<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 No. 0-22815
LIBERTY DIGITAL, INC.
---------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1380293
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
12312 West Olympic Blvd.
Los Angeles, CA 90064
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(310) 979-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Series A Common Stock
and Series B Common Stock as of April 28, 2000 were 29,743,568 and 171,950,167,
respectively.
<PAGE> 2
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,638 2,176
Trade receivables:
Unaffiliated 8,357 8,162
Related party (note 8) 2,891 2,839
Allowance for doubtful accounts (1,528) (1,342)
------------ ------------
9,720 9,659
------------ ------------
Prepaid expenses and other current assets 3,679 3,411
Equipment inventory 5,021 5,080
------------ ------------
Total current assets 20,058 20,326
Investment in affiliates, accounted for under the
equity method (note 5) 32,186 34,345
Investment in available for sale securities (note 7):
Investment in ACTV, Inc. 397,602 516,088
Investment in Open TV 258,498 175,243
Investment in Priceline.com, Inc. 250,000 148,047
Other available-for-sale investments 146,169 90,670
Other investments:
Investment in MTVN Partnership 136,350 135,975
Other 127,153 81,482
Property and equipment, at cost:
Furniture and equipment 18,423 17,246
Leasehold improvements 1,311 1,087
Studio and other support equipment 5,245 4,158
------------ ------------
24,979 22,491
Less: accumulated depreciation (5,660) (4,072)
------------ ------------
19,319 18,419
Intangible assets, net of accumulated amortization (note 6) 500,371 512,502
Other assets 786 765
------------ ------------
Total assets $ 1,888,492 1,733,862
============ ============
</TABLE>
(continued)
I-1
<PAGE> 3
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONSOLIDATED BALANCE SHEETS, CONTINUED
(amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 12,591 10,455
Accrued loss on disposal - DMX-Europe N.V 1,116 1,116
Current portion of debt 4,815 5,327
Note payable - related party (note 8) 87,914 23,347
Accrued stock compensation, current (note 9) 319,119 537,364
------------ ------------
Total current liabilities 425,555 577,609
Debt 98,015 97,813
Negative investment in DMX-Europe N.V 1,358 1,358
Accrued stock compensation, long term (note 9) 144,753 101,846
Deferred income tax liability (note 8) 415,144 375,818
Other liabilities 16,917 16,854
------------ ------------
Total liabilities 1,101,742 1,171,298
------------ ------------
Series B redeemable convertible preferred stock, $.01 par value,
authorized 5,000,000 shares; 150,000 shares issued and
outstanding in 2000, liquidation preference and redemption
value of $155,926 in 2000 and $153,308
in 1999 155,926 153,308
Stockholders' equity:
Common stock, $.01 par value:
Series A;
Authorized 1,000,000,000 shares; issued and
outstanding 28,027,921 shares in 2000 and 26,507,489
shares in 1999 280 265
Series B;
Authorized 755,000,000 shares; issued and outstanding
171,950,167 shares in 2000 and 1999 1,720 1,720
Paid-in capital 694,181 617,013
Accumulated deficit (399,219) (463,010)
Executive stock compensation adjustment by parent, net of
taxes (note 9) -- (4,615)
Deferred tax asset to be utilized by parent
(note 8) (177,627) (210,277)
Accumulated other comprehensive earnings, net of taxes (note 7) 511,489 468,160
------------ ------------
Total stockholders' equity 630,824 409,256
------------ ------------
Commitments and contingencies (note 10)
Total liabilities and stockholders' equity $ 1,888,492 1,733,862
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
I-2
<PAGE> 4
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Liberty Digital TCI Music
-------------------------------- -------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
------------- ------------- -------------
2000 1999 1999
------------- ------------- -------------
<S> <C> <C> | <C>
Revenue: |
Unaffiliated $ 8,871 2,629 | 5,364
Related party (note 8) 7,706 2,549 | 5,183
------------- ------------- | -------------
16,577 5,178 | 10,547
Operating expenses: |
Operating 3,773 1,056 | 2,191
Selling, general and administrative 12,726 2,666 | 4,580
Stock compensation (note 9) (131,971) (283) | 85
Depreciation and amortization (note 6) 13,580 3,418 | 2,502
------------- ------------- | -------------
(101,892) 6,857 | 9,358
|
Net operating income (loss) 118,469 (1,679) | 1,189
|
Other expense: |
Interest expense, net: |
Unaffiliated (2,245) (506) | (1,036)
Related party (note 8) (1,126) (21) | --
------------- ------------- | -------------
(3,371) (527) | (1,036)
|
Share of losses of affiliates, net (note 5) (7,204) (187) | (6)
Dividend income 601 -- | --
Other, net 14 (13) | (2)
------------- ------------- | -------------
Income (loss) from continuing operations before |
income taxes 108,509 (2,406) | 145
Income tax expense (44,718) (354) | (1,049)
------------- ------------- | -------------
|
Income (loss) from continuing operations $ 63,791 (2,760) | (904)
------------- ------------- | -------------
|
Discontinued operations: |
Loss from operations, net of income taxes -- (800) | (3,440)
------------- ------------- | -------------
|
Net income (loss) $ 63,791 (3,560) | (4,344)
------------- ------------- | -------------
|
Other comprehensive earnings, net of taxes: |
|
Foreign currency translation -- (31) | (49)
Unrealized holding gains arising during the |
period, net of tax (note 7) 43,329 -- | --
------------- ------------- | -------------
Other comprehensive earnings (loss) 43,329 (31) | (49)
------------- ------------- | -------------
|
Comprehensive earnings (loss) $ 107,120 (3,591) | (4,393)
============= ============= | =============
</TABLE>
(continued)
I-3
<PAGE> 5
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS, CONTINUED
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Liberty Digital TCI Music
------------------------------------ --------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
----------------- ----------------- --------------
