<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-20570
USA NETWORKS, INC.
(Exact name of registrant as specified in its charter)
------------------------
<Table>
DELAWARE 59-2712887
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</Table>
152 WEST 57TH STREET, NEW YORK, NEW YORK 10019
(Address of Registrant's principal executive offices)
(212) 314-7300
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
As of October 15, 2001, the following shares of the Registrant's capital
stock were outstanding:
<Table>
Common Stock................................................ 313,996,640
Class B Common Stock........................................ 63,033,452
-----------
Total....................................................... 377,030,092
Common Stock issuable upon exchange of outstanding
exchangeable subsidiary equity............................ 361,152,845
-----------
Total outstanding Common Stock, assuming full exchange of
Class B Common Stock and exchangeable subsidiary equity... 738,182,937
===========
</Table>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of October 15, 2001 was $4,869,299,804. For the purpose of the
foregoing calculation only, all directors and executive officers of the
Registrant are assumed to be affiliates of the Registrant.
Assuming the exchange, as of October 15, 2001, of all equity securities of
subsidiaries of the Registrant exchangeable for Common Stock of the Registrant,
the Registrant would have outstanding 738,182,937 shares of Common Stock with an
aggregate market value of $14,933,440,816.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES
USA ENTERTAINMENT
Cable and studios......................................... $ 398,211 $ 336,047 $1,280,065 $1,105,688
Emerging networks......................................... 5,784 8,591 18,125 12,862
Filmed entertainment...................................... 15,995 14,468 129,562 65,548
USA ELECTRONIC RETAILING
Electronic retailing...................................... 453,447 427,058 1,364,248 1,245,323
USA INFORMATION AND SERVICES
Ticketing operations...................................... 133,897 124,929 447,904 395,909
Hotel reservations........................................ 151,242 94,619 394,830 227,964
Teleservices.............................................. 72,610 70,162 228,926 140,374
Match..................................................... 12,477 7,600 31,686 21,978
Citysearch and related.................................... 11,079 13,962 35,852 36,798
Electronic commerce solutions............................. 4,817 7,174 15,560 15,634
Styleclick................................................ 901 5,147 7,358 17,556
Intersegment elimination.................................. (4,128) -- (10,659) --
---------- ---------- ---------- ----------
Total net revenues........................................ 1,256,332 1,109,757 3,943,457 3,285,634
Operating costs and expenses:
Cost of sales............................................. 579,744 523,087 1,809,063 1,471,554
Program costs............................................. 166,917 146,000 569,423 485,037
Selling and marketing..................................... 169,888 135,749 468,278 389,231
General and administrative................................ 111,774 105,077 331,235 299,540
Other operating costs..................................... 30,865 27,217 88,577 70,883
Amortization of cable distribution fees................... 9,986 8,845 29,384 25,335
Amortization of non-cash distribution and marketing
expense................................................. 5,218 2,693 19,866 4,566
Amortization of non-cash compensation expense............. 1,268 1,235 5,431 7,391
Depreciation and amortization............................. 142,948 137,012 427,077 369,970
---------- ---------- ---------- ----------
Total operating costs and expenses........................ 1,218,608 1,086,915 3,748,334 3,123,507
---------- ---------- ---------- ----------
Operating profit.......................................... 37,724 22,842 195,123 162,127
Other income (expense):
Interest income........................................... 8,658 12,163 23,850 38,051
Interest expense.......................................... (18,789) (20,341) (58,312) (62,006)
Other, net................................................ (12,943) 69,920 (33,196) 67,360
---------- ---------- ---------- ----------
(23,074) 61,742 (67,658) 43,405
---------- ---------- ---------- ----------
Earnings from continuing operations before income taxes,
minority interest and cumulative effect of accounting
change.................................................... 14,650 84,584 127,465 205,532
Income tax expense.......................................... (21,901) (27,452) (71,191) (86,524)
Minority interest........................................... (33,192) (63,004) (124,378) (145,299)
---------- ---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS............................. $ (40,443) $ (5,872) $ (68,104) $ (26,291)
DISCONTINUED OPERATIONS:
Discontinued operations, net of tax......................... -- (14,367) -- (41,407)
Gain on disposal of Broadcasting stations, net of tax....... 468,018 -- 517,847 --
---------- ---------- ---------- ----------
Earnings (loss) before cumulative effect of accounting
change, net of tax........................................ 427,575 (20,239) 449,743 (67,698)
Cumulative effect of accounting change, net of tax.......... -- -- (9,187) --
---------- ---------- ---------- ----------
NET EARNINGS (LOSS)......................................... $ 427,575 $ (20,239) $ 440,556 $ (67,698)
========== ========== ========== ==========
LOSS PER SHARE FROM CONTINUING OPERATIONS:
Basic and diluted loss.................................... $ (.11) $ (.02) $ (.18) $ (.07)
EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE:
Basic earnings (loss) per common share.................... $ 1.14 $ (.06) $ 1.21 $ (.19)
Diluted earnings (loss) per common share.................. $ .59 $ (.06) $ .70 $ (.19)
NET EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per common share.................... $ 1.14 $ (.06) $ 1.18 $ (.19)
Diluted earnings (loss) per common share.................. $ .59 $ (.06) $ .69 $ (.19)
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
2
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 899,759 $ 244,223
Restricted cash equivalents................................. 5,285 2,021
Marketable securities....................................... 143,676 126,352
Accounts and notes receivable, net of allowance of $72,374
and $61,141, respectively................................. 1,281,711 646,196
Inventories, net............................................ 445,628 404,468
Investments held for sale................................... 320 750
Deferred tax assets......................................... 59,211 43,975
Other current assets, net................................... 73,161 52,631
Net current assets of discontinued operations............... -- 7,788
----------- -----------
Total current assets.................................. 2,908,751 1,528,404
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 359,784 322,140
Buildings and leasehold improvements........................ 140,937 132,874
Furniture and other equipment............................... 119,393 100,734
Land........................................................ 15,605 15,658
Projects in progress........................................ 38,033 45,084
----------- -----------
673,752 616,490
Less accumulated depreciation and amortization........ (253,927) (172,496)
----------- -----------
419,825 443,994
OTHER ASSETS
Intangible assets, net...................................... 7,345,565 7,461,862
Cable distribution fees, net................................ 148,449 159,473
Long-term investments....................................... 52,633 49,355
Notes and accounts receivable, net of current portion
($81,091 and $22,575 from related parties)................ 137,509 38,301
Advance to Universal........................................ 39,848 95,220
Inventories, net............................................ 518,545 485,941
Deferred charges and other, net............................. 116,782 83,239
Net non-current assets of discontinued operations........... -- 128,081
----------- -----------
$11,687,907 $10,473,870
=========== ===========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 41,772 $ 25,457
Accounts payable, trade..................................... 254,721 283,066
Accounts payable, client accounts........................... 118,095 97,687
Obligations for program rights and film costs............... 293,004 283,812
Cable distribution fees payable............................. 33,556 33,598
Deferred revenue............................................ 141,736 93,125
Other accrued liabilities................................... 778,646 356,502
----------- -----------
Total current liabilities............................. 1,661,530 1,173,247
LONG-TERM OBLIGATIONS (net of current maturities)........... 545,584 552,501
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 325,303 295,210
OTHER LONG-TERM LIABILITIES................................. 88,551 97,526
DEFERRED INCOME TAXES....................................... 129,963 98,378
MINORITY INTEREST........................................... 4,943,105 4,817,137
STOCKHOLDERS' EQUITY
Preferred stock--$.01 par value; authorized 15,000,000
shares; no shares issued and outstanding.................. -- --
Common stock--$.01 par value; authorized 1,600,000,000
shares; issued and outstanding, 313,953,890 and
305,436,198 shares, respectively.......................... 3,139 3,055
Class B--convertible common stock--$.01 par value;
authorized, 400,000,000 shares; issued and outstanding,
63,033,452 shares......................................... 630 630
Additional paid-in capital.................................. 3,913,058 3,793,764
Retained earnings (Accumulated deficit)..................... 238,215 (202,341)
Accumulated other comprehensive loss........................ (15,359) (10,825)
Treasury stock.............................................. (140,814) (139,414)
Note receivable from key executive for common stock
issuance.................................................. (4,998) (4,998)
----------- -----------
Total stockholders' equity............................ 3,993,871 3,439,871
----------- -----------
$11,687,907 $10,473,870
=========== ===========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<Table>
<Caption>
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
CLASS B ACCUM. FOR
CONVERTIBLE ADDIT. OTHER COMMON
COMMON COMMON PAID-IN ACCUM. COMP. TREASURY STOCK
TOTAL STOCK STOCK CAPITAL DEFICIT LOSS STOCK ISSUANCE
---------- -------- ----------- ---------- --------- -------- --------- ----------
(IN THOUSANDS)
BALANCE AT DECEMBER 31,
2000...................... $3,439,871 $3,055 $630 $3,793,764 $(202,341) $(10,825) $(139,414) $(4,998)
Comprehensive income:
Net earnings for the nine
months ended
September 30, 2001...... 440,556 -- -- -- 440,556 -- -- --
Decrease in unrealized
gains in available for
sale securities......... (37) -- -- -- -- (37) -- --
Foreign currency
translation............. (4,497) -- -- -- -- (4,497) -- --
----------
Comprehensive income...... 436,022
----------
Issuance of common stock
upon exercise of stock
options................... 73,545 83 -- 73,462 -- -- -- --
Income tax benefit related
to stock options
exercised................. 41,286 -- -- 41,286 -- -- -- --
Issuance of stock in
connection with other
transactions.............. 4,548 2 -- 4,546 -- -- -- --
Purchase of Treasury
Stock..................... (1,401) (1) -- -- -- -- (1,400) --
---------- ------ ---- ---------- --------- -------- --------- -------
BALANCE AT SEPTEMBER 30,
2001...................... $3,993,871 $3,139 $630 $3,913,058 $ 238,215 $(15,359) $(140,814) $(4,998)
========== ====== ==== ========== ========= ======== ========= =======
</Table>
Accumulated other comprehensive income is comprised of unrealized (losses)
gains on available for sale securities of $(5,598) and $(5,561) at
September 30, 2001 and December 31, 2000, respectively and foreign currency
translation adjustments of $(9,761) and $(5,264) at September 30, 2001 and
December 31, 2000, respectively.
Comprehensive income for the three months ended September 30, 2001 was
$430,485.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
Cash Flows From Operating Activities:
Loss from continuing operations........................... $ (68,104) $ (26,291)
Adjustments to reconcile net loss from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization........................... 427,077 369,970
Amortization of cable distribution fees................. 29,384 25,335
Amortization of program rights and film costs........... 550,363 474,142
Amortization of deferred financing costs................ 1,149 2,997
Non-cash distribution and marketing expense............. 19,866 4,566
Amortization of non-cash compensation expense........... 5,431 7,391
Deferred income taxes................................... 4,945 544
Equity in losses of unconsolidated affiliates........... 22,021 40,896
Gain on sale of subsidiary stock........................ -- (108,343)
Non-cash interest income................................ (3,396) (6,880)
Minority interest....................................... 124,378 145,299
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable................................... (65,833) (52,972)
Inventories........................................... 4,490 (1,888)
Accounts payable...................................... (16,854) (66,308)
Accrued liabilities and deferred revenue.............. 97,353 111,201
Payment for program rights and film costs............. (612,906) (594,121)
Increase in cable distribution fees................... (18,511) (39,251)
Other, net............................................ (21,206) 15,991
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 479,647 302,278
Cash Flows From Investing Activities:
Acquisitions, net of cash acquired........................ (193,857) (203,029)
Capital expenditures...................................... (100,232) (102,331)
Recoupment of advance to Universal........................ 58,698 68,333
Increase in long-term investments and notes receivable.... (76,707) (16,518)
Purchase of marketable securities......................... (21,373) (78,172)
Proceeds from sale of broadcasting stations............... 510,374 --
Other, net................................................ (13,864) (30,784)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... 163,039 (362,501)
Cash Flows From Financing Activities:
Borrowings................................................ 21,974 50,211
Principal payments on long-term obligations............... (11,941) (81,926)
Purchase of treasury stock................................ (1,401) (129,908)
Payment of mandatory tax distribution to LLC partners..... (17,369) (68,065)
Proceeds from sale of subsidiary stock.................... 10,447 92,604
Proceeds from issuance of common stock and LLC shares..... 73,545 207,795
Other, net................................................ (10,921) (12,901)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 64,334 57,810
NET CASH USED IN DISCONTINUED OPERATIONS.................... (48,058) (54,382)
Effect of exchange rate changes on cash and cash
equivalents............................................. (3,426) (4,133)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 655,536 (60,928)
Cash and cash equivalents at beginning of period............ 244,223 423,176
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 899,759 $ 362,248
========= =========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION
USA Networks, Inc. (the "Company" or "USA") is focused on the new
convergence of entertainment, information and direct selling.
On January 31, 2001, Ticketmaster Online-Citysearch, Inc. ("TMCS") and
Ticketmaster Corporation, both of which are subsidiaries of USA, completed a
transaction which combined the two companies. The combined company has been
renamed "Ticketmaster". Under the terms of the transaction, USA contributed
Ticketmaster Corporation to Ticketmaster Online-Citysearch and received
52 million Ticketmaster Online-Citysearch Class B Shares. The Ticketmaster
Class B common stock is quoted on the Nasdaq Stock Market. As of January 31,
2001, USA beneficially owned 68% of the outstanding Ticketmaster common stock,
representing 85% of the total voting power of Ticketmaster's outstanding common
stock.
On July 27, 2000, USA and Styleclick.com Inc., an enabler of e-commerce for
manufacturers and retailers ("Styleclick.com"), completed the merger of Internet
Shopping Network ("ISN") and Styleclick.com (the "Styleclick Transaction"). See
Note 3.
On April 5, 2000, the Company acquired Precision Response Corporation
("PRC") (the "PRC Transaction"). See Note 3.
As disclosed in our report for the quarterly period ended June 30, 2001, on
July 16, 2001, USA announced an agreement to acquire a controlling interest in
Expedia, Inc. (NASDAQ: EXPE), a leading provider of branded online travel
services for leisure and small business travelers. Under the terms of the
definitive agreement, USA will acquire up to 37,500,000 shares of Expedia common
stock. The acquisition of Expedia is subject to customary closing conditions and
is expected to close during the fourth quarter of 2001.
USA's segments are organized into three units, USA Entertainment, USA
Electronic Retailing and USA Information and Services. The units and segments
are as follows:
USA ENTERTAINMENT
- CABLE AND STUDIOS, consisting of the cable networks USA Network and Sci Fi
Channel and Studios USA, which produces and distributes television
programming.
- EMERGING NETWORKS, consists primarily of the cable television properties
Trio and News World International, which were acquired on May 19, 2000,
and SciFi.com, an emerging Internet content and commerce site.
- FILMED ENTERTAINMENT, consisting primarily of USA Films, which is in the
film distribution and production businesses.
USA ELECTRONIC RETAILING
- ELECTRONIC RETAILING, consisting primarily of HSN and America's Store, HSN
International and HSN Interactive, including HSN.com.
