<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-27492
UNITED STATES SATELLITE BROADCASTING COMPANY, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1407863
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3415 UNIVERSITY AVENUE, ST. PAUL, MN 55114
(Address of principal executive offices) (zip code)
(651) 645-4500
(Registrant's telephone number, including area code)
N/A
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 3, 1999
----- --------------------------
Class A Common Stock, $.0001 par value: 31,507,250
Common Stock, $.0001 par value: 58,327,025
- --------------------------------------------------------------------------------
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<PAGE>
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Interim Financial Statements 7
Item 2. Management's Discussion and Analysis 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Use of Proceeds 22
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
For The Three Months Ended March 31
1999 1998
--------- ---------
<S> <C> <C>
REVENUES $164,161 $136,839
COST OF SALES 96,696 84,656
--------- ---------
GROSS MARGIN 67,465 52,183
OPERATING EXPENSES:
Selling and marketing 33,559 27,230
Manufacturer Incentive 11,115 11,310
General and administrative 19,817 13,437
Commissions to retailers 2,978 3,256
Engineering and operations 4,784 3,311
Depreciation and amortization 5,013 3,772
--------- ---------
Net operating loss (9,801) (10,133)
OTHER INCOME:
Interest income 740 996
Other 1 8
--------- ---------
Net loss $ (9,060) $ (9,129)
--------- ---------
--------- ---------
Net loss per share - basic and diluted $ (0.10) $ (0.10)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 67,884 $ 66,297
Trade accounts receivable, net 57,828 47,843
Prepaid expenses and other 7,238 8,856
--------- ---------
Total current assets 132,950 122,996
--------- ---------
PROPERTY AND EQUIPMENT:
Land 351 351
Buildings and improvements 5,106 5,106
Equipment 151,092 150,249
--------- ---------
156,549 155,706
Less - Accumulated depreciation (101,561) (96,548)
--------- ---------
Total property and equipment, net 54,988 59,158
--------- ---------
OTHER ASSETS:
Long-term investments, consisting
of U.S. Treasury securities -- 4,501
Other 3,244 3,456
--------- ---------
Total other assets 3,244 7,957
--------- ---------
$191,182 $190,111
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 74,900 $ 65,743
Deferred revenue 64,368 52,956
Manufacturer Incentive obligation 27,659 25,579
Contract cancellation payable -- 13,200
--------- ---------
Total current liabilities 166,927 157,478
--------- ---------
LONG TERM LIABILITIES:
Due to HBI 10,000 10,000
Manufacturer Incentive obligation 77,653 77,103
--------- ---------
Total long term liabilities 87,653 87,103
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $0.01 Par Value, 50 million shares
authorized; none issued or outstanding -- --
Class A Common Stock -
Participating, voting, $.0001 Par Value, 500 million shares
authorized, 30,451,450 shares issued and outstanding
at March 31, 1999 and 29,390,450 at December 31, 1998 2 2
Common Stock -
Participating, voting, $.0001 Par Value, 100 million shares
authorized, 59,382,825 shares issued and outstanding
at March 31, 1999 and 60,422,825 at December 31, 1998 7 7
Additional paid-in capital 375,032 374,896
Accumulated deficit (438,439) (429,380)
Accumulated other comprehensive income -- 5
--------- ---------
Total shareholders' equity (deficit) (63,398) (54,470)
--------- ---------
$191,182 $190,111
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
For The Three Months Ended March 31
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(9,060) $(9,129)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation and amortization 5,013 3,772
Change in operating items:
Receivables and other current assets (8,367) 7,392
Accounts payable and accrued expenses (4,043) 1,302
Deferred revenue 11,412 6,184
Manufacturer Incentive 2,630 7,342
Other 206 (107)
-------- --------
Net cash provided by (used in)
operating activities (2,209) 16,756
-------- --------
INVESTING ACTIVITIES:
Purchase of and deposits on equipment (842) (1,665)
Proceeds from sale of long-term available-for-sale
investment 4,501 --
-------- --------
Net cash provided by (used in)
investing activities 3,659 (1,665)
-------- --------
FINANCING ACTIVITIES:
Proceeds from stock issuance 137 --
-------- --------
Net cash provided by financing activities 137 --
-------- --------
Increase in cash and
cash equivalents 1,587 15,091
-------- --------
CASH AND CASH EQUIVALENTS, beginning
of period 66,297 68,646
-------- --------
CASH AND CASH EQUIVALENTS, end of period $67,884 $83,737
-------- --------
-------- --------
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ -- $ --
-------- --------
-------- --------
Income taxes $ -- $ --
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION:
United States Satellite Broadcasting Company, Inc. and Subsidiaries ("USSB"
or the "Company") provide subscription television programming via a
high-power direct broadcast satellite ("DBS") to households throughout the
continental United States. The Company broadcasts a high quality digital
television signal using a digital satellite system ("DIRECTV/USSB System").
The Company's programming is available to customers who have a DIRECTV/USSB
System, which consists of an 18-inch satellite dish, a receiver/decoder and a
remote control. All of the Company's gross revenues and identifiable assets
relate to the Company's activities in this industry.
Hubbard Broadcasting, Inc. ("HBI") beneficially owned 51.8% of the Company as
of March 31, 1999 and December 31, 1998, and had approximately 74.5% of the
total voting power at March 31, 1999.
