<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 September 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
LIBERTY SATELLITE & TECHNOLOGY, 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
TCI SATELLITE ENTERTAINMENT, INC.
---------------------------------
(Former name)
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 Liberty Satellite & Technology, Inc.'s
common stock as of October 31, 2000, was:
Series A common stock - 65,468,058 shares; and
Series B common stock - 7,735,533 shares.
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
amounts in thousands
<S> <C> <C>
Assets
------
Cash and cash equivalents (note 15) $ 208,273 2,473
Receivables and prepaid expenses 1,228 113
Investment in General Motors Corporation Class H
common stock ("GM Hughes Stock"), at fair
value (note 3) 67,739 135,101
Investment in Sprint Corporation PCS Group Stock
("Sprint PCS Stock"), at fair value (note 7) 271,932 --
Investments in affiliates accounted for using the equity
method (note 8) 262,687 --
Other investments, at cost (note 9) 234,827 5,000
Support equipment, net 258 275
Deferred financing costs 141 235
----------- -----------
$ 1,047,085 143,197
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable and accrued expenses $ 510 263
Due to parent (note 10)
Accrued interest 493 --
Other accrued expenses 159 --
Note payable 54,982 --
----------- -----------
55,634 --
----------- -----------
Taxes payable 650 650
GM Hughes Stock share appreciation right
liability (note 3) -- 68,959
Employee stock appreciation right liability 838 5,554
Debt (note 11) 58,147 3,044
Put option liability (note 9) 12,306 --
----------- -----------
Total liabilities 128,085 78,470
----------- -----------
Minority interests in equity of consolidated subsidiaries 586,024 --
Redeemable preferred stock (notes 2 and 12) 195,171 --
Stockholders' Equity:
Series A common stock, $1 par value; authorized
185,000,000 shares; issued 64,757,386 in 2000 and
62,894,446 in 1999 64,757 62,894
Series B common stock, $1 par value; authorized
30,000,000 shares; issued 7,740,642 in 2000 and
8,465,224 in 1999 7,741 8,465
Additional paid-in capital 929,061 825,726
Accumulated other comprehensive income 11,582 --
Accumulated deficit (875,011) (832,358)
----------- -----------
138,130 64,727
Series A common stock held in treasury, at cost (29,545
shares) (325) --
----------- -----------
Total stockholders' equity 137,805 64,727
----------- -----------
Commitment (note 15)
$ 1,047,085 143,197
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Statements of Operations
and Other Comprehensive Income (Loss)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
amounts in thousands, except per share amounts
<S> <C> <C>
Management fee revenue $ 120 -- 340 --
Operating costs and expenses:
Operating -- -- -- 4,511
Selling, general and administrative 660 87 3,033 205
Stock compensation (note 13) 542 144 (2,245) 469
Depreciation 29 -- 69 --
-------- -------- -------- --------
1,231 231 857 5,185
-------- -------- -------- --------
Operating loss (1,111) (231) (517) (5,185)
Other income (expense):
Gain on sale of GM Hughes Stock
(note 3) -- -- 36,643 --
Loss on GM Hughes Stock share
appreciation rights (note 3) -- -- (65,721) --
Interest income 3,055 69 7,289 100
Interest expense-parent (1,292) -- (2,732) --
Interest expense-other (514) -- (963) --
Share of losses of affiliates (2,394) -- (4,500) --
Minority interests in earnings of
consolidated subsidiaries (442) -- (18,608) --
Gain on sale of satellites (note 3) -- -- -- 13,712
Other, net (note 3) -- -- -- 66,143
-------- -------- -------- --------
(1,587) 69 (48,592) 79,955
-------- -------- -------- --------
Earnings (loss) before income taxes (2,698) (162) (49,109) 74,770
Income tax benefit (expense) (note 14) (8,946) -- 6,456 --
-------- -------- -------- --------
Net earnings (loss) (11,644) (162) (42,653) 74,770
Accretion of redeemable preferred stock
(note 12) (1,432) -- (3,104) --
Dividends on redeemable preferred stock (7,500) -- (16,233) --
-------- -------- -------- --------
Net earnings (loss) attributable to
common shareholders $(20,576) (162) (61,990) 74,770
======== ======== ======== ========
Basic and diluted earnings (loss) per
common share (note 5) $ (0.29) (.002) (0.86) 1.09
======== ======== ======== ========
Other comprehensive income:
Net earnings (loss) $(11,644) (162) (42,653) 74,770
