is required to make certain music programming royalty payments. The Copyright Board’s decision clarifies the Company’s liability for outstanding royalties for satellite radio services and improves the Company’s ability to forecast these costs going forward. 2. Includes amounts under agreement with: Corus Entertainment Inc. (Corus) for the purchase of $1.4 million of advertising from Corus over the next year; and with GMCL for $5.3 million of advertising and marketing over the next 6.3 years.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Arrangements, Relationships and Transactions with Related Parties

Related parties of the Company include shareholders with a significant interest in the Company. Significant shareholders of the Company include Sirius XM, Canadian Broadcasting Corporation (“CBC”), Slaight Communications Inc. (“Slaight”), and CSRI Inc. (“CSRI”), a company controlled by John I. Bitove. Related parties also include companies controlled or influenced by these shareholders and members of the board of directors, management and immediate family members of management or shareholders with significant influence.


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Amounts due to related parties listed above and included in the Company’s balance sheet are as follows: Due to related parties As at

(in $) August 31,

2012 August 31,

2011

CBC 665,145 4,087,035

Slaight 402,777 3,634,972

Sirius XM 6,900,533 10,685,385

CSRI (including related parties of CSRI) 15,478 4,432

7,983,933 18,411,824

Less: current portion (6,775,601) (17,203,492)

Long-term portion 1,208,332 1,208,332

Transactions with CBC – The Company has a 15 year agreement with the CBC. This agreement is a

non-exclusive, non-transferable license agreement whereby the Company has distribution rights to transmit channels currently owned by the CBC within Canada. The incurred costs during the year ended August 31, 2012 primarily related to the CBC license agreement, was $4,197,150 (nine months ended August 31, 2011 was $919,192). As of August 31, 2012, amounts due to CBC include non-interest bearing promissory notes issued as per the merger transaction of $402,777.

Transactions with Slaight – In the prior period the Company incurred costs relating to a business event from Slaight. During the year ended August 31, 2012, costs incurred were $nil (nine months ended August 31, 2011 was $4,309) As of August 31, 2012, amounts due to Slaight include non-interest bearing promissory notes issued as per the merger transaction of $402,777.

Transactions with Sirius XM – In 2005, Sirius Canada entered into a license and service agreement

with Sirius XM whereby the Company acquired the right to distribute the Sirius network channels owned or licensed by Sirius XM within Canada. In return, the Company is obligated to pay Sirius XM a percentage of its gross revenue, to a maximum of 15%, and reimbursement of other charges paid on Sirius Canada’s behalf.

The Company acquired a license and technical service agreement with Sirius XM whereby the Company acquired the right to distribute the XM network channels owned or licensed by Sirius XM. In return, the Company is obligated to pay Sirius XM a percentage of subscriber revenue (15%), activation charges, fees under the Technical Service Agreement and reimbursement of other charges paid on CSRH’s behalf. The costs incurred during the year ended August 31, 2012 related to the Sirius XM agreements was $39,197,060 (nine months ended August 31, 2011 of $21,916,573 related to Sirius Canada agreement)


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In addition to the amounts expensed above for the year ended August 31, 2012, intangible assets of $2,672,703 (nine months ended August 31, 2011 of $459,526) relating to XM activation fees and purchases made for activation fees and computer software are presented within the balance sheet. As of August 31, 2012, amounts due to Sirius XM include non-interest bearing promissory notes issued as per the merger transaction of $402,778.

Transactions with John I. Bitove, CSRI and its affiliates – In 2011, The Company entered into a reimbursement agreement with CSRI for the purchase of third party advertising services. The Company has agreed to reimburse CSRI $208,000 over the next three years for these advertising services. The Company incurred costs from CSRI and other entities affiliated with CSRI and John I. Bitove, including costs associated with the reimbursement agreement. These costs were in respect of advertising, business events, use of broadcast centre, and operating costs. During the year end ended August 31, 2012, the costs totaled $143,252 (nine months ended August 31, 2011 was $124,751). In addition the Company incurred costs on behalf of an entity affiliated with CSRI and John I. Bitove for costs related to the management of a call centre operation. During the year ended August 31, 2012, the total cost incurred was $36,534 (nine months ended August 31, 2011 was $24,356). These amounts were subsequently reimbursed. As of August 31, 2012, the balance due from was $nil (August 31, 2011 - $nil).

