LIBERTY SATELLITE & TECHNOLOGY INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-21317

LIBERTY SATELLITE & TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)

STATE OF DELAWARE 84-1299995
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

12300 LIBERTY BOULEVARD
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (720) 875-5400

Indicate by check mark whether the Registrant is an accelerated filer as
described in Rule 12(b)-2 of the Securities Exchange Act. Yes / / No /X/

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 / /

The number of shares outstanding of Liberty Satellite & Technology, Inc.'s
common stock as of April 30, 2003 was:

Series A common stock--14,278,206 shares; and
Series B common stock--34,765,055 shares.

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(continued)

I-1

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

CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-2

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-3

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-4

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

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

THREE MONTHS ENDED MARCH 31, 2003

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-5

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-6

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003

(UNAUDITED)

(1) BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the
accounts of Liberty Satellite & Technology, Inc. and those of all majority-owned
or controlled subsidiaries ("LSAT" and together with its consolidated
subsidiaries, the "Company"). All significant inter-company transactions have
been eliminated.

LSAT is a consolidated subsidiary of Liberty Media Corporation ("Liberty
Media"). At March 31, 2003, Liberty Media owned approximately 87% of LSAT's
outstanding common stock, which, when considered with LSAT redeemable preferred
stock owned by Liberty Media, represented approximately 98% of LSAT's
outstanding voting power. The Company's primary operating subsidiary is On
Command Corporation ("On Command"), which provides in-room, on-demand video
entertainment and informational services to hotels, motels and resorts. At
March 31, 2003, LSAT, indirectly controlled approximately 74% of the outstanding
On Command common stock ("On Command Common Stock") and 100% of certain series
of On Command's preferred stock, which ownership interests collectively
represented approximately 80% of On Command's outstanding voting power.

In addition to LSAT's indirect interests in On Command and in various
investments, the Company is currently pursuing strategic opportunities worldwide
in the distribution of Internet and other content via satellite and related
businesses.

These interim condensed consolidated financial statements are unaudited. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) have been made that are necessary to present fairly the financial
position of the Company as of March 31, 2003 and the results of its operations
for the three months ended March 31, 2003 and 2002. The results of operations
for any interim period are not necessarily indicative of the results for the
entire year. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes thereto
included in the Company's December 31, 2002 Annual Report on Form 10-K.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.

Certain prior period amounts have been reclassified for comparability with
the 2003 presentation.

(2) TRANSACTIONS WITH LIBERTY MEDIA AND OTHER RELATED PARTIES

PROPOSALS BY LIBERTY MEDIA TO ACQUIRE LSAT AND ON COMMAND PUBLICLY-HELD
STOCK

On April 1, 2003, the Company announced that it received an expression of
interest from Liberty Media regarding the possibility of Liberty Media acquiring
all the issued and outstanding shares of LSAT that Liberty Media does not
already own. As proposed by Liberty Media, LSAT stockholders would receive
0.2131 of a share of Liberty Media Series A common stock for each share of LSAT
common stock held. The transaction would be taxable to LSAT stockholders.

I-7

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

LSAT's Board of Directors has established a committee of independent
directors to consider the proposal from Liberty Media. The committee has engaged
independent legal counsel and financial advisors, and has authority, among other
things, to review and evaluate the terms and conditions of the proposed
transaction, to determine whether the proposed transaction is in the best
interests of the Company and its public stockholders, to negotiate with Liberty
Media, and to accept, reject or seek to modify the proposed transaction. Any
transaction between LSAT and Liberty Media would be subject to negotiation,
execution and delivery of definitive documentation relating thereto and any
closing conditions provided for in such documentation.

On April 2, 2003, On Command announced that it had received an expression of
interest from Liberty Media regarding the possibility of Liberty Media acquiring
all the issued and outstanding shares of On Command that Liberty Media (through
its subsidiaries) does not already own. As proposed by Liberty Media, On Command
stockholders would receive 0.0787 of a share of Liberty Media Series A common
stock for each share of On Command Common Stock held. The transaction would be
taxable to On Command stockholders.

On Command's Board of Directors has established a committee of independent
directors to consider the proposal from Liberty Media. The committee has engaged
independent legal counsel and financial advisors, and has authority, among other
things, to review and evaluate the terms and conditions of the proposed
transaction, to determine whether the proposed transaction is in the best
interests of On Command and its public stockholders, to negotiate with Liberty
Media, and to accept, reject or seek to modify the proposed transaction. Any
transaction between On Command and Liberty Media would be subject to
negotiation, execution and delivery of definitive documentation relating thereto
and any closing conditions provided for in such documentation.

TRANSACTIONS WITH LIBERTY MEDIA AND AFFILIATES

NOTE PAYABLE. On March 26, 2003, LSAT used a portion of the proceeds from
the delivery of 2,500,000 shares of Sprint Corporation PCS Group common stock
and the termination of a related equity collar to repay a note payable to
Liberty Media with a principal balance of $48,411,000 and an accrued interest
balance of $115,000.

TAX LIABILITY ALLOCATION AND INDEMNIFICATION AGREEMENT. LSAT and Liberty
Media have entered into a tax liability allocation and indemnification agreement
whereby LSAT is obligated to make a cash payment to Liberty Media in each year
that LSAT (taken together with any of its subsidiaries) has taxable income. The
amount of the payment will be equal to the amount of the taxable income of LSAT
and its subsidiaries (determined as if LSAT and its subsidiaries filed a
separate return) multiplied by the highest applicable corporate tax rate. In the
event that (1) LSAT and its subsidiaries, when treated as a separate group, has
a net operating loss or deduction or is entitled to a tax credit for a
particular year; and (2) Liberty Media is able to use such loss, deduction or
credit to reduce its tax liability, LSAT will be entitled to a credit against
current and future payments to Liberty Media under the agreement. If LSAT
disaffiliates itself with Liberty Media and the members of Liberty Media's
affiliated group prior to the time that LSAT is able to use such credit, LSAT
will be entitled to a payment from Liberty Media at the earlier of the time that
(1) LSAT and its subsidiaries show they could have used the net operating loss
or net tax credit to reduce their own separately computed tax

I-8

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

liability or (2) the voting power of the stock of LSAT held by Liberty Media and
the members of its affiliated group drops below 20%.

In addition, under the tax liability allocation and indemnification
agreement, LSAT will have the opportunity to participate in the defense of
claims of the Internal Revenue Service that might affect its liability under the
agreement, and to participate in tax refunds paid to Liberty Media where such
refunds are due in part to LSAT's operations. Through March 31, 2003, the
Company has recorded a $2,956,000 intercompany receivable from Liberty Media
pursuant to this agreement.

At March 31, 2003, Ascent Entertainment, Inc., a wholly-owned subsidiary of
LSAT, ("Ascent Entertainment") owed Liberty Media $8,409,000 pursuant to a
separate tax liability allocation and indemnification agreement. Such amount,
which is non-interest bearing, represents the net effect of $36,568,000 that is
due on demand to Liberty Media and $28,159,000 that is payable to the Company by
Liberty Media if, and to the extent that, tax benefits generated by Ascent
Entertainment are utilized to reduce Liberty Media's taxable income.

EXPENSE ALLOCATIONS AND REIMBURSEMENTS. Liberty Media allocates rent,
salaries, benefits and certain other general and administrative expenses to the
Company. Although there is no written agreement with Liberty Media for these
allocations, the Company believes the allocated amounts to be reasonable. The
aggregate allocations from Liberty Media were $113,000 during each of the three
month periods ended March 31, 2003 and 2002. In addition, the Company reimburses
Liberty Media for certain expenses paid by Liberty Media on behalf of the
Company. Amounts owed to Liberty Media pursuant to these arrangements ($833,000
at March 31, 2003) are non-interest bearing and are generally paid on a monthly
basis.

PUT OPTION LIABILITY. Effective September 29, 2000, Liberty Satellite LLC
("LSAT LLC"), a subsidiary of LSAT, acquired a 1% managing common interest in a
joint venture ("IB2 LLC") from a subsidiary of Liberty Digital, Inc. ("Liberty
Digital") for $652,000. Liberty Digital, an indirect wholly-owned subsidiary of
Liberty Media, retained a preferred interest (the "Preferred Interest") in IB2
LLC, which owns approximately 360,000 shares of iBEAM Broadcasting Corp.
("iBEAM") common stock ("iBEAM Stock"). The Preferred Interest had 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 Liberty Digital the right
to put the Preferred Interest to LSAT LLC for a purchase price equal to
$26,000,000 (the value of iBEAM Stock on September 29, 2000) plus a 9% return,
compounded annually (the "iBEAM Put Option"). LSAT LLC has the right to call
Liberty Digital's Preferred Interest at a price equal to the initial liquidation
value plus a return of 9%, compounded annually. Both the iBEAM Put Option and
call option are exercisable on September 29, 2008. Under certain limited
circumstances, including iBEAM's bankruptcy, LSAT LLC can force Liberty Digital
to exercise the iBEAM Put Option prior to September 29, 2008.

During the fourth quarter of 2001, iBEAM filed for bankruptcy under Chapter
11 of the Bankruptcy Code. As a result of such bankruptcy filing, the Company
began carrying the iBEAM Put Option liability at an amount ($31,735,000 at
March 31, 2003), which represents the iBEAM Put Option purchase price to LSAT
LLC plus an accrued return to Liberty Digital of 9%, compounded annually. The
Company anticipates that future losses with respect to the iBEAM Put Option will
be limited to Liberty Digital's 9% return on the iBEAM Put Option liability.

