CNN. the heat CHANNEL CFL ELVIS. Liquid Metal. electric. deep tracks. area. msnbc FACTION STUDIO. 54The Spectrum STARS E STREET RADIO.

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1 MARTHA STEWART The Highway T OWN HALL Pearl Jam Met Opera INDIE EWTN PINK FLOYD CHANNEL POP2K BBC WORLD SERVICE The Bridge PEARL JAM NPR Talk LOFT E STREET RADIO OCTANE NFL FOX NEWS MAD DOG Radio Margaritaville ALT NATION KIDS BPM SHADE 45 Heart & Bluegrass Junction Jam On Soul RURAL RADIO the coffee spahouse CNN ROAD DOG TRUCKING enlighten SIRIUSXM PATRIOT CNN POTUS the message the WRN ON BROADWAY Disney heat ESPN DOCTOR RADIO JOiNT CBC music sonica SYMPHONY HALL PuLSe HIPHOP NATION ESPN XTRA msnbc E STREET RADIO OUTLAW Caliente NBA 20on20 80son8 THE CATHOLIC CHANNEL SHADE 45 ICEBERG EMINEM JAM SPORTS RADIO Bloomberg RADIO viva The Verge Deep Tracks CANADA LAUGHS ICEBERG Heart & Soul SiriusXM College Sports Nation SiriusXM College Sports Nation Family Talk npr now OutQ CNN THE HIGHWAY AMI NBA NASCAR ICI RaDIO-CaNaDa PreMIère Radio Classics E Street Radio Sirius XM Love ELVIS electric HLN MLB NETWORK RADIO ESPN Radio ESPN s CHANNEL Sports Talk Channel SiriusXM FANTASY SPORTS RADIO Real JAZZ Siriusly Sinatra CFL OPRAH IZOD CANADA RADIO TALKS The Message CNBC Spa BLUEGRASS 50son5 FOXXHOLE JUNCTION ICI RaDIO-CaNaDa PreMIère PLACE KIRK FRANKLIN S SiriusXM OutQ ON GRATEFUL DEAD CHANNEL attitude BB KING S BLUESVILLE radio 3 FRANCO PEARL JAM HIPHOP FPRAISE POP2K SIRIUS HOWARD ICEBERG Radio Disney GRATEFUL DEAD NATION 90s on 9 XM PUBLIC CHILL the blend LAUGH USA ICEBERG First Wave STERN RADIO SYMPHONY ALT NATION HALL NHL NETWORK RADIO FOX Elvis Blue Collar Comedy LATITUDE FRANCO Classic BBC ESCAPE spa SIRIUS MLB SIRIUS XM bpm CBC NEWS xmu NETWORK BONE YARD CANADA radio one REWIND SPORTS Heart & Soul 360 SPORTS LATITUDE FRANCO LIQUID METAL AMI ZONE PLAYBYPLAY Chansons THE SPECTRUM Vivid HAIR NATION WATERCOLORS RAW Radio MET OPERA RADIO DOG On Broadway UNDERGROUND GARAGE Chansons MULTICULTURAL radio E STREET RADIO Patriot COMEDY Liquid Metal PRIME COUNTRY deep tracks area FACTION STUDIO spa LITHIUM 54The Spectrum STARS 70s on 7JOINT FOX Blue Collar BUSINESS Ozzy s Boneyard MSNBC Chansons escape C-SPAN RADIO LAUGH USA Deep Track the PuLSe Faction VIVID RADIO 60son6 VILLAGE THE LOFT Joint CNN CINEMAGIC OUTLAW COUNTRY B.B. KING S BLUESVILLE The Spectrum COMEDY CHILL electric area CENTRAL Entertainment RADIO OUTQ ELVIS RADIO PRIME COUNTRY RADIO 40s on 4 the LOFT Octane POTUS The Bridge the CATHOLIC viva the heat the JOiNT SIRIUS XM CHILL bpm NFL THE OPIE & ANTHONY CHANNEL SIRIUS XM FC bpm 1 st WAVE THE Highway HAIR NATION EWTN OZZY s BONEYARD SOUL TOWN BACK SPIN Classıc vinyl Elvis RADIO THE SPECTRUM THE GROOVE K CFL INDIE SIRIUS XM HITS 1 Annual Report 2013 Sirius XM Canada Holdings Inc. CANADA

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3 Dear Shareholders, 2013 was a successful year for SiriusXM Canada, one in which we met or exceeded all of the goals we set. We grew subscribers, launched our pre-owned vehicle program, secured renewals with the CRTC and a major OEM partner, and released our streaming technology platform ( Satellite 2.0 ) offering. We achieved record levels of revenue, adjusted EBITDA 1 and free cash flow, and exited the year with a strong balance sheet to help support our growth efforts. Our strong operational and financial performance enabled us to pay $54 million in shareholder dividends. These dividends, coupled with strong price appreciation that saw our share price almost double during the course of the year, provided our shareholders with a substantial total return. While we are proud of the progress we have made over the last year, we are now turning our full attention to the growth potential of our business for fiscal 2014 and beyond. Our strategic priorities remain largely intact, and our ability to achieve them will be paramount to our success. Growing Subscribers Our subscribers are the backbone of our business and we continue to develop innovative ways to keep them engaged and entertained. Since the merger of Sirius Canada and XM Canada two years ago, we ve recorded a net increase of more than 440,000 total subscribers. This is a significant number and a testament to the execution of our overall strategy and the value of our service offerings. With more than 2.4 million Canadians subscribing to satellite radio, SiriusXM Canada is the largest media subscription business in the country 2. Rising penetration rates, as our satellite receivers were integrated into more new vehicle models, played a key role in our subscriber growth in fiscal Since 2009 our penetration rate has increased from 33% to 58%. Now, more than 250 vehicle models are currently factory-installed with SiriusXM satellite receivers. Capitalizing on the Pre-Owned Vehicle Opportunity Our expansion into the pre-owned vehicle market has been a success so far. Since the launch in Q2 of fiscal 2013, we have enrolled more than 800 franchised dealers in the program. This represents a significant opportunity for us, given that this pre-owned market is twice the size of the new vehicle market. And it s only going to get bigger. New satellite-enabled vehicles that roll off the line today become a pre-owned vehicle opportunity down the road. Currently, there are approximately five million satelliteradio-enabled vehicles on the road in Canada. This number is expected to exceed ten million by the end of We have plans to drive penetration and conversion within this market; the aforementioned franchise dealers and non-franchised dealers will be our primary focus in the near term. A longer-term goal is to expand the program to include one-to-one sales for vehicles that are sold privately through various internet-based portals. Delivering Strong Financial Results Our strong financial results are a direct reflection of the steady rise in subscribers, a key growth lever for SiriusXM Canada. Year-over-year, revenue increased $29.3 million, or 11 percent, to $288.9 million. This year, we grew Adjusted EBITDA 48 percent to a record $68.7 million. We also achieved our first full year of positive net income with $12.2 million reaching the bottom line. Finally, free cash flow growth of 35 percent was also impressive, rising to $49.6 million in fiscal Our strong financial performance enabled us to return capital directly back to shareholders. This year, we announced a special one-time dividend, and implemented a regular quarterly dividend, which we subsequently increased 27 percent during the year, returning a total of $54 million back to shareholders. 1. Adjusted EBITDA is defined as earnings before integration, severance and merger costs, stock-based compensation, interest income and expense, taxes, amortization, fair value adjustments arising due to purchase price accounting, gain on revaluation of derivative, and foreign exchange gains and losses. 2. As per available information, October Data excludes the non-comparable business segments of the above companies (i.e., Wireless and Wireline) and compares the relevant segments only. Source Various company filings.

4 More Content, More Places, More Control Our ability to provide subscribers with entertainment that is unmatched is critical to our success. We will continue to provide our subscribers with the exclusive, world-class and compelling content they love. While we believe the car will always be a pillar of strength for us, with the launch of Satellite 2.0 we continue to offer our subscribers more ways to connect with our content, including on smartphones and tablets and through our new browser-based player and mobile apps. We re focused on providing access to our content on all types of devices, anytime, anywhere. Lastly, we re giving our subscribers the ability to personalize our content with innovative new tools and features. With the advent of MySXM, our subscribers now have more control than ever over the content they love. Make no mistake: we have a strong competitive position in the entertainment market. We have exclusive and compelling content, available on a broad range of devices with the ability to customize the listening experience. We give our subscribers what they want, where they want it, and how they want it. Market Recognition While our record financial results may speak for themselves, we were extremely pleased to receive additional industry recognition. In February 2013, for the fourth consecutive year, we were named as one of Canada s Best Managed Companies. This designation, bestowed by Deloitte, CIBC Commercial Banking, National Post, Queen s School of Business and MacKay CEO Forums, honours Canadian companies that have demonstrated exceptional business results following a rigorous and independent evaluation process. We were also recognized by Profit Magazine as one of Canada s 500 fastest growing companies based on five-year revenue growth and Beyond There is no doubt that our market will continue to evolve. Over the last 10 years, we have been witness to remarkable change within our industry. The result is a wide array of choice for consumers. Within this changing landscape, we are proud of what we have achieved and excited by the opportunities in front of us. With our growing subscriber base, recurring revenue stream, strong cash flow, exclusive content portfolio, and market leading technology, we are in an enviable competitive position; one capable of providing our current and future subscribers with an unmatched entertainment experience and our shareholders with a solid return on investment. I would like to thank our business partners, our Board of Directors, and our employees for their unwavering support and dedication over the last year. To all of our shareholders and prospective shareholders, I look forward to updating you on our progress as fiscal 2014 unfolds. Sincerely, Mark Redmond President and Chief Executive Officer Forward-Looking Statements Certain statements included in this letter may be forward-looking in nature. Such statements can be identified by the use of forward-looking terminology such as expects, may, will, should, intend, plan, or anticipates or the negative thereof or comparable terminology, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact, including with respect to future performance. Statements regarding our past performance should not be interpreted as projections or forecasts of future performance. Although SiriusXM Canada believes that the expectations reflected in forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct, including with respect to the ability of the Company to pay dividends in the future. SiriusXM Canada s forward-looking statements are expressly qualified in their entirety by this cautionary statement. SiriusXM Canada makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as required by applicable law. Additional information identifying risks and uncertainties is contained in Sirius XM Canada Holdings Inc. s filings with the Canadian securities regulators, available at

