<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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: 0-21317
TCI SATELLITE ENTERTAINMENT, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1299995
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7600 East Orchard Road, Suite 330 South
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 268-5440
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, and (2) has been subject to such filing
requirements for the past 90 days [X] Yes [ ] No
The number of shares outstanding of TCI Satellite Entertainment, Inc.'s
common stock as of July 31, 2000, was:
Series A common stock - 63,892,830 shares;
and Series B common stock - 7,740,805 shares.
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
amounts in thousands
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 223,603 2,473
Receivables and prepaid expenses 1,473 113
Investment in General Motors Corporation ("General Motors"),
at fair value (note 3) 53,291 135,101
Investment in Sprint Corporation PCS Group Stock
("Sprint PCS Stock"), at fair value (note 7) 302,542 --
Investments in affiliates accounted for using the equity
method (note 8) 216,284 --
Other investments, at cost (note 9) 217,183 5,000
Support equipment, net 287 275
Deferred financing costs 173 235
----------- --------
$ 1,014,836 143,197
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 644 210
Accrued interest payable 282 53
Due to parent
Accrued interest 1,440 --
Other accrued expenses 123 --
Note payable 56,334 --
----------- --------
57,897 --
----------- --------
Taxes payable 650 650
General Motors share appreciation right liability (note 3) -- 68,959
Employee stock appreciation right liability 296 5,554
Debt (note 11) 21,644 3,044
Deferred tax liability 2,435 --
----------- --------
Total liabilities 83,848 78,470
----------- --------
Minority interests in equity of consolidated subsidiaries 567,891 --
Redeemable preferred stock (notes 2 and 12) 194,543 --
Stockholders' Equity:
Series A common stock, $1 par value; authorized
185,000,000 shares; issued 63,887,311 in 2000
and 62,894,446 in 1999 63,887 62,894
Series B common stock, $1 par value; authorized
10,000,000 shares; issued 7,746,324 in 2000
and 8,465,224 in 1999 7,746 8,465
Additional paid-in capital 931,441 825,726
Accumulated other comprehensive income 29,172 --
Accumulated deficit (863,367) (832,358)
----------- --------
168,879 64,727
Series A common stock held in treasury, at
cost (29,545 shares) (325) --
----------- --------
Total stockholders' equity 168,554 64,727
----------- --------
Commitment (note 15)
$ 1,014,836 143,197
=========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Statements of Operations
and Other Comprehensive Income (Loss)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ------------------------
2000 1999 2000 1999
--------- -------- ------- -------
amounts in thousands, except per share amounts
<S> <C> <C> <C> <C>
Management fee revenue $ 130 -- 220 --
Operating costs and expenses:
Operating -- 1,734 -- 4,511
Selling, general and administrative 1,155 74 2,373 117
Stock compensation (note 13) (5,175) 144 (2,787) 325
Depreciation 27 -- 40 --
--------- -------- ------- -------
(3,993) 1,952 (374) 4,953
--------- -------- ------- -------
Operating income (loss) 4,123 (1,952) 594 (4,953)
Other income (expense):
Gain on sale of General Motors stock (note 3) 36,643 -- 36,643 --
Loss on General Motors share appreciation
rights (note 3) (65,721) -- (65,721) --
Interest income 3,561 -- 4,234 --
Interest expense-parent (1,235) -- (1,440) --
Interest expense-other (312) -- (449) --
Share of losses of affiliates (1,967) -- (2,106) --
Minority interests in earnings of
consolidated subsidiaries (17,775) -- (18,166) --
Gain on sale of satellites (note 3) -- 97,477 -- 13,712
Other, net (note 3) -- 66,171 -- 66,173
--------- -------- ------- -------
(46,806) 163,648 (47,005) 79,885
--------- -------- ------- -------
Earnings (loss) before income taxes (42,683) 161,696 (46,411) 74,932
Income tax benefit (note 14) 15,402 -- 15,402 --
--------- -------- ------- -------
Net earnings (loss) (27,281) 161,696 (31,009) 74,932
Accretion of redeemable preferred stock (note 12) (1,432) -- (1,671) --
Dividends on redeemable preferred stock (7,483) -- (8,733) --
--------- -------- ------- -------
Net earnings (loss) attributable to
common shareholders $ (36,196) 161,696 (41,413) 74,932
========= ======== ======= =======
Basic and diluted earnings (loss) per
common share (note 5) $ (.51) 2.38 (.58) 1.11
========= ======== ======= =======
Other comprehensive income:
Net earnings (loss) $ (27,281) 161,696 (31,009) 74,932
Unrealized holding gain (loss) on available
for sale securities, net of taxes
and reclassification adjustment (16,217) 4,662 29,172 4,662
Unrealized gain (loss) on share
appreciation right liability, net of taxes
and reclassification adjustment 24,767 (4,662) -- (4,662)
--------- -------- ------- -------
Comprehensive income (loss) $ (18,731) 161,696 (1,837) 74,932
========= ======== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Statement of Stockholders' Equity
Six months ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional other Total
--------------------- paid-in comprehensive Accumulated Treasury Stockholders'
Series A Series B capital income deficit stock equity
-------- -------- ---------- ------------- ----------- -------- -------------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $62,894 8,465 825,726 -- (832,358) -- 64,727
Net loss -- -- -- -- (31,009) -- (31,009)
Reversal of deferred tax asset
valuation allowance resulting
from the Liberty transaction
(note 14) -- -- 114,628 -- -- -- 114,628
Unrealized holding gains on
available-for-sale securities,
net of taxes -- -- -- 29,172 -- -- 29,172
Accretion and dividends on
redeemable preferred stock -- -- (10,404) -- -- -- (10,404)
Issuance of Series A common stock
for preferred stock dividends 90 -- 1,143 -- -- -- 1,233