The Company has entered into an Agreement and Plan of Merger dated as of
December 11, 1998 (the "Merger Agreement") with General Motors Corporation, a
Delaware corporation ("GM"), and its subsidiary Hughes Electronics
Corporation, a Delaware corporation ("Hughes"), pursuant to which, if certain
conditions are satisfied, the Company will be merged with and into Hughes
(the "Merger"). The Merger, which is subject to shareholder approval and to
the satisfaction of other conditions contained in the Merger Agreement, is
expected to take place in May 1999. If the Merger is completed, each share of
USSB stock will be converted, subject to certain limitations, into either (i)
a fraction of a share of Class H Common Stock of GM equal to the exchange
ratio provided in the Merger Agreement or (ii) cash equal to that exchange
ratio multiplied by the 20-day volume-weighted average price of the GM Class
H Common Stock (the "Merger Consideration"). The Merger Consideration is
dependent upon the GM Class H Common Stock price and will not exceed $18.00
per share.
NOTE 2. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for
interim financial statements and, therefore, do not include all information
and disclosures required by Generally Accepted Accounting Principles for
complete financial statements. In the opinion of management, such statements
reflect all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the periods presented. The results of
operations for interim periods presented are not necessarily indicative of
the results which may be expected for the entire fiscal year. These
statements should be read in conjunction with the December 31, 1998
consolidated financial statements, the notes thereto, and the Company's
Report on Form 10-K.
NOTE 3. COMMITMENTS AND CONTINGENCIES:
REGULATORY MATTERS
USSB II, Inc. (a wholly owned subsidiary of the Company) holds a license from
the Federal Communications Commission (the "FCC") to broadcast from five
transponders at 101DEG. west longitude (the "License"). The Company must
continue to maintain the License to operate its business. The License expires
in June 2004 and is renewable at ten-year intervals. Although the
7
<PAGE>
Company expects to obtain such renewals in the ordinary course, there can be
no assurance that such renewals will be granted.
The construction and launch of broadcasting satellites and the operation of
satellite broadcasting systems are subject to substantial regulation by the
FCC. Under the License, the Company is subject to FCC review primarily for
the following: (i) standards regarding individual satellites (e.g., meeting
minimum financial, legal and technical standards); (ii) avoiding interference
with other satellites; and (iii) complying with rules the FCC has established
specifically for high-power DBS satellite licenses. In addition, uplink
facilities are separately licensed by the FCC. The Company's National
Broadcast Center and the Auxiliary Broadcast Center have each received its
FCC license. FCC rules are subject to change in response to industry
developments, new technology and political considerations.
The FCC granted the Company a Construction Permit and Launch Authority (the
"Permit"), held by USSB II, for satellites with three transponders at 110DEG.
west longitude and eight transponders at 148DEG. west longitude. On June 24,
1998, the Company voluntarily returned to the FCC its authorization for eight
transponders at 148DEG. west longitude. The return of the authorization at
148DEG. west longitude had no effect on the status of the Company's Permit
for the 110DEG. orbital location.
The Permit requires the Company to comply with specified construction and
launch schedules. The FCC has the authority to revoke the Permit for the
110DEG. orbital location if the Company fails to comply with the FCC schedule
for construction and launch. Under the Merger Agreement, the Company and
Hughes have agreed to cooperate and use their reasonable best efforts to
maintain the Permit at the 110DEG. orbital location. In connection therewith,
the Company and Hughes have jointly filed an application for modification of
authorization to move the DBS-1 satellite, which presently operates at the
101DEG. orbital location, to the 110DEG. orbital location to satisfy the
FCC's due diligence requirements. On April 1, 1999, the FCC staff issued an
order approving the transfer of control of the FCC authorization for
construction at the 110DEG. orbital location to DIRECTV, conditioned upon
DIRECTV initiating service on the three transponders authorized at the
110DEG. orbital location by December 31, 1999.
Under the Merger Agreement, on December 17, 1998, Hughes, DIRECTV
Enterprises, Inc., a wholly-owned subsidiary of Hughes, and the Company also
filed applications with the FCC requesting consent to the transfer of control
of all of the FCC authorizations held by USSB II, Inc. to Hughes. The FCC
staff's April 1, 1999 order also approved the transfer of control of the
FCC license for five transponders at the 101DEG. orbital location and related
earth station licenses to DIRECTV.
The order of the FCC staff issued on April 1, 1999 became final on May 12,
1999.
While the Company has generally been successful to date with respect to
compliance with regulatory matters, there can be no assurance that the
Company will succeed in obtaining and maintaining all requisite regulatory
approvals for its operations.
LOCKHEED MARTIN ASTRO SPACE AGREEMENT
The Company originally entered into contracts with Lockheed Martin for the
construction of direct broadcast satellites at the 110DEG. orbital location
(the "110DEG. Contract") and at the 148DEG. orbital location (the "148DEG.
Contract"). As required by the Merger Agreement, the Company has canceled the
110DEG. Contract and has allowed the 148DEG. Contract to expire in accordance
with its terms. Both actions were effective December 31, 1998.
8
<PAGE>
INSURANCE
The Company maintains business interruption and in-orbit insurance coverages
at levels management considers necessary to address the normal risks of
operating via communications satellite, including damage, destruction or
failure of the satellite or its transponders. Additionally, the Company
maintains general liability and directors' and officers' insurance coverages.
SATELLITE
All of the Company's programming is carried on a single satellite, DBS-1,
which the Company co-owns with DIRECTV, a subsidiary of Hughes Electronics
Corporation. As previously reported, a spacecraft control processor ("SCP")
aboard the DBS-1 satellite failed on July 4, 1998, and control of DBS-1 was
automatically switched to the spare SCP without interruption of service. In
connection with the execution of the Merger Agreement, DIRECTV and the
Company entered into a Channel Services Provision Agreement which provides
that, subject to the terms of that Agreement, DIRECTV will provide to USSB,
on a full time basis, channel capacity and related services on two other
satellites owned by Hughes at the 101DEG. orbital location sufficient to
transmit and deliver a limited number of premium movie services to USSB
subscribers. At the same time, the Company and Hughes also entered into a
Replacement Payload Option Agreement which clarifies USSB's right to
transponder capacity on a replacement satellite , in the event the Merger
Agreement is terminated due to the failure of the transponders on DBS-1. The
Replacement Payload Option Agreement provides that USSB may elect to purchase
five transponders at a fixed price on DIRECTV 1-R, a satellite under
construction by Hughes.