5 MARTHA STEWART The Highway T OWN HALL Pearl Jam Met Opera INDIE EWTN PINK FLOYD CHANNEL POP2K BBC WORLD SERVICE The Bridge PEARL JAM NPR Talk LOFT E STREET RADIO OCTANE NFL FOX NEWS MAD DOG Radio Margaritaville ALT NATION KIDS BPM SHADE 45 Heart & Bluegrass Junction Jam On Soul RURAL RADIO the coffee spahouse CNN ROAD DOG TRUCKING enlighten SIRIUSXM PATRIOT CNN POTUS the message the WRN ON BROADWAY Disney heat ESPN DOCTOR RADIO JOiNT CBC music sonica SYMPHONY HALL PuLSe HIPHOP NATION ESPN XTRA msnbc E STREET RADIO OUTLAW Caliente NBA 20on20 80son8 THE CATHOLIC CHANNEL SHADE 45 ICEBERG EMINEM JAM SPORTS RADIO Bloomberg RADIO viva The Verge Deep Tracks CANADA LAUGHS ICEBERG Heart & Soul SiriusXM College Sports Nation SiriusXM College Sports Nation Family Talk npr now OutQ CNN THE HIGHWAY AMI NBA NASCAR ICI RaDIO-CaNaDa PreMIère Radio Classics E Street Radio Sirius XM Love ELVIS electric HLN MLB NETWORK RADIO ESPN Radio ESPN s CHANNEL Sports Talk Channel SiriusXM FANTASY SPORTS RADIO Real JAZZ Siriusly Sinatra CFL OPRAH IZOD CANADA RADIO TALKS The Message CNBC Spa BLUEGRASS 50son5 FOXXHOLE JUNCTION ICI RaDIO-CaNaDa PreMIère PLACE KIRK FRANKLIN S SiriusXM OutQ ON GRATEFUL DEAD CHANNEL attitude BB KING S BLUESVILLE radio 3 FRANCO PEARL JAM HIPHOP FPRAISE POP2K SIRIUS HOWARD ICEBERG Radio Disney GRATEFUL DEAD NATION 90s on 9 XM PUBLIC CHILL the blend LAUGH USA ICEBERG First Wave STERN RADIO SYMPHONY ALT NATION HALL NHL NETWORK RADIO FOX Elvis Blue Collar Comedy LATITUDE FRANCO Classic BBC ESCAPE spa SIRIUS MLB SIRIUS XM bpm CBC NEWS xmu NETWORK BONE YARD CANADA radio one REWIND SPORTS Heart & Soul 360 SPORTS LATITUDE FRANCO LIQUID METAL AMI ZONE PLAYBYPLAY Chansons THE SPECTRUM Vivid HAIR NATION WATERCOLORS RAW Radio MET OPERA RADIO DOG On Broadway UNDERGROUND GARAGE Chansons MULTICULTURAL radio E STREET RADIO Patriot COMEDY Liquid Metal PRIME COUNTRY deep tracks area FACTION STUDIO spa LITHIUM 54The Spectrum STARS 70s on 7JOINT FOX Blue Collar BUSINESS Ozzy s Boneyard MSNBC Chansons escape C-SPAN RADIO LAUGH USA Deep Track the PuLSe Faction VIVID RADIO 60son6 VILLAGE THE LOFT Joint CNN CINEMAGIC OUTLAW COUNTRY B.B. KING S BLUESVILLE The Spectrum COMEDY CHILL electric area CENTRAL Entertainment RADIO OUTQ ELVIS RADIO PRIME COUNTRY RADIO 40s on 4 the LOFT Octane POTUS The Bridge the CATHOLIC viva the heat the JOiNT SIRIUS XM CHILL bpm NFL THE OPIE & ANTHONY CHANNEL SIRIUS XM FC bpm 1 st WAVE THE Highway HAIR NATION EWTN OZZY s BONEYARD SOUL TOWN BACK SPIN Classıc vinyl Elvis RADIO THE SPECTRUM THE GROOVE K CFL INDIE SIRIUS XM HITS 1 Management s Discussion and Analysis CANADA

6 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 Sirius XM Canada Holdings Inc. ( SXM, we, us, our or the Company ). This MD&A which is current as of November 14, 2013, should be read in conjunction with the Company s audited Consolidated Financial Statements dated August 31, 2013 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. The Class A Subordinate Voting Shares of SXM trade on the Toronto Stock Exchange (TSX) under the stock symbol XSR. 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 ); 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; General economic conditions 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, 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 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, 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. 1 Sirius XM Canada Holdings Inc. Annual Report 2013

7 Management s Discussion and Analysis Year Ended August 31, 2013 This MD&A contains the following sections: Forward-Looking Disclaimer... 1 Overview... 2 Developments during the Year... 4 Financial and Operational Highlights... 5 Summary of Financial and Operating Results... 7 Discussion of Financial and Operating Results Liquidity and Capital Resources Off-Balance Sheet Arrangements Arrangements, Relationships and Transactions with Related Parties Critical Accounting Estimates and Judgments International Financial Reporting Standards ( IFRS ) Risks and Uncertainties Outstanding Share Data and Other Information Definitions of Industry Terminology Non-GAAP Financial Measures Overview Our Business and Strategy SXM is one of the largest Canadian subscription based media companies as measured by the number of subscribers, with 2.4 million subscribers 1. We have the second highest radio revenues of any company in Canada with an estimated 14% market share 2. 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 a cost effective manner, retaining subscribers through enhancing the value proposition to our subscribers and improving business efficiencies. Satellite Radio in Canada offers 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, Montreal and Vancouver. We continue to leverage our unique programming assets, such as our broadcasting agreement with the Canadian Broadcasting Corporation ( CBC ) and the Canadian Football League ( CFL ). The Company also has access to content through agreements between Sirius XM Radio Inc. and the National Hockey League ( NHL ), the National Football League ( NFL ), Major League Baseball ( MLB ), Oprah Winfrey, Howard Stern, NASCAR, the Professional Golfers Association of America ( PGA ) and others. In-Vehicle: New and used car strategy From an in-vehicle perspective the Company has a two-pronged strategy based on both new and pre-owned vehicles to increase subscribers. Our target market in Canada includes more than 23 million registered vehicles on the road, and approximately 1.77 million new vehicles forecasted to be sold in calendar year Currently all major automobile manufacturers in Canada have agreements with SXM 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 1 As per available information, October Data excludes the non-comparable business segments of the above companies (i.e. Wireless and Wireline) and compares the relevant segments only. Source Various company filings. 2 Based on the CRTC s Communication Monitoring Report, published September DesRosiers automotive report published in September Sirius XM Canada Holdings Inc. Annual Report

8 Management s Discussion and Analysis Year Ended August 31, 2013 Canada. The Satellite radio service is expected to be factory-installed in approximately 58% of new vehicles to be sold in model year Currently it is estimated that there are approximately 5.0 million satellite radio enabled vehicles in the marketplace as at August 31, Aftermarket and other platforms Along with the in-vehicle experience, consumers can also enjoy satellite radio out of their vehicles, using portable radio receivers, by streaming content to the home, on their desktops and using apps built for mobile devices. SXM satellite radio receivers are available at leading retailers across Canada such as Best Buy, Canadian Tire, Costco, Future Shop, The Source, Wal-Mart, Target and other national, regional and independent retailers. Base and Premier services Our primary source of revenue is subscription fees, with most of our customers subscribing on a multi-year, annual, quarterly, or monthly basis. Discounts are offered for long-term, prepaid subscription plans, as well as discounts for multiple subscriptions. 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 website, and other ancillary services such as data and weather services. As indicated below, the Company now offers a range of additional services in addition to its base subscription offering. 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 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 subsidy 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 operating income, EBITDA, Free Cash Flow and other financial metrics may vary on a quarterly basis. Strategic Goals While we intend to continue our efforts to minimize costs in all areas of the business, our strategic priorities are to grow the subscriber base through initiatives in three areas: New vehicles, pre-owned vehicles and advanced technologies related to the SXM 2.0 architecture and increase profitability and free cash flow. Acquiring subscribers through the new vehicle segment of the market remains our most attractive and significant opportunity to grow our subscriber base. The company is expected to benefit from strong fundamentals that underpin new vehicle sales which are expected to generate steady growth of approximately 2% to 3% over the next few years, according to industry consultant DesRosiers Automotive. Our goal is to increase penetration from the current level of approximately 58% to above 60% in the next couple of years. Pre-owned vehicles have now emerged as a new and important opportunity for us. As initial purchasers begin to trade in their satellite-radio equipped models for newer vehicles this leaves a significant number of satellite-equipped used vehicles. The market for pre-owned vehicles can be divided in three categories: Certified Pre-owned ( CPO ), Franchised Dealers and Non-Franchised & Private Sales. Our focus will be on the CPO and Franchised Dealers categories as these areas provide the most significant opportunities given they have a higher proportion of vehicles equipped with a satellite receiver. We continue to work hard to sign up both CPO programs with OEM partners and franchised dealers. On the franchised dealer side, our focus is on high-volume, high-vehicle penetration dealers these are the dealers that really have the opportunity to grow trial subscribers in SiriusXM satellite equipped vehicles. In the CPO segment, we anticipate adding an additional ten partners in 2014 in addition to the current three we already have. On the Franchised Dealers side we have over 800 dealers that are now actively participating in the program. 3 Sirius XM Canada Holdings Inc. Annual Report 2013

9 Management s Discussion and Analysis Year Ended August 31, 2013 Our third strategic imperative is continued innovation to ensure we remain relevant as the market for audio entertainment evolves. We will continue to make investments in several areas of the business to ensure our subscribers can consume our content via both satellite and Internet Protocol ( IP ) delivered technologies. We believe SiriusXM s two platforms (Satellite and IP) and service provides a significant advantage over IP-only competitors. Developments during the Year Dividend Policy, Initiation of Quarterly Dividends and Special Dividend To return value to the shareholders, on November 16, 2012, the Board of Directors instituted a dividend policy and announced a special dividend and initiation of quarterly dividends equal to $ to all issued and outstanding Class A Subordinate Voting Shares ( Class A Shares ) and Class C Non-Voting Shares ( Class C Shares ) and one-third of $ to Class B Voting Shares ( Class B Shares ). After four dividend payments, including the special dividend, On July 10, 2013, the Board of Directors announced an increase in the quarterly dividend payable under the policy of approximately 27% to $ per Class A Share and Class C Share and $ per Class B Share, which was paid on August 22, Renewal of CRTC License On November 16, 2012, the Canadian Radio-television and Telecommunications Commission (CRTC) renewed the Company s broadcast license for a six-year period expiring on August 31, The CRTC granted the Company s request to operate under a unified license for both the XM and Sirius broadcasting undertakings. Under the renewed terms of the license, the Company must contribute to eligible initiatives under the CRTC s Canadian Content Development (CCD) framework; previously the Company had contributed under the former Canadian Talent Development (CTD) regime. The Company s CCD contribution obligations have been lowered to 4% of eligible revenues, from a 5% CTD contribution requirement under the previous license. This renewal provides cost visibility with regards to these fees for a six-year period and improves the Company s cost structure. Premier Programming and price increase 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. During the first quarter, the Company also introduced Premier Programming for subscribers. New Premier subscriptions offer Sirius subscribers the ability to access an array of premium XM content including the NHL, PGA Tour, Oprah Radio etc., 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 has a bundled price plan at a $21.99 per month. With the launch of Satellite Radio 2.0, the Company enhanced its listener experience with the recent introduction of new internet radio apps for Apple ios and Android with more content, personalization, on-demand functionality and access to more than 200 shows. These apps for Apple ios and Android essentially extend 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 SXM Internet Radio is $4.00 a month with a satellite radio subscription. The Company believes that a combination of the aforementioned price increase as well as incremental charges for both its Premier Programming and Internet Radio service have resulted in a marginal increase to ARPU in fiscal 2013 and have also positively impacted revenue and Adjusted EBITDA, notwithstanding a marginal increase in churn. Sirius XM Canada Holdings Inc. Annual Report