7
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--ORGANIZATION (CONTINUED)
USA INFORMATION AND SERVICES
- TICKETING OPERATIONS, consisting primarily of Ticketmaster and
Ticketmaster.com, which provide offline and online automated ticketing
services.
- HOTEL RESERVATIONS, which includes Hotel Reservations Network, a leading
consolidator of hotel rooms for resale in the consumer market.
- TELESERVICES, consisting of Precision Response Corporation, a leader in
outsourced customer care for both large corporations and high-growth
internet-focused companies.
- MATCH, consisting of an online personals business.
- CITYSEARCH AND RELATED, which primarily consists of Citysearch, which
operates an online network that provides locally oriented services and
information to users.
- ELECTRONIC COMMERCE SOLUTIONS, which primarily represents the Company's
electronic commerce solutions business.
- STYLECLICK, a facilitator of e-commerce websites and Internet enabled
applications.
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements and Notes thereto of
the Company are unaudited and should be read in conjunction with the audited
Consolidated Financial Statements and Notes thereto for the twelve months ended
December 31, 2000.
In the opinion of the Company, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist of normal recurring items. Interim results
are not necessarily indicative of results for a full year. The interim Condensed
Consolidated Financial Statements and Notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's audited Consolidated Financial Statements and Notes
thereto.
ACCOUNTING ESTIMATES
Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the United States.
These estimates and assumptions impact the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements. They also impact the reported amount
of net earnings during any period. Actual results could differ from those
estimates.
Significant estimates underlying the accompanying consolidated financial
statements include the inventory carrying adjustment, program rights and film
cost amortization, sales return and other revenue allowances, allowance for
doubtful accounts, recoverability of intangibles and other long-lived assets,
estimates of film revenue ultimates and various other operating allowances and
accruals.
8
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--ORGANIZATION (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
FILM ACCOUNTING
The Company adopted SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF
FILMS ("SOP 00-2") during the nine months ended September 30, 2001. SOP 00-2
established new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Specifically, SOP 00-2 requires advertising costs for theatrical and television
product to be expensed as incurred. This compares to the Company's previous
policy of first capitalizing these costs and then expensing them over the
related revenue streams. In addition, SOP 00-2 requires development costs for
abandoned projects and certain indirect overhead costs to be charged directly to
expense, instead of those costs being capitalized to film costs, which was
required under the previous accounting rules. SOP 00-2 also requires all film
costs to be classified in the balance sheet as non-current assets. Provisions of
SOP 00-2 in other areas, such as revenue recognition, generally are consistent
with the Company's existing accounting policies.
SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a
one-time, non-cash expense of $9.2 million, net of tax. The net effect is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated statement of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002, and is presently in the process of
evaluating the potential impacts of the new rules.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 2001 presentation, including all amounts
charged to customers for shipping and handling, which are now presented as
revenue.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 Form 10-K") for a summary of all significant
accounting policies.
9
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS
The following unaudited pro forma condensed consolidated financial
information for the nine months ended September 30, 2001 and 2000, is presented
to show the results of the Company, as if the PRC Transaction and the Styleclick
Transaction and the merger of Ticketmaster and Ticketmaster Online-Citysearch,
which did not impact revenues or operating profit, but rather minority interest
and income taxes, had occurred at the beginning of the periods presented. The
pro forma results include certain adjustments, including increased amortization
related to goodwill, and are not necessarily indicative of what the results
would have been had the transactions actually occurred on the aforementioned
dates. Note that the amounts exclude USAB, the sale of which was announced in
December 2000 and is now presented as a discontinued operation.
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net revenues......................................... $3,943,457 $3,357,172
Loss from continuing operations...................... (69,640) (65,954)
Basic and diluted loss from continuing operations per
common share....................................... $ (.19) $ (.18)
</Table>
NOTE 4--STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001:
For the nine months ended September 30, 2001, interest accrued on the
$200.0 million advance to Universal amounted to $3.3 million.
For the nine months ended September 30, 2001, the Company incurred non-cash
distribution and marketing expense of $19.9 million and non-cash compensation
expense of $5.4 million.
During the nine months ended September 30, 2001, the Company realized a
pre-tax loss of $6.7 million related to the write-off of investments to fair
value.
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
On January 20, 2000, the Company completed its acquisition of Ingenious
Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USA common
stock for all the outstanding stock of IDI, for a total value of approximately
$5.0 million.
On January 31, 2000, TMCS completed its acquisition of 2b Technology, Inc.
("2b"), by issuing approximately 458,005 shares of TMCS Class B Common Stock for
all the outstanding stock of 2b, for a total value of approximately
$17.1 million.
On April 5, 2000, USA completed its acquisition of PRC by issuing
approximately 24.3 million shares of USA common stock for all of the outstanding
stock of PRC, for a total value of approximately $711.7 million.
10
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--STATEMENTS OF CASH FLOWS (CONTINUED)
On May 26, 2000, TMCS completed its acquisition of Ticketweb, Inc.
("Ticketweb"), by issuing approximately 1.8 million shares of TMCS Class B
Common Stock for all of the outstanding stock of Ticketweb, for a total value of
approximately $35.3 million.
For the nine months ended September 30, 2000, interest accrued on the
$200.0 million advance to Universal amounted to $6.9 million.
For the nine months ended September 30, 2000, the Company incurred non-cash
distribution and marketing expense of $4.6 million and non-cash compensation
expense of $7.4 million.
During the second quarter, the Company recorded $11.6 million of expenses
related to an agreement with an executive. Of this amount, $3.8 million is a
non-cash stock compensation charge related to restricted stock.
During the third quarter, the Company realized a pre-tax loss of
$30.5 million related to the write-off of investments to fair value.
NOTE 5--INDUSTRY SEGMENTS
The Company operates principally in the following industry segments: Cable
and studios, Emerging networks, Filmed entertainment, Electronic retailing,
Ticketing operations, Hotel reservations, Teleservices, Match, Citysearch and
related, Electronic commerce solutions and Styleclick. The Cable and studios
segment consists of the cable networks USA Network and Sci Fi Channel and
Studios USA, which produces and distributes television programming. The Emerging
networks segment consists primarily of the cable television properties Trio and
News World International, which were acquired on May 19, 2000, and SciFi.com, an
emerging Internet content and commerce site. The Filmed entertainment segment
consists primarily of USA Films, which engages in the film distribution and
production businesses. The Electronic retailing segment consists principally of
the Home Shopping Network, America's Store, HSN International and HSN
Interactive, including HSN.com, which are engaged in the sale of merchandise
through electronic retailing. The Ticketing operations segment primarily
consists of Ticketmaster and Ticketmaster.com, which provide offline and online
automated ticketing services. The Hotel reservations segment consists of Hotel
Reservations Network, a leading consolidator of hotel rooms for resale in the
consumer market. The Teleservices segment was formed on April 5, 2000 in
conjunction with the acquisition of PRC, which handles outsourced customer care
for both large corporations and high-growth internet-focused companies. The
Match segment consists of an online personals business. The Citysearch and
related segment primarily consists of Citysearch, which operates an online
network that provides locally oriented services and information to users. The
Electronic commerce solutions segment primarily represents the Company's
electronic solutions business. The Styleclick segment represents Styleclick, a
facilitator of e-commerce websites and Internet enabled applications.
11
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5--INDUSTRY SEGMENTS (CONTINUED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(IN THOUSANDS)
REVENUE
USA ENTERTAINMENT
Cable and studios............................. $ 398,211 $ 336,047 $1,280,065 $1,105,688
Emerging networks............................. 5,784 8,591 18,125 12,862
Filmed entertainment.......................... 15,995 14,468 129,562 65,548
USA ELECTRONIC RETAILING
Electronic retailing.......................... 453,447 427,058 1,364,248 1,245,323
USA INFORMATION AND SERVICES
Ticketing operations.......................... 133,897 124,929 447,904 395,909
Hotel reservations............................ 151,242 94,619 394,830 227,964
Teleservices.................................. 72,610 70,162 228,926 140,374
Match......................................... 12,477 7,600 31,686 21,978
Citysearch and related........................ 11,079 13,962 35,852 36,798
Electronic commerce solutions................. 4,817 7,174 15,560 15,634
Styleclick.................................... 901 5,147 7,358 17,556
Intersegment Elimination...................... (4,128) -- (10,659) --
---------- ---------- ---------- ----------
$1,256,332 $1,109,757 $3,943,457 $3,285,634
========== ========== ========== ==========
OPERATING PROFIT (LOSS)
USA ENTERTAINMENT
Cable and studios............................. $ 124,558 $ 90,394 $ 397,680 $ 312,371
Filmed entertainment.......................... (2,046) (8,244) (7,414) (12,794)
Developing networks........................... (4,860) (1,875) (13,998) (6,669)
USA ELECTRONIC RETAILING
Electronic retailing.......................... 5,179 27,232 44,320 92,041
USA INFORMATION AND SERVICES
Ticketing operations.......................... (651) (2,735) 25,440 22,667
Hotel reservations............................ 5,895 1,899 10,574 3,650
Teleservices.................................. (17,102) (1,597) (28,561) (4,586)
Match......................................... 1,054 (2,565) (5,704) (9,003)
Citysearch and related........................ (40,540) (45,789) (123,123) (137,112)
Electronic commerce solutions................. (12,749) (7,451) (28,076) (19,961)
Styleclick.................................... (5,525) (18,156) (36,496) (37,382)
Other......................................... (15,489) (8,271) (39,519) (41,095)
---------- ---------- ---------- ----------
$ 37,724 $ 22,842 $ 195,123 $ 162,127
========== ========== ========== ==========
</Table>
The Company operates principally within the United States.
12
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--GAIN ON SALE OF BROADCAST STATIONS
In December 2000, the Company announced that Univision Communications Inc.
("Univision") would acquire, for $1.1 billion in cash, all of the capital stock
of certain USA Broadcasting ("USAB") subsidiaries that own 13 full-power
television stations and minority interests in four additional full-power
stations. In August 2001, the Company completed the sale. The gain on the sale
of the stations was $468 million, net of taxes of $343 million and
$518 million, net of taxes of $377 million for the three and nine months ended
September 30, 2001, respectively. To date, the Company has received proceeds of
$510.4 million. A note receivable of $589.6 million is reflected in current
assets.
NOTE 7--SAVOY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
The Company has not prepared separate financial statements and other
disclosures concerning Savoy because management has determined that such
information is not material to holders of the Savoy Debentures, all of which
have been assumed by the Company as a joint and several obligor. The information
presented is reflected at Savoy's historical cost basis.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Net sales................................................... $3,428 $4,632
Operating expenses.......................................... 2,796 1,408
Operating income............................................ 632 3,224
Net income.................................................. 2,969 4,165
</Table>
SUMMARY CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
Current assets...................................... $ 441 $ --
Non-current assets.................................. 163,822 158,561
Current liabilities................................. 14,251 17,021
Non-current liabilities............................. 38,768 38,902
</Table>
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
On November 23, 1998, the Company and USANi LLC as co-issuers completed an
offering of $500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In
May 1999, the Old Notes were exchanged in full for $500.0 million of new 6 3/4%
Senior Notes due 2005 (the "Notes") that have terms that are substantially
identical to the Old Notes. Interest is payable on the Notes on May 15 and
13
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
November 15 of each year, commencing May 15, 1999. The Notes are jointly,
severally, fully and unconditionally guaranteed by certain subsidiaries of the
Company, including Home Shopping Network, Inc. ("Holdco"), a non-wholly owned,
direct subsidiary of the Company, and all of the subsidiaries of USANi LLC
(other than subsidiaries that are, individually and in the aggregate,
inconsequential to USANi LLC on a consolidated basis) (collectively, the
"Subsidiary Guarantors"). All of the Subsidiary Guarantors (other than Holdco)
(the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly or
indirectly, by the Company or USANi LLC, as the case may be.
The following tables present condensed consolidating financial information
for the three and nine months ended September 30, 2001 and 2000 for: (1) the
Company on a stand-alone basis, (2) Holdco on a stand-alone basis, (3) USANi LLC
on a stand-alone basis, (4) the combined Wholly Owned Subsidiary Guarantors
(including Wholly Owned Subsidiary Guarantors that are wholly owned subsidiaries
of USANi LLC), (5) the combined non-guarantor subsidiaries of the Company
(including the non-guarantor subsidiaries of USANi LLC (collectively, the
"Non-Guarantor Subsidiaries")), and (6) the Company on a consolidated basis.
Separate financial statements for each of the Wholly Owned Subsidiary
Guarantors are not presented and such Wholly Owned Subsidiary Guarantors are not
filing separate reports under the Securities Exchange Act of 1934 because the
Company's management has determined that the information contained in such
documents would not be material to investors.