2000 1999 1999
----------------- ----------------- --------------
<S> <C> <C> | <C>
Basic earnings (loss) per share (note 3) |
Income (loss) from continuing operations $ 0.47 (0.02) | (0.02)
---------------- --------------- | ----------------
Discontinued operations $ 0.00 0.00 | (0.04)
---------------- --------------- | ----------------
Net income (loss) per share $ 0.47 (0.02) | (0.06)
================ =============== | ================
|
Weighted average common shares and equivalent shares 199,169 162,582 | 81,377
================ =============== | ================
|
|
Diluted earnings (loss) per share (note 3) |
Income (loss) from continuing operations $ 0.41 (0.02) | (0.02)
---------------- --------------- | ----------------
Discontinued operations $ 0.00 0.00 | (0.04)
---------------- --------------- | ----------------
Net income (loss) per share $ 0.41 (0.02) | (0.06)
================ =============== | ================
|
Weighted average common shares and equivalent shares 233,526 162,582 | 81,377
================ =============== | ================
</TABLE>
See accompanying notes to consolidated financial statements
I-4
<PAGE> 6
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands)
<TABLE>
<CAPTION>
Deferred
tax Accumulated
assets Executive other
Common stock to be stock comprehensive
---------------------- Paid in Accumulated utilized by compensation, earnings,
Series A Series B capital deficit parent net of taxes net of taxes Total
---------- ---------- ---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $ 265 1,720 617,013 (463,010) (210,277) (4,615) 468,160 409,256
Accretion of redeemable
convertible preferred stock
dividends -- -- (2,618) -- -- -- -- (2,618)
Shares issued for acquisitions 8 -- 40,514 -- -- -- -- 40,522
Shares issued for exercise of
stock appreciation rights
(note 9) 7 -- 43,887 -- -- -- -- 43,894
Settlement of stock
appreciation awards by
parent (notes 8 and 9) -- -- (4,615) -- -- 4,615 -- --
Deferred tax on executive
stock appreciation rights
(notes 8 and 9) -- -- -- -- 32,650 -- -- 32,650
Unrealized gain on
available for sale
securities (note 7) -- -- -- -- -- -- 43,329 43,329
Net income -- -- -- 63,791 -- -- -- 63,791
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2000 $ 280 1,720 694,181 (399,219) (177,627) -- 511,489 630,824
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
I-5
<PAGE> 7
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Liberty Digital TCI Music
--------------------------- ------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
------------ ------------ ------------
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> | <C>
Cash flows from operating activities: |
Net income (loss) $ 63,791 (3,560)| (4,344)
Add: Loss from discontinued operations, net of taxes -- 800 | 3,440
------------ ------------ | ------------
Loss from continuing operations 63,791 (2,760)| (904)
|
Adjustments to reconcile net loss to net |
cash provided by (used in) operating |
activities: |
Depreciation and amortization 13,580 3,418 | 2,502
Share of losses of affiliates 7,204 187 | 6
Marketable securities received as dividends (672) -- | --
Stock compensation (131,971) (283)| 85
Provision for doubtful accounts 186 54 | 153
Deferred income tax expense 44,718 354 | 1,049
Interest expense payable to parent 1,111 6 | --
|
Changes in operating assets and liabilities, net of the effect of |
acquisitions and discontinued operations: |
Receivables (247) (27)| (510)
Prepaid and other current assets (209) (118)| 1,190
Accounts payable, accrued expenses and others 2,547 384 | (1,872)
------------ ------------ | ------------
Net cash provided by continuing operating activities 38 1,215 | 1,699
Net cash used in discontinued operating activities -- (2,424)| (2,739)
------------ ------------ | ------------
Net cash provided by (used in) operating activities 38 (1,209)| (1,040)
------------ ------------ | ------------
</TABLE>
(continued)
I-6
<PAGE> 8
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(amounts in thousands)
<TABLE>
<CAPTION>
Liberty Digital TCI Music
----------------------------- -------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
------------- ------------- -------------
2000 1999 1999
------------- ------------- -------------
<S> <C> <C> | <C>
Cash flows from investing activities: |
Investments in and advances to affiliates and others, |
net of distributions (60,952) (19,498)| --
Cash paid for acquisitions (101) (919)| (155)
Capital expended for property and equipment (2,489) (1,047)| (2,053)
Other investing activities (67) (78)| (92)
------------- ------------- | -------------
Net cash used in investing activities (63,609) (21,542)| (2,300)
------------- ------------- | -------------
|
Cash flows from financing activities: |
Proceeds from exercise of stock options 528 -- | --
Borrowing from related party 63,200 1,650 | --
Repayment of related party debt (148) (43)| (85)
Borrowings of debt -- -- | 4,500
Repayment of debt (547) (297)| (157)
------------- ------------- | -------------
Net cash provided by financing activities 63,033 1,310 | 4,258
------------- ------------- | -------------
|
Net (decrease) increase in cash and cash equivalents (538) (21,441)| 918
|
Cash and cash equivalents, beginning of period 2,176 127,731 | 5,467
------------- ------------- | -------------
|
Cash and cash equivalents, end of period $ 1,638 106,290 | 6,385
============= ============= | =============
</TABLE>
I-7
<PAGE> 9
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(1) Basis of Presentation
The accompanying interim consolidated balance sheet at March 31, 2000 and
consolidated statements of operations and comprehensive earnings, stockholders'
equity (deficit) and cash flows for the periods presented are unaudited. The
results of operations for the two months ended February 28, 1999 reflect the
operations of the Company before AT&T acquired TCI (AT&T Merger) and before the
"Contribution Agreement" between Liberty Media Corporation (Liberty) and the
Company retroactive to March 1, 1999.