10 Management s Discussion and Analysis Year Ended August 31, 2013 Recognition among Best Managed Companies and 500 Fastest Growing Companies In February 2013, the Company was named as one of the Canada s Best Managed Companies for the fourth consecutive year. The Best Managed award and designation honours Canadian companies that have demonstrated exceptional business results following a rigorous and independent evaluation process. The award is supported by Deloitte, CIBC Commercial Banking, National Post, Queen's School of Business and MacKay CEO Forums. In June, 2013, the Company was recognized as one of the fastest growing companies in Canada (based on five-year revenue growth) by Profit Magazine, which publishes its ranking of the 500 fastest growing companies in Canada. Financial and Operational Highlights The following are highlights for the three months ( quarter ) and year ( full year ) ended August 31, 2013 in comparison to the quarter and full year results for the period ended August 31, Fourth Quarter Ended August 31, 2013 Revenue increased by 11.2% to $75.7 million from $68.1 million; an improvement of $7.6 million; EBITDA 4 improved by 37.8% to $16.1 million from $11.7 million; an improvement of $4.4 million; Adjusted EBITDA 4, 5 improved by 35.6% to $16.6 million from $12.2 million; an improvement of $4.4 million; Operating income improved by 134.7% to $7.1 million from $3.0 million; an improvement of $4.1 million; Net income of $4.1 million compared to a net income of $6.1 million, a reduction of $2.0 million; Earnings per share (EPS) 6 of $0.03 compared to earnings per share of $0.05, a reduction of $0.02 per share. Cash from operations increased by 42.3% to $14.8 million from $10.4 million; an improvement of $4.4 million; Free Cash Flow 4 increased by 14.0% to $9.7 million from $8.5 million; an improvement of $1.2 million. Full Year Ended August 31, 2013 Revenue increased by 11.3% to $288.9 million from $259.6 million; an improvement of $29.3 million; EBITDA increased by 55.8% to $66.2 million from $42.5 million; an improvement of $23.7 million; Adjusted EBITDA increased by 47.6% to $68.7 million from $46.6 million; an improvement of $22.1 million; Operating income improved by 978.6% to $30.7 million from $2.8 million; an improvement of $27.9 million; Net income of $12.2 million compared to a net loss of $4.2 million; an improvement of $16.4 million; Earnings per share 6 of $0.10 compared to a loss per share of $0.03; an improvement of $0.13 per share. Cash from operations increased by 46.7% to $60.3 million from $41.1 million; an improvement of $19.2 million; 4 Non-GAAP measure See definition in the section entitled Non-GAAP Financial Measures. 5 A reconciliation of Operating Income to Adjusted EBITDA (a non-gaap measure) is provided on page 18 under the table entitled Adjusted EBITDA Reconciliation. 6 Earnings per share is based on both Basic and Diluted earnings per share. 5 Sirius XM Canada Holdings Inc. Annual Report 2013

11 Management s Discussion and Analysis Year Ended August 31, 2013 Free Cash Flow increased by 35.4% to $49.6 million from $36.6 million; an improvement of $13.0 million; Ending Self-Paying Subscribers of 1,727,400 and Total Subscribers of 2,427,100. Sirius XM Canada Holdings Inc. Annual Report

12 Management s Discussion and Analysis Year Ended August 31, 2013 Summary of Financial and Operating Results The following tables present a summary of the Company s audited Consolidated Statement of Operations and Balance Sheet as well as financial and operating metrics for the year ended August 31, 2013 ( full year, FY ), the comparative periods ended August 31, 2012 along with the unaudited financial results for the three months ended August 31, 2013 ( Quarter, Q4 ) in comparison to the same period ended August 31, For more details, please refer to the Company s audited Consolidated Financial Statements as of August 31, Statement of Operations and Comprehensive Income (Loss) (in $ 000's, except earnings per share) Three months ended August 31, August 31, Full year ended August 31, August 31, Revenue 75,739 68, , ,620 Operating expenses Operating costs 59,603 56, , ,703 Integration. Severance and merger costs - 2-1,383 Depreciation and amortization 9,065 8,699 35,576 39,689 Operating income 7,071 3,013 30,675 2,844 Finance Costs, net Interest income Interest expense (3,513) (3,984) (15,411) (16,700) Gain on revaluation of derivative 2,240 1,217 2,291 1,213 Foreign exchange (loss) (145) 336 (676) (210) Finance Costs (1,244) (2,299) (13,109) (15,336) Income (Loss) before income tax 5, ,565 (12,492) Income tax (expense) recovery (1,750) 5,402 (5,375) 8,313 Net income (loss) and comprehensive income (loss) 4,078 6,117 12,191 (4,179) Basic and fully diluted (loss) earnings per share (0.03) 7 Sirius XM Canada Holdings Inc. Annual Report 2013

13 Management s Discussion and Analysis Year Ended August 31, 2013 As at Balance Sheet August 31, 2013 August 31, 2012 (in $ 000's) ASSETS Current assets Cash, cash equivalents, and short-term investments 49,236 51,035 Accounts receivable 13,359 12,133 Prepaid expenses 6,779 3,361 Inventory Total current assets 69,609 66,854 Long-term prepaids Property and equipment 5,980 7,617 Intangible assets 152, ,986 Deferred tax asset 54,484 59,858 Goodwill 96,733 96,733 Total assets 379, ,128 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade and other payables 47,145 39,086 Due to related parties 9,621 6,776 Interest Payable 2,704 2,704 Current portion of deferred revenue 144, ,554 Provisions 1,328 1,286 Total current liabilities 205, ,406 Deferred revenue 17,105 21,019 Other long-term liabilities 1,669 6,903 Due to related parties 2,391 1,208 Long-term debt 143, ,993 Provisions Total liabilities 370, ,873 Shareholders' equity Share capital 151, ,393 Contributed surplus 6,161 5,058 Accumulated deficit (149,713) (108,196) Total shareholders' equity 8,243 45,255 Total liabilities and shareholders' equity 379, ,128 Sirius XM Canada Holdings Inc. Annual Report

14 Management s Discussion and Analysis Year Ended August 31, 2013 Summarized Financial Metrics (in $ 000's, except as indicated) Three months ended August 31, August 31, August 31, 2013 Full year ended August 31, 2012 Net Income (loss) 4,078 6,117 12,191 (4,179) EPS (Basic and Diluted) (0.03) EBITDA 16,136 11,712 66,250 42,533 EBITDA margin (%) 21.3% 17.2% 22.9% 16.4% Adjusted EBITDA 16,570 12,220 68,722 46,562 Adjusted EBITDA margin (%) 21.9% 17.9% 23.8% 17.9% Free Cash Flow 9,704 7,292 49,633 36,646 Net debt 7 94,471 93,958 94,471 93,958 Net debt to Adjusted EBITDA (times) As defined in the section entitled Non GAAP Financial Measures 9 Sirius XM Canada Holdings Inc. Annual Report 2013

15 Management s Discussion and Analysis Year Ended August 31, 2013 Discussion of Financial and Operating Results The following table is a summary of the key subscriber metrics that the Company uses to help measure the performance of its operations. Please refer to the section Definitions of Industry Terminology at the end of this MD&A for an overview of the subscriber metrics noted below. Summarized Operating Metrics (in 000's, except as indicated) Three months ended August 31, August 31, Full year ended August 31, August 31, Ending Self-Pay Subscribers 1,727 1,584 1,727 1,584 Ending Total Subscribers 2,427 2,206 2,427 2,206 Average Self Pay Churn (%) 1.78% 1.71% 1.95% 1.92% ARPU ($) $11.72 $11.65 $11.64 $11.60 SAC ($) $40 $46 $44 $49 CPGA ($) $76 $76 $73 $75 Subscriber Data Three months ended August 31, August 31, August 31, 2013 Full year ended August 31, 2012 Beginning Subscribers 2,321,900 2,116,900 2,206,200 1,983,100 Net Additions 105,200 89, , ,100 Ending Subscribers 2,427,100 2,206,200 2,427,100 2,206,200 Self-Paying 1,727,400 1,584,400 1,727,400 1,584,400 Paid Promotional 567, , , ,500 Non Paid Promotional 131, , , ,300 Ending Subscribers 2,427,100 2,206,200 2,427,100 2,206,200 Self -Pay 63,200 77, , ,600 Paid/Non Paid Net Additions 42,000 11,900 77,900 31,500 Total Net Additions 105,200 89, , ,100 The following section compares the results of operations for the quarter ended August 31, 2013 to the quarter ended August 31, Sirius XM Canada Holdings Inc. Annual Report

16 Management s Discussion and Analysis Year Ended August 31, 2013 Subscribers 2,427,100 2,206, , ,800 1,727,400 1,584,400 Q Q Self Paying Paying & Non Paying Promotional As at August 31, 2013, we had total subscribers of 2,427,100, representing 1,727,400 Self-Paying Subscribers and 699,700 Paid Promotional Subscribers and Non Paid Promotional Subscribers. Self-Paying Subscribers increased 9.0% versus the end of the fourth quarter of 2012, driven largely by growth in the number of OEM additions during the period. OEM net additions decreased in the fourth quarter of 2013 compared to the fourth quarter of 2012 due to the effects of higher churn, offset by higher subscribers from both win-back initiatives and the used-car initiative announced earlier during the year. Paid Promotional Subscribers and Non-Paid Promotional Subscribers increased by 12.5% compared to the corresponding period of 2012 due to an increase in the penetration rate and to an increase in vehicle sales of approximately 3.4%. Trial subscribers in the Paid and Non Paying Promotional category serve as the funnel for the net additions in future periods with timing of these additions dependent on the length of the trial period with the OEM, which spans three to twelve months depending on the OEM agreement. Although, the Company continues to grow its subscriber base, the pace of growth of the self-paying base has declined marginally as we attempt to balance both subscriber growth and ARPU in order to maximize revenue and profitability. 11 Sirius XM Canada Holdings Inc. Annual Report 2013

17 Management s Discussion and Analysis Year Ended August 31, 2013 Churn 1.95% 1.92% 1.78% 1.71% Q Q FY 2013 FY 2012 Self-pay monthly churn increased to 1.78% in the fourth quarter of 2013 from 1.71% in the corresponding quarter of 2012 due to a combination of the price change implemented in the first quarter and to changes to the pricing for online listening. For the full year ended August 31, 2013, self-pay monthly churn was 1.95% compared to 1.92% for the year ended August 31, Churn increased year-over-year on a full-year basis due primarily to the base subscription price increase in addition to the changes to the pricing for online listening. ARPU $11.72 $11.65 $11.64 $11.60 Q Q FY 2013 FY 2012 ARPU was $11.72 and $11.65 for the fourth quarters of 2013 and 2012, respectively. The increase in ARPU relative to the comparative quarter last year is due primarily to an increase in the base subscription price and also to onetime credits, somewhat mitigated by the following: Sirius XM Canada Holdings Inc. Annual Report