Recognition of stock compensation
related to stock options and
restricted stock awards -- -- 35 -- -- -- 35
Issuance of Series A common stock
upon exercise of stock options 71 -- 426 -- -- -- 497
Issuance of common stock related
to restricted stock awards 113 -- (113) -- -- -- --
Series B common stock exchanged
for Series A common stock 719 (719) -- -- -- -- --
Repurchase of Series A common stock -- -- -- -- -- (325) (325)
------- ------ -------- ------ -------- ---- --------
Balance at June 30, 2000 $63,887 7,746 931,441 29,172 (863,367) (325) 168,554
======= ====== ======== ====== ======== ==== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
2000 1999
--------- -------
amounts in thousands
(see note 6)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (31,009) 74,932
Adjustments to reconcile net earnings (loss) to net
cash used by operating activities:
Depreciation 40 --
Gain on sale of General Motors stock (36,643) --
Loss on General Motors share appreciation rights 65,721 --
Share of losses of affiliates 2,106 --
Minority interests in earnings of consolidated
subsidiaries 18,166 --
Deferred tax benefit (15,402) --
Amortization of deferred loan costs 62 --
Stock compensation (2,787) 325
Payments for stock compensation (2,436) --
Gain on sale of satellites -- (13,712)
Receipt of General Motors common stock recorded
as other income -- (66,143)
Changes in operating assets and liabilities, net
of the effects of the Liberty transaction:
Change in receivables and prepaid expenses (1,360) --
Change in accruals and payables 1,992 --
--------- -------
Net cash used by operating activities (1,550) (4,598)
--------- -------
Cash flows from investing activities:
Net proceeds from sale of General Motors stock 74,243 --
Payment of General Motors share appreciation rights (65,721) --
Investments in affiliates (86,875) --
Capital expended for property and equipment (52) --
Proceeds received from the Liberty transaction 249,620 --
Net proceeds from sale of satellites -- 2,500
--------- -------
Net cash provided by investing activities 171,215 2,500
--------- -------
Cash flows from financing activities:
Borrowings of debt 18,600 --
Repayments of note payable to parent (3,666) --
Contributions by minority owners of subsidiaries 36,359 --
Proceeds from exercise of stock options 497 --
Purchase of common stock from director (325) --
Increase in due to Phoenixstar -- 4,628
Contribution for common stock to be issued -- 3,452
--------- -------
Net cash provided by financing activities 51,465 8,080
--------- -------
Net increase in cash and cash equivalents 221,130 5,982
Cash and cash equivalents:
Beginning of period 2,473 --
--------- -------
End of period $ 223,603 5,982
========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of TCI Satellite Entertainment, Inc. and those of all
majority-owned or controlled subsidiaries, including the TSAT LLC's
described in note 2, ("TSAT" or the "Company"). All significant
inter-company transactions have been eliminated.
As a result of the Liberty Transactions described in note 2, the Hughes
Transaction described in note 3 and the TSAT Asset Transfer described in
note 4, TSAT is currently a holding company, and since March 16, 2000, has
been a consolidated subsidiary of Liberty Media Corporation. As a holding
company, TSAT has had no significant operations subsequent to the TSAT
Asset Transfer. The Company incurs general and administrative expenses to
manage its investments and its status as a publicly traded company. In
addition, the Company provides management services to Phoenixstar, Inc.,
and one of the Company's subsidiaries conducts research and development in
certain emerging technologies.
The Company currently intends to leverage its capital position and its role
as managing member of the TSAT LLC's to pursue strategic opportunities
worldwide in the distribution of internet data and other content via
satellite and related businesses and is actively seeking to develop and/or
acquire operating businesses related to, or complementary with, such
strategy.
The accompanying interim condensed consolidated financial statements of
TSAT are unaudited. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) have been made that are
necessary to present fairly the financial position of TSAT as of June 30,
2000 and the results of its operations for the six months ended June 30,
2000 and 1999. The results of operations for any interim period are not
necessarily indicative of the results for the entire year. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto included in
TSAT's December 31, 1999 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Certain amounts have been reclassified for comparability with the 2000
presentation.
I-5
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
(2) LIBERTY TRANSACTIONS
On March 16, 2000, the Company entered into two transactions (collectively,
the "Liberty Transactions"), both of which closed simultaneously, with
Liberty Media Corporation ("Liberty"). Pursuant to the terms of the first
transaction, the Company acquired a beneficial interest in 5,084,745 shares
of Sprint PCS Stock with an aggregate market value on the closing date of
$300 million in exchange for 150,000 shares of TSAT Series A Preferred
Stock with a liquidation value of $150 million and 150,000 shares of TSAT
Series B Preferred Stock ("Series B Preferred Stock") with a liquidation
value of $150 million. The attributes of both series of preferred stock are
described in more detail in note 12. The shares of Series B Preferred Stock
have super voting rights which give Liberty voting control over the
Company. Accordingly, since March 16, 2000, the Company has been a
consolidated subsidiary of Liberty. The Company accounts for its investment
in Sprint PCS Stock as an available-for-sale security. The closing share
price of Sprint PCS Stock as of June 30, 2000 was $59.50 per share.