Unrealized holding gains (losses), net of
taxes and reclassification adjustment (17,589) 1,319 11,582 14,425
Unrealized loss on share appreciation
rights liability, net of taxes
and reclassification adjustment -- (1,319) -- (14,425)
-------- -------- -------- --------
Comprehensive income (loss) $(29,233) (162) (31,071) 74,770
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Statement of Stockholders' Equity
Nine months ended September 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> <C>
Balance at January 1, 2000 $ 62,894 8,465 825,726 -- (832,358) -- 64,727
Net loss -- -- -- -- (42,653) -- (42,653)
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 -- -- -- 11,582 -- -- 11,582
Accretion and dividends on
redeemable preferred stock -- -- (19,337) -- -- -- (19,337)
Issuance of Series A common stock for
preferred stock dividends 954 -- 7,779 -- -- -- 8,733
Recognition of stock compensation
related to stock options and
restricted stock awards -- -- 22 -- -- -- 22
Issuance of Series A common stock
upon exercise of stock options 72 -- 425 -- -- -- 497
Issuance of common stock related to
restricted stock awards 113 -- (113) -- -- -- --
Series B common stock exchanged for
Series A common stock 724 (724) -- -- -- -- --
Repurchase of Series A common stock -- -- -- -- -- (325) (325)
Preferential dividend to related party
(note 9) -- -- (69) -- -- -- (69)
-------- -------- -------- -------- -------- -------- --------
Balance at September 30, 2000 $ 64,757 7,741 929,061 11,582 (875,011) (325) 137,805
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
2000 1999
--------- ---------
amounts in thousands
(see note 6)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (42,653) 74,770
Adjustments to reconcile net earnings (loss) to net
cash used by operating activities:
Depreciation 69 --
Gain on sale of GM Hughes Stock (36,643) --
Loss on GM Hughes Stock share appreciation rights 65,721 --
Share of losses of affiliates 4,500 --
Minority interests in earnings of consolidated
subsidiaries 18,608 --
Deferred tax benefit (6,456) --
Amortization of deferred loan costs 94 --
Stock compensation (2,245) 469
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 (1,115) (146)
Change in accruals and payables 665 --
--------- ---------
Net cash used by operating activities (1,891) (4,762)
--------- ---------
Cash flows from investing activities:
Net proceeds from sale of GM Hughes Stock 74,243 --
Payment of GM Hughes Stock share appreciation rights (65,721) --
Investments in affiliates (148,345) (2000)
Capital expended for property and equipment (52) (136)
Proceeds received from the Liberty transaction 249,620 --
Net proceeds from sale of satellites -- 2,500
--------- ---------
Net cash provided by investing activities 109,745 364
--------- ---------
Cash flows from financing activities:
Borrowings of debt 55,103 --
Repayments of note payable to parent (5,018) --
Contributions by minority owners of subsidiaries 47,689 --
Proceeds from exercise of stock options 497 --
Purchase of common stock from director (325) --
Increase in due to Phoenixstar -- 4,849
Issuance of common stock -- 3,452
--------- ---------
Net cash provided by financing activities 97,946 8,301
--------- ---------
Net increase in cash and cash
equivalents 205,800 3,903
Cash and cash equivalents:
Beginning of period 2,473 --
--------- ---------
End of period $ 208,273 3,903
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Liberty Satellite & Technology, Inc. (formerly TCI Satellite
Entertainment, Inc.) and those of all majority-owned or controlled
subsidiaries, including the LSAT JVs described in note 2, ("LSAT" 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, LSAT is currently a holding company, and since March 16, 2000, has
been a consolidated subsidiary of Liberty Media Corporation. As a holding
company, LSAT has had no significant direct 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 LSAT JVs to pursue strategic opportunities
worldwide in the distribution of internet data and other content via
satellite and related businesses. The Company 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
LSAT 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 LSAT as of September
30, 2000 and the results of its operations for the nine months ended
September 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 LSAT'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.