I-9

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

Changes in the fair market value of the iBEAM Put Option subsequent to
September 29, 2000 have been recognized as unrealized gains (losses) on
financial instruments in the Company's condensed consolidated statements of
operations. During the three months ended March 31, 2003 and 2002, the Company
recorded unrealized losses of $683,000 and $627,000, respectively, related to
the iBEAM Put Option.

ASCENT MEDIA SATELLITE SERVICES. In 2002, On Command entered into a
short-term agreement with Ascent Media Group, Inc., a consolidated subsidiary of
Liberty Media, ("Ascent Media") pursuant to which Ascent Media supplied On
Command with uplink and satellite transport services at a cost of $180,000
through March 31, 2003. On March 24, 2003, the parties executed a Content
Preparation and Distribution Services Agreement that will provide for uplink and
satellite transport services for a monthly fee of $36,000, subject to
adjustment, for a period of five years, beginning on April 1, 2003. This
agreement also provides for Ascent Media to supply On Command with content
preparation services at a negotiated rate for a period of five years at On
Command's request. On Command also entered into an agreement dated April 1, 2003
with a wholly-owned subsidiary of Ascent Media for the installation by such
subsidiary of satellite equipment at On Command's downlink sites at hotels for a
fee of $500 per installation completed.

TRANSACTIONS WITH OTHER RELATED PARTIES

PHOENIXSTAR MANAGEMENT AGREEMENT. Effective February 1, 2000, the Company
entered into a management agreement with Phoenixstar, Inc. ("Phoenixstar")
pursuant to which the Company is managing Phoenixstar's affairs in exchange for
a monthly management fee. Prior to 1999, the Company beneficially owned 37% of
Phoenixstar's outstanding shares. In connection with certain transactions that
closed in 1999, 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 equity, and to transfer its shares in Phoenixstar to
the other Phoenixstar stockholders. Management fees from Phoenixstar aggregated
$105,000 for each of the three-month periods ended March 31, 2003 and 2002. In
addition, the Company allocates certain general and administrative expenses,
such as office rent and computer support to Phoenixstar. Under the current
management agreement, expense allocations are limited to $5,000 per month. Such
allocations aggregated $15,000 during each of the three-month periods ended
March 31, 2003 and 2002, and are reflected as a reduction of general and
administrative expenses in the accompanying condensed consolidated statements of
operations.

(3) LOSS PER COMMON SHARE

The loss per common share for the three months ended March 31, 2003 and 2002
is based on 48,235,000 and 41,522,000 weighted average shares outstanding,
respectively. Potential common shares were not included in the computation of
diluted loss per share because their inclusion would have been anti-dilutive. At
March 31, 2003, the number of potential common shares was approximately
2,170,000. Such potential common shares consist of stock options to acquire
shares of LSAT Series A common stock ("Series A Common Stock") and securities
that are convertible into 1,696,717 shares of LSAT Series B common stock
("Series B Common Stock') at March 31, 2003. The foregoing potential

I-10

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

common share amounts do not take into account the assumed number of shares that
may be repurchased by the Company upon the exercise of stock options.

(4) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash paid for interest was $4,643,000 and $4,782,000 for the three months
ended March 31, 2003 and 2002, respectively. Cash paid for income taxes was not
significant during these periods.

(5) INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES AND OTHER COST INVESTMENTS

Investments in available-for-sale securities and other cost investments are
summarized as follows:

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

SPRINT PCS GROUP

The Company accounted for its investment in Sprint Corporation PCS Group
common stock ("Sprint PCS Stock") as an available-for-sale security. On
March 26, 2003, the Company delivered 2,500,000 shares of Sprint PCS Stock upon
settlement of a portion of the Sprint PCS Stock equity collar. The Company
received cash proceeds of $149,263,000 upon such settlement. Subsequent to
March 31, 2003, the Company delivered all of its remaining 2,584,745 shares of
Sprint PCS Stock as settlement for the remaining amount due to the Company
pursuant to the Sprint PCS Stock equity collar and received cash proceeds of
$154,323,000.

XMSR

LSAT LLC currently owns 1,000,000 shares or approximately 1% of the
outstanding XMSR Class A common stock.

On June 27, 2001, LSAT LLC entered into an agreement to lend 1,000,000
shares of XMSR to a third party. The obligation of such third party to return
those shares to LSAT LLC is secured by cash collateral equal to 100% of the
market value of that stock, which was $5,890,000 at March 31, 2003. Such cash
collateral is reported as restricted cash in the accompanying condensed
consolidated balance sheet. During the period of the loan, which is terminable
by either party at any time, the cash collateral

I-11

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

is to be marked-to-market daily. Interest accrues on the cash collateral for the
benefit of LSAT LLC at the rate of 0.15% per annum. As of March 31, 2003,
1,000,000 shares of XMSR had been lent under this agreement. The loan has no
stated maturity date.

OTHER

Information concerning certain of the Company's other investments is set
forth below.

In December 2002, the Company announced that it had agreed to increase its
investment in WildBlue Communications, Inc. ("WildBlue"). At March 31, 2003, the
Company had an approximate 16% ownership interest in WildBlue. On April 21,
2003, and pursuant to the terms of the new agreement, the Company invested
$58 million in return for senior preferred stock and warrants of WildBlue. As
also agreed, other existing and new investors invested $98 million in WildBlue
for a total new investment of $156 million. Upon closing of the transaction the
Company became the largest shareholder of WildBlue with an ownership interest of
approximately 32% and a voting interest of approximately 37%. As a result of
this transaction, the Company will begin using the equity method to account for
its investment in WildBlue. Previously, the Company had carried such investment
at cost, subject to other-than-temporary impairment. WildBlue currently expects
to launch its satellite in the first half of 2004 and begin providing broadband
data services in the third or fourth quarter of 2004.

In connection with the aforementioned additional investment in WildBlue, the
Company entered into a put agreement with KPCB Holdings, Inc. ("KPCB") another
investor in WildBlue. Pursuant to this put agreement, KPCB has the right to put
its interest in WildBlue to the Company and another investor in WildBlue for
$10,000,000, the amount KPCB invested in WildBlue at the closing of the WildBlue
transaction. The Company and such other investor are each responsible for
$5,000,000 of the aggregate $10,000,000 put obligation. The put may be exercised
at any time within four years from the closing of the WildBlue transaction.

In connection with a first quarter 2001 acquisition of a 7.5% interest in
e-ROOM CORPORATION ("e-ROOM") and the settlement of certain litigation, On
Command agreed that e-ROOM would have the option during the 15 day period
beginning on March 1, 2003 to cause On Command to repurchase all, but not less
than all, of the 275,000 shares of On Command Common Stock issued to e-ROOM at a
price of $15 per share. During the fourth quarter of 2002, On Command
repurchased 119,500 of such shares for an aggregate price of $1,344,000 or
$11.25 per share. In connection with this transaction, the parties agreed to
postpone until March 1, 2004 the date on which On Command can be required to
repurchase 119,500 of the remaining shares subject to repurchase. On Command is
not precluded from repurchasing such shares at an earlier date. The repurchase
price for such shares will be $15 per share, plus an adjustment factor
calculated from March 1, 2003 to the date of repurchase, at a rate of 8% per
annum. On March 1, 2003, the date on which the remaining 36,000 shares will
first become subject to repurchase by On Command was postponed until March 1,
2004. The repurchase price for such shares will remain at $15 per share.

I-12

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

Investments in available-for-sale securities are summarized below. The
unrealized holding gains and losses are in addition to the unrealized gains and
losses recognized in the condensed consolidated statements of operations.

(6) DERIVATIVE INSTRUMENTS

The estimated fair values of the Company's derivative instruments are as
follows:

The trust holding the Sprint PCS Stock for LSAT's benefit entered into an
equity collar with a financial institution with respect to LSAT's 5,084,745
shares of Sprint PCS Stock. The collar provided the trust with a put option that
gave it the right to require its counterparty to buy 5,084,745 shares of Sprint
PCS Stock from the trust in seven tranches 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 for a
weighted average price of $82.39 per share. On March 26, 2003, the Company
delivered 2,500,000 shares of Sprint PCS Stock as settlement for a portion of
the Sprint PCS Stock equity collar and received cash proceeds of $149,263,000.
Subsequent to March 31, 2003, the Company delivered all of its remaining
2,584,745 shares of Sprint PCS Stock as settlement for the remaining amount due
to the Company under the Sprint PCS Stock equity collar and received cash
proceeds of $154,323,000.

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

I-13

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

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.

LSAT LLC has entered into an equity collar with a financial institution with
respect to its 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.

Prior to January 1, 2003, the Company's equity collars were designated as
fair value hedges. Effective December 31, 2002, the Company elected to no longer
designate its equity collars as fair value hedges. Such election had no effect
on the Company's financial position or results of operations on December 31,
2002. Subsequent to December 31, 2002, changes in the fair value of the
Company's available-for-sale securities that previously had been reported in
earnings due to the designation of equity collars as fair value hedges will be
reported as a component of other comprehensive earnings on the Company's
condensed consolidated balance sheet. Changes in the fair value of the equity
collars will continue to be reported in earnings.

Realized and unrealized gains (losses) on financial instruments during the
three months ended March 31, 2003 and 2002 aggregated ($1,976,000) and
($7,316,000), respectively. The details of such amounts are as follows:

I-14

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(7) DEBT

Debt is summarized as follows:

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(a) On Command's revolving credit facility, as amended, (the "On Command
Revolving Credit Facility") provided for aggregate borrowings of
$275,000,000 at March 31, 2003. Borrowings under the On Command Revolving
Credit Facility are due and payable in July 2004. On Command had $9,367,000
of remaining availability under the On Command Revolving Credit Facility at
March 31, 2003. On Command's ability to draw additional funds under the On
Command Revolving Credit Facility is subject to On Command's continued
compliance with applicable financial covenants.