Pursuant to the terms of the second transaction, the Company (through its
wholly-owned subsidiaries) became the managing member of two newly formed
limited liability companies, Liberty Satellite, LLC ("LSAT LLC") and LSAT
Astro LLC ("LSAT Astro," and together with LSAT LLC, the "TSAT LLC's"). The
Company contributed its beneficial interest in 1,407,307 shares of General
Motors Class H Common Stock ("GMH Stock"), net of the General Motors share
appreciation right liability described in note 3, and its interest in JATO
Communications Corp. to LSAT LLC in exchange for a 10.59% ownership
interest in LSAT LLC. Liberty contributed its interests in various
satellite related assets, including an 86.01% ownership interest in LSAT
Astro, to LSAT LLC in exchange for the remaining 89.41% ownership interest
in LSAT LLC. As the Company is a consolidated subsidiary of Liberty, all of
the investments contributed by the Company and Liberty to the TSAT LLC's
were recorded at their net book values at the date of contribution. In
addition, TSAT received a 13.99% ownership interest in LSAT Astro in
exchange for a $60 million note payable to Liberty.
The Company operates and manages the activities of the TSAT LLC's and has
decision-making authority with respect to significant business transactions
entered into by such entities. Accordingly, the TSAT LLC's have been
included in the Company's consolidated financial statements since March 16,
2000.
(3) HUGHES TRANSACTIONS
Effective June 4, 1999, the Company completed the sale of its high power
direct broadcast satellite ("DBS") assets to Hughes Electronics Corporation
("Hughes"), pursuant to an asset purchase agreement dated as of January 22,
1999 (the "Hughes High Power Agreement"), among Tempo Satellite, Inc., a
wholly-owned subsidiary of the Company ("Tempo"), Phoenixstar, Inc., a
Delaware corporation formerly known as PRIMESTAR, Inc. ("Phoenixstar"),
Phoenixstar Partners L.P., a Delaware limited partnership and wholly-owned
subsidiary of Phoenixstar formerly known as PRIMESTAR Partners L.P.
("PRIMESTAR Partners"), and Hughes, a subsidiary of General Motors. The
assets transferred by the Company
I-6
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
pursuant to the Hughes High Power Agreement consisted of Tempo's two
high-power DBS satellites (the "Tempo Satellites"), one of which was in
orbit at 119(degree) West Longitude (the "In-Orbit Satellite") and one of
which was used as a ground spare (the "Ground Satellite"); its FCC
authorizations with respect to the 119(degree) West Longitude orbital
location (the "FCC License"); and certain related assets (collectively, the
"Tempo High Power Assets").
The Company had previously granted Phoenixstar the transferable right and
option (the "Tempo Purchase Option") to purchase 100% of the Tempo High
Power Assets for aggregate consideration of $2.5 million in cash and the
assumption of all liabilities. In addition, Tempo had previously granted to
PRIMESTAR Partners the right to purchase or lease 100% of the capacity of
the DBS system being constructed by Tempo (the "Tempo Capacity Rights"),
and PRIMESTAR Partners had made advances to Tempo to fund the construction
of Tempo's DBS system in the aggregate amount of $465 million (the "Tempo
Reimbursement Obligation").
Accordingly, the Hughes High Power Agreement provided for (i) the sale by
Phoenixstar to Hughes of the Tempo Purchase Option, (ii) the exercise of
the Tempo Purchase Option by Hughes, and (iii) the termination of the Tempo
Capacity Rights (collectively, the "Hughes High Power Transaction"). The
aggregate consideration payable by Hughes in the Hughes High Power
Transaction was $500 million, payable as described below.
As regulatory approval was required to transfer the In-Orbit Satellite and
the FCC License, the Hughes High Power Agreement provided for the Hughes
High Power Transaction to be completed in two steps. To facilitate the
transaction, the Tempo Purchase Option was amended to provide for a
two-stage exercise process. The parties allocated 70% of the total
consideration under the Hughes High Power Agreement to the In-Orbit
Satellite and related assets and 30% of the total consideration thereunder
to the Ground Satellite and related assets.
The first closing under the Hughes High Power Agreement was consummated
effective March 10, 1999. In the first closing, Hughes acquired the Ground
Satellite and related assets for aggregate consideration of $150 million,
comprised of (i) $9,750,000 paid by Hughes to Phoenixstar and PRIMESTAR
Partners for the transfer to Hughes of the portion of the Tempo Purchase
Option allocable to the Ground Satellite and the termination of the portion
of the Tempo Capacity Rights allocable to the Ground Satellite, (ii)
$750,000 paid by Hughes to Tempo to exercise the portion of the Tempo
Purchase Option allocable to the Ground Satellite; and (iii) the assumption
and payment by Hughes of a portion of the Tempo Reimbursement Obligation in
the amount of $139,500,000. At the time of the first closing, the carrying
value of the Ground Satellite was $224 million.
In addition, as required by the Hughes High Power Agreement, the Company
and Phoenixstar agreed to terminate the previously announced merger of the
Company with and into Phoenixstar, effective as of such first closing.
I-7
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
The FCC approved the transfer of the FCC License to Hughes on May 28, 1999,
and the second closing under the Hughes High Power Agreement was
consummated effective June 4, 1999. In the second closing, Hughes acquired
the In-Orbit Satellite and related assets, including all rights of Tempo
with respect to the FCC License, for aggregate consideration of $350
million comprised of (i) $22,750,000 paid by Hughes to Phoenixstar and
PRIMESTAR Partners for the transfer to Hughes of the portion of the Tempo
Purchase Option allocable to the In-Orbit Satellite and the termination of
the portion of the Tempo Capacity Rights allocable to the In-Orbit
Satellite, (ii) $1,750,000 paid by Hughes to Tempo to exercise the portion
of the Tempo Purchase Option allocable to the In-Orbit Satellite; and (iii)
the assumption and payment by Hughes of the remainder of the Tempo
Reimbursement Obligation, in the amount of $325,500,000.