Critical Accounting Policies and Estimates

In our 2012 Annual Audited Consolidated Financial Statements and Notes thereto, as well as in our 2012 Annual MD&A, we have identified the accounting policies and estimates that are critical to the understanding of our business operations and our results of operations. On September 1, 2011, with the adoption of IFRS, the critical accounting policies and estimates have been updated to conform to this adoption. Please refer to Note 5 of our August 31, 2012 Audited Consolidated Financial Statements for our adoption of IFRS and a detailed discussion regarding our significant accounting policies, application of critical accounting estimates, and recent accounting pronouncements. Please refer to Notes 3 and 4 of the Company’s annual consolidated financial statements for a discussion of critical accounting policies. Goodwill, Intangibles and Long-Lived Assets

Upon transition to IFRS reporting, the Company was required to perform impairment tests using IFRS requirements. Under such requirements, when required non-financial asset impairment tests must be performed at the cash generating unit (“CGU”) level where a CGU is determined to be the smallest identifiable groups of assets that generates cash inflows that are largely independent of the cash inflows generated by other group of assets. Goodwill and indefinite lived intangibles are required to be tested for impairment at least annually by comparing the recoverable amount of the CGU which includes these assets to their recoverable amount. The Company performs an impairment test at May 31 of each year. The XM broadcast license is tested for impairment along with other assets including the subscriber relationships, distribution rights and property


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and equipment at the XM CGU level. The Company applies significant judgment in determining the lowest level for which the assets generate independent cash inflows as well as the recoverability of the CGUs’.

We assess the carrying value of amortized intangible assets and property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The recoverable amount of an asset or its CGU is the greater of its value in use and fair value less costs to sell, whereby estimated future cash flows are discounted to their present value. The discount rate used reflects current market assessments of the time value of money and the CGU’s specific risks. If the carrying value of a CGU exceeds its estimated recoverable amount, an impairment loss is recognized in the statement of comprehensive income.

The impairment test is based on cash flow projections over a five-year period consistent with management’s strategic plan. The key assumptions used in the projections are:

Revenue growth: based on based on actual experience and estimated subscribers and ARPU growth due primarily to ;

Expected vehicle penetration rates;

Industry forecast for vehicle sales;

Pricing changes;

OEM conversion rates.

EBITDA margin; based on actual experience and management’s long-term costs projections based on:

Contractual agreements;

Inflationary increases to fixed costs.

A terminal value growth rate of 1.5% was estimated. The estimated after-tax cash flows are discounted to their present value using an after-tax weighted average cost of capital (“WACC”) of 12.0%, consistent with market estimates using the capital asset pricing model. Based on reasonable assumptions it has been determined that no impairment exists during the most recent period in which the tests were performed. Sensitivity analysis performed indicated that reasonably possible adverse changes in key assumptions of 100 basis points (based on a reduction in growth rate and an increase in the discount rate) would not result in an impairment charge.


The estimated fair value of stock awards granted to employees as of the date of grant is recognized as compensation expense over the period in which the related employee services are rendered. For stock options granted to non-employees, the estimated fair value of stock awards granted to non-employees is recognized as expense over the period in which the related goods or services are rendered. The determination of the fair value of stock awards includes the use of option pricing models and the use of the following estimates: expected volatility, expected option life and expected interest rates.


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Revenue Recognition

Revenue from subscribers consists of our monthly subscription fee (including the music royalty fee), which is recognized as the service is provided, and a non-refundable activation fee that is recognized on a pro-rata basis over an estimated term of the subscriber relationship (currently 20 months), which is based upon management’s analysis of historical churn rates. We continually review this estimate. If the actual term of our subscriber relationships is significantly greater than our current estimate of 20 months, the period over which we recognize the non-refundable activation fee will be extended to reflect the actual term of our subscriber relationships. Fees received in advance are recognized as deferred revenue. Sales incentives, consisting of discounts and rebates to subscribers, offset earned revenue.