Revolving loans extended under the On Command Revolving Credit Facility bear
interest at the London Interbank Offered Rate ("LIBOR") plus a spread that
may range from 1.10% to 2.75% depending on certain operating ratios of On
Command (3.82% effective borrowing rate at March 31, 2003). In addition, a
facility fee ranging from 0.15% to 0.50% per annum is charged on the On
Command Revolving Credit Facility, depending on certain operating ratios of
On Command. The On Command Revolving Credit Facility contains customary
covenants and agreements, most notably the inclusion of restrictions on On
Command's ability to pay dividends or make other distributions, and
restrictions on On Command's ability to make capital expenditures. In
addition, On Command is required to maintain leverage and interest coverage
ratios. On Command was in compliance with such covenants at March 31, 2003.
Substantially all of On Command's assets are pledged as collateral for
borrowings under the On Command Revolving Credit Facility.

On March 28, 2003, On Command and its bank lenders amended the On Command
Revolving Credit Facility to postpone until June 30, 2003 the step down of
the leverage ratio covenant of the On Command Revolving Credit Facility from
4.25 to 3.50. Accordingly, the maximum leverage ratio permitted under the On
Command Revolving Credit Facility at March 31, 2003 was 4.25, and On
Command's actual leverage ratio was 4.00 as of such date. On April 17, 2003,
On Command and its bank lenders executed an Amended and Restated Credit
Agreement. The closing of the Amended and Restated Credit Agreement is
contingent upon the contribution of $40,000,000 by Liberty Media to On
Command to be used to repay principal due, and permanently reduce lender
commitments, pursuant to the Amended and Restated Credit Agreement. However,
Liberty Media has no obligation to make any contribution to On Command, and
there can be no assurance that

I-15

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

any such contribution will be made. The terms of any potential Liberty Media
contribution (including the securities or other consideration to be received
by Liberty Media in exchange for such contribution) have not yet been agreed
upon. After the proposed reduction of lender commitments, the Amended and
Restated Credit Agreement would constitute a $235,000,000 senior secured
credit facility, consisting of a $50,000,000 revolving credit facility and a
$185,000,000 term loan facility. The term loan would be subject to scheduled
amortizations commencing September 30, 2003, and both amended and restated
facilities would mature on December 31, 2007.

Although On Command is in compliance with the leverage ratio covenant of its
existing On Command Revolving Credit Facility at March 31, 2003, On Command
believes that it will be out of compliance with such covenant at June 30,
2003 if the closing of the Amended and Restated Credit Agreement does not
occur by that date. If the Amended and Restated Credit Agreement has not
closed by June 30, 2003, On Command anticipates that it will request a
further amendment to its existing On Command Revolving Credit Facility to
postpone the step down of the leverage ratio covenant. It is uncertain if On
Command's lenders would agree to such a further amendment and what terms
might be imposed by the lenders in connection with such further amendment.
In the event that the closing of the Amended and Restated Credit Agreement
does not occur by the date that the leverage ratio is reduced to 3.50, On
Command anticipates that a default would occur under the On Command
Revolving Credit Facility. Upon the occurrence of a default, if left
uncured, the bank lenders would have various remedies, including terminating
their revolving loan commitment, declaring all outstanding loan amounts
including interest immediately due and payable, and exercising their rights
against their collateral, which consists of substantially all On Command's
assets. No assurance can be given that the Amended and Restated Credit
Agreement will close. In addition, if the Amended and Restated Credit
Agreement does not close, no assurance can be given that On Command will be
able to successfully restructure or refinance its existing On Command
Revolving Credit Facility on terms acceptable to On Command, or that On
Command will be able to avoid a default under its existing On Command
Revolving Credit Facility. In light of the uncertainties with respect to the
On Command Revolving Credit Facility, On Command's independent auditors
included an explanatory paragraph in their audit report on the December 31,
2002 consolidated financial statements of On Command stating in part that
"On Command is seeking to restructure the debt facility and such
restructuring is contingent on certain events, which raises substantial
doubt about On Command's ability to continue as a going concern."

(b) LSAT LLC's revolving credit facility, as amended, provided for maximum
borrowings of $303,000,000 (the "PCS Loan Facility"). The PCS Loan Facility
was secured by LSAT LLC's interest in shares of Sprint PCS Stock and the
Sprint PCS Stock equity collar. Interest accrued at the 30 day LIBOR (1.33%
at March 31, 2003) and was payable monthly. Subsequent to March 31, 2003,
the Company settled the remaining portion of the Sprint PCS Stock equity
collar by delivering all of its remaining 2,584,745 shares of Sprint PCS
Stock to the counterparty. The Company used $114,651,000 of the proceeds
received from such settlement to repay all principal and accrued interest
due under the PCS Loan Facility. In connection with such repayment, the PCS
Loan Facility was canceled.

I-16

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

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. Due to its variable rate
nature, the fair value of the Company's debt approximated its carrying value at
March 31, 2003.

(8) STOCK COMPENSATION

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, ("APB Opinion No. 25") and related interpretations, to
account for its fixed plan stock options. Under this method, compensation
expense for stock options or awards that are fixed generally is required to be
recognized over the vesting period only if the current market price of the
underlying stock exceeds the exercise price on the date of grant. Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
("Statement 123") established accounting and disclosure requirements using a
fair value-based method of accounting for stock-based employee compensation
plans. As allowed by Statement 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting prescribed by APB Opinion
No. 25, and has adopted the disclosure requirements of Statement 123, as amended
by Statement of Financial Accounting Standards No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION--TRANSITION AND DISCLOSURE--AN AMENDMENT OF FASB
STATEMENT NO. 123. The following table illustrates the effects on net loss and
loss per share if the Company had applied the fair value recognition provisions
of Statement 123 to stock-based employee compensation (amounts in thousands
except per share amounts).

(9) SIGNIFICANT CUSTOMERS

During the three months ended March 31, 2003, hotels owned, managed or
franchised by Marriott International, Inc. ("Marriott"), Hilton Hotels
Corporation ("Hilton"), Six Continents Hotels, Inc. ("Six Continents"), Hyatt
Hotel Corporation ("Hyatt"), and Starwood Hotels and Resorts Worldwide, Inc.
("Starwood") accounted for 32%, 15%, 11%, 7% and 7%, respectively, of On
Command's total net room revenue. Accordingly, hotels owned, managed or
franchised by On Command's five largest hotel chain customers accounted for 72%
of On Command's total net room revenue during the three months

I-17

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

ended March 31, 2003. The loss of any of these hotel chain customers, or the
loss of a significant number of other hotel chain customers, could have a
material adverse effect on On Command's results of operations and financial
condition.

On March 21, 2001, On Command and Marriott entered into a definitive master
agreement pursuant to which On Command distributes its services in hotel rooms
owned or managed by Marriott. In addition, On Command has the opportunity to
enter into agreements to provide its services to additional hotel rooms
franchised by Marriott. The master agreement with Marriott expires in 2008. At
March 31, 2003, On Command provided entertainment services to approximately
166,000 rooms that were owned or managed by Marriott, and approximately 94,000
rooms that were franchised by Marriott.

On Command's master contract with Hilton expired in April 2000, and in
October 2000, Hilton announced that it would not be renewing such master
contract. As a result, hotels owned, managed or franchised by Hilton are
currently subject to a master contract between Hilton and a competitor of On
Command. Accordingly, On Command anticipates that hotels owned by Hilton will
not renew their contracts as they expire. However, hotels that are managed or
franchised by Hilton are not precluded from renewing their contracts with On
Command, and, although no assurance can be given, On Command anticipates that
certain of those hotels will choose to renew. At March 31, 2003, On Command
provided service to approximately 121,000 rooms in 523 hotels that are owned,
managed or franchised by Hilton. The majority of these rooms are located in
managed or franchised hotels that are not owned by Hilton. Through March 31,
2003, On Command's contracts with 75 of the aforementioned 523 hotels (19,000
rooms) had expired and service to these hotels is currently provided under
monthly or other short-term renewals. On Command's individual contracts with the
remaining 448 Hilton hotels (102,000 rooms) expire at various dates through
2010, with 53% of those rooms expiring by 2005. Since January 2002, On Command
has entered into new contracts, or renewed existing contracts, with respect to
8,400 rooms that were franchised by Hilton, and 2,600 rooms that were managed by
Hilton. The net room revenue derived from hotels that are owned, managed or
franchised by Hilton decreased 17% during the three months ended March 31, 2003,
as compared to the corresponding prior year period. Over time, On Command
anticipates that the revenue it derives from hotels that are owned, managed or
franchised by Hilton will continue to decrease. However, due to the
uncertainties involved, On Command is currently unable to predict the amount and
timing of the revenue decreases.

On Command does not have master contracts with either Starwood or Six
Continents, and On Command's master contract with Hyatt provides for the
simultaneous expiration of On Command's contractual relationships with all of
the individual hotels that are subject to the Hyatt master contract as of
December 31, 2004. At March 31, 2003, On Command provided entertainment services
to approximately 176,000 rooms in hotels that are owned, managed or franchised
by Starwood or Six Continents. Agreements with respect to approximately 51% of
such Starwood and Six Continents rooms have already expired, or will expire by
December 31, 2004. At March 31, 2003, approximately 38,000 or 60% of On
Command's Starwood rooms were located in Sheraton or Four Points hotels that,
depending on whether such hotels are owned, managed or franchised by Starwood,
may be covered by a master contract with a competitor of On Command upon the
expiration of such hotels' contracts with On Command. On Command is actively
pursuing master agreements with Hyatt and Six Continents,

I-18

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

and with Starwood with respect to the Starwood brands that are not already
covered by a competitor's contract.