LITIGATION
In November 1996, Personalized Media Communications, L.L.C. ("PMC") initiated
legal proceedings against the Company and others before the United States
International Trade Commission ("ITC"), and in the United States District
Court for the Northern District of California. The Company does not believe
that PMC is entitled to damages or any remedies from the Company, and
management intends to vigorously defend both actions.
In June 1997, IPPV Enterprises, a Georgia partnership ("IPPV") initiated a
legal proceeding against the Company and others in the United States District
Court for the District of Delaware. The parties have agreed in principle to
settle this litigation and, pursuant to such agreement, the Company expects
to contribute an amount which it does not presently anticipate to be material
to the financial position of the Company.
In September 1998, WIC Premium Television, Ltd., an Edmonton, Alberta, Canada
corporation, ("WIC") initiated legal proceedings in both the Federal Court of
Canada Trial Division and the Alberta Courts against numerous retailers,
programming providers, and programming distributors, including the Company.
The Company is challenging the jurisdiction of both courts, and management
has not reached a judgment regarding whether WIC may be entitled to damages
or any remedies from the Company.
The Company is also exposed to other litigation encountered in the normal
course of business. In the opinion of management, the resolution of these
other litigation matters of which the Company is aware will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
9
<PAGE>
MANUFACTURER INCENTIVE PROGRAM
On August 26, 1996, the Company, together with DIRECTV, Inc., entered into
financial incentive arrangements with certain manufacturers of DIRECTV/USSB
System equipment to assist these manufacturers in lowering the price of
DIRECTV/USSB System. Such arrangements, which run for up to four years
depending on manufacturer, commit the Company to pay the manufacturers over a
five-year period from the date new DIRECTV/USSB System households are
authorized to receive programming. The expense and liability for such future
commitments are established and recorded upon activation of the related
DIRECTV/USSB System. In the quarter ended March 31, 1999, the Company charged
to expense $11.1 million, representing the full amount of those future
obligations for the Manufacturer Incentive program incurred during the
quarter. Cash paid in the quarter ended March 31, 1999 totaled $6.2 million,
and future payment obligations (all of which have been previously charged to
expense) totaled $105.3 million at March 31, 1999.
While the amounts to be incurred in the future by the Company under these
arrangements cannot be precisely estimated, the Company expects that as the
level of retail DIRECTV/USSB System unit sales increase, the cash flow
related to these arrangements will increase accordingly.
NOTE 4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative financial instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet either as an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. The
Company will be required to adopt SFAS No. 133 no later than January 1, 2000.
The Company has not entered into any derivative financial instruments as of
March 31, 1999. As a result, adoption of SFAS No. 133 would currently have no
impact on the Company. In the future, if the Company were to enter into
derivative financial instruments which are covered by SFAS No. 133,
volatility in earnings and other comprehensive income could be increased.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company believes that forward-looking statements contained in
this Report on Form 10-Q (statements which are phrased in terms of
anticipation, expectation, belief or the like or which refer to future
events, developments or conditions) are "forward-looking statements" within
the meaning of and are made pursuant to the safe harbor provisions contained
in the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that all forward-looking statements involve risks and uncertainty.
There are certain important factors that could cause results to differ
materially from those anticipated by the statements made in this Report.
Several of these factors are discussed under the heading "Risk Factors" below.
AGREEMENT AND PLAN OF MERGER
As previously reported, the Company has entered into an Agreement
and Plan of Merger dated as of December 11, 1998 (the "Merger Agreement")
with General Motors Corporation, a Delaware corporation ("GM"), and its
subsidiary, Hughes Electronics Corporation, a Delaware corporation
("Hughes"), pursuant to which, if certain conditions are satisfied, the
Company will be merged with and into Hughes (the "Merger"). The Merger, which
is subject to shareholder approval and to the satisfaction of other
conditions contained in the Merger Agreement, is expected to take place in
May 1999. If the Merger is completed, each share of USSB stock will be
converted, subject to certain limitations, into either (i) a fraction of a
share of Class H Common Stock of GM equal to the exchange ratio provided in
the Merger Agreement or (ii) cash equal to that exchange ratio multiplied by
the 20-day volume-weighted average price of the GM Class H Common Stock (the
"Merger Consideration"). The Merger Consideration is dependent upon the GM
Class H common stock price and will not exceed $18.00 per share.
OVERVIEW
The Company provides subscription television programming via a
high-power direct broadcast satellite ("DBS") to households throughout the
continental United States. The Company broadcasts a high quality digital
television signal using a digital satellite system ("DIRECTV/USSB System").
The Company's programming is available to customers who have a DIRECTV/USSB
System, which consists of an 18-inch satellite dish, a receiver/decoder and a
remote control. At March 31, 1999, approximately 4.62 million households were
authorized to receive programming services using the DIRECTV/USSB System, up
from 4.32 million at December 31, 1998. All of the Company's gross revenues
and identifiable assets relate to the Company's activities in this industry.
The Company commenced commercial operations in June 1994 and has not
generated net earnings to date. Although the Company achieved positive
adjusted cash flow (defined as earnings before interest, taxes, depreciation
and amortization and the non-cash component of the Manufacturer Incentive
program) for the quarter ended March 31, 1999, management expects that losses
will continue into 1999.
To simplify the DIRECTV/USSB System offering at retail, the Company
and DIRECTV integrated the basic channels carried by USSB into DIRECTV's
programming line-up and the Company added two new commercial-free premium
movie channels during the first quarter of 1998.