Income taxes

Estimation of income taxes involve evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The Company’s assessment is based upon existing tax laws and estimates of future taxable income based on long-term revenue and costs projections taken in account current contractual arrangements. As at August 31, 2012, the Company has recognized deferred tax assets of $59,858,000 on the basis that realization of the tax benefit is probable. The Company’s long-term outlook may change due to a change in factors such as vehicle sales in Canada, competitive pressures, or the regulatory environment. A change in one or more of these factors may result in a change in the Company’s taxable income, or its ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or less of the tax deductions as deferred tax assets, which would decrease or increase the income tax expense in the period in which this is determined. At August 31, 2012, the Company has not recognized deferred income tax assets associated with $163,294,000 of losses available for carry-forward, as the Company does not have sufficient evidence that it can generate sufficient taxable income to recover those losses in the foreseeable future. At August 31, 2012, taxation years dating back to the period ended August 31, 2006 are open for review at the discretion of various taxation authorities. Filing positions with respect to amounts reported in the returns for the open taxation years are subject to audit uncertainties.

Disclosure Controls and Procedures

Management has designed disclosure controls and procedures to provide reasonable assurance that material information relating to the Company is made known to it by others. As at August 31, 2012, the Chief Executive Officer and the Chief Financial Officer, with participation of the Company’s management, have concluded that the design and operation of the Company’s disclosure controls and procedures were effective to provide that information required to be disclosed by the Company in reports that it files or submits under the applicable Canadian securities laws is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Due to the inherent limitations in control systems and procedures, their evaluation can provide only reasonable, not absolute, assurance that such disclosure controls and procedures are operating effectively. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.


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Changes in Internal Control over Financial Reporting

During the three months ended August 31, 2012, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

International Financial Reporting Standards (“IFRS”)

In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to adopt IFRS, for interim and annual reporting purposes, for fiscal years beginning on or after January 1, 2011. The Company was required to begin reporting under IFRS for the first quarter of fiscal 2012, with a Transition Date of December 1, 2011. Our first annual IFRS financial statements will be for the year ending August 31, 2012 and will include the comparative period for the year ended August 31, 2011. We have provided unaudited consolidated quarterly financial information in accordance with IFRS including comparative figures for the three months and year ended August 31, 2011. Please refer to Note 5 to our August 31, 2012 Audited Consolidated Financial Statements for a summary of the differences between our financial statements previously prepared under Canadian GAAP and to those under IFRS at August 31, 2011 and the three and year ended August 31, 2011. Accounting standards issued but not yet applied

Certain pronouncements were issued by the IASB or IFRIC that will be effective for accounting periods beginning on or after January 1, 2013. Unless otherwise noted, the following revised standards and amendments are effective for the annual periods beginning on or after January 1, 2013 with earlier application permitted. The Company has not yet assessed the impact of these standards and amendments or determined whether it will early adopt them.

IFRS 9 IFRS 9 – Financial Instruments (Classification and Measurement)

IFRS 9 replaces the guidance on “classification and measurement” of financial instruments in IAS 39 – Financial Instruments – Recognition and Measurement. The new standard requires a consistent approach to the classification of financial assets and replaces the numerous categories of financial assets in IAS 39 with two categories, measured at either amortized cost or at fair value.

IFRS 10 IFRS 10 – Consolidated Financial Statements

IFRS 10 replaces the guidance on “consolidation” in IAS 27 – Consolidated and Separate Financial Statements and Standing Interpretations Committee (“SIC”) 12 – Consolidation – Special Purpose Entities. The new standard contains a single consolidation model that identifies control as the basis for consolidation for all types of entities, including special purpose entities. The new standard also sets out requirements for situations when control is difficult to assess, including circumstances in which voting rights are not the dominant factor in determining control.


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IFRS 13 IFRS 13 – Fair Value Measurement

IFRS 13 defines “fair value” and sets out in a single standard a framework for measuring fair value and requires disclosures about fair value measurements. The new standard reduces complexity and improves consistency by clarifying the definition of fair value and requiring its application to all fair value measurements.

IAS 1 IAS 1 – Presentation of Financial Statements

IAS 1 was amended to require entities to group items presented in “other comprehensive income” into two categories. Items will be grouped together based on whether those items will or will not be classified to profit or loss in the future.

Risk and Uncertainties

This section outlines some of the risks that could affect our business, financial condition and results of operations and should be considered in connection with any forward looking statements in this document. These risk factors below are selected and have been updated from the risks itemized in our Annual Information Form (AIF) for the fiscal year ended August 31, 2012. Readers are advised to review these risk factors for a detailed discussion of the risks and uncertainties affecting the Company’s business.