In certain cases, On Command is also pursuing direct contractual
relationships with individual hotels that are owned, managed or franchised by
these hotel chains. No assurance can be given that On Command will be successful
in executing master or individual hotel contracts. However, On Command expects
that, regardless of the expiration dates of master contracts or individual
contracts with hotels, On Command will continue to be the provider of in-room
entertainment services for individual hotels that are not under contract until
such time as a competitor's equipment can be installed.

(10) COMMITMENTS AND CONTINGENCIES

COMMITMENTS

On Command is a party to affiliation agreements with programming suppliers.
Pursuant to certain of such agreements, On Command is committed to carry such
suppliers' programming on its video systems. Additionally, certain of such
agreements provide for minimum payments and per room rates that escalate as the
number of rooms receiving the programming decreases.

In certain cases, On Command has entered into master contracts whereby On
Command has agreed to purchase televisions and/or provide other forms of capital
assistance and, to a lesser extent, provide television maintenance services to
hotels during the respective terms of the applicable contracts.

In connection with the first quarter 2001 acquisition of Hotel Digital
Network, Inc. ("HDN"), On Command entered into a stockholders agreement (the
"HDN Stockholders Agreement") with the then controlling stockholder of Hotel
Digital Network (the "HDN Stockholder"). The HDN Stockholders Agreement provided
the HDN Stockholder with the right during each of the 30-day periods beginning
on March 1, 2003 and 2004 to require On Command to exchange shares of On Command
Common Stock for all, but not less than all, of the HDN common shares held by
the HDN Stockholder. On March 20, 2003, the HDN Stockholder exercised such
right, and in May 2003, On Command acquired all of the HDN Stockholder's
interests in HDN common stock for cash and certain other consideration, which in
the aggregate was not material to On Command's financial condition. Such
acquisition, which did not require the issuance of any shares of On Command
Common Stock, represented the final settlement of On Command's purchase
obligation under the HDN Stockholders Agreement.

CONTINGENCIES

Liberty Media International, Inc. ("Liberty International"), a subsidiary of
Liberty Media, and other investors in the Sky Latin America businesses have
severally guaranteed obligations of Sky Latin America due under certain
transponder agreements and equipment lease agreements through 2018. The Company
has indemnified Liberty International with respect to Liberty International's
obligations under these guarantees. At March 31, 2003, the portions of the
remaining undiscounted obligations due under such transponder agreements and
equipment lease agreements that were severally guaranteed by Liberty
International aggregated approximately $105,780,000 and $6,805,000,
respectively. During the fourth quarter of 2002, Globo Comunicacoes e
Participacoes ("GloboPar"), an investor in three of the Sky Latin America
entities, announced that it was reevaluating its capital structure. Since that
time,

I-19

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

GloboPar has not provided any funding to the three Sky Latin America entities in
which it is an investor. In the case of one such entity, Sky Multi-Country
Partners ("Sky Multi-Country"), the Company and the other investors in Sky
Multi-Country have each entered into a Forbearance Agreement with respect to Sky
Multi-Country's obligations under a Transponder Services Agreement with PamAmSat
Corporation (successor-in-interest to PamAmSat International, Inc.)
("PamAmSat"). Pursuant to the Forbearance Agreement, PamAmSat refrained from
enforcing its rights under the Transponder Services Agreement through April 30,
2003, so long as it received at least 70% of the fees due under the Transponder
Services Agreement. Through April 30, 2003, the Company and the other investors
in Sky Multi-Country have collectively funded at least 70% of the fees due under
the Transponder Service Agreement. The parties are currently finalizing an
agreement that would extend the term of the Forbearance Agreement to July 31,
2003, subject to certain conditions. At March 31, 2003, the aggregate
obligations of Sky Multi-Country that were severally guaranteed by Liberty
International were $39,710,000. Sky Multi-Country partially funds another Sky
Latin America entity in which GloboPar is an investor. At March 31, 2003, the
aggregate obligations of this entity that are severally guaranteed by Liberty
International were $6,805,000. In the case of Sky Brasil Servicos Limitada ("Sky
Brasil"), another entity in which GloboPar is an investor, an investor other
than the Company had previously agreed in July 2002 to assume up to $50,000,000
of GloboPar's funding obligations through 2003 in exchange for increased
ownership and governance rights. At March 31, 2003, the aggregate obligations of
Sky Brasil that are severally guaranteed by Liberty International were
$40,700,000. As detailed above, the three entities in which GloboPar is an
investor account for approximately $87,215,000 of the aggregate obligations
guaranteed by Liberty International at March 31, 2003. To the extent that the
Company or other investors do not fully assume GloboPar's funding obligations,
any funding shortfall could lead to defaults under applicable transponder
agreements and equipment lease agreements. With respect to the equipment lease
agreements, default also includes bankruptcy, debt default, or material adverse
change in the business or financial condition of any guarantor that materially
adversely affects the ability of any such guarantor to perform its obligations
under the guarantee. In the event any such defaults were to occur, the default
provisions of the applicable agreements would determine the ultimate amount to
be paid by the Company. The Company believes that the maximum amount of the
Company's aggregate exposure under the default provisions of the various
agreements is not in excess of the undiscounted remaining obligations guaranteed
by the Company, as set forth above. The Company cannot currently predict if, and
to what extent, it will be required to perform under any of such guarantees.

On Command has received a series of letters from Acacia Media Technologies
Corporation ("Acacia") regarding a portfolio of patents owned by Acacia. Acacia
has alleged that its patents cover certain activities performed by On Command
and has proposed that On Command take a license under those patents. On Command
is reviewing Acacia's patents and believes there are substantial arguments that
Acacia's claims lack merit.

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
condensed consolidated financial statements.

I-20

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(11) INFORMATION ABOUT OPERATING SEGMENTS

LSAT identifies its reportable segments as those consolidated subsidiaries
that represent 10% or more of its combined revenue, net earnings or loss, or
total assets. The Company's investments in equity affiliates are considered
reportable segments if the Company's investment in, or share of losses of, any
equity affiliate represents 10% or more of the Company's total assets or pre-tax
earnings or loss, respectively. Subsidiaries and affiliates not meeting this
threshold are aggregated together for segment reporting purposes. The segment
presentation for prior periods has been conformed to the current period segment
presentation.

For the three months ended March 31, 2003, LSAT had two operating segments:
"On Command" and "Other". On Command provides in-room, on-demand entertainment
and information services to hotels, motels and resorts primarily in the United
States and is majority-owned and consolidated by LSAT. "Other" includes LSAT's
non-consolidated investments and corporate.

LSAT evaluates performance and allocates resources to its subsidiaries and
affiliates based in part on the measures of revenue and operating cash flow.
LSAT defines operating cash flow as operating income before deducting stock
compensation, depreciation and amortization, and asset impairments and other
charges. LSAT's definition of operating cash flow may differ from cash flow
measurements provided by other public companies. Operating cash flow should not
be considered as a substitute for, operating income, net income, cash flow
provided by operating activities and other measures of financial performance
prepared in accordance with generally accepted accounting principles. LSAT
generally accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current prices.

LSAT utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:

I-21

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

The following table provides a reconciliation of segment operating cash flow
to loss before income taxes and minority interest:

I-22

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The following discussion and analysis provides information concerning the
financial condition and results of operations of the Company and should be read
in conjunction with the accompanying condensed consolidated financial statements
of the Company, as well as the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.

Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. To the extent that such statements are not
recitations of historical fact, such statements constitute forward-looking
statements which, by definition, involve risks and uncertainties. Where, in any
forward-looking statement, the Company expresses an expectation or belief as to
future results or events, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The following include some but not all of the factors that could cause actual
results or events to differ materially from those anticipated:

- General economic and business conditions, particularly trends in the
telecommunications, travel and entertainment industries;

- The regulatory and competitive environment of the industries in which the
Company, and the entities in which it has interests, operate;

- Uncertainties inherent in new business strategies, product launches,
development plans and investments, including LSAT's recent investment in
WildBlue, its proposed investment in ASTROLINK International LLC, and On
Command's strategy to expand its target market to include smaller hotels;

- Uncertainties inherent in the completion and successful launch of
WildBlue's satellite;

- Uncertainties associated with the Company's contingent obligations with
respect to its investments in satellite television operators in Latin
America;

- The acquisition, development and/or financing of telecommunications
networks and services;

- Trends in hotel occupancy rates and business and leisure travel patterns,
including the potential impacts that actual or threatened terrorist
attacks and national security responses thereto, wars, contagious diseases
such as severe acute respiratory syndrome or other events might have on
such occupancy rates and travel patterns;

- Uncertainties inherent in On Command's efforts to renew or enter into
agreements on acceptable terms with its significant hotel chain customers
and their owned, managed and franchised hotels;

- On Command's ability to access quality movies, programming networks and
other content on acceptable terms;

- The potential impact that any negative publicity, lawsuits, or boycotts by
opponents of mature-themed programming content distributed by On Command
could have on the willingness of hotel industry participants to deliver
such content to guests;

- The potential for increased government regulation and enforcement actions,
and the potential for changes in laws that would restrict or otherwise
inhibit On Command's ability to make mature-themed programming content
available over its video systems;

- Competitive threats posed by rapid technological changes;

I-23

- The development, provision and marketing of On Command's new platforms and
services, and customer acceptance, usage rates, and profitability of such
platforms and services;

- The development and provision of new services, such as On Command's
television-based Internet service, short subject, video game and digital
music products, and customer acceptance and usage rates of such services;

- Uncertainties inherent in On Command's future operating results and
capital expenditure requirements;

- Uncertainties inherent in On Command's ability to execute planned upgrades
of its video systems, including uncertainties associated with operational,
economic and other factors;

- The ability of vendors to deliver required equipment, software and
services;

- Availability of qualified personnel;

- Uncertainties inherent in the ability of On Command to satisfy the closing
conditions of the Amended and Restated Credit Agreement (including the
required $40,000,000 contribution from Liberty Media) on a timely basis,
and if not satisfied, the ability of On Command to restructure or
refinance the On Command Revolving Credit Facility;

- The ability of LSAT to secure long-term financing on acceptable terms; and

- Other factors discussed in this Report.