The carrying value of the In-Orbit Satellite was approximately $239 million
at the time of the second closing. In addition, Phoenixstar agreed to
forgive amounts due from Tempo not assumed by Hughes in the amount of
$9,346,000.
In a separate transaction (the "Hughes Medium Power Transaction") completed
on April 28, 1999 (the "Hughes Closing Date"), Phoenixstar sold to Hughes
Phoenixstar's medium-power DBS business and assets for $1.1 billion in cash
and 14.613 million shares of GMH Stock (on a split-adjusted basis) valued
at approximately $258 million on the date of closing.
In connection with their approval of the Hughes Medium Power Transaction
and other transactions, the stockholders of Phoenixstar approved the
payment to TSAT of consideration in the form of 4.221 million shares of GMH
Stock (on a split-adjusted basis) (the "Phoenixstar Payment"), subject to
the terms and conditions set forth in an agreement (the "Phoenixstar
Payment Agreement") dated as of January 22, 1999. In consideration of the
Phoenixstar Payment, the Company agreed to approve the Hughes Medium Power
Transaction and Hughes High Power Transaction as a stockholder of
Phoenixstar, to modify certain agreements to facilitate the Hughes High
Power Transaction, and to issue Phoenixstar a share appreciation right (the
"TSAT GMH SAR") with respect to the shares of GMH Stock received as the
Phoenixstar Payment, granting Phoenixstar the right to any market price
appreciation in such GMH Stock during the one-year period following the
date of issuance, over an agreed strike price of $15.67 (on a
split-adjusted basis). Pursuant to the Phoenixstar Payment Agreement, TSAT
has also agreed to forego any liquidating distribution or other payment
that might be made in respect of the outstanding shares of Phoenixstar upon
any dissolution and winding-up of Phoenixstar, or otherwise in respect of
Phoenixstar's existing equity and has agreed to transfer beneficial
interest in its shares in Phoenixstar to the other Phoenixstar
stockholders. On the Hughes Closing Date, the Company received 4.221
million shares of GMH Stock (on a split-adjusted basis) from Phoenixstar
in satisfaction of the Phoenixstar Payment.
I-8
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
Effective May 10, 2000, the Company sold 2.4 million shares of GMH Stock
(on a split-adjusted basis) for net cash proceeds of $74,243,000 (after
fees and commissions of $717,000), and recognized a gain on sale of
$36,643,000. The Company paid $65,721,000 of such cash proceeds to
Phoenixstar to satisfy the TSAT GMH SAR, and recognized a loss of
$65,721,000.
TSAT, through LSAT LLC continues to hold 1,821,921 shares of GMH Stock (on
a split-adjusted basis) and accounts for such shares as available-for-sale.
The closing price of GMH Stock as of June 30, 2000 was $29.25 (on a
split-adjusted basis).
(4) THE RESTRUCTURING
Effective April 1, 1998 (the "Closing Date") and pursuant to (i) a Merger
and Contribution Agreement dated as of February 6, 1998, (the
"Restructuring Agreement"), among TSAT, Phoenixstar (which, prior to the
Restructuring was a wholly-owned subsidiary of TSAT), Time Warner
Entertainment Company, L.P. ("TWE"), Advance/Newhouse Partnership
("Newhouse"), Comcast Corporation ("Comcast"), Cox Communications, Inc.
("Cox"), MediaOne of Delaware, Inc., ("MediaOne"), and GE American
Communications, Inc., and (ii) an Asset Transfer Agreement dated as of
February 6, 1998, (the "TSAT Asset Transfer Agreement") between TSAT and
Phoenixstar, a business combination (the "Restructuring") was consummated.
In connection with the Restructuring, TSAT contributed and transferred to
Phoenixstar (the "TSAT Asset Transfer") all of TSAT's assets and
liabilities except (i) the capital stock of Tempo, (ii) the consideration
to be received by TSAT in the Restructuring and (iii) the rights and
obligations of TSAT under certain agreements with Phoenixstar and others.
In addition, the business of PRIMESTAR Partners and the business of
distributing the PRIMESTAR(R) programming service ("PRIMESTAR(R)") of each
of TWE, Newhouse, Comcast, Cox and affiliates of MediaOne were consolidated
into Phoenixstar.
In connection with the TSAT Asset Transfer, Phoenixstar assumed all of
TSAT's indebtedness on such date, and TSAT received from Phoenixstar 66.3
million shares of Class A Common Stock of Phoenixstar ("Phoenixstar Class A
Common Stock") and 8.5 million shares of Class B Common Stock of
Phoenixstar ("Phoenixstar Class B Common Stock", and together with the
Phoenixstar Class A Common Stock, ("Phoenixstar Common Stock"), in
accordance with the Restructuring Agreement and the TSAT Asset Transfer
Agreement. As a result, TSAT owned approximately 37% of the outstanding
shares of common equity of Phoenixstar, representing approximately 38% of
the combined voting power of such common equity.
As of June 30, 2000, TSAT's share of losses of Phoenixstar had reduced the
book value of TSAT's investment in Phoenixstar to zero. Also, as noted
above, TSAT has no further commitment to fund obligations of Phoenixstar.
Pursuant to the terms of the Phoenixstar Payment Agreement, TSAT has
I-9
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
agreed to transfer its beneficial ownership in Phoenixstar to the other
Phoenixstar shareholders.
Effective February 1, 2000, the Company entered into a management agreement
with Phoenixstar pursuant to which the Company is managing Phoenixstar's
affairs in exchange for a monthly fee. Such fees aggregated $220,000 for
the six months ended June 30, 2000.
