LIBERTY SATELLITE & TECHNOLOGY INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 0-21317

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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
incorporation or organization) Number)

7600 EAST ORCHARD ROAD, SUITE 330 SOUTH 80111
ENGLEWOOD, COLORADO (Zip Code)
(Address of principal executive
offices)

Registrant's telephone number, including area code: (303) 268-5440

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $1.00 per share
Series B Common Stock, par value $1.00 per share

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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. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. / /

The aggregate market value of the voting stock held by nonaffiliates of
Liberty Satellite & Technology, Inc. computed by reference to the last sales
price of such stock, as of the close of trading on February 28, 2001, was
approximately $237,500,000.

The number of shares outstanding of Liberty Satellite & Technology, Inc.'s
common stock as of February 28, 2001 was:

Series A Common Stock--65,471,095 shares; and
Series B Common Stock--7,732,496 shares.

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LIBERTY SATELLITE & TECHNOLOGY, INC.
2000 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PAGE
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PART I

Item 1. Business.................................................... I-1
Item 2. Properties.................................................. I-9
Item 3. Legal Proceedings........................................... I-9
Item 4. Submission of Matters to a Vote of Security Holders......... I-9

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... II-1
Item 6. Selected Financial Data..................................... II-2
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. II-3
Item 8. Financial Statements and Supplementary Data................. II-10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. II-10

PART III

Item 10. Directors and Executive Officers of the Registrant.......... III-1
Item 11. Executive Compensation...................................... III-5
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ III-9
Item 13. Certain Relationships and Related Transactions.............. III-14

PART IV

Item 14. Exhibits, Financial Statements and Financial Statement
Schedules and Reports on Form 8-K......................... IV-1

PART I

ITEM 1. BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

Liberty Satellite & Technology, Inc. ("LSAT or the "Company") pursues
strategic opportunities worldwide in the distribution of Internet data and other
content via satellite and related businesses. Currently, the Company conducts
its business as the general manager of Liberty Satellite, LLC (a joint venture
between the Company and Liberty Media Corporation), and through strategic
investments in, and contractual arrangements with, various entities that
operate, or are developing, satellite and terrestrial wireless networks for
broadband distribution of Internet access, video programming, streaming media
and other data. In addition, the Company is actively seeking to develop or
acquire operating businesses related to, and complementary with, that mission.
Most of the businesses with which the Company has strategic relationships are in
the development stage and operate at substantial losses. There can be no
assurances that such businesses will continue to be able to fund such losses or
that their development plans will be achieved.

Since its formation in 1996, the Company has undergone a number of
significant changes in its business. This Annual Report includes, for LSAT and
its subsidiaries, audited consolidated balance sheets as of December 31, 2000
and 1999, and audited consolidated statements of operations and cash flows for
each of the three years ended December 31, 2000, 1999 and 1998, as well as
certain selected financial data for each of the years in the five-year period
ended December 31, 2000. In order to help the reader to understand the financial
information presented herein, this Annual Report briefly describes the business
of LSAT and its predecessors over such five-year period, as well as certain
material transactions affecting the Company during such period.

THE SPIN-OFF. LSAT was incorporated in Delaware in November 1996 under the name
TCI Satellite Entertainment, Inc. Prior to the Spin-off (as defined below), the
Company was wholly owned by Tele-Communications, Inc. ("TCI") (now known as AT&T
Broadband, LLC). Among other businesses, TCI, through various subsidiaries, was
engaged in distributing PRIMESTAR satellite television services, a medium power
digital satellite service. The Company was formed to own and operate certain
businesses constituting TCI's collective interest in the digital satellite
business. On December 4, 1996 (the "Spin-off Date"), TCI distributed (the
"Spin-off"), as a dividend, all of the issued and outstanding LSAT Common Stock
to the holders of TCI's then outstanding TCI Group tracking stock.

PRIMESTAR BY TCI. From December 1996 through March 1998, LSAT marketed and
distributed the PRIMESTAR programming service under the brand names "PRIMESTAR
By TCI" and "PRIMESTAR By TSAT" and owned an aggregate 21% partnership interest
in PRIMESTAR Partners L.P. (now known as Phoenixstar Partners L.P.) ("Primestar
Partners"). Primestar Partners owned and operated the
PRIMESTAR-Registered Trademark- service, which was the second largest digital
satellite business and the eighth largest multichannel video programming
distribution business in the U.S., measured by the number of subscribers at
December 31, 1998. In addition, the Company, through its wholly-owned
subsidiary, Tempo Satellite, Inc. ("Tempo"), held a construction permit (the
"FCC License") issued by the Federal Communications Commission ("FCC"),
authorizing construction of a high power direct broadcast satellite ("DBS")
system at the 119 DEG. West Longitude ("W.L.") orbital position. Tempo was a
party to a satellite construction agreement (the "Satellite Construction
Agreement") with Space Systems/Loral, Inc. ("Loral") pursuant to which Tempo
arranged for the construction of two high power direct broadcast satellites (the
"Tempo Satellites"). In March 1997, one of the Tempo Satellites ("Tempo DBS-1")
was launched into geosynchronous orbit. The other Tempo Satellite ("Tempo
DBS-2") served as a ground spare for Tempo DBS-1.

THE PRIMESTAR ROLL-UP. Effective April 1, 1998, a business combination (the
"Primestar Roll-up") was consummated whereby LSAT contributed and transferred to
PRIMESTAR, Inc. (now known as

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Phoenixstar, Inc.) ("Phoenixstar") substantially all of LSAT's assets and
liabilities in exchange for shares of Phoenixstar common stock representing
approximately 37% of the outstanding shares of common equity of Phoenixstar and
approximately 38% of the combined voting power of such common equity. In
addition, the business of Primestar Partners and the business of distributing
the PRIMESTAR-Registered Trademark- programming service of each of the other
partners in Primestar Partners were consolidated into Phoenixstar.

As a result of the Primestar Roll-up, LSAT became a holding company, with no
substantial assets or liabilities other than (i) 100% of the outstanding capital
stock of Tempo, (ii) its ownership interest in Phoenixstar, and (iii) its rights
and obligations under certain agreements with Phoenixstar and others.

THE HUGHES TRANSACTIONS. In 1999, LSAT, Tempo, Phoenixstar and Primestar
Partners sold to Hughes Electronics Corporation ("Hughes"), a subsidiary of
General Motors Corporation, (i) Tempo DBS-1 and Tempo DBS-2 (ii) Tempo's
119 DEG. W.L. orbital location license and (iii) Phoenixstar's rights to use
Tempo's DBS system for aggregate consideration of $500 million including assumed
liabilities (the "Hughes High Power Transaction"). Due to the fact that
regulatory approval was required to transfer Tempo DBS-1 and the FCC License to
Hughes, the Hughes High Power Transaction was completed in two steps.

Effective March 10, 1999, the first closing of the Hughes High Power
Transaction was consummated whereby Hughes acquired Tempo DBS-2 and
Phoenixstar's option to acquire Tempo DBS-2 for aggregate consideration of
$150 million. 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 Tempo
DBS-1 and related assets, including all rights of Tempo with respect to the FCC
License, for aggregate consideration of $350 million, including assumption of
liabilities.

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 plus
14.613 million shares (as adjusted for a 3 for 1 stock split on July 3, 2000,
the "GM Hughes Stock Split") of General Motors Class H common stock ("GM Hughes
Stock"), subject to adjustments for working capital at the date of closing.
Phoenixstar used the cash proceeds from Hughes to repay its bank and public
debt.

In connection with their approval of the Hughes Medium Power Transaction and
other transactions, the stockholders of Phoenixstar approved the payment to LSAT
of 4.221 million shares (as adjusted for the GM Hughes Stock Split) of GM Hughes
Stock (the "Phoenixstar Payment"). In consideration of the Phoenixstar Payment,
the Company agreed to approve the Hughes Medium Power Transaction and Hughes
High Power Transaction (the "Hughes Transactions") 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. The LSAT GMH SAR granted 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 (as adjusted for the GM
Hughes Stock Split). The Company agreed to forgo any liquidating distribution or
other payment that may 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 to transfer its shares in
Phoenixstar to the other Phoenixstar stockholders. Effective May 10, 2000, the
Company sold 2.4 million shares (as adjusted for the GM Hughes Stock Split) of
GM Hughes Stock and used a portion of the cash proceeds to satisfy the LSAT GMH
SAR liability.

LIBERTY MEDIA TRANSACTIONS. On March 16, 2000, the Company completed two
transactions (the "Liberty Transactions") with Liberty Media Corporation
("Liberty Media"). Pursuant to the terms of the first transaction, the Company
acquired from Liberty Media its beneficial interest in over 5,000,000

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shares of Sprint Corporation PCS Group common stock ("Sprint PCS Stock"), in
exchange for the issuance by the Company to Liberty Media of (i) Series A 12%
Cumulative Preferred Stock ("Series A Preferred Stock") of the Company with a
liquidation value of $150 million and (ii) Series B 8% Cumulative Convertible
Voting Preferred Stock ("Series B Preferred Stock") of the Company with a
liquidation value of $150 million. The Series B Preferred Stock is convertible
into Series B Common Stock of the Company at a conversion price of $8.84 per
share, subject to adjustment, and prior to conversion represents approximately
85% of the voting power of the Company.

Pursuant to the terms of the second transaction, the Company and Liberty
Media formed a joint venture, Liberty Satellite, LLC ("LSAT LLC") to hold and
manage interests in entities engaged globally in the distribution of internet
data and other content via satellite and related businesses. Liberty Media
contributed cash and its interests in XM Satellite Radio Holdings, Inc.,
Wildblue Communications, Inc., LSAT Astro LLC and the Sky Latin America
satellite businesses in exchange for an 89.41% ownership interest in LSAT LLC.
The Company contributed its interest in Jato Communications Corp. and GM Hughes
Stock, subject to the LSAT GMH SAR, in exchange for a 10.59% managing ownership
interest in LSAT LLC.

In a related transaction, the Company paid Liberty Media $60 million in the
form of an unsecured promissory note in exchange for a 13.99% ownership interest
in LSAT Astro LLC, a limited liability company whose assets included an
approximate 31.5% interest in ASTROLINK International LLC and $250 million in
cash. The remaining 86.01% of LSAT Astro LLC was contributed by Liberty Media to
LSAT LLC, as indicated above.

OTHER BUSINESS. 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 management fee.

In October, 2000, the Company completed a transaction (the "Asvan
Transaction") pursuant to an agreement dated July 1999 (the "Asvan Agreement")
with Asvan Technology, LLC ("Asvan"). The Asvan Agreement provides for Asvan to
transfer certain assets and intellectual property to the Company's subsidiary,
TSAT Technologies, Inc. ("Technologies Sub") in exchange for a 20% equity
interest in Technologies Sub. The Company agreed to provide Technologies Sub
with a maximum of $5,000,000 (the "Funding Commitment") to develop technologies
relating to the design of (i) a stable, low phase noise, remotely tunable
transceiver, and (ii) an integrated receiver/decoder (IRD) service module for
commercial premises and multiple dwelling units.

The Company has agreed in principle to sell its ownership interest in
Technologies Sub to a consolidated subsidiary of Liberty Media for $750,000 plus
the assumption of the Funding Commitment. The transaction, as currently
contemplated, would provide the Company with limited rights to license and
sublicense certain of the technologies being developed by Technologies Sub. The
Company anticipates that this transaction will be consummated in the second
quarter of 2001. There can be no assurance that Technologies Sub will develop
marketable products or that this transaction will be consummated.

Certain statements in this Annual Report on Form 10-K 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
express 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

I-3

equipment, software and services; availability of qualified personnel; changes
in, or the failure or the inability to comply with, government regulation,
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 venturers; and other factors referenced in this Report.
These forward-looking statements (and such risks, uncertainties and other
factors) 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.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Not applicable.

(c) NARRATIVE DESCRIPTION OF BUSINESS

PRINCIPLE SUBSIDIARIES AND STRATEGIC RELATIONSHIPS

The following table sets forth information concerning the Company's
subsidiaries and business affiliates. The Company holds its interests in the
listed entities either directly or indirectly through LSAT LLC or LSAT Astro
LLC. The investment in such entities may be in the form of partnership or joint
venture interests, common stock investments or instruments convertible or
exchangeable into common stock. Liberty Satellite, LLC is owned 10.59% by LSAT
and 89.41% by Liberty Media. LSAT Astro LLC is owned 13.99% by LSAT and 86.01%
by Liberty Satellite, LLC. Ownership percentages in the table represent Liberty
Satellite LLC's or LSAT Astro LLC's ownership in the respective entity, as
appropriate. Ownership percentages in the table are approximate, calculated as
of February 1, 2001, and, where applicable and except where otherwise noted,
assume conversion of the Company's ownership interest to common equity.

OWNERSHIP
ENTITY AT 2/1/01 DESCRIPTION OF BUSINESS
- ------ --------- ------------------------------------------------

OWNED DIRECTLY BY LSAT

Netbeam, Incorporated........... 13% Provides wireless high speed network access for
businesses and individuals in rural markets
using unlicensed spectrum in the 2.4 GHz band.

Prairie iNet, LLC............... 10% Provides wireless high speed network access for
businesses and individuals in rural markets
using unlicensed spectrum in the 2.4 GHz band.

Sprint Corporation PCS Group
(NYSE: PCS)..................... < 1% Operates an all-digital PCS nationwide network.

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OWNERSHIP
ENTITY AT 2/1/01 DESCRIPTION OF BUSINESS
- ------ --------- ------------------------------------------------

OWNED INDIRECTLY THROUGH LIBERTY SATELLITE, LLC

Aerocast.com, Inc............... 37% Developing a terrestrial and satellite network
to distribute streaming media to businesses and
consumers. Had successful trial in Washington
state during 4th quarter of 2000.

Hughes Electronics Corporation
(NYSE: GMH)..................... < 1% Provides digital television entertainment,
satellite services and satellite-based private
business networks.

iBEAM Broadcasting, Corp.
(Nasdaq: IBEM).................. < 1% Provides streaming distribution services and
advanced streaming applications to entertainment
and enterprise customers.

Sky Latin America............... 10% Operatesa satellite delivered television
platform serving Mexico, Brazil, Columbia, Chile
and Argentina. Served over 1.3 million
subscribers as of December 31, 2000.

Wildblue Communications, Inc.... 18% Building a Ka-band satellite network to provide
broadband data communications services to homes
and small offices in North America and Latin
America.

XM Satellite Radio Holdings,
Inc. (NASDAQ: XMSR)............. 2% Plansto transmit up to 100 national audio
channels from two satellites directly to
vehicle, home and portable radios.

OWNED THROUGH LSAT ASTRO LLC

ASTROLINK International LLC..... 31.5% Building a Ka-band satellite network to provide
broadband data communications services to
businesses worldwide.

THE PRIMESTAR-REGISTERED TRADEMARK- SERVICE

During the periods prior to the Hughes Closing Date on April 28, 1999,
covered by the financial statements and selected financial data included in this
report, the Company was engaged, directly and through Phoenixstar and Primestar
Partners, in the PRIMESTAR-Registered Trademark- medium power satellite business
described below and related high power satellite efforts of Tempo
Satellite, Inc., a wholly-owned subsidiary of the Company. Since the
consummation of the Hughes transactions described herein, the Company has not
been engaged directly or indirectly in the PRIMESTAR-Registered Trademark- or
Tempo businesses. Since the Hughes Closing Date, "PRIMESTAR" has been a
registered trademark of Hughes. In the following description of the PRIMESTAR
service, references to LSAT/Phoenixstar refer to LSAT for periods prior to the
Primestar Roll-up and to Phoenixstar for periods after the Primestar Roll-up.

PRIMESTAR-Registered Trademark- offered a medium power satellite service
with over 160 channels of digital video and audio programming throughout the
continental United States. The medium power service was transmitted via 24
transponders on GE-2, which is owned and operated by GE American
Communications, Inc. ("GE Americom") and located at the 85 DEG. W.L. orbital
position. The PRIMESTAR-Registered Trademark- medium power service served
approximately 2.3 million subscribers as of December 31,

I-5

1998 making it the second largest digital satellite business and the eighth
largest multichannel video programming distribution business in the U.S.,
measured by the number of subscribers.

PRIMESTAR-Registered Trademark- included a variety of advertiser-supported
networks (sometimes referred to as "basic cable" channels), a broad selection of
movie services, national and regional sports packages and other premium
services, and multiplexed pay-per-view programming. LSAT/Phoenixstar secured its
rights to broadcast such programming by entering into non-exclusive affiliation
agreements with programming vendors. In addition to video services,
PRIMESTAR-Registered Trademark- included digital audio services and regional
weather services covering ten regions of the country.

The Company and other PRIMESTAR distributors, each of whom was also
affiliated with a partner of Primestar Partners, contracted directly with
residential and commercial subscribers and billed such subscribers directly for
the PRIMESTAR service. In turn, the Company and other PRIMESTAR distributors
paid authorization and programming fees to Primestar Partners.

LSAT/Phoenixstar distributed PRIMESTAR-Registered Trademark- services
through multiple distribution channels, including sales agents, full-service
providers, telemarketing agents and consumer retail outlets, such as
RadioShack-Registered Trademark-. LSAT/Phoenixstar had sales agents, (the "Sales
Agents"), each of which had extensive experience distributing C-band
direct-to-home ("DTH") satellite equipment. Sales Agents generally did not sell
directly to customers, but recruited, trained and maintained a network of
sub-agents comprised generally of full-service independent satellite retailers.
The sub-agents sold PRIMESTAR-Registered Trademark- services on behalf of
LSAT/Phoenixstar and installed, serviced and maintained customer premises
equipment for LSAT/Phoenixstar's subscribers. Sales Agents were responsible for
maintaining their sub-agents' inventories of home satellite dishes ("HSD") and
other customer premises equipment, which were provided by LSAT/Phoenixstar on
consignment.

After the Primestar Roll-up, Phoenixstar also contracted with independent
contractors who had experience in distributing and servicing DTH satellite
equipment ("Full-Service Providers" or "FSPs") to engage them to sell, install
and service their own accounts. The FSPs solicited potential subscribers by
making door-to-door sales calls, setting up booths at special events and
otherwise marketing the PRIMESTAR-Registered Trademark- service to customers in
target markets in their authorized distribution areas. FSPs also installed and
serviced customers obtained through retail outlets and call centers.

LSAT/Phoenixstar operated a call center, located in Englewood, Colorado to
take subscription orders and provide both sales support and customer service. In
addition, LSAT/Phoenixstar obtained call center support services from TCI, as
well as call centers operated on behalf of LSAT/Phoenixstar by unaffiliated
third parties. The call centers offered customers around-the-clock telephone
support for sales, installation, authorization and billing, as well as for
repair and customer service.

Unlike other digital satellite television services, LSAT/Phoenixstar did not
require consumers to purchase or finance the equipment needed to receive its
programming. LSAT/Phoenixstar provided the HSD, satellite receiver and remote
control to subscribers for a monthly rental fee ($3 - $10 per month at
December 31, 1998), which included ongoing maintenance and service at no
additional charge. The monthly equipment rental fee was normally included in a
service package that included various levels of basic and premium programming.
Satellite receivers were manufactured by General Instruments ("GI"), and
packaged by GI with remote controls, and HSDs were manufactured by multiple
vendors. In addition to monthly fees for programming and the purchase or lease
of equipment, LSAT/ Phoenixstar generally charged new subscribers an
installation fee ranging from $49 to $99.

HIGH POWER SATELLITES

TEMPO DBS SYSTEM. The Company, through Tempo, held the FCC License, authorizing
construction of a high power DBS system consisting of two or more satellites
delivering DBS service in 11 frequencies at the 119 DEG. W.L. orbital position.
The 119 DEG. W.L. orbital position is generally visible to HSDs throughout

I-6

the entire continental U.S. Tempo was also a party to the Satellite Construction
Agreement with Loral, pursuant to which Tempo arranged for the construction of
Tempo DBS-1 and Tempo DBS-2 and had an option to purchase up to three additional
satellites.

COMPETITION

The Company pursues strategic opportunities worldwide in the distribution of
Internet data and other content via satellite and related businesses. Currently,
the Company conducts its business through strategic investments in, and
contractual arrangements with, various entities that operate, or are developing,
satellite and terrestrial wireless networks for broadband distribution of
internet access, video programming, streaming media and other data. Most of the
businesses with which the Company has strategic relationships are in the
development stage and operate at substantial losses. There can be no assurances
that such businesses will continue to be able to fund such losses or that their
development plans will be achieved.

The broadband communications industry experiences intense competition in
worldwide markets among numerous global competitors, including some of the
world's largest and best known companies. The Company and its strategic
investments will face competition from other satellite providers, cable
television providers, "wireless cable" providers, DSL (digital subscriber line)
providers, traditional narrowband Internet access providers, proprietary on-line
services and other telecommunications companies and service providers. Many of
such competitors and potential competitors have substantially greater capital
and financial resources, brand recognition, marketing resources, and/or
technological capabilities than the Company, and many have substantial existing
customer bases and established relationships with content providers,
distributors and/or retail outlets. Such advantages may increase the ability of
such actual and potential competitors to compete successfully against the
Company and its strategic investments.

The Company expects that significant competitive factors will include price,
service quality and reliability, signal latency, susceptibility to "rain fade"
and other forms of interference, geographic service areas or "footprints," ease
of use, breadth of features and service offerings, the ability to bundle
complementary services, the availability of vendor financing for antennas,
receivers and other customer premises equipment, brand recognition and
time-to-market.

The Company believes that competition in its industry will increase as the
FCC grants additional licenses in existing frequency ranges and as new
technologies are developed and deployed.