I-5
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
Certain amounts have been reclassified for comparability with the 2000
presentation.
(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 LSAT Series A Preferred Stock with a liquidation value of $150 million
and 150,000 shares of LSAT 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.
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 "LSAT JVs"). The
Company contributed (i) its beneficial interest in 4,221,921 shares of
GM Hughes Stock (as adjusted for a 3 for 1 stock split effective July 3,
2000), net of the GM Hughes Stock share appreciation right liability
described in note 3, and (ii) 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 LSAT JVs were recorded at
their net book values at the date of contribution. In addition, LSAT
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 LSAT JVs and has
decision-making authority with respect to significant business
transactions, including the purchase and sale of assets, entered into by
such entities. Accordingly, the results of operations of the LSAT JVs 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
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
I-6
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
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 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
I-7
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
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.
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 GM Hughes 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 LSAT of consideration in the form of 4.221 million shares of
GM Hughes 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 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 "LSAT GMH SAR") with respect to the shares of
GM Hughes Stock received as the Phoenixstar Payment, granting Phoenixstar
the right to any market price appreciation in such GM Hughes 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, LSAT also agreed to forego any liquidating
distribution or other payment that
I-8
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
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 GM Hughes Stock (on a split-adjusted basis) from
Phoenixstar in satisfaction of the Phoenixstar Payment.
Effective May 10, 2000, the Company sold 2.4 million shares of GM Hughes
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 LSAT GMH SAR, and recognized a loss of
$65,721,000.
The Company, through LSAT LLC, continues to hold 1,821,921 shares of GM
Hughes Stock and accounts for such shares as available-for-sale. The
closing price of GM Hughes Stock as of September 30, 2000 was $37.18.
(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 the Company, Phoenixstar (which, prior
to the Restructuring was a wholly-owned subsidiary of the Company), 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 the
Company and Phoenixstar, a business combination (the "Restructuring") was
consummated. In connection with the Restructuring, the Company contributed
and transferred to Phoenixstar (the "TSAT Asset Transfer") all of the
Company's assets and liabilities except (i) the capital stock of Tempo,
(ii) the consideration to be received by the Company in the Restructuring
and (iii) the rights and obligations of the Company 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 the
Company's indebtedness on such date, and the Company received from
Phoenixstar 66.3 million shares of Class A Common Stock of Phoenixstar and
8.5 million shares of Class B Common Stock of Phoenixstar, in accordance
with the Restructuring Agreement and the TSAT Asset Transfer Agreement. As
a result, the Company owned approximately 37% of the outstanding shares of
I-9
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
common equity of Phoenixstar, representing approximately 38% of the
combined voting power of such common equity.
As of September 30, 2000, the Company's share of losses of Phoenixstar had
reduced the book value of the Company's investment in Phoenixstar to zero.
Also, as noted above, the Company has no further commitment to fund
obligations of Phoenixstar. Pursuant to the terms of the Phoenixstar
Payment Agreement, the Company has 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
$340,000 for the nine months ended September 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) and options that are not "in the
money" 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 72,066,000 and
70,330,000 shares for the three months ended September 30, 2000 and 1999,
respectively, and 71,682,000 and 68,660,000 shares for the nine months
ended September 30, 2000 and 1999, respectively. Excluded from the
computation of diluted earnings (loss) per common share for the nine
months ended September 30, 2000 and 1999 are options and convertible
securities to acquire 16,536,000 and 8,515,000 shares of LSAT 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 2,865,000 for the nine months ended September
30, 2000 and was not significant for the nine months ended September 30,
1999. Cash paid for income taxes was not significant during the nine
months ended September 30, 2000 and 1999.