11
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SUMMARY OF SUBSCRIBER AND REVENUE DATA
Management measures the Company's performance by two key measures:
subscriber base and revenues.
The number of USSB paying subscribers grew to approximately
2,192,000 at March 31, 1999 from approximately 2,028,000 at December 31,
1998. Approximately 207,000 additional households were receiving a free
promotional month of USSB programming as of March 31, 1999.
In addition to tracking the absolute number of subscribers,
management assesses the Company's penetration of its potential DIRECTV/USSB
System market by comparing the number of USSB paying subscribers to the total
number of households that have received the free promotional month of USSB
programming ("convertible households"). Since the first month is free, the
consumer's decision to purchase USSB programming is generally made by the
consumer only after the free promotional month has been received. As a
result, the category of DIRECTV/USSB System households includes households
receiving the free promotional month that have not yet made their
subscription decision.
The following summary table shows, as of the end of each period,
USSB paying subscribers, USSB promotional activations, USSB convertible
households and the percentage of convertible households served by the
Company. The estimated number of DIRECTV/USSB households is also shown.
SUBSCRIBER BASE:
(In thousands)
<TABLE>
<CAPTION>
TOTAL USSB
PAYING PERCENT OF
SUBSCRIBERS USSB
FOR THE USSB USSB AND USSB CONVERTIBLE
QUARTER PAYING PROMOTIONAL PROMOTIONAL CONVERTIBLE HOUSEHOLDS ESTIMATED
ENDED SUBSCRIBERS(a) ACTIVATIONS(b) ACTIVATIONS HOUSEHOLDS(c) SERVED(d) HOUSEHOLDS(e)
- ------- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 31,
1998 1,799 106 1,905 3,128 58% 3,467
June 30,
1998 1,842 111 1,953 3,312 56% 3,667
Sept. 30,
1998 1,929 150 2,079 3,522 55% 3,945
Dec. 31,
1998 2,028 202 2,230 3,778 54% 4,324
March 31,
1999 2,192 207 2,399 4,210 52% 4,620
</TABLE>
(a) USSB paying subscribers as of the end of such period.
(b) USSB household activations that were receiving a free promotional month
of USSB programming as of the end of such period. These activations are
not counted as USSB Convertible Households until they have completed the
free promotional month.
(c) Total number of USSB household activations since July 1994 that have
completed a free promotional month of USSB programming. The amounts
shown reflect the elimination of certain DIRECTV/USSB System
deactivations. See note (e).
(d) Total USSB Paying Subscribers as of the end of the period as a percent
of USSB Convertible Households.
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(e) Total estimated number of households with active DIRECTV/USSB System
units which are authorized to receive either USSB or DIRECTV programming
as of the end of the period. Estimate based on cumulative DIRECTV/USSB
System activations, less: (i) cumulative DIRECTV/USSB System
deactivations, (ii) activations by dealers, manufacturing facilities,
technical facilities and commercial locations known to the Company, and
(iii) additional receivers in a single household, as of the end of such
period. The Company makes periodic reconciliations to estimate the
number of DIRECTV/USSB System households as accurately as possible.
As of March 31, 1999, the Company achieved a penetration of
convertible households of approximately 52%. Management believes that the
reduction in the penetration percentage compared to the previous quarter is
due primarily to the announcement of the Merger, which created some consumer
and retail confusion about the on-going need to subscribe to USSB services.
The Company's per subscriber and total revenues are shown below for
the periods indicated. From time to time, the Company engages in certain
promotional activities that include special rates for limited periods, which
typically result in lower average per subscriber revenues for such
promotional periods.
REVENUES:
(In thousands, except per subscriber data)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
1999 1998 1998 1998 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average monthly subscription
revenue per paying subscriber (a) $23.35 $23.58 $23.53 $23.60 $24.22
Total revenues (b) $164,161 $144,685 $136,567 $132,710 $136,839
</TABLE>
(a) Excludes pay-per-view event, commercial and TV GUIDE revenues.
(b) Includes pay-per-view event, commercial and TV GUIDE revenues.
RESULTS OF OPERATIONS
REVENUE OVERVIEW. The Company's total revenues increased to $164.2 million
for the quarter ended March 31, 1999, compared to $136.8 million for the
comparable prior year period. The revenue increase was primarily attributable
to a larger subscriber base and several large pay-per-view events.
REVENUES. The Company derives its revenues principally from monthly fees from
subscribers for television programming. Revenues are primarily a function of
the number of subscribers, the mix of programming packages selected by
subscribers and the rates charged. The increase in revenues for the period
was primarily attributable to the increase in the number of paying
subscribers to approximately 2,192,000 at March 31, 1999, from approximately
1,799,000 at March 31, 1998, partially offset by generally reduced
subscription prices which were implemented March 10, 1998.
Pay-per-view revenues, which vary with the number and type of events provided
on a pay-per-view basis in any fiscal period, are included in the Company's
total revenue. The revenues from such events are highly dependent on the type
and number of pay-per-view events offered, and are expected to vary
accordingly.
COST OF SALES AND GROSS MARGIN. Cost of sales consists of payments to
programmers, which are based on the number of paying subscribers. Programming
costs also include the purchase of rights to broadcast event programming on a
pay-per-view basis. The cost of programming
13
<PAGE>
increased to $96.7 million for the quarter ended March 31, 1999, compared to
$84.7 million for the comparable prior year period. The increase in cost of
programming was primarily the result of an increased number of subscribers
from the comparable prior year period. The Company's gross margin percentage
increased to 41.1% for the quarter ended March 31, 1999, compared to 38.1%
for the comparable prior year period. The increase reflects the fact that the
Company's current programming offerings of premium channels carry higher
margins than the basic channels previously carried, as well as the
achievement of certain volume-based discounts in programming costs.