The Company relies on its relationship with SXM for the provision of satellite radio service

The Company has various agreements with SXM to provide satellite digital audio radio services, or SDARS, in Canada. Its success as a business depends on SXM’s cooperation and its programming content, satellite network and underlying technology, as well as SXM’s operational and marketing efficacy, competitiveness, finances, regulatory status and overall success in the U.S. Because of the Company’s dependency on SXM, should SXM’s business suffer as a result of increased competition, increased costs of programming, satellite malfunctions, regulatory changes, adverse effects of litigation or other factors, its business may suffer as well. Furthermore, a breach of its agreement with SXM or a failure by SXM to perform its part of the agreement would have detrimental financial consequences to the Company’s business. Although not material for several years, we may not be able to renew or extend our agreements with SXM on favorable terms.

Economic conditions may adversely affect the Company’s financial results and financial position

The Company’s business plans contain assumptions predicated on an economy that is expected to improve as it pertains to vehicle sales. However there are no assurances that our assumptions will materialize. The Company’s ability to continue to generate solid revenue growth and year-over-year improvement in financial results may be negatively affected should Canadian demand for automobiles equipped with the satellite receiver decline in a significant manner.

Competition from traditional and emerging audio entertainment providers could adversely affect our revenues.


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In seeking market acceptance, we encounter competition for both listeners and advertising revenues from many sources including traditional and digital AM/FM radio, Internet-based audio providers; direct broadcast satellite television audio service, and digital cable systems that carry audio service. Our ability to retain and attract subscribers depends on our success in creating and providing popular or unique music, entertainment, news and sports programming. Our subscribers can obtain certain similar content for free through terrestrial radio stations or Internet radio services. Audio content delivered via the Internet, including through mobile devices, is increasingly competitive with our services. A number of automakers and aftermarket manufacturers have introduced, or will shortly introduce, factory-installed radios capable of accessing Internet delivered audio programming and music services

Unlike satellite radio, traditional AM/FM radio already has a well-established and dominant market presence for its services and generally offers free broadcast reception supported by commercial advertising, rather than by a subscription fee. Many radio stations offer information programming of a local nature, such as traffic and weather reports, which we are not permitted to offer under our two CRTC broadcasting licences. To the extent that consumers place a high value on these features of traditional AM/FM radio, we are at a competitive disadvantage to the dominant providers of such audio entertainment services.

Internet radio and music services often have no geographic limitations and can provide listeners with radio programming from across the country and around the world. Major media companies and online-only providers make high fidelity digital streams available over the Internet for free, or in some cases, for less than the cost of satellite radio subscriptions. We expect that improvements in higher bandwidths, faster mobile Internet connections, and evolving features and programming selection will make Internet radio a more significant competitor in the future.

Mobile devices like smartphones and tablets, some of which have the capacity of interfacing with vehicles, have become popular. These smartphones and other devices can typically play recorded or cached content and access Internet radio via dedicated applications or browsers. The Apple iPhone, iPad, and iPod Touch, mobile devices using Google’s Android platform, Microsoft’s Windows Phone platform, and RIM’s Blackberry mobile devices allow their users to download and purchase music through dedicated applications and built-in web browsers. These applications are often free to the user and offer music and talk content as long as the user is subscribed to a sufficiently large mobile data plan. Leading audio smartphone radio applications available in Canada include Slacker, Rdio, Stitcher, and TuneIn Radio. Certain of these applications also include advanced functionality, such as personalization and song skipping, and allow the user to access large libraries of content and podcasts on demand. Although presently available Internet radio and music services have drawbacks such as hardware requirements and download bandwidth and network availability constraints, which we believe make satellite radio a more attractive option to consumers, Internet-based radio and services are becoming increasingly competitive as quality improves and costs are reduced. On October 1, 2012, the Company introduced a new Internet offering, SiriusXM Internet Radio. SiriusXM Internet Radio offers subscribers exclusive Internet channels, and on-demand programming via SiriusXM Internet Radio.

Third generation (“3G”) and Long Term Evolution (LTE) mobile networks have enabled a steady increase in the audio quality and reliability of mobile audio streaming, and this is expected to further increase as LTE networks become the standard. We expect that improvements from higher bandwidths, wider programming selection and advancements in functionality are likely to continue making smartphone applications an increasingly significant competitor.