These forward-looking statements and such risks, uncertainties and other
factors speak only as of the date of this Quarterly Report, and 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 our expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

REVENUE

IN-ROOM ENTERTAINMENT REVENUE

On Command's in-room entertainment revenue consists primarily of fees
collected from hotels for in-room services provided to hotel guests by On
Command ("room revenue"). Services provided by On Command to hotel guests
include pay-per-view movies and short subjects, free-to-guest programming, video
games, Internet service and digital music. On Command also earns revenue from
the sale of video and music systems to third parties, the sale of video
equipment to hotels, and from other sources ("other entertainment revenue").

In-room entertainment revenue (comprised of room revenue, and other
entertainment revenue) decreased $663,000 or 1.2% during the three months ended
March 31, 2003, as compared to the corresponding prior year period. The decrease
in net in-room entertainment revenue during the 2003 period is primarily
attributable to the net effect of (i) a decrease attributable to a lower volume
of pay-per-view buys; (ii) an increase attributable to higher average rates for
certain pay-per-view products; (iii) a $1,163,000 decrease in other
entertainment revenue; (iv) a $1,000,000 increase in the aggregate revenue
derived from short subject, digital music and television-based Internet
products; and (v) a $715,000 increase in free-to-guest programming revenue. On
Command believes that the decrease in pay-per-view buys is attributable to the
combined effect of (i) a decrease in buy rates for certain pay-per-view
products; (ii) a decrease in occupancy rates (as further discussed below); and
(iii) a reduction in the average number of rooms served by On Command. The 4.4%
reduction in the average number of rooms served by On Command during the 2003
period is attributable to (i) the sale of On Command's European operations;
(ii) the loss of rooms to competitors; and (iii) the discontinuance of service
to certain non-profitable hotels. The decrease in other entertainment revenue is
primarily

I-24

attributable to a decrease in video and music systems sales. Such decrease is
largely attributable to On Command's efforts to convert its primary music system
customer to a software-based music system from a hardware-based music system. On
Command expects to initiate sales of its software-based music systems to this
customer during the third quarter of 2003. As a result, On Command expects that
it will not realize significant revenue from the sale of hardware-based music
systems during 2003 and future periods, and that the revenue to be derived from
the sale of its software-based music systems during 2003 will be significantly
lower than the revenue derived from music system sales during 2002 due to lower
sales volumes and lower per unit sales prices.

Overall hotel occupancy rates, as reported by Smith Travel Research,
declined 1.1% during the three months ended March 31, 2003, as compared to the
corresponding prior year period. In addition, occupancy rates for hotels in the
top 25 markets, as reported by Smith Travel Research, declined 1.0% over the
same period. Since On Command derives a significant portion of its revenue from
hotels located in the top 25 markets, On Command believes that the occupancy
rate for this segment is the best indicator of the impact changes in hotel
occupancy are having on On Command's business. Hotel occupancy rates are outside
of On Command's control, and changes in hotel occupancy rates can have a
significant impact on On Command's results of operations.

During the three months ended March 31, 2003, hotels owned, managed or
franchised by Marriott, Hilton, Six Continents, Hyatt, and Starwood accounted
for 32%, 15%, 11%, 7% and 7%, respectively, of On Command's total net room
revenue. Accordingly, hotels owned, managed or franchised by On Command's five
largest hotel chain customers accounted for 72% of On Command's total net room
revenue during the three months ended March 31, 2003. The loss of any of these
hotel chain customers, or the loss of a significant number of other hotel chain
customers, could have a material adverse effect on On Command's results of
operations and financial condition. For additional information concerning the
Company's relationships with its significant customers, see note 9 to the
accompanying condensed consolidated financial statements.

OPERATING COSTS

During the three months ended March 31, 2003 and 2002, the Company's
operating costs were entirely comprised of On Command's in-room entertainment
operating costs. In-room entertainment operating costs consist primarily of fees
paid to movie and other content providers, hotel commissions, direct costs
associated with On Command's television-based Internet product, costs associated
with video and music systems sold to third parties, costs associated with the
repair, maintenance and support of video systems and other room service
equipment, and costs associated with research and development activities.

In-room entertainment operating costs decreased $1,334,000 or 3.6% during
the three months ended March 31, 2003, as compared to the corresponding prior
year period. Such decrease represents the net effect of (i) a $518,000 reduction
in the costs associated with other entertainment revenue; and (ii) various
individually insignificant changes in the components of this line item. The
majority of the reduction in other entertainment costs is attributable to a
reduction in the costs associated with video and music system sales, as
discussed above. Free-to-guest programming costs remained relatively constant
during the 2003 and 2002 periods as higher rates from certain programmers were
offset by cost savings resulting from the optimization of certain channel
lineups and changes in certain distribution agreements. Certain of On Command's
content fees and other in-room service costs do not vary with room revenue and
occupancy rates.

On Command is a party to various agreements with programming suppliers that
permit On Command to distribute movies and programming networks. On Command
expects that the cost of such movies and programming networks will increase in
future periods as contracts expire and renewals are negotiated. Certain of On
Command's contracts with hotel customers limit the amount of any cost

I-25

increases that can be passed on to any such hotels. Any cost increases that On
Command is not able to pass on to its customers would result in increased
pressure on On Command's operating margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Selling, general and administrative expense decreased $729,000 or 10.4%
during the three months ended March 31, 2003, as compared to the corresponding
prior year period. Such decrease is attributable to the net effect of
(i) higher labor costs; (ii) a reduction of On Command's bad debt expense; and
(iii) various individually insignificant changes in other components of this
line item. The decrease in On Command's bad debt expense is largely attributable
to the collection of a receivable that had been fully reserved in a prior
period.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization decreased $1,145,000 or 3.4% during the
three months ended March 31, 2003, as compared to the corresponding prior year
period. Such decrease represents the net effect of reductions to On Command's
depreciable asset base that were only partially offset by increases attributable
to capital expenditures. The decrease in On Command's depreciable asset base is
attributable to (i) assets becoming fully depreciated, and (ii) asset
dispositions.

ASSET IMPAIRMENTS AND OTHER CHARGES

On Command recorded impairment charges of $325,000 and $1,829,000 during the
three months ended March 31, 2003 and 2002, respectively. The 2002 amount
includes a loss of $1,411,000 relating to a transaction in which certain
equipment was transferred to STSN, Inc. On Command also recorded other charges
aggregating $325,000 and $418,000 during the 2003 and 2002 periods,
respectively, related to obsolete materials and equipment, and losses on various
dispositions of property and equipment and other assets.

INTEREST EXPENSE

During the three months ended March 31, 2003 and 2002, the Company
recognized interest expense of $4,485,000 and $5,063,000, respectively. The
$578,000 or 11.4% decrease in interest expense during the 2003 period represents
the combined effect of a decrease in interest rates and a decrease in the
Company's weighted average debt balance.

REALIZED AND UNREALIZED LOSSES ON FINANCIAL INSTRUMENTS

Realized and unrealized gains (losses) on financial instruments during the
three months ended March 31, 2003 and 2002 are as follows:

Prior to January 1, 2003, the Company's equity collars were designated as
fair value hedges. Effective December 31, 2002, the Company elected to no longer
designate its equity collars as fair value hedges. Such election had no effect
on the Company's financial position or results of operations on December 31,
2002. Subsequent to December 31, 2002, changes in the fair value of the
Company's

I-26

available-for-sale securities that previously had been reported in earnings due
to the designation of equity collars as fair value hedges will be reported as a
component of other comprehensive earnings on the Company's condensed
consolidated balance sheet. Changes in the fair value of the equity collars will
continue to be reported in earnings.

INCOME TAXES

The Company recognized income tax benefits of $4,783,000 and $10,254,000
during the three months ended March 31, 2003 and 2002, respectively. The 2002
benefit includes a $5,666,000 tax refund received by LSAT as a result of a
change in tax law that occurred during the first quarter of 2002. Such change
resulted in the elimination of restrictions on the use of net operating loss
carryforwards to offset alternative minimum tax liabilities. The 2003 and 2002
income tax benefits also include deferred tax benefits associated with losses
recognized by the Company. At March 31, 2003, The Company's deferred tax
liability was $10,880,000. The Company is only able to recognize income tax
benefits for financial reporting purposes to the extent that such benefits
offset recorded income tax liabilities or the Company generates taxable income.
Since April 1, 2002, the Company and its 80%-or-more owned subsidiaries have
been included in Liberty Media's consolidated tax return, and the Company and
Liberty Media have entered into a Tax Liability Allocation and Indemnification
Agreement. For additional information, see note 2 to the accompanying condensed
consolidated financial statements.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

Pursuant to the transitional provisions of Statement 142, the Company
recorded a $105,837,000 reduction of goodwill in 2002. Such goodwill was
originally recorded by Liberty Media in connection with the March 2000 Ascent
Entertainment acquisition. In accordance with Statement 142, this goodwill
reduction has been recorded as the cumulative effect of an accounting change.