I-10
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(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>
Nine months ended
September 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 --
========= =========
Issuance of note payable in exchange for cost
investment $ -- 3,000
========= =========
Assumption by Hughes of amounts due to
Phoenixstar in exchange for Tempo Satellites $ -- 465,000
========= =========
</TABLE>
(7) Investment in Sprint PCS Stock
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 September 30, 2000 was $35 1/8 per share.
In June and July 2000, the trust holding the Sprint PCS Stock for LSAT's
benefit entered into a two and one-half year "cashless collar" with a
financial institution with respect to LSAT'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. LSAT 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 the Company.
As the Company'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.
I-11
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
(8) Investments in Affiliates
The Company 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, the Company consolidates an approximate 32% ownership
interest in Astrolink International L.L.C. ("Astrolink"). Liberty
contributed 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, which expire in March 2001, 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 acquisition are as follows:
<TABLE>
<S> <C>
Operating expenses $ (18,190)
Depreciation and amortization (337)
Other Income 4,094
----------
Net loss $ (14,433)
==========
</TABLE>
(9) Other Investments
The following table summarizes LSAT's other investments at September 30,
2000 (amounts in thousands):
<TABLE>
<CAPTION>
Accounting Book
Investment method basis
----------------------------------------------- ---------- ---------
<S> <C> <C>
(a) Investments in various Latin American
satellite companies ("Sky Latin America") Cost $ 118,910
(b) XM Satellite Radio, Inc. ("XMSR") AFS* 43,063
(c) Wildblue Communications, Inc. ("Wildblue") Cost 60,995
(d) Other Cost 11,859
---------
$ 234,827
=========
</TABLE>
*Denotes an investment carried as an available-for-sale security.
I-12
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
(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 of the Sky Latin America
businesses discussed below.
On September 27, 2000, Liberty and The News Corporation Limited ("News
Corp") announced that they had reached an agreement pursuant to which,
among other things, Liberty will transfer various assets to a
subsidiary of News Corp, Sky Global Networks, Inc. ("SGN"), in exchange
for shares of SGN common stock representing 4.76% of the outstanding
shares of the class (the "SGN Transaction"). That percentage interest
is subject to reduction upon the issuance of additional shares of that
class by SGN. The assets to be transferred by Liberty to SGN will
consist of its interests in the partnerships operating the Sky Latin
America businesses (the "Sky Latin America Interests") and a portion of
Liberty's shares in Gemstar-TV Guide International Group, Inc. Liberty
is obligated to contribute any proceeds of the disposition of the Sky
Latin America Interests to LSAT LLC. The SGN Transaction is subject to
various conditions, including completion of SGN's initial public
offering and receipt of required governmental and other material third
party approvals, and is expected to be completed in the first quarter
of 2001.
(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 September 30, 2000
was $43 1/16 per share.
(c) Wildblue (formerly 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 19%
interest in Wildblue.
(d) Includes investments in Jato Communications Corp.; Netbeam, Incorporated;
and Prairie Inet, LLC.