<Table>
<Caption>
WHOLLY
OWNED
USANI SUBSIDIARY NON-GUARANTOR USA
USA HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- -------------- ------------ ------------
(IN THOUSANDS)
BALANCE SHEET AS OF SEPTEMBER
30, 2001:
Current Assets................ $ 609,572 $ -- $ 677,026 $ 965,065 $ 657,088 $ -- $ 2,908,751
Property and equipment, net... -- -- 23,502 194,633 201,690 -- 419,825
Goodwill and other intangible
assets, net................. 72,122 -- -- 4,809,036 2,464,407 -- 7,345,565
Investment in subsidiaries.... 3,585,269 1,317,087 7,061,144 101,355 -- (12,064,855) --
Other assets.................. 42,064 -- -- 723,620 841,442 (593,360) 1,013,766
---------- ---------- ---------- ---------- ---------- ------------ -----------
Total assets.................. $4,309,027 $1,317,087 $7,761,672 $6,793,709 $4,164,627 $(12,658,215) $11,687,907
========== ========== ========== ========== ========== ============ ===========
Current liabilities........... $ 413,467 $ -- $ 2,835 $ 715,951 $ 535,598 $ (6,321) $ 1,661,530
Long-term debt, less current
portion..................... -- -- 498,439 1,634 45,511 -- 545,584
Other liabilities............. (110,593) -- 942,604 375,084 549,209 (1,212,487) 543,817
Minority interest............. -- -- (141,138) 162,362 385,197 4,536,684 4,943,105
Interdivisional equity........ 12,282 -- -- 5,538,678 2,649,112 (8,200,072) --
Stockholders' equity.......... 3,993,871 1,317,087 6,458,932 -- -- (7,776,019) 3,993,871
---------- ---------- ---------- ---------- ---------- ------------ -----------
Total liabilities and
stockholders equity......... $4,309,027 $1,317,087 $7,761,672 $6,793,709 $4,164,627 $(12,658,215) $11,687,907
========== ========== ========== ========== ========== ============ ===========
</Table>
14
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<Table>
<Caption>
WHOLLY
OWNED
USANI SUBSIDIARY NON-GUARANTOR USA
USA HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- -------------- ------------ ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
Revenue....................... $ -- $ -- $ -- $ 784,541 $ 476,349 $ (4,558) $ 1,256,332
Operating expenses............ (3,411) -- (11,878) (654,017) (553,860) 4,558 (1,218,608)
Interest expense, net......... (5,253) -- 2,455 (8,104) 771 -- (10,131)
Other income, expense......... (31,779) 18,023 92,347 108 (13,051) (78,591) (12,943)
Income tax expense............ -- -- -- (20,606) (1,295) -- (21,901)
Minority interest............. -- -- -- (51,613) 18,421 -- (33,192)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... $ (40,443) $ 18,023 $ 82,924 $ 50,309 $ (72,665) $ (78,591) $ (40,443)
Gain on disposal of
Broadcasting Stations....... 468,018 -- -- -- -- -- 468,018
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ 427,575 $ 18,023 $ 82,924 $ 50,309 $ (72,665) $ (78,591) $ 427,575
========== ========== ========== ========== ========== ============ ===========
STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Revenue....................... $ -- $ -- $ -- $2,448,238 $1,507,042 $ (11,823) $ 3,943,457
Operating expenses............ (8,481) -- (29,892) (2,017,292) (1,704,492) 11,823 (3,748,334)
Interest expense, net......... (18,195) -- 5,665 (24,478) 2,546 -- (34,462)
Other income, expense......... (41,428) 68,849 304,043 (7,297) (25,899) (331,464) (33,196)
Provision for income taxes.... -- -- -- (56,598) (14,593) -- (71,191)
Minority interest............. -- -- -- (173,353) 48,975 -- (124,378)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... $ (68,104) $ 68,849 $ 279,816 $ 169,220 $ (186,421) $ (331,464) $ (68,104)
Gain on disposal of
Broadcasting Stations....... 517,847 -- -- -- -- -- 517,847
Cumulative effect of
accounting change........... (9,187) -- -- 2,438 (11,625) 9,187 (9,187)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ 440,556 $ 68,849 $ 279,816 $ 171,658 $ (198,046) $ (322,277) $ 440,556
========== ========== ========== ========== ========== ============ ===========
CASH FLOW FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2001
Cash flow from (used in)
operations.................. $ (18,882) $ -- $ (9,300) $ 408,452 $ 99,377 $ -- $ 479,647
Cash flow provided (used in)
investing activities........ 54,240 -- (4,367) (76,229) 189,395 -- 163,039
Cash flow from financing
activities.................. (35,358) -- 652,265 (273,517) (279,056) -- 64,334
Net Cash used by Discontinued
Operations.................. -- -- -- (48,058) -- -- (48,058)
Effect of exchange rate....... -- -- (278) 91 (3,239) -- (3,426)
Cash at beginning of period... -- -- 78,079 (28,949) 195,093 -- 244,223
---------- ---------- ---------- ---------- ---------- ------------ -----------
Cash at end of period......... $ -- $ -- $ 716,399 $ (18,210) $ 201,570 $ -- $ 899,759
========== ========== ========== ========== ========== ============ ===========
</Table>
15
<Page>
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<Table>
<Caption>
WHOLLY
OWNED
USANI SUBSIDIARY NON-GUARANTOR USA
USA HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- -------------- ------------ ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
Revenue....................... $ -- $ -- $ -- $ 719,812 $ 391,878 $ (1,933) $ 1,109,757
Operating expenses............ (3,353) -- (5,764) (615,381) (464,350) 1,933 (1,086,915)
Interest expense, net......... (7,718) -- 6,471 (5,836) (1,095) -- (8,178)
Other income, expense......... 6,019 34,197 147,313 (46,172) (1,987) (69,450) 69,920
Income tax expense............ (820) -- -- (17,856) (8,776) -- (27,452)
Minority interest............. -- -- -- (4,087) 28,309 (87,226) (63,004)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... (5,872) 34,197 148,020 30,480 (56,021) (156,676) (5,872)
Earnings (loss) from
discontinued operations..... (14,367) -- -- (14,367) -- 14,367 (14,367)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ (20,239) $ 34,197 $ 148,020 $ 16,113 $ (56,021) $ (142,309) $ (20,239)
========== ========== ========== ========== ========== ============ ===========
STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Revenue....................... $ -- $ -- $ -- $2,207,099 $1,080,352 $ (1,817) $ 3,285,634
Operating expenses............ (12,164) -- (29,627) (1,856,120) (1,227,332) 1,736 (3,123,507)
Interest expense, net......... (18,499) -- 16,260 (20,024) (1,692) -- (23,955)
Other income, expense......... 3,850 78,571 382,640 (72,179) (5,442) (320,080) 67,360
Provision for income taxes.... 522 -- (27,351) (36,017) (23,678) -- (86,524)
Minority interest............. -- -- -- (8,778) 71,998 (208,519) (145,299)
-- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... (26,291) 78,571 341,922 213,981 (105,794) (528,680) (26,291)
Earnings (loss) from
discontinued operations..... (41,407) -- -- (41,407) -- 41,407 (41,407)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ (67,698) $ 78,571 $ 341,922 $ 172,574 $ (105,794) $ (487,273) $ (67,698)
========== ========== ========== ========== ========== ============ ===========
CASH FLOW FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000
Cash flow from (used in)
operations.................. $ (29,055) $ -- $ (2,018) $ 304,656 $ 28,695 $ -- $ 302,278
Cash flow provided (used in)
investing activities........ 9,870 -- (44,131) (165,498) (162,742) -- (362,501)
Cash flow from financing
activities.................. 19,185 -- (63,944) (124,514) 227,083 -- 57,810
Net Cash used by discontinued
operations.................. -- -- -- (54,382) -- -- (54,382)
Effect of exchange rate....... -- -- -- (15) (4,118) -- (4,133)
Cash at beginning of period... -- -- 276,678 (25,067) 171,565 -- 423,176
---------- ---------- ---------- ---------- ---------- ------------ -----------
Cash at end of period......... $ -- $ -- $ 166,585 $ (64,820) $ 260,483 $ -- $ 362,248
========== ========== ========== ========== ========== ============ ===========
</Table>
16
<Page>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
USA is focused on the new convergence of entertainment, information and
direct selling. USA adopted its present corporate structure in 1998 when it
acquired USA Networks (consisting of USA Networks and Sci Fi Channel Cable
television networks) and the domestic television production and distribution
business of Universal Studios, Inc. (the "Universal Transaction"). USA maintains
control and management of Home Shopping Network, Inc. ("Holdco") and USANi LLC,
and manages the businesses held by USANi LLC in substantially the same manner as
they would be if USA held them directly through wholly owned subsidiaries.
On January 31, 2001, Ticketmaster Online-Citysearch, Inc. and Ticketmaster
Corporation, both of which are subsidiaries of USA, completed a transaction
which combined the two companies. The combined company has been renamed
"Ticketmaster." Under the terms of the transaction, USA contributed Ticketmaster
Corporation to Ticketmaster Online-Citysearch and received 52 million
Ticketmaster Online-Citysearch Class B Shares. The Ticketmaster Class B common
stock is quoted on the Nasdaq Stock Market. As of January 31, 2001, USA
beneficially owned 68% of the outstanding Ticketmaster common stock,
representing 85% of the total voting power of Ticketmaster's outstanding common
stock.
On July 27, 2000, USA and Styleclick.com Inc. ("Old Styleclick"), an enabler
of e-commerce for manufacturers and retailers, completed the merger of Internet
Shopping Network ("ISN") and Styleclick.com, forming a new company named
Styleclick, Inc. ("Styleclick") (the "Styleclick Transaction"). Styleclick
class A common stock is quoted on the Nasdaq Stock Market under the symbol
"IBUY."
In April 2000, the Company acquired Precision Response Corporation ("PRC"),
a leader in outsourced customer care for both large corporations and high-growth
internet-focused companies (the "PRC Transaction").
As disclosed in our report for the quarterly period ended June 30, 2001, on
July 16, 2001, USA announced an agreement to acquire a controlling interest in
Expedia, Inc. (NASDAQ: EXPE), a leading provider of branded online travel
services for leisure and small business travelers. Under the terms of the
definitive agreement, USA will acquire up to 37,500,000 shares of Expedia common
stock. The acquisition of Expedia is subject to customary closing conditions and
is expected to close during the fourth quarter of 2001.
USA's segments are organized into three units, USA Entertainment, USA
Electronic Retailing and USA Information and Services. The units and segments
are as follows:
USA ENTERTAINMENT
- CABLE AND STUDIOS, consisting of the cable networks USA Network and Sci Fi
Channel and Studios USA, which produces and distributes television
programming.
- EMERGING NETWORKS, consists primarily of the cable television properties
Trio and News World International, which were acquired on May 19, 2000,
and SciFi.com, an emerging Internet content and commerce site.
- FILMED ENTERTAINMENT, consisting primarily of USA Films, which is in the
film distribution and production businesses.
USA ELECTRONIC RETAILING
- ELECTRONIC RETAILING, consisting primarily of HSN and America's Store, HSN
International and HSN Interactive, including HSN.com.
17
<Page>
USA INFORMATION AND SERVICES
- TICKETING OPERATIONS, consisting primarily of Ticketmaster and
Ticketmaster.com, which provide offline and online automated ticketing
services.
- HOTEL RESERVATIONS, which includes Hotel Reservations Network, a leading
consolidator of hotel rooms for resale in the consumer market.
- TELESERVICES, consisting of Precision Response Corporation, a leader in
outsourced customer care for both large corporations and high-growth
internet-focused companies.
- MATCH, consisting of an online personals business.
- CITYSEARCH AND RELATED, which primarily consists of Citysearch, which
operates an online network that provides locally oriented services and
information to users.
- USA ELECTRONIC COMMERCE SOLUTIONS, which primarily represents the
Company's electronic commerce solutions business.
- STYLECLICK, a facilitator of e-commerce websites and Internet enabled
applications.
EVENTS OF SEPTEMBER 11TH
Before September 11th, the Company was tracking to achieve very healthy
revenue and EBITDA growth for the operating businesses, as the Company
anticipated that revenue would grow in the high teens and EBITDA would grow well
in excess of 20%. However, the events of September 11th changed everything for
the third quarter and probably, at least, the fourth quarter. For the fourth
quarter, we expect EBITDA from our Operating Businesses to decline by 12% to
16%, on flattish revenue growth, as compared to Q4 2000. This weak quarterly
performance is due largely to the continuing effects of the national tragedy,
including an accelerated downward impact on the advertising market. HSN,
however, has returned to its normal level of business, and, therefore
anticipates positive performance in the fourth quarter, but it's sales results
may be negatively affected by reduced computer sales (which contributed almost
$50 million in sales during Q4'00).
EBITDA
EBITDA is defined as net income plus (1) provision for income taxes,
(2) minority interest, (3) interest income and expense, (4) depreciation and
amortization, (5) amortization of cable distribution fees, and (6) amortization
of non-cash distribution and marketing expense and non-cash compensation
expense. EBITDA is presented here as a management tool and as a valuation
methodology for companies in the media, entertainment and communications
industries. EBITDA does not purport to represent cash provided by operating
activities. EBITDA should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW DEVELOPMENTS, NEW
MERCHANDISING STRATEGIES AND SIMILAR MATTERS. STATEMENTS IN THIS REPORT THAT ARE
NOT HISTORICAL FACTS ARE HEREBY IDENTIFIED AS "FORWARD-LOOKING STATEMENTS" FOR
THE PURPOSE OF THE SAFE HARBOR PROVIDED BY SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934 AND SECTION 27A OF THE SECURITIES ACT OF 1933.
FORWARD-LOOKING STATEMENTS, WHEREVER THEY OCCUR IN THIS REPORT, ARE NECESSARILY
ESTIMATES REFLECTING THE BEST JUDGMENT OF THE SENIOR MANAGEMENT OF THE COMPANY
AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE SUGGESTED BY THE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS SHOULD, THEREFORE, BE CONSIDERED IN LIGHT OF
VARIOUS IMPORTANT FACTORS, INCLUDING THOSE SET FORTH IN THIS REPORT. THE RISKS
AND UNCERTAINTIES THAT MAY AFFECT THE OPERATIONS, PERFORMANCE, DEVELOPMENT AND
RESULTS OF THE COMPANY'S BUSINESS INCLUDE, BUT ARE NOT LIMITED TO, THE
FOLLOWING: MATERIAL ADVERSE CHANGES IN ECONOMIC CONDITIONS GENERALLY OR IN THE
MARKETS SERVED BY THE COMPANY; FUTURE REGULATORY AND LEGISLATIVE ACTIONS
AFFECTING THE COMPANY'S OPERATING AREAS; COMPETITION FROM OTHERS; PRODUCT
18
<Page>
DEMAND AND MARKET ACCEPTANCE; THE ABILITY TO PROTECT PROPRIETARY INFORMATION AND
TECHNOLOGY OR TO OBTAIN NECESSARY LICENSES ON COMMERCIALLY REASONABLE TERMS; THE
ABILITY TO EXPAND INTO AND SUCCESSFULLY OPERATE IN FOREIGN MARKETS; AND
OBTAINING AND RETAINING SKILLED WORKERS AND KEY EXECUTIVES. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION
TO PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
TRANSACTIONS AFFECTING THE COMPARABILITY OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During the past years, we have augmented our media and electronic commerce
businesses by acquiring and developing several new businesses. As a result, the
PRC Transaction and the Styleclick Transaction should be considered when
comparing our results of operations and financial position. These acquisitions
caused an increase in net revenues, operating costs and expenses and a decrease
in operating profit. To enhance comparability, the discussion of consolidated
results of operations is supplemented, where appropriate, with separate pro
forma financial information that gives effect to the above transactions as if
they had occurred at the beginning of the respective periods presented.
The pro forma information is not necessarily indicative of the revenues and
costs which would have actually been reported had the Styleclick Transaction and
the PRC Transaction occurred at the beginning of the respective periods, nor is
it necessarily indicative of future results.
Reference should be made to the Consolidated Financial Statements.
CONSOLIDATED RESULTS OF OPERATIONS
CONTINUING OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 2000
The PRC Transaction and the Styleclick Transaction resulted in increases in
net revenues, operating costs and expenses and minority interest. However, no
significant discussion of these fluctuations is presented.
NET REVENUES
For the three months ended September 30, 2001, revenues increased by
$146.6 million, or 13.2%, to $1.26 billion from $1.11 billion in 2000 primarily
due to increases of $62.2 million, $56.6 million, $26.4 million, $9.0 million
and $4.9 million from the Cable and studios, Hotel reservations, Electronic
retailing, Ticketing operations and Match businesses, respectively. For the nine
months ended September 30, 2001, revenues increased by $657.8 million, or 20.0%,
to $3.94 billion from $3.29 billion in 2000 primarily due to increases of
$168.6 million, $166.9 million, $118.9 million, $83.7 million, $64.0 million and
$52.0 million from the Cable and studios, Hotel reservations, Electronic
retailing, Teleservices, which was acquired in April 2000, Filmed entertainment
and Ticketing operations, respectively. The Cable and studios increase resulted
from significant increases in license fees earned by Studios USA, including
amounts related to the three Law & Order programs currently airing on NBC,
increased license fees earned in secondary markets, and increased revenues
associated with THE DISTRICT. Revenues at Cable increased slightly, due mainly
to a $16 million adjustment related to affiliate fees recorded in Q3 2001.