18 Management s Discussion and Analysis Year Ended August 31, 2013 (i) (ii) (iii) an increase in automotive Self-Paying Subscribers which have a lower ARPU due to higher price discounts being offered to these subscribers; revenue from some customers on lifetime plans being fully amortized; discounted pricing on win-back initiatives. 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 working capital benefit as long term subscriptions are paid for in advance. As the Company continues to increase its subscriber base, it is anticipated that ARPU may fluctuate due to multi-year plans and promotional discounts offered to attract and retain its Self-Paying subscriber base. In 2013, ARPU increased marginally as the positive effects of the pricing changes more than offset the dilutive effects of the items mentioned above. On a full-year basis, ARPU was $11.64 for the period ended August 31, 2013 compared to $11.60 for the period ended August 31, Revenue Revenue includes subscription revenue, activation fees, sale of merchandise through direct fulfillment channels, advertising revenue from Canadian-produced channels and certain other revenue. Revenue also includes the impact of fair value adjustments as a result of purchase price accounting. Revenue ($ millions) $288.9 $259.6 $75.7 $68.1 Q Q FY 2013 FY 2012 Fourth Quarter: Revenue increased by $7.6 million or 11.2%, to $75.7 million in the fourth quarter of 2013 from $68.1 million in the fourth quarter of The increase was attributable to the increase in the subscriber base along with a modest increase in ARPU of 0.6%. Full Year: Revenue increased by $29.3 million or 11.3% to $288.9 million in 2013 from $259.6 million in The increase is due to the Company s larger subscriber base and also to the slight increase in ARPU. 13 Sirius XM Canada Holdings Inc. Annual Report 2013

19 Management s Discussion and Analysis Year Ended August 31, 2013 Operating Expenses Three months ended Full year ended Operating Expenses August 31, 2013 August 31, 2012 August 31, 2013 August 31, 2012 % of % of % of % of (in $000 s) Revenue Revenue Revenue Revenue Revenue share and royalties 23, % 22, % 89, % 84, % Customer care & billing ops 4, % 4, % 19, % 17, % Cost of merchandise 1, % % 3, % 3, % Broadcast and operations % % 1, % 1, % Programming and content 1, % 1, % 7, % 9, % Total cost of revenue 31, % 29, % 121, % 116, % General and administrative 2, % 2, % 8, % 11, % Information Technology 3, % 2, % 11, % 11, % Stock based compensation % % 2, % 1, % Overhead costs 5, % 5, % 22, % 24, % Marketing support 1, % 1, % 7, % 7, % Subsidies and distribution 11, % 11, % 42, % 43, % Marketing 9, % 8, % 28, % 24, % Marketing costs 22, % 21, % 78, % 75, % Total operating expenses 59, % 56, % 222, % 215, % Cost of Revenue Cost of Revenue increased by $1.3 million or 4.2% to $31.2 million in the fourth quarter of 2013 from $29.9 million in the fourth quarter of On a full-year basis, Cost of Revenue increased by $5.7 million or 4.9% to $122.0 million in 2013 from $116.3 million in 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 license payments to Sirius XM, revenue share payments to the OEM partners, CRTC fees, CRTC mandated CCD contributions, and copyright royalties payable to rights holders for the public performance and the reproduction of musical works, performers performances and sound recordings. Fourth Quarter: Revenue share & royalties increased by $0.5 million or 1.9%, to $23.1 million in the fourth quarter of 2013 from $22.6 million in the fourth quarter of Revenue share & royalties increased due to higher revenue in the current quarter offset by a reduction in the CCD rate from 5% to 4% compared to the corresponding period last year. As a percentage of total revenue, revenue share & royalties decreased to 30.5% in the fourth quarter of 2013 from 33.2% in the fourth quarter of The reduction in the CCD rate and the lower overall revenue share rate paid to various automakers were the key drivers in the overall reduction in the revenue share and royalties rate. The Company has revenue sharing arrangements with certain automotive partners with varying rate structures, thus a change in vehicle mix of the underlying subscriber base due to market share changes by OEMs or a change in the rate paid to each OEM will affect the overall revenue sharing rate. Full Year: Revenue share and royalties increased by $5.7 million or 6.7% to $89.9 million in 2013 from $84.2 in Revenue share & royalties increased in 2013 compared to 2012 due to higher revenues in the current year. The increase in revenue share and royalties was mitigated by a lower CCD rate Sirius XM Canada Holdings Inc. Annual Report

20 Management s Discussion and Analysis Year Ended August 31, 2013 and a lower overall revenue share rate paid to various automakers compared to last year. As a percentage of total revenue, revenue share & royalties decreased to 31.1% in 2013 from 32.4% in the same period prior year. 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. Fourth Quarter: Customer care & billing operations costs increased by $0.4 million or 8.4% to $4.8 million in the fourth quarter of 2013 from $4.4 million in the fourth quarter of Customer care & billing operations costs are primarily driven by the volume derived from the Company s growing subscriber base. Full Year: Customer care & billing operations costs increased by $1.8 million or 10.1% to $19.4 million in 2013 compared to $17.6 million in 2012 while Self-Paying subscribers increased 9.0% year-over-year. Customer care & billing operations costs increased as a result of a higher volume of calls due to the larger subscriber base. These costs are primarily driven by the volume derived from the Company s growing subscriber base as well as by incremental costs related to pricing changes implemented during the year. Monthly Customer Care and Billing Costs per Self-Paying Subscriber ($/Sub) Fourth Quarter: As shown below, monthly customer care & billing costs per Self-Paying Subscriber decreased slightly to $0.97 in the fourth quarter of 2013 from $1.00 in the fourth quarter of 2012 as the increase in subscriber growth outpaced the increase in customer care costs as a portion of these costs is fixed and in the short run does not increase with increase as the volume of calls increase. Full Year: Customer care & billing costs per Self-Paying Subscriber decreased to $0.98 in 2013 from $1.00 in 2012 as costs did not increase in proportion to the growth in the subscriber base. Monthly Customer Care and Billing per Self-Paying Subscriber ($/Sub) $0.97 $1.00 $0.98 $1.00 Q Q FY 2013 FY Sirius XM Canada Holdings Inc. Annual Report 2013

21 Management s Discussion and Analysis Year Ended August 31, 2013 Cost of merchandise The Company sells merchandise directly to new subscribers, existing subscribers who purchase additional radios, and to commercial accounts through our online store and call centres. Cost of merchandise consists primarily of the cost of radios, accessories and related fulfillment costs associated with the direct sale of this merchandise. Fourth Quarter: Cost of merchandise increased by $0.4 million or 37.1% to $1.2 million in the fourth quarter of 2013 from $0.8 million in the fourth quarter of These costs are primarily driven by the volume of radios sold, which are mostly affected by promotional programs. Cost of merchandise increased year-over-year primarily due to a 47.0% increase in sales volume. Full Year: Cost of merchandise increased by $0.4 million or 12.1% to $3.4 million in 2013 compared to $3.0 million in Cost of merchandise increased year-over-year due to a 21.0% increase in sales volume. Broadcast & operations Broadcast expenses include costs associated with the management and maintenance of systems, software, hardware, production and performance studios used in the creation and distribution of Canadian-produced channels. Operations expenses include operating costs of facilities, the terrestrial repeater network and information technology expenses related to the broadcast facilities. Fourth Quarter: Broadcast & operations expenses remained unchanged at $0.5 million for the fourth quarters of 2013 and Full Year: Broadcast & operations expenses decreased by $0.1 million or 4.5% to $1.6 million in 2013 from $1.7 million in These expenses declined marginally compared to the same period prior year due to the Company s ongoing efforts to gain efficiencies in all areas of the business. 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 generally runs for a nine-month period beginning in October of each year. Fourth Quarter: Programming & content expenses increased by $0.2 million or 9.4%, to $1.7 million in the fourth quarter of 2013 from $1.5 million in corresponding quarter of The increase is due to additional programming costs associated with the launch of several new Canadian channels, including Canada Talks, Canada Laughs and Multicultural Radio. Full Year: Programming & content expenses decreased by $2.0 million or 21.0% to $7.7 million in 2013 from $9.7 million in The decrease is due to lower costs associated with the NHL license in the current period offset by additional costs associated with the launch of several new Canadian channels. During the year, the Company realized approximately $2.1 million in one-time savings due to the shortened NHL season. Marketing support Marketing support includes staffing costs directly associated with facilitating the sale of radio receivers through third party distribution channels, costs for converting OEM trial customers into Self-Paying Subscribers, retention costs, costs incurred by win-back initiatives and costs associated with marketing the SXM brand. Sirius XM Canada Holdings Inc. Annual Report

22 Management s Discussion and Analysis Year Ended August 31, 2013 Fourth Quarter: Marketing support expenses increased by $0.2 million or 15.7% to $1.7 million in the fourth quarter of 2013 from $1.5 million in the corresponding quarter of 2012 primarily due to higher employee related costs. Full Year: Marketing support expenses increased by $0.3 million or 4.2% to $7.4 million in 2013 from $7.1 million in 2012 due primarily to higher employee related costs. Subsidies These direct costs include the subsidization of radios, commissions paid to retail partners for the sale and activation of radios, chipset costs, warranty costs and certain promotional costs. Fourth Quarter: Subsidy costs decreased by $0.8 million or 7.3% to $11.1 million in the fourth quarter of 2013 from $11.9 million in the fourth quarter of Subsidy costs decreased due to a reduction in hardware costs resulting from of a lower number of radios sold through the retail channel partially offset by higher costs in the OEM channel as a result of a higher number of vehicles installed with satellite receivers compared to the same period prior year. Full Year: Subsidy costs decreased by $0.9 million or 2.1% to $42.9 million in the fourth quarter of 2013 from $43.8 million in the fourth quarter of Higher subsidy costs in the OEM channel resulting from a higher volume of vehicles shipped during the current period versus the comparative period last year were offset by lower average chipset costs and lower costs in the aftermarket channel driven by lower commissions and promotional spending. SAC $40 $46 $44 $49 Q Q FY 2013 FY 2012 Subscriber Acquisition Costs 8 SAC was $40 and $46 for the fourth quarters of 2013 and 2012, respectively. SAC decreased relative to the comparative quarter as a higher proportion of gross additions generated by win-back activities in the current period compared to the corresponding period prior year. The Company does not incur additional subsidy costs for customers acquired through the win-back channel. SAC also decreased as a higher proportion of gross subscriber additions were generated through the OEM channel 8 Subscriber acquisition cost includes subsidy costs and net costs related to equipment sold directly to the consumer divided by total gross additions excluding the Non-Paid Promotional Subscribers for the period. 17 Sirius XM Canada Holdings Inc. Annual Report 2013