Generally, gross margin percentage will vary based on the mix of programming
packages taken by subscribers, the pay-per-view events, and the extent to
which volume-based discounts from the Company's programming providers are
realized.
OPERATING EXPENSE OVERVIEW. Total operating expenses increased to $77.3
million for the quarter ended March 31, 1999, compared to $62.3 million for
the comparable prior year period. The increase was primarily attributable to
the cost of providing the Company's services to a growing subscriber base,
including increased marketing, customer service and general and
administration expenses. The current quarter's operating expenses include
$5.7 million of expenses associated with the pending Merger.
SELLING AND MARKETING. Selling and marketing costs include
promotional and advertising costs, the costs of direct marketing and customer
service and amounts expended pursuant to joint marketing efforts with other
DIRECTV/USSB System participants. Selling and marketing expenses increased to
$33.6 million for the quarter ended March 31, 1999, compared to $27.2 million
for the comparable period in 1998. This increase was primarily attributable
to increased customer service expenditures associated with the growth of the
Company's subscriber base, which totaled approximately $2.2 million, plus an
increase in advertising and promotional expenditures of approximately $4.2
million related to a joint promotion with DIRECTV.
MANUFACTURER INCENTIVE PROGRAM. Manufacturer Incentive program
expense relates to financial incentive arrangements with certain
manufacturers of DIRECTV/USSB System equipment. These arrangements have had
the effect of contributing to certain DIRECTV/USSB System manufacturers
lowering the price of systems. Such arrangements commit the Company to pay
the manufacturers over a five-year period from the date new DIRECTV/USSB
System households are authorized to receive programming. The entire expense
and liability for such future commitments are established and recorded upon
activation of the related DIRECTV/USSB System. Manufacturer Incentive program
expenses totaled $11.1 million for the quarter ended March 31, 1999, compared
to $11.3 million for the comparable period in 1998. The Company expects the
total expenses under the Manufacturer Incentive program will continue to be a
significant component of the Company's operating expenses and cash flows.
GENERAL AND ADMINISTRATIVE. General and administrative costs include
in-orbit and general insurance costs, billing and remittance processing,
staff functions such as finance and information services, and various
administrative services provided by HBI. General and administrative expenses
increased to $19.8 million for the quarter ended March 31, 1999, compared to
$13.4 million for the comparable period in 1998. The increase was primarily
attributable to increased costs of approximately $2.7 million related to the
pending Merger, and increased billing and remittance processing costs, and
costs for certain other services under the Company's arrangements with its
third-party subscriber management services provider of approximately $1.4
million.
COMMISSIONS TO RETAILERS. Commissions to retailers consist of
amounts paid by the Company to eligible DIRECTV/USSB System retailers whose
customers become paying subscribers, and are intended to encourage retailers
to promote the sale of DIRECTV/USSB Systems and subscriptions to USSB
programming. These expenses generally run for three years at
14
<PAGE>
decreasing rates for each subscriber year. Commissions to retailers were $3.0
million for the quarter ended March 31, 1999, compared to $3.3 million in the
comparable period in 1998.
ENGINEERING AND OPERATIONS. Engineering and operations expenses
include the operation of the National Broadcast Center and the Auxiliary
Broadcast Center, fees charged in connection with the operation of the
conditional access system (which fees increase as subscriber levels increase)
and satellite telemetry, tracking and control expenses. Engineering and
operations expenses were $4.8 million for the quarter ended March 31, 1999,
compared to $3.3 million for the comparable period ended 1998. The increase
from the prior year is a result of an increase in subscribers and costs
associated with operating new technologies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses relate mainly to the Company's five-sixteenths ownership of DBS-1
and transmission equipment located both at the Company's National Broadcast
Center and its Auxiliary Broadcast Center. Depreciation and amortization was
$5.0 million for the quarter ended March 31, 1999, compared to $3.8 million
for the comparable period in 1998.
NET LOSS. The Company recorded a net loss for the quarter ended March 31,
1999 of $9.1 million, the same as the comparable prior year period.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES. Cash and cash equivalents increased to
$67.9 million at March 31, 1999 from $66.3 million at December 31, 1998. The
increase in cash at March 31, 1999 primarily reflects the net operating
results of the Company.
The Company's cash flow from operations is primarily impacted by the net
loss, depreciation and amortization, and the non-cash component of the
Manufacturer Incentive program. In addition, cash and cash equivalents may
fluctuate based upon subscriber growth and the timing of annual subscription
renewals. Management believes that the Company's current cash position and
cash generated from operations is adequate to meet anticipated operating
expenses.
As a result of the pending Merger, the Company has terminated its
contracts requiring material capital expenditures, and had no material
commitments for capital expenditures as of March 31, 1999. The Company does
not expect to incur significant future capital expenditures. In connection
with the Merger Agreement, the Company and Hughes have entered into a
Replacement Payload Option Agreement which clarifies USSB's right to
transponder capacity on a replacement satellite if the Merger Agreement is
terminated due to the failure of the transponders on DBS-1. The Replacement
Payload Option Agreement provides that USSB may elect to purchase five
transponders at a fixed price of $90.0 million on DIRECTV 1-R, a satellite
under construction by Hughes. In the event the Merger is not consummated
because of the failure of DBS-1, the Company would require external financing
for such satellite capacity. The Company believes that such financing would
be available.
WORKING CAPITAL. Working capital at March 31, 1999 was a negative $34.0
million compared to a negative $34.5 million at December 31, 1998. Management
expects that working capital will remain negative through 1999 as the current
portion of the Manufacturer Incentive program obligation increases.