Advertising revenue was lower than the prior year due to the weak advertising
market, which was worsened by the events of September 11th. Note that the cable
networks provided $1.8 million of advertising to Citysearch and Match in the
three months ended September 30, 2001. In addition, the networks recognized
$17.3 million of barter revenue pursuant to agreements with third parties. The
Hotel reservations increase resulted from increased room sales through HRN's
Internet sites, from significant expansion of affiliate marketing programs to
over 22.8 million in 2001 from 13.4 million in 2000, an increase in the number
of hotels in existing cities as well as expansion into 88
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new cities and the acquisition of TravelNow in February 2001. The number of room
nights sold increased to 1.2 million in the three months ended September 30,
2001 compared to .7 million in 2000, and 3.1 million in the nine months ended
September 30, 2001 compared to 1.7 million in 2000. Note that sales were
impacted by September 11th due to the high volume of cancellations after the
attacks. The Electronic retailing increase primarily resulted from Home Shopping
Network's domestic business, which generated increased sales in the three and
nine months ended September 30, 2001 of $27.6 million and $92.4 million,
respectively, including increased sales of $23.4 million and $60.2 million,
respectively, from HSN.com. In addition, the Improvements business purchased in
2001 contributed $15.6 million of revenue. On-air sales declined in the quarter
$11.5 million due to a dramatic, but relatively short-lived, decline in
viewership following the national tragedy of September 11th. HSN ceased its live
programming shortly after the attacks and aired live news programming from USA
Cable's NWI. For the three months ended September 30, 2001, total units shipped
domestically increased slightly to 8.8 million units compared to 8.6 million
units in 2000, while the return rate decreased slightly to 19.4% from 19.8% in
2000. Electronic retailing operations in Germany had decreased sales of
$3.0 million in the three months ended September 30, 2001, as revenues were
$50.8 million in the three months ended September 30, 2001 compared to
$53.8 million. The decreased sales reflect in part operating challenges
associated with the addition of 4 live hours of programming earlier in the year,
as sales continued to be hindered by the conversion to a new order management
system, which delayed certain shipments. Furthermore, the return rate increased
to 35.2% from 25.7% in 2000. Net revenues in Germany for the nine months ended
September 30, 2001 increased by $20.2 million to $182.4 million compared to
$162.2 million in 2000. The Ticketing operations increases are due to an
increase in average per ticket convenience and handling revenue of 9% to $6.20
from $5.67 for the three months and 8% increase from $5.67 to $6.15 for the nine
month period. In the three months ended September 30, 2001, the number of
tickets sold decreased slightly to 19.3 million from 20.2 million in 2000, due
to reduced ticket sales, event postponements and event cancellations following
September 11th. Also, net revenues increased, to a lesser extent, due to the
acquisition of ReserveAmerica in February 2001. For the nine months ended
September 30, 2001, the number of tickets sold increased to 66.4 million from
64.3 million, due primarily to an overall increase in tickets sold within
existing markets and the acquisition of Admission Canada in April 2000,
TicketWeb in May 2000, and the consolidation of Ticketmaster Ireland. The
percentage of tickets sold online for the three months ended September 30, 2001
is approximately 31.9%, as compared to 25.6% in 2000. The Match increase is due
to increased subscription revenue, as the personals operations had 252,700
paying subscribers compared to 156,945 at year-end 2000 and an increase in
subscription prices. Furthermore, the personals operations attracted a monthly
average of 2.4 million unique users in the third quarter of 2001, a 41.2%
increase over 2000.
OPERATING COSTS AND EXPENSES
For the three months ended September 30, 2001, operating expenses increased
by $131.7 million, or 12.1%, to $1.22 billion from $1.09 billion in 2000,
primarily due to increases in costs related to revenues and other costs of
$122.1 million, including $48.8 million from Hotel reservations, $43.1 million
from Electronic retailing, $25.4 million from Cable and studios, $6.6 million
from Ticketing operations and $5.7 million from Teleservices. In addition, for
the three months ended September 30, 2001, depreciation and amortization
increased $5.9 million. For the nine months ended September 30, 2001, operating
expenses increased by $624.8 million, or 20.0%, to $3.75 billion from
$3.12 billion in 2000, primarily due to increases in costs related to revenues
and other costs of $550.3 million, including $149.1 million from Electronic
retailing, $143.3 million from Hotel reservations, $83.5 million from
Teleservices, which was acquired in April 2000, $81.1 million from Cable and
studios, $58.0 million from Filmed entertainment and $42.8 million from
Ticketing operations. In addition, for the nine months ended September 30, 2001,
depreciation and amortization increased $57.1 million, primarily from the
acquisition of PRC and fixed asset additions. The Hotel reservations increase in
costs is primarily due to increased sales, including an increased percentage of
revenue attributable to affiliate and travel agents that earn commissions (sales
from affiliate websites
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accounted for approximately 66% of the total revenues, as compared to
approximately 53% in the comparable periods). Gross profit margin for the three
months ended September 30, 2001 decreased slightly to 30.1% from 30.5% due to a
decline in gross profit margin of HRN's historical business offset partially by
the acquisition of TravelNow, which has higher gross margins. The decline in
margin for the historical business resulted from HRN's decision to focus on
increasing market share and the absolute amount of gross profit instead solely
on gross profit margin. Additionally, HRN established a reserve against the
impact of the events of September 11th, which resulted in a slight reduction of
margin. For Electronic retailing, domestic costs increased due to higher fixed
overhead costs for fulfillment, which helped contribute, along with pricing
incentives offered after September 11th, to a lower gross margin of 32.0% as
compared to 34.6% in the prior year. Furthermore, the Company incurred higher
selling and marketing costs, including programs to attract new customers, and
costs related to the Improvements business, which was purchased in 2001.
Internationally, costs increased in Germany due to the decline in gross margin
to 29.1% from 36.1% in 2000, increased investments in adding an additional 4
live hours of programming and increased marketing expenses for new product
lines. The Cable and studios increase resulted primarily from costs associated
with the increased revenues of all of the businesses, including the costs of
providing increased product to the broadcast networks, and $5.1 million of
higher expense for development costs, offset partially by efficient use of
programming by Cable, resulting in reduced program amortization, and increased
usage of internally developed product. The Ticketing operations increase
resulted primarily from higher ticketing operations revenue, as the costs are
primarily variable in nature. The Teleservices increases resulted primarily from
increased operations and costs associated with obtaining new clients.
The three and nine months ended September 30, 2001 reflect restructuring and
one-time charges of $12.3 million and $29.4 million ($17.0 million of EBITDA),
respectively. The amounts represent non-recurring charges related to
restructuring operations, consolidating Styleclick's operations in Chicago, the
shut down of the Firstauction.com website, and employee terminations and
benefits.
OTHER INCOME (EXPENSE)
For the three and nine months ended September 30, 2001, net interest expense
increased by $2.0 million and $10.5 million, respectively, compared to 2000
primarily due to lower short-term investment levels and lower rates for interest
income. Other expense, net for the three and nine months ended September 30,
2001 decreased $82.9 million and $100.6 million, respectively, due primarily to
the $104.6 million gain recognized in the three months ended September 30, 2000
related to the merger of ISN and Styleclick, offset partially by the write-off
of certain investments and increased equity losses in unconsolidated
subsidiaries. Also, during the three months ended September 30, 2001, the
Company wrote-down the assets of its equity holdings in certain Internet
ventures based upon an other than temporary decline in value of those ventures
due to the prevailing business conditions, resulting in a charge of
$6.7 million.
INCOME TAXES
USA's effective tax rate, computed before the impact of minority interest,
of 149.5% and 55.9% for the three and nine months ended September 30, 2001 was
higher than the statutory rate due to the impact on taxable income of
non-deductible goodwill, consolidated book losses not consolidated into taxable
income and state income taxes.
MINORITY INTEREST
For the periods presented, minority interest primarily represented
Universal's and Liberty's ownership interest in USANi LLC, Liberty's ownership
interest in Holdco, the public's ownership in Ticketmaster, the public's
ownership interest in HRN since February 25, 2000 and the public's ownership
interest in Styleclick since July 27, 2000.
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GAIN ON SALE OF BROADCASTING STATIONS AND DISENGAGEMENT EXPENSES
In December 2000, the Company announced that Univision Communications Inc.
("Univision") would acquire, for $1.1 billion in cash, all of the capital stock
of certain USA Broadcasting ("USAB") subsidiaries that own 13 full-power
television stations and minority interests in four additional full-power
stations. In August 2001, the Company completed the sale. The gain on the sale
of the stations was $468 million, net of taxes of $343 million and
$518 million, net of taxes of $377 million for the three and nine months ended
September 30, 2001, respectively. To date, the Company has received proceeds of
$510.4 million. A note receivable of $589.6 million is reflected in current
assets.
The majority of the stations are located in the largest markets in the
country and air HSN on a 24-hour basis. As of January 2002, HSN will have
switched it distribution in these markets directly to cable carriage. As a
result, HSN will lose approximately 12 million homes and accordingly, HSN's
operating results will be affected. Fortunately, sales from broadcast only homes
are very, very low in comparison to sales from cable homes. So HSN's losses
attributable to disengagement is expected to be limited. HSN anticipates losing
sales, which translates on a pro forma basis for 2001, of $108 million and
EBITDA of $15 million. These anticipated losses are consistent with previous
disclosures in the Company's 10-K filing, in which it was stated that
disengagement losses would equal approximately 6% of HSN's sales and EBITDA. In
addition, in order to effectively transfer HSN's distribution to cable (which
has been accomplished), USA will incur charges of approximately $100 million in
the form of payments to cable operators and related marketing expenses. These
disengagement costs will not impact EBITDA. Approximately $5 million of these
costs will be incurred in 2001 and $53 million in 2002. In effect, this
approximate $100 million payment will reduce USA's pre-tax proceeds from the
Univision transaction to $1 billion.
DISCONTINUED OPERATIONS
The loss for USAB for the three and nine months ended September 30, 2000 was
$14.4 million and $41.4 million, respectively, net of tax benefits of
$5.1 million and $13.7 million, respectively, and is presented as a discontinued
operation.
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PRO FORMA QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001
VS. PRO FORMA QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000
The following unaudited pro forma operating results of USA present combined
results of operations as if the PRC Transaction and the Styleclick Transaction
all had occurred on January 1, 2000. The unaudited combined condensed pro forma
statements of operations of USA are presented below for illustrative purposes
only and are not necessarily indicative of the results of operations that would
have actually been reported had any of the transactions occurred as of
January 1, 2000, nor are they necessarily indicative of future results of
operations.
UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(IN THOUSANDS)
NET REVENUES:
USA ENTERTAINMENT
Cable and Studios........................... $ 398,211 $ 336,047 $1,280,065 $1,105,688
Emerging networks........................... 5,784 8,591 18,125 12,862
Filmed entertainment........................ 15,995 14,468 129,562 65,548
USA ELECTRONIC RETAILING
Electronic retailing........................ 453,447 427,058 1,364,248 1,245,323
USA INFORMATION AND SERVICES
Ticketing operations........................ 133,897 124,929 447,904 395,909
Hotel reservations.......................... 151,242 94,619 394,830 227,964
Teleservices................................ 72,610 70,162 228,926 210,023
Match....................................... 12,477 7,600 31,686 21,978
Citysearch and related...................... 11,079 13,962 35,852 36,798
Electronic commerce solutions............... 4,817 7,174 15,560 15,634
Styleclick.................................. 901 5,291 7,358 19,445
Intersegment elimination.................... (4,128) -- (10,659) --
---------- ---------- ---------- ----------
Total net revenues.......................... 1,256,332 1,109,901 3,943,457 3,357,172
Operating costs and expenses:
Cost of sales............................... 579,744 523,148 1,809,063 1,526,044
Program costs............................... 166,917 146,000 569,423 485,037
Selling and marketing....................... 169.888 135,749 468,278 389,231
General and administrative.................. 111,774 106,604 331,235 318,092
Other operating costs....................... 30,865 27,217 88,577 70,883
Amortization of cable distribution fees..... 9,986 8,845 29,384 25,335
Amortization of non cash distribution and
marketing expense......................... 5,218 2,692 19,866 4,566
Amortization of non cash compensation
expense................................... 1,268 1,235 5,431 7,391
Depreciation and amortization............... 142,948 141,702 427,077 419,936
---------- ---------- ---------- ----------
Total operating costs and expenses.......... 1,218,608 1,093,192 3,748,334 3,246,515
---------- ---------- ---------- ----------
Operating profit.............................. $ 37,724 $ 16,709 $ 195,123 $ 110,657
EBITDA........................................ $ 197,144 $ 171,183 $ 676,881 $ 567,885
</Table>
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Net revenues for the three months ended September 30, 2001 increased by
$146.4 million, or 13.2%, to $1.26 billion from $1.11 billion in 2000. Cost
related to revenues and other costs and expenses for the three months ended
September 30, 2001 increased by $125.4 million, or 11.5%, to $1.22 billion from
$1.09 billion in 2000. EBITDA for the three months ended September 30, 2001
increased by $25.9 million, or 15.2%, to $197.1 million from $171.2 million in
2000.
Net revenues for the nine months ended September 30, 2001 increased by
$586.3 million, or 17.5%, to $3.94 billion from $3.36 billion in 2000. Cost
related to revenues and other costs and expenses for the nine months ended
September 30, 2001 increased $501.8 million or 15.5%, to $3.75 billion from
$3.25 billion in 2000. EBITDA for the nine months ended September 30, 2001
increased by $109.0 million, or 19.2%, to $676.9 million from $567.9 million in
2000.
The following discussion provides an analysis of the pro forma revenues and
costs related to revenues and other costs and expenses by significant business
segment.
CABLE AND STUDIOS
Net revenues for the three months ended September 30, 2001 increased by
$62.2 million, or 18.5%, to $398.2 million from $336.0 in 2000. Net revenues for
the nine months ended September 30, 2001 increased by $174.4 million, or 15.8%,
to $1.28 billion from $1.11 billion in 2000. The increase resulted from
significant increases in license fees earned by Studios USA, including amounts
related to the three Law & Order programs currently airing on NBC, increased
license fees earned in secondary markets, and increased revenues associated with
THE DISTRICT. Revenues at Cable increased slightly, due mainly to a $16 million
adjustment related to affiliate fees recorded in Q3 2001. Advertising revenue
was lower than the prior year due to the weak advertising market, which was
worsened by the events of September 11th. Note that the cable networks provided
$1.8 million of advertising to Citysearch and Match in the three months ended
September 30, 2001. In addition, the networks recognized $17.3 million of barter
revenue pursuant to agreements with third parties.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 increased by $25.4 million, or 11.7%, to
$243.0 million from $217.6 million in 2000. Cost related to revenues and other
costs and expenses for the nine months ended September 30, 2001 increased by
$81.1 million, or 11.4%, to $790.2 million from $709.1 million in 2000. This
increase resulted primarily from costs associated with the increased revenues of
all of the businesses, including the costs of providing increased product to the
broadcast networks, and $5.1 million of higher expense for development costs,
offset partially by efficient use of programming by Cable, resulting in reduced
program amortization, and increased usage of internally developed product.