REGULATORY MATTERS

FCC REGULATION. The FCC is the government agency with primary authority in the
United States to regulate the use of radio spectrum, including both satellite
and terrestrial applications. The Company does not currently hold any FCC
licenses or other authorizations, and cannot directly acquire, own, construct or
operate a satellite system without an appropriate license, construction permit
or other authorization issued by the FCC for such purpose. In addition, most
microwave and other terrestrial radio operations also require FCC authorization.
The FCC has promulgated numerous regulations governing the construction,
ownership and operation of satellite and terrestrial radio systems. Wireless
communications companies must comply with all such regulations applicable to
their operations, and if they violate such regulations, the FCC can impose
sanctions such as fines, loss or modification of authorizations, and/or the
denial of applications for new authorizations or for renewal of existing
authorizations.

Certain terrestrial wireless systems, such as those operated by Netbeam,
Incorporated and Prairie iNet, LLC utilize un-licensed radio frequencies for
communicating between the antenna serving an individual community and
subscribers in that community. However, such systems are nevertheless subject to
FCC regulation and may utilize other frequencies that require authorizations for
other

I-7

purposes (such as satellite earth stations or microwave communications between a
head end and community antennas). Service providers that use unlicensed spectrum
are also subject to interference from other permitted users of such spectrum in
their service areas, and may be subject to restrictions on amplification and
other limitations.

Construction of a Ka-band satellite system requires an appropriate
construction permit from the FCC. Such permits are generally subject to time
limits and requirements that the permittee exercise due diligence toward the
construction and deployment of the permitted system within such time limits.
Licenses for Ka-band satellites are issued for an initial ten-year term
commencing once the satellite is successfully placed into orbit and its
operations fully conform to the terms and conditions of the license. Upon the
expiration of the license for each Ka-band satellite, the licensee must apply
for renewal of the license. Astrolink and Wildblue have been granted five and
two FCC permits, respectively. Such permits require Astrolink and Wildblue to
meet terms and conditions and comply with FCC regulations. If they do not meet
the FCC terms and conditions, their FCC permits could expire and not be renewed,
be revoked, or be modified.

INVESTMENT COMPANY ACT. The Investment Company Act requires companies that are
engaged primarily in the business of investing, reinvesting, owning, holding or
trading in securities, or that fail certain numerical tests regarding the
composition of their assets and their sources of income and that are not
primarily engaged in a business other than investing, reinvesting, owning,
holding or trading in securities, to register as "investment companies." Various
substantive restrictions are imposed on investment companies by the Investment
Company Act.

We are primarily engaged in a business other than investing, reinvesting,
owning, holding or trading securities, and do not intend to be an investment
company within the meaning of the Investment Company Act. However, there is a
risk that we could be deemed an investment company within the meaning of the
Investment Company Act. If we are required to register as an investment company
under the Investment Company Act, we would become subject to substantial
regulation of our capital structure, management, operations, transactions with
"affiliated persons," as defined in the Investment Company Act, and other
matters. If the Company were deemed to be an investment company subject to
regulation under the Investment Company Act and did not register under that Act,
it would be in violation of the Investment Company Act and would be prohibited
from engaging in business or selling its securities and could be subject to
civil and criminal actions for doing so. In addition, the Company's contracts
would be voidable and a court could appoint a receiver to take control of the
Company and liquidate it. Therefore, the Company's classification as an
investment company subject to regulation under the Investment Company Act could
materially adversely affect the Company's business, results of operations and
financial condition.

OTHER

During 2000 and 1999, the Company purchased approximately $25,000 and
$200,000, respectively, in equipment to be used in research and development
activities, in addition to approximately $320,000 and $200,000, respectively,
expended in research and development activities which is included in operations.
Amounts expended for research and development in 1998 were not significant.

Compliance with federal, state and local provisions that have been enacted
or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.

As of December 31, 2000, the Company had 9 employees.

I-8

(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES

Not applicable.

ITEM 2. PROPERTIES.

The Company owns no real estate. The Company has entered into a
noncancelable operating lease for a facility in Englewood, Colorado expiring in
December 2001. The Company believes that such facility is adequate for its
business operations for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject, except as follows:

In a civil action entitled DANIEL BOONE, OZARK HEARTLAND ELECTRONICS, INC.
V. RADIO SHACK, ET AL, pending in the United States District Court, Western
District, Springfield Division, Missouri, Civil Action No. 99-3109-CV-S-RGC-ECF,
plaintiff alleges that the Company and other defendants (i) entered into a
vertical resale price maintenance agreement with Radio Shack, in violation of
Section 1 of the Sherman Act, and (ii) tortiously interfered with plaintiff's
contractual relationship with Radio Shack when they requested that Radio Shack
terminate plaintiff's right to market PRIMESTAR-Registered Trademark- products.
On March 13, 2001, the Court granted the defendants' motion for summary judgment
and subsequently dismissed the case. The plaintiff has filed a motion requesting
that the Court amend its judgment and has filed an appeal to the Eighth Circuit
Court of Appeals. Phoenixstar has a contractual obligation to indemnify the
Company for liability, if any, arising out of this matter.

In a civil action entitled TCI SATELLITE ENTERTAINMENT, INC. ET AL V. BOARD
OF EQUALIZATION OF MONTEZUMA COUNTY, pending in the Supreme Court for the State
of Colorado, Case No. 99-CA-0975, the Board of Equalization of Montezuma County
(the "Montezuma Board") appealed a ruling by the Colorado State Board of
Assessment Appeals that the Montezuma Board violated administrative, statutory
and judicial mandates in denying the Company and Phoenixstar personal property
tax exemptions found in Colorado Revised Statutes Section 39-3-119.5. The
Colorado Court of Appeals reversed the Montezuma Board's ruling and the matter
was further appealed to the Colorado Supreme Court, which has accepted
certiorari. The Colorado Supreme Court has received briefs and the parties are
awaiting oral arguments and a ruling. Phoenixstar has a contractual obligation
to indemnify the Company for liability, if any, arising out of this matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

I-9

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Shares of the Company's Series A Common Stock and Series B Common Stock
trade over-the-counter on the OTC Bulletin Board under the symbols "LSATA" and
"LSATB", respectively. Historically, shares of Series B Common Stock have had
low trading volume due to a relatively low number of shares held in the public
float. The following table sets forth the range of high and low bid prices in
U.S. dollars of shares of Series A Common Stock and Series B Common Stock for
the periods indicated. The prices are interdealer prices, do not include retail
markups, markdowns, or commissions and may not represent actual transactions.

SERIES A SERIES B
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------

2000
First quarter.............................. $20.81 11.81 20.50 11.00
Second quarter............................. $18.50 7.38 18.75 7.88
Third quarter.............................. $13.47 7.94 13.75 8.00
Fourth quarter............................. $ 9.88 2.13 10.25 2.25

1999
First quarter.............................. $ 3.75 0.50 4.75 1.00
Second quarter............................. $ 5.63 0.63 5.75 1.00
Third quarter.............................. $ 5.13 3.00 5.25 3.00
Fourth quarter............................. $20.00 3.75 19.00 3.63

As of January 31, 2001, there were approximately 4,800 and 300 record
holders of the Series A common stock and Series B common stock, respectively
(which amounts do not include the number of shareholders whose shares are held
of record by banks, brokerage houses or other institutions, but include each
such institution as one shareholder).

The Company has not paid cash dividends on its Series A common stock and
Series B common stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the Company's Board of
Directors in light of its earnings, financial condition and other relevant
considerations.

On March 16, 2000, the Company issued 150,000 shares of Series A Preferred
Stock and 150,000 shares of Series B Preferred Stock to Liberty Media in
exchange for a beneficial interest in 5,084,745 shares of Sprint PCS Stock. Such
shares of preferred stock were valued at $300,000,000.

On June 20, 2000, August 3, 2000 and September 20, 2000, the Company issued
89,965, 864,393 and 705,563 shares of Series A common stock, respectively, to
Liberty Media. Such issuances were made in lieu of a cash payment of dividends
on the Company's Series A and Series B Preferred Stock and were valued at
$1,233,000, $7,500,000 and $7,500,000, respectively.

The foregoing issuances of preferred and common stock of the Company were
made pursuant to the private placement exemption from the Securities Act of 1933
(the "Act") afforded by Section 4(2) of the Act.

II-1

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data related to the Company's financial condition and
results of operations for the five years ended December 31, 2000 are summarized
as follows (such information should be read in conjunction with the accompanying
consolidated financial statements of the Company).

YEARS ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998(1) 1997 1996
-------- -------- -------- -------- --------
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

SUMMARY STATEMENT OF OPERATIONS DATA:
Revenue................................... $ 445 -- 168,500 561,990 417,461
Operating, selling, general and
administrative expenses and stock
compensation............................ $ (1,096) (12,160) (158,810) (489,947) (410,390)
Operating loss............................ $ (749) (12,183) (55,415) (171,599) (184,284)
Interest expense(2)....................... $ (5,729) (140) (14,177) (47,992) (2,023)
Share of losses of affiliates............. $ (7,251) -- (375,053) (20,473) (3,275)
Net earnings (loss)....................... $(49,137) 67,262 (445,266) (238,341) (140,004)
Basic and diluted earnings (loss) per
common share(3)......................... $ (1.07) 0.97 (6.58) (3.58) (2.11)

DECEMBER 31,
------------------------------------------------------
2000 1999 1998(1) 1997 1996
-------- -------- -------- --------- ---------
AMOUNTS IN THOUSANDS

SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents................ $157,198 2,473 -- 6,084 6,560
Investments in affiliates accounted for
using the equity method................ $280,564 -- -- 11,093 32,240
Investments in available-for-sale
securities and others.................. $547,024 140,101 -- -- --
Total assets............................. $986,256 143,197 463,133 1,204,856 1,180,273
Debt(2).................................. $ 89,985 3,044 -- 418,729 247,230
Minority interests in consolidated
subsidiaries........................... $534,301 -- -- -- --
Redeemable preferred stock............... $196,614 -- -- -- --
Stockholders' equity (deficit)........... $131,156 64,727 (6,365) 136,269 372,358

- ------------------------

(1) The Primestar Roll-up was consummated on April 1, 1998. In connection
therewith, LSAT contributed and transferred to Phoenixstar all of its assets
and liabilities except for assets and liabilities related to the high power
DBS system being constructed by Tempo.

(2) Effective December 31, 1996, the Company entered into a bank credit facility
with initial commitments of $350 million. In addition, on February 20, 1997,
the Company issued senior subordinated notes and senior subordinated
discount notes with aggregate principal amounts at maturity of
$475 million. Such debt was assumed by Phoenixstar effective April 1, 1998.

Effective November 19, 1999, the Company entered into a Revolving Loan
Agreement with aggregate commitments of $25 million. Such facility was
repaid and canceled in October 2000.

Effective September 29, 2000, the Company entered into a $35 million loan
agreement, which was subsequently amended to provide for up to $303 million
of borrowings. In addition, the Company issued a $60 million promissory note
to Liberty Media on March 16, 2000.

(3) In connection with the December 4, 1996 consummation of the Spin-off, the
Company issued 66,408,000 shares of Company common stock. The basic and
diluted loss per common share

II-2

amounts for the year ended December 31, 1996 assumes that the shares issued
pursuant to the Spin-off were issued and outstanding since January 1, 1996.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

On March 16, 2000, the Company completed the Liberty Transactions with
Liberty Media. 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 with a
liquidation value of $150 million. The shares of Series B Preferred Stock have
super voting rights which give Liberty Media voting control over the Company.
Accordingly, since March 16, 2000, the Company has been a consolidated
subsidiary of Liberty Media.

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, LSAT LLC and LSAT Astro LLC ("LSAT Astro" and with
LSAT LLC, the "LSAT Joint Ventures"). The Company contributed (i) its beneficial
interest in 4,221,921 shares (as adjusted for the GM Hughes Stock Split) of GM
Hughes Stock, net of the GM Hughes Stock share appreciation right liability
described below, and (ii) its interest in JATO Communications Corp. to LSAT LLC
in exchange for a 10.59% ownership interest in LSAT LLC. Liberty Media
contributed cash and 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. In addition, the
Company received a 13.99% ownership interest in LSAT Astro in exchange for a
$60 million note payable to Liberty Media. As the Company is a consolidated
subsidiary of Liberty Media, all of the assets contributed by the Company and
Liberty Media to the LSAT Joint Ventures were recorded at their net book values
at the date of contribution.

The Company operates and manages the activities of the LSAT Joint Ventures
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 Joint Ventures have
been included in the Company's consolidated financial statements since
March 16, 2000.

The Company pursues 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.

HUGHES TRANSACTIONS

Effective June 4, 1999, the Company completed the sale of its high power
direct broadcast satellite assets to Hughes, pursuant to an asset purchase
agreement dated as of January 22, 1999 (the "Hughes High Power Agreement") among
Tempo, Phoenixstar, Primestar Partners and Hughes, a subsidiary of General
Motors Corporation. The assets transferred by the Company pursuant to the Hughes
High Power Agreement consisted of Tempo's two high-power DBS satellites, its FCC
authorizations with respect to the 119 DEG. West Longitude orbital location, and
certain related 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

II-3

$2.5 million in cash and the assumption of all related 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 Option"), 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").

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 Option. 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 Tempo DBS-1 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 Tempo DBS-1 and related assets and 30% of the total consideration
thereunder to Tempo DBS-2 and related assets.

The first closing under the Hughes High Power Agreement was consummated
effective March 10, 1999. In the first closing, Hughes acquired Tempo DBS-2 and
related assets for aggregate consideration of $150 million, comprised of
(i) $9.75 million paid by Hughes to Phoenixstar and Primestar Partners for the
transfer to Hughes of that portion of the Tempo Purchase Option allocable to
Tempo DBS-2 and the termination of that portion of the Tempo Capacity Rights
allocable to the Tempo DBS-2, (ii) $750,000 paid by Hughes to the Company to
exercise that portion of the Tempo Purchase Option allocable to the Tempo DBS-2;
and (iii) the assumption and payment by Hughes of a portion of the Tempo
Reimbursement Obligation in the amount of $139.5 million.

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 Tempo DBS-1 and
related assets, including all rights of Tempo with respect to the FCC License,
for aggregate consideration of $350 million comprised of (i) $22.75 million paid
by Hughes to Phoenixstar and Primestar Partners for the transfer to Hughes of
that portion of the Tempo Purchase Option allocable to Tempo DBS-1 and the
termination of that portion of the Tempo Capacity Rights allocable to Tempo
DBS-1, (ii) $1.75 million paid by Hughes to Tempo to exercise that portion of
the Tempo Purchase Option allocable to Tempo DBS-1; and (iii) the assumption and
payment by Hughes of the remainder of the Tempo Reimbursement Obligation, in the
amount of $325.5 million.

The carrying value of Tempo DBS-1 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 million.

Effective April 28, 1999, Phoenixstar completed the Hughes Medium Power
Transaction in which Phoenixstar sold to Hughes, Phoenixstar's medium-power DBS
business and assets for $1.1 billion in cash plus 14.613 million shares (as
adjusted for the GM Hughes Stock Split) of GM Hughes Stock valued at
approximately $258 million on the date of closing. The foregoing purchase price
was subject to adjustments for working capital at 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 the
Company of consideration in the form of 4.221 million shares (as adjusted for
the GM Hughes Stock Split) of GM Hughes Stock. 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

II-4

appreciation right 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 (as adjusted for the GM
Hughes Stock Split) (the "LSAT GMH SAR"). The Company also agreed to forego any
liquidating distribution or other payment that may 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 to
transfer its shares in Phoenixstar to the other Phoenixstar stockholders. On the
Hughes Closing Date, the Company received 4.221 million shares (as adjusted for
the GM Hughes Stock Split) of GM Hughes Stock, subject to the LSAT GMH SAR, from
Phoenixstar in satisfaction of the Phoenixstar Payment.

PRIMESTAR ROLL-UP

Effective April 1, 1998 (the "Closing Date"), the Primestar Roll-up was
consummated whereby LSAT contributed and transferred to Phoenixstar all of
LSAT's assets and liabilities, except (i) the capital stock of Tempo, (ii) the
consideration to be received by LSAT in the Primestar Roll-up and (iii) the
rights and obligations of LSAT under certain agreements with Phoenixstar and
others. In addition, the business of Primestar Partners and the business of
distributing the PRIMESTAR-Registered Trademark- programming service of each of
the other partners in Primestar Partners were consolidated into Phoenixstar.

In connection with the Primestar Roll-up, Phoenixstar assumed all of LSAT's
indebtedness on the Closing Date, and LSAT received 66.3 million shares of
Phoenixstar Class A Common Stock and 8.5 million shares of Phoenixstar Class B
Common Stock. As a result, LSAT owns approximately 37% of the outstanding shares
of common equity of Phoenixstar, representing approximately 38% of the combined
voting power of such common equity. As a result of the dilution of LSAT's
investment in Phoenixstar from 100% to approximately 37%, LSAT recognized an
increase in its investment in Phoenixstar and an increase in additional paid-in
capital of $299,046,000, net of income taxes. Such increase represented the
difference between LSAT's historical investment basis in Phoenixstar and LSAT's
proportionate share of Phoenixstar's equity subsequent to the Primestar Roll-up.

As of December 31, 1998, the Company's share of losses of Phoenixstar had
reduced the book value of the Company's investment in Phoenixstar to zero. Also,
as described above, the Company has no further commitment to fund obligations of
Phoenixstar. The Company has agreed to transfer its beneficial ownership in
Phoenixstar to the other Phoenixstar shareholders.

SUMMARY OF OPERATIONS

As a result of the consummation of the Primestar Roll-up in 1998 and the
Hughes Transactions in 1999, the Company is currently a holding company. As a
holding company, LSAT has had no significant direct operations since April 1,
1998. The Company (i) incurs general and administrative expenses to manage its
interests in other companies and maintain its status as a publicly traded
company and (ii) provides management services to Phoenixstar.

2000 vs. 1999

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 $445,000 during 2000. In
addition, Phoenixstar reimburses the Company for certain expenditures which
benefit Phoenixstar, such as office rent and computer support. Such
reimbursements aggregated $169,000 during 2000 and are reflected as a reduction
of general and administrative expenses in the accompanying statement of
operations.

II-5

The Company's general and administrative expenses increased from $776,000 in
1999 to $4,211,000 in 2000. Such increase is primarily due to increases in
(i) salaries and related employee costs and (ii) contract labor and professional
fees. During the period from the Primestar Roll-up to the Hughes Transactions,
the Company had no paid employees. Subsequent to the Hughes Transactions and in
anticipation of the Liberty Transactions, the Company hired three employees in
late 1999. In addition, the Company initiated research and development ("R&D")
activities in the third quarter of 1999. The Company hired additional employees
in 2000. As a result of such hirings, the Company's salaries and
employee-related costs increase from $228,000 in 1999 to $1,478,000 in 2000.
During the third quarter of 2000, the Company's R&D employees transferred to
another subsidiary of Liberty Media, and the Company has agreed to sell its R&D
subsidiary to such Liberty Media subsidiary for $750,000 plus the assumption of
certain funding commitments. In connection with the Liberty Transactions, the
Company incurred in excess of $800,000 in investment banking, legal and
accounting fees.

The Company records estimated stock compensation pursuant to the intrinsic
value method of Accounting Principles Board Opinion No. 25. Such estimate is
subject to future adjustment based upon market value of the Company's stock. The
adjustment to stock compensation in 2000 is the result of a decrease in the
Company's stock price.

In 1999, the Company incurred $4,511,000 of expenses associated with the
operation and maintenance of the Tempo Satellites. Such expenses were incurred
during the first six months of 1999, prior to the sale of the Tempo Satellites
to Hughes.

In May 2000, the Company sold 2.4 million shares of GM Hughes Stock 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.

During the year ended December 31, 2000, the Company recognized interest
expense of $5,729,000, compared to $140,000 in 1999. Such increase is due to an
increase in the Company's weighted average debt balance in 2000.

The Company recognized interest income of $10,361,000 for the year ended
December 31, 2000, compared to $146,000 in 1999. Such 2000 interest income was
earned primarily on short-term investments made using the cash balance
maintained by LSAT Astro, which the Company acquired as part of the Liberty
Transactions. It is anticipated that such LSAT Astro cash will be used to fund
Astrolink capital calls in 2001, and accordingly, will not be available for any
other purpose in 2001.

During the year ended December 31, 2000, the Company's share of losses of
affiliates aggregated $7,251,000. As both Astrolink and Aerocast are in the
development stage of their business, the Company does not expect its shares of
losses of affiliates to decrease in the foreseeable future.

The Company recorded minority share of earnings aggregating $536,000 during
the year ended December 31, 2000. Such share of earnings relates primarily to
interest income earned by LSAT Astro offset by share of losses of affiliates.

During the year ended December 31, 2000, the Company recognized impairment
losses on its investments in Jato Communications Corp. and Netbeam, Incorporated
aggregating $9,860,000. The Company also recorded an unrealized loss of
$14,426,000 related to certain of its derivative financial instruments.

During the year ended December 31, 1999, the Company recognized a gain on
sale of satellites of $13,712,000 and other income of $66,143,000. The gain on
sale of satellites related to the sale of the Tempo Satellites to Hughes. The
other income related to the receipt from Phoenixstar of the GM Hughes Stock in
connection with the consummation of the Hughes Medium Power Transaction.

II-6

The Company recognized income tax benefit of $8,131,000 in 2000 and income
tax expense of $416,000 in 1999. The Company is only able to realize income tax
benefits for financial reporting purposes to the extent that such benefits
offset income tax liabilities or the Company generates taxable income. For
financial reporting purposes all of the Company's income tax liabilities had
been fully offset by income tax benefits at December 31, 2000 and 1999.