Effective September 29, 2000 (the "iBEAM Closing Date"), LSAT LLC acquired a 1%
managing common interest in a joint venture ("IB2 LLC") from a subsidiary of
Liberty Digital, Inc. ("LDIG") for $652,000. LDIG, a consolidated subsidiary of
Liberty Media Corporation, retained a preferred interest (the "Preferred
Interest") in IB2 LLC, which owns approximately 3.6 million shares of iBEAM
Broadcasting Corp. common stock ("iBEAM Stock"). The Preferred Interest has an
initial liquidation value of $64,574,000 and is entitled to a return of 9%
compounded annually. As part of the transaction, LSAT LLC granted LDIG the right
to put the Preferred Interest to LSAT LLC for a purchase price equal to $26
million (the value of iBEAM Stock on the iBEAM Closing Date) plus 9% compounded
annually. LSAT LLC has the right to call LDIG's Preferred Interest at a price
equal to the initial liquidation value plus 9% compounded annually. Both the
I-13
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
put and call options are exercisable eight years from the iBEAM Closing Date.
Due to the related party nature of the transaction, the fair value of the put
option liability on the iBEAM Closing Date that is not attributable to the
minority interests has been reflected as a reduction of redeemable preferred
stock in the accompanying financial statements. Similarly, LSAT's 10.59% of the
cash paid for LSAT LLC's interest in IB2 LLC has been reflected as a direct
charge to additional paid-in capital.
(10) Amounts Due to Parent
Certain payroll and other expenses are advanced to the Company by Liberty.
Such advances are non-interest bearing, aggregated $159,000 at September
30, 2000, and are repaid monthly.
On March 16, 2000, the Company entered into a $60,000,000 promissory note
payable to Liberty in exchange for its interest in LSAT Astro. The note
bears interest at Libor plus 2% (8.61% at September 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 $493,000 at September 30, 2000.
(11) Debt
Debt is summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
PCS Loan (a) $35,003 --
LSAT Bank Credit Facility (b) 23,144 3,044
------- -------
$58,147 3,044
======= =======
</TABLE>
(a) Effective September 29, 2000, the Company entered into a $35 million
loan agreement (the "PCS Loan Agreement"), which is secured by the
Company's interest in the shares of Sprint PCS Stock the Company
received in the Liberty Transactions and by the Sprint PCS cashless
collar described in note 7. Interest accrues at LIBOR (6.2% at
September 30, 2000) and is payable monthly. The principal balance is
due and payable March 10, 2003.
(b) On November 19, 1999, the Company entered into a bank loan agreement
(the "LSAT Bank Credit Facility") with aggregate commitments of
$25,000,000. The LSAT Bank Credit Facility is unsecured and is due
upon 10 days notice from the lending bank. Interest accrues at LIBOR
plus an applicable margin (8.5% at September 30, 2000), and the
Company pays a commitment fee of 0.375% on the unused portion of the
LSAT Bank Credit
I-14
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
Facility. Subsequent to September 30, 2000, the Company used
proceeds from the PCS Loan to repay and cancel the LSAT Bank Credit
Facility.
At September 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.
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. Prior to
March 31, 2003, dividends may be paid, at the option of the Company, in
cash, shares of Series A common stock of the Company, or a combination of
both. Subsequent to March 31, 2003, dividends are payable in cash.
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 the Company, 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 a 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.
I-15
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
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. Prior to March 31, 2003, dividends may be paid, at
the option of the Company, in cash, shares of Series A common stock of the
Company, or a combination of both. Subsequent to March 31, 2003, dividends
are payable in cash. 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, 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.
Accrued dividends on the Series A Preferred Stock and Series B Preferred
Stock aggregated $7,500,000 at September 30, 2000.
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 September 30, 2000 aggregated $3,104,000, has been accounted for as a
direct charge to additional paid-in capital and has been included in the
calculation of loss attributable to common shareholders.
I-16
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Notes to Condensed Consolidated Financial Statements
(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 nine months ended September 30, 2000 include adjustments of $2,245,000
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 nine months ended September 30, 2000 as a direct credit
to additional paid-in capital in the accompanying 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 (estimated to be $169
million at September 30, 2000). LSAT and LSAT Astro assumed the commitment
for such capital requirements in connection with the Liberty Transactions.