A number of automakers have deployed or are planning to deploy integrated multimedia systems in dash boards, such as Ford’s SYNC, Toyota’s Entune, and BMW/Mini’s Connected systems. These systems can combine control of audio entertainment from a variety of sources, including traditional radio broadcasts,


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satellite radio, smartphone applications and stored audio, with navigation and other advanced applications. Live Internet radio and other data is typically pulled into the car via a Bluetooth link to an Internet-enabled smartphone, and the entire system may be controlled by touchscreen or voice recognition. Other systems are equipped with their own dedicated mobile Internet connection. These advanced systems enhance the attractiveness of our Internet-based competition by making such applications more prominent, easier to access and safer to use in the car. The audio entertainment industry is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving standards. If we are unable to keep pace with these changes, our business may be unsuccessful. Products using new technologies, or emerging industry standards, could make our services less competitive in the marketplace. Our business depends in large part upon automakers, whose sales are dependent on general macroeconomic conditions. Prior to the Combination Transaction, the Company had entered into several exclusive factory installed arrangements with Canadian auto manufacturers. Sirius also had entered into many multi-year factor installation agreements with Canadian auto manufacturers for factory installation of Sirius satellite radios. The pre-paid or trial subscriptions currently offered to purchasers or lessors of vehicles capable of receiving our Satellite Radio Services varies from three months to one year depending on the particular OEM. As consideration for the installation of Satellite Radio Service receivers in an OEM vehicle, the manufacturer generally receives a share of the revenues generated from subscriptions to the Satellite Radio Services. For more information on our arrangements with automakers, please see “Description of Business – Distribution of Services – Distribution Partnerships – Distribution Partnerships with Automotive OEMs”. We spend a significant amount of money on marketing expenditures towards auto manufacturers’ initiatives, and purchasers of these auto manufacturers’ vehicles represent a substantial proportion of our subscriber base. Subscription growth is dependent, in large part, on sales and vehicle production by automakers. Current economic conditions, should they impact the ongoing recovery of auto sales, may have an adverse impact on subscriber additions in 2013. Our ability to convert customers on trial subscriptions into paying customers may become more difficult due to general economic conditions and consumers’ cautiousness around discretionary purchases. Automotive sales and production are dependent on many factors, including the availability of consumer credit, general economic conditions, consumer confidence, and fuel costs. To the extent vehicle sales by automakers decline or the penetration of factory-installed satellite radios in those vehicles is reduced, subscriber growth for the Company may be adversely impacted.

Higher than expected costs of attracting new subscribers, higher subscriber turnover could each adversely affect our financial performance and operating results.

We are still spending substantial funds on advertising, marketing and subsidizing costs of radio devices in transactions with car and radio manufacturers, retailers and other parties to attract new subscribers. Our ability to achieve sustained positive free cash flow and remain profitable depends on our ability to continue to maintain or lower these acquisition costs. If the costs of attracting new subscribers and retaining subscribers are greater than expected, our financial performance and results of operations could be adversely affected.

We are experiencing, and expect to continue to experience, subscriber turnover, or churn. We cannot predict the amount of churn we will experience over the longer term. If we are unable to retain our current subscribers,


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or the cost of retaining subscribers is higher than we expect, our financial performance and operating results could be adversely affected.

The Company’s cumulative expenditures and losses have been significant

The Company has expended and will continue to expend significant funds for marketing, developing its subscriber management systems, maintaining and enhancing its terrestrial repeater network, programming and distribution contracts, royalty fees and the maintenance of its broadcast and office facilities. In addition, cumulative losses may continue, as the Company incurs expenses to grow its subscriber base. If the Company is ultimately unable to generate sufficient revenues to become profitable and have positive cash flow, investors in the Company could lose their investment.

Demand for our service may be insufficient for us to maintain profitability

We cannot estimate with any certainty whether consumer demand for our service will be sufficient for us to continue to increase the number of subscribers at projected rates or the degree to which we will meet that demand. Among other things, continuing and increased consumer acceptance of our satellite radio service in Canada will depend upon:

the willingness of consumers, on a mass-market basis, to pay subscription fees to obtain satellite

radio service;

the marketing and pricing strategies that the Company employs and that are employed by its

competitors; and

consumer adoption of competing technologies.

If demand for the Company’s service does not continue to increase as expected, it may not be able to generate enough revenues to generate positive cash flow or become profitable.

We must maintain and pay copyright license fees for music rights which may increase and become more costly than expected.