LITIGATION. Personalized Media Communications, L.L.C. ("PMC") has
commenced two legal proceedings against Hughes Network Systems, Thomson
Consumer Electronics and other DIRECTV/USSB System manufacturers, DIRECTV,
Inc., and the Company.
15
<PAGE>
IPPV Enterprises, a Georgia partnership, has commenced a legal
proceeding against Thomson Consumer Electronics, Hughes Network Systems,
other DIRECTV/USSB System manufacturers, DIRECTV, Inc., and the Company.
WIC Premium Television, Ltd., an Edmonton, Alberta, Canada corporation,
("WIC") initiated two separate legal proceedings in the Federal Court of
Canada Trial Division and in the Judicial District of Edmonton against
numerous retailers, programming providers, and programming distributors,
including the Company.
The ultimate outcome of these matters and the resulting effect on the
liquidity and financial position of the Company cannot be determined with
certainty. Part II, Item 1, "Legal Proceedings" contains additional
information on these matters.
CAPITAL EXPENDITURES. Capital expenditures for the quarter ended March
31, 1999 totaled $842,000, consisting primarily of purchased computer
hardware and software.
NET OPERATING LOSS CARRYFORWARD. At March 31, 1999, the Company's net
operating loss carryforward was $350.4 million for federal tax purposes. Such
carryforwards expire in the years 2000 through 2014.
YEAR 2000
The Company has analyzed Year 2000 compliance issues related to its
computer systems and technologies associated with delivering programming.
Based on its current assessment, management believes that Year 2000
compliance will not pose significant operational issues. The Company is
executing an implementation plan whereby all systems critical to managing the
business will be made Year 2000 compliant. The implementation plan includes
assessing and evaluating compliance and criticality of the various computer
systems, executing resolution strategies, and testing and certification of
the resolution efforts. Most of the Company's internal computer systems and
applications and programming technologies were developed during the past
several years and are substantially Year 2000 compliant. In addition, the
Company is working with its other key vendors and suppliers, including its
programming providers and current customer service and billing vendor, to
assure that the vendors' systems will be Year 2000 compliant. The Company has
been informed in writing by its current customer service and billing vendor
that such vendor expects to be substantially Year 2000 compliant by July
1999, and the Company believes that all its key vendors will be Year 2000
Compliant, and has received written assurance from such vendors.
If the pending Merger closes, Hughes, as the surviving corporation, will
acquire all of the assets and vendor contracts of the Company.
If the Merger does not close, the Company and DIRECTV have agreed that
DIRECTV will provide USSB with billing and subscriber management services
commencing July 1, 1999. The Company has been informed in writing by DIRECTV
that DIRECTV expects its billing and customer management system to be
substantially Year 2000 compliant by June 1999.
In the event the Merger is not completed, and DIRECTV is not Year 2000
compliant, the Company would continue to use its current customer service and
billing vendor to provide customer service and billing services at an
increased cost. The Company believes the worst case scenario would occur if
both its current billing and customer service provider and DIRECTV failed to
become Year 2000 compliant. Under these circumstances, the Company's
operations and its ability to provide customer service and billing would be
materially adversely affected.
16
<PAGE>
The Company has begun to incur expenses related to the analysis and
implementation of Year 2000 resolution. The cost of all Year 2000 renovation
has been expensed in accordance with the Company's financial policies. The
Company's current and expected costs relating to Year 2000 issues are not
material to its results of operations.
SEASONALITY
Sales of DIRECTV/USSB System units are subject to seasonal sales
patterns experienced by the consumer electronics industry. As the Company's
subscriber base has increased, it does not appear that seasonality has had a
material effect on the Company's revenues to date, although seasonality may
affect the rate of subscriber growth and levels of prepaid subscriptions in
any given quarter.
RISK FACTORS
The Company is preparing to close the Merger at the earliest practicable
time. To prepare for the Merger, the Company has taken certain actions and
refrained from taking other actions which could have an adverse effect on the
Company if the Merger does not close. As required by the Merger Agreement,
the Company has terminated the contract it had entered into with Convergys
Information Management Systems for billing and customer management services
and will be dependent upon DIRECTV for such services after June 1999. As also
required by the Merger Agreement, the Company has terminated its contract
with Lockheed Martin for satellite construction at the 110DEG. orbital
location. The Company has paid termination charges in connection with these
terminations, thereby reducing the Company's available cash resources. The
Company has modified or curtailed certain of its marketing programs in
preparation for the Merger. The Company believes that the Merger has also
created some consumer and retail confusion about the on-going need to
subscribe to USSB services. The Company could also be competitively
disadvantaged if the Merger is not completed.
So long as the Company continues to operate on a stand-alone basis, or
if the Merger is not completed, there are certain important factors that
could cause actual results to differ materially from those anticipated by the
statements made in this Report on Form 10-Q. Such factors include the
uncertain level of ultimate demand for the DIRECTV/USSB System and USSB's
programming, the effects of changes in USSB's and DIRECTV's programming
offerings, USSB's continuing ability to offer competitive programming.
In addition, competitive issues, including changes by other DBS
competitors to their product offerings and pricing strategies, and the effect
of digital cable programming and digital broadcast television service, which
may be used for multichannel programming or high definition television (HDTV)
and the entry of new competitors into video programming, such as electric
utilities and regional operating telephone companies, could adversely affect
the Company. The Company anticipates that other DBS satellites will be
launched at the 110DEG. west longitude and other orbital locations, thereby
increasing the competition in the satellite broadcasting market.