NET LOSS

As a result of the factors described above, the Company incurred net losses
of $19,424,000 and $131,682,000 during the three months ended March 31, 2003 and
2002, respectively.

MATERIAL CHANGES IN FINANCIAL CONDITION

LSAT is a holding company that does not generate positive cash flow at the
LSAT level. The only subsidiary of LSAT that generates significant revenue is On
Command. Due to covenant restrictions contained in the On Command Revolving
Credit Facility, LSAT is generally not entitled to the cash resources or cash
generated by the operations of On Command. The sources of liquidity available to
LSAT at the LSAT level are described below.

On a consolidated basis, the Company used cash provided by operating
activities of $6,033,000 and cash provided by investing activities of
$130,644,000 to fund financing activities of $43,212,000 and a $93,465,000
increase in cash and cash equivalents. The Company's investing activities
included $149,263,000 of proceeds received in connection with the disposition of
a portion of the Company's Sprint PCS Stock and the related equity collar, as
further described below.

In March 2003, the Company settled a portion of its Sprint PCS Stock equity
collar by delivering 2,500,000 shares of Sprint PCS Stock to the counterparty.
In return, the Company received $149,263,000 in cash. The Company used
$48,526,000 of such proceeds to repay all principal and accrued interest due
under its note payable to Liberty Media. Subsequent to March 31, 2003, the
Company settled the remaining portion of its Sprint PCS Stock equity collar by
delivering all of its remaining 2,584,745 shares of Sprint PCS Stock to the
counterparty. The Company received cash proceeds of $154,323,000 in connection
with such settlement, and used $114,651,000 of such cash proceeds to repay all
principal and accrued interest due under the PCS Loan Facility. In connection

I-27

with such repayment, the PCS Loan Facility was cancelled. The net impact of the
foregoing transactions was a $140,409,000 increase to LSAT's cash and cash
equivalents.

In December 1999, the Company acquired an approximate 31.5% ownership
interest in ASTROLINK International LLC ("Astrolink"). Astrolink, a
developmental stage entity, was originally established to build a global telecom
network using Ka-band geostationary satellites to provide broadband data
communications services. Astrolink's original business plan required substantial
financing. During the fourth quarter of 2001, certain of the members of
Astrolink informed Astrolink that they did not intend to provide any of
Astrolink's remaining required financing. In light of this decision, Astrolink
and the Astrolink members considered several alternatives with respect to
Astrolink's proposed business plan.

During the second quarter of 2002, the Company signed a non-binding letter
of intent with the other members of Astrolink in connection with a proposed
restructuring of Astrolink. In January 2003, the Company announced that it had
reached agreement with the other members of Astrolink in connection with such
proposed restructuring (the "Astrolink Restructuring"). As a part of the
Astrolink Restructuring, Astrolink redeemed the interest of one member in
January 2003 and another member in April 2003. As a result of such redemptions,
the Company's ownership interest in Astrolink has increased to 50.3%, and the
ownership interest of the other remaining member has increased to 49.7%.
Notwithstanding the Company's ownership interest in Astrolink, the Company does
not have a controlling financial interest in Astrolink due to the significant
participatory rights of the other remaining Astrolink member. Accordingly, the
Company will continue to use the equity method to account for its investment in
Astrolink.

Under the agreement (the "Astrolink Restructuring Agreement"), the Company
would acquire substantially all of the assets of Astrolink. Astrolink
simultaneously signed agreements with Lockheed Martin Corporation and Northrop
Grumman Space & Mission Systems Corp. for completion of two satellites. The
parties also reached agreement on the settlement of all claims related to the
previous termination of Astrolink's major procurement contracts and all other
major third party creditor claims. The closing of the Company's acquisition of
the Astrolink business is subject to the Company obtaining satisfactory funding
for the business from additional investors, third party sources of financing, or
firm capacity commitments from prospective customers. The closing is also
subject to regulatory approvals and other closing conditions. Subject to the
satisfaction of these closing conditions, the closing is expected to occur on or
before October 31, 2003.

If the closing occurs, the Company would pay approximately $43 million in
cash and would issue approximately $3 million in value of Series A Common Stock
as total consideration for the Astrolink assets, including certain existing
satellite and launch contracts, and the settlement of all claims against
Astrolink. In addition, the Company would provide additional interim funding for
Astrolink pending closing. If the transactions are consummated, Liberty Media
would make a capital contribution to the Company in an amount equal to 10% of
the estimated fair value of Liberty Media's equity holdings in the Company at
the time of closing, up to a maximum commitment of $55 million, in exchange for
shares of the Company's Series B Common Stock.

The Company currently plans to pursue a revised operating plan for the new
Astrolink system, taking into account financial and market factors. The revised
operating plan currently contemplates launching one or two Ka-band satellites to
provide enterprise customers in up to two of North America, Europe or Asia with
virtual private networks and related advanced services, and to provide various
government agencies with a solution to their expanding needs for bandwidth.

In the event the Astrolink Restructuring is not consummated due to lack of
financing or other closing conditions, the Company would receive $7.8 million in
exchange for its ownership interest in Astrolink and for all notes evidencing
interim loans made by the Company to Astrolink as prescribed in the Astrolink
Restructuring Agreement.

I-28

In December 2002, the Company announced that it had agreed to increase its
investment in WildBlue. At March 31, 2003, the Company had an approximate 16%
ownership interest in WildBlue. On April 21, 2003, and pursuant to the terms of
the new agreement, the Company invested $58 million in return for senior
preferred stock and warrants of WildBlue. As also agreed, other existing and new
investors invested $98 million in WildBlue for a total new investment of
$156 million. Upon closing of the transaction, the Company became the largest
shareholder of WildBlue with an ownership interest of approximately 32% and a
voting interest of approximately 37%. As a result of this transaction, the
Company will begin using the equity method to account for its investment in
WildBlue. Previously, the Company had carried such investment at cost, subject
to other-than-temporary impairment. WildBlue currently expects to launch its
satellite in the first half of 2004 and begin providing broadband data services
in the third or fourth quarter of 2004.

In connection with the aforementioned additional investment in WildBlue, the
Company entered into a put agreement with KPCB, another investor in WildBlue.
Pursuant to this put agreement, KPCB will have the right to put its interest in
WildBlue to the Company and another investor in WildBlue for $10,000,000, the
amount KPCB invested in WildBlue at the closing of the WildBlue transaction. The
Company and such other investor are each responsible for $5,000,000 of the
aggregate $10,000,000 put obligation. The put may be exercised at any time
within four years from the closing of the WildBlue transaction.

In March 2000, LSAT issued 150,000 shares of Series A 12% Cumulative
Preferred Stock ("Series A Preferred Stock") and 150,000 shares of Series B 8%
Cumulative Convertible Voting Preferred Sotck ("Series B Preferred Stock") to
Liberty Media in exchange for shares of Sprint PCS Stock. On the date of
issuance, each such series of preferred stock had an aggregate stated value of
$150,000,000. The Series A Preferred Stock and Series B Preferred Stock, which
were each issued at a discount to their stated values, are redeemable at the
option of Liberty Media on or after April 1, 2020 at a price equal to stated
value plus all accrued and unpaid dividends. Subsequent to March 31, 2003, all
dividends on the Series A Preferred Stock and Series B Preferred Stock, which
aggregate $7,500,000 each quarter, are to be paid in cash. Accrued and unpaid
dividends on the Series A Preferred Stock and Series B Preferred Stock
aggregated $7,500,000 at March 31, 2003.

LSAT's primary sources of liquidity for the remainder of 2003 include its
unrestricted cash and cash equivalent balances ($82,187,000 at April 30, 2003)
and proceeds to be received during the fourth quarter of 2003 in connection with
the settlement of certain derivative instruments. The Company believes that such
sources of liquidity will be sufficient to fund LSAT's expected cash
requirements during the final eight months of 2003. LSAT's liquidity
requirements during the final eight months of 2003 are expected to include
(i) its preferred stock dividend requirements; (ii) its capital contributions to
Sky Latin America; (iii) its interim funding commitments to Astrolink; and
(iv) its operating deficit. In addition, in the event the Astrolink
Restructuring closes, as discussed above, the Company would be required to fund
a $43 million cash investment, and Liberty Media would be required to make a
capital contribution to the Company. The amount and form of any such Liberty
Media capital contribution have not yet been determined. LSAT does not expect
Ascent Entertainment or its principal operating subsidiary, On Command, to
provide any of LSAT's financial resources during 2003. The financial resources
and requirements of On Command are described below.

The On Command Revolving Credit Facility, as amended, provided for aggregate
borrowings of $275,000,000 at March 31, 2003. Borrowings under the On Command
Revolving Credit Facility are due and payable in July 2004. On Command had
$9,367,000 of remaining availability under the On Command Revolving Credit
Facility at March 31, 2003. On Command's ability to draw additional funds under
the On Command Revolving Credit Facility is subject to On Command's continued
compliance with applicable financial covenants.