As a result of the AT&T Merger, Liberty applied "push down" accounting and
transferred to the Company the fair value adjustments relating to the assets of
the Company at March 9, 1999, as recorded by Liberty upon completion of the AT&T
Merger. Pursuant to the Contribution Agreement with Liberty, the Company
recorded related party transactions at predecessor costs in a manner similar to
pooling of interests. Accordingly, for financial statement purposes, the fair
value adjustments and the transactions under the Contribution Agreement were
reflected retroactive to March 1, 1999.
Certain reclassifications of prior period amounts have been made to conform to
the current period's reporting format.
(2) Accounting Standards
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133"), which is effective for all periods beginning after
June 15, 2000 (as amended by SFAS 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective date of FASB Statement No.
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities by requiring that all derivative instruments
be reported as assets or liabilities and measured at their fair values. Under
SFAS 133, changes in the fair values of derivative instruments are recognized
immediately in earnings unless those instruments qualify as hedges of the (1)
fair values of existing assets, liabilities, or firm commitments, (2)
variability of cash flows of forecasted transactions, or (3) foreign currency
exposures on net investments in foreign operations. As of March 31, 2000, the
Company has not entered into any derivative contracts nor does it hold any
derivative financial instruments. Therefore, SFAS 133 would not have had a
material impact on the Company's consolidated results of operations, financial
position, or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 provides the following criteria for revenue recognition: (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services have
been rendered, (3) the seller's price to the buyer is fixed or determinable and
(4) collectibility is reasonably assured. The adoption of SAB No. 101 did not
have a material impact on the financial statements.
(3) Earnings (Loss) Per Common and Potential Common Share
The Company computes earnings (loss) per share in accordance with SFAS No. 128,
"Earnings per Share" and Securities and Exchange Commission Staff Accounting
Bulletin No. 98 (SAB 98). SFAS No. 128 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as the income
or loss available 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.
Potential 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.
I-8
<PAGE> 10
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the computation of basic and diluted net income
(loss) attributable to common shareholders and weighted average outstanding
common shares used in the computation of basic loss per share and diluted
earnings per share in the accompanying consolidated statements of operations and
comprehensive earnings (amounts in thousands):
<TABLE>
<CAPTION>
Liberty Digital TCI Music
----------------------------- -------------
Three One Two
months month months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------- ------------- -------------
<S> <C> <C> | <C>
Net income (loss) 63,791 (3,560)| (4,344)
|
Deferred tax assets to be utilized by parent 32,650 -- | --
Accretion of redeemable preferred stock (2,618) (126)| (252)
------------- ------------- | -------------
Net income (loss) attributable to common shareholders 93,823 (3,686)| (4,596)
Accretion of redeemable preferred stock 2,618 -- | --
------------- ------------- | -------------
Net income (loss) attributable to common |
shareholders - dilutive 96,441 (3,686)| (4,596)
============= ============= | =============
|
Weighted average shares outstanding - basic 199,169 162,582 | 81,377
Series B Preferred Stock 25,751 -- | --
Stock appreciation rights 8,606 -- | --
------------- ------------- | -------------
Weighted average shares outstanding - dilutive 233,526 162,582 | 81,377
============= ============= | =============
</TABLE>
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest during the periods presented was as follows (amounts in
thousands):
<TABLE>
<S> <C> <C>
Liberty Digital Three months ended March 31, 2000 $ 2,342
One month ended March 31,1999 58
----------------- ------------------------------------ -------------
TCI Music Two months ended February 28, 1999 1,184
</TABLE>
Cash paid for taxes for the periods presented are not material.
I-9
<PAGE> 11
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant noncash investing and financing activities are reflected in the
following table (amounts in thousands):
<TABLE>
<CAPTION>
Liberty Digital TCI Music
----------------------------- -------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------- ------------- -------------
<S> <C> <C> | <C>
Investments 40,000 -- | --
Fair value of other businesses acquired 879 1,769 | 221
Other liabilities assumed (19) -- | (66)
Debt issued (237) (850)| --
Common stock issued in agreements (40,522) -- | --
------------- ------------- | -------------
Cash paid for investments and acquisitions 101 919 | 155
============= ============= | =============
|
Accretion of redeemable convertible preferred stock 2,618 126 | 252
============= ============= | =============
|
Conversion of Series A Preferred Stock to common stock -- 21 | --
============= ============= | =============
</TABLE>
(5) Investments in affiliates accounted for under the Equity Method
At March 31, 2000, the Company's investments in affiliates consist principally
of a 23.6% equity interest in Online Retail Partners, Inc., an 18.6% equity
interest in pogo.com and a 50% equity interest in Galactic / Tempo Sound, with
carrying values of $24.8 million, $6.8 million and $524,000, respectively. The
investment in pogo.com was recorded under the equity method as the Company has
20% voting and believes it has the ability to influence pogo.com's management
decisions.