All of the Company's programming is carried on a single satellite,
DBS-1, which the Company co-owns with DIRECTV. In connection with the
execution of the Merger Agreement, DIRECTV and the Company entered into a
Channel Services Provision Agreement which provides that, subject to the
terms of that Agreement, DIRECTV will provide to USSB, on a full time basis,
channel capacity and related services on two other satellites owned by Hughes
at the 101DEG. orbital location sufficient to transmit and deliver a limited
number of premium movie services to USSB subscribers. Not all of the channels
currently carried by the Company could be carried under this arrangement.
17
<PAGE>
The Company is also subject to the effects of, and costs associated
with, litigation involving the technology and the intellectual property
associated with the DIRECTV/USSB System. DIRECTV has initiated the use of the
mark "DIRECTV System" to identify the DIRECTV/USSB System in lieu of the
formerly-used "DSS" mark. If the Merger is not completed, such use could
adversely affect the Company.
The Company is also dependent on third-party programmers, and on
vendors, including those providing customer service and billing services. If
the Merger is not completed, DIRECTV has agreed in the Merger Agreement to
provide billing and customer management systems to the Company commencing on
the later of July 1, 1999 or upon termination of the Merger Agreement. The
Company has terminated its contract for subscriber management services with
Convergys Information Management Group Inc. as required by the Merger
Agreement, and the Company will be dependent upon DIRECTV to provide such
services if the Merger is not completed. The Company is also dependent upon
the continued effectiveness of the security and signal encryption features of
the DIRECTV/USSB System.
Such factors as increases in costs, including programming costs, in
excess of those anticipated by the Company; sufficient availability of
DIRECTV/USSB Systems at retail; potential adverse governmental regulations
and actions; and overall economic conditions may also adversely affect the
Company. The Telecommunications Act of 1996 significantly deregulated the
telecommunications industry. The effect of such deregulation on the Company's
business, results of operations and financial condition cannot be predicted.
See Part I, Item I, "Business Competition" of the Company's Report on Form
10-K for the year ended December 31, 1998, for a further discussion of
certain of these risks.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is exposed to litigation encountered in the normal course of
business. In the opinion of management, the resolution of such litigation
matters of which the Company is aware will not have a material adverse effect
on the Company's financial position, results of operations or cash flows. In
addition, the Company is a party to the following actions:
IN THE MATTER OF CERTAIN DIGITAL SATELLITE SYSTEM (DSS) RECEIVERS
AND COMPONENTS THEREOF, United States International Trade
Commission, Investigation No. 337-TA-392; and PERSONALIZED MEDIA
COMMUNICATIONS, L.L.C. V. THOMSON CONSUMER ELECTRONICS, ET AL.,
United States District Court, Northern District of California, Case
No. C-96 20957.
In November 1996, Personalized Media Communications, L.L.C. ("PMC")
initiated a legal proceeding before the United States International Trade
Commission ("ITC") and a separate proceeding in the United States District
Court for the Northern District of California against DIRECTV/USSB System
developers, manufacturers and programmers, including, among others, Hughes
Network Systems, Thomson Consumer Electronics and other DIRECTV/USSB System
manufacturers, DIRECTV, Inc., and the Company.
In the ITC action, PMC alleges that Hughes Network Systems, Thomson
Consumer Electronics and other DIRECTV/USSB System manufacturers have
infringed, and that DIRECTV, Inc. and the Company have contributed to and/or
induced the infringement of, a patent owned by PMC and requests the ITC to
(i) bar the importing, marketing, promoting, distributing, or sale of
imported infringing DIRECTV/USSB System receivers in the United States which
are covered by PMC's patent and (ii) prohibit DIRECTV, Inc. and the Company
from broadcasting television programming to any imported infringing
DIRECTV/USSB System receiver. A trial of the ITC proceeding before an
administrative law judge was conducted in July 1997, and an initial
determination by the administrative law judge was rendered in October 1997
ruling against PMC's claims on all material issues.
On December 4, 1997, the ITC determined not to review the Administrative
Law Judge's determination. On January 8, 1998, PMC filed a Petition to Review
this decision of the ITC in the Court of Appeals for the Federal Circuit. The
Court of Appeals for the Federal Circuit issued an opinion on November 24,
1998 (i) reversing the finding of the ITC that the claims in suit were
invalid for indefiniteness, (ii) vacating the finding of the ITC that claim 7
was infringed and remanding that issue to the ITC for further consideration,
(iii) affirming the ruling of the ITC that claim 6 was not infringed, and
(iv) declining to review the holding of the ITC that claim 44 was likewise
not infringed. In accordance with that opinion, the case has been remanded to
the ITC for further proceedings. On March 26, 1999, PMC filed a Motion to
Terminate the Investigation stating that PMC preferred to pursue its rights
in the district court action described herein. That Motion is pending and
undecided.
In the second action, PMC filed a complaint in the United States
District Court for the Northern District of California alleging, among other
things, that USSB and DIRECTV directly infringe at least one claim of each of
three patents. PMC also alleges that USSB and DIRECTV have contributed to and
induced the infringement of two of said patents by the other respondents. PMC
has alleged that the Company's infringement of the said patents is willful.
PMC has
19
<PAGE>
requested an award of damages, that such damages be trebled, that the Company
and the other respondents be enjoined from further infringement of said
patents, and award of its attorneys' fees.
The Company denies that it has engaged in any acts of infringement,
either directly or indirectly as alleged in PMC's complaint. Pursuant to a
stipulated motion to stay the district court action pending the resolution of
the ITC investigation, the district court entered an order to that effect.
IPPV ENTERPRISES V. THOMSON CONSUMER ELECTRONICS, INC., HUGHES
NETWORK SYSTEMS, SONY CORPORATION OF AMERICA, HITACHI HOME
ELECTRONICS (AMERICA), INC., UNIDEN AMERICA CORPORATION, DIRECTV,
INC., AND UNITED STATES SATELLITE BROADCASTING COMPANY, INC.,
United States District Court, District of Delaware, Case No. 97-288.