23 Management s Discussion and Analysis Year Ended August 31, 2013 where the per-unit cost is lower for subscribers gained through this channel as compared to the per-unit cost in the retail channel. While SAC may fluctuate on a quarterly basis, we anticipate that annual SAC will likely remain within a narrow range going forward. On a full year basis, SAC was $44 and $49 for 2013 and 2012, respectively. SAC decreased during the period as a higher proportion of gross additions was generated through win-back activities in the current year compared to the corresponding period prior year. SAC also decreased on a full-year basis as a higher proportion of gross subscriber additions was generated through the OEM channel where the per unit costs is lower for subscribers gained through this channel as compared to the subscribers gained through the retail channel. Marketing Includes 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. Fourth Quarter: Marketing expenses increased by $1.8 million or 22.9% to $9.8 million in the fourth quarter of 2013 from $8.0 million in the comparable quarter in 2012 primarily due to a larger outbound telemarketing campaign in respect of the Company s free listening promotional program, higher spend on media related advertising, higher costs to support the used vehicle program, and higher spending on product development activities to support growth initiatives. Full Year: Marketing expenses increased by $3.8 million or 16.1% to $28.0 million in 2013 from $24.2 million in This increase is due to higher spend on both outbound telemarketing campaigns and free listening programs. CPGA $76 $76 $73 $75 Q Q FY 2013 FY 2012 Cost Per Gross Addition CPGA remained flat at $76 for the fourth quarters of 2013 and CPGA remained unchanged period-over-period as the effect from higher marketing and subsidy costs was offset by higher year-overyear gross additions from win-back activities. 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 full year basis, CPGA was $73 and $75 for 2013 and 2012 respectively. CPGA declined in 2013 compared to the Sirius XM Canada Holdings Inc. Annual Report

24 Management s Discussion and Analysis Year Ended August 31, 2013 corresponding period in the prior year as the effect from a higher proportion of gross additions being generated by win-back activities was more than offset by the effect of higher combined subsidy and marketing costs. General & Administrative Expenses General & administrative expenses primarily include compensation, public company costs, office occupancy expenses and other corporate expenses. Fourth Quarter: General & administrative expenses decreased by $0.5 million or 21.2% to $2.0 million in the fourth quarter of 2013 from $2.5 million in the fourth quarter of 2012.The decrease is due to lower legal expenses, lower employee related costs partially offset by higher facilities expenses. In the comparative period prior year, the Company incurred significantly higher legal expenses in respect of its CRTC license renewal, which was renewed for a six-year period expiring on August 31, Full Year: General & administrative expenses decreased by $2.3 million or 20.7% to $8.9 million in 2013 from $11.2 million in In the prior year, the Company incurred significantly higher legal expenses in respect of its CRTC license renewal, the preparation of a prospectus and to execute onetime post-merger corporate harmonization projects. 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 increased by $1.2 million or 56.4% to $3.3 million in the fourth quarter of 2013 from $2.1 million in the fourth quarter of The increase is a result of higher capitalization costs in the comparative period last year as internal staff and third parties spent a significant portion of time working on capital projects primarily related to system enhancements to update the Company s Subscriber Management System ( SMS system ), while in the current quarter third party costs were primarily related to non-capital projects. The increase in information technology expenses is also due to higher consulting fees and higher costs due to increased headcount to support the operation of our subscriber management systems. Full Year: Information technology expenses decreased by $0.4 million or 3.5% to $11.2 million in 2013 from $11.6 million in The decrease is a result of increased capitalization of labor costs in the current year as a larger proportion of employees time was dedicated to capital projects. Information technology expenses also decreased due to a reduction in third party related costs and lower corporate expenses partly offset by higher employee related costs resulting from an increase in headcount. The Company will seek to realize further synergies by consolidating subscriber management systems across a single platform. This consolidation initiative necessitates additional capital investment over the next 12 months. Severance and merger costs Severance and merger costs include restructuring costs incurred as a result of the merger. Fourth Quarter: The Company did not incur any severance and merger costs in fourth quarter of 2013 compared to $0.1 million in the fourth quarter of Full Year: The Company did not incur any severance and merger costs in 2013 compared to $1.4 million in Sirius XM Canada Holdings Inc. Annual Report 2013

25 Management s Discussion and Analysis Year Ended August 31, 2013 Stock-based Compensation Stock-based compensation expenses are related to the issuance of stock options, Restricted Stock Units (RSUs) and Performance Stock Units (PSUs). The PSUs are subject to minimum performance targets. The Company recognizes a compensation expense in operating costs for the market value of each RSU and PSU at the date of grant. The Company expects RSUs and PSUs to be settled through the payment of shares. Fourth Quarter: Stock-based compensation expenses increased by $0.1 million to $0.4 million in the fourth quarter of 2013 from $0.3 million in fourth quarter of The increase in stock-based compensation is a result of RSUs and PSUs granted in the first quarter to certain employees. The number of PSUs that may vest will vary based on the Company meeting specified non-market performance targets, ranging from nil if minimum performance targets are not met, to a maximum of 366,700 units. Full Year: Stock-based compensation expenses increased by $0.8 million to $2.3 million in 2013 from $1.5 million in The increase in stock-based compensation is a result of a one-time expense of $0.5 million associated with options granted to the Board of Directors in the first quarter which vested immediately and RSUs and PSUs granted in the first quarter to the certain employees. Of the $2.3 million in stock based compensation expense, $1.7 million was expensed for the stock option based awards, while $0.8 million was expensed in respect of RSUs and PSUs. As of August 31, 2013, the Company had the following stock options outstanding: Stock Options Outstanding Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Total Vested Unvested At September 1, $3.40 3,226,975 1,212,950 2,014,025 Granted $ , , ,700 Vested ,050 (500,050) Exercised $2.84 (790,750) (790,750) - Forfeited $4.73 (747,825) (547,875) (199,950) At August 31, $3.60 2,438, ,375 1,838,725 Restricted and Performance Stock Units On November 16, 2012, the Company granted 200,190 RSUs and maximum 390,280 PSUs to some of its employees as a form of incentive compensation. RSUs and PSUs cliff vest in three years, and can be settled in cash or shares at the discretion of the Company s Board of Directors. The PSUs are subject to minimum performance targets and the amount of PSUs that may vest will vary based on the Company meeting specified performance targets, ranging from nil if minimum performance targets are not met, to a maximum of 366,700 units. The grant date fair value for both RSUs and PSUs is $4.71 per unit. The RSUs and PSUs grant certain employees either a cash or share based payment equal to the weighted average price of the Company s common share on the Toronto Stock Exchange ( TSX ) in the five trading days preceding the end of a three-year performance period multiplied by the number of units that vest. For the PSUs, the number of units that vest will vary based on the achievement of non-market performance measures. The Company recognizes compensation expense in operating costs for each RSU and PSU expected to vest equal to the market value of the Company s common share less the net present value of the expected dividend stream at the date on which RSUs Sirius XM Canada Holdings Inc. Annual Report

26 Management s Discussion and Analysis Year Ended August 31, 2013 and PSUs are awarded to each participant. For PSUs expected to be settled in shares, the compensation expense is prorated over the performance period reflecting changes in the number of PSUs expected to vest until the end of the performance period based on the achievement of non-market performance measures. Forfeitures are estimated at the grant date and are revised to reflect a change in expected or actual forfeitures. Since the settlement method of the RSUs and PSUs is at the discretion of the Company s Board of Directors, and the Company does not have a prior practice of settling in cash and currently intends to settle the awards by issuing shares, the Company accounts for RSUs and PSUs compensation related expense using the equity settlement method. As at August 31, 2013, the number of non-vested RSUs is 187,980 units. The number of PSUs that may vest based on conditions existing at the balance sheet date is 265,857 units. Depreciation and amortization Fourth Quarter: Depreciation and amortization expenses increased by $0.4 million to $9.1 million in the fourth quarter of 2013 from $8.7 million in the fourth quarter of The increase is a result of an increase in amortization on activation fees resulting from a reduction in the amortization period from 40 months to 20 months, amortization due to commencement of amortization of the SMS project in the second quarter, accelerated amortization of leaseholds until December 2013 for one of the previous studio locations offset by lower amortization of intangible assets of approximately $1.7 million due to the end of the first term of an OEM contract. Full Year: Depreciation and amortization expenses decreased by $4.1 million to $35.6 million in 2013 from $39.7 million in The decrease is a result of lower amortization of intangible assets of approximately $5.3 million due to an OEM contract being fully amortized, full amortization of certain repeater and equipment assets, partly offset by higher amortization due to the commencement of amortization of the Company s Subscriber Management System, an increase in amortization on activation fees resulting from a reduction in the useful life and related amortization period from 40 months to 20 months and accelerated amortization of leaseholds related to Company s previous studio location. EBITDA $66.3 $42.5 $16.1 $11.7 Q Q FY 2013 FY Sirius XM Canada Holdings Inc. Annual Report 2013

27 Management s Discussion and Analysis Year Ended August 31, 2013 The Company uses EBITDA and its variants such as Adjusted EBITDA, as included in the Non-GAAP Financial Measures section, to gauge the performance of the business. The table below is a reconciliation of the Income (loss) before taxes to EBITDA and Adjusted EBITDA. Adjusted EBITDA: Reconciliation In ($ 000 s) Three months ended August 31, August 31, Full year ended August 31, August 31, Income/(Loss) before income taxes 5, ,565 (12,492) Net Interest expense & income 3,338 3,851 14,725 16,339 Foreign exchange loss & gain on revaluation of derivatives (2,095) (1,553) (1,616) (1,003) Operating income 7,071 3,013 30,675 2,844 Depreciation and amortization 9,065 8,699 35,576 39,689 EBITDA 16,136 11,712 66,250 42,533 Stock-based compensation ,257 1,493 Integration, restructuring and merger costs - 2-1,383 Fair value adjustments* ,152 Adjusted EBITDA 16,570 12,220 68,722 46,562 * Fair value adjustment relates to a reduction in revenue due to the valuation of deferred revenue under purchase price accounting. Fourth Quarter: EBITDA improved by $4.4 million or 37.8% to $16.1 million in the fourth quarter of 2013 from $11.7 million in the fourth quarter of EBITDA improved compared to the same period last year primarily due to a $7.6 million revenue improvement offset by higher Cost of Revenue of $1.3 million, higher general administrative and information technology costs of $0.7 million, higher marketing expenses of $1.2 million and higher stock based compensation of $0.1 million. As a percentage of revenue, EBITDA improved to 21.3% in the fourth quarter of 2013 from 17.2% in the fourth quarter of The improvement in EBITDA is a function of operational leverage as costs do not increase in lockstep with revenue leading to a higher proportion of profit flowing through to EBITDA. Full Year: EBITDA improved by $23.8 million or 55.8% to $66.3 million in 2013 from $42.5 million in EBITDA improved year-over-year primarily due to a $29.3 million revenue improvement, lower severance and merger costs of $1.4 million and lower support costs in general administrative and information technology cost category of $2.7 million, offset primarily by higher Cost of Revenue of $5.7 million, higher stock based compensation of $0.8 million and higher marketing costs of $3.2 million. As a percentage of revenue, EBITDA improved to 22.9% in 2013 from 16.4% in The improvement in EBITDA is a result of operational leverage as well as a one-time benefit of approximately $2.1 million due to lower NHL license expense during the year. Excluding the one-time benefit of $2.1 million, EBITDA margin would have been 22.2%. Sirius XM Canada Holdings Inc. Annual Report