1999 vs. 1998

The Company's results of operations for the year ended December 31, 1998
include three months of operations of the Company's medium power DBS business.
Such business was contributed to Phoenixstar in connection with the Primestar
Roll-up.

The Company recorded share of losses of Primestar Partners ($5,822,000) and
Phoenixstar ($369,231,000) in 1998. The Company's ownership interest in
Primestar Partners was contributed to Phoenixstar in connection with the
Primestar Roll-up; and as a result of the cumulative losses of Phoenixstar, the
Company's investment in Phoenixstar was reduced to zero at December 31, 1998. As
a result of the foregoing, no share of losses were recorded by the Company in
1999.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" ("Statement 133"), which is effective for
fiscal years beginning after June 15, 2000. Statement 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 Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the:

- fair values of existing assets, liabilities, or firm commitments,

- variability of cash flows of forecasted transactions, or

- foreign currency exposures of net investments in foreign operations.

As described below, the Company has entered into several equity collars in
an attempt to reduce the market risk associated with certain of its
available-for-sale securities. Such equity collars qualify as fair value hedges,
and the related available-for-sale securities qualify as hedged items, as those
terms are defined in Statement 133. As such, it is anticipated that any change
in the fair value of the hedged item will be offset by the change in fair value
of the fair value hedge. To the extent that the change in fair value of the
hedged item is not exactly offset by the change in fair value of the fair value
hedge, the Company will recognize in earnings the ineffective portion of the
equity collar. While there can be no assurance, the Company does not believe
that the impact of Statement 133 on its results of operations will be
significant.

In March 2000, the FASB issued Interpretation No. 44, "ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--AN INTERPRETATION OF APB
OPINION NO. 25" ("FIN 44"). FIN 44 provides guidance on the accounting for
certain stock option transactions and subsequent amendments to stock option
transactions and was effective July 1, 2000. The adoption of FIN 44 had no
significant impact on the Company's financial position, results of operations,
or cash flows.

In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENTS OF LIABILITIES" ("Statement 140"), which revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures. Statement 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The

II-7

adoption of Statement 140 is not expected to have a significant impact on the
Company's financial position, results of operations, or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the consummation of the Hughes Transactions, the Company
currently has no operating income and/or positive cash flow. During the year
ended December 31, 2000, the Company funded its operating activities and its
investments in affiliates with a combination of (i) contributions from Liberty
Media, (ii) borrowings of debt and (iii) net cash proceeds from the sale of GM
Hughes Stock.

During 2000, the Company entered into a $303 million revolving credit
facility due 2003. Such facility, the PCS Loan Facility, is secured by the
Company's interest in the Sprint PCS Stock and the Sprint PCS equity collar
described below. Interest accrues at LIBOR and is payable monthly. The Company
anticipates that it will use available borrowings under the PCS Loan Facility to
fund its investment and operating activities.

The trust holding the Sprint PCS Stock in which LSAT has the beneficial
interest has entered into an equity collar with a financial institution for
LSAT's benefit with respect to such 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
March 2003 for a weighted average price of $59.71 per share. The trust
simultaneously sold a call option giving the counterparty the right to buy the
same number of shares of stock from the trust in seven tranches in March 2003
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.

LSAT LLC has entered into a put spread collar with a financial institution
with respect to the Company's shares of GM Hughes Stock. The collar
(i) provides LSAT LLC with a put option that gives it the right to require its
counterparty to buy 1,821,921 shares of GM Hughes Stock from LSAT LLC 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 LSAT LLC to repurchase the 1.8 million shares of GM Hughes Stock for a
weighted average price of $14.80. LSAT LLC simultaneously sold a call option
giving the counterparty the right to buy the same shares of stock from LSAT LLC
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 LSAT LLC.

LSAT LLC has also entered into an equity collar with a financial institution
with respect to the Company's shares of XMSR common stock. The collar provides
LSAT LLC with a put option that gives it the right to require its counterparty
to buy 1,000,000 shares of XMSR common stock from LSAT LLC in three tranches in
November 2003, December 2003 and February 2004 for a weighted average price of
$28.55. LSAT LLC simultaneously sold a call option giving the counterparty the
right to buy the same shares of stock from LSAT LLC 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 LSAT LLC.

As the Company's equity collars are designated to specific shares of stock
held by the Company, and the changes in the fair value of the equity collars are
correlated with changes in the fair value of the underlying securities, the
equity collars function as hedges. Accordingly, changes in the fair value of
these equity collars are reported as a component of comprehensive income (in
unrealized gains) along with the changes in the fair value of the underlying
securities. Under Statement 133, the Company will recognize in earnings the
ineffective portion of its equity collars. The Company's put spread collars do
not function as hedges, and therefore changes in the fair value of the put
spread collars are recorded as unrealized gains on financial instruments in the
Company's consolidated statements of operations.

II-8

Pursuant to the terms of the Liberty Transactions, Liberty Media contributed
$249,620,000 in cash to LSAT Astro. The Company used $101,130,000 in 2000 to
fund Astrolink capital calls and intends to use the remainder of such cash to
fund a portion of Astrolink's 2001 capital requirements. LSAT and LSAT Astro
assumed the commitment for such capital requirements in connection with the
Liberty Transactions.

In addition to the aforementioned commitment, LSAT Astro and the other
Astrolink members have agreed to take such actions as are reasonably necessary
to enable Astrolink to meet its 2001 funding requirements. Such actions may
include the purchase of equity or debt securities of Astrolink, the facilitation
of guaranteed bank financing, or any other approaches acceptable to the members
and Astrolink, subject to the negotiation and execution of definitive
agreements. LSAT Astro's obligation to make any investment in or provide any
financial obligation to Astrolink under this agreement is limited to
$94,437,000, and does not constitute a guarantee of any obligation of Astrolink.

The Company has guaranteed certain lease obligations of the Sky Latin
America businesses through 2015. Such guarantees aggregated approximately
$112,000,000 at December 31, 2000. Currently, the Company is not certain of the
likelihood of being required to perform under such guarantees.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2000, the Company had $89,985,000 of variable-rate debt with
a weighted-average interest rate of 7.81%. Accordingly, the Company is subject
to market rate risk. To date, the Company has not entered into any derivative
instruments to manage its interest rate exposure. All such variable-rate debt is
due in 2003.

The Company also has price risk related to investments in marketable equity
securities. The following table summarizes the market risk for the Company:

DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------------ --------------------------------
SHARES FAIR CARRYING SHARES CARRYING
OWNED VALUE VALUE OWNED FAIR VALUE VALUE
-------- -------- -------- -------- ---------- --------
AMOUNTS IN THOUSANDS

Equity price risk:
GM Hughes Stock(1).................. 1,822 $ 42,013 $ 42,013 4,222 $135,101 $135,101
Sprint PCS Stock(2)................. 5,085 $102,330 $102,330 -- -- --
XMSR Stock(3)....................... 1,000 $ 16,000 $ 16,000 -- -- --

- ------------------------

(1) Shares owned reflect a 3 for 1 stock split effected July 3, 2000. LSAT LLC
has entered into a put spread collar with a financial institution with
respect to the Company's shares of GM Hughes Stock. The (i) collar provides
LSAT LLC with a put option that gives it the right to require its
counterparty to buy 1,821,921 shares of GM Hughes Stock from LSAT LLC 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 LSAT LLC to repurchase the 1.8 million shares of GM Hughes Stock for
a weighted average price of $14.80. LSAT LLC simultaneously sold a call
option giving the counterparty the right to buy the same shares of stock
from LSAT LLC 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 LSAT LLC.

(2) The trust holding the Spring PCS Stock in which LSAT has the beneficial
interest has entered into an equity collar with a financial institution for
LSAT's benefit with respect to such 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 March 2003 for a weighted average price of $59.71 per
share. The trust simultaneously sold a call

II-9

option giving the counterparty the right to buy the same number of shares of
stock from the trust in seven tranches in March 2003 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.

(3) LSAT LLC has entered into an equity collar with a financial institution with
respect to the Company's shares of XMSR common stock. The collar provides
LSAT LLC with a put option that gives it the right to require its
counterparty to buy 1,000,000 shares of XMSR common stock from LSAT LLC in
three tranches in November 2003, December 2003 and February 2004 for a
weighted average price of $28.55. LSAT LLC simultaneously sold a call option
giving the counterparty the right to buy the same shares of stock from LSAT
LLC 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 LSAT LLC.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of the Company are filed under this item beginning
on page II-11.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

II-10

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Liberty Satellite & Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Liberty
Satellite & Technology, Inc. (formerly TCI Satellite Entertainment, Inc.) and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Liberty
Satellite & Technology, Inc. (formerly TCI Satellite Entertainment, Inc.) and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.

KPMG LLP

Denver, Colorado
February 7, 2001

II-11

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2000 AND 1999

2000 1999
--------- ---------
AMOUNTS IN THOUSANDS

ASSETS
Current assets:
Cash and cash equivalents (note 15)....................... $ 157,198 2,473
Receivables (note 12)..................................... 873 --
Prepaid expenses.......................................... 293 113
--------- ---------
Total current assets.................................... 158,364 2,586
--------- ---------
Investments in affiliates accounted for using the equity
method (note 6)........................................... 280,564 --
Investments in available-for-sale securities and others
(note 7).................................................. 547,024 140,101

Support equipment, at cost.................................. 352 298
Less accumulated depreciation............................. 121 23
--------- ---------
231 275
--------- ---------
Other assets, net of accumulated amortization............... 73 235
--------- ---------
Total assets............................................ $ 986,256 143,197
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 18 139
Accrued expenses.......................................... 280 124
Due to parent (note 8)
Accrued interest........................................ 1,703 --
Other accrued expenses.................................. 470 --
--------- ---------
2,173 --
--------- ---------
Taxes payable............................................. -- 650
GM Hughes Stock share appreciation right liability (note
7)...................................................... -- 68,959
--------- ---------
Total current liabilities............................... 2,471 69,872
--------- ---------
Note payable to parent (note 8)............................. 54,982 --
Employee stock appreciation right liability................. -- 5,554
Debt (note 9)............................................... 35,003 3,044
Put option liability (note 7)............................... 31,729 --
--------- ---------
Total liabilities..................................... 124,185 78,470
--------- ---------
Minority interests in equity of consolidated subsidiaries... 534,301 --
Redeemable preferred stock (note 10)........................ 196,614 --
Stockholders' Equity (note 11):
Series A common stock, $1 par value; authorized
185,000,000 shares; issued 65,469,595 in 2000 and
62,894,446 in 1999...................................... 65,470 62,894
Series B common stock, $1 par value; authorized 30,000,000
shares; issued 7,733,996 in 2000 and 8,465,224 in
1999.................................................... 7,734 8,465
Additional paid-in capital................................ 926,678 825,492
Accumulated other comprehensive income.................... 12,860 --
Accumulated deficit....................................... (881,261) (832,124)
--------- ---------
131,481 64,727
Series A common stock held in treasury, at cost (29,545
shares)................................................. (325) --
--------- ---------
Total stockholders' equity.............................. 131,156 64,727
--------- ---------
Commitments and contingencies (note 15)
Total liabilities and stockholders' equity.............. $ 986,256 143,197
========= =========

See accompanying notes to consolidated financial statements.

II-12

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
-------- -------- --------
AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS

Revenue:
Management fees (note 14)................................. $ 445 -- --
Subscriber................................................ -- -- 168,500
-------- ------- --------
445 -- 168,500
-------- ------- --------
Operating costs and expenses:
Charges from Primestar Partners........................... -- -- 82,235
Operating................................................. -- 4,511 16,211
Selling, general and administrative....................... 4,211 776 55,495
Stock compensation (note 11).............................. (3,115) 6,873 4,869
Depreciation.............................................. 98 23 65,105
-------- ------- --------
1,194 12,183 223,915
-------- ------- --------
Operating loss.......................................... (749) (12,183) (55,415)
Other income (expense):
Interest income........................................... 10,361 146 20
Interest expense-parent (note 8).......................... (3,942) -- --
Interest expense-other.................................... (1,787) (140) (14,177)
Share of losses of affiliates (note 6).................... (7,251) -- (375,053)
Minority interests in earnings of consolidated
subsidiaries............................................ (536) -- --
Gain on sale of GM Hughes Stock (note 7).................. 36,643 -- --
Loss on GM Hughes Stock share appreciation rights
(note 7)................................................ (65,721) -- --
Impairment of investments................................. (9,860) -- --
Unrealized loss on financial instruments (note 7)......... (14,426) -- --
Gain on sale of satellites (note 7)....................... -- 13,712 --
Other, net (note 7)....................................... -- 66,143 (641)
-------- ------- --------
(56,519) 79,861 (389,851)
-------- ------- --------
Earnings (loss) before income taxes..................... (57,268) 67,678 (445,266)
Income tax benefit (expense) (note 13)...................... 8,131 (416) --
-------- ------- --------
Net earnings (loss)..................................... (49,137) 67,262 (445,266)
Accretion of redeemable preferred stock (note 11)........... (4,547) -- --
Dividends on redeemable preferred stock..................... (23,733) -- --
-------- ------- --------
Net earnings (loss) attributable to common
stockholders.......................................... $(77,417) 67,262 (445,266)
======== ======= ========
Basic and diluted earnings (loss) per common share
(note 2).................................................. $ (1.07) 0.97 (6.58)
======== ======= ========

See accompanying notes to consolidated financial statements

II-13

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
-------- -------- --------
AMOUNTS IN THOUSANDS

Net earnings (loss)......................................... $(49,137) 67,262 (445,266)
-------- ------- --------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on available for sale
securities.............................................. 7,392 42,583 --
Less reclassification adjustment for gains included in
net earnings (loss)................................... (37,115) -- --
Unrealized loss on share appreciation rights liability.... (22,708) (42,583) --
Less reclassification adjustment for gains included in
net earnings (loss)................................... 65,291 -- --
-------- ------- --------
Other comprehensive income.......................... 12,860 -- --
-------- ------- --------
Comprehensive income (loss)....................... $(36,277) 67,262 (445,266)
======== ======= ========

See accompanying notes to consolidated financial statements

II-14

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER STOCKHOLDERS'
------------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY
SERIES A SERIES B CAPITAL DEFICIT INCOME TREASURY STOCK (DEFICIT)
-------- -------- ---------- ------------ ------------- -------------- -------------
AMOUNTS IN THOUSANDS

Balance at January 1, 1998..... $58,239 8,465 523,685 (454,120) -- -- 136,269
Net loss..................... -- -- -- (445,266) -- -- (445,266)
Recognition of stock
compensation related to
stock options and
restricted stock awards.... -- -- 2,595 -- -- -- 2,595
Issuance of Series A common
stock related to restricted
stock awards............... 50 -- (50) -- -- -- --
Issuance of Series A common
stock upon conversion of
convertible securities of
Tele-Communications,
Inc........................ 991 -- -- -- -- -- 991
Issuance of common stock by
subsidiary (note 6)........ -- -- 299,046 -- -- -- 299,046
------- ----- ------- -------- ------ ---- --------
Balance at December 31, 1998... 59,280 8,465 825,276 (899,386) -- -- (6,365)
Net earnings................. -- -- -- 67,262 -- -- 67,262
Recognition of stock
compensation related to
stock options and
restricted stock awards.... -- -- 612 -- -- -- 612
Issuance of Series A common
stock related to restricted
stock awards............... 162 -- (162) -- -- -- --
Tax benefit related to stock
options and restricted
stock awards............... -- -- (234) -- -- -- (234)
Issuance of Series A common
stock upon conversion of
convertible securities of
Tele-Communications,
Inc........................ 3,452 -- -- -- -- -- 3,452
------- ----- ------- -------- ------ ---- --------
Balance at December 31, 1999... $62,894 8,465 825,492 (832,124) -- -- 64,727
Net loss..................... -- -- -- (49,137) -- -- (49,137)
Other comprehensive income... -- -- -- -- 12,860 -- 12,860
Reversal of deferred tax
asset valuation allowance
resulting from the Liberty
transaction (note 5)....... -- -- 114,628 -- -- -- 114,628
Accretion and dividends on
redeemable preferred
stock...................... -- -- (28,280) -- -- -- (28,280)
Issuance of Series A common
stock for preferred stock
dividends.................. 1,660 -- 14,573 -- -- -- 16,233
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............... 731 (731) -- -- -- -- --
Repurchase of Series A common
stock from director........ -- -- -- -- -- (325) (325)
Dividend to related party
(note 7)................... -- -- (69) -- -- -- (69)
------- ----- ------- -------- ------ ---- --------
Balance at December 31, 2000... $65,470 7,734 926,678 (881,261) 12,860 (325) 131,156
======= ===== ======= ======== ====== ==== ========

See accompanying notes to consolidated financial statements.

II-15

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
-------- -------- --------
AMOUNTS IN THOUSANDS
(SEE NOTE 3)

Cash flows from operating activities:
Net earnings (loss)....................................... $(49,137) 67,262 (445,266)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation............................................ 98 23 65,105
Share of losses of affiliates........................... 7,251 -- 375,053
Minority interests in earnings of consolidated
subsidiaries........................................... 536 -- --
Gain on sale of GM Hughes Stock......................... (36,643) -- --
Loss on GM Hughes share appreciation rights............. 65,721 -- --
Impairment of investments............................... 9,860 -- --
Unrealized loss on financial instruments................ 14,426 -- --
Accretion of debt discount.............................. -- -- 4,682
Stock compensation and restricted stock awards.......... (3,115) 6,873 4,869
Payments for stock compensation......................... (2,404) (707) --
Deferred income tax benefit............................. (7,481) (234) --
Gain on sale of satellites.............................. -- (13,712) --
Receipt of GM Hughes Stock recorded as other income..... -- (66,143) --
Other non-cash charges.................................. 235 15 8,108
Changes in operating assets and liabilities, net of the
effect of the Primestar Roll-up and Liberty
transactions:
Change in receivables................................. (873) -- 10,845
Change in prepaid expenses............................ (180) (113) --
Change in other assets................................ -- -- (736)
Change in accruals and payables....................... 1,558 957 (10,210)
Change in subscriber advance payments................. -- -- (3,114)
-------- ------- --------
Net cash provided by (used in) operating
activities.......................................... (148) (5,779) 9,336
-------- ------- --------
Cash flows from investing activities:
Net proceeds from sale of GM Hughes Stock................. 74,243 -- --
Payment of GM Hughes share appreciation rights............ (65,721) -- --
Proceeds received in Liberty transaction.................. 249,620 -- --
Capital expended for equipment............................ (54) (298) (73,966)
Investments in and advance to affiliates.................. (181,669) (2,000) (75)
Other investing activities................................ (50) 2,500 --
-------- ------- --------
Net cash provided by (used in) investing
activities.......................................... 76,369 202 (74,041)
-------- ------- --------
Cash flows from financing activities:
Borrowings of debt........................................ 55,103 -- 113,000
Repayments of debt........................................ (28,162) -- (61,735)
Payment of deferred financing costs....................... (22) (250) --
Contributions from minority owners of subsidiaries........ 51,413 -- --
Proceeds from exercise of stock options................... 497 -- --
Purchase of common stock from director.................... (325) -- --
Increase in due to Phoenixstar............................ -- 4,848 6,365
Proceeds from issuance of common stock.................... -- 3,452 991
-------- ------- --------
Net cash provided by financing activities........... 78,504 8,050 58,621
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 154,725 2,473 (6,084)
Cash and cash equivalents--beginning of year........ 2,473 -- 6,084
-------- ------- --------
Cash and cash equivalents--end of year.............. $157,198 2,473 --
======== ======= ========

See accompanying notes to consolidated financial statements.

II-16

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, 1999 AND 1998

(1) BASIS OF PRESENTATION

The accompanying 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 Joint Ventures described in note 5 ("LSAT"
or the "Company"). All significant inter-company transactions have been
eliminated.

LSAT, a consolidated subsidiary of Liberty Media Corporation ("Liberty
Media") since March 2000, is currently a holding company. As a holding
company, LSAT has had no significant direct operations subsequent to the
LSAT Asset Transfer (see note 6). The Company (i) incurs general and
administrative expenses to manage its interests in other companies and
maintain its status as a publicly traded company and (ii) provides
management services to Phoenixstar, Inc.

The Company currently is pursuing 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.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.

INVESTMENTS

All marketable equity securities held by the Company are classified as
available-for-sale and are carried at fair value. Unrealized holding gains
and losses on securities classified as available-for-sale are carried net of
taxes as a component of accumulated other comprehensive earnings in
stockholders' equity. Realized gains and losses are determined on a
specific-identification basis.

Other investments in which the ownership interest is less than 20% and are
not considered marketable securities are carried at the lower of cost or net
realizable value. For those investments in affiliates in which the Company's
voting interest is 20% to 50%, the equity method of accounting is generally
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share of net earnings or losses of the
affiliates as they occur rather then as dividends or other distributions are
received, limited to the extent of the Company's investment in, advances to
and commitments for the investee. The Company's share of net earnings or
losses of affiliates includes the amortization of the difference between the
Company's investment and its share of the net assets of the investee.
Recognition of gains on sales of properties to affiliates accounted for
under the equity method is deferred in proportion to the Company's ownership
interest in such affiliates.

Changes in the Company's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
additional securities by such subsidiary or equity investee, are recognized
as increases to or reductions of additional paid-in capital in the
consolidated statements of stockholders' equity.