I-17
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(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 the Company and should be read
in conjunction with (i) the accompanying condensed consolidated financial
statements of the Company, and (ii) the consolidated financial statements, and
related notes thereto, of the Company, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company'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 the Company, 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. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company'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 condensed consolidated financial statements for a
discussion of the Liberty Transactions.
See note 3 to the accompanying condensed consolidated financial statements for a
discussion of the transactions with Hughes.
See note 4 to the accompanying condensed consolidated financial statements for a
description of the Restructuring.
I-18
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Material Changes in Results of Operations
Subsequent to the TSAT Asset Transfer in April 1998, the Company has had no
significant direct 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 nine months ended
September 30, 1999), (ii) general and administrative expenses incurred to
manage the Company's investments and its status as a publicly traded company
($1,945,000 and $205,000 during the nine months ended September 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 nine months ended September 30, 2000, the Company also recorded a
$2,245,000 reduction in stock compensation expense primarily as a result of a
decrease in its stock price through September 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 $120,000 and $340,000 for the
three and nine months ended September 30, 2000, respectively.
In May 2000, the Company sold 2.4 million shares of GM Hughes 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 LSAT GMH SAR. The Company recognized a gain on the sale of the GM
Hughes Stock of $36,643,000, which was more than offset by a loss on the
satisfaction of the LSAT GMH SAR of $65,721,000. The Company, through LSAT LLC,
continues to own 1,821,921 shares of GM Hughes Stock.
During the three and nine months ended September 30, 2000, the Company
recognized interest expense of $1,292,000 and $2,732,000, respectively, related
to its note payable to Liberty and $514,000 and $963,000, respectively, related
to the LSAT Bank Credit Facility. LSAT had no debt or interest expense during
the nine months ended September 30, 1999.
The Company recognized interest income of $3,055,000 and $7,289,000 during the
three and nine months ended September 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 nine months ended September 30, 2000, the Company's share
of losses of affiliates aggregated $2,394,000 and $4,500,000, respectively. As
both Astrolink and Aerocast are in the development stage of their business, the
Company does not expect its share of losses of affiliates to decrease in the
foreseeable future.
The Company recorded minority share of earnings aggregating $442,000 and
$18,608,000 during the three and nine months ended September 30, 2000,
respectively. Such share of earnings relates primarily to LSAT LLC's loss on the
sale of GM Hughes Stock and gain on the payment of the LSAT GMH SAR. Such loss
and gain
I-19
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Material Changes in Results of Operations (continued)
are based on LSAT LLC's basis in GM Hughes Stock and LSAT GMH SAR recorded in
connection with the formation of LSAT LLC.
During the nine months ended September 30, 1999, the Company recognized
$66,143,000 of other income upon the receipt from Phoenixstar of the GM
Hughes Stock in connection with the consummation of the Hughes Medium Power
Transaction.
Material Changes in Financial Condition
As a result of the consummation of the Hughes transactions, the Company
currently has operating losses and negative cash flow. During the nine months
ended September 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
GM Hughes Stock.
Effective September 29, 2000, the Company entered into a $35 million loan
agreement, which is secured by the Company's interest in the Sprint PCS Stock
and the Sprint PCS cashless collar described below. Interest accrues at LIBOR
and is payable monthly. Subsequent to September 30, 2000, the Company used
borrowings under the PCS Loan to repay and cancel the LSAT Bank Credit Facility.
Also, subsequent to September 30, 2000, the Company amended the PCS Loan
Agreement to provide for a $303 million revolving credit facility due April
2003. The Company anticipates that it will use available borrowings under the
amended PCS Loan Agreement to fund its investment and operating activities.
On November 19, 1999, the Company entered into the LSAT Bank Credit Facility
with aggregate commitments of $25,000,000. At September 30, 2000, $23,144,000
had been drawn under the LSAT Bank Credit Facility at a weighted average
interest rate of 8.5% per annum. The unused portion of the LSAT Bank Credit
Facility is charged a commitment fee at a rate of 0.375%. Subsequent to
September 30, 2000, the Company used proceeds from the PCS Loan to repay and
cancel the LSAT Bank Credit Facility.