(5) EARNINGS (LOSS) PER COMMON SHARE
The Company computes earnings (loss) per share in accordance with SFAS No.
128, EARNINGS PER SHARE ("SFAS No. 128"). SFAS No. 128 requires companies
with complex capital structures to present basic and diluted EPS. Basic EPS
is measured as the income or loss attributable to common shareholders
divided by the weighted average outstanding common shares for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a
per share basis of potential common shares (e.g. convertible securities,
options, etc.) as if they had been converted at the beginning of the
periods presented, or at original issuance date, if later. Dilutive common
shares that have an anti-dilutive effect (i.e., those that increase income
per share or decrease loss per share) are excluded from diluted EPS.
The basic earnings (loss) per common share is based on the weighted average
number of shares outstanding during the period of 71,529,000 and 67,836,000
shares for the three months ended June 30, 2000 and 1999, respectively, and
71,456,000 and 67,808,000 shares for the six months ended June 30, 2000 and
1999, respectively. Excluded from the computation of diluted earnings
(loss) per common share for the six months ended June 30, 2000 and 1999 are
options and convertible securities to acquire 13,683,000 and 8,515,000
shares of Series A Common Stock and Series B Common Stock, respectively,
because inclusion of such options and convertible securities would be
anti-dilutive.
(6) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was 158,000 for the six months ended June 30, 2000
and was not significant for the six months ended June 30, 1999. Cash paid
for income taxes was not significant during the six months ended June 30,
2000 and 1999.
I-10
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
Significant non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
2000 1999
--------- -------
(amounts in thousands)
<S> <C> <C>
Cash received in Liberty Transactions:
Value of investments received $(649,385) --
Debt issued 60,000 --
Deferred tax liability assumed 114,628 --
Redeemable preferred stock issued 185,372 --
Minority interests 539,005 --
--------- -------
$ 249,620 --
========= =======
Assumption of amounts due to Phoenixstar in
exchange for Ground Satellite $ -- 139,500
========= =======
</TABLE>
(7) INVESTMENT IN SPRINT PCS STOCK
As noted above, the Company acquired beneficial interest in 5,084,745
shares of Sprint PCS Stock as part of the Liberty Transactions. The Company
accounts for such investment as an available-for-sale security. The closing
share price of Sprint PCS Stock on June 30, 2000 was $59.50 per share.
In June and July 2000, the trust holding the Sprint PCS Stock for TSAT's
benefit entered into a two and one-half year "cashless collar" with a
financial institution with respect to TSAT's Sprint PCS Stock. The collar
provides the trust with a put option that gives it the right to require its
counterparty to buy 5,084,745 shares of Sprint PCS Stock from the trust in
seven tranches in approximately two and one-half years for a weighted
average price of $59.71 per share. TSAT simultaneously sold a call option
giving the counterparty the right to buy the same shares of stock from the
trust in seven tranches in approximately two and one-half years for a
weighted average price of $82.39 per share. The put and call options for
this collar were equally priced, resulting in no cash cost to the trust or
TSAT.
As TSAT's cashless collar is designated to specific shares of Sprint PCS
Stock for which the Company has beneficial interest, and the changes in the
fair value of the cashless collar are correlated with changes in the fair
value of the underlying securities, the cashless collar functions as a
hedge. Accordingly, changes in the fair value of the cashless collar are
reported as a component of comprehensive income (in unrealized gains) along
with the changes in the fair value of the Sprint PCS Stock.
(8) INVESTMENTS IN AFFILIATES
TSAT uses the equity method to account for investments in which its voting
percentage is 20% to 50%. Pursuant to the Liberty Transactions described in
note 2, Liberty contributed its approximate 32% ownership interest in
Astrolink International L.L.C. ("Astrolink") to the TSAT LLC's. Liberty
contributed
I-11
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
Astrolink at its net book value at the date of the transaction. Astrolink
is currently in its developmental stages but intends to build a global
telecom network using Ka-band geostationary satellites to provide broadband
data communications services. The first two satellites are expected to be
launched in 2002 and are intended to serve customers in North and South
America, Europe and the Middle East. Additional spacecraft are expected to
extend the network worldwide and may provide in-orbit backup, as well.
During the second quarter of 2000, LSAT LLC invested $12.6 million in
exchange for an approximate 22.7% ownership interest in Aerocast.com, Inc.
("Aerocast"). LSAT LLC also received warrants to purchase Aerocast
preferred stock, which if exercised in full, would increase LSAT LLC's
interest in Aerocast to approximately 36%. The aggregate exercise price for
the warrants is $7.35 million. Aerocast is developing next generation
streaming media technologies for broadband network operators and video
content providers. Aerocast intends to utilize terrestrial and satellite
platforms to distribute streaming media to businesses and consumers with
high-speed internet access.
Summarized operational data for Astrolink and Aerocast since their
respective acquisitions is as follows:
<TABLE>
<S> <C>
Investment income $ 2,172
Operating expenses (8,686)
Depreciation and amortization (171)
-------
$(6,685)
=======
</TABLE>
(9) OTHER INVESTMENTS
The following table summarizes TSAT's other investments at June 30, 2000
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Accounting Book
Investment method basis
------------------------------------------ ---------- ---------
<S> <C> <C>
(a) Investments in various Latin American
satellite companies Cost $ 107,750
(b) XM Satellite Radio, Inc. ("XMSR") AFS* 37,438
(c) iSKY, Inc. Cost 60,995
(d) Other Cost 11,000
---------
$ 217,183
=========
</TABLE>
*Denotes an investment carried as an available-for-sale security.