II-17

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

The Company continually reviews its investments to determine whether a
decline in fair value below the cost basis is other than temporary. If the
decline in fair value is deemed to be other than temporary, the cost basis
of the security is written down to fair value and the amount of the
write-down is included in the consolidated statements of operations as an
impairment of investments.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company has entered into equity collars and put spread collars with
respect to certain securities held by the Company. These derivative
instruments provide the Company with a put option that gives it the right to
require its counterparty to buy designated shares at a designated price per
share and simultaneously provides the counterparty a call option giving it
the right to buy the same number of shares at a designated price per share.

As the Company's equity collars are designated to specific shares of stock
held by the Company and the changes in the fair value of the equity collars
are correlated with changes in the fair value of the underlying securities,
the equity collars function as hedges. Accordingly, changes in the fair
value of the equity collars designated to specific shares which are
accounted for as available-for-sale securities are reported as a component
of comprehensive earnings (in unrealized gains) along with the changes in
the fair value of the underlying securities. The Company's put spread
collars generally do not have high correlation with the underlying security
and accordingly, do not function as hedges. Therefore changes in the fair
value of the put spread collars are recorded as unrealized gains (losses) on
financial instruments in the consolidated statements of operations.

During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, ("Statement 133"), which is effective
for all fiscal years beginning after June 15, 2000. Statement 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
Statement 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 exposure of net investments in foreign operations. The
Company's equity collars qualify as fair value hedges, and the related
available-for-sale securities qualify as hedged items, as those terms are
defined in Statement 133. As such, it is anticipated that any change in the
fair value of the hedged item will be offset by the change in fair value of
the fair value hedge. To the extent that the change in fair value of the
hedged item is not exactly offset by the change in fair value of the fair
value hedge, the Company will recognize in earnings the ineffective portion
of the equity collar. While there can be no assurance, the Company does not
believe that the impact of Statement 133 on its results of operations will
be significant.

II-18

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

SUPPORT EQUIPMENT

The Company states equipment at cost and begins depreciation upon acceptance
of delivery, using the straight-line method over the useful life of the
asset. Leasehold improvements are amortized over the shorter of the useful
life of the asset or lease term.

The Company periodically reviews the carrying amount of its long-lived
assets to determine whether current events or circumstances warrant
adjustments to such carrying amounts. The Company considers historical and
expected future net operating losses to be its primary indicators of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets ("Assets"). The
Company deems Assets to be impaired if the Company is unable to recover the
carrying value of its Assets over their expected remaining useful life
through a forecast of undiscounted future operating cash flows directly
related to the Assets. If Assets are deemed to be impaired, the loss is
measured as the amount by which the carrying amount of the Assets exceeds
their fair values. The Company generally measures fair value by considering
sales prices for similar assets or by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.

OTHER ASSETS

Other assets include deferred financing costs and patents. Deferred
financing costs are amortized over the term of the related loan facility.
Patents are amortized once the patent has been granted over the life of the
patent, generally 20 years.

ADVERTISING COSTS

Advertising costs generally are expensed as incurred. Amounts expensed for
advertising aggregated $5,066,000 during 1998. There were no advertising
costs in 2000 and 1999.

STOCK BASED COMPENSATION

The Company accounts for stock-based employee compensation using the
intrinsic value method pursuant to Accounting Principles Board Opinion No.
25. The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION."

INCOME TAXES

The Company accounts for its income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

II-19

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

EARNINGS (LOSS) PER COMMON SHARE

The Company computes earnings (loss) per share in accordance with Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("Statement
128"). Statement 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. Net earnings (loss) is reduced
(increased) by preferred stock dividends and accretion to arrive at income
(loss) attributable to common shareholders. 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 dilutive common shares that have an
anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from diluted EPS.

The earnings (loss) per common share for the years ended December 31, 2000,
1999 and 1998 is based on 72,033,000, 69,587,000 and 67,718,000 weighted
average shares outstanding during the respective periods. Excluded from the
computation of diluted EPS for the years ended December 31, 2000, 1999 and
1998 are options and convertible securities to acquire 5,123,000, 3,462,000
and 6,929,000 weighted average shares of Series A Common Stock,
respectively, and 12,725,000 shares of Series B Common Stock in 2000 because
inclusion of such options would be anti-dilutive.

ESTIMATES

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.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified for comparability with the
2000 presentation.

(3) SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS

Cash paid for interest was $3,831,000, $0 and $13,844,000 during the years
ended December 31, 2000, 1999, and 1998 respectively. Cash paid for income
taxes was not material during the years ended December 31, 2000, 1999 and
1998.

II-20

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

Significant non-cash investing and financing activities for the years ended
December 31, 2000, 1999 and 1998 are as follows (amounts in thousands):

2000
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
=========

1999
Issuance of note payable in connection with investment.... $ 3,044
=========
Increase in value of GM Hughes Stock and corresponding SAR
liability............................................... $ 68,959
=========

1998
Contribution of operating assets and liabilities to
subsidiary in Primestar Roll-up......................... $ 68,796
=========
Increase in equity due to issuance of stock by subsidiary
in Primestar Roll-up.................................... $ 299,046
=========

(4) SPIN-OFF TRANSACTION

On December 4, 1996 (the "Spin-off Date"), Tele-Communications, Inc. (now
known as AT&T Broadband LLC) ("TCI") distributed (the "Spin-off") all of the
capital stock of the Company to the holders of Tele-Communications, Inc.
Series A TCI Group Common Stock (the "Series A TCI Group Stock") and
Tele-Communications, Inc. Series B TCI Group Common Stock (the "Series B TCI
Group Stock" and, together with the Series A TCI Group Stock, the "TCI Group
Stock"). The Spin-off did not involve the payment of any consideration by
the holders of TCI Group Stock (such holders, the "TCI Group Stockholders"),
and was intended to qualify as a tax-free Spin-off. TCI Group Stockholders
received one share of LSAT Series A Common Stock for each ten shares of
Series A TCI Group Stock owned and one share of LSAT Series B Common Stock
for each ten shares of Series B TCI Group Stock owned.

Since the Spin-off, the Company and TCI have operated independently. For the
purposes of governing certain of the ongoing relationships between the
Company and TCI after the Spin-off, and to provide mechanisms for an orderly
transition, the Company and TCI entered into various agreements, including
the "Reorganization Agreement" (see note 11) and the "Transition Services
Agreement" (see note 14).

II-21

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

(5) LIBERTY TRANSACTIONS

On March 16, 2000, the Company completed two transactions (collectively, the
"Liberty Transactions"), both of which closed simultaneously, with Liberty
Media. Pursuant to the terms of the first transaction, the Company acquired
a beneficial interest in 5,084,745 shares of Sprint Corporation PCS Group
common stock ("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 10. The shares of
Series B Preferred Stock have super voting rights which give Liberty Media
voting control over the Company. Accordingly, since March 16, 2000, the
Company has been a consolidated subsidiary of Liberty Media.

Pursuant to the terms of the second transaction with Liberty Media, 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 Joint Ventures"). The Company contributed (i) its beneficial
interest in 4,221,921 shares (as adjusted for a 3 for 1 stock split on
July 3, 2000, the "GM Hughes Stock Split") of General Motors Corporation
Class H common stock ("GM Hughes Stock"), net of the GM Hughes Stock share
appreciation right liability described in note 7, and (ii) its interest in
JATO Communications Corp. to LSAT LLC in exchange for a 10.59% ownership
interest in LSAT LLC. Liberty Media contributed cash and 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
Media, all of the assets contributed by the Company and Liberty Media to the
LSAT Joint Ventures were recorded at their net book values at the date of
contribution. In addition, the Company received a 13.99% ownership interest
in LSAT Astro in exchange for a $60 million note payable to Liberty Media.

The Company operates and manages the activities of the LSAT Joint Ventures
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 Joint
Ventures have been included in the Company's consolidated financial
statements since March 16, 2000.

(6) INVESTMENTS IN AFFILIATES

The following table reflects the Company's carrying amount of its
investments accounted for using the equity method:

DECEMBER 31,
---------------------
2000 1999
--------- ---------
AMOUNTS IN THOUSANDS

ASTROLINK International LLC ("Astrolink")(a)............ $268,712 --
Aerocast.com, Inc. ("Aerocast")(b)...................... 11,852 --
-------- --------
$280,564 --
======== ========

II-22

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

The following table reflects the Company's share of losses of affiliates:

YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
AMOUNTS IN THOUSANDS

Astrolink....................................... $(6,498) -- --
Aerocast........................................ (753) -- --
Phoenixstar, Inc. ("Phoenixstar")(c)............ -- -- (369,231)
Phoenixstar Partners L.P. ("Primestar
Partners")(c)................................. -- -- (5,822)
------- ------- --------
$(7,251) -- (375,053)
======= ======= ========

Summarized unaudited combined financial information for affiliates as of and
for the year ended December 31, 2000 is as follows (amounts in thousands):

COMBINED FINANCIAL POSITION
Current assets............................................ $ 56,265
Property and equipment, net............................... 794,836
Other assets.............................................. 26,348
--------
Total assets............................................ $877,499
========
Current liabilities....................................... $ 30,432
Owners' equity............................................ 847,017
--------
Total liabilities and equity............................ $877,499
========
COMBINED OPERATIONS
Operating expenses........................................ $(28,080)
Depreciation and amortization............................. (542)
Other income.............................................. 5,964
--------
Net loss................................................ $(22,658)
========

(a) Pursuant to the Liberty Transactions described in note 5, the Company
owns a direct 13.99% interest in LSAT Astro and an indirect (through LSAT
LLC) 86.01% interest in LSAT Astro. LSAT Astro owns an approximate 31.5%
ownership interest in Astrolink. Liberty contributed its interest in
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
currently 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.

(b) During 2000, LSAT LLC invested $12.6 million in exchange for an
approximate 37% ownership interest in Aerocast. LSAT LLC also received
warrants to purchase Aerocast preferred stock, which when exercised in
full, would increase LSAT LLC's interest in Aerocast to approximately
47%. The aggregate exercise price for the warrants, which were exercised
by LSAT LLC in March 2001, is $7.35 million. Aerocast is developing next
generation streaming

II-23

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

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.

(c) Effective April 1, 1998 (the "Roll-up Closing Date"), a business
combination (the "Primestar Roll-up") was consummated whereby LSAT
contributed and transferred to Phoenixstar, prior to the Primestar
Roll-up a wholly-owned subsidiary of LSAT, all of LSAT's assets and
liabilities except (i) the capital stock of Tempo Satellite, Inc., a
wholly-owned subsidiary of the Company ("Tempo"), (ii) the consideration
to be received by LSAT in the Primestar Roll-up and (iii) the rights and
obligations of LSAT under certain agreements with Phoenixstar and others.
In addition, the business of Primestar Partners and the business of
distributing the PRIMESTAR-Registered Trademark- programming service
("PRIMESTAR-Registered Trademark-") of the other partners of Primestar
Partners were consolidated into Phoenixstar.

In connection with the Primestar Roll-up, Phoenixstar assumed all of
LSAT's indebtedness on the Roll-up Closing Date, and LSAT received from
Phoenixstar shares of Phoenixstar Class A Common Stock and Class B Common
Stock representing approximately 37% of the outstanding shares of common
equity of Phoenixstar and approximately 38% of the combined voting power
of such common equity. As a result of the dilution of LSAT's investment
in Phoenixstar from 100% to approximately 37%, LSAT recognized an
increase in its investment in Phoenixstar and an increase in additional
paid-in capital of $299,046,000, net of income taxes. Such increase
represents the difference between LSAT's historical investment basis in
Phoenixstar and LSAT's proportionate share of Phoenixstar's equity
subsequent to the Primestar Roll-up.

As of December 31, 1998, the Company's share of losses of Phoenixstar had
reduced the book value of the Company's investment in Phoenixstar to
zero. Also, as described in note 7, 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.

(7) INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES AND OTHERS

Investments in available-for-sale securities and others are summarized as
follows:

DECEMBER 31,
---------------------
2000 1999
--------- ---------
AMOUNTS IN THOUSANDS

Hughes Electronics Corporation(a)*...................... $ 47,011 135,101
Sprint Corporation PCS Group(b)*........................ 278,489 --
Various Latin American satellite companies ("Sky Latin
America")(c).......................................... 127,605 --
XM Satellite Radio Holdings, Inc. ("XMSR")(d)*.......... 26,924 --
Wildblue Communications, Inc. ("Wildblue")(e)........... 60,995 --
Other(f)................................................ 6,000 5,000
-------- --------
$547,024 140,101
======== ========

II-24

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

* Denotes an investment carried as an available-for-sale security.

(a) Effective June 4, 1999, the Company completed the sale of its high power
direct broadcast satellite ("DBS") assets to Hughes Electronics
Corporation ("Hughes"), pursuant to an asset purchase agreement dated as
of January 22, 1999 (the "Hughes High Power Agreement"). 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 DEG. West Longitude
("Tempo DBS-1") and one of which was used as a ground spare ("Tempo
DBS-2"); its authorizations issued by the Federal Communications
Commission (the "FCC") with respect to the 119 DEG. 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 Tempo DBS-1 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
two-stage exercise process. The parties allocated 70% of the total
consideration under the Hughes High Power Agreement to Tempo DBS-1 and
related assets and 30% of the total consideration thereunder to Tempo
DBS-2 and related assets.

The first closing under the Hughes High Power Agreement was consummated
effective March 10, 1999. In the first closing, Hughes acquired Tempo
DBS-2 and related assets for aggregate consideration of $150 million,
comprised of (i) $9.75 million paid by Hughes to Phoenixstar and
Primestar Partners for the transfer to Hughes of the portion of the Tempo
Purchase Option allocable to Tempo DBS-2 and the termination of that
portion of the Tempo Capacity Rights allocable to Tempo DBS-2,
(ii) $750,000 paid by Hughes to Tempo to exercise that portion of the
Tempo Purchase Option allocable to Tempo DBS-2; and (iii) the assumption
and payment by Hughes of a portion of the Tempo Reimbursement Obligation
in the amount of $139.5 million. At the time of the first closing, the
carrying value of Tempo DBS-2 was $224 million.

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
Tempo DBS-1 and related assets, including all

II-25

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

rights of Tempo with respect to the FCC License, for aggregate
consideration of $350 million comprised of (i) $22.75 million paid by
Hughes to Phoenixstar and Primestar Partners for the transfer to Hughes
of the portion of the Tempo Purchase Option allocable to Tempo DBS-1 and
the termination of that portion of the Tempo Capacity Rights allocable to
Tempo DBS-1, (ii) $1.75 million paid by Hughes to Tempo to exercise that
portion of the Tempo Purchase Option allocable to Tempo DBS-1; and
(iii) the assumption and payment by Hughes of the remainder of the Tempo
Reimbursement Obligation, in the amount of $325.5 million. The carrying
value of Tempo DBS-1 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 (as adjusted for the GM
Hughes Stock Split) of GM Hughes Stock valued at approximately
$258 million on the date of closing. The foregoing purchase price was
subject to adjustments for working capital at 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 the Company of consideration in the form of 4.221 million
shares (as adjusted for the GM Hughes Stock Split) of GM Hughes Stock
(the "Phoenixstar Payment"), subject to the term and conditions set forth
in an agreement (the "Phoenixstar Payment Agreement") dated as of
January 22, 1999. In consideration of the Phoenixstar Payment, the
Company agreed to approve the Hughes Medium Power Transaction and Hughes
High Power Transaction as a stockholder of Phoenixstar, to modify certain
agreements to facilitate the Hughes High Power Transaction, and to issue
Phoenixstar a share appreciation right (the "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 (as adjusted for the GM
Hughes Stock Split). Pursuant to the Phoenixstar Payment Agreement, the
Company has also agreed to forego any liquidation distribution or other
payment that may 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 to transfer
its shares in Phoenixstar to the other Phoenixstar stockholders. On the
Hughes Closing Date, the Company received 4.221 million shares (as
adjusted for the GM Hughes Stock Split) of GM Hughes Stock, valued at
$66,143,000, from Phoenixstar in satisfaction of the Phoenixstar Payment.
Such amount is recorded as other income in the 1999 consolidated
statement of operations.

Effective May 10, 2000, the Company sold 2.4 million shares (as adjusted
for the GM Hughes Stock Split) of GM Hughes Stock 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.

II-26

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

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 December 31, 2000 was $23.06.

LSAT LLC has entered into a put spread collar with a financial
institution with respect to the Company's shares of GM Hughes Stock. The
collar (i) provides LSAT LLC with a put option that gives it the right to
require its counterparty to buy 1,821,921 shares of GM Hughes Stock from
LSAT LLC 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 LSAT LLC to repurchase the shares of GM
Hughes Stock for a weighted average price of $14.80. LSAT LLC
simultaneously sold a call option giving the counterparty the right to
buy the same shares of stock from LSAT LLC 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 LSAT LLC. During the year ended December 31, 2000, LSAT LLC
recorded an unrealized gain of $4,997,000 with respect to the GM Hughes
put spread collar.

(b) 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 December 31, 2000 was $20.13 per share.

The trust holding the Sprint PCS Stock for LSAT's benefit has entered
into an equity 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 March 2003 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 March 2003 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. At December 31, 2000, the fair value of the PCS equity collar
was approximately $176,159,000.

(c) 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.

On September 27, 2000, Liberty Media and The News Corporation Limited
("News Corp") announced that they had reached an agreement pursuant to
which, among other things, Liberty Media 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 Media 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
Media's shares in Gemstar-TV Guide International Group, Inc. Liberty
Media 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

II-27

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

SGN's initial public offering and receipt of required governmental and
other material third party approvals.

(d) 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 December 31, 2000
was $16.00 per share.

LSAT LLC has entered into an equity collar with a financial institution
with respect to the Company's shares of XMSR common stock. The collar
provides LSAT LLC with a put option that gives it the right to require
its counterparty to buy 1,000,000 shares of XMSR common stock from LSAT
LLC in three tranches in November 2003, December 2003 and February 2004
for a weighted average price of $28.55. LSAT LLC simultaneously sold a
call option giving the counterparty the right to buy the same shares of
stock from LSAT LLC 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 LSAT LLC. At December 31, 2000, the fair value of the XMSR
equity collar was approximately $10,924,000.

(e) Wildblue 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.

(f) Includes investments in 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, 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 (the "iBEAM Put Option"). 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 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
iBEAM Put Option on the iBEAM Closing Date that is not attributable to the
minority interests ($805,000) 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. Changes
in the fair market value of the iBEAM Put Option subsequent to the iBEAM
Closing Date are recognized as unrealized gains (losses) on financial
instruments in the Company's consolidated statements of operations. During
the year ended December 31, 2000, the Company recorded an unrealized loss of
$19,423,000 related to the iBEAM Put Option.

II-28

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

During the year ended December 31, 2000, the Company determined that its
investments in Jato Communications Corp. and Netbeam, Incorporated
experienced other than temporary declines in value. As a result, the cost
bases of such investments were adjusted to their respective fair values at
December 31, 2000. These adjustments resulted in a realized loss of
$9,860,000 and are reflected as impairment of investment in the consolidated
statement of operations.

Investments in available-for-sale securities are summarized as follows:

DECEMBER 31,
---------------------
2000 1999
--------- ---------
AMOUNTS IN THOUSANDS

Equity securities
Fair value............................................. $352,424 135,101
Gross unrealized holding gains......................... 205,550 42,583
Gross unrealized holding losses........................ (224,795) --

(8) AMOUNTS DUE TO PARENT

Certain payroll and other expenses are advanced to the Company by Liberty
Media. Such advances are non-interest bearing, aggregated $470,000 at
December 31, 2000, and generally are repaid monthly.

On March 16, 2000, the Company entered into a $60,000,000 promissory note
payable to Liberty Media in exchange for its interest in LSAT Astro. The
note bears interest at Libor plus 2% (8.61% at December 31, 2000). Interest
payments are due semi-annually on the first day of March and September. The
note, which allows for prepayments, matures on March 16, 2003 at which time
all unpaid principal and interest is due. Accrued interest aggregated
$1,703,000 at December 31, 2000.

(9) DEBT

Debt is summarized as follows:

DECEMBER 31,
---------------------------
2000 1999
-------- --------
AMOUNTS IN THOUSANDS

PCS Loan(a)........................................... $35,003 --
LSAT Bank Credit Facility(b).......................... -- 3,044
------- -----
$35,003 3,044
======= =====

- ------------------------

(a) Effective September 29, 2000, the Company entered into a $35 million
loan agreement, which was amended effective November 3, 2000 to allow for
maximum borrowings of $303 million (the "PCS Loan Agreement"). The PCS
Loan Agreement 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 (6.56% at December 31, 2000) and is payable monthly. The principal
balance is due and payable March 10, 2003.

II-29

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

(b) The Company used proceeds from the PCS Loan to repay and cancel the LSAT
Bank Credit Facility during the fourth quarter of 2000.

The fair value of the Company's debt is estimated based upon the quoted
market prices for the same or similar issues or on the current rates offered
to the Company for debt of the same remaining maturities. At December 31,
2000, the fair value of the Company's debt approximated its carrying value.

(10) 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. In the
event 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 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 stated value per share of $1,000 plus all accrued and unpaid
dividends.

The Series A Preferred Stock is redeemable at the option of the Company, 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 from the holders. On or
after April 1, 2020, the Series A Preferred Stock is redeemable at the
option of the holder for cash.

SERIES B CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK

The Series B Preferred Stock accrues dividends at the rate of 8% per annum.
Such dividends are payable the last day of each March, June, September and
December. 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

II-30

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

of the liquidation preference until such dividends are paid. In the event 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 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 after 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 stated value per share of
$1,000 plus all accrued and unpaid dividends.

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 December 31, 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
December 31, 2000 aggregated $4,547,000, 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.