We require music royalty arrangements with the following Canadian copyright collectives in order to operate our service: the Society of Composers, Authors and Music Publishers of Canada/Société canadienne des auteurs, compositeurs et éditeurs de musique (SOCAN), The Re:Sound, formerly the Neighbouring Rights Collective of Canada (NRCC), CSI Inc., the joint venture of The Canadian Musical Reproduction Rights Agency Ltd. (CMRRA) and The Society for the Reproduction Rights of Authors, Composers and Publishers in Canada Inc./Société du droit de reproduction des auteurs, compositeurs, et éditeurs au Canada (SODRAC) Inc. SOCAN administers the public performance right with respect to musical works. Re:Sound administers the right to equitable remuneration for the public performance of sound recordings. CSI administers the reproduction right with respect to musical works. The Company’s online offerings are subject to SOCAN Tariff 22.D, which was certified for the years 1996-2006. The Company continues to pay copyright royalties for its online use of music at the rates set out in the Tariff 22.D. SOCAN has since submitted successor tariffs for the subsequent years. SOCAN’s proposed rates are higher than the current Tariff 22.D rate.

Re:Sound does not yet have a certified royalty rate for the public performance of sound recordings via the Internet. It has submitted proposed rates for the years 2009, 2010, 2011, 2012, and 2013. Re:Sound’s proposed rates are very high and it is not clear whether Re:Sound’s proposed tariff captures our online activities.


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During the financial year, Parliament passed Bill C-11, an Act to amend the Copyright Act. Currently, makers of United States sound recordings are not entitled to equitable remuneration under Canadian copyright law. As a result, the Company is not required to pay Re:Sound for the use of American sound recordings by the Satellite Radio Services and in its online activities. Bill C-11, when enacted, may accord a right of equitable remuneration with respect to U.S. sound recordings. If C-11 were to accord such a right, the royalties the Company pays to Re:Sound would likely increase.

Foreign currency risk

The Company is exposed to fluctuations of the Canadian dollar in relation to the US dollar due to its current liabilities in respect of the NHL and other payments to SXM, which are denominated in US dollars. Management has not engaged in mitigating this risk through formal hedging strategies. A one percent change in the exchange rate represents less than $0.3 million impact to the cash flows of the Company.

In addition to above mentioned risks, the Company also faces risks of disruption to its network infrastructure of terrestrial repeaters due to natural disasters; risks of adverse impact of litigation, claims, copyright and other infringements, risks related to change in regulation and consumer protection laws, and piracy of its content.

Readers are advised to review the risk factors itemized in our Annual Information Form (AIF) for the fiscal year ended August 31, 2012 for a detailed discussion of the risks and uncertainties affecting the Company’s business.

Outstanding Share Data and Other Information

The Company is authorized to issue an unlimited number of Class A Subordinate Voting Shares, an unlimited number of Class B Voting Shares and an unlimited number of Class C non-voting shares. As at November 14, 2012, there were 61,194,252 fully paid and non-assessable Class A Subordinate Voting Shares and 185,879,935 fully paid and non-assessable Class B Voting Shares outstanding. There are currently no Class C non-voting shares outstanding. A total of 2,655,625 stock options were outstanding under the Company’s stock option plan. Additional information concerning the Company, including our Form Annual Information Form (AIF) for the fiscal year ended August 31, 2012, is available on SEDAR at www.sedar.com.

Definitions of Industry Terminology

In addition to our results reported in accordance with IFRS, we use certain non-GAAP financial indicators, including non-GAAP Combined information and operating measures for internal planning purposes and as a basis for investors and analysts to evaluate and compare the periodic operating performances and value similar companies in our industry, although our metrics may not be comparable to similarly titled metrics of other companies. Subsequent to the closing of the merger, the Company conducted a metrics review and realignment exercise. Therefore, some metrics may not be comparable to metrics disclosed publicly by the Company prior to the consummation of the merger. Provided below are the definitions of metrics.

(a) Average Monthly Subscription Revenue Per Subscriber (ARPU): derived from the total of earned subscription revenue and the music royalty fee and activation fees, divided by the monthly

http://www.sedar.com/


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weighted average number of Self-Paying subscribers and a portion of the Paid-Promotional Subscribers where consumers have already started to consume their promotional service. ARPU is a measure of operational performance and not a measure of financial performance under IFRS. We believe ARPU is a useful measure of our operating performance and is a significant basis used by management to measure the operating performance of our business. This non-GAAP measure, which uses certain revenue line items from our Consolidated Statement of Operations and Comprehensive Income, should be used in addition to, but not as a substitute for, the analysis provided in the Consolidated Statement of Operations and Comprehensive Income. ARPU may fluctuate based on promotions, changes in our subscription rates, as well as the adoption rate of annual and multi-year prepayment plans, multi-radio discount plans (such as the family plan), commercial plans and premium services.