(a) Represents the aggregate book basis of a number of different satellite
television operators located in Mexico, Brazil, Chile and Columbia.
LSAT LLC has a 10% beneficial interest in each Latin and South
American company.
I-12
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
(b) XMSR, a publicly traded company, plans to transmit up to 100 national
audio channels of music, news, talk, sports and children's programming
from two satellites directly to vehicle, home and portable radios.
LSAT LLC currently owns 1,000,000 shares of XMSR common stock
representing an approximate 2% interest. XMSR closing stock price as
of June 30, 2000 was $37.44 per share.
(c) iSky, Inc. plans to build a Ka-band satellite network that will focus
on providing broadband services to homes and small offices in North
America and Latin America. LSAT LLC owns an approximate 18% interest
in iSky, Inc.
(d) Includes investments in Jato Communications Corp.; Netbeam,
Incorporated; and Prairie Inet, LLC.
(10) AMOUNTS DUE TO PARENT
Certain payroll and other expenses are advanced to TSAT by Liberty. Such
advances are non-interest bearing, aggregated $123,000 at June 30, 2000,
and are repaid monthly.
The Company entered into a $60,000,000 promissory note on March 16, 2000 in
exchange for its interest in LSAT Astro. The note bears interest at Libor
plus 2% (approximately 8.19% at June 30, 2000). Interest payments are due
semi-annually on the first day of March and September, commencing on
September 1, 2000. The note, which allows for prepayments, matures on March
16, 2003 at which time all unpaid principal and interest is due. Accrued
interest aggregated $1,440,000 at June 30, 2000.
(11) DEBT
On November 19, 1999, TSAT entered into a bank loan agreement (the "TSAT
Credit Facility") with aggregate commitments of $25,000,000. The TSAT
Credit Facility is unsecured and is due upon 10 days notice from the
lending bank.
At June 30, 2000, $21,644,000 had been borrowed under the TSAT Credit
Facility at a weighted average interest rate of 8.3% per annum. The Company
pays a commitment fee of 0.75% on the unused portion of the TSAT Credit
Facility.
At June 30, 2000, the fair value of the Company's debt approximated its
carrying value.
(12) REDEEMABLE PREFERRED STOCK
On March 16, 2000, the Company issued 150,000 shares of Series A Cumulative
Preferred Stock ("Series A Preferred Stock") and 150,000 shares of Series B
Preferred Stock to Liberty in exchange for shares of Sprint PCS Stock.
I-13
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
SERIES A CUMULATIVE PREFERRED STOCK
The Series A Preferred Stock accrues dividends at 12% per annum at all
times prior to April 1, 2005, 11% on and after April 1, 2005 and prior to
April 1, 2010, and 10% on and after April 1, 2010. Such dividends are
payable the last day of each March, June, September and December. Dividends
not paid are added to the liquidation preference on such date and remain a
part of the liquidation preference until such dividends are paid. On and
after the occurrence and during the continuation of a default, the dividend
rate will be equal to the dividend rate then in effect plus 2%. Subject to
certain specified exceptions, the Company is prohibited from paying
dividends on any shares, parity securities or junior securities and from
setting aside any money or assets for any such purpose during any period in
which the Company is in arrears with respect to payment of dividends on
Series A Preferred Stock.
The holder of Series A Preferred Stock is not entitled to vote on any
matters submitted to a vote of the shareholders of TSAT, except as required
by law and other limited exceptions.
The liquidation preference of each share of the Series A Preferred Stock is
equal to the sum of (a) the stated value per share of $1,000, plus (b) an
amount equal to all dividends accrued and unpaid on such shares.
The Series A Preferred Stock is redeemable at the option of the Company by
action of the Board of Directors, in whole or from time to time in part, on
any business day after April 1, 2020 at the redemption price per share
equal to the liquidation preference of such share on the applicable
redemption date. If less than all outstanding shares are to be redeemed,
shares will be redeemed ratably among the holders. On or after April 1,
2020, the Series A Preferred Stock is redeemable at the option of the
holder for cash.
SERIES B CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK
The Series B Preferred Stock accrues dividends at the rate of 8% per annum.
Such dividends are payable the last day of each March, June, September and
December. Dividends not paid are added to the liquidation preference on
such date and remain a part of the liquidation preference until such
dividends are paid. On and after the occurrence and during the continuance
of a default, the dividend rate will be 10% per annum. Subject to certain
specified exceptions, the Company is prohibited from paying dividends on
any shares, parity securities or junior securities and from setting aside
any money or assets for any such purpose during any period in which the
Company is in arrears with respect to payment of dividends on Series B
Preferred Stock.
In addition to voting rights required by law, each share of Series B
Preferred Stock will be entitled to vote together with holders of the
Series A and Series B Common Stock as a single class upon all matters upon
which holders of Series A and Series B Common Stock are entitled to vote.
In any such vote, the holders of Series B Preferred Stock will be entitled
to 5,580 votes per share held. The Series B Preferred Stock is redeemable
at the option of the Company on April 1,
I-14
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
2005. At any date on or after April 1, 2020, the Series B Preferred Stock
is redeemable at the option of the holder for cash.
The liquidation preference of each share of the Series B Preferred Stock as
of any date of determination is equal to the sum of (a) the stated value
per share of $1,000, plus (b) an amount equal to all dividends accrued and
unpaid on such shares.
Each share of the Series B Preferred Stock is initially convertible into
113.1145 shares of Series B Common Stock. Such conversion rate was
calculated as the liquidation value of such shares divided by $8.8406 and
is adjustable based on the adjusted liquidation value at the date of
conversion.