I-29

Revolving loans extended under the On Command Revolving Credit Facility bear
interest at the LIBOR plus a spread that may range from 1.10% to 2.75% depending
on certain operating ratios of On Command (3.82% effective borrowing rate at
March 31, 2003). In addition, a facility fee ranging from 0.15% to 0.50% per
annum is charged on the On Command Revolving Credit Facility, depending on
certain operating ratios of On Command. The On Command Revolving Credit Facility
contains customary covenants and agreements, most notably the inclusion of
restrictions on On Command's ability to pay dividends or make other
distributions, and restrictions on On Command's ability to make capital
expenditures. In addition, On Command is required to maintain leverage and
interest coverage ratios. On Command was in compliance with such covenants at
March 31, 2003. Substantially all of On Command's assets are pledged as
collateral for borrowings under the On Command Revolving Credit Facility.

On March 28, 2003, On Command and its bank lenders amended the On Command
Revolving Credit Facility to postpone until June 30, 2003 the step down of the
leverage ratio covenant of the On Command Revolving Credit Facility from 4.25 to
3.50. Accordingly, the maximum leverage ratio permitted under the On Command
Revolving Credit Facility at March 31, 2003 was 4.25, and On Command's actual
leverage ratio was 4.00 as of such date. On April 17, 2003, On Command and its
bank lenders executed an Amended and Restated Credit Agreement. The closing of
the Amended and Restated Credit Agreement is contingent upon the contribution of
$40,000,000 by Liberty Media to On Command to be used to repay principal due,
and permanently reduce lender commitments, pursuant to the Amended and Restated
Credit Agreement. However, Liberty Media has no obligation to make any
contribution to On Command, and there can be no assurance that any such
contribution will be made. The terms of any potential Liberty Media contribution
(including the securities or other consideration to be received by Liberty Media
in exchange for such contribution) have not yet been agreed upon. After the
proposed reduction of lender commitments, the Amended and Restated Credit
Agreement would constitute a $235,000,000 senior secured credit facility,
consisting of a $50,000,000 revolving credit facility and a $185,000,000 term
loan facility. The term loan would be subject to scheduled amortizations
commencing September 30, 2003, and both amended and restated facilities would
mature on December 31, 2007.

Although On Command is in compliance with the leverage ratio covenant of its
existing On Command Revolving Credit Facility at March 31, 2003, On Command
believes that it will be out of compliance with such covenant at June 30, 2003
if the closing of the Amended and Restated Credit Agreement does not occur by
that date. If the Amended and Restated Credit Agreement has not closed by
June 30, 2003, On Command anticipates that it will request a further amendment
to its existing On Command Revolving Credit Facility to postpone the step down
of the leverage ratio covenant. It is uncertain if On Command's lenders would
agree to such a further amendment and what terms might be imposed by the lenders
in connection with such further amendment. In the event that the closing of the
Amended and Restated Credit Agreement does not occur by the date that the
leverage ratio is reduced to 3.50, On Command anticipates that a default would
occur under the On Command Revolving Credit Facility. Upon the occurrence of a
default, if left uncured, the bank lenders would have various remedies,
including terminating their revolving loan commitment, declaring all outstanding
loan amounts including interest immediately due and payable, and exercising
their rights against their collateral, which consists of substantially all On
Command's assets. No assurance can be given that the Amended and Restated Credit
Agreement will close. In addition, if the Amended and Restated Credit Agreement
does not close, no assurance can be given that On Command will be able to
successfully restructure or refinance its existing On Command Revolving Credit
Facility on terms acceptable to On Command, or that On Command will be able to
avoid a default under its existing On Command Revolving Credit Facility. In
light of the circumstances that existed with respect to the On Command Revolving
Credit Facility, On Command's independent auditors included an explanatory
paragraph in their audit report on the December 31, 2002 consolidated financial
statements of On Command stating in part that "On Command is seeking to
restructure the debt facility and such

I-30

restructuring is contingent on certain events, which raises substantial doubt
about On Command's ability to continue as a going concern."

In connection with a first quarter 2001 acquisition of a 7.5% interest in
e-ROOM and the settlement of certain litigation, On Command agreed that e-ROOM
would have the option during the 15 day period beginning on March 1, 2003 to
cause On Command to repurchase all, but not less than all, of the 275,000 shares
of On Command Common Stock issued to e-ROOM at a price of $15 per share. During
the fourth quarter of 2002, On Command repurchased 119,500 of such shares for an
aggregate price of $1,344,000 or $11.25 per share. In connection with this
transaction, the parties agreed to postpone until March 1, 2004 the date on
which On Command can be required to repurchase 119,500 of the remaining shares
subject to repurchase. On Command is not precluded from repurchasing such shares
at an earlier date. The repurchase price for such shares will be $15 per share,
plus an adjustment factor calculated from March 1, 2003 to the date of
repurchase, at a rate of 8% per annum. On March 1, 2003, the date on which the
remaining 36,000 shares will first become subject to repurchase by On Command
was postponed until March 1, 2004. The repurchase price for such shares will
remain at $15 per share.

Historically, On Command has required external financing to fund the cost of
installing and upgrading video systems in hotels. However, during 2002 On
Command was able to manage its operations and capital expenditures such that On
Command was able to rely on internally generated funds and existing sources of
liquidity to finance its installation and upgrade activities. During 2003 and
future periods, On Command intends to continue to focus its efforts on
increasing revenue while containing, and wherever possible, reducing expenses
and capital expenditures. On Command expects that it will be able to rely on
cash provided by operations, existing availability under the Revolving Credit
Facility, and existing cash and cash equivalent balances to fund its capital
expenditures and other anticipated liquidity requirements during 2003. To the
extent that On Command was to experience a revenue shortfall or any other
unfavorable variance from its 2003 operating plan, On Command would seek to
reduce expenses and/or capital expenditures to compensate for any such shortfall
or unfavorable variance. Accordingly, On Command believes, although no assurance
can be given, that it will not require additional sources of liquidity to fund
its capital expenditures and anticipated liquidity requirements during 2003.
Notwithstanding the foregoing, On Command anticipates that it will require a
$40,000,000 equity contribution from Liberty Media in order to satisfy one of
the closing conditions of the Amended and Restated Credit Agreement, and that it
would require additional external financing to (i) fund any significant new
growth initiatives or unanticipated liquidity requirements; or (ii) refinance
the Revolving Credit Facility, if the Amended and Restated Credit Agreement does
not close on a timely basis (as discussed above). No assurance can be given that
On Command will not be required to seek external financing during 2003, and if
external financing is required, no assurance can be given that any such
financing would be available on terms acceptable to On Command or at all.

The Company uses equity collars and a put spread collar to hedge market risk
with respect to certain of its publicly traded securities. Although the
Company's equity collars and put spread collar provide protection against market
risk, such derivative instruments may involve elements of credit risk and market
risk in excess of what is recognized in the Company's condensed consolidated
financial statements. The Company monitors its positions and the credit quality
of counterparties, consisting primarily of major financial institutions and does
not anticipate nonperformance by any counterparty.

Liberty Media International, Inc. ("Liberty International"), a subsidiary of
Liberty Media, and other investors in the Sky Latin America businesses have
severally guaranteed obligations of Sky Latin America due under certain
transponder agreements and equipment lease agreements through 2018. The Company
has indemnified Liberty International with respect to Liberty International's
obligations under these guarantees. At March 31, 2003, the portions of the
remaining undiscounted obligations due under such transponder agreements and
equipment lease agreements that were severally guaranteed by Liberty
International aggregated approximately $105,780,000 and $6,805,000,
respectively. During the

I-31

fourth quarter of 2002, Globo Comunicacoes e Participacoes ("GloboPar"), an
investor in three of the Sky Latin America entities, announced that it was
reevaluating its capital structure. Since that time, GloboPar has not provided
any funding to the three Sky Latin America entities in which it is an investor.
In the case of one such entity, Sky Multi-Country Partners ("Sky
Multi-Country"), the Company and the other investors in Sky Multi-Country have
each entered into a Forbearance Agreement with respect to Sky Multi-Country's
obligations under a Transponder Services Agreement with PamAmSat Corporation
(successor-in-interest to PamAmSat International, Inc.) ("PamAmSat"). Pursuant
to the Forbearance Agreement, PamAmSat refrained from enforcing its rights under
the Transponder Services Agreement through April 30, 2003, so long as it
received at least 70% of the fees due under the Transponder Services Agreement.
Through April 30, 2003, the Company and the other investors in Sky Multi-Country
have collectively funded at least 70% of the fees due under the Transponder
Service Agreement. The parties are currently finalizing an agreement that would
extend the term of the Forbearance Agreement to July 31, 2003, subject to
certain conditions. At March 31, 2003, the aggregate obligations of Sky
Multi-Country that were severally guaranteed by Liberty International were
$39,710,000. Sky Multi-Country partially funds another Sky Latin America entity
in which GloboPar is an investor. At March 31, 2003, the aggregate obligations
of this entity that are severally guaranteed by Liberty International were
$6,805,000. In the case of Sky Brasil Servicos Limitada ("Sky Brasil"), another
entity in which GloboPar is an investor, an investor other than the Company had
previously agreed in July 2002 to assume up to $50,000,000 of GloboPar's funding
obligations through 2003 in exchange for increased ownership and governance
rights. At March 31, 2003, the aggregate obligations of Sky Brasil that are
severally guaranteed by Liberty International were $40,700,000. As detailed
above, the three entities in which GloboPar is an investor account for
approximately $87,215,000 of the aggregate obligations guaranteed by Liberty
International at March 31, 2003. To the extent that the Company or other
investors do not fully assume GloboPar's funding obligations, any funding
shortfall could lead to defaults under applicable transponder agreements and
equipment lease agreements. With respect to the equipment lease agreements,
default also includes bankruptcy, debt default, or material adverse change in
the business or financial condition of any guarantor that materially adversely
affects the ability of any such guarantor to perform its obligations under the
guarantee. In the event any such defaults were to occur, the default provisions
of the applicable agreements would determine the ultimate amount to be paid by
the Company. The Company believes that the maximum amount of the Company's
aggregate exposure under the default provisions of the various agreements is not
in excess of the undiscounted remaining obligations guaranteed by the Company,
as set forth above. The Company cannot currently predict if, and to what extent,
it will be required to perform under any of such guarantees.