In June and July 2000, the trust holding the Sprint PCS Stock for LSAT's benefit
entered into a two and one-half year "cashless collar" with a financial
institution with respect to LSAT'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. LSAT 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 LSAT.
I-20
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Material Changes in Financial Condition (continued)
Subsequent to September 30, 2000, the Company entered into a three year
"cashless collar" with a financial institution with respect to the Company's
1.8 million shares of GM Hughes Stock. The collar (i) provides the Company
with a put option that gives it the right to require its counterparty to buy
1,821,921 shares of GM Hughes Stock from the Company in three tranches in
October 2003 for a weighted average price of $26.64, and (ii) provides the
counterparty with a put option that gives it the right to require the Company
to repurchase the 1.8 million shares of GM Hughes Stock for a weighted
average price of $14.80. The Company simultaneously sold a call option giving
the counterparty the right to buy the same shares of stock from the Company
in three tranches in October 2003 for a weighted average price of $54.32 per
share. The put and call options for this collar were equally priced,
resulting in no cash cost to the Company.
Subsequent to September 30, 2000, the Company entered into a three year
"cashless collar" with a financial institution with respect to the Company's 1.0
million shares of XMSR common stock. The collar provides the Company with a put
option that gives it the right to require its counterparty to buy 1,000,000
shares of XMSR common stock from the Company in three tranches in November 2003,
December 2003 and February 2004 for a weighted average price of $28.55. The
Company simultaneously sold a call option giving the counterparty the right to
buy the same shares of stock from the Company in three tranches in November
2003, December 2003 and February 2004 for a weighted average price of $51.49 per
share. The put and call options for this collar were equally priced, resulting
in no cash cost to the Company.
As the Company's cashless collars are designated to specific shares of stock
held by the Company, and the changes in the fair value of the cashless collars
are correlated with changes in the fair value of the underlying securities, the
cashless collars function as hedges. Accordingly, changes in the fair value of
the cashless collars are reported as a component of comprehensive income (in
unrealized gains) along with the changes in the fair value of the underlying
securities.
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 (estimated to be $169 million at
September 30, 2000). LSAT 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 LSAT JVs to pursue strategic opportunities worldwide in
the distribution of internet data and other content via satellite and related
business. The Company is actively seeking to develop and/or acquire operating
businesses related to, or complementary with, such strategy.
The Company will continue to be subject to the risks associated with operating
as a holding company including possible regulation under the Investment Company
Act. The Company does not currently intend to be an investment company within
the meaning of the Investment Company Act.
I-21
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 2000, the Company had $113,129,000 of variable-rate debt with a
weighted-average interest rate of 7.8%. Accordingly, the Company is sensitive to
market rate risk. To date, the Company has not entered into any derivative
instruments to manage its interest rate exposure. $23,144,000 of such
variable-rate debt was repaid in October 2000, and $89,985,000 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>
September 30, 2000 December 31, 1999
--------------------------- ---------------------------
Shares Fair Carrying Shares Fair Carrying
owned Value value owned value value
------ -------- -------- ------ -------- --------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Equity price risk:
GM Hughes Stock (1) 1,822 $ 67,739 $ 67,739 4,222 $135,101 $135,101
Sprint PCS Stock (2) 5,085 $271,932 $271,932 -- -- --
XMSR Stock (3) 1,000 $ 43,063 $ 43,063 -- -- --
</TABLE>
(1) Shares owned reflect a 3 for 1 stock split effected July 3, 2000.