28 Management s Discussion and Analysis Year Ended August 31, 2013 Adjusted EBITDA $68.7 $46.6 $16.6 $12.2 Q Q FY 2013 FY 2012 Adjusted EBITDA Fourth Quarter: Adjusted EBITDA improved by $4.4 million or 35.6% to $16.6 million in the fourth quarter of 2013 from $12.2 million in the fourth quarter Adjusted EBITDA improved compared to the same period last year primarily due to a $7.6 million revenue improvement offset by higher Cost of Revenue of $1.3 million, higher general administrative and information technology expenses of $0.7 million, and higher marketing costs of $1.2 million. As a percentage of revenue, Adjusted EBITDA increased to 21.9% in the fourth quarter of 2013 from 17.9% in the fourth quarter of Full Year: Adjusted EBITDA improved by $22.1 million or 47.6% to $68.7 million in 2013 from $46.6 million in Adjusted EBITDA improved compared to the same period last year primarily due to a $29.3 million revenue improvement, lower general administrative and information technology costs of $2.7 million, offset by higher Cost of Revenue of $5.7 million, and higher marketing costs of $3.2 million. As a percentage of revenue, Adjusted EBITDA increased to 23.8% in 2013 from 17.9% in the comparative period of The improvement in Adjusted EBITDA is due to both operational leverage and to a one-time benefit of approximately $2.1 million due to lower NHL license expense during the year. Excluding the one-time benefit of $2.1 million, the Adjusted EBITDA margin would have been 23.1%. Income Taxes Fourth Quarter: For the three months ended August 31, 2013, the Company incurred income tax expense of $1.7 in fourth quarter of 2013 compared to an income tax recovery of $5.4 million in the corresponding quarter of Full Year: For the year ended August 31, 2013, the Company incurred income tax expense of $5.4 million in 2013 compared to an income tax recovery of $8.3 million for the year ended August 31, Income tax expense of $5.4 million is comprised of expense of $4.7 million due to the net income in the current year and $0.7 million from non-deductible expenses. In 2012, income tax recovery of $8.3 million is comprised of a recovery of $3.4 million due to the net loss in the year and $5.7 million 23 Sirius XM Canada Holdings Inc. Annual Report 2013

29 Management s Discussion and Analysis Year Ended August 31, 2013 due to a change in the tax rate on the opening deferred taxes, partly offset by non-deductible expenses of $0.9 million. Liquidity and Capital Resources Total cash, cash equivalents and short term investments at the end of the fourth quarter of fiscal 2013 were $49.2 million, a decrease of $2.3 million over the previous quarter. This decrease was mainly due to the payment of dividends totaling $13.0 million and capital expenditures of $5.1 million, partly offset by cash flow from operations of $14.8 million and $1.0 million of proceeds from the exercise of options. Cash flow from operations increased $4.4 million or 42.3% as a result of higher revenues and an improvement in our EBITDA margin compared to the same quarter prior year. Free Cash Flow increased by $1.2 million in the quarter compared to the same quarter last year. The increase in Free Cash Flow was primarily due to the increase in cash flow from operations year-over-year offset by higher capital expenditures primarily related to company s SMS system. Our financial position remains strong, driven by robust operating cash flow generation and modest capital expenditure requirements. However, cash and cash equivalents are not expected to increase in lockstep with Free Cash Flow due to the expected payment of cash dividends. The result of an improvement in our cash position is an improvement in our risk position through debt deleveraging. Net debt to Adjusted EBITDA declined to 1.37 times in the current quarter ended August 31, 2013 from 2.02 times in the comparative quarter last year. Debt to Adjusted EBITDA declined to 2.09 times in the quarter ended August 31, 2013 from 3.11 times in the comparative quarter last year. We expect an increase in capital expenditure in fiscal years 2014 and 2015 as we unify our subscriber management system and upgrade our repeater network but anticipate a decline in 2016 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. The Company s cash flows from operating, investing and financing activities are summarized in the following table: Cash Flow Data (in $s) Three months ended August 31, August 31, Full year ended August 31, August 31, Cash provided by operating activities 14,825,289 10,427,052 60,251,276 41,075,084 Cash used in investing activities (4,996,263) (1,911,194) (15,748,263) (4,428,916) Cash provided by (used in) financing activities (12,056,207) 29,830 (51,459,178) (11,626,858) Net Change in cash and cash equivalents (2,227,181) 8,545,688 (6,956,165) 25,019,310 Cash and cash equivalents, beginning of period 46,305,765 42,489,061 51,034,749 26,015,439 Cash and cash equivalents, end of period 44,078,584 51,034,749 44,078,584 51,034,749 Three months ended Full year ended Free Cash Flow August 31, August 31, August 31, August 31, Cash provided by operating activities 14,825,289 10,427,052 60,251,276 41,075,084 Capital expenditures (5,121,338) (1,911,194) (10,618,616) (4,428,916) Free Cash Flow 9,703,952 8,515,858 49,632,660 36,646,168 Sirius XM Canada Holdings Inc. Annual Report

30 Management s Discussion and Analysis Year Ended August 31, 2013 Operating Activities Cash flow from operating activities primarily consists of net income adjusted for certain noncash items including amortization, deferred tax expense or recovery, stock-based compensation, foreign exchange gains and losses and the effect of changes in non-cash working capital and accruals for cash interest payments. Fourth Quarter: During the current quarter, cash generated from operating activities was $14.8 million, consisting of net income of $4.1 million adjusted for net non-cash expenses and losses of $5.8 million and a $4.9 million increase in working capital. The increase in working capital in the period is primarily due to a $3.2 million increase in trade payables and other liabilities primarily due to timing of payments, an increase in deferred revenue of $0.9 million due to higher customer prepayments during the period along with a decrease in other current assets of $0.8 million during the period. Full Year: Cash generated from operating activities was $60.3 million, consisting of net income of $12.2 million adjusted for net non-cash expenses and losses of $42.7 million and a $5.4 million increase in working capital. The increase in working capital is primarily due to an increase in deferred revenue of $3.4 million due to customer prepayments during the period, and an increase in liabilities of $4.4 million, which was partly offset by an increase in accounts receivable of $1.2 million and an increase in prepaid expenses of $1.2 million. Investing Activities Cash flow from investing activities consists primarily of capital expenditures, purchases of intangible assets relating to computer software, payment of activation fees and purchase of short term investments. Financing Activities Fourth Quarter: During the current quarter, cash used in investing activities was $5.0 million consisted $2.9 million for the purchase of property, equipment and intangible assets and $2.2 million for the prepayment of property and equipment. Full Year: Cash used in investing activities was $15.7 million related to the purchase of property and equipment, intangible assets and short term investments. During the year, the Company invested $5.3 million in short term investments, $7.6 million of intangible assets, $2.2 million for the prepaying of property plant and equipment and $0.8 million for purchase of property plant and equipment. Fourth Quarter: During the current quarter, cash used in financing activities was $12.1 million which consisted of the payment of dividends of $13.0 million, partly offset by cash proceeds of $0.9 million from the exercise of stock options. Full Year: Cash used in financing activities was $51.5 million which consisted of dividend payments totaling $53.7 million, partly offset by cash proceeds of $2.2 million from the exercise of stock options. Dividend Policy The Company s goal is to maximize shareholder value by generating consistent Free Cash Flow by growing our revenues primarily through subscriptions as well as maintaining effective cost controls, managing subscriber acquisition costs and creating a long-term loyal customer base by offering high quality customer service. The Company regularly assesses ways to deploy capital in the most effective manner and during the first quarter of 2013, the Company instituted a dividend policy. The amount and timing of any dividend is within the discretion of the Board of Directors. The timing and the amount of dividend payments will depend on the Company s financial condition, compliance with the terms and conditions of the Company s credit and contractual arrangements on an on-going basis, general business conditions, and other factors that the Board of Directors considers to be relevant. Subject to such conditions, the Company may pay a quarterly dividend on all of the issued and outstanding Class A Shares and Class C Shares in the amount of $ per share, and on all of the issued and outstanding Class B 25 Sirius XM Canada Holdings Inc. Annual Report 2013

31 Management s Discussion and Analysis Year Ended August 31, 2013 Shares in the amount of $ per share. No Class C Shares were issued and outstanding at any time, during the fiscal year. On July 10, 2013, the Company s Board of Directors increased the quarterly dividend amount by approximately 27% to $ per Class A Share or Class C Share and $ per Class B Share. This decision was made after a thorough assessment of Management s long term financial forecast. The amount of the dividend is subject to a quarterly review with consideration given to Management s updated financial forecast as well as the Board of Directors view regarding the appropriate allocation of capital. During the fiscal year 2013, the company declared and paid the following dividends to shareholders of each of its Class A Shares and Class B Shares (Class B Shares are entitled to 1/3 the dividend amount per share relative to Class A Shares and Class C Shares). As at Type Declaration Date Record Date Payment Date Dividend per Class A Share Special November 16, 2012 November 28, 2012 January 2, 2013 $ Quarterly November 16, 2012 November 28, 2012 January 2, 2013 $ Quarterly January 14, 2013 January 25, 2013 March 1, 2013 $ Quarterly April 10, 2013 April 22, 2013 May 17, 2013 $ Quarterly July 10, 2013 July 22, 2013 August 22, 2013 $ Total $ Total Debt: As at Long term debt August 31, 2013 August 31, 2012 (in $s) Senior Notes 124,199, ,961,507 Convertible Notes 19,507,824 19,031,312 Total long term debt 143,707, ,992,819 Senior notes - The Senior notes mature in 2018, and as at August 31, 2013, 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, Any redemption prior to June 21, 2017 will include an applicable premium of up to 7.3% plus compensatory interest payments to June 21, 2014 for any redemption prior to June 21, The premium reduces with the passage of time. Contained in the Company s senior notes indenture are certain covenants including conditions to be met prior to the distribution of dividends. The Company is currently in compliance with all conditions and expects to be compliant before and after the payment of dividends. 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 Shares of the Company based on the market price of the Class A Shares at the time of the payment. Sirius XM Canada Holdings Inc. Annual Report

32 Management s Discussion and Analysis Year Ended August 31, 2013 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. 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, 2013 (in $000 s): Contracts and Commitments (1) Consolidated (in $ 000's) Total Less than 1 Yr. As at August 31, 2013 More than 1-3 Yrs. 4-5 Yrs. 5 Yrs. Operating leases 10,550 2,090 3,377 2,466 2,616 NHL agreement 19,700 12,200 7, Principal on 9.75% senior notes 130, ,771 - Interest on 9.75% senior notes 63,751 12,750 25,500 25,500 - Principal on 8.0% convertible notes 20,000-20, Interest on 8.0% convertible notes 1,924 1, Service provider agreements CBC 19,300 2,500 4,200 4,200 8,400 Sirius XM 1, Others 15,421 10,587 3, Advertising and marketing (2) 9,892 5,583 2,464 1, Total 292,893 47,714 68, ,982 11,140 Notes: 1. The Company must pay certain royalties for the use of music under Canadian copyright law outlined in tariffs certified by the Copyright Board of Canada. The Company also pays license royalties to Sirius XM and fees to certain OEMs. These arrangements have not been included in the table above because the specific amounts payable are contingent on the Company s revenue and/or subscriber levels, which themselves are subject to various economic assumptions, future results and cannot be estimated. 2. Includes amounts under agreement with: Corus Entertainment Inc. (Corus) for the purchase of $0.4 million of advertising from Corus over the next year; and with GMCL for $3.0 million of advertising and marketing until November Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Arrangements, Relationships and Transactions with Related Parties 27 Sirius XM Canada Holdings Inc. Annual Report 2013