Effective September 29, 2000, LSAT LLC acquired a 1% managing common
interest in IB2 LLC from a subsidiary of Liberty Digital for $652,000. Liberty
Digital retained a Preferred Interest in IB2 LLC, which owns approximately
360,000 shares of iBEAM Stock. The Preferred Interest had 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 Liberty Digital the right to put the
Preferred Interest to LSAT LLC for a purchase price equal to $26,000,000 (the
value of iBEAM Stock on September 29, 2000) plus a 9% return, compounded
annually (the "iBEAM Put Option"). LSAT LLC has the right to call Liberty
Digital's Preferred Interest at a price equal to the initial liquidation value
plus a return of 9%, compounded annually. Both the iBEAM Put Option and call
option are exercisable on September 29, 2008. Under certain limited
circumstances, including iBEAM's bankruptcy, LSAT LLC can force Liberty Digital
to exercise the iBEAM Put Option prior to September 29, 2008. During the fourth
quarter of 2001, iBEAM filed for bankruptcy under Chapter 11 of the Bankruptcy
Code. As a result of such bankruptcy filing, the Company began carrying the
iBEAM Put Option liability at an amount ($31,735,000 at March 31, 2003), which
represents the iBEAM Put Option purchase price to LSAT LLC plus an accrued
return to Liberty Digital of 9%, compounded annually. The Company anticipates
that future losses with respect to the iBEAM Put Option will be limited to
Liberty Digital's 9% return on the iBEAM Put Option liability.

I-32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 2003, the Company had $380,136,000 of variable-rate
liabilities. Exclusive of facility fees, such liabilities had a weighted-average
interest rate of 3.07% as of such date. Accordingly, the Company is exposed to
interest rate risk. To date, the Company has not entered into any derivative
instruments to manage its interest rate exposure. Assuming no increase or
decrease in the amount outstanding, a hypothetical 100 basis point increase (or
decrease) in interest rates at March 31, 2003 would increase (or decrease) the
Company's annual interest expense and cash outflows by approximately $3,801,000.
In April 2003, the Company repaid variable rate liabilities with an outstanding
principal amount at March 31, 2003 of $114,503,000.

The Company is exposed to changes in stock prices primarily as a result of
its holdings in Sprint PCS Stock and other publicly traded securities. The
Company uses equity collars and a put spread collar to hedge market risk with
respect to certain of its publicly traded securities. At March 31, 2003, the
aggregate fair market value of the Company's publicly traded securities
(excluding the fair value of related hedge instruments) was $40,694,000
($11,270,000 of which represented the fair value of the Sprint PCS Stock). At
March 31, 2003, the fair value of the Company's equity collars was $165,488,000
($143,053,000 of which represented the fair value of the Sprint PCS Stock equity
collar), and the fair value of the Company's put spread collar was $20,287,000.
Subsequent to March 31, 2003, the Company settled the remaining portion of its
Sprint PCS Stock equity collar by delivering all of its remaining 2,584,745
shares of Sprint PCS Stock to the counterparty. At March 31, 2003, the fair
market value of the GM Hughes Stock that is the subject of the put spread collar
was $20,406,000. Among other things, the GM Hughes Stock put spread collar
(i) provides the Company with the right to require a counterparty to purchase
shares of GM Hughes Stock for a weighted average price of $26.64 per share in
October 2003; and (ii) provides a counterparty with the right to require the
Company to repurchase shares of GM Hughes Stock for a weighted average price of
$14.80 per share in October 2003. At March 31, 2003, the per share market value
of GM Hughes Stock was $11.20. In addition, the Company owned $3,128,000 of
publicly traded securities at March 31, 2003 that were not hedged.

On Command's foreign operations are located primarily in Canada and Mexico.
In addition, the Sky Latin America entities operate satellite television systems
in Mexico, Brazil, Chile and Colombia. The Company has a 10% beneficial interest
in each of the Sky Latin America businesses. The Company believes the risks of
foreign exchange rate fluctuations on its present operations are not material to
the Company's overall financial condition. However, the Company will consider
using foreign currency contracts, swap arrangements, or other financial
instruments designed to limit exposure to foreign exchange rate fluctuations, if
deemed prudent.

ITEM 4. CONTROLS AND PROCEDURES

The Company's president and chief financial officer (the "Executive")
conducted an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures, as defined in Exchange Act
Rule 13(a)-14(c), as of a date within 90 days prior to the filing of this
quarterly report on Form 10-Q. Based on this evaluation, the Executive concluded
that the Company's disclosure controls and procedures were effective as of the
date of that evaluation. There have been no significant changes in the Company's
disclosure controls and procedures or in other factors that could significantly
affect these controls subsequent to the date on which the Executive completed
this evaluation.

I-33

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

SHAREHOLDER LITIGATION. On April 1, 2003, the Company announced that it had
received an expression of interest from Liberty Media regarding the possibility
of acquiring all the issued and outstanding shares of LSAT not already owned by
affiliates of Liberty Media. As proposed by Liberty Media, LSAT stockholders
would receive 0.2131 of a share of Liberty Media Corporation Series A common
stock for each share of LSAT common stock held. Beginning on April 2, 2003, five
purported class actions styled FINKE V. ANGELICH, ET AL., C.A. No. 20224, GARBER
V. HOWARD ET AL, C.A. No. 20225, VASSLIDES V. HOWARD ET AL., C.A. No 20226,
MARKS V. ANGELICH ET AL., C.A. No. 20227 and HAUSSER V. HOWARD ET AL., C.A. No
20243, were filed on behalf of the stockholders of the Company other than
Liberty Media and the other named defendants, in the Court of Chancery in New
Castle County, Delaware (the "Actions"). The Actions name as defendants in
addition to Liberty Media Corporation and the Company, directors Alan M
Angelich, Robert R. Bennett, William H. Berkman, William R. Fitzgerald, John W.
Goddard, J. Curt Hockemeier and Gary S. Howard. Kenneth G. Carroll, the
Company's President and Chief Financial Officer is also named in the GARBER
action. The Actions assert, among other things, that LSAT's directors were
dominated and controlled by Liberty Media and that the proposed consideration is
inadequate. The plaintiffs seek injunctive relief to prevent consummation of the
offer made by Liberty Media, and if the transaction with Liberty Media is
consummated, an order rescinding the transaction or rescissory damages. The
VASSLIDES and MARKS Actions also seek an accounting. The Company believes that
the claims are without merit.

SHAREHOLDER LITIGATION. On April 2, 2003, On Command announced that it had
received an expression of interest from Liberty Media regarding the possibility
of acquiring all the issued and outstanding shares of On Command not already
owned by affiliates of Liberty Media. As proposed by Liberty Media, On Command
stockholders would receive 0.0787 of a share of Liberty Media Corporation
Series A common stock for each share of On Command Common Stock held. On
April 11, 2003, one purported class action styled RAYMOND GAVILAN V. ON COMMAND
CORPORATION, ET AL., C.A. No. 20252 was filed on behalf of the stockholders of
On Command other than Liberty Media and the other named defendants, in the Court
of Chancery in New Castle County, Delaware (the "Action"). The Action names as
defendants in addition to Liberty Media and On Command, current directors
Kenneth G. Carroll, William R. Fitzgerald, Paul A. Gould, Mark K. Hammond, Gary
S. Howard, Christopher Sophinos, and J. David Wargo, as well as Peter Kern, a
former director. Certain of On Command's officers were also named as defendants.
The Action asserts that, among other things, the offer made by Liberty Media was
the product of unfair dealing by Liberty Media and its representatives on On
Command's Board of Directors and does not offer the public stockholders of On
Command fair value for their shares. The plaintiff seeks injunctive relief to
prevent consummation of the offer made by Liberty Media, and if the transaction
with Liberty Media is consummated, an order rescinding the transaction or
rescissory damages. On Command believes that the claims are without merit.

ITEM 2. CHANGES IN SECURITIES.

On January 24, 2003, LSAT issued 3,221,787 shares of Series A Common Stock
to Libery Media. Such issuance was made in lieu of a cash payment of dividends
on LSAT's Series A 12% Cumulative Preferred Stock and LSAT's Series B 8%
Cumulative Convertible Voting Preferred Stock for the quarter ended
December 31, 2002 and was valued at $7,500,000. The foregoing issuance was made
pursuant to the private placement exemption afforded by Section 4(2) of the
Securities Act of 1933.

II-1

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

(b) Reports on Form 8-K filed during quarter ended March 31, 2003:

None.

II-2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

LIBERTY SATELLITE & TECHNOLOGY, INC.

Date: May 15, 2003 By: /s/ KENNETH G. CARROLL
-----------------------------------------
Kenneth G. Carroll
President, Chief Financial Officer and
Treasurer
(Principal Financial Officer and Principal
Accounting Officer)

II-3

CERTIFICATION

I, Kenneth G. Carroll, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Liberty Satellite &
Technology, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;

5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: May 15, 2003

/s/ KENNETH G. CARROLL
- --------------------------------------------
Kenneth G. Carroll
President and Chief Financial Officer

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EXHIBIT INDEX

Listed below are the exhibits which are filed as a part of the Report
(according to the number assigned to them in Item 601 of Regulation S-K):

99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
filed herewith.