(11) STOCKHOLDERS' EQUITY

COMMON STOCK

The Series A Common Stock has one vote per share and the Series B Common
Stock has ten votes per share. Each share of Series B Common Stock is
convertible, at the option of the holder, into one share of Series A Common
Stock.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of preferred stock. The
preferred stock may be issued from time to time as determined by the
Company's Board of Directors (the "LSAT Board"), without stockholder
approval. Such preferred stock may be issued in such series and with such
designations, preferences, conversion or other rights voting powers,
qualifications, limitations, or restrictions as shall be stated or expressed
in a resolution or resolutions providing for the issue of such series
adopted by the LSAT Board.

II-31

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

EMPLOYEE RETIREMENT PLAN

The Company's Employee Stock Purchase Plan (the "LSAT ESPP") became
effective on January 1, 1997. The LSAT ESPP provided eligible employees with
an opportunity to invest in the Company and to create a retirement fund.
Terms of the LSAT ESPP provided for eligible employees to contribute up to
10% of their compensation to a trust for investment in LSAT common stock.
The Company, by annual resolution of the LSAT Board, could elect to
contribute up to 100% of the amount contributed by employees. LSAT
contributed $317,000 in 1998 to the LSAT ESPP. Effective July 1, 1998, the
LSAT ESPP was merged into Primestar Partners' retirement plan in connection
with the Primestar Roll-up. Accordingly, no further contributions were made
by the Company.

STOCK OPTIONS

On the Spin-off Date, the LSAT Board adopted, and TCI as the sole
stockholder of the Company prior to the Spin-off, approved, the TCI
Satellite Entertainment, Inc. 1996 Stock Incentive Plan, now called the
Liberty Satellite & Technology 1996 Stock Incentive Plan (the "LSAT 1996
Plan"). The LSAT 1996 Plan, as amended, provides for awards to be made in
respect of a maximum of 5,200,000 shares of Series A Common Stock (subject
to certain anti-dilution adjustments). Awards may be made as grants of stock
options, stock appreciation rights ("SARs"), restricted shares, stock units,
performance awards or any combination thereof (collectively, "Awards").
Awards may be made to employees and to consultants and advisors to the
Company who are not employees. Shares of Series A Common Stock that are
subject to Awards that expire, terminate or are annulled for any reason
without having been exercised (or deemed exercised, by virtue of the
exercise of a related SAR), or are forfeited prior to becoming vested, will
return to the pool of such shares available for grant under the LSAT 1996
Plan.

As originally granted in February 1997, options granted to employees vested
over five years, first became exercisable on January 1, 1998 and expire on
December 31, 2006. In November 1997, the LSAT Board approved modifications
to the vesting provisions to provide for vesting in three equal annual
installments, commencing February 1998. In accordance with the LSAT 1996
Plan, absent action by the LSAT Board, vesting would accelerate and the
options would terminate upon a sale of substantially all assets of the
Company, which occurred with the sale of the Tempo DBS-1 Assets on June 4,
1999. Pursuant to a provision in the LSAT 1996 Plan, the LSAT Board allowed
the options held by most of the employees and officers to vest and extended
the expiration date to June 4, 2000. The original terms for the options were
retained for employees and officers who were continuing with the Company.

Options granted in 1999 and 2000 to certain key employees and officers of
the Company pursuant to the LSAT 1996 Plan vest over a 5-year period
beginning on the date of the grant, first becomes exercisable as to 25% on
the second anniversary of the date of grant and become exercisable as to an
additional 25% on each of the third, fourth and fifth anniversaries of the
date of grant. Such options expire 10 years from the date of grant.

In June 1996, the Board of Directors of TCI (the "TCI Board") authorized TCI
to permit certain of its executive officers to acquire equity interests in
certain of TCI's subsidiaries. In connection therewith, the TCI Board
approved the acquisition by each of two executive officers of TCI who

II-32

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

were not employees of the Company (the "TCI Officers"), of 1.0% of the net
equity of the Company. The TCI Board also approved the acquisition by the
chief executive officer and a director of the Company (the "Company
Officer"), of 1.0% of the net equity of the Company and the acquisition by
an executive officer of certain TCI subsidiaries who was also a director,
but not an employee, of the Company (the "TCI Subsidiary Officer"), of 0.5%
of the net equity of the Company. The TCI Board determined to structure such
transactions as grants by the Company to such persons of options to purchase
shares of Series A Common Stock representing 1.0% (in the case of each of
the TCI Officers and the Company Officer) and 0.5% (in the case of the TCI
Subsidiary Officer) of the shares of Series A Common Stock and Series B
Common Stock issued and outstanding on the Spin-off Date, determined
immediately after giving effect to the Spin-off, but before giving effect to
any exercise of such options (the "Spin-off Date Options").

Spin-off Date Options to purchase 2,324,266 shares of Series A Common Stock
at a per share price of $8.86 were granted on the Spin-off Date. The
Spin-off Date options vest in 20% cumulative increments on each of the first
five anniversaries of February 1, 1996, and are exercisable for up to ten
years following February 1, 1996. Compensation expense with respect to the
Spin-off Date Options held by the Company Officer aggregated $35,000,
$246,000 and $621,000 during the years ended December 31, 2000, 1999 and
1998, respectively.

Pursuant to the Reorganization Agreement, and (in the case of the TCI
Officers and the TCI Subsidiary Officer) in partial consideration for the
capital contribution made by TCI to the Company in connection with the
Spin-off, the Company agreed, effective as of the Spin-off Date, to bear all
obligations under such options and to enter into stock option agreements
with respect to such options with each of the TCI Officers, the Company
Officer and the TCI Subsidiary Officer.

On March 6, 1998, stockholders of the Company approved the TCI Satellite
Entertainment, Inc. 1997 Nonemployee Director Stock Option Plan (the "LSAT
DSOP"). The LSAT DSOP provides for the grant to each person that is a member
of the LSAT Board and is not an employee of the Company, its subsidiaries or
its affiliates, of options to purchase 50,000 shares of Series A Common
Stock. Options issued pursuant to the LSAT DSOP vest and become exercisable
over a three-year period from the date of grant and expire 10 years from the
date of grant.

The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock options, and accordingly, compensation expense has been
recognized for its stock options in the accompanying financial statements
using the intrinsic value method. The adjustment to stock compensation of
$3,115,000 in 2000 resulted from a decrease in the market value of the
Company's stock in 2000. Had the Company determined compensation expense
based on the grant-date fair value method pursuant to Statement of Financial
Accounting Standards No. 123, the Company's net earnings (loss) and earnings
(loss) per share would have been ($55,112,000) and ($1.16) for 2000;
$66,498,000 and $0.96 for 1999; and ($447,012,000) and ($6.60) for 1998,
respectively.

II-33

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

The following table presents the number, weighted-average exercise price and
weighted-average grant-date fair value of the Spin-off options and options
to buy Series A Common Stock granted pursuant to the LSAT 1996 Plan and the
LSAT DSOP.

WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE GRANT-DATE
OPTIONS PRICE FAIR VALUE
--------- --------- ----------

Outstanding at December 31, 1997 and 1998............. 3,394,266 $ 8.57
Exercised........................................... (80,000) 8.00
Forfeited and cancelled............................. (20,000) 8.00
Granted............................................. 1,190,500 7.93 $6.03
---------
Outstanding at December 31, 1999...................... 4,484,766 8.40
Exercised........................................... (540,000) 7.86
Forfeited and cancelled............................. (754,076) 8.65
Granted............................................. 250,000 11.19 8.77
---------
Outstanding at December 31, 2000...................... 3,440,690 8.65
=========
Exercisable at December 31, 1998...................... 1,241,706 8.64
=========
Exercisable at December 31, 1999...................... 2,204,720 8.52
=========
Exercisable at December 31, 2000...................... 1,758,152 8.65
=========

Options outstanding at December 31, 2000 have a range of exercise prices
from $7.13 to $11.94 and a weighted-average remaining contractual life of
approximately seven years.

The respective estimated grant-date fair values of the options noted above
are based on the Black-Scholes model and are stated in current annualized
dollars on a present value basis. The key assumptions used in the model for
purposes of these calculations include the following: (a) a discount rate
equal to the one-year Treasury Bill rate; (b) an 85% volatility rate;
(c) the 10-year option term; (d) the closing price of the Series A Common
Stock on the date of grant; and (e) an expected dividend rate of zero.

OTHER

In February 1997, certain key employees of the Company were granted,
pursuant to the LSAT 1996 Plan, an aggregate of 325,000 restricted shares of
Series A Common Stock. As originally granted, such restricted shares vested
as to 50% on January 1, 2001 and as to the remaining 50% on January 1, 2002.
In November 1997, the LSAT Board approved modifications to the vesting
provisions accelerating the vesting schedules under such restricted stock
awards to provide for vesting of 50% on each of the second and third
anniversaries of the date of granting. Compensation expense with respect to
the restricted shares aggregated $366,000 and $434,000 for the years ended
December 31, 1999 and 1998, respectively.

Pursuant to the Reorganization Agreement, the Company granted to TCI an
option to purchase up to 4,765,000 shares of Series A Common Stock, at an
exercise price of $1.00 per share, as required by TCI from time to time to
meet its obligations under the conversion features of certain

II-34

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

convertible securities of TCI as such conversion features were adjusted as a
result of the Spin-off. During 1999 and 1998, TCI purchased 3,452,000 shares
and 991,000 shares, respectively, of Series A Common Stock; and as of
December 31, 2000, TCI had purchased a total of 4,765,000 shares of
Series A Common Stock pursuant to such option.

In connection with the Spin-off, TCI and the Company also entered into a
"Share Purchase Agreement" to sell to each other from time to time, at the
then current market price, shares of Series A TCI Group Stock and Series A
Common Stock, respectively, as necessary to satisfy their respective
obligations after the Spin-off Date under certain stock options and SARs
held by their respective employees and non-employee directors. At
December 31, 2000, approximately 1,610,000 options to purchase Series A
common stock were held by current and former employees of TCI pursuant to
the Share Purchase Agreement. Such options have exercise prices ranging from
$17.47 to $23.76 per share and have expiration dates ranging from 2002 to
2005. In connection with the Primestar Roll-up, Phoenixstar assumed the
Company's obligation with respect to TCI options held by employees of the
Company.

At December 31, 2000, a total of 5,050,690 shares of Series A Common Stock
were reserved for issuance pursuant to the Spin-off Date Options, the Share
Purchase Agreements, the LSAT 1996 Plan and the LSAT DSOP. In addition,
16,967,175 shares of Series B Common stock are reserved for issuance upon
conversion of the Series B Preferred Stock, and one share of Series A Common
Stock is reserved for each outstanding share of Series B Common Stock.

(12) TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

During 2000, a director of the Company, who is no longer a director of the
Company, exercised stock options to buy 50,000 shares of Series A common
stock of the Company. Such options had an exercise price of $6.50 per share,
and the market price of Series A common stock at the time of such exercise
was $11.00. Simultaneously with such exercise, the Company purchased from
the director 29,545 shares of Series A common stock for an aggregate
purchase price of $325,000, which represented the director's aggregate
exercise price. Such shares are reflected as treasury shares in the
Company's consolidated statement of stockholders' equity.

During 2000, the Company loaned two executive officers of the Company
$136,000 and $135,000, respectively. Such loans are due December 1, 2001 and
bear interest at 6.41%. Accrued interest receivable aggregated $10,000 at
December 31, 2000. The loans and related accrued interest are included in
accounts receivable in the accompanying consolidated balance sheet.

(13) INCOME TAXES

The Company and TCI entered into a tax sharing agreement dated June 1997, to
confirm that (i) neither the Company nor any of its subsidiaries has any
obligation to indemnify TCI or the TCI shareholders for any tax resulting
from the Spin-off failing to qualify as a tax-free distribution pursuant to
Section 355 of the Internal Revenue Code of 1986 (the "Code"); (ii) TCI is
obligated to indemnify the Company and its subsidiaries for any taxes
resulting from the Spin-off failing to qualify as a tax-free distribution
pursuant to Section 355 of the Code; (iii) to the best knowledge of TCI, the
Company's total payment obligation under the Tax Sharing Agreement could not
reasonably be expected to exceed $5 million.

II-35

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

Income tax benefit (expense) for the years ended December 31, 2000 and 1999
consists of:

CURRENT DEFERRED TOTAL
-------- -------- --------
AMOUNTS IN THOUSANDS

Year ended December 31, 2000
Federal........................................... $ 650 8,424 9,074
State and local................................... -- (943) (943)
----- ------ ------
$ 650 7,481 8,131
===== ====== ======
Year ended December 31, 1999:
Federal........................................... $(650) (1,197) (1,847)
Sate and local.................................... -- 1,431 1,431
----- ------ ------
$(650) 234 (416)
===== ====== ======

Income tax benefit (expense) differs from the amounts computed by applying
the Federal income tax rate of 35% as a result of the following:

YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
AMOUNTS IN THOUSANDS

Computed "expected" tax (expense) benefit............... $20,644 (23,687) 155,843
State and local income taxes, net of Federal income tax
benefit............................................... (613) 931 --
Tax benefit from disposal of investment................. 27,210 -- --
Issuance of common stock by subsidiary.................. -- -- (104,666)
Change in valuation allowance........................... (41,953) 15,695 (51,736)
Other................................................... 3,443 6,645 559
------- ------- --------
$ 8,131 (416) --
======= ======= ========

II-36

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 are presented below:

DECEMBER 31,
---------------------
2000 1999
--------- ---------
AMOUNTS IN THOUSANDS

Deferred tax assets:
Capital and net operating loss carryforwards and tax
credits................................................. $194,716 150,286
Share appreciation right liability........................ -- 26,376
Future deductible amounts principally due to accruals
deductible in later periods............................. 1,400 642
Property and equipment, principally due to differences in
depreciation............................................ 7 5
-------- --------
Total deferred tax assets............................... 196,123 177,309
Less--valuation allowance................................. (78,258) (150,933)
-------- --------
Net deferred tax assets................................. 117,865 26,376
Deferred tax liabilities:
Future gain related to unrealized appreciation on held for
sale security........................................... 116,384 26,376
Future taxable amounts principally due to accruals
recognized for tax purposes............................. 1,481 --
-------- --------
Net deferred tax liabilities............................ $ -- --
======== ========

The valuation allowance for deferred tax assets as of December 31, 2000 and
1999 was $78,258,000 and $150,933,000, respectively. Such balances decreased
$72,675,000 and $15,695,000 from December 31, 1999 and 1998, respectively.
The 2000 decrease includes a decrease of $114,628,000 included in additional
paid-in capital.

The Company has analyzed the sources and expected reversal periods of its
deferred tax assets. The Company believes that the tax benefits attributable
to deductible temporary differences will be realized to the extent of future
reversals of existing taxable temporary differences.

At December 31, 2000, the Company had capital and net operating loss carry
forwards for income tax purposes aggregating approximately $519,363,000 of
which, if not utilized to reduce taxable income in future periods,
$55,893,000 expire in 2004, $13,967,000 expire in 2010, $54,526,000 expire
in 2011, $238,139,000 expire in 2012, $106,824,000 expire in 2018, $6,176,00
expire in 2019 and $43,838,000 expire in 2020.

(14) TRANSACTIONS WITH RELATED PARTIES

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 management fee. Such fees aggregated
$445,000 in 2000. In addition, Phoenixstar reimburses the Company for
certain expenditures which benefit Phoenixstar, such as office rent and
computer support. Such reimbursements aggregated $169,000 during 2000 and
are reflected as a reduction of general and administrative expenses in the
accompanying statement of operations.

II-37

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

Pursuant to the terms of an agreement with Phoenixstar, from April 1, 1998
through April 28, 1999, Phoenixstar reimbursed the Company for all
reasonable costs and expenses incurred by the Company (i) to comply with its
tax and financial reporting obligations, (ii) to maintain certain insurance
coverage and (iii) to maintain its status as a publicly traded company.
During the years ended December 31, 1999 and 1998, such reimbursements
aggregated $376,000 and $152,000, respectively. The effects of such
reimbursements have been reflected as a reduction of the Company's
investment in Phoenixstar. The agreement with Phoenixstar was terminated in
connection with the Hughes transactions.

Certain former employees of LSAT, who became employees of Phoenixstar in the
Primestar Roll-up, held stock options, stock options with tandem stock
appreciation rights, and restricted shares of LSAT (collectively, the "LSAT
Options"). Subsequent to the Primestar Roll-up and through December 1998,
compensation expense related to the LSAT Options aggregated $1,541,000 and
has been reflected as an increase in LSAT's investment in PRIMESTAR in the
accompanying consolidated financial statements. Subsequent to
December 1998, compensation expense related to the LSAT options is included
in the accompanying consolidated statements of operations.

Prior to the Primestar Roll-up, Primestar Partners provided programming
services to the Company and other authorized distributors in exchange for a
fee based upon the number of subscribers receiving programming services. In
addition, Primestar Partners arranged for satellite capacity and uplink
services, and provided national marketing and administrative support
services in exchange of a separate authorization fee.

Effective on the Spin-off Date, certain administrative services were
provided to the Company by a subsidiary of TCI pursuant to the Transition
Services Agreement. As compensation for the services rendered and for the
benefits made available to the Company pursuant to the Transition Services
Agreement, the Company paid TCI a monthly fee of $1.50 per qualified
customer, up to a maximum of $3,000,000 per month, and to reimburse TCI
quarterly for direct, out-of-pocket expenses incurred by TCI to third
parties in providing the services. Amounts charged to LSAT pursuant to the
Transition Services Agreement aggregated $3,174,000 for the year ended
December 31, 1998, and are included in selling, general and administrative
expense in the accompanying consolidated statements of operations. Upon
consummation of the Primestar Roll-up, the Company and TCI agreed to
terminate the Transition Services Agreement.

Beginning in March 1997, and through the Roll-up Closing Date, a subsidiary
of TCI provided the Company with customer support service. Amounts charged
by such subsidiary to the Company for such services aggregated $5,026,000
during the year ended December 31, 1998, and are included in selling,
general and administrative expenses in the accompanying consolidated
statements of operations.

In connection with the Spin-off, the Company assumed the stock compensation
liability with respect to certain TCI options and SARs held by certain key
employees of the Company. Estimates of the compensation related to the
options and/or SARs granted to employees of the Company have been recorded
in the accompanying financial statements. In 1998, the Company recognized
$3,814,000 of stock compensation expense related to the aforementioned
options with

II-38

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

tandem SARs. Phoenixstar assumed the liability for such options in
connection with the Primestar Roll-up.

(15) COMMITMENTS AND CONTINGENCIES

The Company leases its office space under noncancelable operating leases.
Future minimum rental payments on these leases are as follows (in
thousands):

2001................................................. $131

Rent expense was $159,000, $23,000 and $358,000 in 2000, 1999 and 1998,
respectively.

Pursuant to the terms of the Liberty Transactions, Liberty contributed
$249,620,000 in cash to LSAT Astro. The Company used $101,130,000 in 2000 to
fund Astrolink capital calls and intends to use the remainder of such cash
to fund a portion of Astrolink's 2001 capital requirements. LSAT and LSAT
Astro assumed the commitment for such capital requirements in connection
with the Liberty Transactions.

In addition to the aforementioned commitment, LSAT Astro and the other
Astrolink members have agreed to take such actions as are reasonably
necessary to enable Astrolink to meet its 2001 funding requirements. Such
actions may include the purchase of equity or debt securities of Astrolink,
the facilitation of guaranteed bank financing, or any other approaches
acceptable to the members and Astrolink, subject to the negotiation and
execution of definitive agreements thereto. LSAT Astro's obligation to make
any investment in or provide any financial obligation to Astrolink under
this agreement is limited to $94,437,000, and does not constitute a
guarantee of any obligation of Astrolink.

The Company has guaranteed certain lease obligations of the Sky Latin
America businesses through 2015. Such guarantees aggregated approximately
$112,000,000 at December 31, 2000. Currently, the Company is not certain of
the likelihood of being required to perform under such guarantees.

The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it is
reasonably possible the Company may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In the
opinion of management, it is expected that amounts, if any, which may be
required to satisfy such contingencies will not be material in relation to
the accompanying financial statements.

II-39

LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY, TCI SATELLITE ENTERTAINMENT, INC.)
(A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000, 1999 AND 1998

(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS

2000:
Revenue....................................... $ 90 130 120 105
Operating income (loss)....................... $ (3,529) 4,123 (1,111) (232)
Net loss...................................... $ (3,728) (27,281) (11,644) (6,484)
Basic and diluted loss per common share....... $ (.07) (.51) (.29) (.21)

1999:
Revenue....................................... $ -- -- -- --
Operating loss................................ $ (3,001) (1,952) (231) (6,999)
Net earnings (loss)........................... $(86,764) 161,696 (162) (7,508)
Basic and diluted earnings (loss) per common
share....................................... $ (1.28) 2.38 -- (.11)

II-40

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following lists the directors and executive officers of the Company,
their birth dates, a description of their business experience and positions held
with the Company, as of February 1, 2001.

NAME POSITION
---- --------

Alan M. Angelich Has served as a director of the Company since
Born October 22, 1943 August 2000. Mr. Angelich has been the
President of Janco Partners, Inc., an
investment banking firm specializing in the
telecommunications industry, since December
1995 when he co-founded the firm.