EBITDA for the three months ended September 30, 2001 increased by
$36.7 million, or 31.0%, to $155.2 million from $118.5 million in 2000. EBITDA
for the nine months ended September 30, 2001 increased by $93.3 million, or
23.5%, to $489.9 million from $396.6 million in 2000.
EMERGING NETWORKS
Net revenues decreased by $2.8 million to $5.8 million from $8.6 million for
the three months ended September 30, 2001 as compared to 2000. Net revenues
increased by $5.3 million to $18.1 million from $12.8 million for the nine
months ended September 30, 2001 as compared to 2000. Revenue for the three
months ended September 30, 2001 was impacted by a new affiliate distribution
deal, resulting in lower subscriber rates. Revenue comparisons for the nine
months were impacted by the acquisition of Trio and NewsWorld International on
May 19, 2000. Prior to this acquisition, the results in 2000 reflect only
SciFi.com. Cost related to revenue were flat for the three months ended
September 30, 2001 as compared to 2000. Cost related to revenue increased by
$7.8 million for the nine months ended September 30, 2001 as compared to 2000.
EBITDA loss for the three months ended September 30, 2001 increased by
$2.7 million, to a loss of $3.1 million for the three months
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ended September 30, 2001. EBITDA loss for the nine months ended September 30,
2001 increased by $2.5 million, to a loss of $7.1 million for the nine months
ended September 30, 2001.
FILMED ENTERTAINMENT
Net revenues for the three months ended September 30, 2001 increased by
$1.5 million, or 10.6%, to $16.0 million compared to $14.5 million in 2000. Net
revenues for the nine months ended September 30, 2001 increased by
$64.0 million, or 97.7%, to $129.6 million compared to $65.5 million in 2000.
The increase in revenues is due primarily to increased theatrical, video and DVD
revenues generated on TRAFFIC, which has grossed more than $200 million in
worldwide box office. Cost related to revenues and other costs and expenses for
the three and nine months ended September 30, 2001 decreased by $4.7 million and
increase by $58.0 million, respectively, due to higher film amortization costs
and higher prints and advertising costs, offset in the quarter by reduced
operating costs. The Company adopted SOP 00-2, "Accounting by Producers and
Distributors of Films" in Q1 2001. The new rules require that prints and
advertising costs be expensed as incurred. EBITDA for the three months ended
September 30, 2001 was $.4 million, compared to a loss of $5.8 million in 2000.
EBITDA for the nine months ended September 30, 2001 was breakeven, compared to a
loss of $6.0 million in 2000.
ELECTRONIC RETAILING
Net revenues for the three months ended September 30, 2001 increased by
$26.4 million, or 6.2%, to $453.4 million from $427.1 million in 2000. Net
revenues for the nine months ended September 30, 2001 increased by
$118.9 million, or 9.5%, to $1.36 billion from $1.25 billion in 2000. The
increase primarily resulted from Home Shopping Network's domestic business,
which generated increased sales in the three and nine months ended
September 30, 2001 of $27.6 million and $92.4 million, respectively, including
increased sales of $23.4 million and $60.2 million, respectively, from HSN.com.
In addition, the Improvements business purchased in 2001 contributed
$15.6 million of revenue. On-air sales declined in the quarter $11.5 million due
to a dramatic, but relatively short-lived, decline in viewership following the
national tragedy of September 11th. HSN ceased its live programming shortly
after the attacks and aired live news programming from USA Cable's NWI. For the
three months ended September 30, 2001, total units shipped domestically
increased slightly to 8.8 million units compared to 8.6 million units in 2000,
while the return rate decreased slightly to 19.4% from 19.8% in 2000. Electronic
retailing operations in Germany had decreased sales of $3.0 million in the three
months ended September 30, 2001, as revenues were $50.8 million in the three
months ended September 30, 2001 compared to $53.8 million. The decreased sales
reflect in part operating challenges associated with the addition of 4 live
hours of programming earlier in the year, as sales continued to be hindered by
the conversion to a new order management system, which delayed certain
shipments. Furthermore, the return rate increased to 35.2% from 25.7% in 2000.
Net revenues in Germany for the nine months ended September 30, 2001 increased
by $20.2 million to $182.4 million compared to $162.2 million in 2000.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 increased by $43.1 million, or 11.5%, to
$416.0 million from $372.9 million in 2000. Cost related to revenues and other
costs and expenses for the nine months ended September 30, 2001 increased by
$149.1 million, or 13.9%, to $1.22 billion from $1.08 million in 2000.
Domestically, costs increased due to higher fixed overhead costs for
fulfillment, which helped contribute, along with pricing incentives offered
after September 11th, to a lower gross margin of 32.0% as compared to 34.6% in
the prior year. Furthermore, the Company incurred higher selling and marketing
costs, including programs to attract new customers, and costs related to the
Improvements business, which was purchased in 2001. Internationally, costs
increased in Germany due to the decline in gross margin to 29.1% from 36.1% in
2000, increased investments in adding an additional 4 live hours of programming
and increased marketing expenses for new product lines.
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EBITDA for the three months ended September 30, 2001 for domestic electronic
retailing, decreased $4.9 million, to $48.9 million from $53.8 million, due to
the impact of lower on-air sales, lower margins and higher operating costs. Note
that EBITDA for HSN.com increased $6.7 million. EBITDA for the nine months ended
September 30, 2001 for domestic electronic retailing decreased $6.2 million, to
$155.8 million from $162.0 million. Note that EBITDA for HSN.com increased
$13.4 million. EBITDA for electronic retailing in Germany decreased
$8.9 million in the three months ended September 30, 2001 due to lower sales
volumes, lower margins, and higher operating expenses, in part due to the
operating challenges associated with the addition of 4 live hours of
programming, and the conversion to a new order management system, which delayed
certain shipments. For the nine months ended September 30, 2001, EBITDA for the
German operations decreased $11.1 million. EBITDA for other international
locations and other for the three and nine months ended September 30, 2001,
decreased $2.8 million and $12.8 million, respectively, due to higher costs
related to expansion efforts and increased live broadcasting hours.
TICKETING OPERATIONS
Net revenues for the three months ended September 30, 2001 increased by
$9.0 million, or 7.2%, to $133.9 million from $124.9 million in 2000. Net
revenues for the nine months ended September 30, 2001 increased by
$52.0 million, or 13.1%, to $447.9 million from $395.9 million in 2000. The
increases are due to an increase in average per ticket convenience and handling
revenue of 9% to $6.20 from $5.67 for the three months and 8% increase from
$5.67 to $6.15 for the nine month period. In the three months ended
September 30, 2001, the number of tickets sold decreased slightly to
19.3 million from 20.2 million in 2000, due to reduced ticket sales, event
postponements and event cancellations following September 11th. Also, net
revenues increased, to a lesser extent, due to the acquisition of ReserveAmerica
in February 2001. Fro the nine months ended September 30, 2001, the number of
tickets sold increased to 66.4 million from 64.3 million, due primarily to an
overall increase in tickets sold within existing markets and the acquisition of
Admission Canada in April 2000, TicketWeb in May 2000, and the consolidation of
Ticketmaster Ireland. The percentage of tickets sold online for the three months
ended September 30, 2001 is approximately 31.9%, as compared to 25.6% in 2000.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 increased by $6.6 million, or 6.1%, to $114.9 million
from $108.3 million in 2000. Cost related to revenues and other costs and
expenses for the nine months ended September 30, 2001 increased by
$42.8 million, or 13.4%, to $363.1 million from $320.3 million in 2000. The
increase resulted primarily from higher ticketing operations revenue, as the
costs are primarily variable in nature.
EBITDA for the three months ended September 30, 2001 increased by
$2.4 million, or 14.2%, to $19.0 million from $16.6 million in 2000. EBITDA for
the nine months ended September 30, 2001 increased by $9.2 million, or 12.1%, to
$84.8 million from $75.6 million in 2000. EBITDA for the three months ended
September 30, 2001 excludes non-cash distribution and marketing expense of
$.2 million related to barter arrangements for distribution secured from third
parties, for which advertising is also provided by USA Cable.
HOTEL RESERVATIONS
Net revenues for the three months ended September 30, 2001 increased by
$56.6 million, or 59.8%, to $151.2 million from $94.6 million in 2000. Net
revenues for the nine months ended September 30, 2001 increased by
$166.9 million, or 73.2%, to $394.8 million from $228.0 million in 2000. The
increases resulted from increased room sales through HRN's Internet sites, from
significant expansion of affiliate marketing programs to over 22.8 million in
2001 from 13.4 million in 2000, an increase in the number of hotels in existing
cities as well as expansion into 88 new cities and the acquisition of TravelNow
in February 2001. The number of room nights sold increased to 1.2 million in the
three months ended September 30, 2001 compared to .7 million in 2000, and
3.1 million in the nine months
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ended September 30, 2001 compared to 1.7 million in 2000. Note that sales were
impacted by September 11th due to the high volume of cancellations after the
attacks.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 increased by $48.8 million, or 60.4%, to
$129.5 million from $80.7 million in 2000. Cost related to revenues and other
costs and expenses for the nine months ended September 30, 2001 increased by
$143.3 million, or 74.3%, to $336.2 million from $193.0 million in 2000. The
increase in costs is primarily due to increased sales, including an increased
percentage of revenue attributable to affiliate and travel agents that earn
commissions (sales from affiliate websites accounted for approximately 66% of
the total revenues, as compared to approximately 53% in the comparable periods).
Gross profit margin for the three months ended September 30, 2001 decreased
slightly to 30.1% from 30.5% due to a decline in gross profit margin of HRN's
historical business offset partially by the acquisition of TravelNow, which has
higher gross margins. The decline in margin for the historical business resulted
from HRN's decision to focus on increasing market share and the absolute amount
of gross profit instead solely on gross profit margin. Additionally, HRN
established a reserve against the impact of the events of September 11th, which
resulted in a slight reduction of margin.
EBITDA for the three months ended September 30, 2001 increased by
$7.9 million, or 56.6%, to $21.8 million from $13.9 million in 2000. EBITDA for
the nine months ended September 30, 2001 increased by $23.6 million, or 67.4%,
to $58.6 million from $35.0 million in 2000. EBITDA for the three and nine
months ended September 30, 2001 excludes non-cash distribution and marketing
expense of $3.5 million and $12.2 million, respectively, as compared to
$1.2 million and $3.0 million, respectively, in 2000 related to the amortization
of stock-based warrants issued to affiliates in consideration of exclusive
affiliate distribution and marketing agreements. The company expects that the
amount of non-cash distribution and marketing expense could grow, as certain of
the warrants are performance based, the value of which is determined at the time
the performance criteria are met. As the Company's stock price rises, the value
of the warrants also increases.
TELESERVICES
Net revenues for the three months ended September 30, 2001 increased by
$2.4 million, or 3.5%, to $72.6 million from $70.2 million in 2000. Net revenues
for the nine months ended September 30, 2001 increased by $18.9 million, or
9.0%, to $228.9 million from $210.0 million in 2000. The increase resulted
primarily from the addition of new clients and expansion of certain existing
relationships, offset partially by a decrease in services provided to certain
clients. Overall, PRC is suffering from the general economic downturn which has
depressed growth. Revenue for the three and nine months ended September 30, 2001
includes $2.3 million and $4.9 million, respectively, for services provided to
other USA segments.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 increased by $5.7 million, or 9.6%, to $64.7 million
from $59.0 million in 2000. Cost related to revenues and other costs and
expenses for the nine months ended September 30, 2001 increased by
$23.3 million, or 13.1%, to $200.8 million from $177.5 million in 2000. The
increases resulted primarily from increased operations and costs associated with
obtaining new clients.
EBITDA for the three months ended September 30, 2001 decreased by
$3.2 million to $7.9 million from $11.2 million in 2000. EBITDA for the nine
months ended September 30, 2001 decreased by $4.4 million to $28.1 million from
$32.5 million in 2000.
MATCH
Net revenues for the three months ended September 30, 2001 increased by
$4.9 million, or 64.29%, to $12.5 million compared to $7.6 million in 2000. Net
revenues for the nine months ended September 30, 2001 increased by
$9.7 million, or 44.2%, to $31.7 million compared to $22.0 million in
27
<Page>
2000. The increase is due to increased subscription revenue, as the personals
operations had 252,700 paying subscribers compared to 156,945 at year-end 2000
and an increase in subscription prices. Furthermore, the personals operations
attracted a monthly average of 2.4 million unique users in the third quarter of
2001, a 41.2% increase over 2000.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 increased by $1.4 million to $6.7 million from
$5.3 million in 2000. Cost related to revenues and other costs and expenses for
the nine months ended September 30, 2001 increased by $5.7 million to
$22.8 million from $17.1 million in 2000. The increases resulted primarily from
a new broadcast media campaign and higher operating costs to support the
increased sales volumes.
EBITDA for the three months ended September 30, 2001 increased by
$3.5 million to $5.8 million from $2.3 million in 2000. EBITDA for the nine
months ended September 30, 2001 increased by $4.0 million to $8.9 million from
$4.9 million in 2000. EBITDA for the three and nine months ended September 30,
2001 excludes non-cash distribution and marketing expense of $1.0 million and
$2.4 million, respectively, related to barter arrangements for distribution
secured from third parties, for which advertising is provided by USA Cable.
CITYSEARCH AND RELATED
Net revenues for the three months ended September 30, 2001 decreased by
$2.9 million, or 20.6%, to $11.1 million compared to $14.0 million in 2000. Net
revenues for the nine months ended September 30, 2001 decreased by
$1.0 million, or 2.6%, to $35.9 million compared to $36.8 million in 2000. The
decrease is due primarily to decreased advertising revenue related to city
guides business.
Cost related to revenues and other costs and expenses for the three months
ended September 30, 2001 decreased by $8.4 million to $21.9 million from
$30.2 million in 2000. Cost related to revenues and other costs and expenses for
the nine months ended September 30, 2001 decreased by $18.8 million to
$69.4 million from $88.2 million in 2000. The decreases resulted primarily from
initiatives enacted in 2000, which resulted in decreased operating costs,
including reduced headcount, for the city guides business.
EBITDA loss for the three months ended September 30, 2001 decreased by
$5.5 million to $10.8 million from $16.3 million in 2000. EBITDA loss for the
nine months ended September 30, 2001 decreased by $17.9 million to
$33.6 million from $51.5 million in 2000. EBITDA for the three months ended
September 30, 2001 excludes non-cash distribution and marketing expense of
$1.7 million related to cross promotion advertising provided by USA Cable and
$.5 million related to barter arrangements for distribution secured from third
parties, for which advertising is also provided by USA Cable.
ELECTRONIC COMMERCE SOLUTIONS
Net revenues for the three and nine months ended September 30, 2001 were
$4.8 million and $15.6 million, respectively, compared to $7.2 million and
$15.6 million, respectively, in 2000 due primarily to increases in revenue for
the transactional sites that ECS manages, offset by a decrease in ECS
teleservices. Cost related to revenues and other costs and expenses for the
three and nine months ended September 20, 2001 increased by $2.3 million and
$7.8 million, respectively, due primarily to higher operating expenses. EBITDA
loss for the three and nine months ended September 30, 2001 increased by
$4.6 million and $7.9 million, respectively.