In June 1997, IPPV Enterprises, a Georgia partnership ("IPPV"),
initiated a legal proceeding in the United States District Court for the
District of Delaware against digital satellite system developers, manufacturers,
including, among others, Hughes Network Systems, Thomson Consumer Electronics
and other DIRECTV/USSB System manufacturers, DIRECTV, Inc., and the Company.
IPPV alleges that the defendants, including DIRECTV, Inc. and the
Company, have infringed five IPPV patents relating to parental control,
pay-per-view and other features used in the DIRECTV/USSB System. IPPV has
requested the court to award IPPV damages, and to treble such damages. Four of
the five IPPV patents in the suit have expired and the fifth will expire in
2002. The Company has denied all material allegations in the complaint. The
parties have agreed in principle to settle this litigation and, pursuant to such
agreement, the Company expects to contribute an amount which it does not
presently anticipate to be material to the financial position of the Company.
WIC PREMIUM TELEVISION LTD. V. GENERAL INSTRUMENT CORPORATION, NEXT
LEVEL SYSTEMS, INC., NEXT LEVEL SYSTEMS OF DELAWARE, INC., ET AL.,
SHOWTIME NETWORKS, INC., ET AL., RETAIL SALES AND MARKETING, INC.,
HOME BOX OFFICE, INC., WARNER COMMUNICATIONS, INC., JOHN DOE,
ECHOSTAR COMMUNICATIONS CORPORATION, DISH LTD., ECHOSPHERE
CORPORATION, UNITED STATES SATELLITE BROADCASTING COMPANY, INC.,
CORMAN PARK SATELLITE LTD., WARREN SUPPLY COMPANY, PROGRAMMERS
CLEARING HOUSE, INC., RALPH WARREN, RONALD WARREN, RALPH WARREN AND
RONALD WARREN CARRYING ON BUSINESS AS "PROGRAMMERS CLEARING HOUSE,"
AND AS "WARREN ACTIVATIONS," AND AS "WARREN RADIO & TELEVISION,"
AND AS "ENTERTAINMENT DIRECT," WARREN SUPPLY COMPANY CARRYING ON
BUSINESS AS "BUILDERS EXPRESS," 4-12 ELECTRONICS CORPORATION,
FREEDOM SATELLITE CORPORATION, CHRISTOPHER NELSON PERSONALLY AND
CARRYING ON BUSINESS AS "SKYLIGHT HOME SATELLITE THEATER,"
CHRISTIAN NELSON, SHELDON NELSON AND VIACOM ENTERPRISES CANADA
LIMITED, ET AL., in the Federal Court of Canada Trial Division,
Court File No. T-1538-98 and in Judicial District of Edmonton,
Court File No. 970316746-1998.
In September 1998, WIC Premium Television Ltd. of Edmonton, Alberta,
Canada ("WIC") served on USSB, among others, a statement of claim issued by
the Federal Court of Canada. WIC alleges that USSB breached Canadian law by
participating in the broadcast and illegal reception of its services by
customers located in Canada. WIC seeks injunctive relief prohibiting such
action by USSB.
In October 1998, WIC commenced a similar action against USSB in
Alberta's Court of Queen's Bench. WIC alleges that USSB breached Canadian law
by participating in the broadcast
20
<PAGE>
and illegal reception of its services by customers located in Canada. This
action seeks injunctive relief and damages.
The Company has not yet defended either complaint and is challenging the
personal jurisdiction of the Canadian Courts over the Company. While it is
not possible to estimate the probable outcome of these proceedings at this
time, the Company intends to vigorously defend the actions.
21
<PAGE>
ITEM 2. USE OF PROCEEDS
Subsequent to the Company's initial public offering, effective January 31,
1996 (Registration No. 33-99906), and pursuant to the requirements of the
Securities Act of 1933, as amended and as then in effect, the Company filed
an initial report on Form SR with the Securities and Exchange Commission
("SEC") on May 10, 1996 and amendments thereto on November 12, 1996 and May
12, 1997. Further information was reported in the Company's periodic reports
filed with the SEC, commencing with its Report on Form 10-Q for the quarter
ended September 30, 1997.
The following table sets forth the amount of direct or indirect payments to
others from such effective date through March 31, 1999 which have changed
since the most recently filed Report.
<TABLE>
<CAPTION>
Use of Proceeds Direct or Indirect Payments to Others
--------------- -------------------------------------
<S> <C>
Working Capital $33,756,866
Purchase and Installation of Machinery and Equipment 33,548,696
Temporary Investments
Short Term Treasuries 42,922,213
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 13, 1999 UNITED STATES SATELLITE
BROADCASTING COMPANY, INC.
By: /s/ Stanley E. Hubbard
-------------------------------------------
Stanley E. Hubbard
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bernard J. Weiss
-------------------------------------------
Bernard J. Weiss
Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
23
<PAGE>
UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
Index of Exhibits to Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1999
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
----------- -------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS IN
ITEM I ON PAGES 3-5 OF THE COMPANY'S REPORT ON FORM 10-Q FOR THE PERIOD
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 67,884
<SECURITIES> 0
<RECEIVABLES> 63,737
<ALLOWANCES> 5,909
<INVENTORY> 0
<CURRENT-ASSETS> 132,950
<PP&E> 156,549
<DEPRECIATION> 101,561
<TOTAL-ASSETS> 191,182
<CURRENT-LIABILITIES> 166,927
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> (63,398)
<TOTAL-LIABILITY-AND-EQUITY> 191,182
<SALES> 164,161
<TOTAL-REVENUES> 164,161
<CGS> 96,696
<TOTAL-COSTS> 96,696
<OTHER-EXPENSES> 77,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,060)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,060)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