Robert R. Bennett Has served as a director of the Company since
Born April 19, 1958 August 2000. Mr. Bennett has been President
and Chief Executive Officer of Liberty Media
since April 1997 and a member of the board of
directors of Liberty Media since September
1994. Mr. Bennett served as Executive Vice
President of TCI from April 1997 to March
1999. Mr. Bennett served as Executive Vice
President, Secretary and Treasurer of Liberty
Media from June 1995 through March 1997,
Chief Financial Officer from May 1996 through
March 1997 and in various executive positions
since Liberty Media's inception in 1990. Mr.
Bennett also served as acting Chief Financial
Officer of Liberty Digital, Inc. from June
1997 to July 1997. Mr. Bennett is a director
of Gemstar-TV Guide International, Inc.,
Liberty Livewire Corporation, USANi LLC, and
Telewest Communications plc, and is Chairman
of the Board of Liberty Digital, Inc.

William H. Berkman Has served as a director of the Company since
Born February 26, 1965 August 2000. Mr. Berkman has been the
Managing Partner of the Associated Group,
LLC, a venture capital and investment firm
primarily engaged in the telecommunications,
media and internet commerce market segments
since January, 2000. From 1994 to January
2000, Mr. Berkman was a principal at The
Associated Group, Inc. and one of the
founders of Teligent, Inc. and served as a
member of Teligent's board of directors from
August 1996 to January 2000. Mr. Berkman
currently serves on the board of directors of
CMGI, Inc. and Centerpoint Broadband
Technologies, Inc.

III-1

NAME POSITION
---- --------

John W. Goddard Has served as a director of the Company since
Born May 4, 1941 December 1996. Mr. Goddard served as
President and Chief Executive Officer of the
cable division of Viacom International, Inc.
from 1980 until the division was sold in July
1996. Mr. Goddard is also a director of Diva
Systems Corporation, Cable Television
Laboratories, Inc. (Cablelabs), and the
Deafness Research Foundation and is a Trustee
of the Walter Kaitz Foundation.

J. Curt Hockemeier Has served as a director of the Company since
Born May 15, 1948 August 2000. Mr. Hockemeier has been
President and Chief Operating Officer of
Arbinet Holdings, Inc., a leading online
telecommunications exchange, since April
2000. From June 1999 until April 2000, Mr.
Hockemeier served as Executive Vice President
and Chief Operating Officer for telephone
operations for AT&T Broadband and, from July
1998 until June 1999, he served as AT&T Local
Network Services' Vice President. Beginning
in 1992, Mr. Hockemeier served as Senior Vice
President of Affiliate Services for Teleport
Communications Group and held other senior
management positions with Teleport, including
Senior Vice President of National Operations,
until AT&T acquired Teleport in July 1998.

Gary S. Howard Has served as Chairman of the Board since
Born February 22, 1951 August 2000 and has served as a director of
the Company since November 1996. Mr. Howard
served as Chief Executive Officer of the
Company from December 1996 until April 2000.
From February 1995 through August 1997, Mr.
Howard also served as President of the
Company. Mr. Howard is currently the
Executive Vice President and Chief Operating
Officer of Liberty Media. Mr. Howard served
as Executive Vice President of TCI from
December 1997 to March 1999; as Chief
Executive Officer, Chairman of the Board and
director of TV Guide, Inc. from June 1997 to
March 1999; and as President and Chief
Executive Officer of TCI Ventures Group, LLC
from December 1997 to March 1999. Mr. Howard
served as President of TV Guide, Inc. from
June 1997 to September 1997; and as Senior
Vice President of TCI Communications, Inc.
from October 1994 to December 1996. Mr.
Howard is a director of Liberty Media
Corporation, Liberty Livewire Corporation,
Liberty Digital, Inc., Teligent, Inc., and On
Command Corp.

III-2

NAME POSITION
---- --------

Carl E. Vogel Has served as Chief Executive Officer and
Born October 18, 1957 President of the Company since April 2000,
and as a director of the Company since August
2000. Mr. Vogel has also been Senior Vice
President of Liberty Media since December
1999. Mr. Vogel served as Executive Vice
President/Chief Operating Officer of Field
Operations for AT&T Broadband from June 1999
until joining Liberty Media. He served as
Chairman and Chief Executive Officer of
PRIMESTAR, Inc. from June 1998 to June 1999.
From October 1997 to June 1998, Mr. Vogel was
Chief Executive Officer of Star Choice
Communications. From March 1994 to March
1997, he served first as Executive Vice
President and Chief Operating Officer and
later as President of EchoStar Communications
Corporation. Mr. Vogel is a director of On
Command Corp. and Teligent, Inc.

Christopher Sophinos Has served as Senior Vice President of the
Born January 26, 1952 Company since April 2000. Served as President
of the Company from September 1997, to April
2000 and as Senior Vice President of the
Company from February 1996. Mr. Sophinos
served as Senior Vice President of
Phoenixstar from April 1998 until August
1999. Mr. Sophinos served as the President of
Boats Unlimited from November 1993 to
September 1998 and has served as a director
of Sophinos & Sons, Inc. since November 1993.

Kenneth G. Carroll Has served as Senior Vice President and Chief
Born April 21, 1955 Financial Officer of the Company since
February 1995 and as Treasurer since August
1999. He has also served as Senior Vice
President and Chief Financial Officer of
Phoenixstar since April 1998. From December
1994 to May 1997, Mr. Carroll served as Vice
President of TCI K-1, Inc. and as Vice
President of United Artists K-1 Investments,
Inc.

Pamela J. Strauss Has served as General Counsel of the Company
Born September 5, 1960 since February 2000 and as Secretary since
April 2000 and was previously Corporate
Counsel from April 1994 to April 1998 and
Assistant Secretary from December 1996. Ms.
Strauss has also served as Associate General
Counsel for Phoenixstar since April 1998,
Secretary since July 1999 and Assistant
Secretary from August 1997 to June 1999.

III-3

NAME POSITION
---- --------

Mark E. Burton Has served as Vice President, Finance of the
Born October 8, 1960 Company since March 2000. Previously served
as Vice President of Business Affairs for
National Digital Television Center, Inc. from
August 1999 to April 2000. Served as director
of financial reporting for Phoenixstar and
the Company from January 1998 to August 1999.
Served in various capacities in the financial
reporting department of TCI from August 1992
to December 1997.

The directors of the Company will hold office until the next annual meeting
of stockholders of the Company and until their successors are duly elected and
qualified. The executive officers named above will serve in such capacities
until the next annual meeting of the Company's Board of Directors (the "LSAT
Board"), or until their respective successors have been duly elected and have
been qualified, or until their earlier death, resignation, disqualification or
removal from office.

The Company's charter provides for a Board of Directors of not less than
three members. The exact number of directors is fixed by resolution of the LSAT
Board.

There are no family relations by blood, marriage or adoption, of first
cousin or closer, among the above named individuals.

During the past five years, none of the persons named above has had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater-than-ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.

Based solely on review of the copies of Forms 3, 4 and 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year, or
written representations that no Forms 5 were required, the Company believes
that, during the year ended December 31, 2000, its officers, directors and
greater-than-ten-percent beneficial owners complied with all Section 16(a)
filing requirements, except that one report, covering one transaction, was filed
late by Ms. Pamela J. Strauss, an officer of the Company; one report, covering
one transaction, was filed late by Mr. Carl E. Vogel, an officer of the Company;
one report, covering one transaction, was filed late by Mr. Leo J. Hindery, Jr.,
a former director of the Company; one report, covering one transaction, was
filed late by Mr. Kenneth G. Carroll, an officer of the Company; one report,
covering one transaction, was filed late by Mr. Mark Burton, an officer of the
Company; and one report, covering one transaction, was filed late by Mr. Chris
Sophinos, an officer of the Company.

III-4

ITEM 11. EXECUTIVE COMPENSATION

(a) SUMMARY COMPENSATION TABLE

The following table is a summary of all forms of compensation paid by the
Company to the officers named therein for services rendered in all capacities to
the Company for the fiscal years ended December 31, 2000, 1999 and 1998, (total
of five persons).

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- -----------------------
SECURITIES
OTHER RESTRICTED UNDERLYING ALL
NAME AND PRINCIPAL POSITION ANNUAL STOCK OPTIONS/ OTHER
WITH THE COMPANY YEAR SALARY BONUS COMPENSATION AWARD SARS COMPENSATION(8)
- --------------------------- -------- -------- -------- ------------ ---------- ---------- ---------------

Carl E. Vogel(1) ......... 2000 $200,000 $ -- $ -- $ -- -- $ --
(Chief Executive Officer
and President)

Gary S. Howard(2) ........ 2000 $ -- $ -- $ -- $ -- -- $ --
(Chief Executive Officer) 1999 $ -- $ -- $ -- $ -- -- $ --
1998 $ -- $ -- $ -- $ -- -- $ --

Christopher 2000 $225,000 $ -- $ -- $ -- -- $11,495
Sophinos(3) ............ 1999 $ 51,923 $ -- $ -- $ -- 425,000(7) $ --
(Senior Vice President) 1998 $ 51,626 $35,500 $ -- $ -- -- $ 4,667

Kenneth G. Carroll (4) ... 2000 $238,343 $ -- $ -- $ -- -- $15,000
(Senior Vice President, 1999 $ -- $ -- $ -- $ -- 425,000(7) $ --
CFO and Treasurer) 1998 $ 51,827 $35,500 $ -- $ -- -- $ 4,590

Pamela J. Strauss (5) .... 2000 $135,000 $ -- $ -- $ -- -- $10,500
(General Counsel) 1999 $ -- $ -- $ -- $ -- 212,500(7) $ --
1998 $ 27,192 $21,000 $ -- $ -- -- $ 4,819

Mark E. Burton (6) ....... 2000 $ 81,265 $ -- $ -- $ -- 50,000(7) $ 7,200
(Vice President) 1999 $ -- $ -- $ -- $ -- -- $ --
1998 $ 22,500 $ 1,000 $ -- $ -- -- $ --

- --------------------------

(1) Mr. Vogel's employment with the Company commenced April 2000. Mr. Vogel is
also an employee of Liberty Media. As such, Mr. Vogel's compensation is
allocated between Liberty Media and the Company. Compensation in the table
represents the amount allocated to the Company for the period from
April 2000 through December 2000.

(2) During the years 1998, 1999 and through March 2000, Mr. Howard served as an
executive officer of TCI (through March 1999) and Liberty Media (April 1999
through December 2000) while serving as Chief Executive Officer of the
Company. The Company and TCI and Liberty Media agreed that all of
Mr. Howard's annual compensation would be born by TCI and/or Liberty Media,
as appropriate. As such, the table reflects no annual compensation for
Mr. Howard for 1998, 1999 or 2000.

(3) In connection with the Primestar Roll-up and effective April 1, 1998,
Mr. Sophinos became an officer of Phoenixstar, and from that date forward,
all of Mr. Sophinos' compensation for 1998 was paid by Phoenixstar.
Accordingly, the 1998 compensation information included in the table
represents three months of employment. Mr. Sophinos' employment with
Phoenixstar terminated on August 31, 1999, and Mr. Sophinos began receiving
compensation from the Company on September 1, 1999. Accordingly, the 1999
compensation information included in the table represents four months of
employment.

(4) In connection with the Primestar Roll-up and effective April 1, 1998,
Mr. Carroll became an officer of Phoenixstar, and from that date forward,
all of Mr. Carroll's compensation for 1998 was paid by Phoenixstar.
Accordingly, the 1998 compensation information included in the table
represents three months of employment. Mr. Carroll's employment with
Phoenixstar terminated on January 31, 2000, and Mr. Carroll began receiving

III-5

compensation from the Company on February 1, 2000. Accordingly, the 2000
compensation information included in the table represents 11 months of
employment.

(5) In connection with the Primestar Roll-up and effective April 1, 1998,
Ms. Strauss became an officer of Phoenixstar, and from that date forward,
all of Ms. Strauss' compensation for 1998 was paid by Phoenixstar.
Accordingly, the 1998 compensation information included in the table
represents three months of employment. Ms. Strauss' employment with
Phoenixstar terminated on January 31, 2000 and Ms. Strauss began receiving
compensation from the Company on February 1, 2000. Accordingly, the 2000
compensation information included in the table represents 11 months of
employment.

(6) In connection with the Primestar Roll-up and effective April 1, 1998,
Mr. Burton became an employee of Phoenixstar, and from that date forward,
all of Mr. Burton's compensation for 1998 was paid by Phoenixstar.
Accordingly, the 1998 compensation information included in the table
represents three months of employment. Mr. Burton's employment with the
Company commenced again in May 2000. Accordingly, the 2000 compensation
information included in the table represents eight months of employment.

(7) Pursuant to the LSAT 1996 Plan and effective December 1, 1999,
Messrs. Sophinos and Carroll were each granted options to purchase 200,000
shares of Series A Common Stock at a purchase price of $7.125 and 225,000
shares of Series A Common Stock at a purchase price of $8.84; and
Ms. Strauss was granted options to purchase 100,000 shares of Series A
Common Stock at a purchase price of $7.125 and 112,500 shares of Series A
Common Stock at a purchase price of $8.84. Effective May 17, 2000,
Mr. Burton was granted options to purchase 50,000 shares of Series A Common
Stock at a purchase price of $10.06.

(8) Includes LSAT contributions to (i) the LSAT Employee Stock Purchase Plan
(the "LSAT ESPP") from January 1, 1998 through March 31, 1998 and (ii) the
Liberty Media 401(k) Savings Plan (the "Liberty Media Plan") beginning in
April 2000. All named executives were fully vested in such plans. Also
includes insurance premiums paid by LSAT in 1998 for the benefit of
Messrs. Sophinos and Carroll in the amount of $245 and $148, respectively.

The LSAT ESPP, a defined contribution plan, enabled participating employees
to acquire a proprietary interest in LSAT and benefits upon retirement.
Participants could contribute up to 10% of their compensation and LSAT (by
annual resolution of the LSAT Board) could contribute up to a matching 100%
of the participants' contributions. In connection with the Primestar Roll-up
and effective June 30, 1998, the LSAT ESPP was merged into the
Phoenixstar, Inc. 401(k) Savings Plan.

Since April 2000, LSAT employees have been eligible to participate in the
Liberty Media Plan. The Liberty Media Plan provides employees with an
opportunity to save for retirement. The Liberty Media Plan participants may
contribute up to 10% of their compensation and Liberty Media contributes a
matching contribution of 100% of the participants' contribution. Participant
contributions to the Liberty Media Plan are fully vested upon contribution.

Generally, participants acquire a vested right in Liberty Media
contributions as follows:

YEARS OF SERVICE VESTING PERCENTAGE
- ---------------- ------------------

Less than 1.................. 0%
1-2.......................... 33%
2-3.......................... 66%
3 or more.................... 100%

Directors who are not employees of Liberty Media are ineligible to
participate in the Liberty Media Plan. Under the terms of the Liberty Media
Plan, employees are eligible to participate after three months of service.

III-6

(b) OPTION AND SARS GRANTS IN LAST FISCAL YEAR

The following table discloses information regarding stock options granted
during the year ended December 31, 2000 to each of the named executive officers
of the Company in respect of shares of Series A Common Stock under the LSAT 1996
Plan.

NO. OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE OR MARKET PRICE DATE
OPTIONS EMPLOYEES BASE PRICE ON GRANT DATE EXPIRATION PRESENT
NAME GRANTED(1) IN 2000 ($/SH) ($/SH)(2) DATE VALUE $(3)
- ---- ---------- ---------- ----------- ------------- ----------- ----------

Mark E. Burton.................. 50,000 50.0% $10.06 $10.06 May 17,2010 $438,470

- ------------------------

(1) During 2000, certain key employees of LSAT were granted, pursuant to the
LSAT 1996 Plan, an aggregate of 100,000 options to acquire shares of
Series A Common Stock. Each such grant of options vests over five years with
such vesting period beginning on the date of grant and expires 10 years from
the date of grant.

(2) Represents the closing market price per share of Series A Common Stock on
May 18, 2000.

(3) The value shown is based upon the Black-Scholes model and is stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.08% discount rate; (b) an 85% volatility factor; (c) the 10-year
option term; (d) the closing price of Series A Common Stock on May 17, 2000;
and (e) a per share exercise price of $10.06. The actual value realized will
depend upon the extent to which the stock price exceeds the exercise price
on the date the option is exercised. Accordingly, the realized value, if
any, will not necessarily be the value determined by the model.

In September 2000, Mr. Vogel purchased a 1.83% common stock interest in a
subsidiary of Liberty Media for $400,000. Such subsidiary owns an indirect
interest in LSAT LLC. Liberty Media and Mr. Vogel entered into a shareholders
agreement in which Mr. Vogel could require Liberty Media to purchase, after five
years, all or part of his common stock interest in the subsidiary, in exchange
for Liberty Media common stock, at its then fair value. In addition, Liberty
Media has the right to purchase, in exchange for Liberty Media common stock,
Mr. Vogel's common stock interest for fair market value at any time.

(c) AGGREGATED LSAT OPTION/SAR EXERCISES AND FISCAL YEAR-END LSAT OPTION/SAR
VALUES

The following table provides, for the executives named in the Summary
Compensation Table, information on (i) the exercise during the year ended
December 31, 2000, of options with respect to shares of Series A Common Stock,
(ii) the number of shares of Series A Common Stock represented

III-7

by unexercised options owned by them at December 31, 2000, and (iii) the value
of those options as of the same date.

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/ OPTIONS/
SARS AT SARS AT
DECEMBER 31, DECEMBER 31,
SHARES 2000 2000
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ----------- --------- -------------- --------------

Gary S. Howard
Exercisable Series A.................... -- $ -- 280,630 $ --
Unexercisable Series A.................. -- -- 66,408 --
Carl E. Vogel
Exercisable Series A.................... -- -- -- --
Unexercisable Series A.................. -- -- -- --
Christopher Sophinos
Exercisable Series A.................... -- -- 100,000 --
Unexercisable Series A.................. -- -- 425,000 --
Kenneth G. Carroll
Exercisable Series A.................... -- -- 102,150 --
Unexercisable Series A.................. -- -- 425,000 --
Pamela J. Strauss
Exercisable Series A.................... -- -- 30,000 --
Unexercisable Series A.................. -- -- 212,500 --
Mark E. Burton
Exercisable Series A.................... -- -- -- --
Unexercisable Series A.................. -- -- 50,000 --

(d) COMPENSATION OF DIRECTORS

Members of the LSAT Board who are also full-time employees of the Company or
Liberty Media, or any of their respective subsidiaries, do not receive any
additional compensation for their services as directors. Directors who are not
full-time employees of the Company or Liberty Media, or any of their respective
subsidiaries, receive a retainer of $30,000 per year. All members of the LSAT
Board are also reimbursed for expenses incurred to attend any meeting of the
LSAT Board or any committee thereof. In addition, on March 6, 1998, the LSAT
stockholders approved the TCI Satellite Entertainment, Inc. 1997 Nonemployee
Director Stock Option Plan (the "LSAT DSOP"). The LSAT DSOP provides for the
grant to each person that is a member of the LSAT Board and is not an employee
of the Company, its subsidiaries or its affilitates, of options to purchase
50,000 shares of Series A Common Stock. Such grant of options is made at the
time a person first becomes an LSAT director. The LSAT DSOP provides that the
per share exercise price of each option granted under the LSAT DSOP will be
equal to the fair market value of the Series A Common Stock on the date such
option is granted. In general, fair market value is determined by reference to
the last sale price for shares of Series A Common Stock on the date of grant.

(e) ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS

The members of the Company's compensation committee are Messrs. Alan M.
Angelich, William H. Berkman and John. W. Goddard, each a director of the
Company. None of the members of the compensation committee are or were officers
of the Company or any of its subsidiaries or any other person that would
constitute a compensation committee interlock with the Company.

III-8

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table lists stockholders believed by the Company to be the
beneficial owners of more than five percent of the outstanding Company Common
Stock as of December 31, 2000. Shares issuable upon exercise of options and upon
vesting of restricted shares are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons believed
to beneficially own such securities, but have not been deemed to be outstanding
for the purpose of computing the percentage ownership or overall voting power of
any other person. Voting power in the table is computed with respect to a
general election of directors. So far as is known to the Company, the persons
indicated below have sole voting and investment power with respect to the shares
indicated as believed to be owned by them except as otherwise stated in the
notes to the table.

COMBINED
VOTING
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF POWER OF ALL
BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED CLASS(1) HOLDINGS(1)
- ------------------- --------------------------- ------------------ ---------- ------------

Liberty Media Corporation........................... 89.2%
9197 S. Peoria Street Series A preferred stock 150,000 100.0%
Englewood, Colorado Series B preferred stock 150,000 100.0%
Series A common stock 3,990,251 6.1%
Series B common stock 3,322,658 43.0%

Kim Magness......................................... 3.9%
(individually as a member of Series A preferred stock -- --
Magness Security LLC) Series B preferred stock -- --
4000 E. Belleview Series A common stock 383,806(2) *
Greenwood Village, Colorado Series B common stock 3,745,206 48.4%

Gary Magness........................................ 3.2%
(as co-representative of the Series A preferred stock -- --
estate of Bob Magness) Series B preferred stock -- --
29 Sunset Drive Series A common stock 243,373(3) *
Englewood, Colorado Series B common stock 3,120,770(3) 40.4%

- ------------------------

* Less than one percent.

(1) Based on 150,000 shares of Series A preferred stock, 150,000 shares of
Series B preferred stock, 65,469,595 shares of Series A common stock and
7,733,996 shares of Series B common stock outstanding as of December 31,
2000.

(2) Includes 210,533 shares of Series A common stock and 634,621 shares of
Series B common stock held by Magness Securities LLC. Mr. Magness is deemed
to have beneficial ownership over such shares as a member of Magness
Securities LLC. Also assumes the exercise in full of stock options granted
in November of 1994 to acquire 5,000 shares of Series A common stock, all of
which options are currently exercisable.