(6) Intangible Assets
The following is a summary of the intangible assets as of the following periods
(amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Access agreement $ 250,000 250,000
Goodwill AT&T Merger 199,179 199,179
Excess of acquisition cost over net assets acquired 97,553 97,829
Other 1,913 1,822
------------- -------------
548,645 548,830
Accumulated amortization (48,274) (36,328)
------------- -------------
500,371 512,502
============= =============
</TABLE>
(7) Available-for-Sale Securities
At December 31, 1999, available-for-sale securities consist of common stock and
common stock equivalent investments, carried at fair value based on quoted
market prices. For the three months ended March 31, 2000, the unrealized holding
gain of $43.3 million, net of deferred income taxes of $28.3 million, was
included in "accumulated other comprehensive earnings, net of taxes" within
stockholders' equity.
I-10
<PAGE> 12
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Related Party Transactions
Pursuant to the AT&T Amended Contribution Agreement between the AT&T Broadband,
LLC ("AT&T Broadband") and the Company effective since July 1, 1997, AT&T
Broadband is required to deliver, or cause certain of its subsidiaries to
deliver to the Company the AT&T Broadband Annual Payments, aggregating $18
million, adjusted annually through 2017. The agreement also requires the Company
to pay AT&T Broadband charges for certain services rendered in connection with
the AT&T Broadband Annual Payments. Such charges are included in operating
expenses in the accompanying consolidated statements of operations and
comprehensive earnings.
Pursuant to an affiliation agreement between Satellite Services, Inc. ("SSI"), a
wholly-owned subsidiary of AT&T, and the Company (the "SSI Affiliation
Agreement"), effective as of July 1, 1997, SSI has the non-exclusive right to
distribute and subdistribute DMX services to commercial and residential
customers for a 10-year period in exchange for licensing fees paid by SSI to the
Company. Under the SSI Affiliation Agreement, SSI pays an annual fee to the
Company of $8.5 million subject to annual adjustments. In addition, the Company
receives subscriber revenue from AT&T Broadband for the distribution of DMX
services through AT&T Broadband's digital business.
The following table summarizes the related party transactions as described above
for the periods reflected in the accompanying consolidated statements of
operations and comprehensive earnings (amounts in thousands):
<TABLE>
<CAPTION>
Liberty Digital TCI Music
----------------------------- -------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------- ------------- -------------
<S> <C> <C> | <C>
Revenue from AT&T Broadband Annual Payments $ 4,836 1,639 | 3,296
Operating charges paid to AT&T Broadband $ (336) (139)| (296)
Revenue from SSI $ 2,125 708 | 1,417
Revenue from AT&T Broadband $ 745 202 | 470
</TABLE>
On October 21, 1999, the Company signed a promissory note in favor of a
subsidiary of Liberty amounting to $100 million, with a maturity date of
December 31, 2000 and an interest rate that is the greater of the prime rate
plus 1% or federal funds rate plus 2.25%. Interest is payable quarterly and
compounded semi-annually. In addition, a commitment fee of 0.5% is charged on
the unused portion of the promissory note. At March 31, 2000, the balance of
this note of $86,547,000 and accrued interest of $1,367,000 are reflected as
"note payable - related party" in the accompanying consolidated balance sheet.
The Company had an outstanding debt obligation of $142,000 to National Digital
Television Center, Inc. ("NDTC"), a subsidiary of AT&T, at December 31, 1999.
Such obligation was fully paid as of March 31, 2000.
I-11
<PAGE> 13
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company leases certain office space, uplinking and satellite services from
NDTC. Total expenses under such lease agreements are reflected in the
accompanying consolidated statements of operations and comprehensive earnings as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Liberty Digital TCI Music
---------------------------- -------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------- ------------- -------------
<S> <C> <C> |<C>
Operating expenses $ 720 387 | 773
Loss from discontinued operations $ -- 83 | 281
</TABLE>
The Company was included in the consolidated federal income tax return of TCI up
to February 28, 1999. Starting March 1, 1999, the Company is included in the
consolidated tax return of AT&T and is party to a Tax Liability Allocation and
Indemnification Agreement with its parent, Liberty, dated September 9, 1999,
(the "Tax Sharing Agreement"). The income tax provision for the Company is
calculated based on a hypothetical tax liability determined as if the Company
filed a separate tax return.
Under the Tax Sharing Agreement, the Company will record a current intercompany
tax benefit from Liberty in periods when it generates taxable losses and such
losses are utilized by Liberty to reduce its income tax liability. In periods
when the Company generates taxable income, the Company will record current
intercompany tax expense. To the extent that the cumulative intercompany tax
expense is greater than the cumulative benefit, the Company will settle such
excess liability in cash to Liberty.
Further, the Company has agreed to pay Liberty for any income tax benefits
realized with respect to the Deferred Compensation and Stock Appreciation Rights
Plan. At December 31, 1999, the Company has recorded $177.6 million of deferred
tax benefits related to this plan as a separate component of stockholders'
equity.
(9) Deferred Compensation and Stock Option Plan
Certain officers and key employees of the Company are party to stock-based
compensation arrangements, as described below:
Participants under the Company's 1997 Stock Incentive Plan hold options with
tandem stock appreciation rights ("1997 Options"), which base compensation on
the performance of the Company's stock.