Both the Series A and Series B Preferred Stock were issued at a discount
from the stated values of such shares. Therefore, the Company is accreting
both the Series A Preferred Stock and the Series B Preferred Stock up to
the respective redemption values over the period from the issuance date to
the redemption date using the effective interest method. Accretion on the
Series A and Series B Preferred Stock for the period from March 16, 2000 to
June 30, 2000 aggregated $1,671,000, has been accounted for as a direct
charge to additional-paid-in-capital and has been included in the
calculation of loss attributed to common shareholders.
(13) STOCK OPTIONS
Certain officers and key employees of the Company are party to stock based
compensation arrangements. Participants under the Company's plans hold
options, some of which have tandem stock appreciation rights, which base
compensation on the performance of the Company's stock. Stock compensation
expense has been recorded in the accompanying consolidated financial
statements pursuant to APB Opinion No. 25. Such amounts are subject to
future adjustments based upon vesting and the market value of the Company's
Series A Common Stock when the rights are exercised. The consolidated
statements of operations and comprehensive income (loss) for the six months
ended June 30, 2000 include adjustments of $2,787,000 as a result of a
decrease in the market price of the Company's common stock.
(14) INCOME TAXES
Pursuant to the Liberty Transactions described in note 2, the Company
recorded an approximate $114 million deferred tax liability in connection
with its investment in Sprint PCS Stock, which is accounted for as an
available-for-sale security in the accompanying consolidated financial
statements. Tax net operating losses are available to offset this future
taxable income. Accordingly, a portion of the tax valuation allowance
established as of December 31, 1999 for deferred tax assets has been
reversed. The Company has accounted for the decrease in the tax valuation
allowance for the six months ended June 30, 2000 as a direct credit to
additional paid-in capital in the accompanying consolidated financial
statements.
I-15
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
(15) COMMITMENTS
Pursuant to the terms of the Liberty Transactions, Liberty contributed
$249,620,000 in cash to LSAT Astro. The Company intends to use such cash to
fund future capital requirements of Astrolink ($217.9 million at June 30,
2000). TSAT and LSAT Astro assumed the commitment for such capital
requirements in connection with the Liberty Transactions.
I-16
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis provides information concerning the
financial condition and results of operations of TSAT and should be read in
conjunction with (i) the accompanying condensed consolidated financial
statements of TSAT, and (ii) the consolidated financial statements, and related
notes thereto, of TSAT, and MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS included in TSAT's Annual Report on Form
10-K for the year ended December 31, 1999.
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of TSAT, or industry results, to
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such risks, uncertainties and
other factors include, among others: general economic and business conditions
and industry trends; uncertainties inherent in proposed business strategies and
development plans, including uncertainties regarding possible regulatory issues
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"); future financial performance, including availability, terms and
deployment of capital; the ability of vendors to deliver required equipment,
software and services; availability of qualified personnel; changes in, or the
failure or the inability to comply with, government regulations, including,
without limitation, regulations of the FCC, and adverse outcomes from regulatory
proceedings; changes in the nature of key strategic relationships with partners
and joint ventures; and other factors referenced in this Report. These
forward-looking statements speak only as of the date of this Report. TSAT
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in TSAT's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
See note 2 to the accompanying consolidated financial statements for a
discussion of the Liberty Transactions.
See note 3 to the accompanying consolidated financial statements for a
discussion of the transactions with Hughes.
See note 4 to the accompanying consolidated financial statements for a
description of the Restructuring.
I-17
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Subsequent to the TSAT Asset Transfer, the Company has had no significant
operations other than (i) expenses associated with the operation and maintenance
of the Tempo Satellites, prior to the sale to Hughes effective June 4, 1999
($4,511,000 during the six months ended June 30, 1999), (ii) general and
administrative expenses incurred to manage the Company's investments and its
status as a publicly traded company ($1,573,000 and $117,000 during the six
months ended June 30, 2000 and 1999, respectively), and (iii) expenses incurred
by a subsidiary of the Company to conduct research and development in certain
emerging technologies. In addition, the Company incurred approximately $800,000
in investment banking, legal and accounting fees with respect to the Liberty
Transactions. During the six months ended June 30, 2000, the Company also
recorded a $2,787,000 reduction in stock compensation expense primarily as a
result of a decrease in its stock price through June 30, 2000.
Effective February 1, 2000, the Company entered into a management agreement with
Phoenixstar pursuant to which the Company is managing Phoenixstar's affairs in
exchange for a monthly fee. Such fees aggregated $130,000 and $220,000 for the
three and six months ended June 30, 2000, respectively.
In May 2000, the Company sold 2.4 million shares of GMH Stock (on a
split-adjusted basis) for net cash proceeds of $74,243,000 (after fees and
commissions of $717,000) and used $65,721,000 of such net cash proceeds to
satisfy the GMH SAR Liability. The Company recognized a gain on the sale of the
GMH Stock of $36,643,000, which was more than offset by a loss on the
satisfaction of the GMH SAR Liability of $65,721,000. The Company continues to
own 1,821,921 shares of GMH Stock.
During the three and six months ended June 30, 2000, TSAT recognized interest
expense of $1,235,000 and $1,440,000, respectively, related to its note payable
to Liberty and $312,000 and $449,000, respectively, related to the TSAT Credit
Facility. TSAT had no debt or interest expense during the six months ended June
30, 1999.
TSAT recognized interest income of $3,561,000 and $4,234,000 during the three
and six months ended June 30, 2000, respectively. Such income was earned
primarily on the cash balance maintained by LSAT Astro which the Company
acquired as part of the Liberty Transactions.