Subsequent to September 30, 2000, the Company entered into a three
year "cashless collar" with a financial institution with respect to
the Company's 1.8 million shares of GM Hughes Stock. The (i) collar
provides the Company with a put option that gives it the right to
require its counterparty to buy 1,821,921 shares of GM Hughes Stock
from the Company in three tranches in October 2003 for a weighted
average price of $26.64, and (ii) provides the counterparty with a
put option that gives it the right to require the Company to
repurchase the 1.8 million shares of GM Hughes Stock for a weighted
average price of $14.80. The Company simultaneously sold a call
option giving the counterparty the right to buy the same shares of
stock from the Company in three tranches in October 2003 for a
weighted average price of $54.32 per share. The put and call options
for this collar were equally priced, resulting in no cash cost to
the Company.
(2) In June and July 2000, the trust holding the Spring PCS Stock for
LSAT's benefit entered into a two and one-half year "cashless
collar" with a financial institution with respect to LSAT'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. LSAT 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 LSAT.
I-22
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
(3) Subsequent to September 30, 2000, the Company entered into a three
year "cashless collar" with a financial institution with respect to
the Company's 1.0 million shares of XMSR common stock. The collar
provides the Company with a put option that gives it the right to
require its counterparty to buy 1,000,000 shares of XMSR common
stock from the Company in three tranches in November 2003, December
2003 and February 2004 for a weighted average price of $28.55. The
Company simultaneously sold a call option giving the counterparty
the right to buy the same shares of stock from the Company in three
tranches in November 2003, December 2003 and February 2004 for a
weighted average price of $51.49 per share. The put and call options
for this collar were equally priced, resulting in no cash cost to
the Company.
I-23
<PAGE>
LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(Formerly, TCI Satellite Entertainment, Inc.)
(A Consolidated Subsidiary of Liberty Media Corporation)
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held on August 15, 2000,
the following matters were voted upon and approved by the stockholders of
the Company:
A proposal to approve an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of Series B common stock, par value $1.00 per share, from 10
million to 30 million (942,639,078 votes For; 2,445,841 votes
Against; and 166,145 Abstentions).
A proposal to approve an amendment to the Company's Restated
Certificate of Incorporation to change the name of the Company to
Liberty Satellite & Technology, Inc. (945,200,543 votes For; 114,624
votes Against; and 135,897 Abstentions).
A proposal to approve an amendment to the Company's Restated
Certificate of Incorporation deleting Section V.B., "Classification
of the Board" and Section V.C., "Removal of Directors" and making
certain conforming changes (916,069,352 votes For; 2,154,290 votes
Against; 227,698 Abstentions; and 26,999,724 Broker Non-votes).
Election of the following to the Company's Board of Directors: (i)
Alan M. Angelich (944,987,379 votes For and 463,685 votes Withheld);
Robert R. Bennett (944,980,817 votes For and 470,247 votes
Withheld); William H. Berkman (944,976,685 votes For and 474,379
votes Withheld); John W. Goddard (944,981,837 votes For and 469,227
votes Withheld); J. Curt Hockemeier (944,970,915 votes For and
480,149 votes Withheld); Gary S. Howard (944,979,283 votes For and
470,781 votes Withheld); and Carl E. Vogel (944,969,897 votes For
and 481,167 votes Withheld).
A proposal to approve an amendment to the Company's 1996 Stock
Incentive Plan to increase the number of shares of Series A common
stock reserved for issuance thereunder from 3,200,000 shares to
5,200,000 (941,927,992 votes For; 3,327,285 votes Against; and
195,787 Abstentions).
A proposal to ratify the appointment of KPMG LLP as independent
auditors for the Company for the year ending December 31, 2000
(945,178,119 votes For; 132,460 votes Against; and 140,485
Abstentions).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3 - Amended and Restated Certificate of Incorporation of
the Company
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended September 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.
LIBERTY SATELLITE & TECHNOLOGY, INC.
Date: November 14, 2000 By: /s/ Kenneth G. Carroll
------------------------------------
Kenneth G. Carroll
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: November 14, 2000 By: /s/ Mark E. Burton
-----------------------------------------
Mark E. Burton
Vice President
(Chief Accounting Officer)
II-2