A key employee is the sole participant in the Deferred Compensation and Stock
Appreciation Rights Plan ("1999 SARs"), approved on September 9, 1999, which
bases compensation on the market value of the Company's stock using a
combination of deferred compensation and stock appreciation rights ("SARs"). A
former key executive held vested SARs, which were exercised prior to his
resignation, on February 15, 2000. The unvested deferred compensation rights
and SARs were expired in accordance with their terms. The vested portion of the
deferred compensation is payable June 15, 2000.
Stock compensation expense has been recorded in the accompanying financial
statements pursuant to APB Opinion No. 25. These estimates are subject to future
adjustments based upon vesting and the market value of the Company's Series A
Common Stock and, ultimately, on the final determination of market value when
the rights are exercised. The consolidated statements of operations and
comprehensive earnings for the three months ended March 31, 2000 reflects a
credit of $136.1 million due to the revaluation of earned 1997 Options and 1999
SARs liability from the closing price of $74.25 at December 31, 1999, to the
closing price of $38.50 at March 31, 2000. Such adjustment was reflected as
income. Additionally, 1997 Options and 1999 SARs earned during the quarter are
$4.1 million and reflected as expense was valued at the closing price at March
31, 2000. The combined 1997
I-12
<PAGE> 14
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options and 1999 SARs liability is $463.9 million of which $144.8 million is
reflected as long term in the consolidated balance sheet at March 31, 2000.
(10) Commitments and Contingencies
The Company has guaranteed certain obligations of DMX-E under the Subscriber
Management Services Agreement between DMX-E and Selco Servicegesellschaft fur
elektronische Kommunikation GmbH ("Selco"), and a related side letter agreement
(the "Selco Agreement"). On March 20, 2000, the Company received an offer from
Selco to settle the matter for $1.6 million. The Company responded on March 24,
2000, with a settlement offer of $650,000. On April 20, 2000 the Company
received an offer from Selco to settle the matter for $1.0 million. The Company
continues to attempt to reach a settlement. However, no assurance can be given
that Selco will not continue to pursue its claims and, if Selco elects to
initiate formal legal proceedings, whether the Company will be held liable for
an amount in excess of the amount accrued.
The Company licenses rights to re-record and distribute music from a variety of
sources and pays royalties to songwriters and publishers through contracts
negotiated with performing rights societies such as the American Society of
Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc. ("BMI") and
the Society of European Stage Authors and Composers ("SESAC"). The Company has
separate agreements with ASCAP, BMI and SESAC for residential and commercial
distribution. Certain of the agreements are being negotiated on an industry-wide
basis mainly over new rate structures that may require retroactive rate
increases. The Company has continued to accrue royalties that are under
negotiations based on its best estimate, after consultation with counsel and
consideration of the terms and rates of the expired contracts.
On or about July 7, 1993, ASCAP initiated an action against the Company and
others in the United States District Court for the Southern District of New
York. The action is being brought by ASCAP for a determination of a reasonable
license fee for the right to use music in the ASCAP repertory. The Company
entered into a stipulation with ASCAP wherein the Company will not actively
participate in the proceedings, but will be bound by the District Court's
findings.
On or about December 8, 1998, BMI initiated an action against the Company and
others in the United States District Court for the Southern District of New
York. The action is being brought by BMI for a determination of a reasonable
license fee for the right to use music in the BMI repertory. The parties are
currently in the discovery process and a preliminary issue in the case which was
ruled on by the judge, has been appealed by other music service providers.
On August 25, 1999, Ground Zero Entertainment Company ("Ground Zero") commenced
an action against the Company in the Supreme Court of the State of New York, for
breach of contract, fraudulent concealment and fraudulent misrepresentation
among other things, and seeking to rescind a February 1999 transaction between
Ground Zero and the Company pursuant to which the Company transferred certain
assets of Paradigm Associated Labels ("PAL") to Ground Zero. On February 23,
2000, the Company filed counterclaims against Ground Zero to seek compensation
for the costs and expenses it has incurred as a result of Ground Zero's action
and named David Wolin, a former employee of PAL, as a third party defendant in
the action. On April 7, 2000, the court dismissed all allegations of fraudulent
concealment. The Company answered plaintiff's remaining claims on April 27, 2000
by denying the allegations. On May 1, 2000, the Company moved for clarification
and reargument of the court's April 7, 2000 decision on plaintiff's fraud claim.
The Company believes that the claims are without merit and intends to defend
such action vigorously.
In December 1999, David Wolin, a former employee of PAL and current employee of
Ground Zero, commenced an action against the Company in the Supreme Court of the
State of New York. The complaint asserts, among other things, that the Company
breached obligations to Wolin under an employment agreement. On or about
February 23, 2000, the Company named Ground Zero as a third party defendant in
the action and the Company moved to consolidate the Wolin and Ground Zero
actions for all purposes which was approved and ordered by the court on April 7,
2000. The Company believes the claim is without merit and intends to defend such
action vigorously.
I-13
<PAGE> 15
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From time to time the Company may be a party to legal actions arising in the
ordinary course of business, including claims by former employees. In the
opinion of the Company's management, after consultation with counsel,
disposition of such matters are not expected to have a material adverse effect
upon the financial position, results of operations or liquidity of the Company.