STYLECLICK
Net revenues for the three and nine months ended September 30, 2001
decreased by $4.4 million and $12.1 million, respectively, to $.9 million and
$7.4 million, respectively. The decrease is due to the shut-down of the First
Jewelry and Firstauction websites. Cost related to revenues and other costs and
expenses for the three and nine months ended September 30, 2001 decreased by
$11.3 million and
28
<Page>
$28.6 million, respectively, to $2.7 million and $25.4 million, respectively. In
addition, primarily in conjunction with the shut down of First Jewelry,
Styleclick recorded a $2 million write-down of its inventory in the nine months
ended September 30, 2001. EBITDA loss for the three and nine months ended
September 30, 2001 was $1.8 million and $18.1 million, respectively, compared to
$8.7 million and $34.6 million, respectively, in 2000.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $479.6 million for the nine
months ended September 30, 2001 compared to $302.3 million for the nine months
ended September 30, 2000. These cash proceeds and available cash and borrowings
were used to pay for acquisitions of $193.9 million, to make capital
expenditures of $100.2 million, and to make mandatory tax distribution payments
to the LLC partners of $17.4 million.
In December 2000, the Company announced that Univision Communications Inc.
("Univision") would acquire, for $1.1 billion in cash, all of the capital stock
of certain USA Broadcasting ("USAB") subsidiaries that own 13 full-power
television stations and minority interests in four additional full-power
stations. In August 2001, the Company completed the sale. The gain on the sale
of the stations was $468 million and $518 million for the three and nine months
ended September 30, 2001, respectively. To date, the Company has received
proceeds of $510.4 million. A note receivable of $589.6 million is reflected in
current assets.
On February 12, 1998, USA and USANi LLC, as borrower, entered into a credit
agreement that provided for a $1.6 billion credit facility. Of that amount,
$1.0 billion was permanently repaid in prior years. The $600.0 million revolving
credit facility expires on December 31, 2002. As of September 30, 2001, there
was $595.5 million available for borrowing after taking into account outstanding
letters of credit.
On February 28, 2001, the Company made a mandatory tax distribution payment
to Universal and Liberty in the amount of $17.4 million. On February 29, 2000,
the Company made a mandatory tax distribution payment to Universal and Liberty
in the amount of $68.1 million.
In connection with the 2000 acquisition of Universal's domestic film
distribution and development business previously operated by PFE and PFE's
domestic video and specialty video businesses transaction, USA advanced
$200.0 million to Universal in 2000 pursuant to an eight year, full recourse,
interest-bearing note in connection with a distribution agreement, under which
USA will distribute, in the United States and Canada, certain Polygram Filmed
Entertainment, Inc. theatrical films that were not acquired in the transaction.
The advance is repaid as revenues are received under the distribution agreement
and, in any event, will be repaid in full at maturity. Through September 30,
2001, approximately $179.0 million has been offset against the advance,
including $58.7 million in 2001. Interest accrued on the loan through
September 30, 2001 is approximately $18.8 million, including $3.3 million in
2001.
In July 2000, USA announced that its Board of Directors authorized the
extension of the Company's stock repurchase program providing for the repurchase
of up to 20 million shares of USA's common stock over an indefinite period of
time, on the open market or in negotiated transactions. The amount and timing of
purchases, if any, will depend on market conditions and other factors, including
USA's overall capital structure. Funds for these purchases will come from cash
on hand or borrowings under the Company's credit facility. During the nine
months ended September 30, 2001, the Company made no purchases of its common
stock through this program. During the nine months ended September 30, 2000, the
Company purchased 5.7 million shares of its common stock for aggregate
consideration of $125.5 million.
29
<Page>
USA anticipates that it will need to invest working capital towards the
development and expansion of its overall operations. Due primarily to the
expansion of its Internet businesses, future capital expenditures may be higher
than current amounts.
In management's opinion, available cash, internally generated funds and
available borrowings will provide sufficient capital resources to meet USA's
foreseeable needs.
During the nine months ended September 30, 2001, USA did not pay any cash
dividends, and none are permitted under USA's existing credit facility. USA's
subsidiaries have no material restrictions on their ability to transfer amounts
to fund USA's operations.
SEASONALITY
USA's businesses are subject to the effects of seasonality.
Cable and Studios revenues are influenced by advertiser demand and the
seasonal nature of programming, and generally peak in the spring and fall.
USA believes seasonality impacts its Electronic Retailing segment but not to
the same extent it impacts the retail industry in general.
Ticketing Operations revenues are occasionally impacted by fluctuation in
the availability of events for sale to the public.
Hotel reservations revenues are influenced by the seasonal nature of holiday
travel in the markets it serves, and has historically peaked in the fall. As the
business expands into new markets, the impact of seasonality is expected to
lessen.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's short-term investment portfolio and issuance
of debt. The Company does not use derivative financial instruments in its
investment portfolio. The Company has a prescribed methodology whereby it
invests its excess cash in debt instruments of government agencies and high
quality corporate issuers. To further mitigate risk, the vast majority of the
securities have a maturity date within 60 days. The portfolio is reviewed on a
periodic basis and adjusted in the event that the credit rating of a security
held in the portfolio has deteriorated.
At September 30, 2001, the Company's outstanding debt approximated
$587.4 million, substantially all of which is fixed rate obligations. If market
rates decline, the Company runs the risk that the related required payments on
the fixed rate debt will exceed those based on the current market rate.
FOREIGN CURRENCY EXCHANGE RISK
The Company conducts business in certain foreign markets. However, the level
of operations in foreign markets is insignificant to the consolidated results.
EQUITY PRICE RISK
The Company has a minimal investment in equity securities of publicly-traded
companies. This investment, as of September 30, 2001, was considered
available-for-sale, with the unrealized gain deferred as a component of
stockholders' equity. It is not customary for the Company to make investments in
equity securities as part of its investment strategy.
30
<Page>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the Ticketmaster Cash Discount litigation, previously reported in the
2000 Form 10-K and the Company's Form 10-Q for the quarters ended March 31, 2001
and June 30, 2001, on July 27, 2001, the Court of Appeals dismissed Ms. Tellez'
appeal. The settlement will not have a material impact on USA's financial
results.
On July 14, 2001, the Company entered into an acquisition agreement to
acquire National Leisure Group, Inc. ("NLG"), a privately-held provider of
private label cruise and vacation packages, travel technology, and operations
support solutions to the leisure travel industry. On October 3, 2001, the
Company filed suit against NLG and its stockholders in the Delaware Chancery
Court, seeking a declaration that USA was entitled to terminate the acquisition
agreement on the basis of certain conditions to its obligation to close the
acquisition becoming incapable of fulfillment. On October 29, 2001, USA and NLG
mutually agreed to terminate the acquisition agreement and USA made a minority
investment of $20 million in NLG and entered into an agreement that names NLG as
a preferred provider of cruise and vacation packages to USA's new travel cable
channel. This concluded discussions related to the proposed acquisition of NLG
by USA and settled the litigation between NLG and its stockholders and USA. On
November 6, 2001, pursuant to a joint motion of USA and NLG, the Delaware
Chancery Court dismissed the proceedings.
In the ordinary course of business, the Company and its subsidiaries are
parties to litigation involving property, personal injury, contract and other
claims. The amounts that may be recovered in these matters may be subject to
insurance coverage. Although amounts recovered in litigation are not expected to
be material to the financial position or operations of the Company, this
litigation, regardless of outcome or merit, could result in substantial costs
and diversion of management and technical resources, any of which could
materially harm our business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
2.1 Amended and Restated Agreement and Plan of Recapitalization
and Merger, dated as of July 15, 2001, by and among USA
Networks, Inc., Expedia, Inc., Taipei, Inc., Microsoft
Corporation and Microsoft E-Holdings, Inc. filed as Annex A
to USA's Registration Statement on Form S-4
(No. 333-68120), is incorporated herein by reference.
3.1 Restated Certificate of Incorporation of USA filed as
Exhibit 3.1 to USA's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2000, is incorporated herein
by reference.
3.2 Amended and Restated By-Laws of USA filed as Exhibit 3.1 to
USA's Form 8-K, dated January 9, 1998, is incorporated
herein by reference.
</Table>
(b) Reports on Form 8-K filed during the quarter ended September 30, 2001.
On July 16, 2001, USA filed a report on Form 8-K reporting under Item 7,
Exhibits, attaching a press release announcing its agreement to acquire a
controlling interest in Expedia, Inc. and presentation materials.
On July 23, 2001, USA filed a report on Form 8-K reporting under Item 5,
Other Events and Regulation FD Disclosure, attaching a press release announcing
its agreement to acquire a controlling interest in Expedia, Inc.
On July 25, 2001, USA furnished a report on Form 8-K reporting under Item 9,
Regulation FD Disclosure, attaching a press release announcing its results for
the quarter ended June 30, 2001 and supplemental information.
On September 18, 2001, USA furnished a report on Form 8-K reporting under
Item 9, Regulation FD Disclosure, attaching Recent Events--Questions and
Answers.
31
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 2001
<Table>
USA NETWORKS, INC.
By: /s/ BARRY DILLER
-----------------------------------------
Barry Diller
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</Table>
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/s/ BARRY DILLER
------------------------------------------- Chairman of the Board and November 14, 2001
Barry Diller Chief Executive Officer
Senior Vice President and
/s/ MICHAEL SILECK Chief Financial Officer
------------------------------------------- (Principal Financial November 14, 2001
Michael Sileck Officer)
/s/ WILLIAM J. SEVERANCE Vice President and
------------------------------------------- Controller (Chief November 14, 2001
William J. Severance Accounting Officer)
</Table>
32
<Page>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
(IN THOUSANDS)
NET REVENUES
Cable and Studios................................ $398,211 $336,047 $1,280,065 $1,105,688
Electronic retailing............................. 453,447 427,058 1,364,248 1,245,323
Styleclick....................................... 901 5,147 7,358 17,556
Electronic commerce solutions.................... 4,817 2,524 15,560 5,121
Emerging networks................................ 5,784 8,591 18,125 12,862
-------- -------- ---------- ----------
Total net revenues............................. 863,160 779,367 2,685,356 2,386,550
Operating costs and expenses:
Cost of sales.................................. 305,142 280,851 918,987 823,741
Program costs.................................. 166,917 146,000 569,423 485,037
Selling and marketing.......................... 115,551 97,940 304,380 280,928
General and administrative..................... 79,742 71,519 254,056 222,433
Other operating costs.......................... 34,110 33,391 104,490 90,343
Amortization of cable distribution fees........ 9,986 8,845 29,384 25,335
Amortization of non-cash compensation 792 503 4,137 4,688
Depreciation and amortization.................. 58,508 58,971 178,060 154,945
-------- -------- ---------- ----------
Total operating costs and expenses............. 770,748 698,020 2,362,917 2,087,450
-------- -------- ---------- ----------
Operating profit................................. 92,412 81,347 322,439 299,100
Other income (expense):
Interest income.................................. 11,846 18,437 35,241 52,075
Interest expense................................. (17,547) (19,483) (54,155) (57,687)
Other, net....................................... (5,516) 70,575 (26,196) 66,567
-------- -------- ---------- ----------
(11,217) 69,529 (45,110) 60,955
-------- -------- ---------- ----------
Earnings before income taxes and minority
interest and cumulative effect of accounting
change......................................... 81,195 150,876 277,329 360,055
Income tax expense............................... (18,051) (34,205) (57,192) (76,498)
Minority interest................................ (45,121) (82,474) (153,189) (204,986)
-------- -------- ---------- ----------
Earnings before cumulative effect of accounting
change......................................... 18,023 34,197 66,948 78,571
Cumulative effect of accounting change........... -- -- 1,901 --
-------- -------- ---------- ----------
NET EARNINGS..................................... $ 18,023 $ 34,197 $ 68,849 $ 78,571
======== ======== ========== ==========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
33
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 697,805 $ 71,816
Accounts and notes receivable, net of allowance of $51,875
and $50,646, respectively................................. 528,668 519,365
Inventories, net............................................ 440,109 396,523
Investments held for sale................................... 320 750
Deferred income taxes....................................... 5,219 17,448
Other current assets, net................................... 33,863 18,024
---------- ----------
Total current assets...................................... 1,705,984 1,023,926
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 140,894 143,559
Buildings and leasehold improvements........................ 77,328 71,979
Furniture and other equipment............................... 90,308 76,623
Land........................................................ 10,302 10,281
Projects in progress........................................ 33,567 32,747
---------- ----------
352,399 335,189
Less accumulated depreciation and amortization............ (120,986) (83,549)
---------- ----------
231,413 251,640
OTHER ASSETS
Intangible assets, net...................................... 4,950,034 5,023,735
Cable distribution fees, net................................ 148,449 159,473
Long-term investments 33,386 29,187
Notes and accounts receivable, net ($81,091 and $22,575,
respectively, from related parties)....................... 128,936 33,571
Inventories, net............................................ 475,374 430,215
Advances to USA and subsidiaries............................ 73,923 547,292
Deferred charges and other, net............................. 42,161 44,011
---------- ----------
$7,789,660 $7,543,050
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 40,702 $ 20,053
Accounts payable, trade..................................... 183,314 201,484
Obligations for program rights and film costs............... 289,097 283,812
Cable distribution fees payable............................. 33,556 33,598
Deferred revenue............................................ 65,156 41,335
Other accrued liabilities................................... 356,071 351,331
---------- ----------
Total current liabilities................................. 967,896 931,613
LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES)........... 500,294 504,063
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, NET OF
CURRENT................................................... 323,799 295,210
OTHER LONG-TERM LIABILITIES................................. 70,502 81,925
DEFERRED INCOME TAXES....................................... 51,982 25,821
MINORITY INTEREST........................................... 4,558,100 4,420,252
COMMITMENTS AND CONTINGENCIES............................... -- --
Stockholders' Equity
Common stock................................................ 1,221,408 1,221,408
Additional paid-in capital 70,312 70,312
Retained earnings........................................... 35,789 (2,320)
Accumulated other comprehensive loss........................ (10,422) (5,234)
---------- ----------
Total stockholders' equity................................ 1,317,087 1,284,166
---------- ----------
$7,789,660 $7,543,050
========== ==========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
34
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL RETAINED OTHER
COMMON PAID-IN EARNINGS COMPREHENSIVE
TOTAL STOCK CAPITAL (DEFICIT) INCOME
---------- ---------- ---------- --------- -------------
(IN THOUSANDS)
BALANCE AT DECEMBER 31, 2000......... $1,284,166 $1,221,408 $70,312 $(2,320) $ (5,234)
COMPREHENSIVE INCOME:
Net earnings for the nine months
ended September 30, 2001........... 68,849 -- -- 68,849 --
Foreign currency translation......... (4,855) -- -- -- (4,855)
Decrease in unrealized gains in
available for sale securities...... (333) -- -- -- (333)
----------
Comprehensive income................. 63,661
----------
Mandatory tax distribution to LLC
partners........................... (30,740) -- -- (30,740) --
---------- ---------- ------- ------- --------
BALANCE AT SEPTEMBER 30, 2001........ $1,317,087 $1,221,408 $70,312 $35,789 $(10,422)
========== ========== ======= ======= ========
</Table>
Accumulated other comprehensive income is comprised of unrealized gains on
available for sale securities of $(5,980) and $(5,647) at September 30, 2001 and
December 31, 2000, respectively and foreign currency translation adjustments of
$(4,442) and $413 at September 30, 2001 and December 31, 2000, respectively.