(3) Gary Magness and Kim Magness are co-representatives of the Estate of Bob
Magness. Share amounts include 152,273 shares of Series A common stock and
3,054,585 shares of Series B common stock held by the Estate of Bob Magness
that are also included in the shares attributed to Kim Magness above

III-9

(b) SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information with respect to the ownership by
each director and each of the named executive officers of LSAT and by all
directors and executive officers of LSAT as a group of shares of LSAT common
stock. In addition, the table sets forth information with respect to the
ownership of such individuals of shares of AT&T common stock, AT&T Liberty Media
Group Class A and Class B common stock ("Liberty Media Group Tracking Stock")
and AT&T Wireless Group common stock ("Wireless Group Tracking Stock"), all of
which are equity securities of AT&T Corp., which indirectly owns 100% of Liberty
Media, which in turn owns a controlling interest in LSAT.

The AT&T charter provides that, except as otherwise required by New York law
or any special voting rights of AT&T preferred stock, Liberty Media Group
Tracking Stock or Wireless Group Tracking Stock, the holders of AT&T common
stock, Liberty Media Group Tracking Stock, Wireless Group Tracking Stock and
AT&T preferred stock, if any, entitled to vote with the common shareholders,
vote together as one class.

The following information is given as of December 31, 2000 and, in case of
percentage ownership information, is based on 65,469,595 shares of LSAT
Series A common stock, 7,733,996 shares of LSAT Series B common stock,
3,760,174,834 shares of AT&T common stock, 2,363,738,170 shares of AT&T Liberty
Media Group Class A stock, 206,221,288 shares of AT&T Liberty Media Group
Class B stock and 361,814,400 shares of AT&T Wireless Group stock outstanding on
that date. Shares issuable upon exercise of options and upon vesting of
restricted shares are deemed to be outstanding for the purpose of computing the
percentage ownership and overall voting power of persons believed to
beneficially own such securities, but have not been deemed to be outstanding for
the purpose of computing the percentage ownership or overall voting power of any
other persons. Voting power in the table is computed with respect to a general
election of directors. So far as is known to the Company, the persons indicated
below have sole voting and investment power with respect to the shares indicated
as believed to be owned by them, except as indicated in the notes to the table.

III-10

NUMBER
OF SHARES PERCENT
BENEFICIALLY OF VOTING
NAME TITLE OF CLASS OWNED CLASS POWER
- ---- -------------- ------------ -------- --------

Directors:
Alan M. Angelich............ LSAT Series A 100,000(1),(2) * *
LSAT Series B -- --
AT&T Common Stock Group -- -- *
Liberty Media Group Class A 68,152(3) *
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

Robert R. Bennett........... LSAT Series A 5,089(4) * *
LSAT Series B -- --
AT&T Common Stock Group 249,101 * *
Liberty Media Group Class A 8,070,286(5) *
Liberty Media Group Class B 400 *
AT&T Wireless Group -- --

William H. Berkman.......... LSAT Series A 50,000(1) * *
LSAT Series B -- --
AT&T Common Stock Group 124 * *
Liberty Media Group Class A 1,429,126(6) *
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

John W. Goddard............. LSAT Series A 51,408(7),(8) * *
LSAT Series B 1,425(7) *
AT&T Common Stock Group 4,998 * *
Liberty Media Group Class A 83,136 *
Liberty Media Group Class B 72,772 *
AT&T Wireless Group -- --

J. Curt Hockemeier.......... LSAT Series A 50,000(1) * *
LSAT Series B -- --
AT&T Common Stock Group 186,561(9) * *
Liberty Media Group Class A -- --
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

Gary S. Howard.............. LSAT Series A 407,618(10) * *
LSAT Series B -- --
AT&T Common Stock Group 15,537 * *
Liberty Media Group Class A 2,556,897(11) *
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

Carl E. Vogel............... LSAT Series A 5,000 * *
LSAT Series B -- --
AT&T Common Stock Group -- -- *
Liberty Media Group Class A 1,018,400(12) *
Liberty Media Group Class B -- --
AT&T Wireless Group 500 *

III-11

NUMBER
OF SHARES PERCENT
BENEFICIALLY OF VOTING
NAME TITLE OF CLASS OWNED CLASS POWER
- ---- -------------- ------------ -------- --------

Other named executive
officers:
Christopher Sophinos........ LSAT Series A 578,704(13) * *
LSAT Series B -- --
AT&T Common Stock Group -- -- *
Liberty Media Group Class A 1,600 *
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

Kenneth G. Carroll.......... LSAT Series A 580,732(14) * *
LSAT Series B -- --
AT&T Common Stock Group 2,118 * *
Liberty Media Group Class A 12,706 *
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

Pamela J. Strauss........... LSAT Series A 245,859(15) * *
LSAT Series B -- --
AT&T Common Stock Group 553 * *
Liberty Media Group Class A 3,232 *
Liberty Media Group Class B -- --
AT&T Wireless Group -- --

Mark E. Burton.............. LSAT Series A 51,000(16) * *
LSAT Series B -- --
AT&T Common Stock Group 16,224(17) * *
Liberty Media Group Class A 20,720(18) *
Liberty Media Group Class B -- --
AT&T Wireless Group 300 *

All directors and executive
officers as a group........... LSAT Series A 2,125,410 3.2% *
LSAT Series B 1,425 *
AT&T Common Stock Group 475,216 * *
Liberty Media Group Class A 13,264,255 *
Liberty Media Group Class B 73,172 *
AT&T Wireless Group 800 *

- ------------------------

* Less than one percent.

(1) Assumes the exercise in full of options to purchase 50,000 shares of
Series A common stock granted pursuant to the Company's Nonemployee
Director Stock Option Plan, none of which are exercisable.

(2) Includes 50,000 shares of Series A common stock owned by Janco Capital
Partners. Mr. Angelich has shared voting and dispositive power over such
shares.

(3) Includes 23,000 shares owned by Janco Capital Partners. Mr. Angelich has
shared voting and dispositive power over such shares.

(4) Assumes the exercise in full of stock options granted in tandem with SARs
in November 1994 to purchase 5,000 shares of Series A common stock, all of
which are exercisable.

III-12

(5) Assumes the exercise in full of options to purchase 7,986,036 shares, all
of which are exercisable.

(6) Assumes the exercise in full of options to purchase 1,428,518 shares, all
of which are exercisable.

(7) Includes 478 shares of Series A common stock held by Mr. Goddard's wife, of
which Mr. Goddard is beneficial owner, and 129 shares of Series B common
stock held by a trust in which Mr. Goddard is beneficial owner as trustee.

(8) Assumes the exercise in full of options to purchase 50,000 shares of
Series A common stock granted pursuant to the Company's Nonemployee
Director Stock Option Plan, all of which are exercisable.

(9) Assumes the exercise in full of options to purchase 111, 275 shares, all of
which are exercisable.

(10) Assumes the exercise in full of Company stock options, whether or not then
exercisable or in-the-money, in respect of the following: (i) stock options
granted in tandem with SARs in November 1992 to acquire 2,500 shares of
Series A common stock, all of which are currently exercisable; (ii) stock
options in tandem with SARs granted in October 1993 to acquire 2,500 shares
of Series A common stock, all of which are currently exercisable;
(iii) stock options in tandem with SARs granted in November 1994 to acquire
2,500 shares of Series A common stock, all of which are currently
exercisable; (iv) stock options granted in tandem with SARs in
December 1995 to purchase 7,500 shares of Series A common stock, all of
which are currently exercisable; and (v) stock options granted in
December 1996 to purchase 332,038 shares of Series A common stock, 265,630
of which are currently exercisable. Also includes 25,495 shares of
Series A common stock held by trusts in which Mr. Howard is beneficial
owner as trustee for his children.

(11) Assumes the exercise in full of options to purchase 2,464,500 shares, all
of which are currently exercisable.

(12) Assumes the exercise in full of options to purchase 1,000,000 shares,
200,000 of which are currently vested.

(13) Assumes the exercise in full, whether or not then exercisable or
in-the-money, of (i) stock options granted in tandem with SARs in
February 1997 to purchase 100,000 shares of Series A common stock, all of
which are currently exercisable; and (ii) stock options granted in
December 1999 to purchase 425,000 shares of Series A common stock, none of
which are currently exercisable.

(14) Assumes the exercise in full of Company stock options, whether or not then
exercisable or in-the-money, in respect of the following: (1) stock options
granted in tandem with SARs in November of 1994 to acquire 400 shares of
Series A common stock, all of which are currently exercisable; (ii) stock
options granted in tandem with SARs in December 1995 to purchase 1,750
shares of Series A common stock, all of which are currently exercisable;
(iii) stock options granted in tandem with SARs in February 1997 to
purchase 100,000 shares of Series A common stock, all of which are
currently exercisable; and (iv) stock options granted in December 1999 to
purchase 425,000 shares of Series A common stock, none of which are
currently exercisable.

(15) Assumes the exercise in full of Company stock options, whether or not then
exercisable or in-the-money, in respect of the following: (i) stock options
granted in tandem with SARs in February 1997 to purchase 30,000 shares of
Series A common stock, all of which are currently exercisable, and
(ii) stock options granted in December 1999 to purchase 212,500 shares of
Series A common stock, none of which are currently exercisable.

(16) Assumes the exercise in full of Company stock options to purchase 50,000
shares of Series A common stock, none of which are currently exercisable.

(17) Assumes the exercise in full of options to purchase 12,216 shares, all of
which are exercisable.

III-13

(18) Assumes the exercise in full of options to purchase 18,720 shares, all of
which are exercisable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 2000, a director of the Company, who is no longer a director of the
Company, exercised stock options to buy 50,000 shares of Series A common stock
of the Company. Such options had an exercise price of $6.50 per share, and the
market price of Series A common stock at the time of such exercise was $11.00.
Simultaneously with such exercise, the Company purchased from the director
29,545 shares of Series A common stock for an aggregate purchase price of
$325,000, which represented the director's aggregate exercise price. Such shares
are reflected as treasury shares in the Company's consolidated statement of
stockholders' equity.

During 2000, the Company loaned Mr. Kenneth G. Carroll and Mr. Chris
Sophinos, both of whom are executive officers of the Company, $136,000 and
$135,000, respectively. Such loans are due December 1, 2001 and bear interest at
6.41%. Accrued interest receivable aggregated $10,000 at December 31, 2000.

Certain payroll and other expenses were advanced to the Company by Liberty
Media during 2000. Such advances are non-interest bearing, aggregated $470,000
at December 31, 2000, and generally are repaid monthly.

On March 16, 2000, the Company issued a $60,000,000 promissory note payable
to Liberty Media in exchange for its interest in LSAT Astro. The note bears
interest at Libor plus 2% (8.61% at December 31, 2000). Interest payments are
due semi-annually on the first day of March and September. The note, which
allows for prepayments, matures on March 16, 2003 at which time all unpaid
principal and interest is due. At December 31, 2000, the outstanding balance
under the note was $54,982,000 and accrued interest aggregated $1,703,000.

Certain directors, officers and employees of TCI and its subsidiaries
(including the Company, prior to the Spin-off) were granted options to purchase
shares of Series A TCI Group Common Stock ("TCI Options") and stock appreciation
rights with respect to shares of Series A TCI Group Common Stock ("TCI SARs").
The TCI Options and TCI SARs were granted pursuant to various stock plans of TCI
(the "TCI Plans").

Immediately prior to the Spin-off, each TCI Option was divided into two
separately exercisable options: (i) an option to purchase Series A Common Stock
(an "Add-on Company Option"), exercisable for the number of shares of Series A
Common Stock that would have been issued in the Spin-off in respect of the
shares of Series A TCI Group Stock subject to the applicable TCI Option, if such
TCI Option had been exercised in full immediately prior to the Spin-off Date,
and (ii) an option to purchase Series A TCI Group Stock (an "Adjusted TCI
Option"), exercisable for the same number of shares of Series A TCI Group Stock
as the corresponding TCI Option had been. The aggregate exercise price of each
TCI Option was allocated between the Add-on Company Option and the Adjusted TCI
Option into which it was divided, and all other terms of the Add-on Company
Option and Adjusted TCI Option are in all material respects the same as the
terms of such TCI Option. Similar adjustments were made to the outstanding TCI
SARs, resulting in the holders thereof holding Adjusted TCI SARs and Add-on
Company SARs instead of TCI SARs, and to outstanding restricted share awards,
resulting in the holders thereof holding restricted shares of Series A Common
Stock in addition to restricted shares of Series A TCI Group Stock, effective
immediately prior the Spin-off.

As a result of the foregoing, certain persons who remained TCI employees or
non-employee directors after the Spin-off and certain persons who were TCI
employees prior the Spin-off but became Company employees after the Spin-off
hold both adjusted TCI Options and separate Add-on Company Options and/or hold
both Adjusted TCI SARs and separate Add-on Company SARs. The obligations with
respect to the Adjusted TCI Options, Add-on Company Options, Adjusted TCI SARs
and Add-on

III-14

Company SARs held by TCI employees and non-employee directors are obligations
solely of TCI. The obligations with respect to the Adjusted TCI Options, Add-on
Company Options, Adjusted TCI SARs and Add-on Company SARs held by persons who
were Company employees at the time of the Spin-off and following the Spin-off
were no longer TCI employees ("Company Employees") are obligations solely of the
Company. Prior to the Spin-off, TCI and the Company entered into an agreement to
sell to each other from time to time at the then current market price shares of
Series A TCI Group Common Stock and Series A Common Stock, respectively, as
necessary to satisfy their respective obligations under such securities. During
the year ended December 31, 2000, the Company did not issue any shares of
Series A Common Stock to TCI under this arrangement.

III-15

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K

(A) (1) FINANCIAL STATEMENTS

Included in Part II of this Report:

PAGE NO.
--------

Independent Auditors' Report................................ II-11
Consolidated Balance Sheets,
December 31, 2000 and 1999................................ II-12
Consolidated Statements of Operations,
Years ended December 31, 2000, 1999 and 1998.............. II-13
Consolidated Statements of Comprehensive Income (Loss)
Years ended December 31, 2000, 1999 and 1998.............. II-14
Consolidated Statements of Stockholders' Equity (Deficit),
Years ended December 31, 2000, 1999 and 1998.............. II-15
Consolidated Statements of Cash Flows,
Years ended December 31, 2000, 1999 and 1998.............. II-16
Notes to Consolidated Financial Statements,
December 31, 2000, 1999 and 1998.......................... II-17

(A) (2) FINANCIAL STATEMENT SCHEDULES

Included in Part IV of this Report:

(ii) Separate Financial Statements for ASTROLINK International LLC:

CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ IV-4
Consolidated Balance Sheets................................. IV-5
Consolidated Statements of Operations....................... IV-6
Consolidated Statements of Members' Equity.................. IV-7
Consolidated Statements of Cash Flows....................... IV-8
Notes to Consolidated Financial Statements.................. IV-9

(A) (3) EXHIBITS

The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:

2--Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1 Reorganization Agreement dated as of December 4, 1996, among
Tele-Communications, Inc. ("TCI"), TCI Communications, Inc.
("TCIC"), Tempo Enterprises, Inc., TCI Digital Satellite
Entertainment, Inc., TCI K-1, Inc. ("TCI K-1"), United
Artists K-1 Investments, Inc. ("UA K-1"), TCI SE Partner 1,
Inc. ("TCISE 1"), TCI SE Partner 2, Inc. "(TCISE 2") and TCI
Satellite Entertainment, Inc. (the "Company").(c)

2.2 Merger and Contribution Agreement dated as of February 6,
1998, among the Company, PRIMESTAR, Inc., 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. ("GE
Americom").(e)

IV-1

2.3 Asset Transfer Agreement dated as of February 6, 1998,
between the Company and PRIMESTAR, Inc.(e)

2.4 Contribution and Exchange Agreement among TCI Satellite
Entertainment, Inc., Liberty LSAT, Inc. and Liberty LSAT II,
Inc. dated as of March 16, 2000.(b)

2.5 Contribution Agreement by and among Liberty Media
Corporation, Liberty Media International, Inc., LSAT
Holdings, Inc., TCI Satellite Entertainment, Inc., TSAT
Holding 1, Inc., each of the Liberty Members signatory
hereto, Liberty Satellite, LLC, and LSAT Astro, LLC dated
March 16, 2000.(b)

2.6 Operating Agreement of Liberty Satellite, LLC dated March
16, 2000.(b)

2.7 Amended and Restated Operating Agreement of LSAT Astro LLC
dated March 16, 2000.(b)

3--Articles of Incorporation and Bylaws:

3.1 Amended and Restated Certificate of Incorporation of the
Company. Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (Commission File No. 0-21317).

3.2 Amended and Restated Bylaws of the Company.(d)

4--Instruments Defining the Rights of Security Holders:

4.1 Specimen certificate representing shares of Series A Common
Stock of the Company.(d)

4.2 Specimen certificate representing shares of Series B Common
Stock of the Company.(d)

10--Material Contracts

10.1 Amended and Restated Liberty Satellite & Technology, Inc.
1996 Stock Incentive Plan.(d)

10.2 Qualified Employee Stock Purchase Plan of the Company.(c)

10.3 Indemnification Agreement dated December 4, 1996, by and
between TCI and Gary S. Howard.(e)

10.4 Option Agreement, dated as of December 4, 1996, by and
between the Company and Gary S. Howard.(c)

10.5 Option Agreement, dated as of December 4, 1996, by and
between the Company and Larry E, Romrell.(c)

10.6 Option Agreement, dated as of December 4, 1996, by ad
between the Company and David P. Beddow.(c)

10.7 Share Purchase Agreement dated as of December 4, 1996,
between TCI and the Company.(c)

10.8 Option Agreement dated as of December 4, 1996, between TCI
and the Company.(c)

10.9 TCI Satellite Entertainment, Inc. 1997 Nonemployee Director
Plan.(e)

10.10 Asset Purchase Agreement by and among Hughes Electronics
Corporation, PRIMESTAR, Inc., PRIMESTAR Partners L.P., Tempo
Satellite, Inc. and the Stockholders of PRIMESTAR listed
herein, dates as of January 22, 1999.(f)

10.11 Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR
Partners L.P., PRIMESTAR MDU, Inc., the Stockholders of
PRIMESTAR, Inc. listed herein and Hughes Electronics
Corporation dated as of January 22, 1999.(f)

IV-2

10.12 PRIMESTAR Payment Agreement dated as of January 22, 1999
among TCI Satellite Entertainment, Inc., PRIMESTAR, Inc.,
the Funding Parties and Paragon Communications.(g)

21 Subsidiaries of the Registrant.(a)

23.1 Consent of KPMG LLP.(a)

23.2 Consent of KPMG LLP.(a)

- ------------------------

(a) Filed herewith.

(b) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (Commission File No. 0-21317).

(c) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (Commission File No. 0-21317).

(d) Incorporated by reference to the Company's Registration Statement on Form 10
filed with the Securities and Exchange Commission ("SEC") on November 15,
1996 (Registration No. 0-21317).

(e) Incorporated by reference to PRIMESTAR, Inc.'s Registration Statement on
Form S-4 filed with the SEC on February 9, 1998 (Registration No.
333-45835).

(f) Incorporated by reference to the Company's Current Report on Form 8-K, dated
February 1, 1999.

(g) Incorporated by reference to Phoenixstar, Inc.'s Current Report on Form 8-K,
dated May 13, 1999.

(B) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER 31, 2000:

None.

IV-3

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Members
ASTROLINK International LLC:

We have audited the accompanying consolidated balance sheets of ASTROLINK
International LLC and subsidiaries (a development stage limited liability
company) as of December 31, 1999 and 2000, and the related consolidated
statements of operations, members' equity, and cash flows for the period from
January 1, 1999 through April 21, 1999 (Predecessor period), the period from
April 22, 1999 (date of inception) through December 31, 1999, the year ended
December 31, 2000, and for the period from April 22, 1999 (date of inception)
through December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ASTROLINK
International LLC and subsidiaries (a development stage limited liability
company) as of December 31, 1999 and 2000 and the results of their operations
and their cash flows for the period from January 1, 1999 through April 21, 1999
(Predecessor period), the period from April 22, 1999 (date of inception) through
December 31, 1999, the year ended December 31, 2000, and the period from
April 22, 1999 (date of inception) through December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

KPMG LLP

February 23, 2001

IV-4

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-----------------------------
1999 2000
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 28,932,260 45,214,669
Prepaid and other current assets.......................... 706,998 261,821
------------- -------------
Total current assets.................................. 29,639,258 45,476,490
Value added tax receivable................................ 2,948,800 7,627,052
System under construction................................. 330,250,000 792,097,278
Property and equipment, net of accumulated depreciation
and amortization of $211,910 and $847,720 in 1999 and
2000, respectively...................................... 2,132,197 2,157,143
Intangible assets......................................... 17,721,000 17,721,000
------------- -------------
$ 382,691,255 865,078,963
============= =============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 915,632 715,870
Accounts payable to members............................... 9,450,000 23,155,000
Accrued expenses.......................................... 7,685,982 4,949,458
------------- -------------
Total current liabilities............................. 18,051,614 28,820,328
Deferred rent............................................... -- 128,175
------------- -------------
Total liabilities....................................... 18,051,614 28,948,503
------------- -------------
Commitments and contingencies
Members' equity:
Class A units--authorized 135,010,000 units; 135,010,000
units issued and outstanding at December 31, 1999 and
2000.................................................... 1,336,037,500 1,336,037,500
Class B units--authorized 7,466,391 units; no units issued
and outstanding......................................... -- --
Subscriptions receivable.................................. (961,450,000) (465,710,000)
Deficit accumulated during development stage.............. (9,947,859) (34,197,040)
------------- -------------
Total Members' equity................................. 364,639,641 836,130,460
------------- -------------
$ 382,691,255 865,078,963
============= =============

See accompanying notes to consolidated financial statements.