33 Management s Discussion and Analysis Year Ended August 31, 2013 Related parties of the Company include shareholders with a significant interest in the Company. Significant shareholders of the Company include Sirius XM, The Canadian Broadcasting Corporation ( CBC ), Slaight Communications Inc. ( Slaight ), and Obelysk Media Inc. ( Obelysk formerly known as JBM Properties Inc. and CSRI Inc.), 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. The balances outstanding with the related parties are set out in Note 9 of the Company s annual consolidated financial statements. Transactions with CBC The Company has a 17-year agreement with the CBC effective until August 24, 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, 2013 primarily related to the CBC license agreement and advertising was $3,165,443 (2012- $4,197,150). As at August 31, 2013, amounts due to CBC related to the transactions described above also include a noninterest bearing promissory note of $402,777 ( $402,777). Transactions with Slaight As at August 31, 2013, amounts due to Slaight include non-interest bearing promissory notes of $402,777 ( $402,777). Transactions with Sirius XM In 2005, Sirius Canada, as one of the predecessors of the Company, 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 behalf. In 2011, 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 SXM s behalf. The costs incurred during the year ended August 31, 2013 related to the Sirius XM agreements was $41,773,994 ( $39,197,060). In addition to the amounts expensed above for the year ended August 31, 2013, intangible assets of $5,537,697 ( $2,672,703) relating to XM activation fees and computer software, net of amortization are presented within the balance sheet. During the year ended August 31, 2013, cash payments related to these intangible assets made to Sirius XM totaled $3,953,974 (2012-1,700,212). As at August 31, 2013, amounts due to Sirius XM include a non-interest bearing promissory note of $402,778 ( $402,778). Transactions with John I. Bitove, Obelysk and its affiliates In 2011, the Company entered into a reimbursement agreement with Obelysk for the purchase of third party advertising services. The Company has agreed to reimburse Obelysk a total amount of $208,000 over the next three years for these advertising services. Sirius XM Canada Holdings Inc. Annual Report

34 Management s Discussion and Analysis Year Ended August 31, 2013 The Company incurred costs from Obelysk and other entities affiliated with Obelysk and John I. Bitove, including costs associated with the reimbursement agreement. These costs were related to advertising, business events, use of a broadcast centre, and operating costs. During the year end ended August 31, 2013, the costs totaled $97,985 ( $143,252). As at August 31, 2013, the balance due was $21,000 ( $15,478). In 2012 the Company incurred costs on behalf of an entity affiliated with Obelysk and John I. Bitove for costs related to management of a call centre operation. During the year ended August 31, 2012, the total cost incurred was $36,534 which was reimbursed by Mobilicity. Critical Accounting Estimates and Judgments In our 2013 Annual Audited Consolidated Financial Statements and Notes thereto, as well as in our 2013 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. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that are critical to the determination of carrying values of assets and liabilities are addressed below. Impairment of non-financial assets The impairment test on non-financial assets, which are comprised primarily of property and equipment, intangible assets and goodwill, is carried out by comparing the carrying value of a CGU that includes these assets to the recoverable amount of a CGU. The recoverable amount of a CGU is the higher of fair value less costs to sell, and its value in use. Goodwill and indefinite lived intangibles are tested at least annually for impairment. For the purpose of impairment testing, goodwill is tested for impairment using the fair value less cost to sell model at the operating segment level. The business is managed as one operating segment based on how financial information is produced internally for the purposes of making operating decisions. In assessing the Company s broadcast license for impairment, the Company compares the aggregate recoverable amounts of the assets and related liabilities included in a CGU to its respective carrying amount. For the purpose of the impairment test carried out during the year ended August 31, 2013 the CGU was equivalent to the Sirius XM business. During the year, the Sirius and XM licenses were combined into one license which resulted in a change in CGUs from the prior year. In the prior year, the CGUs, for purpose of testing the broadcast licenses, were at the XM and Sirius levels. In assessing both the goodwill and broadcast license for impairment, the Company compares the aggregate recoverable amount consisting of the sum of its quoted equity market capitalization and the fair value of its debt to the carrying value of its net assets excluding long term debt. An impairment charge is recognized to the extent that the carrying value exceeds the recoverable amount. In the prior year, the recoverable amount of the XM and Sirius CGUs was determined using a discounted cash flow model. No impairment charges have arisen as a result of the reviews performed during the year ended August 31, 2013 or August 31, Reasonably possible changes in key assumptions would not cause the recoverable amount of goodwill or the broadcast license to fall below the carrying value. 29 Sirius XM Canada Holdings Inc. Annual Report 2013

35 Management s Discussion and Analysis Year Ended August 31, 2013 Stock-based Compensation 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 nonemployees, 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. In addition to granting stock options, the Company also grants restricted stock units ( RSUs ) and performance stock units ( PSUs ). For expenses associated with RSUs and PSUs, please see the section entitled Stock-Based Compensation in the Discussion of Financial and Operating Results in this MD&A. 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 The recognition of deferred tax assets is based on whether it is more likely than not that sufficient and suitable taxable income will be available in the future against which the reversal of temporary differences can be deducted. The Company s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the company s taxable income in the future increases or decreases, 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. As at August 31, 2013, the Company has recognized deferred tax assets of $54,483,616 ( $59,858,394) on the basis that realization of the tax benefit is probable. However, the Company has not recognized deferred tax assets of $43,273,000 in respect of losses amounting to $163,294,000, on the basis that the Company does not have sufficient evidence that it is probable they will be utilized. For the year ended August 31, 2013 and August 31, 2012, deferred taxes were reported using a combined income tax rate of 26.5%, based on the 2012 Ontario budget which froze the general income tax rate at 11.5%, until the province returns to a balanced budget, and the expected timing of reversals. At August 31, 2013, taxation years dating back to the period ended August 31, 2006 are open for review at the discretion of various taxation authorities and are subject to audit uncertainties. During October 2013, upon the completion of its audit of the 2006 taxation year, CRA is proposing to disallow the deduction of non-capital losses and eligible capital expenditures related to deductions taken on payments made to XM and certain OEMs. Should the Company not be successful in sustaining its filing position, the impact would be a reduction in deferred tax assets of approximately $18,000,000 (representing tax losses and tax basis of $68,000,000). Sirius XM Canada Holdings Inc. Annual Report

36 Management s Discussion and Analysis Year Ended August 31, 2013 In addition, unrecognized tax losses of $43,273,000 (representing tax losses of $163,294,000) would no longer be available to be carried forward against future taxable income. The Company obtained legal tax advice in filing its original tax position and continues to be confident of its filings. The position continues to be supported by the Company s tax legal advisors. The Company expects that the filing position will be sustained upon full examination of the facts by CRA, or if required by the federal courts. The Company will continue to vigorously defend its position and it believes it will be successful. From time to time the Company may be engaged in legal proceedings or claims that have arisen in the ordinary course of business. The outcome of all of the proceedings or claims against the Company, are subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company, management believes that the probable ultimate resolution of any such proceedings and claims will not have a material adverse effect on the financial condition of the Company taken as a whole. The CRA is proposing to reassess filing positions taken in a prior year and is proposing to assess material amounts for withholding taxes and interest and penalties related to certain transactions which would be payable should the Company s filing position not be sustained. The Company has not recognized a provision for any amounts related to the proposed amounts as it believes CRA s proposal has no merit. The Company will continue to vigorously defend its position and it believes it will be successful in defending its position. The calculation of current and deferred taxes involves significant estimation and judgment in respect of certain items whose tax treatment cannot be finally determined until resolution is reached with the Canada Revenue Agency ( CRA ). The final resolution of the audit of the 2006 taxation year may result in adjustments to the recognized and unrecognized deferred tax assets. Note 7 and note 19 of the Company s annual consolidated financial statements provide additional information regarding income taxes and any related contingencies. 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, 2013, 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. Changes in Internal Control over Financial Reporting During the three months ended August 31, 2013, 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. 31 Sirius XM Canada Holdings Inc. Annual Report 2013

37 Management s Discussion and Analysis Year Ended August 31, 2013 International Financial Reporting Standards ( IFRS ) Accounting standards issued but not yet effective Certain pronouncements were issued by the IASB or IFRIC that are effective for accounting periods beginning on or after January 1, 2013 unless otherwise noted. The Company has assessed the impact of these standards and amendments listed below, and determined there are no material impacts to the Company s financial statements. IFRS 10, Consolidated Financial Statements 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. IFRS 12, Disclosure of Interests in Other Entities establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and also introduces significant additional disclosure that address the nature of, and risks associated with, an entity s interests in other entities. IAS 1, Presentation of Financial Statements 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. The following revised standards and amendments are effective for annual periods beginning on or after January 1, 2013 with earlier application permitted, unless otherwise noted. The Company has not yet assessed the impact of these standards and amendments or determined whether it will early adopt them. IFRS 9, Financial Instruments (Classification and Measurement) 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. This is effective for accounting periods beginning on or after January 1, IFRS 13, Fair Value Measurement 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 32, Financial Instruments (Presentation) was amended to clarify existing application issues related to the offsetting requirements. Specifically, the amendments clarify the meaning of currently has a legally enforceable right of setoff and simultaneously realization and settlement. IFRIC 21, Levies was issued to clarify that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognized before the specified minimum threshold is reached. This is effective for annual periods beginning on or after January 1, Sirius XM Canada Holdings Inc. Annual Report

38 Management s Discussion and Analysis Year Ended August 31, 2013 Risks 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. For a detailed description of risk factors associated with the Company, readers are advised to review the Risk Factors section of the Company s AIF dated November 14, We rely on our exclusive relationship with Sirius XM for the provision of our Satellite Radio Services and other offerings. The Company has various agreements with Sirius XM to provide satellite digital audio radio services, or SDARS, in Canada. Its success as a business depends on Sirius XM s cooperation and its programming content, satellite network and underlying technology, as well as Sirius XM s operational and marketing efficacy, competitiveness, finances, regulatory status and overall success in the U.S. Because of the Company s dependency on Sirius XM, should Sirius XM 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 Sirius XM or a failure by Sirius XM 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 Sirius XM on favorable terms. We face substantial competition and that competition is likely to increase over time. 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 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 CRTC broadcasting license. 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 bandwidth, 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 Blackberry Ltd. 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 33 Sirius XM Canada Holdings Inc. Annual Report 2013