(11) Information about the Company's Segments
The Company has two reportable business segments: "Audio", which represents the
operations of DMX, a company engaged in programming, distributing and marketing
a digital and audio music service delivered to homes and businesses via cable or
satellite; and "Interactive Media", a segment engaged in the development of
interactive television and investments in businesses that take advantage of the
opportunities of interactive programming content and interactive television.
The Company evaluates performance based on income or loss from operations before
income taxes. The Company's reportable segments are strategic business units
that offer different products and services. They are managed separately because
each business requires different technology and marketing strategies. The
Company utilizes the following financial information for the purpose of making
decisions about allocating resources to a segment and assessing a segment's
performance (amounts in thousands):
<TABLE>
<CAPTION>
Liberty Digital TCI Music
------------------------------------------------------------- -------------
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
----------------------------- ----------------------------- -------------
Interactive Interactive
Audio Media Audio Media Audio
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> | <C>
Revenue $ 16,577 -- 5,178 -- | 10,547
|
Income (loss) from continuing |
operations, excluding stock-based |
compensation $ (12,563) (10,899) (913) (1,776)| 230
|
Income (loss) from continuing |
operations before income taxes $ 9,853 98,656 (966) (1,440)| 145
|
Capital expended for property and |
equipment and investments $ 2,653 60,956 2,044 19,498 | 2,300
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- -------------
<S> <C> <C>
Segment Assets
Audio $ 256,842 321,115
Interactive Media 1,631,650 1,412,747
-------------- -------------
$ 1,888,492 1,733,862
============== =============
</TABLE>
The operations of the Interactive Media segment for 1999 started retroactive on
March 1, 1999.
I-14
<PAGE> 16
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Subsequent Events
During the months of April and May 2000, the Company recorded an acquisition of
a business and made investments as follows:
The Company, acquired RCI Systems, Inc. for $7.5 million paid in the form of
$3.5 million in cash and 137,861 shares of the Company's Series A Common Stock.
An investment of $10.0 million for 1,323,977 preferred shares of Kozmo.com, Inc.
in exchange for 185,536 shares of the Company's Series A Common Stock.
An investment of $45.0 million for 2,922,694 shares of Alloy Online, Inc. in
exchange for $10.0 million in cash and 837,741 shares of the Company's Series A
Common Stock.
In connection with Liberty's investment in Primedia, Inc. ("Primedia"), the
Company received $25.0 million on April 19, 2000 from Primedia in exchange for
625,000 shares of the Company's Series A Common Stock.
I-15
<PAGE> 17
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis provides information concerning the
results of operations and financial condition of the Company and should be read
in conjunction with the accompanying consolidated financial statements and notes
thereto of the Company. Additionally, the following discussion and analysis
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and financial statements included
in Part IV of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. The following discussion focuses on material trends, risks
and uncertainties affecting the results of operations and financial condition of
the Company.
Certain statements in this Quarterly Report on Form 10-Q (this "Report")
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. In particular, some of the statements
contained in this report are forward-looking. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of Liberty Digital
and subsidiaries 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 the factors and risks discussed in this Report, general economic
and business conditions and industry trends; the continued strength of the
satellite services industry; uncertainties inherent in proposed business
strategies and development plans; rapid technological changes; future financial
performance, including availability, terms and deployment of capital;
availability of qualified personnel; changes in, or the failure or the inability
to comply with, government regulation, including, without limitation,
regulations of the Federal Communications Commission, and adverse outcomes from
regulatory proceedings; changes in the nature of key strategic relationships
with partners and joint venturers; competitor responses to the Company's
products and services, and the overall market acceptance of such products and
services, including acceptance of the pricing of such products and services.
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.
Summary of Operations
Liberty Digital, Inc. is a diversified new media company. The Company operates
in two business segments, Interactive Media and Audio. The Company's Interactive
Media segment consists of developing and providing interactive television and
new media services and investing in Internet and new media companies. The Audio
segment consists of the operations of DMX, LLC ("DMX"), which is principally
engaged in programming, distributing and marketing digital and analog music
services to homes and businesses. The Company is a majority-owned subsidiary of
Liberty Media Corporation ("Liberty").
The Company was incorporated in Delaware on January 21, 1997 as a wholly owned
subsidiary of Tele-Communications, Inc. ("TCI") for the purpose of acquiring
DMX. On July 17, 1997, the Company acquired DMX. TCI was converted into a
Delaware limited liability company on March 10, 2000, and renamed AT&T
Broadband, LLC ("AT&T Broadband") of which AT&T is the sole member. In
connection with the acquisition of DMX, AT&T Broadband is obligated to pay the
Company, under an agreement ("AT&T Amended Contribution Agreement"), monthly
revenue payments aggregating $18.0 million each year and adjusted annually
through 2017 ("AT&T Broadband Annual Payment").
For purposes of comparison to prior periods, the three months ended March 31,
1999 represents the operations of the Audio segment for the two months ended
February 28, 1999 and the combined operations of the Audio and Interactive Media
segments for the one month ended March 31, 1999. The Interactive Media segment
was added as a result of the Contribution Transaction completed on September 9,
1999 as discussed in note 1 to the accompanying financial statements. The
addition of the Interactive Media segment was accounted for as an "as-if"
pooling of interest, since the transaction was between entities under common
control. Accordingly, the operations of the Interactive Media segment were
recorded retroactive to March 1, 1999. The Interactive Media segment did not
have any revenue during 1999 and for the three months ended March 31, 2000.