During the three and six months ended June 30, 2000, the Company's share of
losses of affiliates aggregated $1,967,000 and $2,106,000, respectively,
primarily related to its investment in Astrolink.
The Company recorded minority share of earnings aggregating $17,775,000 and
$18,166,000 during the three and six months ended June 30, 2000,
respectively. Such share of earnings relates primarily to LSAT LLC's loss on
the sale of GMH Stock and gain on the payment of the GMH SAR. Such loss and
gain are based on LSAT LLC's basis in GMH Stock and the GMH SAR liability
recorded in connection with the formation of LSAT LLC.
During the six months ended June 30, 1999, TSAT recognized $66,143,000 of other
income upon the receipt from Phoenixstar of the GMH Stock in connection with the
consummation of the Hughes Medium Power Transaction.
I-18
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
MATERIAL CHANGES IN FINANCIAL CONDITION
As a result of the consummation of the Hughes transactions, the Company
currently has no operating income or cash flow. On November 19, 1999, TSAT
entered into the TSAT Credit Facility with aggregate commitments of $25,000,000.
At June 30, 2000, $21,644,000 had been drawn under the TSAT Credit Facility at a
weighted average interest rate of 8.3% per annum. The unused portion of the TSAT
Credit Facility is charged a commitment fee at a rate of 0.75%.
Through March 15, 2000, the TSAT Credit Facility was collateralized by the GMH
Stock. Upon consummation of the Liberty Transactions and the contribution by
TSAT of the GMH Stock to LSAT LLC, the TSAT Credit Facility is no longer
collateralized. As a result, the TSAT Credit Facility was converted to a demand
note which is due and payable upon 10 days notice from the lending institution.
During the six months ended June 30, 2000, the Company funded its operating
activities and its investments in affiliates with a combination of (i)
contributions from Liberty, (ii) borrowings of debt and (iii) net cash proceeds
from the sale of GMH Stock.
In June and July 2000, the trust holding the Sprint PCS Stock for TSAT's benefit
entered into a two and one-half year "cashless collar" with a financial
institution with respect to TSAT's Sprint PCS Stock. The collar provides the
trust with a put option that gives it the right to require its counterparty to
buy 5,084,745 shares of Sprint PCS Stock from the trust in seven tranches in
approximately two and one-half years for a weighted average price of $59.71 per
share. TSAT simultaneously sold a call option giving the counterparty the right
to buy the same shares of stock from the trust in seven tranches in
approximately two and one-half years for a weighted average price of $82.39 per
share. The put and call options for this collar were equally priced, resulting
in no cash cost to the trust or TSAT.
The Company intends to enter into a loan agreement based upon the value of the
Sprint PCS Stock put option described above. There is no assurance that the
Company will be able to negotiate such an agreement on terms acceptable to the
Company.
Pursuant to the terms of the Liberty Transactions, Liberty contributed
$249,620,000 in cash to LSAT Astro. The Company intends to use such cash to fund
future capital requirements of Astrolink ($217.9 million at June 30, 2000). TSAT
and LSAT Astro assumed the commitment for such capital requirements in
connection with the Liberty Transactions.
The Company currently intends to leverage its capital position and its role as
managing member of the TSAT LLC's to pursue strategic opportunities worldwide in
the distribution of internet data and other content via satellite and related
businesses and is actively seeking to develop and/or acquire operating
businesses related to, or complementary with, such strategy.
I-19
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
TSAT will continue to be subject to the risks associated with operating as a
holding company including possible regulation under the Investment Company Act.
TSAT does not currently intend to be an investment company within the meaning of
the Investment Company Act.
I-20
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2000, the Company had $77,978,000 of variable-rate debt with a
weighted-average interest rate of 8.2%. Accordingly, the Company is sensitive to
market rate risk. To date, the Company had not entered into any derivative
instruments to manage its interest rate exposure. $21,644,000 of such
variable-rate debt is due upon demand, and $56,334,000 is due in 2003.
The Company also has price risk related to investments in equity securities. The
following table summarizes the market risk for the Company:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------------- ---------------------------------------
Shares Shares
Owned Fair value Carrying value Owned Fair value Carrying value
------- ------------ -------------- ------- ------------ --------------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Equity price risk:
GMH Stock (1) 1,822 $ 53,291 $ 53,291 4,222 $135,101 $135,101
Sprint PCS Stock (2) 5,085 $302,542 $302,542 -- $ -- $ --
XMSR Stock 1,000 $ 37,438 $ 37,438 -- $ -- $ --
</TABLE>
(1) Shares owned reflect a 3 for 1 stock split effected July 3, 2000.
(2) In June and July 2000, the trust holding the Spring PCS Stock for TSAT's
benefit entered into a two and one-half year "cashless collar" with a
financial institution with respect to TSAT's Sprint PCS Stock. The collar
provides the trust with a put option that gives it the right to require its
counterparty to buy 5,084,745 shares of Sprint PCS Stock from the trust in
seven tranches in approximately two and one-half years for a weighted average
price of $82.39 per share. The put and call options for this collar were
equally priced, resulting in no cash cost to the trust or TSAT.
I-21
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
(A Consolidated Subsidiary of Liberty Media Corporation)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended June 30, 2000:
None
II-1
<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.
TCI SATELLITE ENTERTAINMENT, INC.
Date: August 11, 2000 By: /s/ Kenneth G. Carroll
------------------------------
Kenneth G. Carroll
Senior Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
Officer)
Date: August 11 , 2000 By: /s/ Mark E. Burton
------------------------------
Mark E. Burton
Vice President
(Chief Accounting Officer)
II-2