IV-5

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

PREDECESSOR PERIOD FROM PERIOD FROM
------------------------------ APRIL 22, 1999 APRIL 22, 1999
YEAR ENDED PERIOD FROM (INCEPTION) (INCEPTION)
DECEMBER 31, JANUARY 1, 1999 THROUGH YEAR ENDED THROUGH
1998 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) APRIL 21, 1999 1999 2000 2000
------------ --------------- -------------- ------------ --------------

Revenues.................... $ -- -- -- -- --
Expenses:
General and
administrative.......... 11,025,513 2,659,773 11,697,771 31,431,521 43,129,292
Depreciation and
amortization............ -- -- 211,910 635,810 847,720
------------ ---------- ----------- ----------- -----------
Total expenses........ 11,025,513 2,659,773 11,909,681 32,067,331 43,977,012
------------ ---------- ----------- ----------- -----------
Loss from
operations.......... (11,025,513) (2,659,773) (11,909,681) (32,067,331) (43,977,012)
Interest income............. -- -- 1,961,822 7,818,150 9,779,972
------------ ---------- ----------- ----------- -----------
Net loss.............. $(11,025,513) (2,659,773) (9,947,859) (24,249,181) (34,197,040)
============ ========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

IV-6

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY

DEFICIT
ACCUMULATED
CLASS A UNITS CLASS B UNITS DURING TOTAL
---------------------------- ------------------- SUBSCRIPTIONS DEVELOPMENT MEMBERS'
UNITS AMOUNT UNITS AMOUNT RECEIVABLE STAGE EQUITY
----------- -------------- -------- -------- ------------- ----------- -----------

Predecessor:..................... $ $
Balance at January 1, 1998
(unaudited).................... -- -- -- -- -- -- --
Contributions from Lockheed
Martin (unaudited)............. -- 11,025,513 -- -- -- -- 11,025,513
Net loss (unaudited)............. -- -- -- -- -- (11,025,513) (11,025,513)
----------- -------------- ---- ---- ------------ ----------- -----------
Balance at January 1, 1999....... -- 11,025,513 -- -- -- (11,025,513) --
Contributions from Lockheed
Martin......................... -- 2,659,773 -- -- -- -- 2,659,773
Net loss......................... -- -- -- -- -- (2,659,773) (2,659,773)
Balance at April 21, 1999........ -- -- -- -- -- -- --
----------- -------------- ---- ---- ------------ ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------

Balance at April 22, 1999
(inception).................... -- -- -- -- -- -- --
Issuance of Class A Units (July
20, 1999)...................... 92,000,000 920,000,000 -- -- (599,840,000) -- 320,160,000
Issuance of Class A Units
(December 13, 1999)............ 43,010,000 430,100,000 -- -- (361,610,000) -- 68,490,000
Issuance costs of Class A
Units.......................... -- (14,062,500) -- -- -- -- (14,062,500)
Net loss......................... -- -- -- -- -- (9,947,859) (9,947,859)
----------- -------------- ---- ---- ------------ ----------- -----------
Balance at December 31, 1999..... 135,010,000 1,336,037,500 -- -- (961,450,000) (9,947,859) 364,639,641
Payments under subscriptions
receivable..................... -- -- -- -- 495,740,000 -- 495,740,000
Net loss......................... -- -- -- -- -- (24,249,181) (24,249,181)
----------- -------------- ---- ---- ------------ ----------- -----------
Balance at December 31, 2000..... 135,010,000 $1,336,037,500 -- $ -- (465,710,000) (34,197,040) 836,130,460
=========== ============== ==== ==== ============ =========== ===========

See accompanying notes to consolidated financial statements.

IV-7

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

PERIOD FROM
PREDECESSOR APRIL 22, PERIOD FROM
-------------------------------- 1999 APRIL 22, 1999
YEAR ENDED PERIOD FROM (INCEPTION) (INCEPTION)
DECEMBER 31, JANUARY 1, 1999 THROUGH YEAR ENDED THROUGH
1998 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) APRIL 21, 1999 1999 2000 2000
------------- ---------------- ------------ ------------ --------------

Cash flows from operating activities:
Net loss............................ $(11,025,513) (2,659,773) (9,947,859) (24,249,181) (34,197,040)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... -- -- 211,910 635,810 847,720
Write-off of contributed assets... -- -- 225,000 -- 225,000
Changes in assets and liabilities:
Prepaid and other current
assets........................ -- -- (706,998) 445,177 (261,821)
Accounts payable and accrued
liabilities................... -- -- 3,289,114 2,504,389 5,793,503
------------ ---------- ------------ ------------ ------------
Net cash used in operating
activities:................. (11,025,513) (2,659,773) (6,928,833) (20,663,805) (27,592,638)
------------ ---------- ------------ ------------ ------------
Cash flows from investing activities:
Value added tax receivable.......... -- -- (2,948,800) (4,678,252) (7,627,052)
Purchases of property and
equipment......................... -- -- (290,107) (660,756) (950,863)
Additions to system under
construction...................... -- -- (320,800,000) (448,142,278) (768,942,278)
------------ ---------- ------------ ------------ ------------
Net cash used in investing
activities.................. -- -- (324,038,907) (453,481,286) (777,520,193)
------------ ---------- ------------ ------------ ------------
Cash flows from financing activities:
Cash contribution from Lockheed
Martin............................ 11,025,513 2,659,773 -- -- --
Proceeds from the issuance of Class
A units........................... -- -- 368,650,000 495,740,000 864,390,000
Unit issuance costs................. -- -- (8,750,000) (5,312,500) (14,062,500)
------------ ---------- ------------ ------------ ------------
Net cash provided by financing
activities.................. 11,025,513 2,659,773 359,900,000 490,427,500 850,327,500
------------ ---------- ------------ ------------ ------------
Net increase in cash and cash
equivalents................. -- -- 28,932,260 16,282,409 45,214,669
Cash and cash equivalents, beginning
of period........................... -- -- 28,932,260 --
------------ ---------- ------------ ------------ ------------
Cash and cash equivalents, end of
period.............................. $ -- -- 28,932,260 45,214,669 45,214,669
============ ========== ============ ============ ============
Supplemental disclosure of non-cash
investing activities:
Contribution of assets by member.... $ -- -- 20,000,000 -- 20,000,000
============ ========== ============ ============ ============

See accompanying notes to consolidated financial statements.

IV-8

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 2000

(1) NATURE OF BUSINESS

ASTROLINK International LLC (the "Company") was formed on April 22, 1999 in
the State of Delaware as a Limited Liability Company for the purpose of
engaging in one or more telecommunications businesses and all incidental
activities. The Company was formed by Lockheed Martin Corporation ("LMC")
acting through Lockheed Martin Global Telecommunication, Inc. ("LMGT") (a
wholly-owned subsidiary of LMC). The Company's initial Members were LMGT,
TRW Inc. ("TRW"), and Telespazio, S.p.A. ("Telespazio") through Telespazio
Luxembourg, S.A. Liberty Media Group ("LMG"), through LSAT Astro LLC, became
a Member in December 1999. The Company was formed to establish and operate a
worldwide, digital, Ka-band telecommunications system consisting of
geosynchronous satellites and a space and ground control system to provide
worldwide, multimedia, interactive, broadband telecommunications services
(the "ASTROLINK-TM- System").

The Company's development effort involves substantial risks. Future
operating results will be subject to significant business, economic,
regulatory, technological, and competitive uncertainties and contingencies,
including the ability to obtain the necessary licenses and other approvals
to operate the network and provide services. These factors, individually or
in the aggregate, could have an adverse effect on the Company's financial
condition and future operating results. In addition, the Company will
require substantial additional financing before construction of the
ASTROLINK-TM- System is completed. Failure to obtain the required long-term
financing will prevent the Company from realizing its objective of operating
a worldwide, digital, Ka-band telecommunications system. The Company has
historically been dependent on its investors for funding its operations, and
believes it will obtain adequate financing to fund its operations beyond
2001. There are no assurances that such financing will be obtained.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of ASTROLINK
International LLC and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.

Prior to formation on April 22, 1999, the Company operated as a division
of LMC during the year ended December 31, 1998 and the period from
January 1, 1999 through April 21, 1999. These periods are referred to as
the Predecessor period in the accompanying consolidated financial
statements.

(b) DEVELOPMENT STAGE ENTERPRISE

The Company's management is currently devoting substantially all of its
efforts to establishing a worldwide, wireless, broadband
telecommunications system. Accordingly, the Company's consolidated
financial statements are presented as those of a development stage
enterprise, as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 7, ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE
ENTERPRISES.

IV-9

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999 AND 2000

(c) CASH AND CASH EQUIVALENTS

The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1999 and 2000 primarily consist of
investments in U.S. government obligations and bank deposits, and
amounted to approximately $26,800,000 and $42,189,000, respectively.
These investments are stated at cost, which approximated the fair value
due to the highly liquid nature and short maturities of the underlying
securities.

(d) FURNITURE AND EQUIPMENT

Property and equipment, including equipment with an original cost of
$2,054,000 contributed by LMC and LMGT in July 1999, are carried at
historical cost less accumulated depreciation and amortization.
Depreciation and amortization is calculated using the straight-line
method over the following estimated useful lives:

Furniture and fixtures................. 5 years
Machinery, equipment, and computer
hardware and software................ 3 years
Leasehold improvements................. Shorter of estimated
life or remaining
term

(e) SYSTEM UNDER CONSTRUCTION

The Company is in the process of establishing a business of designing,
developing, operating, and providing broadband telecommunications
services via a global Ka-band satellite telecommunications system, and
performing services as an overall system integrator, owner and operator
of that satellite telecommunication system to be known as the
ASTROLINK-TM- System. System under construction includes all costs
incurred related to the construction of the space and ground components
of the ASTROLINK-TM- System. Depreciation expense will be recognized on a
satellite-by-satellite basis as the satellites are placed into service
following delivery of each satellite to its mission orbit. Depreciation
expense related to the ground components will commence with the placement
into service of such components. To date, no satellites have been
launched, nor have the ground components been completed.

(f) INTANGIBLE ASSETS

Intangible assets represent the contracts, agreements, and licenses
related to the space component of the ASTROLINK-TM- System which were
contributed by LMGT in partial consideration for its Class A units. These
intangible assets will be amortized on a straight--line basis over seven
years, commencing with the placement of the satellites into service.

(g) INCOME TAXES

As a limited liability company, the Company is not subject to U.S.
federal income taxes directly. Rather, each holder of Class A units
("Members") is subject to U.S. federal income taxation based on its
ratable portion of the Company's income or loss.

IV-10

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999 AND 2000

(h) UNIT-BASED COMPENSATION

The Company accounts for employee unit-based compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and complies
with the disclosure provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. The Company's options granted are for units to
acquire non-voting Class B units and are convertible into any class of
securities that become registered during an initial public offering. The
Company accounts for its option plan using variable plan accounting
applicable to junior option plans. Under APB Opinion No. 25, compensation
expense for variable plan accounting applicable to junior option plans is
based upon the difference, if any, between the exercise price and the
fair value of the Company's units at the end of the reporting period when
it becomes probable that the conversion of the non-voting units to the
voting units will occur. As the Company believes the fair value of its
units at December 31, 2000 is equal to the exercise prices of all unit
options granted during 2000, no compensation expense has been recognized
in the accompanying consolidated financial statements for the year ended
December 31, 2000.

(i) MANAGEMENT ESTIMATES

The preparation of the Company's 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 and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from
those estimates.

(j) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires
that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured as the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

(k) OTHER COMPREHENSIVE INCOME (LOSS)

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in the
consolidated financial statements. The Company has no amounts associated
with the components of other comprehensive income (loss) in the
accompanying consolidated financial statements.

IV-11

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999 AND 2000

(l) NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Company must adopt the provisions
of SFAS No. 133, as amended, effective January 1, 2001. The adoption of
SFAS No. 133 is not expected to have a material impact on the Company's
financial position or results of operations.

(m) UNAUDITED FINANCIAL INFORMATION

The accompanying consolidated financial statements as of and for the year
ended December 31, 1998 are unaudited, and in the opinion of management,
reflect all adjustments necessary for a fair presentation of the results
of operations and cash flows as of and for the year ended December 31,
1998.

(3) INVESTMENTS

On July 20, 1999, LMGT purchased 42,000,000 Class A units for an aggregate
purchase price of $420,000,000. In 1999, LMGT contributed $133,400,000 in
cash, approximately $2,300,000 of property and equipment, and approximately
$17,700,000 of intangible assets. During 2000, LMGT paid $126,850,000 in
cash in accordance with this commitment. The remaining purchase price of
$139,750,000 is payable to the Company at various dates through July 2001.

Also on July 20, 1999, TRW and Telespazio each purchased 25,000,000 Class A
units for a purchase price of $250,000,000. Each paid $83,380,000 of the
purchase price on July 20, 1999. TRW subscribed to purchase an additional
510,000 Class A units on December 13, 1999 for a purchase price of
$5,100,000. During 2000, TRW paid $81,590,000 and Telespazio paid
$79,280,000 of their respective commitments. The remaining purchase prices
of $90,130,000 and $87,340,000, respectively, are payable to the Company at
various dates through July 2001.

On December 31, 1999, LMG purchased 42,500,000 Class A units for an
aggregate purchase price of $425,000,000. In 1999 and 2000, LMG contributed
$68,490,000 and $208,020,000, respectively, with the remaining purchase
price of $148,490,000 payable to the Company at various dates through
July 2001.

(4) TRANSACTIONS AND COMMITMENTS WITH MEMBERS

(a) SATELLITE PURCHASE AND LAUNCH SERVICES CONTRACTS WITH MEMBERS

During 1999 and 2000, the Company entered into a series of agreements
with a Member and certain of its affiliates for the procurement of four
satellites, launch services, and a satellite control facility with
related services, training and documentation. The total aggregate
commitment under the agreements is approximately $1,826,235,000. The
amounts are due partly in monthly payments and partly upon the completion
of certain milestones. During the period from April 22, 1999 through
December 31, 1999, and the year ended December 31, 2000, the Company paid
approximately $264,800,000 and $348,521,000, respectively, to the Member
under the terms of the agreements. At December 31, 1999 and 2000,
$8,750,000 and $21,370,000 was payable to the Member.

IV-12

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999 AND 2000

(b) GROUND SEGMENT AND TELEMETRY, TRACKING AND COMMAND PRODUCTS AND SERVICES
CONTRACT

On April 29, 1999, the Company entered into two agreements with a Member
for obtaining certain satellite ground segment and telemetry, tracking
and command products and services. The total aggregate commitment under
these agreements, as amended, is approximately $511,500,000. This amount
is due upon the completion of certain milestones. During the period from
April 22, 1999 through December 31, 1999, and the year ended
December 31, 2000, the Company paid approximately $51,300,000 and
$81,400,000, respectively, to the Member under the terms of the
agreements. At December 31, 2000, approximately $375,000 was payable to
the Member.

(c) SATELLITE APPLICATIONS INTERFACE AGREEMENT

During 1999 and 2000, the Company entered into agreements with a Member
for obtaining a satellite applications interface and payload emulators.
The total commitment under the agreements is approximately $34,525,000,
with an option to purchase up to $1,525,000 in additional support
services. The amounts are due upon the completion of certain milestones
or the delivery of optional support services. During the period from
April 22, 1999 through December 31, 1999, and the year ended
December 31, 2000, the Company paid approximately $4,700,000 and
$18,220,000, respectively, to the Member under the terms of the
agreements. At December 31, 1999 and 2000, approximately $700,000 and
$1,410,000 was payable to the Member.

(5) PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 1999 and
2000:

1999 2000
---------- ---------

Computer hardware and software........................ $ 224,465 536,766
Furniture and fixtures................................ 1,151,070 1,429,418
Machinery and equipment............................... 394,000 432,159
Leasehold improvements................................ 574,572 606,520
---------- ---------
2,344,107 3,004,863
Less accumulated depreciation and amortization........ (211,910) (847,720)
---------- ---------
$2,132,197 2,157,143
========== =========

(6) EMPLOYEE BENEFIT PLAN

On July 20, 1999, the Company adopted a profit sharing and savings plan (the
"Plan") under Section 401(k) of the Internal Revenue Code. This Plan allows
eligible employees to defer up to 20 percent of their annual compensation,
subject to IRS rules and applicable limits to the Plan. During the period
from April 22, 1999 through December 31, 1999, and the year ended
December 31, 2000, the Company contributed four percent of each employee's
annual compensation to the Plan, which amounted to approximately $124,000
and $345,000, respectively.

IV-13

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999 AND 2000

(7) LEASES

The Company has noncancelable operating leases for office space and
equipment that expire on various dates through 2005. The future minimum
lease payments under these leases as of December 31, 2000 are as follows:

YEAR ENDING DECEMBER 31,

2001.................................................... $1,417,064
2002.................................................... 1,445,084
2003.................................................... 1,380,017
2004.................................................... 1,421,680
2005.................................................... 728,611
----------
$6,392,456
==========

Rent expense for the period from April 22, 1999 through December 31, 1999
and for the year ended December 31, 2000, was approximately $255,000 and
$1,545,000, respectively.

(8) UNIT OPTIONS

The Company has a unit option plan which provides for the granting of
options to employees of the Company to purchase Class B units. The Class B
units are non-voting and are convertible into any class of securities that
become registered during an initial public offering. The options vest over a
five-year period and expire ten years after the date of grant. As of
December 31, 2000, the Company had reserved 7,466,391 units for issuance
under the plan.

The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee unit options rather than the alternative fair
value accounting method allowed by SFAS No. 123. APB No. 25 provides that
compensation expense under variable plan accounting applicable to junior
option plans is based upon the difference, if any, between the exercise
price and the fair value of the Company's units when it becomes probable
that the conversion of the non-voting units to the voting class will occur.
SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123. The following table summarizes unit option activity:

CLASS B PRICE
UNITS PER UNIT
--------- --------

Balance at December 31, 1999............................. -- $ --
Granted.................................................. 3,932,000 10.00
Exercised................................................ -- 10.00
Forfeited................................................ (419,000) 10.00
--------- ------
Balance at December 31, 2000............................. 3,513,000 $10.00
========= ======

There were 239,100 options exercisable at December 31, 2000. There were
7,466,391 units reserved for issuance as of December 31, 2000. The weighted
average exercise price of unit options granted during the year ended
December 31, 2000 was $10.00. The weighted average remaining contractual
life of the Company's unit options was approximately 9.5 years at
December 31, 2000.

IV-14

ASTROLINK INTERNATIONAL LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999 AND 2000

Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee unit
options under the fair value method. The weighted average fair value of unit
options granted during 2000 was $2.56 per share using the Black-Scholes
option pricing model, with the following assumptions: expected dividend
yield 0 percent, volatility 0 percent, average risk free interest rate
6.01 percent, and expected life of five years. For purposes of pro forma
disclosures, the estimated fair value of the unit options is amortized to
expense over the unit options' vesting period. Had compensation expense for
the unit options granted to employees been determined based on the fair
value of the related unit options at the grant dates in accordance with SFAS
No. 123, the Company's net loss for the year ended December 31, 2000 would
have increased by the pro forma amount indicated below:

Net loss, as reported....................................... $24,249,181
Net loss, pro forma......................................... $25,678,088

(9) COMMITMENTS

During 2000, the Company entered into agreements with a contractor for
end-user terminals and service provider gateway terminals. The total
aggregate commitment and potential liability for failure to purchase minimum
quantities under the agreements is approximately $87,300,000. This amount is
due upon the completion of certain milestones. During the period from
October 20, 2000 through the year ended December 31, 2000, the Company paid
approximately $1,500,000 to the contractor under the terms of the
agreements. At December 31, 2000, approximately $1,000,000 was payable to
the contractor.

(10) SUBSEQUENT EVENTS

On January 5, 2001, the Company's Members contributed an aggregate
additional $286,770,000 in accordance with the subscription agreements for
the purchase of Class A units previously committed to be purchased.

IV-15

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated March 30, 2001 By: /s/ CARL E. VOGEL
-----------------------------------------
Name: Carl E. Vogel
Title: Chief Executive Officer and
President

Pursuant to the Securities Exchange Act of 1934, this report has been signed
by the following persons on behalf of the Registrant and in the capacities and
on the date indicated:

SIGNATURE TITLE DATE
--------- ----- ----

/s/ GARY S. HOWARD
------------------------------------------- Chairman of the Board and March 30, 2001
Gary S. Howard Director

/s/ CARL E. VOGEL
------------------------------------------- Director, Chief Executive March 30, 2001
Carl E. Vogel Officer and President

/s/ ALAN M. ANGELICH
------------------------------------------- Director March 30, 2001
Alan M. Angelich

/s/ ROBERT R. BENNETT
------------------------------------------- Director March 30, 2001
Robert R. Bennett

/s/ WILLIAM H. BERKMAN
------------------------------------------- Director March 30, 2001
William H. Berkman

/s/ JOHN W. GODDARD
------------------------------------------- Director March 30, 2001
John W. Goddard

/s/ J. CURT HOCKEMEIER
------------------------------------------- Director March 30, 2001
J. Curt Hockemeier

IV-16

SIGNATURE TITLE DATE
--------- ----- ----

Senior Vice President, Chief
/s/ KENNETH G. CARROLL Financial Officer and
------------------------------------------- Treasurer (Principal March 30, 2001
Kenneth G. Carroll Financial Officer)

/s/ MARK E. BURTON
------------------------------------------- Vice President (Chief March 30, 2001
Mark E. Burton Accounting Officer)

IV-17