I-16
<PAGE> 18
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
A significant amount of the Audio segment revenues are derived from the AT&T
Broadband Annual Payment. The adjusted payments for the three months ended March
31, 2000 were approximately $4.8 million. The AT&T Broadband Annual Payments
represent the revenues received by AT&T Broadband affiliates from sales of DMX
services net of an amount equal to 10% of the revenue from such sales to
residential subscribers and net of license fees otherwise payable to the
Company.
Revenue
Total revenue resulting from the Audio segment, increased $852,000, or 5.4%, for
the three months ended March 31, 2000 compared to the corresponding period in
the prior year. Revenue for the three months ended March 31, 1999 included $1.0
million of residential subscriber revenues from Primestar, a direct broadcast
satellite provider, which terminated the DMX service as a result of its
acquisition by Hughes Electronics Corp on April 28, 1999. Excluding such revenue
from Primestar, the Audio segment increased its revenue by $1.9 million
primarily as a result of its continued growth in commercial subscriber bases
contributed by the acquisitions of sales offices in ten new markets during 1999.
Operating Expenses
Operating expenses increased $526,000, or 16.2%, for the three months ended
March 31, 2000 compared to the corresponding period in the prior year. The
increase for the period pertains to the Audio segment and was primarily
attributable to higher music rights and royalty expenses as a result of the
subscriber revenue increase. In addition operating personnel expenses increased
due to the addition of new employees as a result of the acquisition of sales
offices in ten markets during 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $5.5 million, or 75.6 %,
for the three months ended March 31, 2000, compared to the corresponding period
in the prior year. Of the increase, $2.0 million was attributed to the Audio
segment primarily as a result of higher commissions attributed to subscriber fee
revenue increases and higher personnel, occupancy and promotional expenses
associated with DMX's expansion of its commercial business in ten markets during
1999. Also included in the increase was Interactive Media segment's expenses of
$3.5 million, which includes $3.2 million of payroll taxes associated with
options and stock appreciation rights exercised having a net value of $220.2
million, principally by Messrs. Lee Masters and Bruce Ravenel. Other increases
in the Interactive segment expenses of $309,000 represent a full three months of
expenses consisting principally of salaries, consulting, professional fees and
travel expenses as compared to one month of expenses during the three months
ended March 31, 1999.
Stock Compensation
Stock compensation expense decreased $131.8 million for the three months ended
March 31, 2000 compared to the corresponding period in the prior year. The
decrease resulted principally from the reversal of a portion of earned stock
appreciation rights (SARSs) accrued for at December 31, 1999 at the closing
price of $74.25 per share. Such SARs earned and still outstanding at March 31,
2000 were revalued at the closing price of $38.50 per share as of that date.
Additionally, the excess accrued stock compensation liability valued at the
closing price at December 31, 1999 less options and SARs exercised during the
three month period, were also reversed. Such reversal of expense of $136.1
million was recorded during the three months ended March 31, 2000. Offsetting
these were additional SARs expense of $4.1 million attributed to additional SARs
earned during the period.
I-17
<PAGE> 19
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
Depreciation and Amortization
Depreciation and amortization expense for the three months ended March 31, 2000
increased by $7.7 million, or 129%, compared to the corresponding period in the
prior year. The increase was primarily attributable to the amortization of the
fair value adjustments resulting from the AT&T Merger and the Access Agreement
transferred to the Company as a result of the transaction completed under the
Contribution Agreement with Liberty on September 9, 1999. The balance of the
increase in this period was primarily attributable to the additions of property
and equipment and intangibles resulting from businesses acquired by DMX after
March 31, 1999.
Interest Expense
Unaffiliated interest expense and financing cost increased $703,000 for the
three months ended March 31, 2000 compared to the corresponding period in the
prior year. Such increase was due to higher interest rates on outstanding
borrowings under the revolving bank loan agreement as described below.
Additionally, various notes payable under variable-rate debt agreements related
to business acquisitions increased. These notes had a total outstanding balance
of $5.9 million at March 31, 2000, compared to $3.4 million at March 31, 1999.
Related party interest expense increased $1.1 million due to borrowings from
Liberty of $86.5 million at March 31, 2000 compared to $1.6 million at March 31,
1999.
Share of Losses of Affiliates
For the three months ended March 31, 2000, the Company's share of losses was
$7.2 million, of which $6.1 million and $1.1 million, were attributable to its
investments in Online Retail Partners, Inc. and Pogo.com Inc., respectively. For
the three months ended March 31, 1999, the Company's share of losses was
$193,000, of which $187,000 was principally due to its investments in
Kaleidoscope, Inc.
Dividend Income
The dividend income of $601,000 resulted from distributions received from the
Company's investment in Java Fund. Such distribution was made in the form of
shares of common stock of Intraware, Inc. recorded at the market value on the
distribution date.
Losses from Discontinued Operations
The losses from discontinued operations at March 31, 1999 of $4,240,000, net of
income tax of $2,634,000 represent the operating losses of the former Video and
Internet segments, the assets of which were contributed for a 10% limited
partnership interest in the MTVN Partnership. The partnership was formed by the
Company and MTV Networks, a division of Viacom International, Inc on July 15,
1999.
Liquidity and Capital Resources
During the three months ended March 31, 2000, the Company's net cash from
operations and financing activities generated funds of $38,000 and $63.0 million
respectively, which were used for purchases of interactive media investments,
business acquisitions and purchases of property and equipment totaling $63.6
million. The net change of these activities resulted in a net decrease in cash
of $500,000.