Comprehensive income for the three months ended September 30, 2001 was
$19,169.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
35
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 68,849 $ 78,571
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and amortization............................. 178,060 154,945
Amortization of cable distribution fees................... 29,384 25,335
Amortization of program rights and film costs............. 506,230 428,537
Gain on sale of subsidiary stock.......................... -- (104,625)
Cumulative effect of accounting change.................... (1,901) --
Non-cash compensation..................................... 4,137 4,688
Equity in losses of unconsolidated affiliates............. 16,026 38,260
Minority interest (benefit) expense....................... 153,189 204,986
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable....................................... (59,414) (67,348)
Inventories............................................... 3,801 (1,615)
Accounts payable.......................................... (27,423) (28,228)
Accrued liabilities and deferred revenue.................. 58,570 103,126
Payment for program rights and film costs................. (566,036) (528,053)
Increase in cable distribution fees....................... (18,511) (39,251)
Other, net................................................ (16,533) 21,696
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 328,428 291,024
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (35,845) (107,934)
Capital expenditures........................................ (50,626) (49,247)
Increase in long-term investments and notes receivable...... (81,127) (21,769)
Other, net.................................................. 3,824 (2,806)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................... (163,774) (181,756)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.................................................. 21,347 50,029
Intercompany................................................ 411,571 (181,052)
Payment of mandatory tax distribution to LLC partners....... (30,740) (118,169)
Principal payments on long-term obligations................. (4,765) (44,890)
Repurchase of LLC shares.................................... (1,401) (129,907)
Proceeds from issuance of LLC shares........................ 73,545 216,493
Other....................................................... (5,821) (13,309)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 463,736 (220,805)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2,401) (602)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 625,989 (112,139)
Cash and cash equivalents at beginning of period............ 71,816 247,474
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 697,805 $ 135,335
========= =========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
36
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
Home Shopping Network, Inc. (the "Company" or "Home Shopping"), is a holding
company, whose subsidiary USANi LLC is engaged in diversified media and
electronic commerce businesses. In December 1996, the Company consummated a
merger with USA Networks, Inc. ("USA"), formerly known as HSN, Inc., and became
a subsidiary of USA (the "Home Shopping Merger").
On July 27, 2000, the Company and Styleclick.com Inc., an enabler of
e-commerce for manufacturers and retailers ("Styleclick.com"), completed the
merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick
Transaction"). See Note 3.
The Company is a holding company, the subsidiaries of which are focused on
the new convergence of entertainment, information and direct selling.
The five principal areas of business are:
- CABLE AND STUDIOS, consisting of the cable networks USA Network and Sci Fi
Channel and Studios USA, which produces and distributes television
programming.
- ELECTRONIC RETAILING, consisting primarily of HSN and America's Store, HSN
International and HSN Interactive, including HSN.com.
- ELECTRONIC COMMERCE SOLUTIONS, which primarily represents the Company's
electronic commerce solutions business.
- STYLECLICK, a facilitator of e-commerce websites and Internet enabled
applications.
- EMERGING NETWORKS, consists primarily of the cable television properties
Trio and News World International, which were acquired on May 19, 2000,
and SciFi.com, an emerging Internet content and commence site.
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements and Notes thereto of
the Company are unaudited and should be read in conjunction with the audited
Consolidated Financial Statements and Notes thereto for the twelve months ended
December 31, 2000.
In the opinion of the Company, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist of normal recurring items. Interim results
are not necessarily indicative of results for a full year. The interim Condensed
Consolidated Financial Statements and Notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's audited Consolidated Financial Statements and Notes
thereto.
ACCOUNTING ESTIMATES
Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with generally accepted accounting principles. These estimates and
assumptions impact the reported amount of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the consolidated
financial statements.
37
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
They also impact the reported amount of net earnings during any period.
Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements include the inventory carrying adjustment, program rights and film
cost amortization, sales return and other revenue allowances, allowance for
doubtful accounts, recoverability of intangibles and other long-lived assets,
estimates of film revenue ultimates and various other operating allowances and
accruals.
NEW ACCOUNTING PRONOUNCEMENTS
FILM ACCOUNTING
The Company adopted SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF
FILMS ("SOP 00-2") during the nine months ended September 30, 2001. SOP 00-2
established new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Specifically, SOP 00-2 requires advertising costs for theatrical and television
product to be expensed as incurred. This compares to the Company's previous
policy of first capitalizing these costs and then expensing them over the
related revenue streams. In addition, SOP 00-2 requires development costs for
abandoned projects and certain indirect overhead costs to be charged directly to
expense, instead of those costs being capitalized to film costs, which was
required under the previous accounting rules. SOP 00-2 also requires all film
costs to be classified in the balance sheet as non-current assets. Provisions of
SOP 00-2 in other areas, such as revenue recognition, generally are consistent
with the Company's existing accounting policies.
SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a
one-time, non-cash benefit of $1.9 million, net of tax. The net effect is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated statement of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002, and is presently in the process of
evaluating the potential impacts of the new rules.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 2001 presentation, including all amounts
charged to customers for shipping and handling, which are now presented as
revenue.
38
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 Form 10-K") for a summary of all significant
accounting policies.
NOTE 3--BUSINESS ACQUISITIONS
The following unaudited pro forma condensed consolidated financial
information for the nine months ended September 30, 2000 is presented to show
the results of the Company as if the Styleclick Transaction had occurred on
January 1, 2000. The pro forma results reflect certain adjustments, including
increased amortization related to goodwill, and are not necessarily indicative
of what the results would have been had the transactions actually occurred on
January 1, 2000.
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
Net revenues............................................... $2,388,439
Net income................................................. 63,999
</Table>
NOTE 4--STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
On January 20, 2000, the Company completed its acquisition of Ingenious
Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USA common
stock for all the outstanding stock of IDI, for a total value of approximately
$5.0 million.
NOTE 5--INDUSTRY SEGMENTS
The Company operates principally in five industry segments: Cable and
studios, Electronic retailing, Electronic commerce solutions, Styleclick, and
Emerging networks. The Cable and studios segment consists of the cable networks
USA Network and Sci Fi Channel and Studios USA, which produces and distributes
television programming. The Electronic retailing segment consists of Home
Shopping Network, America's Store, HSN International and HSN Interactive,
including HSN.com, which are engaged in the sale of merchandise through
electronic retailing. The Electronic commerce solutions segment primarily
represents the Company's customer and e-care businesses. The Styleclick segment
represents Styleclick, Inc., a facilitator of e-commerce websites and Internet
enabled applications. The Emerging networks segment consists primarily of the
cable television properties Trio
39
<Page>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5--INDUSTRY SEGMENTS (CONTINUED)
and NewsWorld International, which were acquired on May 19, 2000, and SciFi.com,
an emerging Internet content and commerce site.
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
(IN THOUSANDS)
REVENUE
Cable and studios................................ $398,211 $336,047 $1,280,065 $1,105,688
Electronic retailing............................. 453,447 427,058 1,364,248 1,245,323
Styleclick....................................... 901 5,147 7,358 17,556
Electronic commerce solutions.................... 4,817 2,524 15,560 5,121
Emerging networks................................ 5,784 8,591 18,125 12,862
-------- -------- ---------- ----------
$863,160 $779,367 $2,685,356 $2,386,550
======== ======== ========== ==========
OPERATING PROFIT (LOSS)
Cable and studios................................ $126,395 $ 90,394 $ 403,466 $ 312,371
Electronic retailing............................. 1,026 21,139 27,431 72,666
Styleclick....................................... (5,525) (18,150) (36,496) (37,382)
Electronic commerce solutions.................... (12,749) (4,310) (28,076) (12,259)
Emerging networks................................ (4,860) (1,869) (13,998) (6,669)
Other............................................ (11,875) (5,857) (29,888) (29,627)
-------- -------- ---------- ----------
$ 92,412 $ 81,347 $ 322,439 $ 299,100
======== ======== ========== ==========
</Table>
NOTE 6--GUARANTEE OF NOTES
On November 23, 1998, USA and the USANi LLC completed an offering of
$500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In May 1999, the
Old Notes were exchanged in full for $500.0 million of new 6 3/4% Senior Notes
due 2005 (the "Notes") that have terms that are substantially identical to the
Old Notes. Interest is payable on the Notes on May 15 and November 15 of each
year, commencing May 15, 1999. The Notes are jointly, severally, fully and
unconditionally guaranteed by certain subsidiaries of USA, including Holdco, and
all of the subsidiaries of the Company (other than subsidiaries that are,
individually and in the aggregate, inconsequential to the Company on a
consolidated basis) (collectively, the "Subsidiary Guarantors"). All of the
Subsidiary Guarantors (other than Holdco) (the "Wholly Owned Subsidiary
Guarantors") are wholly owned, directly or indirectly, by USA or the Company, as
the case may be.
Separate financial statements for each of the Wholly Owned Subsidiary
Guarantors are not presented and such Wholly Owned Subsidiary Guarantors are not
filing separate reports under the Securities Exchange Act of 1934 because USA's
and the Company's management has determined that the information contained in
such documents would not be material to investors. The Company and its
subsidiaries have no material restrictions on their ability to transfer amounts
to fund USA's operations.
40
<Page>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
USANI LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
(IN THOUSANDS)
NET REVENUES
Cable and Studios.............................. $398,211 $336,047 $1,280,065 $1,105,688
Electronic retailing........................... 453,447 427,058 1,364,248 1,245,323
Styleclick..................................... 901 5,147 7,358 17,556
Electronic commerce solutions.................. 4,817 2,524 15,560 5,121
Emerging networks.............................. 5,784 8,591 18,125 12,862
-------- -------- ---------- ----------
Total net revenues............................. 863,160 779,367 2,685,356 2,386,550
Operating costs and expenses:
Cost of sales.................................. 305,142 280,851 918,987 823,741
Program costs.................................. 166,917 146,000 569,423 485,037
Selling and marketing.......................... 115,551 97,940 304,380 280,928
General and administrative..................... 79,742 71,519 254,056 222,433
Other operating costs.......................... 34,110 33,391 104,490 90,343
Amortization of cable distribution fees........ 9,986 8,845 29,384 25,335
Amortization of non-cash compensation.......... 792 503 4,137 4,688
Depreciation and amortization.................. 58,508 58,971 178,060 154,945
-------- -------- ---------- ----------
Total operating costs and expenses............. 770,748 698,020 2,362,917 2,087,450
-------- -------- ---------- ----------
Operating profit................................. 92,412 81,347 322,439 299,100
Other income (expense):
Interest income................................ 11,846 18,437 35,241 52,075
Interest expense............................... (17,547) (19,483) (54,155) (57,687)
Other, net..................................... (5,516) 70,575 (26,196) 66,567
-------- -------- ---------- ----------
(11,217) 69,529 (45,110) 60,955
-------- -------- ---------- ----------
Earnings before income taxes and minority
interest and cumulative effect of accounting
change......................................... 81,195 150,876 277,329 360,055
Income tax expense............................... (1,687) (7,562) (13,491) (18,525)
Minority interest................................ 3,416 4,706 9,508 392
-------- -------- ---------- ----------
Earnings before cumulative effect of accounting
change......................................... 82,924 148,020 273,346 341,922
Cumulative effect of accounting change........... -- -- 6,470 --
-------- -------- ---------- ----------
NET EARNINGS..................................... $ 82,924 $148,020 $ 279,816 $ 341,922
======== ======== ========== ==========
</Table>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
41
<Page>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 697,805 $ 71,816
Accounts and notes receivable, net of allowance of $51,875
and $50,646, respectively................................. 528,668 519,365
Inventories, net............................................ 440,109 396,523
Investments held for sale................................... 320 750
Other current assets, net................................... 33,978 18,024
---------- ----------
Total current assets...................................... 1,700,880 1,006,478
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 140,894 143,559
Buildings and leasehold improvements........................ 77,328 71,979
Furniture and other equipment............................... 90,308 76,623
Land........................................................ 10,302 10,281
Projects in progress........................................ 33,567 32,747
---------- ----------
352,399 335,189
Less accumulated depreciation and amortization............ (120,986) (83,549)
---------- ----------
231,413 251,640
OTHER ASSETS
Intangible assets, net...................................... 5,031,748 5,099,476
Cable distribution fees, net................................ 148,449 159,473
Long-term investments....................................... 33,386 29,187
Notes and accounts receivable, net ($81,091 and $22,575,
respectively, from related parties)....................... 128,936 33,571
Inventories, net............................................ 475,374 430,215
Advances to USA and subsidiaries............................ 524,225 918,817
Deferred charges and other, net............................. 42,161 44,011
---------- ----------
$8,316,572 $7,972,868
========== ==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 40,702 $ 20,053
Accounts payable, trade..................................... 183,314 201,484
Obligations for program rights and film costs............... 289,097 283,812
Cable distribution fees payable............................. 33,556 33,598
Deferred revenue............................................ 65,156 41,335
Other accrued liabilities................................... 348,988 342,995
---------- ----------
Total current liabilities................................... 960,813 923,277
LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES)........... 500,294 504,063
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 323,801 295,210
OTHER LONG-TERM LIABILITIES................................. 59,269 81,925
MINORITY INTEREST........................................... 13,463 28,662
COMMITMENTS AND CONTINGENCIES............................... -- --
MEMBERS' EQUITY
Class A (261,197,579 and 252,679,887 shares,
respectively)............................................. 2,083,147 2,007,736
Class B (282,161,530 shares)................................ 2,978,635 2,978,635
Class C (45,774,708 shares)................................. 466,252 466,252
Retained earnings........................................... 945,062 695,986
Accumulated other comprehensive loss........................ (14,164) (8,878)
---------- ----------
Total members' equity..................................... 6,458,932 6,139,731
---------- ----------
$8,316,572 $7,972,868
========== ==========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
42
<Page>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(UNAUDITED)
<Table>
<Caption>
ACCUMULATED
OTHER
CLASS A CLASS B CLASS C RETAINED COMPREHENSIVE
TOTAL LLC SHARES LLC SHARES LLC SHARES EARNINGS INCOME
---------- ---------- ---------- ---------- -------- -------------
(IN THOUSANDS)
BALANCE AT DECEMBER 31, 2000... $6,139,731 $2,007,736 $2,978,635 $466,252 $695,986 $ (8,878)
COMPREHENSIVE INCOME:
Net earnings for the nine
months ended September 30,
2001....................... 279,816 -- -- -- 279,816 --
Foreign currency
translation................ (4,855) -- -- -- -- (4,855)
Decrease in unrealized gains
in available for sale
securities................. (431) -- -- -- -- (431)
----------
Comprehensive income......... 274,530
----------
Issuance of LLC shares
related to option
exercises.................. 73,545 73,545 -- -- -- --
Issuance of LLC shares
related to other
transactions............... 3,267 3,267 -- -- -- --
Repurchase of LLC shares..... (1,401) (1,401) -- -- -- --
Mandatory tax distribution to
LLC partners............... (30,740) -- -- -- (30,740) --
---------- ---------- ---------- -------- -------- --------
BALANCE AT SEPTEMBER 30,
2001......................... $6,458,932 $2,083,147 $2,978,635 $466,252 $945,062 $(14,164)
========== ========== ========== ======== ======== ========
</Table>
Accumulated other comprehensive income is comprised of unrealized gains on
available for sale securities of $(9,722) and $(9,291) at September 30, 2001 and
December 31, 2000, respectively and foreign currency translation adjustments of
$(4,442) and $413 at September 30, 2001 and December 31, 2000, respectively.