39 Management s Discussion and Analysis Year Ended August 31, 2013 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, 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. Rapid technological and industry changes could adversely impact our Satellite Radio Services. The audio entertainment industry is characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations, and evolving standards. Competing technologies and services may emerge quickly. If we are unable to keep pace with these changes, our business may be detrimentally affected. Products using new technologies, or emerging industry standards, could make our Satellite Radio Services less competitive in the marketplace. Our business depends in large part upon automakers, whose sales are dependent on general macroeconomic conditions. The Company has agreements with majority of the Canadian auto manufacturers for factory installation of satellite radios in new cars in Canada. We spend a significant amount of money on marketing expenditures towards auto manufacturers initiatives, and purchasers of these new vehicles represent a substantial proportion of our subscriber base. The sale and lease of these vehicles with satellite radios is an important source of subscribers for our Satellite Radio Services. 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. General economic conditions may adversely affect the Company s financial results, financial position and business Sirius XM Canada Holdings Inc. Annual Report

40 Management s Discussion and Analysis Year Ended August 31, 2013 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. 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 maintain 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, or the cost of retaining subscribers is higher than we expect, our financial performance and operating results could be adversely affected. 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 Satellite Radio Services and online offerings: the Society of Composers, Authors and Music Publishers of Canada/Société canadienne des auteurs, compositeurs et éditeurs de musique (SOCAN), Re:Sound, and CSI Inc., (CSI), 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 and communication to the public by telecommunication of performers performances and 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 The Company continues to pay copyright royalties for its online use of musical works at the rates set out in Tariff 22.D. SOCAN has since submitted successor tariffs for the subsequent years. SOCAN s proposed rates are higher than the certified Tariff 22.D rate. As the Company s online offerings evolve or if the Copyright Board chooses to modify the structure of SOCAN s online tariffs, our online offerings may become subject to a different SOCAN tariff. Re:Sound does not yet have a certified tariff and royalty rate for the public performance and communication to the public of sound recordings and performers performances over the Internet, but has submitted proposed rates for the years 2009, 2010, 2011, 2012, and Re:Sound s proposed rates are very high and it is not clear whether Re:Sound s proposed tariffs capture our online activities. During the year the Copyright Board of Canada held a hearing to consider Re:Sound s proposed Internet tariffs for the years 2009 to Once certified, the Re:Sound online tariff will be retroactive to 2009; and may apply to the Company s online services. On June 29, 2012, Parliament passed the Copyright Modernization Act (Bill C-11), an Act to amend the Copyright Act (Canada). As of November 14, 2013, certain provisions of the Copyright Modernization Act relating to protections afforded to sound recordings have yet to come into force. Under current Canadian copyright law, American makers of sound recordings are not eligible for equitable remuneration for the public performance or communication to the public of their sound recordings in Canada. As a result, the Company is not required to pay 35 Sirius XM Canada Holdings Inc. Annual Report 2013

41 Management s Discussion and Analysis Year Ended August 31, 2013 Re:Sound royalties for the use of United States sound recordings on the Satellite Radio Services or our online offerings. Certain portions of the Copyright Modernization Act are likely to extend the right of equitable remuneration to United States sound recordings. These provisions are set to come into force once the WIPO Performances and Phonographs Treaty comes into force in Canada. It is expected that this will occur during calendar 2014, and that as a result of United States sound recordings becoming eligible for equitable remuneration, there will be an increase in royalties the Company is required to pay to Re:Sound that may have a material impact on the Company s financial results. The Company believes that it has adequate initiatives planned to offset the potential impact of such an increase. The transition of some automaker partners from the Sirius Radio Service to the XM Radio Service may increase our royalties payable to Sirius XM, which may impact our financial performance. The Sirius Radio Service and XM Radio Service infrastructures are distinct platforms, operating on different frequencies and servicing satellite radios specific to each network. As mentioned in Recent Developments - Unified Branding and Operations, in the AIF, the Company is increasingly delivering services under the SiriusXM brand. SiriusXM branded satellite radios operate on the XM Radio Service infrastructure. As a result, automakers that previously installed Sirius Radio Service radios in their vehicles are migrating to XM Radio Service radios. Royalties to Sirius XM for radio installed in these transitioning automakers are thus increasingly payable under the XM Licence Agreement where previously they had been payable under the Sirius Licence Agreement. As the royalty rate under the XM Licence Agreement is higher than that under the Sirius Licence Agreement, this transition may increase the Company s overall costs in providing the Satellite Radio Services, potentially impacting our financial performance. 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 Sirius XM, 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. Outstanding Share Data and Other Information The Company is authorized to issue an unlimited number of Class A Shares, an unlimited number of Class B Voting Shares and an unlimited number of Class C Non-Voting shares. As at November 14, 2013, there were 75,853,212 fully paid and non-assessable Class A Shares and 144,275,309 fully paid and non-assessable Class B Voting Shares outstanding. There are currently no Class C Non-Voting shares outstanding. A total of 2,438,100 stock options were outstanding under the Company s stock option plan. Additional information concerning the Company, including our AIF for the fiscal year ended August 31, 2013, is available on SEDAR at Assuming conversion of the Class B Shares, which are convertible into Class A Shares on a 3 to 1 basis, the total number of Class A Shares outstanding would be 123,944,981. Sirius XM Canada Holdings Inc. Annual Report

42 Management s Discussion and Analysis Year Ended August 31, 2013 Definitions of Industry Terminology In addition to our results reported in accordance with IFRS, we use certain non-gaap financial indicators, including non-gaap 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 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 factoryactivated with one of the SXM 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 SXM services, whereby the Company has agreed to 37 Sirius XM Canada Holdings Inc. Annual Report 2013

43 Management s Discussion and Analysis Year Ended August 31, 2013 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 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, gain on revaluation of derivatives and foreign exchange gains and losses. (b) Adjusted EBITDA: is defined as earnings before integration, severance and merger costs, stock-based compensation, interest income and expense, taxes, amortization, fair value adjustments arising due to purchase price accounting, gain on revaluation of derivative and foreign exchange gains and losses. (c) Free Cash Flow: is defined as cash provided by operating activities less capital expenditures for the purchase of property and equipment and intangible assets. (d) 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. (e) Net Debt: is defined as the total debt (Senior and Convertible Notes) less cash, cash equivalents and short term investments. (f) Net Debt to Adjusted EBITDA: is defined as the net debt at the end of the period divided by 12-months of trailing adjusted EBITDA. This ratio is used by investors as a measure of company-specific risk. Sirius XM Canada Holdings Inc. Annual Report

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45 MARTHA STEWART The Highway T OWN HALL Pearl Jam Met Opera INDIE EWTN PINK FLOYD CHANNEL POP2K BBC WORLD SERVICE The Bridge PEARL JAM NPR Talk LOFT E STREET RADIO OCTANE NFL FOX NEWS MAD DOG Radio Margaritaville ALT NATION KIDS BPM SHADE 45 Heart & Bluegrass Junction Jam On Soul RURAL RADIO the coffee spahouse CNN ROAD DOG TRUCKING enlighten SIRIUSXM PATRIOT CNN POTUS the message the WRN ON BROADWAY Disney heat ESPN DOCTOR RADIO JOiNT CBC music sonica SYMPHONY HALL PuLSe HIPHOP NATION ESPN XTRA msnbc E STREET RADIO OUTLAW Caliente NBA 20on20 80son8 THE CATHOLIC CHANNEL SHADE 45 ICEBERG EMINEM JAM SPORTS RADIO Bloomberg RADIO viva The Verge Deep Tracks CANADA LAUGHS ICEBERG Heart & Soul SiriusXM College Sports Nation SiriusXM College Sports Nation Family Talk npr now OutQ CNN THE HIGHWAY AMI NBA NASCAR ICI RaDIO-CaNaDa PreMIère Radio Classics E Street Radio Sirius XM Love ELVIS electric HLN MLB NETWORK RADIO ESPN Radio ESPN s CHANNEL Sports Talk Channel SiriusXM FANTASY SPORTS RADIO Real JAZZ Siriusly Sinatra CFL OPRAH IZOD CANADA RADIO TALKS The Message CNBC Spa BLUEGRASS 50son5 FOXXHOLE JUNCTION ICI RaDIO-CaNaDa PreMIère PLACE KIRK FRANKLIN S SiriusXM OutQ ON GRATEFUL DEAD CHANNEL attitude BB KING S BLUESVILLE radio 3 FRANCO PEARL JAM HIPHOP FPRAISE POP2K SIRIUS HOWARD ICEBERG Radio Disney GRATEFUL DEAD NATION 90s on 9 XM PUBLIC CHILL the blend LAUGH USA ICEBERG First Wave STERN RADIO SYMPHONY ALT NATION HALL NHL NETWORK RADIO FOX Elvis Blue Collar Comedy LATITUDE FRANCO Classic BBC ESCAPE spa SIRIUS MLB SIRIUS XM bpm CBC NEWS xmu NETWORK BONE YARD CANADA radio one REWIND SPORTS Heart & Soul 360 SPORTS LATITUDE FRANCO LIQUID METAL AMI ZONE PLAYBYPLAY Chansons THE SPECTRUM Vivid HAIR NATION WATERCOLORS RAW Radio MET OPERA RADIO DOG On Broadway UNDERGROUND GARAGE Chansons MULTICULTURAL radio E STREET RADIO Patriot COMEDY Liquid Metal PRIME COUNTRY deep tracks area FACTION STUDIO spa LITHIUM 54The Spectrum STARS 70s on 7JOINT FOX Blue Collar BUSINESS Ozzy s Boneyard MSNBC Chansons escape C-SPAN RADIO LAUGH USA Deep Track the PuLSe Faction VIVID RADIO 60son6 VILLAGE THE LOFT Joint CNN CINEMAGIC OUTLAW COUNTRY B.B. KING S BLUESVILLE The Spectrum COMEDY CHILL electric area CENTRAL Entertainment RADIO OUTQ ELVIS RADIO PRIME COUNTRY RADIO 40s on 4 the LOFT Octane POTUS The Bridge the CATHOLIC viva the heat the JOiNT SIRIUS XM CHILL bpm NFL THE OPIE & ANTHONY CHANNEL SIRIUS XM FC bpm 1 st WAVE THE Highway HAIR NATION EWTN OZZY s BONEYARD SOUL TOWN BACK SPIN Classıc vinyl Elvis RADIO THE SPECTRUM THE GROOVE K CFL INDIE SIRIUS XM HITS 1 Consolidated Financial Statements August 31, 2013 & 2012 CANADA

46 November 14, 2013 Independent Auditor s Report To the Shareholders of Sirius XM Canada Holdings Inc. We have audited the accompanying consolidated financial statements of Sirius XM Canada Holdings Inc. and its subsidiary, which comprise the consolidated balance sheets as at August 31, 2013 and August 31, 2012 and the consolidated statements of operations and comprehensive income (loss), changes in shareholders equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2 T: , F: PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 41 Sirius XM Canada Holdings Inc. Annual Report 2013

47 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sirius XM Canada Holdings Inc. and its subsidiaries as at August 31, 2013 and August 31, 2012 and their financial performance and their cash flows for the years ended August 31, 2013 and August 31, 2012 in accordance with International Financial Reporting Standards. signed by PricewaterhouseCoopers LLP Chartered Professional Accountants, Licensed Public Accountants Sirius XM Canada Holdings Inc. Annual Report