The Company is a borrower under a revolving loan agreement dated December 30,
1997, which provides for borrowings of up to $100.0 million. Borrowings under
the agreement bear interest at a rate per annum equal to either (i) the London
Interbank Offering Rate (LIBOR) plus an applicable margin depending on Liberty
Digital's leverage ratio, as defined, for the preceding three month period or
(ii) the bank's base rate. At March 31, 2000, the Company had fully utilized its
credit facility of $100.0 million available under the revolving loan agreement
in the form of an outstanding debt balance of $97.0 million and a $3.0 million
letter of credit. The letter of credit was issued by the Company to guarantee a
debt resulting from a business acquired on October 1, 1999.
I-18
<PAGE> 20
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
On October 21, 1999, the Company signed a promissory note amounting to $100.0
million in favor of a subsidiary of Liberty. The note matures on December 31,
2000 and bears an interest rate at the greater of prime rate plus 1% or Federal
Funds rate plus 2.25%. During the three months ended March 31, 2000, the Company
had drawn funds of $63.2 million and incurred interest totaling $1.4 million,
which resulted in an increase to its note balance to $87.9 million at the end of
the period.
At March 31, 2000, the Company had available-for-sale securities consisting of
common stock and common stock equivalent investments, carried at fair value and
based on quoted market prices. For the three months ended March 31, 2000, the
unrealized holding gain of $43.3 million, net of deferred income taxes of $28.3
million, was included in "accumulated other comprehensive earnings" within the
Consolidated Statement of Stockholders' Equity.
The Company believes that net cash provided by operating activities (including
the AT&T Broadband Annual Payments), the available balance of the promissory
note, other investments and available-for-sale securities will provide adequate
sources of liquidity for the intermediate future. As previously described, the
Company is entitled to receive the AT&T Broadband Annual Payments through 2017.
The stock options and SARs of $319.1 million reflected as a current liability
and $144.8 million reflected as a long term liability in the accompanying
consolidated balance sheet at March 31,2000, may be funded by the issuance of
Series A Common Stock.
For information concerning other commitments and contingencies of the Company,
see note 10 to the accompanying consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to equity price risks on the marketable portion of its
equity securities. The Company's available-for-sale securities at March 31, 2000
include equity positions in public and private companies in the Internet and
Interactive Media industry sectors, including Priceline.com, ACTV, Inc.,
iVillage, Sportsline.com and Open TV, some of which have experienced significant
historical volatility in their stock prices. The Company typically does not
attempt to reduce or eliminate its market exposure on these securities. A 40%
adverse change in equity prices, based on a sensitivity analysis of the
Company's available-for-sale securities portfolio as of March 31, 2000, would
result in an approximate $420 million decrease in the fair value of the
Company's available-for-sale securities.
I-19
<PAGE> 21
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) On February 29, 2000, Liberty Digital issued 9,528 shares of Series A
Common Stock of Liberty Digital, Inc. pursuant to an Asset Purchase
Agreement by and between DMX, LLC, a wholly-owned subsidiary of Liberty
Digital, and Sound Source, Inc. ("Sound Source") pursuant to which DMX
acquired substantially all of the assets of Sound Source for 12,704
shares of Series A Common Stock of Liberty Digital, Inc. (subject to
adjustment). Pursuant to the Asset Purchase Agreement, 3,176 shares of
Series A Common Stock of Liberty Digital, Inc. were held back upon
final determination of the purchase price. The sales and ultimate
issuance of securities in the transaction described above were deemed
to be exempt from registration under the Securities Act by virtue of
Rule 506. Sound Source, Inc. is an accredited investor.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10. Intercompany Agreement, dated as of March 9, 1999 between Liberty
Media Corporation and AT&T Corp. (incorporated by reference to Exhibit
10.3 to Liberty Media Corporation's Registration Statement on Form S-4
filed September 3, 1999 (Registration No. 333-86491))
27. Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter ended March 31,
2000:
I-20
<PAGE> 22
LIBERTY DIGITAL, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
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 DIGITAL, INC.
Date: May 15, 2000 By: /s/ Lee Masters
---------------- -------------------------------
Lee Masters
President and
Chief Executive Officer
Date: May 15, 2000 By: /s/ Florante Pangilinan
---------------- -------------------------------
Florante Pangilinan
Vice President - Controller and
Principal Accounting Officer
I-21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001040449
<NAME> LIBERTY DIGITAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,638,000
<SECURITIES> 0
<RECEIVABLES> 11,248,000
<ALLOWANCES> 1,528,000
<INVENTORY> 5,021,000
<CURRENT-ASSETS> 20,058,000
<PP&E> 24,979,000
<DEPRECIATION> 5,660,000
<TOTAL-ASSETS> 1,888,492,000
<CURRENT-LIABILITIES> 425,555,000
<BONDS> 98,015,000
155,926,000
0
<COMMON> 2,000,000
<OTHER-SE> 628,824,000
<TOTAL-LIABILITY-AND-EQUITY> 1,888,492,000
<SALES> 16,577,000
<TOTAL-REVENUES> 16,577,000
<CGS> 0
<TOTAL-COSTS> (101,892,000)
<OTHER-EXPENSES> 6,589,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,371,000
<INCOME-PRETAX> 108,509,000
<INCOME-TAX> 44,718,000
<INCOME-CONTINUING> 63,791,000
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<NET-INCOME> 63,791,000
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</TABLE>