Comprehensive income for the three months ended September 30, 2001 was
$84,070.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
43
<Page>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $279,816 $341,922
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and amortization............................. 178,060 154,945
Amortization of cable distribution fees................... 29,384 25,335
Amortization of program rights and film costs............. 506,230 428,537
Gain on sale of subsidiary stock.......................... -- (104,625)
Cumulative effect of accounting change.................... (6,470) --
Non-cash compensation..................................... 4,137 4,688
Equity in losses of unconsolidated affiliates............. 16,026 38,260
Minority interest benefit................................. (9,508) (392)
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable....................................... (59,414) (67,348)
Inventories............................................... 3,801 (1,615)
Accounts payable.......................................... (27,423) (28,228)
Accrued liabilities and deferred revenue.................. 18,516 45,153
Payment for program rights and film costs................. (566,036) (528,053)
Increase in cable distribution fees....................... (18,511) (39,251)
Other, net................................................ (20,180) 21,696
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 328,428 291,024
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired........................ (35,845) (107,934)
Capital expenditures...................................... (50,626) (49,247)
Increase in long-term investments and notes receivable.... (81,127) (21,769)
Other, net................................................ 3,824 (2,806)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (163,774) (181,756)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................ 21,347 50,029
Intercompany.............................................. 411,571 (181,052)
Payment of mandatory tax distribution to LLC partners..... (30,740) (118,169)
Principal payments on long-term obligations............... (4,765) (44,890)
Repurchase of LLC shares.................................. (1,401) (129,907)
Proceeds from issuance of LLC shares...................... 73,545 216,493
Other..................................................... (5,821) (13,309)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 463,736 (220,805)
Effect of exchange rate changes on cash and cash
equivalents............................................. (2,401) (602)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 625,989 (112,139)
Cash and cash equivalents at beginning of period.......... 71,816 247,474
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $697,805 $135,335
======== ========
</Table>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
44
<Page>
\
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
COMPANY FORMATION
USANi LLC (the "Company" or "LLC"), a Delaware limited liability company,
was formed on February 12, 1998 and is a subsidiary of Home Shopping
Network, Inc. ("Home Shopping" or "Holdco"), which is a subsidiary of USA
Networks, Inc. ("USA"), formerly known as HSN, Inc.
On July 27, 2000, the Company and Styleclick.com Inc., an enabler of
e-commerce for manufacturers and retailers ("Styleclick.com"), completed the
merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick
Transaction"). See Note 3.
COMPANY BUSINESS
The Company is a holding company, the subsidiaries of which are focused on
the new convergence of entertainment, information and direct selling.
The five principal areas of business are:
- CABLE AND STUDIOS, consisting of the cable networks USA Network and Sci Fi
Channel and Studios USA, which produces and distributes television
programming.
- ELECTRONIC RETAILING, consisting primarily of HSN and America's Store, HSN
International and HSN Interactive, including HSN.com.
- ELECTRONIC COMMERCE SOLUTIONS, which primarily represents the Company's
electronic commerce solutions business.
- STYLECLICK, a facilitator of e-commerce websites and Internet enabled
applications.
- EMERGING NETWORKS, consists primarily of the cable television properties
Trio and News World International, which were acquired on May 19, 2000,
and SciFi.com, an emerging Internet content and commence site.
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements and Notes thereto of
the Company are unaudited and should be read in conjunction with the audited
Consolidated Financial Statements and Notes thereto for the twelve months ended
December 31, 2000.
In the opinion of the Company, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist of normal recurring items. Interim results
are not necessarily indicative of results for a full year. The interim Condensed
Consolidated Financial Statements and Notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's audited Consolidated Financial Statements and Notes
thereto.
ACCOUNTING ESTIMATES
Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with generally accepted accounting
45
<Page>
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
principles. These estimates and assumptions impact the reported amount of assets
and liabilities and disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements.
They also impact the reported amount of net earnings during any period.
Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements include the inventory carrying adjustment, program rights and film
cost amortization, sales return and other revenue allowances, allowance for
doubtful accounts, recoverability of intangibles and other long-lived assets,
estimates of film revenue ultimates and various other operating allowances and
accruals.
NEW ACCOUNTING PRONOUNCEMENTS
FILM ACCOUNTING
The Company adopted SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF
FILMS ("SOP 00-2") during the nine months ended September 30, 2001. SOP 00-2
established new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Specifically, SOP 00-2 requires advertising costs for theatrical and television
product to be expensed as incurred. This compares to the Company's previous
policy of first capitalizing these costs and then expensing them over the
related revenue streams. In addition, SOP 00-2 requires development costs for
abandoned projects and certain indirect overhead costs to be charged directly to
expense, instead of those costs being capitalized to film costs, which was
required under the previous accounting rules. SOP 00-2 also requires all film
costs to be classified in the balance sheet as non-current assets. Provisions of
SOP 00-2 in other areas, such as revenue recognition, generally are consistent
with the Company's existing accounting policies.
SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a
one-time, non-cash benefit of $6.5 million. The benefit is reflected as a
cumulative effect of an accounting change in the accompanying consolidated
statement of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002, and is presently in the process of
evaluating the potential impacts of the new rules.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 2001 presentation, including all amounts
charged to customers for shipping and handling, which are now presented as
revenue.
46
<Page>
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 Form 10-K") for a summary of all significant
accounting policies.
NOTE 3--BUSINESS ACQUISITIONS
The following unaudited pro forma condensed consolidated financial
information for the nine months ended September 30, 2000 is presented to show
the results of the Company as if the Styleclick Transaction had occurred on
January 1, 2000. The pro forma results reflect certain adjustments, including
increased amortization related to goodwill, and are not necessarily indicative
of what the results would have been had the transactions actually occurred on
January 1, 2000.
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
Net revenues............................................... $2,388,439
Net income................................................. 308,416
</Table>
NOTE 4--STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
On January 20, 2000, the Company completed its acquisition of Ingenious
Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USA common
stock for all the outstanding stock of IDI, for a total value of approximately
$5.0 million.
NOTE 5--INDUSTRY SEGMENTS
The Company operates principally in five industry segments: Cable and
studios, Electronic retailing, Electronic commerce solutions, Styleclick, and
Emerging networks. The Cable and studios segment consists of the cable networks
USA Network and Sci Fi Channel and Studios USA, which produces and distributes
television programming. The Electronic retailing segment consists of Home
Shopping Network, America's Store, HSN International and HSN Interactive,
including HSN.com, which are engaged in the sale of merchandise through
electronic retailing. The Electronic commerce solutions segment primarily
represents the Company's customer and e-care businesses. The Styleclick segment
represents Styleclick, Inc., a facilitator of e-commerce websites and Internet
enabled applications. The Emerging networks segment consists primarily of the
cable television properties Trio
47
<Page>
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5--INDUSTRY SEGMENTS (CONTINUED)
and NewsWorld International, which were acquired on May 19, 2000, and SciFi.com,
an emerging Internet content and commerce site.
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
(IN THOUSANDS)
REVENUE
Cable and studios................................ $398,211 $336,047 $1,280,065 $1,105,688
Electronic retailing............................. 453,447 427,058 1,364,248 1,245,323
Styleclick....................................... 901 5,147 7,358 17,556
Electronic commerce solutions.................... 4,817 2,524 15,560 5,121
Emerging networks................................ 5,784 8,591 18,125 12,862
-------- -------- ---------- ----------
$863,160 $779,367 $2,685,356 $2,386,550
======== ======== ========== ==========
OPERATING PROFIT (LOSS)
Cable and studios................................ $126,395 $ 90,394 $ 403,466 $ 312,371
Electronic retailing............................. 1,026 21,139 27,431 72,666
Styleclick....................................... (5,525) (18,150) (36,496) (37,382)
Electronic commerce solutions.................... (12,749) (4,310) (28,076) (12,259)
Emerging networks................................ (4,860) (1,869) (13,998) (6,669)
Other............................................ (11,875) (5,857) (29,888) (29,627)
-------- -------- ---------- ----------
$ 92,412 $ 81,347 $ 322,439 $ 299,100
======== ======== ========== ==========
</Table>
NOTE 6--NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
On November 23, 1998, USA and the USANi LLC completed an offering of
$500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In May 1999, the
Old Notes were exchanged in full for $500.0 million of new 6 3/4% Senior Notes
due 2005 (the "Notes") that have terms that are substantially identical to the
Old Notes. Interest is payable on the Notes on May 15 and November 15 of each
year, commencing May 15, 1999. The Notes are jointly, severally, fully and
unconditionally guaranteed by certain subsidiaries of USA, including Holdco, and
all of the subsidiaries of the Company (other than subsidiaries that are,
individually and in the aggregate, inconsequential to the Company on a
consolidated basis) (collectively, the "Subsidiary Guarantors"). All of the
Subsidiary Guarantors (other than Holdco) (the "Wholly Owned Subsidiary
Guarantors") are wholly owned, directly or indirectly, by USA or the Company, as
the case may be.
The following tables present condensed consolidating financial information
for the three and nine months ended September 30, 2001 for (1) the Company, on a
stand-alone basis, (2) the combined wholly owned Subsidiary Guarantors of the
Company (3) the combined non-guarantor subsidiaries of the Company, and (4) the
Company on a consolidated basis.
Separate financial statements for each of the Wholly Owned Subsidiary
Guarantors are not presented and such Wholly Owned Subsidiary Guarantors are not
filing separate reports under the Securities Exchange Act of 1934 because USA's
and the Company's management has determined that
48
<Page>
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(Continued)
the information contained in such documents would not be material to investors.
USANi LLC and its subsidiaries have no material restrictions on their ability to
transfer amounts to fund USA's operations.
During 2000, in conjunction with the Styleclick Transaction, Styleclick
became a non-guarantor.
<Table>
<Caption>
WHOLLY OWNED
USANI SUBSIDIARY NON-GUARANTOR LLC
LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
BALANCE SHEET AS OF SEPTEMBER 30, 2001:
Current assets............................ $ 720,833 $ 981,352 $ (1,305) $ -- $ 1,700,880
Property and equipment net................ 23,502 203,635 4,276 -- 231,413
Goodwill and other intangible assets,
net..................................... -- 4,941,366 90,382 -- 5,031,748
Investment in subsidiaries................ 5,705,123 101,355 -- (5,806,478) --
Other assets.............................. 644,229 1,869,653 10,811 (1,172,162) 1,352,531
---------- ----------- --------- ----------- -----------
TOTAL ASSETS.............................. $7,093,687 $ 8,097,361 $ 104,164 $(6,978,640) $ 8,316,572
========== =========== ========= =========== ===========
Current liabilities....................... $ 40,927 $ 901,734 $ 18,152 $ -- $ 960,813
Long-term debt, less current portion...... 498,439 -- 1,855 -- 500,294
Other liabilities......................... 95,389 273,792 13,889 -- 383,070
Minority interest......................... -- 10,365 -- 3,098 13,463
Interdivisional equity.................... -- 6,911,470 70,268 (6,981,738) --
Stockholders' equity...................... 6,458,932 -- -- -- 6,458,932
---------- ----------- --------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $7,093,687 $ 8,097,361 $ 104,164 $(6,978,640) $ 8,316,572
========== =========== ========= =========== ===========
STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2001
Revenue................................... $ -- $ 852,408 $ 10,752 $ -- $ 863,160
Operating expenses........................ (11,878) (726,593) (32,277) -- (770,748)
Interest expense, net..................... 2,455 (8,112) (44) -- (5,701)
Other income (expense), net............... 92,347 (5,516) -- (92,347) (5,516)
Provision for income taxes................ -- (535) (1,152) -- (1,687)
Minority interest......................... -- 1,825 -- 1,591 3,416
---------- ----------- --------- ----------- -----------
NET EARNINGS (LOSS)....................... $ 82,924 $ 113,477 $ (22,721) $ (90,756) $ 82,924
========== =========== ========= =========== ===========
STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2001
Revenue................................... $ -- $ 2,646,011 $ 39,345 $ -- $ 2,685,356
Operating expenses........................ (29,891) (2,218,043) (114,983) -- (2,362,917)
Interest expense, net..................... 5,683 (24,848) 251 -- (18,914)
Other income (expense), net............... 191,400 (11,259) (7,844) (198,493) (26,196)
Provision for income taxes................ 106,154 (10,379) (4,600) (104,666) (13,491)
Minority interest......................... -- (3,001) (2,200) 14,709 9,508
---------- ----------- --------- ----------- -----------
Income (loss) before cumulative effect on
accounting change....................... 273,346 378,481 (90,031) (288,450) 273,346
Cumulative effect on accounting change.... 6,470 6,470 -- (6,470) 6,470
---------- ----------- --------- ----------- -----------
NET EARNINGS (LOSS)....................... $ 279,816 $ 384,951 $ (90,031) $ (294,920) $ 279,816
========== =========== ========= =========== ===========
</Table>
49
<Page>
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(Continued)
<Table>
<Caption>
WHOLLY OWNED
USANI SUBSIDIARY NON-GUARANTOR LLC
LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
CASH FLOW FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Cash flows from operations................ $ (8,726) $ 393,543 $ (56,389) $ -- $ 328,428
Cash flows used in investing activities... (4,367) (163,959) 4,552 -- (163,774)
Cash flows from financing activities...... 651,691 (221,659) 33,704 -- 463,736
Effect of exchange rate................... (278) (2,123) -- -- (2,401)
Cash at the beginning of the period....... 78,079 (22,574) 16,311 -- 71,816
---------- ----------- --------- ----------- -----------
CASH AT THE END OF THE PERIOD............. $ 716,399 $ (16,772) $ (1,822) $ -- $ 697,805
========== =========== ========= =========== ===========
</Table>
50
<Page>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
2.1 Amended and Restated Agreement and Plan of Recapitalization
and Merger, dated as of July 15, 2001, by and among USA
Networks, Inc., Expedia, Inc., Taipei, Inc., Microsoft
Corporation and Microsoft E-Holdings, Inc. filed as Annex A
to USA's Registration Statement on Form S-4 (No. 333-68120),
is incorporated herein by reference.
3.1 Restated Certificate of Incorporation of USA filed as
Exhibit 3.1 to USA's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2000, is incorporated herein
by reference.
3.2 Amended and Restated By-Laws of USA filed as Exhibit 3.1 to
USA's Form 8-K dated January 9, 1998, is incorporated herein
by reference.
</Table>