(b) Cost Per Gross Addition (CPGA): includes the amounts in SAC, as well as marketing, which includes advertising, media and other discretionary marketing expenses divided by the number of total gross additions excluding Non-Paid Promotional subscribers. CPGA costs do not include the costs of marketing staff. CPGA is a measure of operational performance and not a measure of financial performance under IFRS. We believe CPGA is a useful measure of our operating performance and is a significant basis used by management to measure the operating performance of our business. This non-GAAP measure, which uses certain expense line items from our Consolidated Statement of Operations and Comprehensive Income, should be used in addition to, but not as a substitute for, the analysis provided in our financial statements.

(c) Monthly customer care and billing costs per Self-Paying Subscriber: is calculated by dividing the total customer care and billing costs by average self-paying subscribers for the period.

(d) OEM: refers to original equipment manufacturer. OEM, as it relates to the Company’s satellite radio business, includes automotive manufacturers with which the Company has a contractual agreement in place to factory install a satellite radio in the particular manufacturer’s vehicles.

(e) Self-pay churn: is defined as Self-Pay Subscriber deactivations for the period divided by the average number of Self-Pay Subscribers for the period divided by the number of months in the period.

(f) Subscribers:

a. Self-Paying Subscribers: subscribers who are receiving and have paid or agreed to pay for our satellite radio service by credit card, prepaid card or invoice.

b. Paid-Promotional Subscribers: Subscribers currently in a trial period and vehicles factory-activated with one of the Sirius XM Canada services, whereby automakers have agreed to pay for all or a portion of the trial period service.

c. Non-Paid Promotional Subscribers: subscribers currently in a trial period and vehicles factory-activated with one of the Sirius XM Canada services, whereby the Company has agreed to compensate certain automakers to install satellite radios and the automakers have agreed to promote the trial period service to the consumer. Automakers are not paying for any portion of the trial period service.

(g) Subscriber Acquisition Costs (SAC): includes Subsidies costs and net costs related to equipment sold directly to the consumer divided by total gross additions excluding the Non-Paid Promotional


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Subscribers for the period. SAC is a measure of operational performance and not a measure of financial performance under IFRS. Management believes SAC is a useful measure of the operating performance of the business. This non-GAAP measure, which uses certain expense line items from our Consolidated Statement of Operations and Comprehensive Income, should be used in addition to, but not as a substitute for, the analysis provided in the Consolidated Statement of Operations and Comprehensive Income. In our financial statements, most of our Subscriber Acquisition Costs are captured in the marketing section.

(h) Subscription Revenue: consists primarily of monthly subscription fees (including Music Royalty Fee) for our satellite radio service charged to consumers, commercial establishments and businesses that purchase or lease vehicles for use in their business and is recognized as the service is provided. Promotions and discounts are treated as a reduction to revenue over the term of the plan purchased by the Subscriber. Subscription revenue growth is predominantly driven by growth in our subscriber base but is also affected by fluctuations in the percentage of subscribers in our various discount plans, family plans as well as changes in our subscription rates.

Non-GAAP Financial Measures

(a) EBITDA: is defined as earnings before interest income and expense, taxes, amortization, loss on revaluation of derivative and foreign exchange gains and losses.

(b) Adjusted EBITDA: is defined as earnings before severance and merger costs and write-downs as a result of merger, stock-based compensation, interest income and expense, taxes, amortization, fair value adjustments arising due to purchase price accounting, loss on revaluation of derivative and foreign exchange gains and losses.

(c) Free Cash Flow: is defined as cash provided before financing activities on the Company’s Consolidated Statement of Cash Flows.

(d) Fixed Cash Operating Expense: is defined as summation of the following expense items: broadcast and operations, programming and content, general and administrative, information technology, marketing support, and marketing. The costs are not dependent of the total number of subscribers and are considered by management to be generally fixed or contractual in nature.

(e) Cost Of Revenue: includes revenue share and royalties, customer care and billing operations expenses, cost of merchandise, broadcast and operations expenses and programming and content expenses.

management’s discussion and analysis€¦ · the comparative twelve month period does not conform...

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